Q1 2025 Adient Earnings Call
Welcome and thank you for standing by. At this time all participants are in a listen-only mode. During the question and answer session please press star 1 on your phone.
Speaker Change: Today's conference is being recorded. If you have any objections, you may disconnect. I will now turn the conference over to Mike Heifler. Thank you. You may begin.
Mike Heifler: Thank you, Denise. Good morning, everyone, and thank you for joining us.
Speaker Change: The press release and presentation slides for our call today have been posted to the investor section of our website at adiant.com
Speaker Change: This morning, I'm joined by Jerome Dorlack, Adience President and Chief Executive Officer, and Mark Oswald, our Executive Vice President and Chief Financial Officer.
Mark Oswald: On today's call, Jerome will provide an update on the business, Mark will then review our Q1 financial results and provide insights on our outlook for the rest of fiscal 2025.
Mark Oswald: After our prepared remarks, we will open the call to your questions.
Speaker Change: 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.
Speaker Change: These statements are based on the environment as we see it today and therefore involve risks and uncertainties. I would caution.
Speaker Change: You that our actual results could differ materially from those forward-looking statements made on the call. Please refer to slide two of the presentation for our complete Safe Harbor statement.
Speaker Change: In addition to the financial results presented on a gap basis, we will be discussing non-gap information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-gap measures to the closest gap equivalent can be found in the appendix of our full earnings release.
Jerome Dorlack: And with that, it's my pleasure to turn the call over to Jerome.
Jerome Dorlack: Thanks, Mike. Good morning, everyone, and thank you for joining us today.
Jerome Dorlack: Today, we will review our first quarter results and share additional insights
Jerome Dorlack: and the industry landscape and how we see fiscal 2025 shaping up.
Jerome Dorlack: In addition, we will give you a high-level overview of current business developments and then turn it over to Mark to review the financials on our full-year outlook.
Turning now to slide four.
Jerome Dorlack: We're off to a solid start in fiscal 2025 with improved business performance for a year ago, allowing us to mitigate ongoing customer volume and mix headwinds.
Jerome Dorlack: As a result, we were able to contain decremental margins to approximately 12% below our typical 18% on a 5% year-over-year decline in revenue.
Jerome Dorlack: We achieved $196 million of adjusted EBITDA and generated $45 million in free cash flow.
Jerome Dorlack: As we signaled on our Q4 call, we anticipated significant headwinds in our fiscal first quarter, owing to inventory destocking at our major Detroit-based customers in the Americas and ongoing European customer production mix headwinds.
Jerome Dorlack: In Asia, we experience soft demand from our core customer base in China, including luxury and Japanese OEMs.
Jerome Dorlack: In this market, we also saw a promising new startup cease operations.
Jerome Dorlack: I'll discuss the industry dynamics in China in the next two slides.
Jerome Dorlack: All things considered, the quarter was in line with our internal expectations.
Jerome Dorlack: We also continued to allocate capital in a disciplined manner and bought back another $25 million of stock in Q1, bringing total share repurchases so far in fiscal 25 and 24 to $300 million.
Jerome Dorlack: Our balance sheet remains strong with ample liquidity, including $860 million of cash on hand at the end of Q1.
Jerome Dorlack: I'm also proud to share that we have released our 2024 Sustainability Report, where we have highlighted several notable accomplishments, which I will go over shortly.
Jerome Dorlack: We have received excellent customer feedback from many of our investors and our customers on our ongoing sustainability focus.
Moving to slide 5.
Jerome Dorlack: Let me walk you through some of the regional dynamics we have been observing and navigating through.
Jerome Dorlack: First, in the Americas, as expected, we saw customers successfully reduce inventories
particularly in the full-size pickup truck segment.
Jerome Dorlack: The industry is in a far better position entering calendar year 25 with an improving SAR and healthier stock levels.
Jerome Dorlack: In fact, December auto sales of $16.88 million were the highest seasonally adjusted annual pace since May of 2021.
Jerome Dorlack: With normalized inventories, current selling rates appear to support forecasted production
Schedules, and Calendar Year 2025.
