Q2 2024 Adient PLC Earnings Call

Operator: Welcome to Adient's second quarter financial results earnings call. I would like to inform all participants that their lines have been placed on a listen-only mode until the question and answer session of today's call. This call is being recorded. If anyone has any objections, they may disconnect at this time. I would now like to turn the call over to Mike Heifler. Thank you. You may begin.

Welcome to audience second quarter financial resort results, earning call I would like to inform all participants that your lines have been placed on a listen only mode until the question and answer session of today's call. Today's call is being recorded if anyone has any objections you may disconnect at this time I would.

I'd now like to turn the call over to Mike Heisler. Thank you you may begin.

Mike Heifler: Thank you, Amanda. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the investor section of our website at www.adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer, and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business, followed by Mark, who will review our Q2 financial results and outlook for the remainder of fiscal 2024.

Mike Heisler: Thank you Amanda good morning, everyone and thank you for joining us.

Mike Heisler: The press release and presentation slides for our call today have been posted to the investors section of our website.

Mike Heisler: Dot com.

Mike Heisler: This morning, I'm joined by Jerome door lock audience, President and Chief Executive Officer, and Mark Oswald, Our executive Vice President and Chief Financial Officer on.

Jerome J. Dorlack: On today's call Jerome will provide an update on the business followed by Mark who will review, our Q2 financial results and outlook for the remainder of fiscal 2024.

Jerome J. Dorlack: After our prepared remarks, we will open the call to your questions.

Mike Heifler: After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainty. I would caution you that our actual results could differ materially from these forward-looking statements made on the call.

Speaker Change: Before I turn the call over to Jerome and Mark there are a few items I'd like to cover.

Speaker Change: 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.

Speaker Change: 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.

Mike Heifler: Please refer to slide 2 of the presentation for our complete Safe Harbor statement. In addition to the financial results presented on a gap basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it's my pleasure to turn the call over to Jerome.

Speaker Change: In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance.

Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release.

Speaker Change: And with that it's my pleasure to turn the call over to Jerome.

Jerome: Thanks, Mike.

Jerome J. Dorlack: Thanks, Mike. Good morning, everyone.

Jerome: Good morning, everyone. Thank you for joining as we review our second quarter results discuss the drivers.

Jerome J. Dorlack: Thank you for joining us as we review our second quarter results, discuss the driver's for a revised full-year outlook, and share insights into the long-term direction of the business and how we plan to create value for our shareholders. Turning to slide four, let me begin with a few comments related to the quarter. I'm proud of the Adient team for delivering strong results, underscored by 60 basis points of margin expansion from a year ago, through being nimble, finding incremental efficiencies, and maintaining a laser focus on flawless launch execution.

Jerome: For our revised full year outlook and share insights into the long term direction of the business.

Jerome: And how we plan to create value for our shareholders turning to slide four.

Jerome J. Dorlack: The team was able to overcome a production volume environment that was weaker than ingoing expectations, driven by a slower than anticipated ramp-up of key launches and softening EV demand in the Americas and EMEA regions. The Americas and EMEA were able to proactively take out costs through austerity measures, reduced freight expense, and carefully controlled launch expense, driving improved business performance in the face of volume challenges. In China, we continue to operate at a best-in-class level operationally, which drives commercial success and new business wins.

Speaker Change: Let me begin with a few comments related to the quarter.

Speaker Change: I'm proud of the adient team for delivering strong results underscored by 60 basis points of margin expansion from a year ago. So we're being nimble finding incremental efficiencies and maintaining a laser focus on flawless launch execution.

Team was able to overcome a production volume environment that was weaker than ingoing expectations.

Speaker Change: Driven by slower than anticipated ramp of key launches and softening EV demand in the Americas and EMEA regions. The.

In the Americas, and EMEA were able to proactively take out costs through austerity measures reduced freight expense and carefully controlled launch expense driving improved business performance in the face of volume challenges.

Speaker Change: In China, we continue to execute at a best in class level operationally, what's drives commercial success in new business wins.

Jerome J. Dorlack: Turning to Adient's key financial metrics for the quarter, which are shown on the right-hand side of the slide, revenue for the quarter, which totaled $3.8 billion, was down about 4% compared to last year's second quarter. However, adjusted EBITDA for the quarter, which totaled $227 million, was up 6%. Adient ended the quarter with a strong balance sheet with modest leverage of 1.7 times and a strong cash and total liquidity position of $905 million and $1.9 billion, respectively.

Speaker Change: Turning to adient as key financial metrics for the quarter, which is shown on the right hand side of this slide.

Speaker Change: Revenue for the quarter, which totaled $3 $8 billion was down about 4% compared to last year's second quarter.

Speaker Change: Adjusted EBITDA for the quarter, which totaled $227 million was up 6%.

Speaker Change: Adient ended the quarter with strong with a strong balance sheet with modest leverage of one seven times.

Speaker Change: And a strong cash and total liquidity position of $905 million and $1 $9 billion respectively.

Jerome J. Dorlack: We've highlighted a number of customer and industry awards received in Q2 as proof points of our strong operational execution and commitment to delivering on time and on target for our customers. And our customers are recognizing us as a supplier of choice, as evidenced by two significant honors from GM, the Overdrive and Supplier of the Year Awards, the Supplier of the Year Award from Toyota, and recognition from Hyundai Kia Motor Group at their Global Supplier Day, where our customers underscored the pivotal role Adient plays in sustaining supply chain efficiency, delivering world-class quality, and Advancing Sustainable Practices. J.D.

Speaker Change: We've highlighted a number of customer and industry Awards received in Q2 as proof points of our strong operational execution and commitment to delivering on time and on target for our customers.

Speaker Change: And our customers are recognizing us as a supplier of choice.

Speaker Change: Evidenced by two significant honors from G M.

Speaker Change: Overdrive and supplier of the year Awards.

Speaker Change: The supplier of the year award from Toyota.

Speaker Change: And recognition from Hyundai Kia Motors group at their global supplier day, where our customer underscored the pivotal role adient plays in sustaining supply chain efficiency.

Speaker Change: Delivering world class quality and.

Speaker Change: In advancing sustainable practices.

Jerome J. Dorlack: Power recognized our China team with nine initial quality study awards, another proof point that we're operating and executing at best-in-class levels. In addition, as part of our balanced capital allocation policy, we remain committed to returning capital to our shareholders and repurchase $50 million of our shares in the quarter, bringing our total share repurchases year-to-date to $150 million. Turning to slide five.

J D power recognized our China team with nine initial quality study awards. Another proof point that we're operating and executing at best in class levels.

Speaker Change: In addition, as part of our balanced capital allocation policy.

Speaker Change: We remain committed to returning capital to our shareholders and repurchased $50 million of our shares in the quarter, bringing our total share repurchases year to date to $150 million.

Speaker Change: Turning to slide five let.

Jerome J. Dorlack: Let me walk through some of the dynamics influencing our first half and expected second half results versus our original expectations going into the fiscal year. In the first half of the year, Adient delivered very strong results, totaling more than $85 million of year-over-year cumulative performance in the first two quarters. We drove larger-than-anticipated improvements in operational execution in SG&A through additional compensation-related austerity measures, and our commercial teams were successful in working with our customers to recover inflationary headwinds. However, performance improvements were offset.

Speaker Change: Let me walk through some of the dynamics influencing our first half and the expected second half results versus our original expectations going into the fiscal year.

Speaker Change: In the first half of the year Adient delivered very strong results totaling more than $85 million of year over year cumulative performance in the first two quarters.

Speaker Change: We drove larger than anticipated improvements in operational execution and SG&A to additional compensation related austerity measures and our commercial teams were successful in working with our customers to recover inflationary headwinds.

Speaker Change: Performance improvements were offset.

Jerome J. Dorlack: Performance Improvements Offset Challenges in Production Volumes, The company was impacted by weaker programs, slower-than-expected launches on key programs, and softer-than-anticipated EV demand in the Americas and EMEA regions. The net result of these puts and takes was a solid first half in line with internal expectations.

Speaker Change: Channel performance improvements offset challenges and production volumes. The company was impacted by weaker program mix slower than expected launches on key programs.

Speaker Change: And softer than anticipated EV demand in the Americas and EMEA regions.

Speaker Change: The net result of these puts and takes with a solid first half in line with internal expectations.

Jerome J. Dorlack: As we entered the year, we anticipated improved volumes in the second half as we put the effects of the strike-related production disruptions behind us and moved past the launch phase of some very significant volume programs. However, today, we see a production environment that continues to be adversely impacted by negative customer and customer program mix, particularly in EMEA, and the impacts of lower EV demand in the Americas and Europe. These factors are expected to negatively impact earnings per share.

Speaker Change: As we entered the year, we anticipated improved volumes in the second half as we put the effects of the strike related production disruptions behind us and move past the launch phase of some very significant volume programs.

Speaker Change: Today, we see a production environment that continues to be adversely impacted by negative customer and customer program mix, particularly in EMEA and.

And the impacts of lower EV demand in the Americas and Europe.

Speaker Change: These factors are expected to negatively impact earnings contribution.

Jerome J. Dorlack: That said, we continue to expect our track record of solid business performance to continue, and we are working hard to execute what we can control to drive performance in the face of volume challenges. As you can see on the right-hand side of the slide, the net effect of these factors, specifically volume and customer mix, is driving a lower FY24 outlook. Mark will cover this in further detail in a few moments.

Speaker Change: That said, we continue to expect our track record of solid business performance to continue.

We're working hard to execute well, we can control to drive performance in the face of volume challenges.

Speaker Change: As you can see on the right hand side of the slide the net effect of these factors, specifically volume and customer mix are driving a lower FY 'twenty for outlook.

Mark will cover this in further detail in a few moments.

Jerome J. Dorlack: Turning to slide six, let's discuss the dynamics affecting our regions in FY24 and, more importantly, beyond FY24. Our APAC business is the growth engine of the company, particularly in China, as we participate in numerous launches and new business. We are growing with the domestic OEMs in both NEV and ICE and expect these customers to represent 60% of our in-region revenue in the next few years, up from 40% last year. As we look beyond this year, we expect our strong growth to continue in the region, continuing to improve total adient margins and free cash flow as this region becomes a larger part of the portfolio, presenting a tailwind from a mixed standpoint. In Europe, we are seeing the impacts of unfavorable customer and platform mix and this lower EV adoption curve.

Speaker Change: Turning to slide six let's just let's discuss the dynamics influencing our regions in FY 'twenty, four and more importantly beyond FY 'twenty four.

Speaker Change: Our APAC business is the growth engine of the company, particularly in China as we participate in numerous launches and new business.

Speaker Change: We're growing with the domestic Oems in both Nev and ice and expect these customers to represent 60% of our in region revenue in the next few years up from 40% last year.

Speaker Change: As we look beyond this year, we expect our strong growth to continue in the region continuing to improved total adient margins and free cash flow as this region becomes a larger part of the portfolio presenting a tailwind from a mix standpoint.

