FY 2023 Third Quarter Earnings Call August 2, 2023 ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Unaudited Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) This section presents Adient's unaudited consolidated financial statements, including income, financial position, and cash flows, with detailed notes on accounting policies and segment information [Consolidated Statements of Income (Loss)](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20(Loss)) Consolidated Statements of Income (Loss) (unaudited) | (in millions, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | **$3,912** | **$3,506** | **$7,611** | **$6,986** | | Gross profit | $250 | $178 | $481 | $351 | | Earnings (loss) before interest and income taxes | $96 | $46 | $210 | $86 | | **Net income (loss)** | **$10** | **$(60)** | **$43** | **$(90)** | | **Net income (loss) attributable to Adient** | **$(15)** | **$(81)** | **$(3)** | **$(135)** | | **Diluted Earnings (loss) per share** | **$(0.16)** | **$(0.85)** | **$(0.03)** | **$(1.43)** | [Consolidated Statements of Financial Position](index=5&type=section&id=Consolidated%20Statements%20of%20Financial%20Position) Consolidated Statements of Financial Position (unaudited) | (in millions) | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $826 | $947 | | Current assets | $4,269 | $4,163 | | Total assets | $9,479 | $9,158 | | **Liabilities and Shareholders' Equity** | | | | Current liabilities | $3,671 | $3,501 | | Long-term debt | $2,531 | $2,564 | | Total liabilities | $6,892 | $6,738 | | Total shareholders' equity | $2,532 | $2,375 | | **Total liabilities and shareholders' equity** | **$9,479** | **$9,158** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (unaudited) | (in millions) | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Cash provided (used) by operating activities** | **$170** | **$15** | | **Cash provided (used) by investing activities** | **$(111)** | **$599** | | **Cash provided (used) by financing activities** | **$(218)** | **$(1,017)** | | Increase (decrease) in cash and cash equivalents | $(121) | $(403) | | Cash and cash equivalents at beginning of period | $947 | $1,521 | | **Cash and cash equivalents at end of period** | **$826** | **$1,118** | [Note 8. Debt and Financing Arrangements](index=13&type=section&id=Note%208.%20Debt%20and%20Financing%20Arrangements) - In Q2 2023, Adient issued **$500 million** of 7.000% senior secured notes due 2028 and **$500 million** of 8.250% senior unsecured notes due 2031[53](index=53&type=chunk) - Proceeds from the new notes, along with cash on hand, were used to prepay **$350 million** of the Term Loan B and repurchase **€700 million ($743 million)** of the 3.50% unsecured notes due 2024[53](index=53&type=chunk)[55](index=55&type=chunk) Long-Term Debt Composition (in millions) | Debt Instrument | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | 8.250% Notes due 2031 | $500 | — | | 7.000% Secured Notes due 2028 | $500 | — | | Term Loan B due in 2026 | $635 | $988 | | 4.875% Notes due in 2026 | $795 | $795 | | 3.50% Notes due in 2024 | $134 | $809 | | **Gross long-term debt** | **$2,532** | **$2,575** | [Note 11. Equity and Noncontrolling Interests](index=19&type=section&id=Note%2011.%20Equity%20and%20Noncontrolling%20Interests) - In November 2022, the board authorized a **$600 million** share repurchase program with no expiration date[91](index=91&type=chunk) - During the three months ended March 31, 2023, Adient repurchased **759,601** ordinary shares for an aggregate price of **$30 million**. As of March 31, 2023, **$570 million** remained available for repurchase under the program[91](index=91&type=chunk) [Note 13. Restructuring and Impairment Costs](index=21&type=section&id=Note%2013.%20Restructuring%20and%20Impairment%20Costs) - In fiscal 2023, Adient initiated a new restructuring plan ('2023 Plan') with expected costs of **$24 million**, primarily for workforce reductions in EMEA, to be completed by fiscal 2026[95](index=95&type=chunk) Restructuring Reserve Changes (Six Months Ended March 31, 2023) | (in millions) | Amount | | :--- | :--- | | Balance at September 30, 2022 | $60 | | 2023 Plan charges | $24 | | Utilized - cash | $(37) | | Noncash and other adjustments | $6 | | **Balance at March 31, 2023** | **$53** | [Note 15. Segment Information](index=24&type=section&id=Note%2015.