Jerome Dorlack: As we mentioned last quarter, key customer launches that were slow to ramp during most of fiscal year 24 have been producing at full run rates, giving us a tailwind this year.
Jerome Dorlack: Last point on the Americas, we continue to evaluate potential tariffs and have been developing plans to mitigate impacts if imposed.
Turning now to EMEA.
Jerome Dorlack: Industry conditions remain challenging with strong production headwinds and program delays from economic and political uncertainty around electrification policies.
Jerome Dorlack: Lower exports and increasing competition from Chinese imports in entry-level segments despite new tariffs.
Jerome Dorlack: Our multi-year restructuring plan in Europe remains on track with activities ongoing.
Jerome Dorlack: As a reminder, we expect savings from these actions to continue to ramp up through 2027 and we anticipate about a third of these savings to be realized in fiscal year 25.
Jerome Dorlack: Lastly, we continue to monitor customer restructuring developments and will align our production and capacity accordingly.
Jerome Dorlack: We are actively shaping our European footprint for smaller market and future localization of new players.
Looking at Asia, macro conditions remain challenging.
Jerome Dorlack: Despite a tough backdrop, the region continues to generate double-digit margins and strong free cash flow.
In the quarter, are China's sales underperformed the overall market?
Jerome Dorlack: And we'll get into more details on that in the next slide.
Jerome Dorlack: Although sales were softer, our China operating performance remained strong, and the team was mostly able to offset lower contribution margin.
Additionally, in Asia outside of China,
Jerome Dorlack: We significantly outperformed the overall market due to new program launches ramping up.
Jerome Dorlack: Turning to the next slide, let's dive deeper into what's going on in China.
Jerome Dorlack: Based on current outlook, we see China revenue flat to slightly declining in fiscal year 25, primarily driven from unfavorable production mix from increasing export and local OEM volume.
Jerome Dorlack: Challenging market conditions that emerged in late calendar year 24 have continued into calendar year 25 with underlying auto demand continuing to soften outside of short-term scrappage schemes.
Jerome Dorlack: Government stimulus has been modestly effective but mostly in entry-level segments where Adyant has minimal content.
Jerome Dorlack: Additionally, competitive pressures have intensified, leading our traditional European luxury and Japanese-based customers to reduce their fiscal year 25 production targets.
Jerome Dorlack: We have seen several OEMs cancel programs, and one of our targeted new entrants has ceased operations, potentially signaling the early stages of industry consolidation.
Jerome Dorlack: Market share gains by BYD and growth of exports have bolstered the overall China production outlook
Jerome Dorlack: S&P's China production forecast for calendar year 2025 calls for 3% year-on-year growth.
Speaker Change: However, digging a bit deeper into that, excluding BYD and exports where we have less consolidated entity content, production is expected to be down about 5%.
Jerome Dorlack: It is worth noting, however, that we have significant component business with B by D through our Kuiper joint venture.
Jerome Dorlack: We are also supplying components for BYD in Thailand, and our commercial teams are bidding on significant new business with BYD in China and elsewhere throughout the world.
Jerome Dorlack: Will near-term macro headwinds and customer mix pressures exist? Adding it remains a supplier of choice with both domestic and Western OEs.
Jerome Dorlack: We are continuing to leverage our technical capabilities, leading product innovations, and high content expertise.
Jerome Dorlack: coupled with our domestic and global footprint and local knowledge to win new business with local OEMs driving profitable growth in the next two to three years.
Jerome Dorlack: As a proof point, in fiscal 2024, we won new and replacement business with about $1 billion of annual revenue.
Jerome Dorlack: 90% of this business is with local OEMs, much of which launches in fiscal year 26 and 27.
Approximately half of this is all new revenue.
Jerome Dorlack: In addition, given the challenging backdrop this year, the Adiant business model is proving resilient, and the team is mitigating lost contribution margin on lower consolidated sales by executing profit improvement actions, such as cost reductions and commercial initiatives.