In Europe, we are seeing the impacts of unfavorable customer and platform mix.

Speaker Change: And the slower EV adoption curve.

Jerome J. Dorlack: Beyond the current fiscal year, external forecasts and our internal expectations are for a structurally lower addressable market, driven by lower exports, imports from Asia, and the potential for customers to insource the JIT portion of our seeding revenue. As we announced a few weeks ago, we have taken actions to proactively address these changing dynamics. We will continue to evaluate our cost structure to align with the reset production environment. We are not sitting still.

Speaker Change: Beyond the current fiscal year external forecasts and our internal expectations are for a structurally lower addressable market driven by lower exports imports from Asia and the potential for customers to in source the portion of our CDN revenue.

As we announced a few weeks ago, we have taken actions to proactively address these changing dynamics.

We'll continue to evaluate our cost structure to align with the reset production environment, we are not sitting still.

Jerome J. Dorlack: Opportunities to improve business performance are being evaluated. And finally, in the Americas, we continue to see solid core execution within the business. The volume pressures in the region are temporary to some extent.

Speaker Change: Opportunities to improve business performance are being evaluated.

Speaker Change: And finally in the Americas, we continue to see solid core execution within the business.

Speaker Change: The volume pressures in the region are temporary to some extent.

Jerome J. Dorlack: Our expectations for the region are to continue to reshape our metals portfolio, reducing our lower margin business and replacing it with business where we can earn an appropriate return and support our increasing levels of vertical integration. We expect to continue to emphasize customer relationships where we can strategically add value and de-emphasize business where we do not see a path toward increasing profitability. Turning to slide 7 and diving a bit deeper into each of the regions.

Speaker Change: Our expectations for the region are to continue to reshape our metals portfolio.

Speaker Change: Reducing our lower margin business and replacing it with business, where we can earn an appropriate return and support our increasing levels of vertical integration.

Speaker Change: We expect to continue to emphasize customer relationships, where we can strategically add value and de emphasize business, where we do not see a path towards increasing profitability.

Speaker Change: Turning to slide seven and diving a bit deeper into each of the regions.

Jerome J. Dorlack: Our Asia-Pacific region continues to be the growth engine for the company, led by our business in China. The AIPAC business has consistently delivered the strongest margins of our three regions, driven by flawless execution, a solid customer base, and a strong customer base, high levels of vertical integration, and a world-class operating team. Given the strength of the business, we expect to continue to allocate capital to the region and emphasize growth. As indicated on the slide, we have built a solid backlog, including a very strong portfolio at WINS and FY23, which contributes to our expectation of substantial growth in China, and our customer base continues to be formed. We've been awarded business from a host of new customers over the past several years. Our team in China is able to work at the pace of our Chinese domestic customers.

Speaker Change: Our Asia Pacific region continues to be the growth engine for the company led by our business in China.

Speaker Change: The APAC business has consistently delivered the strongest margins of our three regions driven by flawless execution, a solid customer base high.

Speaker Change: High levels of vertical integration and a world class operating team.

Speaker Change: Given the strength of the business, we expect to continue to allocate capital to the region and emphasize growth.

As indicated on the slide we have built a solid backlog and clean and a very strong portfolio of wins in FY2023.

Speaker Change: Which contributes to our expectation for substantial growth in China.

And our customer base continues to be shaped we've been awarded business from a host of new customers over the past several years.

Speaker Change: Our team in China is able to work at the pace of our Chinese domestic customers. The leadership in the region is tasked with driving that business and has the tools and the autonomy to act with speed, our customers value that speed to market and the team's high level of execution.

Jerome J. Dorlack: The leadership in the region is tasked with driving that business and has the tools and the autonomy to act with speed. Our customers value that speed to market and the team's high level of execution. Our Asia business outside of China is also strong and is a growing business with a solid customer portfolio.

Speaker Change: Our Asia business outside of China is also strong and is a growing business with a solid customer portfolio.

Speaker Change: Turning to slide eight.

Jerome J. Dorlack: As I discussed earlier, the European automotive market is quite dynamic and continues to be impacted by external and structural influences resulting in a flat to declining vehicle production environment. As such, the company routinely assesses the landscape to identify and execute actions to improve Adient's profitability and cash generation. The actions we announced two weeks ago are in direct response to structurally lower production volumes in the region.

Speaker Change: As I discussed earlier, the European automotive market is quite dynamic and continues to be impacted.

Speaker Change: By external and structural influences, resulting in a flat to declining vehicle production environment.

Speaker Change: As such the company routinely assesses the landscape to identify and execute actions to improve.

Speaker Change: Dan its profitability and cash generation.

Speaker Change: The actions, we announced two weeks ago are in direct response to structurally lower production volumes in the region.

Jerome J. Dorlack: The European production environment is taped substantially from the pre-COVID environment, driven by imports from Asia, the pace of EV adoption, and again, the potential insourcing of the JIP portion of our seeding business by certain customers within the region. We took a $125 million cash restructuring charge in the quarter that we expect will result in future cash expenditures of a similar amount. These expenditures will be primarily spread between fiscal years 25 and 26, and substantially complete by fiscal year 27. Payback period is typical of these types of actions with approximately a two and a half year payback.

Speaker Change: The European production environment has changed substantially from the pre COVID-19 environment, driven from imports from Asia, the pace of EV adoption and.

Speaker Change: And again the potential in sourcing of the portion of our seating business by certain customers within the region.

Speaker Change: We took $125 million cash restructuring charge in the quarter that we expect will result in future cash.

Speaker Change: Expenditures of a similar amount.

Speaker Change: These expenditures will be primarily spread between fiscal years, 25, and 26 and substantially complete by fiscal year 'twenty seven.

Speaker Change: Payback period as typical of these types of actions with approximately a two and a half year payback.

Jerome J. Dorlack: We anticipate approximately $60 million in reduced annual operating costs from this activity, of which roughly 80% will result in net savings of $50 million. The incremental restructuring is intended to align our cost structure across our functional teams to reset the production environment to the new production environment. We believe these actions will support better margin performance in Europe and are, consequently, helping us achieve the overall margin expansion. The team is in the process of evaluating various scenarios to enhance shareholder value over time.

Speaker Change: We anticipate approximately $60 million and reduced annual operating costs from this activity of which roughly 80% will result in net savings of 50 million U S dollars.

Speaker Change: The incremental restructuring is intended to align our cost structure across our functional teams to reset the production environment to the reset production environment.

Speaker Change: We believe these actions will support better margin performance in Europe.

Speaker Change: Consequently.

Speaker Change: A step.

Speaker Change: In helping us achieve the overall margin expansion.

Speaker Change: The team is in process or in process of evaluating various scenarios to enhance shareholder value over time.

Jerome J. Dorlack: Once we complete our long-term strategic plan, expected later in 2024, we will provide additional details. Turning to slide 9, in the Americas region, we view the setup as favorable for continued execution and margin expansion. Our relationship with the Asian OEMs is a competitive advantage, and we believe we benefit from their flexibility and powertrain decisions in the current environment as they have emphasized hybrids and longer-dated BEV launches. These customers also tend to source Adient, a highly vertically integrated program which drives opportunities for improved operational efficiencies.

Speaker Change: Once we complete our long term strategic plan expected later in 'twenty 'twenty four will provide additional details.

Speaker Change: Turning to slide nine in the Americas region, we view the setup is favorable for continued execution and margin expansion.

Speaker Change: Our relationship with the Asian Oems as a competitive advantage and we believe we benefit from their flexibility and powertrain powertrain decisions in the current environment as they have emphasized hybrids and longer dated <unk> launches.

Speaker Change: These customers also tend to source adient.

Speaker Change: A highly vertically integrated program, which drives opportunities for improved operational efficiencies.

Jerome J. Dorlack: Earlier this month, we launched a modular program with one of our Asian customers that we expect to deliver margin expansion versus the prior generation of the same vehicle. We also continue to reshape our metals portfolio with the expectation for a smaller, higher-margin metals business that supports our JET business. Lastly, we can leverage our innovative offerings that are in production in China to drive increased seeding content within the Americas region.

Speaker Change: Earlier this month, we launched a modular program with one of our Asian customers that we expect to deliver margin expansion versus the prior generation of the same vehicle.

Speaker Change: We also continue to reshape our metals portfolio with the expectation for smaller.

Speaker Change: For a smaller higher margin metals business that supports our jet business.

Speaker Change: Lastly, we can leverage our innovative offerings that are in production in China to drive increased ceding content within the Americas region.

Jerome J. Dorlack: Moving on to slide 10, several recent and upcoming launches are highlighted here. The team is focused on executing on our launches, which include a large number of high-complexity launches; we continue to deliver exceptional safety, quality, and on-time delivery metrics. However, several programs are experiencing slower-than-expected launch ramps, as customers produce at lower volumes.

Speaker Change: Moving onto slide 10, several recent and upcoming launches are highlighted here.

Speaker Change: The team is focused on executing on our launches which include a large number of high complexity launches.

Speaker Change: We continue to deliver exceptional safety quality and on time delivery metrics.

Speaker Change: Several programs are experiencing slower than expected launch ramp as.

Speaker Change: As customers produce at lower volumes. However, our execution has been strong.

Jerome J. Dorlack: However, our execution has been strong. I do want to take this opportunity, however, to highlight the Infinity QX80 launch in our Asia-Pacific segment as an example of how Adient can add value to our customers through greater vertical integration and a high-featured seat system. On this program, we have Jit, Foam, Trim, and Metals. In addition versus the prior generation, we've insourced the metals where they were previously produced on the outside.

Speaker Change: I do want to take the opportunity however to highlight the Infinity Culex 80 launch occurring in our Asia Pacific segment.

Speaker Change: As an example of how adient can add value to our customers through greater vertical integration and a high feature seat system.

Speaker Change: On this program, we have the jet foam trim and metals.

Speaker Change: In addition versus the prior generation we've in sourced the metals, where it was previously produced on the outside.

Jerome J. Dorlack: The customer uses Adient engineering design, and the seat system encompasses a high level of content that includes sound and seat, massage, seat heat, ventilation, power side bolster, power lumbar support, and reclined features and mechatronics that are above and beyond what we've done historically.

Speaker Change: The customer uses adient engineering design and the seat system encompasses a high level of content that includes sound and seat massage seat heat ventilation.

Speaker Change: Power side bolster power lumbar support and reclined features and mechatronics that are above and beyond what we've done historically.

Jerome J. Dorlack: Ultimately, this level of content drives more than triple the average seat content, and our level of vertical integration is a key driver of profitability. Several new recent business awards are highlighted on slide 11. These new business awards once again represent our deepening levels of vertical integration with a strategic customer set. WINS include foam and trim in addition to the multiple JIT programs which are expected to drive future margin expansion. We are continuing to emphasize customers and programs that we expect to be winners as the market dynamics around ice and varying levels of electrification across the globe play out. In closing, on slide 12, as I have met with many of you in recent weeks,

Speaker Change: Ultimately this level of content drives more than triple the average seat content and our level of vertical integration is a key driver of profitability.

