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Adient(ADNT) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Unaudited Financial Statements Adient's unaudited consolidated financial statements for Q3 and nine months ended June 30, 2023, detail income, position, cash flows, and notes Consolidated Statements of Income (Loss) Adient reported a significant turnaround in Q3 2023, with net income of $95 million and 16.4% net sales growth Consolidated Statements of Income (Loss) Summary | Financial Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $4,055 million | $3,485 million | $11,666 million | $10,471 million | | Gross Profit | $302 million | $173 million | $783 million | $524 million | | Net Income (Loss) | $95 million | $(20) million | $138 million | $(110) million | | Net Income (Loss) Attributable to Adient | $73 million | $(30) million | $70 million | $(165) million | | Diluted EPS | $0.77 | $(0.32) | $0.73 | $(1.74) | Consolidated Statements of Financial Position Total assets increased to $9.482 billion as of June 30, 2023, with liabilities and shareholders' equity also rising Consolidated Statements of Financial Position Summary | Balance Sheet Item | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $4,406 million | $4,163 million | | Total Assets | $9,482 million | $9,158 million | | Total Current Liabilities | $3,720 million | $3,501 million | | Long-term Debt | $2,532 million | $2,564 million | | Total Liabilities | $6,940 million | $6,738 million | | Total Shareholders' Equity | $2,485 million | $2,375 million | Consolidated Statements of Cash Flows Operating cash flow significantly improved to $373 million for the nine months ended June 30, 2023, with shifts in investing and financing Consolidated Statements of Cash Flows Summary | Cash Flow Activity (Nine Months Ended June 30) | 2023 | 2022 | | :--- | :--- | :--- | | Cash provided (used) by operating activities | $373 million | $38 million | | Cash provided (used) by investing activities | $(164) million | $539 million | | Cash provided (used) by financing activities | $(261) million | $(1,164) million | | Increase (decrease) in cash and cash equivalents | $(39) million | $(629) million | | Cash and cash equivalents at end of period | $908 million | $892 million | Notes to Consolidated Financial Statements Detailed notes explain accounting policies, revenue recognition, acquisitions, debt refinancing, and restructuring plans - Adient generates revenue from the sale of automotive seating systems and components, with revenue recognized at the point in time when parts are shipped and control has transferred to the customer26 - In April 2023, Adient acquired the remaining interest in Nantong Yanfeng Adient Seating Trim Co., Ltd. (YFAT) for $23 million, resulting in $13 million of goodwill29 - During Q2 2023, Adient issued $500 million of 7% senior secured notes due 2028 and $500 million of 8.25% senior unsecured notes due 2031, using proceeds to prepay $350 million of its Term Loan B and repurchase €700 million of its 3.50% notes due 202450 - In fiscal 2023, Adient initiated a new restructuring plan totaling $26 million, primarily for workforce reductions in the EMEA region, expected to be completed by fiscal 202691 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q3 financial results, highlighting 16.4% net sales growth, segment performance, liquidity, and debt refinancing Consolidated Results of Operations Q3 2023 net sales rose 16% to $4.055 billion, gross profit surged 75%, and net income reached $73 million Consolidated Results of Operations Summary | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,055M | $3,485M | +16% | | Gross Profit | $302M | $173M | +75% | | Gross Margin | 7.4% | 5.0% | +240 bps | | Net Income Attributable to Adient | $73M | $(30)M | >100% | - The increase in Q3 net sales was primarily due to higher overall production volumes across all operating segments, contributing $628 million133 - Equity income increased to $25 million in Q3 2023 from $16 million in Q3 2022, mainly due to higher production volumes and favorable operating performance at partially-owned affiliates141 Segment Analysis All segments reported strong Q3 2023 growth, with Americas, EMEA, and Asia net sales increasing 14%, 18%, and 18% respectively Segment Performance Summary | Segment | Q3 2023 Net Sales | YoY Change | Q3 2023 Adjusted EBITDA | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Americas | $1,900 million | +14% | $95 million | +36% | | EMEA | $1,438 million | +18% | $103 million | >100% | | Asia | $742 million | +18% | $100 million | +56% | - EMEA's Adjusted EBITDA surged due to higher production volumes, net material margin improvements, and non-recurring insurance recoveries166 - Asia's Adjusted EBITDA growth was driven by favorable volume and mix ($33 million) and higher equity income ($17 million)169 Liquidity and Capital Resources Adient maintains solid liquidity with $1.008 billion available from ABL facility and $373 million in nine-month operating cash flow - As of June 30, 2023, Adient had not drawn on its $1.25 billion ABL Credit Facility and had availability of $1.008 billion172 Cash Flow Summary | Cash Flow (Nine Months Ended June 30) | 2023 | 2022 | | :--- | :--- | :--- | | Operating Cash Flow | $373 million | $38 million | | Investing Cash Flow | $(164) million | $539 million | | Financing Cash Flow | $(261) million | $(1,164) million | - In November 2022, the board authorized a $600 million share repurchase program; during Q3 2023, Adient repurchased 997,176 shares for approximately $37 million, with $535 million remaining authorization87185 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material adverse changes in market risk exposures were reported as of June 30, 2023, compared to the prior 10-K filing - The company states that there were no material changes in its market risk exposures, such as interest rate risk, foreign currency exchange risk, and commodity price risk, during the quarter190 Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the period191 - No material changes to internal control over financial reporting were identified during the third quarter of fiscal 2023192 PART II - OTHER INFORMATION Item 1. Legal Proceedings Adient is involved in routine legal proceedings, none expected to materially impact financial position or results - The company is involved in various legal proceedings related to product liability, environmental, employment, and commercial matters, but management does not expect them to have a material adverse impact193 Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported compared to the prior 10-K filing - No material changes from the risk factors disclosed in the last Annual Report on Form 10-K were reported195 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details of share repurchase activity, including 997,176 shares bought for $37 million, with $535 million remaining Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | May 1 to May 31, 2023 | 997,176 | $35.10 | $535 million | - The share repurchase program, authorized in November 2022 for up to $600 million, has no expiration date197 Item 6. Exhibits An index of exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL data files - The filing includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act200 - Interactive data files (XBRL documents) are included as exhibits to the report200