Jerome Dorlack: Bottom line is that we are taking actions to grow rapidly with local China OEMs. Even with pressure from declining foreign OEM customers, our China business remains highly profitable and cash generative.
Jerome Dorlack: Our Asia segment, of which China is a key market, achieved greater than 14% adjusted EBITDA margins in Q1.
Jerome Dorlack: Moving on now to slide 7, we are prioritizing winning the right business and executing successful launches.
Jerome Dorlack: Our business awards this quarter demonstrate further growth with China Local OEMs and enhancements to our global customer relationships.
Jerome Dorlack: It is worth highlighting the new business with Mercedes on the E-Class platform.
Jerome Dorlack: You were successfully able to conquest this business from a global incumbent.
Jerome Dorlack: It includes the front seat and rear seat jet, rear seat frames, armrests, headrests, foam, trim, and other functional parts.
An excellent win for our China team.
Jerome Dorlack: In Asia, we are launching a high level of new programs. In Q1 alone, we had 16 programs launched in the region, and we have more than 70 programs launching in the balance of the year.
Jerome Dorlack: We have a healthy flow of upcoming launches beyond fiscal 25. We see strong momentum in the region, which resulted in part from our innovative capabilities to drive an outstanding customer experience while also maintaining a competitive business case.
Jerome Dorlack: As you can see on the chart, these WINS are vertically integrated complete seat systems that are comprised of jit, trim, foam, and in some cases, metals, whereas accretive to the business case.
This is a key enabler to improving margins.
Jerome Dorlack: Underpinning our new business wins is our high level of execution on multiple launches.
Jerome Dorlack: We continue to perform on safety, quality, and on-time metrics for our customers.
Jerome Dorlack: Moving on now to slide eight, we are focused on driving sustainable growth into our business and reducing our impact on climate change.
Jerome Dorlack: We strive for responsible use of natural resources by improving energy efficiency in our operations and reducing the carbon footprint of our finished products and developing processes that protect our planet's natural resources.
Jerome Dorlack: and Circular Economy by identifying materials and manufacturing methods that minimize our environmental impact and promote a circular approach to product development.
Jerome Dorlack: I want to recognize the Adiant team for their accomplishments in 2024, including a 38% reduction in Scope 1 and Scope 2 greenhouse gas emissions from our base year, 29% utilization of renewable electricity.
Jerome Dorlack: and a strong commitment to a diverse supply base and an inclusive workplace.
Jerome Dorlack: Finally, now moving on to our key takeaways on slide 9.
Jerome Dorlack: The company continues to drive higher levels and improve business performance, which has helped to mitigate some of the macro pressures.
Jerome Dorlack: The add-in operating model is enabling the company to maintain its earnings and free cash flow guidance, which Mark will get to in a minute, despite incremental FX headwinds and softer customer production volumes in China and EMEA.
The Americas continues to expand margins.
Jerome Dorlack: The Asia region continues to have strong margins and free cash flow and continues to win new business with local China OEMs.
Guaumea continues to execute on its multi-year restructuring plan.
Jerome Dorlack: And finally, management is committed to generating cash and creating value for Adience stakeholders.
Mark Oswald: Now, I'd like to turn it over to Mark to take you through our financials and outlook.
Mark Oswald: Thanks, Jerome. Let's jump in with financials on slide 11. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side.
Mark Oswald: 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.
Mark Oswald: Details of all adjustments for the quarter are in the appendix of the presentation.
High level for the quarter, adjusted EBITDA was $196 million.
Mark Oswald: Down 9% year-on-year. Our decremental performance on $165 million decrease in revenue from a year ago was about 12%, which reflects our resilience and ability to drive business performance to mitigate external pressures.
Mark Oswald: Worth noting that our underlying equity income remains quite strong despite this quarter's results being impacted by a one-time $12 million retroactive change to our KIPPR-JV agreement.
Mark Oswald: Any reported adjusted net income of $23 million or $0.27 per share.
Mark Oswald: I'll cover the next slides rather quickly since details of the results are included on the slides. This should ensure we have adequate time for Q&A.