Speaker Change: Several new recent business awards are highlighted on slide 11.

Speaker Change: These new business awards once again represent our deepening levels of vertical integration with the strategic customer set.

Speaker Change: Wins include foam and trim. In addition to the multiple jip programs, which are expected to drive future margin expansion.

Speaker Change: We're continuing to emphasize customers and programs that we expect to be winners as the market dynamics around ice and varying levels of electrification across the globe play out.

Speaker Change: In closing on slide 12.

Speaker Change: As I have met with many of you in recent weeks I. Appreciate the question around what is the long term vision for the company and do we still believe in the 8% EBITDA margin goal.

Jerome J. Dorlack: I appreciate the question around what is the long-term vision for the company and do we still believe in the 8% EBITDA margin goal? I want to assure you that Adient is committed to driving shareholder value through margin expansion. Free Cash Flow, and Earnings Growth. We are not counting on growing industry volumes and expect to achieve these goals in a flat production volume environment. Key enablers of margin improvement are listed in order of magnitude and are expected to deliver 200 basis points of margin enhancement.

Speaker Change: I want to assure you that adient is committed to driving shareholder value through margin expansion.

Free cash flow.

And earnings growth.

Speaker Change: We are not counting on growing industry volumes and expect to achieve these goals and a flat production volume environment.

Speaker Change: The key enablers of margin improvement are listed in order of magnitude and are expected to deliver 200 basis points of margin enhancement.

Jerome J. Dorlack: These are the key drivers towards adding and achieving an 8% adjusted even margin as we exit fiscal year 2027. We expect to progress steadily over the upcoming years towards that target, underpinned in part by the assumption that production volumes will largely be in line with third-party forecasts. That said, we are not satisfied with the status quo. As we continue to plan for the mid and long term, we expect to proactively identify and execute actions to accelerate our attainment of that margin target. And with that, I'll turn it over to Mark to cover the financials.

Speaker Change: These are the key drivers towards adient, achieving an 8% adjusted EBITDA margin as we exit fiscal year 2027.

Speaker Change: We expect to progress steadily over the upcoming years towards that target underpinned in part by the assumption that production volumes will largely be in line with third party forecasts.

Speaker Change: That said, we are not satisfied with the status quo.

Speaker Change: As we continue to plan for the mid and long term, we expect to proactively identify and execute actions to accelerate our attainment of that margin target.

Speaker Change: And with that I'll turn it over to Mark to cover the financials.

Mark A. Oswald: Thanks, Jerome. Let's jump into the financials on slide 14. Adhering to our typical format, this page is formatted with our reported results on the left and our adjusted results on the right. 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 in underlying performance. For the quarter, the biggest drivers of the difference between our reported and adjusted results relate to the European restructuring charge, which Jerome covered, purchase accounting amortization, and certain tax adjustments. Details of all adjustments for the court are in the appendix of the presentation, a high level for the quarter.

Mark A. Oswald: Thanks, Jerome let's jump into the financials on slide 14.

Adhering to our typical format. This pages formatted with our reported results on the left and our adjusted results on the right side.

Mark A. Oswald: We will focus our commentary on the adjusted results, which 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 and adjusted results relate to the European restructuring charge, which Jerome covered purchase accounting amortization and certain tax adjustments.

Speaker Change: <unk> of all adjustments for the quarter or in the appendix of the presentation Hi.

Mark A. Oswald: Sales were approximately $3.8 billion, down 4% compared to our second quarter last year. Lower volumes resulting from the timing and slower ramp of launches, as well as a slower pace of electric vehicle production, and the negative impact of FX movements between the two periods drove the year-on-year sales. Adjusted EBITDA for the quarter was $227 million, up 6% year-on-year.

Speaker Change: High level for the quarter sales were approximately $3 8 billion down 4% compared to our second quarter last year.

Speaker Change: Lower volumes, resulting from the timing and slower ramp up of launches as well as store pace of electrical vehicle production and a negative impact of FX movements between the two periods drove the year on year sales decline there.

Speaker Change: Adjusted EBITDA for the quarter was $227 million up 6% year on year EBITDA margins expanded 60 basis points. This favorable performance is primarily attributed to benefits associated with improved business performance and net commodities.

Mark A. Oswald: EBITDA margins expanded 60 basis points. Unfavorable performance is primarily attributed to benefits associated with improved business performance in net commodities. These benefits were partially offset by the impact of lower volume and mix and, to a lesser extent, the negative impact of currency movements between the periods. I'll expand on these key drivers in just a minute.

Speaker Change: These benefits were partially offset by the impact of lower volume and mix and to a lesser extent the negative impact of currency movements between the periods I will expand on these key drivers in just a minute.

Mark A. Oswald: Finally, at the bottom line, Adient reported an adjusted net income of $49 million, or $0.54 per share. Let's break down our second quarter results in more detail. I'll cover the next few slides rather quickly, as details for the results are included on the slide. This should ensure that we have adequate time for the Q&A portion of the call.

Speaker Change: Finally at the bottom line Adient reported an adjusted net income of $49 million or 54 cents per share.

Speaker Change: Let's break down our second quarter results in more detail I'll cover the next few slides rather quickly as details or the results are included on the slides. This should ensure that we have adequate time for the Q&A portion of the call.

Mark A. Oswald: Starting with revenue, on slide 15, we reported consolidated sales of approximately $3.8 billion, a decrease of $162 million compared to Q2 fiscal year 23. The primary driver of the year-on-year decrease was lower volumes of 134 million. The impact of FX movements between the two periods weighed on the quarter by $28 million. Focusing on the right-hand side of the slide, Adient's consolidated sales were lower in Americas and EMEA, while sales in Asia grew by about 2%, driven by a 13% year-on-year increase in China. In the Americas, lower sales were the result of program launches on key platforms, such as the RAM, Tacoma, Traverse, and Enclave, that moved slowly through the launch curve at our customers.

Speaker Change: Starting with revenue on Slide 15 reported consolidated sales of approximately $3 8 billion, a decrease of $162 million compared to Q2 fiscal year 'twenty three.

Speaker Change: The primary driver of the year on year decrease was lower volumes of $134 million.

Speaker Change: The impact of FX movements between the two periods weight on the quarter by $28 million.

Speaker Change: Focusing on the right hand side of the slide Adient consolidated sales were lower in Americas, and EMEA, while sales in Asia grew by about 2% driven by a 13% year on year increase in China.

Speaker Change: In the Americas lower sales were the result of program launches Uncomplete key platforms, such as the Ram Tacoma traverse enclave that move slowly through the launch curve at our customers.

Mark A. Oswald: In Europe, we modestly outperformed the market in line with our internal expectations. In Asia-Pacific, our China business enjoyed strong volumes, outpacing the market by over three times. Platforms providing the tailwind included Xiaopeng H93, Chengen's E12, and Lincoln Nautilus, among others.

Speaker Change: In Europe, we modestly outperformed the market in line with our internal expectations and.

Speaker Change: And in Asia Pacific, Our China business enjoyed strong volumes outpacing the market by over three times platforms, providing the tailwind included Xiaopeng H ninety-three chickens eat 12, and Lincoln Nautilus among others.

Mark A. Oswald: With regard to Adient's unconsolidated seeding revenue, year-on-year results were up about 18%, adjusting for FX, in China, where a large majority of Adient's unconsolidated sales are derived. The strong increase in sales was driven by improved volumes at certain of our joint ventures. The effect of a deconsolidation of our Lang-Fang entity also provided a sales benefit, call it 300 basis points.

Speaker Change: With regard to adient unconsolidated seating revenue year on year results were up about 18% adjusting for FX in China, where a large majority of adient unconsolidated sales are derived.

Speaker Change: The strong increase in sales was driven by improved volumes at certain of our joint ventures.

Speaker Change: The effect of the deconsolidation of our lung thing entity also provided a sales benefit call it 300 basis points.

Mark A. Oswald: Moving to slide 16, we've provided a bridge of our adjusted EBITDA to show the performance of our segments between periods. In the big picture, adjusted EBITDA was $227 million in the current quarter versus $215 million reported a year ago. The primary drivers of the year-on-year comparison are detailed on the page. Improved business performance of $47 million largely helped offset a stronger-than-expected volume in mixed headwinds as the team drove incremental efficiencies and achieved strong commercial recovery.

Speaker Change: Moving to slide 16, we've provided a bridge of our adjusted EBITDA to show the performance of our segments between periods.

Speaker Change: Big picture adjusted EBITDA was $227 million in the current quarter versus $215 million reported a year ago.

Speaker Change: The primary drivers of the year on year comparison are detailed on the page.

Speaker Change: Improved business performance of $47 million, largely helped offset a stronger than expected volume and mix headwind as the team drove incremental efficiencies and achieve strong commercial recoveries.

Mark A. Oswald: Within that bucket, the biggest positive driver was improved net material margin of $33 million. Improved freight costs, engineering spend, and certain compensation-related austerity benefits also contributed to the strong performance. Partial offsets within business performance were launch and tooling costs, as we navigated a quarter with significant launches, as well as increased labor costs. Net commodities were a $20 million benefit in the quarter.

Speaker Change: Within that bucket the biggest positive driver was improved net material margin of $33 million.

Speaker Change: Improved freight cost engineering spend in certain compensation related austerity benefit also contributed to the strong performance.

Speaker Change: Partial offsets within business performance, we're launching tooling costs as we navigated a quarter with significant lunches as well as increased labor costs.

Net commodities were a 20 million dollar benefit within the quarter improved gross costs were partially offset by lower commodity recoveries.

Mark A. Oswald: The improved gross costs were partially offset by lower commodity recovery. The year-on-year comparison benefited from the non-recurrence of unfavorable inventory revaluation in the year-ago period. Equity income was $8 million higher year-on-year.

Speaker Change: The year on year comparison benefited from the non recurrence of unfavorable inventory revaluation in the year ago period.

Speaker Change: Equity income was $8 million higher year on year. This was the result of improved volumes that unconsolidated joint ventures and to a lesser degree the effect of the deconsolidation of our link thing entity.

Mark A. Oswald: This was a result of improved volumes at unconsolidated joint ventures and, to a lesser degree, the effect of the deconsolidation of our ling-feng entity. Headwinds, partially offsetting the benefits I just described, included the volume of mix impacts of $51 million. Adient's program mix in Americas was influenced by a number of launches that moved slowly through the launch phase, as customers did not run at anticipated rates, as I previously mentioned. The negative impact of currency movements between the two periods was $12 million.

Speaker Change: Headwinds, partially offsetting the benefits I. Just described included volume and mix impacts of $51 million Adient program mix in the Americas was influenced by a number of launches that move slowly through the launch phase as customers did not run at anticipated rates as I previously mentioned the.