Mark Oswald: Starting with revenue on slide 12, we reported consolidated sales of approximately $3.5 billion, a decrease of $165 million compared with Q1 fiscal year 24.
Mark Oswald: The primary driver of the year-on-year decrease was lower volumes and pricing of $160 million, resulting from lower customer production. FX was a slight headwind, call it $5 million in the quarter.
Mark Oswald: Focusing on the right-hand side of the slide, Addien's consolidated sales were lower in Americas and EMEA, while sales in Asia were flat year-on-year.
Mark Oswald: In the Americas, lower sales, mostly in line with the market, were driven by lower volumes from inventory destocking actions at certain U.S.-based customers, particularly in the key full-size truck programs.
Mark Oswald: In Europe, we were negatively impacted by overall weaker market demand, sales were in line with the market.
Mark Oswald: And in our APAC region, sales in China underperformed the industry production, primarily due to key customers' platforms not benefiting from scrappage or trade-in incentives aimed at the low-entry-level products.
Mark Oswald: Growth in exports, where we have little to no content, and resulting production declines from our traditional European luxury and Japanese OEM customers.
Mark Oswald: Asia outside of China was 1600 basis points better than the overall market due to growth with customers mainly in Japan and Korea resulting from new program launches ramping up.
Mark Oswald: Regarding Adian's unconsolidated seeding revenue, year-on-year results were slightly down, call it 2%, adjusted for FX. Results were affected by lower production volumes in the Americas and Asia regions.
Adjusted EBITDA, as mentioned, was down 9% at $196 million.
Mark Oswald: The primary drivers of the year-on-year comparison are detailed on the page. The Eddian team drove improved business performance of $28 million, primarily resulting from better net material margin and reduced operating costs, including lower launch costs.
Mark Oswald: The improved business performance partially offset volume and mix, which was a $39 million headwind driven by lower customer vehicle production in EMEA and unfavorable product mix in Asia.
Mark Oswald: We incurred a net commodity headwind of about $8 million in Q1, primarily resulting from the timing of recoveries.
Mark Oswald: As in past quarters, we provided our detailed segment performance slides in the appendix of the presentation.
Mark Oswald: High-level, for the Americas, improved business performance of $8 million in Q1 was primarily driven by favorable freight costs and lower launch costs.
The volume and mix swung to a tailwind this quarter.
Mark Oswald: of five million, benefiting from stronger production of high content, profitable programs, such as the GM Traverse, Acadia, and Enclave during the quarter, despite the stocking activity at large pickup trucks.
Mark Oswald: Commodities were a $9 million headwind, driven by the timing of contractual pass-throughs.
Mark Oswald: In EMEA, year-over-year results were influenced by weak volume and mix, which negatively impacted the quarter by $26 million.
Mark Oswald: from lower customer production. Business performance, which was a positive 2 million in Q1, was driven by better net material margin in operating performance, including restructuring actions.
Mark Oswald: As we have previously articulated, we are taking steps to adjust our costs in Europe. We continue to assess additional efficiency actions in the region. We continue to expect cash restructuring costs in the neighborhood of $100 million in FY25.
Mark Oswald: primarily related to European restructuring charges taken in fiscal year 2024. In the quarter, we incurred $35 million of cash restructuring.
Mark Oswald: In EMEA, as previously mentioned, we are focused on driving additional operating efficiencies
Mark Oswald: restructuring and executing on our plan, which includes the roll off of lower performing metals business in the start of production of better margin new business, which we believe will inflect positively in 2026.
Mark Oswald: Moving on to Asia, we generated positive business performance of $14 million from improved net material margin and lower launch costs.
Volume and mix negatively impacted the quarter by $18 million.
Mark Oswald: In summary, the company continues to drive improved business performance across all regions, which we expect to continue throughout 2025.
Mark Oswald: Let me now shift to our cash, liquidity, and capital structure on slides 14 and 15.
Mark Oswald: Starting with cash on slide 14, for the quarter, free cash flow, defined as operating cash flow less CapEx, was $45 million.
Mark Oswald: These benefits were partially offset by increased cash restructuring and lower earnings.
Mark Oswald: We continue to expect solid free cash conversion in fiscal 2025.
Mark Oswald: One last point, and it's called out on the slide. Edding continues to utilize various factoring programs as a low-cost source of liquidity.
Mark Oswald: At December 31st, 2024, we had $172 million of factored receivables versus $170 million at fiscal year-end 2024.
Flipping to slide 15.
Mark Oswald: As noted on the right-hand side of the slide, the company returned $25 million to shareholders in Q1 through share repurchases.
Mark Oswald: Edding is committed to being good stewards of capital while maintaining a strong balance sheet, ensuring efficient allocation of resources and ample liquidity.
Mark Oswald: Turning to our balance sheet, Addien's debt and net debt position totaled about $2.4 billion and $1.5 billion, respectively, at December 31, 2024.
Mark Oswald: The company's net leverage at December 31st was 1.8 times, within the targeted range of 1.5 to 2 times.
Mark Oswald: Total liquidity for the company was approximately $1.7 billion at December 31st, comprised of $860 million of cash and $875 million of undrawn capacity under Adiant's revolving line of credit.
Mark Oswald: Moving to slide 16. Let's review our current expectations around our fiscal 2025 outlook.
Mark Oswald: For the full year, we now expect sales to be approximately $13.9 billion, down from our previous expectations.
Mark Oswald: The largest driver of this revision is FX Translation owing to a stronger U.S. dollar. This is about $200 million incremental headwind on the top line and roughly $15 million impact to EBITDA and free cash flow.
Mark Oswald: We also are incorporating lower production levels in Asia and EMEA, approximately $150 million in lower sales.
Mark Oswald: We expect to be able to mitigate these macro headwinds and offset decremental margin and lower volume through strong business performance.
Mark Oswald: Consequently, we are holding our guidance, expecting adjusted EBITDA to be near the low end of our guidance range of approximately $850 million.
Mark Oswald: We do anticipate our free cash flow to be closer to $180 million as a result of translational FX impacts. We remain laser-focused on cash generation, including driving additional efficiencies in capital spending and working capital.
Mark Oswald: With regard to tax expense for the year, for modeling purposes, you can assume around $115 million of adjusted tax expense for the fiscal year.
Mark Oswald: One last point with regard to our outlook. We continue to expect our overall earnings will be weighted towards H2 versus H1.
Mark Oswald: Although we don't provide quarterly guidance, I think it's a good reminder that our second quarter results are seasonally impacted by the China New Year. In addition, certain of our customers have had their production schedules adversely impacted by severe weather across North America entering our second quarter.
Mark Oswald: Based on those factors, it's likely Adding's Q2 results will look a lot like Q1.
Mark Oswald: To sum it up, we remain focused on managing the business controllables, such as delivering excellent results for our customers, lowering costs, and generating strong free cash flow for the owners of our business, while maintaining a strong balance sheet with ample liquidity.
Speaker Change: With that, let's move to the question and answer portion of the call. Denise, can we please have our first question?
Speaker Change: Thank you. If you would like to ask a question, please press star 1. If you need to withdraw your question, it's star 2. Our first question comes from Dan Levy with Barclays. Your line is open.
Dan Levy: Hi, good morning. Thank you for taking the questions. First, maybe if we could just start with...
Speaker Change: A bit of a housekeeping question, perhaps you could just give us a sense.
Speaker Change: of what you were assuming now on the different MRCs. I know you trimmed your outlook on China and EMEA. Are you just, are you in line with the third-party data forecasters? And maybe you could just comment a bit more on some of the customer mix dynamics within your guidance.
Dan Levy: Yeah, Dan, good morning. Yes, I'd say that the current outlook does reflect, you know, the latest outlook for production based on S&P. Obviously, we do tweak it here and there based on, you know, what we know from the customers, but yes, all in all, I'd say it's generally in line.
Dan Levy: When I think about mix, and we mentioned mix over in China, for example, you know, certain of the EVs that are coming to market tend to be at a lower margin versus the outgoing product. And so that's the negative mix that you're seeing over in that region.