Speaker Change: The negative impact of currency movements between the two periods was $12 million.

Mark A. Oswald: As we indicated previously, we expected FX to be a headwind for the quarter and full year. There were no significant changes to those expectations as we look out over the remainder of the fiscal year. All in all, a very strong quarter. The team deserves credit for its solid performance as we navigated a challenging launch and volume environment. Similar to past quarters, we've provided our detailed segment performance slides in the appendix of the presentation. High Level

As we indicated previously we expected FX to be a headwind for the quarter and full year no significant changes to those expectations as we look out over the remainder of the fiscal year.

Speaker Change: All in all a very strong quarter the team deserves credit for the solid performance as we navigated a challenging lunch and volume environment.

Similar to past quarters, we've provided our detailed segment performance slides in the appendix of the presentation.

Mark A. Oswald: For the Americas, improved business performance was the primary factor driving positive results. Lower freight costs as freight lanes and manufacturing efficiencies resulted in lower logistic costs, increased net material margin, certain compensation-related austerity measures, and lower engineering spend. Partially offsetting these benefits was increased labor costs, as well as higher launch and tooling costs.

Speaker Change: High level for the Americas improve business performance was the primary factor driving positive results business performance was driven by lower freight costs as freight lanes and manufacturing efficiencies resulted in lower logistic costs increased net material margin certain compensation related.

Speaker Change: Sturdy measures and lower engineering spend.

Speaker Change: Partially offsetting these benefits was increased labor costs as well as higher watch and tooling costs.

Mark A. Oswald: Partially offsetting the improved business performance was the impact of lower volume and mix, as I discussed earlier. In EMEA, the year-on-year improvement was influenced by several factors, such as improved net commodities, which were driven by improved gross pricing and the non-recurrence of unfavorable inventory revaluation in the year-ago period. And improved business performance driven by improved material margin and lower freight costs. Volume and mix was

Speaker Change: Partially offsetting the improved business performance was the impact of lower volume and mix as I discussed earlier.

Speaker Change: EMEA the year on year improvement was influenced by several factors such as improved net commodities, which were driven by improved gross pricing and non recurrence of unfavorable inventory revaluation in the year ago period.

Speaker Change: And improve business performance, driven by improved material margin and lower freight costs.

Speaker Change: And mix was a headwind.

Mark A. Oswald: In Asia, business performance improved as net material margin and labor efficiencies more than offset increased launch costs. Equity income was driven higher by strong sales and solid performance at our JVs. Offsetting these benefits were headwinds associated with adverse mix in the quarter in FX, primarily related to the RMB, Japanese Yen, and Thai Baht. Let me now shift to our cash, liquidity, and capital structure on slides 17 and 18. Starting with cash on slide 17.

Speaker Change: In Asia business performance improved as net material margin and labor efficiencies more than offset increased launch costs.

Speaker Change: Income was driven higher by strong sales and solid performance at our Jv's.

Speaker Change: Offsetting these benefits were headwinds associated with adverse mix in the quarter and FX primary related to the RMB Japanese yen and Thai baht.

Speaker Change: Let me now shift to our cash liquidity and capital structure on slides 17 and 18.

Speaker Change: Starting with cash on slide 17, I will focus my comments on the year to date result is the longer timeframe help smooth some of the volatile utility in the working capital movements.

Mark A. Oswald: I will focus my comments on the year-to-date results as the longer timeframe helps smooth some of the volatility in the working capital movement. Adjusted free cash flow, defined as operating cash less CapEx, was an outflow of $2 million. This compares to $53 million of free cash flow in the first half of last year. The primary drivers for the year-on-year results are listed on the right-hand side of the slide.

Speaker Change: Adjusted free cash flow defined as operating cash less capex was an outflow of $2 million. This.

Speaker Change: This compares to $53 million of free cash flow in the first half of last year.

Speaker Change: The primary drivers for the year on year results are listed in the right hand side of this slide I.

Mark A. Oswald: I will not read each one, but it is important to point out that the slight cash outflow in the first half of this year is related to timing in line with our expectations. We continue to expect strong free cash conversion for the full year. One last point, and it is called out on the bottom of the slide, adding: continue to utilize various factoring programs as a low-cost source of liquidity.

Speaker Change: I will not read each but important to point out that the slate cash outflow in the first half of this year is related to timing in line with our expectations. We continue to expect strong free cash conversion for the full year.

Speaker Change: One last point and called out on the bottom of the slide.

Speaker Change: Didn't continue to utilize various factoring programs as a low cost source of liquidity at March 31, 2024, we had $131 million of factored receivables versus $170 million at fiscal year end.

Mark A. Oswald: At March 31st, 2024, we had $131 million of factored receivables versus $170 million at fiscal year end. Flipping to slide 18, as noted on the right-hand side of the slide, the company returned $50 million to shareholders in the quarter, bringing the total year-to-date cash return to shareholders to $150 million. As we indicated previously, the cash on the balance sheet, combined with our confidence in our ability to generate cash, underpins the company's ability to execute its capital allocation strategy.

Speaker Change: Flipping to slide 18 as noted on the right hand side of this slide the company returned $50 million to shareholders in the quarter, bringing the total year to date cash returned to shareholders to $150 million.

As we indicated previously the cash on the balance sheet combined with our confidence in our ability to generate cash underpins the company's ability to execute its capital allocation strategy.

Mark A. Oswald: As a reminder, we have $385 million remaining on our share repurchase authorization. And with regard to our balance sheet, it remains strong. Adient's debt and net-debt positions totaled $2.5 billion and $1.6 billion, respectively, at March 31, 2024. The company's net leverage at March 31st was just over 1.7 times, well within our targeted range of 1.5 to 2 times. Our total liquidity of $1.9 billion is comprised of $905 million of cash on hand and $974 million of undrawn capacity under Adient's revolving line of credit.

Speaker Change: As a reminder, we have $385 million remaining on our share repurchase authorization.

Speaker Change: With regard to our balance sheet it remains strong.

Speaker Change: <unk> debt and net debt position totaled $2 5 billion and $1 6 billion, respectively. At March 31 2024.

Speaker Change: The company's net leverage at March 30, <unk> was just over one seven times well within our targeted range of one five to two times.

Speaker Change: Our total liquidity of $1 9 billion comprised of $905 million of cash on hand, and $974 million of undrawn capacity under our audience revolving line of credit.

Mark A. Oswald: Now turning to slide 19, just a few comments related to our outlook for the remainder of fiscal year 2024. We are updating Adient's 24 guidance to reflect our Q2 results in current market conditions, including revised production assumptions and current FX rates. At the top line, we have updated our sales guidance to $14.8 to $14.9 billion. Relative to our prior expectations, we have seen softness in Adient's customer vehicle production. This is driven by the factors that Jerome and I discussed earlier, specifically the slower ramp-up of launches, adverse customer mix, and lower volumes on electric vehicles versus previous expectations. The slower launches impacted our second quarter by approximately $150 million in sales. The balance of the expected lower production is spread across the second half of this fiscal year.

Speaker Change: Now turning to slide 19, just a few comments related to our outlook for the remainder of fiscal year 2024.

Speaker Change: We are updating adience 24 guidance to reflect our Q2 results and current market conditions, including revised production assumptions and current FX rates.

Speaker Change: At the topline we have updated our sales guidance to $14 eight to $14 $9 billion.

Speaker Change: Relative to our prior expectations, we have seen softness in adding customer vehicle production. This is driven by the factors that Jerome and I discussed earlier, specifically the slower ramp of lunches adverse customer mix and lower volumes on electric vehicles versus previous expectations.

Speaker Change: The slower launches impacted our second quarter by approximately $150 million in sales the balance of the expected lower production is spread across the second half of this fiscal year.

Mark A. Oswald: Our adjusted EBITDA outlook is updated to reflect the volume impact of the lower top line. Using a typical 17 to 18 percent decrement on the lower sales expectations, we see about $100 million of volume and mixed headwinds on EBITDA versus our previous guide. We expect to partially offset the headwinds through performance, which now places our forecasted EBITDA in the range of between $900 million and $920 million. Equity income is now expected at $80 million. This is driven by higher volumes at our unconsolidated joint ventures.

Speaker Change: Our adjusted EBITDA outlook is updated to reflect the volume impact of the lower top line use.

Using a typical 17% to 18% decremental on the lower sales expectations, we see about $100 million of volume and mix headwinds on EBITDA versus our previous guide.

Speaker Change: We expect to partially offset the headwinds through performance, which now places our forecasted EBITDA in the range of between $900 million and $920 million.

Speaker Change: Equity income is now expected at $80 million. This was driven by higher volumes at our unconsolidated joint ventures.

Mark A. Oswald: Moving on, interest expense is still expected to be about $185 million, given our expected debt and cash balances, as well as interest rate expectations. Cash taxes continue to be forecast at about $105 million. For modeling purposes, tax expense is estimated at $110 million, reflecting our revised earnings expectations for the year. CapEx, largely based on customer launch schedules, is forecast at $310 million, no change from our prior guidance. And finally, our free cash flow is expected to be $250 million, reflecting the lower level of earnings. We expect some modest working capital offsets to the EBITDA impact on cash flow. Turning to slide 20.

Speaker Change: Moving on interest expense is still expected to be about $185 million, given our expected debt and cash balances as well as interest rate expectations.

Speaker Change: Cash taxes continue to be forecast at about $105 million.

Speaker Change: For modeling purposes tax expenses estimated $110 million, reflecting our revised earnings expectations for the year.

Speaker Change: Capex largely based on customer launch schedules is forecast at $310 million no change from our prior guidance.

And finally, our free cash flow is expected at $250 million reflect collecting the lower level of earnings.

Speaker Change: We expect some modest working capital offsets to the EBITDA impact on cash flow.

Speaker Change: Turning to slide 20.

Mark A. Oswald: We thought it would be helpful to include a bridge of our expectations for the key drivers of the year-on-year outlook. Recall last year, we noted $30 million in non-recurring items related to insurance recoveries that should be backed out of the run rate heading into 2024. We expect business performance to drive $190 to $200 million of benefits in fiscal year 24. The team is working diligently to achieve this, and we have a line of sight on the actions we need to take to drive this result.

Speaker Change: It would be help we thought it would be helpful to include a bridge of our expectations for the key drivers of the year on year outlook recall last year, we noted $30 million of nonrecurring items related to insurance recoveries that should be backed out of the run rate heading into 'twenty four.

Speaker Change: We expect business performance to drive $190 million to $200 million of benefits in fiscal year 'twenty for the team is working diligently to achieve this and we have a line of sight on the actions we need to take to drive this result.

Mark A. Oswald: We see about $100 million of volume and mixed headwinds, as discussed previously. FX continues to be anticipated as approximately $60 million of headwinds. Footprint changes are a $20 million headwind, as previously disclosed, and equity income is now expected to be $10 million lower than previously expected, a $20 million headwind. All in, we continue to forecast margin expansion, driven by strong business performance, offsetting the volume challenge. With that, let's move to the question and answer portion of the call. Operator, can we have our first question, please?