Yeah, the only...
Speaker Change: Just maybe to build on what Mark said, given the nature of our business and the proximity to our customers.
Just in time.
Speaker Change: of it. We do run on EDIs or customer releases for the
Speaker Change: The nearest quarter. So we do build, you know, what would be kind of our quarter we're in right now or our Q2 is basically EDI based and then Q3 and Q4 would be S&P based from that standpoint.
Got it. Thank you.
Speaker Change: As a follow-up, if we could maybe double-click on the business performance.
Speaker Change: And I know in the past, you've sort of laid out a few different lines like this. So maybe just, you know, in the first quarter, what was driving that? And I believe that was a bit more outsized in Asia. How much of this is just...
Speaker Change: Continuous improvement versus customer recoveries and then you know what levers do you have to accelerate the business performance if some of the macro headwinds remain challenging?
Dan Levy: Yeah, so I'll start there. So when I think about business performance, Dan, and there's quite a few items within that bucket, right. But you know, what we called out, obviously, for Q1, you know, launch costs were down in certain of the regions. When I look at, you know, ops waste, freight costs, right, those are all contributors to positive business performance.
Dan Levy: Net material margin our ability to basically get pricing for the customers, etc, right?
Dan Levy: Those are all things that I would say that are in that bucket that we basically are driving toward. And obviously that offsets certain of the other, what I would say, headwinds that you may get, whether it's labor, inflation, etc.
Dan Levy: Those are the buckets. When I think about our ability to pull things forward.
Dan Levy: You know, we're continuously working with the customers, you know, we're continuously looking to see
Dan Levy: You know what type of automation we could add to the plants to make it more efficient. So I'd say we've got the playbook. We'll continue to execute that. I think if you looked at our results in 24.
Dan Levy: on the business performance line. And again, what we're expecting now for 2025, you know, showing good results in terms of what the company is going to be able to do in terms of driving that forward.
Dan Levy: Yeah, just to build on what Mark said, when you ask about our ability to accelerate, I think 24 was a very good proof point of that. I mean, as we saw...
some of the macro headwinds really building,
Dan Levy: In particular, a lot of the inventory destocking taking place. We saw a lot of the large pickup truck segments that we were on.
and the other two.
Dan Levy: starting to face a lot of headwinds. I mean, you really saw us ramp up business performance. You saw us taking what would be a normal, you know, decremental for the company at the 17 to 18% range. And we were really able to hold that throughout the back half of the year, closer to kind of that 11 to 12%. And that's really through incremental business performance.
Dan Levy: I mean, that's what we're able to do through additional, whether it be customer recoveries, whether it's through additional operational belt tightening. We drove a lot of, I'd call it, automation opportunities in the back half of last year taking out.
Dan Levy: both direct and indirect labor through operations, that's actually starting to pay benefits now in fiscal year 25, being able to hold some of those decrementals. So, I mean, it is a resilient business model, the adding operating model, we like to call it, and that's
Dan Levy: That's what's allowing us to manage through some of these short-term macros that we see.
Great, thank you.
Speaker Change: Thank you, Sam. Thank you. The next question comes from James Picciarello from BNP. Your line is open.
Hey guys, this is Jake on for James.
Speaker Change: So just first, can you help us think about the potential impact of any North America tariffs on your business, especially on some of your initiatives to move more of the value-add portion of the manufacturing components in Mexico? Thank you.
Yes.
Speaker Change: You know, what we would say is, I mean, we have not unlike, you know, our competitors in the space or other Tier 1s, whether you go across,
Speaker Change: Yeah, the safety space, some of the electronic space, anyone in.
Speaker Change: You know in automotive a significant Mexico footprint certainly with our cut-and-sew operations. We've talked about that and in the past You know certainly some of our metal operations that we
Speaker Change: You know, have localized down into Mexico as a result of the China tariffs. We moved that into Mexico. We now ship some of that north of the border. So it's not an insignificant amount of business that then transits its way into the U.S.