Speaker Change: We see about $100 million of volume and mix headwinds as discussed previously.

Speaker Change: FX continues to be anticipated as approximately $60 million headwind flip.

Speaker Change: Put print changes our $20 million headwind as previously disclosed and equity income is now expected to be $10 million lower previously expected of $20 million headwind.

Speaker Change: All in we continue to forecast margin expansion driven by strong business performance offsetting the volume challenges with that let's move to the question and answer portion of the call.

Speaker Change: Operator can we have our first question. Please.

Operator: Thank you. If you would like to ask a question, please press star 1. Our first question comes from Emmanuel Rosner with Deutsche Bank. Your line is open.

Speaker Change: Thank you if you would like to ask a question. Please press star one our first question comes from Emmanuel Rosner with Deutsche Bank. Your line is open.

Emmanuel Rosner: Thank you. Thank you very much. Good morning.

Emmanuel Rosner: Thank you. Thank you very much good morning. My first question is around the <unk>.

Emmanuel Rosner: My first question is around the implied revenue outlook for the second half of the year. So it seems like a return to your updated guidance is probably just about flat, maybe first half to second half, maybe a little bit better than that. Yet, obviously, your revenues in the quarter were in line or better. A lot of the launch issues and slow ramps would have probably already occurred this past quarter. So can you maybe just characterize a little bit better what you're seeing in terms of your customer schedules?

Emmanuel Rosner: Implied revenue outlook for the second half of the year. So it seems like backing into your updated guidance as Bobby.

Emmanuel Rosner: Just about flat so maybe first half to second half, maybe a little bit better than that.

Bobby: Yes, obviously your revenues in the quarter were in.

Bobby: In line or better a lot of the launch issues and look slow ramp.

Bobby: We'd have probably already occurred this past quarter. So can you maybe just characterize a little bit better what you're seeing in terms of your customers schedules because I would have solved some of these launch and ramp issues would have impacted the quarter, but they didn't buy down it seems like theyre impacting the second half to your point that you're not really seeing any sequential improvement even though.

Emmanuel Rosner: I would have thought some of these launch and ramp issues would have impacted the quarter, but they didn't. But now it seems like they're impacting the second half to the point that you're not really seeing any sequential improvement, even though these things are still ramping up.

Bobby: Things are still ramping.

Mark A. Oswald: Yeah, Emmanuel, this is Mark. So, as I indicated, the launches did impact the second quarter by, call it, $150 million, which we called out. We do expect that the launch performance will improve, but it's not going to get up to the, what I call, the run rate that we had expected heading into the fiscal year. So, you're absolutely right, you know, first half sales call it $7.4 billion, second half slightly better. So, we do see modest improvement in the second half, but it's not to the expectations that we had originally planned heading into this fiscal year.

Bobby: Yes, Emmanuel this is mark so as I indicated the launches did impact the second quarter by call. It the $150 million, which we called out we do expect that the launch performance will improve but it's not going to get full up to the what I'd call. The run rate that we had expected heading into the fiscal year.

Speaker Change: So youre absolutely right first half sales you know call. It $7 4 billion second half slightly better. So we do see modest improvement in the second half, but it's not to the expectations that we had originally planned heading into this fiscal year.

Mark A. Oswald: Just a quick follow-up on this, and then I have a separate question, but what do you think is sort of the fundamental issue around some of these slower ramps? I guess what is the industry struggling with?

Speaker Change: And then just a quick follow up on this and then they have a separate question, but why do you think is sort of the bill.

Speaker Change: Fundamental issue around some of these slower ramps I guess what is the industry is struggling with.

Mark A. Oswald: Yeah, I guess I wouldn't say it's one particular customer. I think each customer is different, right? So if I look at certain of the customers, they've come out and indicated their own specific challenges, whether it's software issues at certain places, whether it's being able to produce the high-end trim series on certain pickup trucks that they're trying to launch, right? So it varies across customers. But it's more of the fact that they're putting more complexity into their vehicles, the fact that when these vehicles come together and launch, they're not going up the launch curve as planned. And that tends to have a tail to it.

Speaker Change: Yeah, I guess, it's I wouldn't say, it's one particular I think each customer is different right. So if I look at you know certain of the customers they've they've came out in.

Speaker Change: Indicated their own specific challenges, whether it's software issues at certain places, whether it's being able to produce the high end trim series uncertain.

Speaker Change: Up trucks that Theyre trying to launch right. So it varies across customers, but it's more of.

Speaker Change: The fact that they are putting more complexity into their vehicles. The fact that you know when these vehicles are coming together and launched theyre not going up the launch curve as planned and that tends to have a tail to it.

Mark A. Oswald: And then I wanted to come back to your slide 12 and an update on some of the longer-term targets for margin improvement. The factors you mentioned are helpful. I wanted to ask you specifically about the metals exits, but I think last quarter you raised essentially a question that the piece of the margin improvement that relates to the metals exits may sort of be delayed as a result of some of your customers' decisions to maintain those ICE platforms running for longer.

Speaker Change: Understood and then I wanted to come back to your.

Speaker Change: 12, and an update on some of the longer term targets for margin improvement. So the factors you mentioned are helpful. I.

Speaker Change: I wanted to ask you specifically about the.

Speaker Change: The metals exits could I think last quarter, you raised essentially question that.

The piece of the margin improvement that as it relates to metal exit may be delayed as a result of some of your customers decision to maintain was ice platforms running for longer.

Mark A. Oswald: Is this no longer an issue because you have more clarity on it, or is it because now, you know, this is a target expiring in fiscal 2027, and you assume that by then these platforms will have essentially run out? Yeah, I think it's...

Speaker Change: Is this no longer an issue because you have more clarity on it or is it because now.

Speaker Change: This is a target exiting fiscal 2027, and Houston that by band each platform.

Speaker Change: Platforms will have essentially run outs.

Mark A. Oswald: Yeah, I think it's the latter portion of your statement, Emmanuel. That is, as we now look at when we believe the balance in, balance out will occur on these metal programs, and we look at getting to 8% by 2027, the vast majority of those metal projects will be out of the system by then, looking at the latest schedules from our customers and when those things kind of flush themselves out of the system now, looking again at their latest LRPs, their long-range plans, their balance in, balance out. That's what we believe to be true.

Speaker Change: Yeah, I think it's the latter portion of the.

Of your statement Emmanuel that is yes, we now look at when we believe the balance and balance out will occur on these metal programs.

Speaker Change: When we look at getting to 8% by 2027, the vast majority of those metal projects will be out of the system. By then looking at the latest schedules from our customers and when those things kind of flush themselves out of the system now.

Speaker Change: Looking again at their latest <unk> their long range plans their balance and balance out that's what we believe to be true.

Mark A. Oswald: Great, thank you. Thank you for the question. I appreciate it, Emmanuel.

Speaker Change: Great. Thank you.

Speaker Change: Yeah. Thank you for the question I appreciate it.

Operator: Thank you. Our next question comes from Colin Langan with Wells Fargo. Your line is open.

Speaker Change: Thank you. Our next question comes from Colin Langan with Wells Fargo. Your line is open.

Kozo Tesoulas: Hey guys, this is Kozo Tesoulas filling in for Colin. I'll start off by asking you to just provide a refresher on the EBITDA walk, mainly breaking out some of the pieces in the business performance and how that's offsetting the volume cut.

Speaker Change: Hey, guys. This is closer to <unk> filling in for Collyn.

Colin M. Langan: Well I'll start off if you can just provide a refresher on the EBITDA walk.

Speaker Change: Mainly like.

Colin M. Langan: Breaking out some of the pieces in the business performance and offsetting.

Speaker Change: Volume got it.

Mark A. Oswald: Yeah, I'll start. So just a high level, and that's what we included, the slide and the deck, indicating walking from last year's, what I'd say, run rate of $908 million up to, call it, the $910 at the midpoint of this year's guide. Your business performance is going to be somewhere in that $190 to $200 range. We indicated that we expect about $100 million of volume headwind this year, and the rest of the elements pretty much are in line with what we expected as we came into the year.

Speaker Change: Yeah, I'll start so just high level and that's what we included this slide in the deck, indicating walking from last year is what I'd say run rate of $908 million up to call. It the nine tenant the midpoint of this year's guide right. Your business performance is going to be somewhere in that 190 to two <unk>.

Speaker Change: <unk>.

Speaker Change: We indicated that we expect about $100 million of volume headwind this year and the rest of the elements pretty much are in line with what we expected as we came into the year. So you know FX still at $60 million headwind, primarily with the Mexican peso there other footprint changes you know call it 'twenty and in equity income.

Mark A. Oswald: So FX, still that $60 million headwind, primarily with the Mexican peso there. Other footprint changes, call it 20. And then equity income performing slightly better than expectations, call that a $10 million headwind. So those are the primary buckets walking you from last year's guide to this year's guide.

Speaker Change: Forming slightly better than expectations called out a $10 million headwind. So those are the primary buckets walking you from last year to this year's guide.

Mark A. Oswald: Okay, are you able to kind of break out what's in the performance bucket, the 190 to 200?

Speaker Change: Okay are you able to kind of break out within the exactly in the performance bucket.

Speaker Change: One nine beat over 200.

Mark A. Oswald: Well, again, it's the combination of factors that we've been calling out throughout the course of the year, right? So it's a certain balance in, balance out that has a favorable effect. It's the fact that we have lower freight costs. You know, we're getting, you know, efficiencies with modularity that plays a role there. Our C&I continues to do extremely well, and obviously, those are net positive and offset certain of the other, you know, headwinds or challenges such as labor costs increasing, right? So, net net, that business equation for us on business performance continues to be very positive.

Speaker Change: Well again, it's the combination of factors that we've been calling out throughout the course of the year right. So it's certain balance and balance out that has a favorable effect. It's the fact that we have lower freight costs you know we're getting.

Speaker Change: Patient sees with modularity that plays a role there are C&I continues to do extremely well and obviously those are a net positive and offset certain of the other headwinds or challenges such as labor costs, increasing right. So net net that business equation for us on business performance continues to be very positive.

Mark A. Oswald: And I would add to that, in addition, you have things such as net positions on customer pricing where, you know, we have certain things that have crept into our network, especially in our European operations, such as energy, such as the labor environment over there. And that's really the net position of what we're able to work with our customers on from a VAVE perspective and repositioning our footprint and other activities to offset some of those pressures, and really the net position of those discussions with our customers. Same thing happens in the Americas.

Speaker Change: I would add to that.

<unk> you have in there are things such as net positions on customer pricing.

Speaker Change: Where you know we.

Speaker Change: We have certain things that have creeped into our network, especially in our European operations.

Speaker Change: Such as energy such as the labor environment over there and Thats really the net position of what we're able to work with our customers on from a V E E.