I think what's important is we have
Speaker Change: You know action plans established by each one of our customers We have now begun engaging in meaningful dialogue with those customers the customers
Speaker Change: Take on to our P&L, you know, on an ongoing basis. And there will be a need for recovery that has to then be passed through the value chain. You know, there's defined timetables for us to move through these processes with them.
Speaker Change: And we'll manage through this, you know, depending on what the administration enacts come February 1st. And so we're working through that in a very timely and...
I'd say almost hourly basis in some cases.
Speaker Change: Thank you. And then I think we're all impressed with the 7% base decrementals on the lower volume in Asia and Europe.
Speaker Change: But how should we think about incremental and decrementals for further shifts in production this year? Thank you.
that stuff.
Speaker Change: Yeah, I'd say that the typical, you know, incremental margin for us or decremental is call it 17, 18%. You know, as we showed in the first quarter, we were able to minimize that and get that down, you know, quite, quite low, call it 12% or so.
Speaker Change: You know, if we have a line of sight in terms of when that production is coming out, it affords us and allows us to basically make some changes.
Speaker Change: We're in the operating patterns, which allows us to basically take those costs out and to contain those.
It's really when you get the sudden shifts in production
Speaker Change: that hampers our ability to basically minimize those. So as we go through the rest of this year, you know, we'll, we'll continue to work hard to, to keep those decrementals lower. I, I, I think, you know, our guidance is predicated on the fact that.
Speaker Change: We will be successful in doing that. So, you know, we'll continue to run the playbook that we demonstrated in 2024 as well as in Q1.
Thanks Jake. Thanks Jeff.
Speaker Change: The next question comes from Colin Langan with Wells Fargo. Your line is open.
Speaker Change: Hey guys, this is Kosta Tesoulas filling in for Colin. I just wanted to build off the tariff playbook again Would you be able to Maybe describe how your tariff playbook is better today relative to how you guys handled it in 2017
I don't know if that's a question of if...
Speaker Change: It's better or worse. I think if you look at 2017, I think we were very effective in 2017. I mean, we entered 2017 with
Speaker Change: You know call it somewhere between a 40 to 60 million of gross exposure And you know we sit now today with something of a net exposure in single digits I think we're very very effective in what we're able to do from the 232 and 301 tariffs
Speaker Change: If you look at the magnitude of where these tariffs sit at, at a 25 or even a 10% range,
Speaker Change: It's a question of speed, and it took us, when those came in,
Speaker Change: range to work through that. Obviously, given the magnitude of these,
Speaker Change: You know, we would need to work through this in a much more expeditious manner. So I think the difference between 2017 and now is
Speaker Change: the time and the speed at which we would need to work through in terms of a efficacy of a solution. And so what 2017 did is it prepared us in terms of playbooks,
Speaker Change: You know, I think it also prepared the industry and our customers in terms of how not only Adiant, but also the entire supply base and the value chain would be approaching and working through these types of solutions.
Speaker Change: Cool, thank you. My second question is, I think your initial growth over market guidance in China was 6%. How is that shaping up in today's updated guidance?
Speaker Change: Yeah, so today's guidance, as we indicated, we would expect our sales to be flat to down versus last year, right? If you look at where the overall market is trending in China, as Jerome mentioned on his portion of his prepared remarks.
Speaker Change: You know the markets up, but it's really attributed to the growth in BYD and exports right if you strip those out You know obviously the market would be down
Speaker Change: So again, I'd say that this year, slightly worse versus earlier expectations heading into.
Speaker Change: 2025. But as Jerome also pointed out on the call, we did win a billion dollars of new business last year that comes on board in 26 and 27, which then helps us drive growth in that region again, as we get into 26 and 27.
Great. Thanks for taking my questions.
Thank you.
Speaker Change: Thank you. And as a reminder, if you'd like to ask a question, please press star 1.
I am currently showing no further questions.
Speaker Change: Hey, I want to thank everyone for your interest in Adiant today, and we will be available for the rest of the day for follow-up questions. Feel free to reach out to me, Mike Heifler, Investor Relations at Adiant. Thank you.