Speaker Change: And repositioning our footprint and other activities to offset some of those pressures.

Speaker Change: And the really the net position of those discussions with our customers same thing in the Americas. When we think about the labor inflation that we have in Mexico. The some of the constitutional changes that.

Jerome J. Dorlack: When we think about the labor inflation that we have in Mexico, some of the constitutional changes that have taken place there with the 20% increases, but yet, we're constantly driving our footprint improvement and the net position of those discussions with our customers on a pricing basis. So it's really that what we kind of call a basket of good discussions. In addition, the factors that Mark talked about, the modularity activities, the automation that we have already been driving in our plants and have been driving for the last two and three years, the net output of that. It's really all of that that plays into that business performance bucket.

Speaker Change: I've taken place there with 20% increases, but yet we're constantly driving our footprint improvement.

Speaker Change: And the net position of those discussions with our customers on a pricing basis. So it's really that what we kind of call a basket of good discussions. In addition to the factors that Mark talked about the modularity activities. The automation that we have already been driving in our plants and have been driving really for the last two or three years. The net output of that it's really all of that that plays.

Speaker Change: Into that business performance bucket.

Mark A. Oswald: Exactly. That was excellent, Colin. Thank you.

Speaker Change: That was excellent color. Thank you then one last one on buyback.

Speaker Change: Buybacks I mean, your leverage are trending towards the lower end of that range youre in good cash position I think you have a little more than half of the capex lots remaining in the year and you reduced your free cash flow. So how can we think about the cadence on buybacks for the rest of the year is $50 million a good sustainable rate or do you expect to taper down from there.

Kozo Tesoulas: Then one last one on buybacks. I mean, your leverage is trending towards maybe the lower end of that range, and you're in a good cash position. I think you have a little more than half of the CapEx slots remaining in the year, and you've reduced your free cash flow. So how can we think about the cadence on buybacks for the rest of the year? Is 50 million a good sustainable rate, or do you expect to taper down from there? I think so.

Speaker Change: Yeah.

Mark A. Oswald: I think, you know, when I look at the share repurchases this year, clearly, you know, we've been, for the first six months of this year, call it pretty cash neutral for the year, right in terms of free cash generation. So we've taken cash off the balance sheet to achieve the $150 million of repurchases for six months. We'll generate our free cash flow as we go through H2 this year. So I would expect the buybacks to continue, as we've done in the past.

Speaker Change: I think when I look at the share repurchases. This year clearly we've been for the first six months of this year college pretty much cash neutral for the year right in terms of free cash generation. So we've taken cash off the balance sheet to achieve the $150 million of repurchases. This first six months, we will generate our free cash flows.

Speaker Change: We go through each two this year, so I would expect the buybacks.

Speaker Change: Buybacks to continue as we've done in the past, we will continue to execute those prudently and we'll make sure that we.

Mark A. Oswald: We'll continue to execute those prudently, and we'll make sure that, you know, we balance the share repurchases versus, you know, we've got the 3.5% Euro notes that are due in August, right. So there's going to be certain amounts of, you know, calls for cash. But again, I would say that the pacing, you know, should be fairly similar.

Speaker Change: We balanced the share repurchases versus we've got the three 5% Euro notes that are due in August right. So there's going to be certain amounts of calls for cash, but again I would say that the pacing should be fairly similar.

Speaker Change: Okay, great. Thank you.

Mark A. Oswald: Thank you. Thank you for the question.

Speaker Change: Thank you. Thank you for the question.

Operator: Thank you. Our next question comes from Farrah Co. Morinde with Bank of America. Your line is open.

Speaker Change: Thank you. Our next question comes from Sara Co Miranda with Bank of America. Your line is open.

Farrah Co. Morinde: Hi, good morning, guys. Just one question on the strength of China. So what is driving such a strong market there for your market share gain? And on the second leg of this question, so Asia is your strongest region in terms of margin, even if we exclude equity income. Could you give us more color on why that continues to be that strong?

Speaker Change: Hi, Good morning, guys. Just one question on the strength of China. So.

Speaker Change: What is driving such a strong market data and your market share gain and on.

Speaker Change: The second.

Speaker Change: <unk> question is so.

Speaker Change: Asia is the strongest region in terms of margin.

Speaker Change: Even if we exclude the equity income.

Could you give us more color why that continues to be that strong.

Jerome J. Dorlack: Yeah, so I'll take both of those questions and appreciate your time today on the call. And the first part, you know, really what drives our continued share gain and continued strong revenue performance in, you know, China really comes down to. A couple of factors, the first one being the strength of the team that we have there. You know, it really all starts with our people and that team's ability to execute and the fact that they are, you know, quick, nimble, they have the autonomy to really drive a product offering that meets our customers' needs within that region.

Speaker Change: Yeah, So I'll take both of those questions and I. Appreciate I appreciate your time today on the call.

And the first part you know really what drives our continued share gain and continued strong revenue performance in in.

Speaker Change: In China.

Speaker Change: It really comes down to.

Speaker Change: A couple of factors the first one being the strength of the team that we have there.

Speaker Change: And it really all starts with our people and that team's ability to execute.

Speaker Change: And the fact that they.

Speaker Change: Are they are quick they are nimble they have the autonomy.

Speaker Change: To really drive.

Speaker Change: Product offering that meets our customers needs within that region and they do it with speed they do it with urgency and they do it with a focus.

Jerome J. Dorlack: And they do it with speed, they do it with urgency, and they do it with a focus on meeting our customers' needs every day. And because we have a very attractive standalone business there, we don't have to operate through a JV network like some of our competitors do. I mean, we have a very attractive, wholly-owned entity that is very strong in, you know, really all regions, in the North, in the West.

Speaker Change: Every day meeting our customers needs and.

Speaker Change: And because we have a very attractive standalone business. There we don't have to operate through a JV network like some of our competitors do I mean, we have a very attractive wholly owned entity that is very strong and you know really all regions in the north.

Speaker Change: In the west.

Jerome J. Dorlack: And even in the south, where we have footprints that are where our customers are, we have three major tech center hubs within the region as well. Two of them are fully capable tech center hubs that our customers really recognize as being world class, and so our customers turn to us for solutions as well. So if you really look at what it takes to be successful, you have to act with speed. You have to be where your customers are, and then you have to have technical capabilities to be able to turn out engineering solutions very quickly. And we have all three of those, and we're able to check all three of those boxes.

Speaker Change: And even in the South where we have footprints that are where our customers are we have three major tech center hubs within the region as well two of them are fully capable Tech center hubs.

Speaker Change: That our customers really recognized as being world class and so our customers turn to us for solutions as well.

Speaker Change: So if you really look at what it takes to be successful you have to act with speed.

Speaker Change: You have to be where your customers are and then you have to have technical capabilities to be able to turn engineering solutions very quickly and.

And we have all three of those and we're able to punch all three of those boxes. So that's why I really think.

Jerome J. Dorlack: So that's why I really think we're able to grow as fast as we're able to grow within that region. And when we look out over the long term, we really do see that trend continuing with a fairly high booked percentage rate. Over the next 36 months, it gives us a lot of confidence in our continued growth within the Chinese region. Moving to your second question on the margin profile within Asia and, you know, really what drives our margin profile within Asia, it comes down to a couple things. One is that the sourcing profile of our customers within Asia is one of, they really give us, full vehicle platforms. And what I mean by that is:

Speaker Change: We're able to grow as fast as we're able to grow within that region and when we look out over the long term, we really do see that trend continuing with a fairly high booked percentage rate.

Speaker Change: Over the next 36 months that gives us a lot of confidence in our continued growth over market.

Speaker Change: Within the China region.

Speaker Change: Moving to your second question on the margin profile within Asia.

Speaker Change: You know really what drives our margin profile with in Asia.

Speaker Change: It comes down to a couple of things one is.

Speaker Change: The sourcing profile of our customers within Asia is one of the really award us full vehicle platforms and what I mean by that is it.

Jerome J. Dorlack: It's the jit, it's the trim, it's the foam, and in a lot of cases, it's the metals. And so we have the ability to integrate full vehicle solutions for them. And so not only are we getting value, but they're also getting value through more cost-effective seeding solutions because they're not parsing out, you know, jit to one guy, trim to another, foam to another. So we're able to deliver to them a higher quality seeding system at the end of the day, with better appearance, better comfort, better quality, and more bespoke customer solutions.

Speaker Change: It's the jet it's the trim its the phone and then a lot of cases, it's the metals.

Speaker Change: And so we have the ability to integrate full vehicle solutions for them.

Speaker Change: And so not only are we getting value, but they're also getting value through more cost effective seeding solutions, because they're not parsing out you get to one guy trimmed to another phone to another so we're able to deliver to them a higher quality seating system at the end of the day with better appearance better comfort better.

City more bespoke customer solutions, so they get a lower cost solution, they get a better quality solution they'd get a.

Jerome J. Dorlack: So they get a lower cost solution. Additionally, they get a better quality solution. They get a solution that's more customer-driven and customer-focused. And as a result... We also enjoy a better margin profile out of that because we have more vertically integrated content than we do in some of our other regions. The other thing that we see in that region generally is a faster turn on the product, and I think there's been a lot of talk about this, you know, not only from us but also from a lot of publications just on, you know, if you look at what happens in some of the other countries in Europe and the Americas, when you get into a contract, you're in that contract. It used to be for seven years.

Speaker Change: A solution that's more.

Speaker Change: Customer driven customer focused.

Speaker Change: And as a result.

Speaker Change: We also enjoy a better margin profile out of that because we have more vertically integrated content than we do on some of our other regions.

Speaker Change: The other thing that we see in that region generally is.

Speaker Change: A faster turn on the product and I think theres been a lot of talk about this and not only from US but also from a lot of publications just on you know if you.

Look at what happens in some of those in.

Speaker Change: In Europe and the Americas.

Speaker Change: When you get into a contract you are in that contract that used to be for seven years now we have some contracts that are running for 10 years.

Jerome J. Dorlack: Now we have some contracts that are running for 10 years. We have one contract that's now coming up on a 12-year anniversary. And if it's an unfavorable contract, it's very difficult to then renegotiate some of those terms. In Asia, in China in particular, you turn over some of these contracts every two years. At most, it seems like every three years.

Speaker Change: We have one contract that's now coming up on a 12 year anniversary.

Speaker Change: And if it's a if it's an unfavorable contract.

Speaker Change: It's very difficult to then renegotiate some of those terms.

Speaker Change: In Asia, and China in particular, you're turning some of these contracts every two years at most it seems like every three years.

Jerome J. Dorlack: And so if you do get into a bad contract, you're generally not stuck with it for long. But also, you've got the ability, just through change management and working with your customers, to drive a lot of VAVE as well. And so you're constantly iterating and driving value through Adient's ES3 process to be driving market solutions, driving cutting-edge engineering solutions into the product that are driving value enhancement, not just for the company, but you're also driving value enhancement for the customer and, more importantly, for the end customer.

Speaker Change: So if you do get into a bad contract you're generally not stuck with it for long, but also you've got the ability just through change management and working with your customers to drive a lot of V as well and so you're constantly iterating and driving value through adient E. S. Three process to be driving <unk>.

Speaker Change: <unk> solutions to be driving cutting edge engineering solutions into the product that are driving value enhancement not just for you.

Speaker Change: Adient, but you're also driving value enhancement for the customer and more importantly for the end customer and I really think if you look at the <unk>. The next generation <unk> that is a great example of that where you've got <unk>.

Jerome J. Dorlack: And I really think if you look at the QX80, you know, the next generation QX80, that's a great example of that, where you've got, versus the outgoing vehicle to the incoming vehicle, full content for Adient, but also a world-class interior for Nissan or for Infiniti, in this case, and also for the end consumer, where we have really the full value chain on that. So that's really what differentiates us in that region versus some of our peers as well, because one, we operate wholly owned entities in China, a very vast network, but also our Japanese footprint that we have in the region as well.

Speaker Change: Versus the outgoing vehicle to the incoming vehicle.

Speaker Change: Full content for adient, but also a world class interior for Nissan or for Infinity. In this case and also for the end consumer where we have the full year.

Speaker Change: The full value chain on that so that's really what differentiates us in that region versus some of our peers as well as one we operate wholly owned entities in China.

Speaker Change: A very vast network, but also our Japanese footprint that we have in the region as well.

Farrah Co. Morinde: Thank you, Jerome. And just one additional question on the restructuring action in Europe. Should we expect any additional action in the future? And with that, what I'm trying to understand is... So, it seems like the... The region is going to see more imports from China. But at the same time, the European Union may... and add some actions to prevent some of that import. So I'm wondering, have you... taken all the action to the dimension of the current market, or did you leave some buffer to account for? Potential, I don't know, rebound in EU production or volume.

Speaker Change: Thank you and.

Speaker Change: Yes.

Speaker Change: One additional one on the restructuring action.

Speaker Change: Should we expect any additional action in the future and with that what I'm trying to understand it.

Speaker Change: So it.

It seems like they did.

Speaker Change: The region is going to seem more input from from China and.

Speaker Change: But at the same time D European Mi and.

Speaker Change: Enact some actions to prevent some of the team sports I'm wondering have you.

Speaker Change: Uh huh.

Speaker Change: Did you take all the action to be dimension to the current market or did you leave any bosarge to a counselor.

Speaker Change: Thanks, Sean I don't know rebound.

Speaker Change: In EU.

Speaker Change: Production of our volumes.

Speaker Change: I mean, how how we would answer that as a management team is to say.

Jerome J. Dorlack: I mean, how we would answer that as a management team is to say, you know, we're going through kind of our long-range strategic plan right now. We're evaluating what we need to do to accelerate our attainment of the margin goals, in particular, in Europe. We're not satisfied with the status quo, and we will act accordingly to address what it takes to be competitive in that region. And if that, you know, if one passes to, to drive and act on a reduced footprint size, we'll evaluate that.

Yes.

Speaker Change: We're going through kind of our long range strategic plan right now reevaluating, what we need to do to accelerate our attainment of the margin goals in particular in Europe, we're not satisfied with the status quo and we will act accordingly.

Speaker Change: To address what it takes to be competitive in that region.

Speaker Change: And if that if one path is too.

Speaker Change: To drive and act on a reduced footprint size, we will evaluate that but more importantly, we'll be good stewards of capital and good stewards of cash for you know for our shareholders and for our stakeholders. So it's we're not here today to announce whether we're going to look at additional restructuring in the region or not.

Jerome J. Dorlack: But more importantly, we will be good stewards of capital and good stewards of cash for our shareholders and for our stakeholders. So we're not here today to announce whether we're going to look at additional restructuring in the region or not. More importantly, what I will say is we'll look at a holistic view of our European region and a holistic view of Adient's capital needs and look at the best outcome for our shareholders and stakeholders, in light of driving towards a long-term sustainable margin target.

Speaker Change: More importantly, what I will say is we will look at a holistic view of our European region, and I'll, let stick view of adient capital needs and look at the best outcome for our shareholders and stakeholders.

Speaker Change: In light of driving towards our long term sustainable margin target.

Farrah Co. Morinde: Thank you very much, everybody. Bye.

Speaker Change: Thank you very much for Python.

Speaker Change: Thank you.

Operator: Thank you. Our next question comes from Dan Levy with Barclays. Your line is open.

Speaker Change: Thank you. Our next question comes from Dan Levy with Barclays. Your line is open.

Dan Meir Levy: Hi, good morning. Thanks for taking the questions. I'm wondering if you could just provide a couple of points of clarification on the revised guidance for this year. One, maybe you could just talk about the assumptions on commercial recoveries and how much is embedded for the second half. What did we see in the first half? And then maybe you could just delve a bit deeper into the offsetting business performance that's mitigating some of the revenue decline versus the prior year. Yeah, Dan, I'll...

Dan Meir Levy: Hi, good morning, Thanks for taking the questions.

Dan Meir Levy: Wondering if you could just provide a couple of points on clarification on the revised guidance for the tier one maybe you could just talk to the.

Dan Meir Levy: The assumptions on commercial recoveries, how much is embedded for the second half what did we see in the first half and then maybe you could just delve a bit deeper into the offsetting.

Dan Meir Levy: Business performance, that's mitigating some of the revenue.

Dan Meir Levy: <unk> declined versus the prior outlook.

Mark A. Oswald: Yeah, Dan, I'll start, and then Jerome can weigh in. But when I look at first half and second half, Dan, commercial recoveries are going to be slightly lower in the second half versus the first half. So it was more tilted towards the first half there. So the big drivers as I get into H2, there's a slight volume pickup, but not much, as we answered Emmanuel's question earlier. Then we have some what I'd call business performance, which really continues to drive increases in H2.

Speaker Change: Yeah, Dan I'll start and then Jerome can can weigh in but when I look at first half second half Dan commercial recoveries are going to be slightly lower in the second half versus first half. So it was more tilted towards the first half there.

Speaker Change: So the big drivers as I get into H. Two there is there is slight volume pick up but not as much as we answered a manuals question earlier that we have some what I would call business performance from truly continues to drive.

Jerome: Increases in <unk> and again thats certain of the C&I that comes in that certain of the labor at the plants as the customers continue to progress up the rent launch curves, we're going to be more efficient in those plants right. We're going to continue to drive lower freight costs as we.

Mark A. Oswald: And again, that's certain of the CNI that comes in. That's certain of the labor at the plants as the customers continue to progress up the launch curves. We're going to be more efficient in those plants. And we're going to continue to drive lower freight costs as we have renegotiated certain of the costs of the freight lanes. As Jerome indicated, we've launched a modular program with one of our JOEMs, so that will be at run rate in the second half of years.

Jerome: Negotiated certain of the cost of the freight lanes right.

Jerome: As Jeremy indicated we've launched a modular program with one of our J Oems right. So that will be at run rate in the second half of the years. So again, it's more of what I would say the blocking and tackling with those.

Mark A. Oswald: So again, it's more of what I'd say the blocking and tackling with those continuous improvements, Business Performance Drivers, in the second half. That's really what overcomes, I would say, that shortfall in volume that we were expecting.

Jerome: Continuous improvements in those.

Jerome: Business performance drivers in the second half that's really what overcomes what I would say that shortfall in volume that we were expecting.

Jerome: Yeah.

Jerome: Great.

Speaker Change: Thank you and then.

Dan Meir Levy: Thank you. For the second question, I want to go back to the vertical integration question, which you faced in the past, and you said you were quite happy with the vertical integration that you had, but amid this tougher environment, I think, for discussions with OEMs and the margins that they're facing, you know, are there any revisions to the vertical integration strategy? You know, are you still happy with it?

Speaker Change: So your second question I wanted to go back into the the vertical to vertical integration question, which I think you've faced in the past and you said you're quite happy with the vertical integration that you have but amid this.

<unk> environment I think for this.

Discussions with Oems and the margins that they're facing.

Speaker Change:

Speaker Change: Are there any revisions to the vertical integration strategy.

Do you are you still happy with what you have.

Speaker Change: Okay.

Jerome J. Dorlack: I think in the seating space. We're still very happy with the products that were vertically integrated into them. I think the footprint that we have on foam is second to none, and our ability to execute on foam is still outstanding. From a trim standpoint, we have a very strong competitive moat, and the ability to spin up a trim plant in place with 1,500 people and do that at a world-class level like we're able to, it's difficult.

Speaker Change: I think in the seating space.

Speaker Change: We're still very happy with the products that we're vertically integrated in.

I think the the footprint that we have on foam is second to none in our ability to execute on foam is.

You know still outstanding on a trim standpoint, we have a very strong competitive moat.

Speaker Change: And the ability to spin up a trim plant in place.

Speaker Change: <unk> thousand 500 people and do that at a world class level like we're able to you know.

Speaker Change: It's difficult it's proven to be difficult and there is some pretty high barriers to entry there.

Jerome J. Dorlack: It's proven to be difficult, and there are some pretty high barriers to entry there. And on a metal standpoint, I think, I don't necessarily need to repeat the challenges that we've had with metals and integration and how difficult it can be there to break into that area. And we're actively, as we've said, trying to skim back some of our metals and really focus where we have vertical integration. You know, we've talked a lot about the comfort system side of it, and, you know, the comfort system side.

And on a metal standpoint.

Speaker Change: Thank you.

Speaker Change: I don't necessarily need to replay the challenges that we've had on metals and integrating them.

Speaker Change: How difficult it can be there to break into to that area.

Speaker Change: And we are actively as we've said trying to gain back some of our metals and really focus where we have vertical integration.

Speaker Change: We've talked a lot about the comfort system side of it.

Speaker Change: And you know the comfort system side.

Jerome J. Dorlack: I think going in on a vertical integration wholesale is. As we've talked about in the past, there's some risk associated just because you have a lot of new entrants and threats coming in from China that are diluting the market and diluting the margin profile there, and they're spreading pretty rapidly with footprints in Mexico and Europe, and there's inherent risk to be had there; seeing a wholesaler to go in, I think is difficult.

Speaker Change: I think to go in on a vertical integration wholesale.

Speaker Change: Is.

Speaker Change: As we've talked about in the past Theres some risk associated just because of you have a lot of new entrants and threats coming in from China that are diluting the market and diluting the margin profile there.

Speaker Change: They are spreading pretty rapidly with footprints.

Speaker Change: Mexico, and Europe, and there is inherent risk to be had there.

Speaker Change: See any wholesale to go in I think is difficult.

Jerome J. Dorlack: You know, we may look at is there a way to get in potential limited investments and partner with them, similar to what we've done in the past. It's something we may want to evaluate. I think we have a very strong technical relationship with GenTherm that we've leveraged already to displace some incumbent business with some of the higher cost suppliers. And we continue to drive that with them, and actually, we're using it today even as a partnership, on pursuing incremental business that's not in our book for both them and us. So I think that continues to be fruitful. I think when we look outside of seeding, are there other things that could be attractive for us?

Speaker Change: We may look at is there a way to get in potential limited investments and partner with them.

Speaker Change: Similar to what.

Speaker Change: We have done in the past, it's something we may want to evaluate I think we have a very strong technical relationship with Gen therm that we've leveraged already.

Speaker Change: To displace some incumbent business with some of the higher cost suppliers and we continue to drive that with them and actually we are using it today even.

Speaker Change: Partnership.

Speaker Change: And pursuing incremental business, that's not in our book for both them and us.

Speaker Change: So I think that continues to be fruitful.

Speaker Change: I think when we look outside of seating are there other things that are could be attractive for us we continue to evaluate.

Jerome J. Dorlack: We continue to evaluate, you know, those that are, say, in the seeding space, that are natural bolt-ons to seeding that would lead to some level of vertical integration but also give us exposure in markets that would be accretive. I think we continue to evaluate that, but again, it comes down to capital allocation and what's the best decision long-term from a, you know, total capital allocation perspective. But certainly anything that would make us more relevant long term and diversify our risk exposure, as you said, to customer pricing pressure, is something that we're evaluating, and we continue to evaluate, in a very dynamic environment. And anything that would help us gain scale in Europe and defray some of the risk that's there is also something that we're evaluating.

Speaker Change: You know that are say in the seating space that are.

Speaker Change: Natural bolt ons to seeding that would lead to some level of vertical integration, but also give us exposure.

Dan Meir Levy: Great, thanks; very helpful.

Speaker Change: In markets that would be accretive I think we continue to evaluate that but again it comes down to kind of capital allocation and whats the whats the best decision long term.

Speaker Change: From a total capital allocation perspective.

Speaker Change: But certainly anything that would make us more relevant long term and diversify our risk exposure as you said too.

Speaker Change: Customer pricing pressure is something that we're evaluating and we continue to evaluate.

Speaker Change: In a very dynamic environment, and then anything that would help and help us gain scale in Europe and defray some of the risk. That's there. It's also something that we're evaluating.

Speaker Change: Great. Thanks very helpful.

Operator: Thank you. Thank you. Thank you.

Speaker Change: Thank you. Thank you. Thanks I appreciate the question.

Joseph Robert Spak: Thank you. Our last question comes from Joseph Spak with UBS. Your line is open.

Speaker Change: Thank you our last question comes from Joe Spak with UBS. Your line is open.

Joseph Robert Spak: Thanks. Mark, maybe one quick question: certain customers growing at different paces than other customers? Are you talking about within the programs you're on, just a lower trim level and maybe less contented? Yeah, it's within.

Speaker Change: Thanks.

Joseph Robert Spak: Mark maybe one first quick clarification, when you talk about adverse customer mix are you talking about.

Joseph Robert Spak: Certain customers growing at different paces and other customers are you talking about within the programs you're on just tough to say.

Joseph Robert Spak: Lower trim level that maybe have less content. It's yeah, it's within within the programs we're on.

Mark A. Oswald: Yeah, it's within the programs we're on. So if you think about, we called out the Acadian Traverse, for example, right? Those are good programs. Unfortunately, they were adversely affected this quarter and looking into Q3 because they weren't getting up the launch curve as fast as they had anticipated.

Joseph Robert Spak: Yes.

Joseph Robert Spak: So so if you think about we called out the Acadian Traverse for example, right. Those are good programs. Unfortunately, they were adversely affected this quarter and looking into Q3, because they are not giving up the launch curve as fast as they had anticipated.

Joseph Robert Spak: Okay.

Joseph Robert Spak: And then just back to, you know, the path to 8%. I understand that a good chunk of this is sort of the bounce in and bounce out, which is maybe going to take a little bit longer. But, like, maybe you could just help remind us of the 200 basis points. Like, how much of it is really that bounces in and bounces out? How much of it is more, you know, net performance, like, under your control, right, improving, you know, the self-help improvement with your operations, and how much of it is volume?

Joseph Robert Spak: And then.

Joseph Robert Spak: Just back to <unk>.

Joseph Robert Spak: The path to 8%.

Joseph Robert Spak: Understand like a good chunk of this is sort of the passenger balance out which was maybe.

Joseph Robert Spak: Take a little bit longer, but like maybe you could just help us remind us like off the 200 basis points like.

Joseph Robert Spak: How much of it is really about valves and valve side, how much of this war.

Joseph Robert Spak: That performance.

Joseph Robert Spak: Under your control right improving.

Joseph Robert Spak: The self help improvement with your operations and how much of it is volume.

Mark A. Oswald: Yeah, I'll start on that. So when I think about what's in our control, right, as we indicated, we're not assuming a volume tailwind to get us there, right? So when I think about, you know, growing in China, for example, right, that's us making sure that we're winning business, and we're providing our customers with value. So we can continue to grow that backlog, right? When I think about, you know, improved business performance in the Americas and EMEA, that's within our control. Because again, as Jerome indicated, right-sizing our metals business, right? What can we continue to do from a modularity perspective?

Speaker Change: Yeah I'll start on that so so when I think about what's in our control right. As we indicated we're not assuming a volume tailwind to get us there right. So.

Speaker Change: When I think about growing in China for example, right that's us making sure that we're winning business and we're providing our customers with value. So we can continue to grow that backlog right. When I think about improved business performance in the Americas and EMEA, that's within our control because again as Jerome indicated.

Mark A. Oswald: You know, the team continuing with automation at certain of our foam and metals plants, right? That's within our control. Proactive restructuring in Europe, for example, right? That's us taking a look at our footprint, trying to understand, you know, A, can we get scale out there? If we can't get scale, right, what do we have to do to revise that footprint?

Speaker Change: Right sizing our metals business right what can we continue to do on our modularity perspective.

Speaker Change: The team continuing with automation at certain of our foam in metals plants right that's within our control.

Speaker Change: Proactive restructuring in Europe for example rate that's us taking a look at our footprint trying to understand.

Speaker Change: Can we get scale out there if we can't get scale right. What do we have to do to revive it footprint. So I'd say, it's more concentrated on.

Mark A. Oswald: So I'd say it's more concentrated on what we can control. Now, that said, there are macro pressures that influence that, right? So I still have to offset things like FX, for example, the Mexican peso, right? I still have to look at labor costs, right? So certain of those things will obviously impact timing. But again, as Jerome indicated, we have a roadmap to get us to that 8%, and we have not walked away from that.

Speaker Change: What we can control now that said there is macro pressures that influence that rate. So I still have to offset things like FX. For example of the Mexican peso rate I still have to look at labor costs right. So certain of those things will obviously impact timing, but again as Joe indicated we have a.

Speaker Change: A roadmap to get us to that 8% and we have not walked away from it.

Joseph Robert Spak: Again, I just follow on with what Mark was saying. I think what's important for us as a management team is to look at it. And, you know, we're not sitting there. We're not happy with the status quo, and we are really identifying what levers we have to accelerate it. And I think the European restructuring action that was announced a few weeks ago was really the first step now towards accelerating that, not sitting still, and really taking proactive action towards that.

Joseph Robert Spak: Yeah, and I'd just follow on with what with what Mark was saying I.

Joseph Robert Spak: I think what's important for us as a management team is looking at it.

Speaker Change: And you know we're not sitting there were not happy with the status quo and really identifying what levers do we have.

Speaker Change: To accelerate it and I think the European restructuring action that was announced a few weeks ago was really the first step now towards accelerating that not sitting still.

Speaker Change: Taken a proactive action towards that.

Joseph Robert Spak: I think the modularity that we're now accelerating in the Americas is really driving that, realizing that. The labor market in the U.S. has fundamentally shifted. What can we do to... downscale some of our JIP plans, actively move labor out, and accelerate some of the automation activity that we have already started in our metals plants? You know, that journey started two and three years ago, working towards accelerating that activity. So these are tools that we have around us. Now, what can we do to begin to accelerate those efforts to crystallize this path towards the 8% overall goal?

Speaker Change: I think the modularity that we're now accelerating in the Americas is really driving that realizing that.

The labor market in the U S. Now has fundamentally shifted what can we do too.

Speaker Change: Down scale some of our gip plants.

Speaker Change: Actively move labor out accelerating some of the automation activity that we have already started in our metals plants that journey started two and three years ago.

Speaker Change: Working towards accelerating that activity. So these are tools that we have around us. It's now what is what can we do to begin to accelerate those to crystallize this path towards the 8% overall goal.

Jerome J. Dorlack: Okay, so that's, that's helpful. And I appreciate you guys are doing hard work.

Speaker Change: Okay. So that's that.

That's helpful and I. Appreciate you guys are doing hard rock I guess, what I'm trying to understand is.

Joseph Robert Spak: I guess what I'm trying to understand is assuming you can execute on all that, right? I mean, like, how much of the 200 is actually just reliant on this store to bounce in and bounce out? Is it a third of it or, you know, the ballpark? What are we talking about?

Speaker Change: Assuming you can execute.

Speaker Change: On all of that right I mean like or how much is just of the 200 is actually just reliant on the <unk> balance and balance out is it a third of it or ballpark what are what are we talking about.

Mark A. Oswald: Yeah, I'd say it's roughly a third of that, you know, between now and then is that balance in, balance out profile. Thank you very much.

Speaker Change: Yeah, I would say, it's roughly a third of that between now and then is that balance and balance out profile.

Speaker Change: Okay.

Speaker Change: Thank you very much.

Joseph Robert Spak: Yeah, so you've got just a rough ballpark. You've got about a third of the balance in balance out. You've got to call it a third of, you know, what I call the mix, the tailwind of our Chinese growth as it accelerates, and then a third of business performance, which I put in there, you know, the restructuring actions that we've already announced.

Speaker Change: Yeah. So you've got just just rough ballpark, you've got about a third of the balance and balance out you've got call. It a third of you know what I'd call. It a mix tailwind of our China growth as it accelerates.

Speaker Change: And then a third of business performance, which I would put in there.

Speaker Change: The restructuring actions that we've already announced and other business performance.

Speaker Change: Great. Thank you.

Mark A. Oswald: Thanks, Joe. Thanks, Joe. And with that, it looks like we're at the bottom of the hour.

Speaker Change: Yes sure.

Speaker Change: With your questions. Thanks, Joe.

Speaker Change: That it looks like we're at the bottom of the hour. So again appreciate everybody's calls questions. If you have additional questions feel free to reach out to Mike myself. We are available today again, thanks for the time.

Mark A. Oswald: So again, I appreciate everybody's calls and questions. If you have additional questions, feel free to reach out to Mike or myself. We're available today. Again, thanks for the time.

Speaker Change: Yeah.