%20Segment%20Information) Segment Net Sales (in millions) | Segment | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Americas | $1,761 | $1,596 | $3,485 | $3,094 | | EMEA | $1,401 | $1,218 | $2,583 | $2,448 | | Asia | $774 | $723 | $1,595 | $1,507 | | **Total net sales** | **$3,912** | **$3,506** | **$7,611** | **$6,986** | Segment Adjusted EBITDA (in millions) | Segment | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Americas | $72 | $46 | $141 | $55 | | EMEA | $53 | $30 | $81 | $73 | | Asia | $113 | $105 | $251 | $219 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 fiscal 2023 financial results, highlighting increased net sales driven by higher production volumes [Factors Affecting Adient's Operating Environment](index=30&type=section&id=Factors%20Affecting%20Adient%27s%20Operating%20Environment) - The operating environment is expected to remain challenging due to supply chain disruptions, inflationary pressures, volatile commodity pricing, higher interest rates, and volatile consumer demand[132](index=132&type=chunk) Light Vehicle Production (units in millions) | Region | Six Months Ended March 31, 2023 | Six Months Ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Global | 42.9 | 40.9 | 4.9% | | North America | 7.5 | 6.8 | 10.3% | | EMEA | 8.9 | 7.9 | 12.7% | | China | 13.0 | 13.9 | (6.5)% | [Consolidated Results of Operations](index=31&type=section&id=Consolidated%20Results%20of%20Operations) Q2 Fiscal 2023 vs Q2 Fiscal 2022 (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,912 | $3,506 | 12% | | Gross Profit | $250 | $178 | 40% | | Net Loss Attributable to Adient | $(15) | $(81) | 81% | - The increase in Q2 net sales was driven by higher production volumes (**$504 million**) and commercial settlements (**$34 million**), partially offset by unfavorable foreign currency impact (**$113 million**)[138](index=138&type=chunk) - Q2 gross profit improved due to higher volumes and commercial settlements, but was partially offset by increased utilities, labor, freight, and commodity costs[141](index=141&type=chunk) - Net financing charges decreased significantly in Q2 and H1 2023 compared to the prior year, primarily due to lower premiums paid on debt repurchases and lower write-offs of deferred financing costs in the current period[149](index=149&type=chunk) [Segment Analysis](index=36&type=section&id=Segment%20Analysis) Americas Segment Performance (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,761 | $1,596 | 10% | | Adjusted EBITDA | $72 | $46 | 57% | - Americas' Q2 Adjusted EBITDA increased by **$26 million**, driven by higher volumes (**$15 million**) and favorable commercial settlements (**$22 million**), partially offset by higher operational costs (**$8 million**)[169](index=169&type=chunk) EMEA Segment Performance (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,401 | $1,218 | 15% | | Adjusted EBITDA | $53 | $30 | 77% | - EMEA's Q2 Adjusted EBITDA increased by **$23 million**, primarily due to higher production volumes (**$52 million**) and favorable commercial settlements (**$27 million**), which were significantly offset by unfavorable material economics (**$46 million**) and higher input costs (**$13 million**)[172](index=172&type=chunk) Asia Segment Performance (in millions) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $774 | $723 | 7% | | Adjusted EBITDA | $113 | $105 | 8% | - Asia's Q2 Adjusted EBITDA increased by **$8 million**, driven by favorable volume/mix (**$17 million**) and commercial settlements (**$7 million**), partially offset by unfavorable foreign currency (**$7 million**) and lower equity income (**$6 million**)[175](index=175&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash from operations, an asset-based revolving credit facility (ABL), and other debt. As of March 31, 2023, Adient had **$973 million** available under its **$1.25 billion** ABL Credit Facility[177](index=177&type=chunk)[178](index=178&type=chunk) Cash Flow Summary (Six Months Ended March 31, in millions) | Cash Flow Source | 2023 | 2022 | | :--- | :--- | :--- | | Operating Activities | $170 | $15 | | Investing Activities | $(111) | $599 | | Financing Activities | $(218) | $(1,017) | - The decrease in cash from investing activities is primarily due to prior year proceeds from the Yanfeng Transaction (**$651 million**) and other asset sales[186](index=186&type=chunk) - The decrease in cash used for financing is due to significant prior year debt repayments (**$744 million**) and acquisition of noncontrolling interest (**$153 million**), partially offset by current year debt refinancing activities and share repurchases[187](index=187&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk exposures were reported as of March 31, 2023, compared to the prior fiscal year's 10-K - Adient has not experienced any adverse changes in market risk exposures that would materially affect the quantitative and qualitative disclosures presented in its most recent Annual Report on Form 10-K[199](index=199&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[200](index=200&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[201](index=201&type=chunk) [PART II - OTHER INFORMATION](index=43&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) Adient is involved in routine legal proceedings, none of which are expected to materially affect its financial position or results - Management opines that none of the various lawsuits, claims, and proceedings incident to its business operations will have a material adverse effect on Adient's financial position, results of operations, or cash flows[203](index=203&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported from the risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2022 - No material changes from the risk factors as previously disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2022[205](index=205&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity sales were reported; **759,601** shares were repurchased for **$30 million**, with **$570 million** remaining for future repurchases Repurchase of Equity Securities (Q2 FY2023) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining for Repurchase (in millions) | | :--- | :--- | :--- | :--- | | Jan 2023 | — | $— | $600 | | Feb 2023 | 96,350 | $42.67 | $596 | | Mar 2023 | 663,251 | $39.03 | $570 | | **Total** | **759,601** | **$39.49** | **$570** | [Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[210](index=210&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Adient - Not applicable[210](index=210&type=chunk) [Other Information](index=44&type=section&id=Item%205.%20Other%20Information) The company reports no other information for this period - None[210](index=210&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including indentures for new notes, credit agreement amendments, and CEO/CFO certifications - Key exhibits filed include: - Indenture for **$500.0 million** 7.000% senior secured notes due 2028 - Indenture for **$500.0 million** 8.250% senior unsecured notes due 2031 - Amendments to the Amended and Restated Revolving Credit Agreement and Term Loan Credit Agreement - CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[211](index=211&type=chunk)

Financial Performance - Adient recorded net sales of $3,699 million for Q1 fiscal 2023, an increase of $219 million or 6.3% compared to Q1 fiscal 2022, driven by higher production volumes and favorable material economics recoveries [113]. - Gross profit for Q1 fiscal 2023 was $231 million, or 6.2% of net sales, up from $173 million or 5.0% in Q1 fiscal 2022, reflecting improved production volumes and commercial settlements [114]. - Net income attributable to Adient was $12 million for Q1 fiscal 2023, a significant recovery from a net loss of $54 million in Q1 fiscal 2022, primarily due to higher production volumes and lower SG&A expenses [116]. - Total net sales increased to $3,699 million in Q1 fiscal 2023, up 6% from $3,480 million in Q1 fiscal 2022, with notable growth in the Americas segment [135]. - Comprehensive loss attributable to Adient was $127 million in Q1 fiscal 2023, compared to a loss of $39 million in Q1 fiscal 2022, driven by various factors including foreign currency adjustments [131]. Segment Performance - Adient operates in three reportable segments: Americas, EMEA, and Asia Pacific/China, leveraging its global footprint to drive growth in the automotive seating industry [110]. - Adjusted EBITDA for the Americas segment surged to $69 million in Q1 fiscal 2023, compared to $9 million in Q1 fiscal 2022, reflecting a more than 100% increase [137]. - EMEA segment net sales decreased by 4% to $1,182 million in Q1 fiscal 2023, primarily due to unfavorable foreign currency impacts [143]. - Asia segment net sales increased by 5% to $821 million in Q1 fiscal 2023, supported by higher production volumes despite foreign currency headwinds [145]. Costs and Expenses - Selling, general and administrative expenses decreased by $24 million, or 15%, in Q1 fiscal 2023 compared to Q1 fiscal 2022, attributed to lower engineering and administrative spending [122]. - Cost of sales increased by $161 million, or 5%, in Q1 fiscal 2023, driven by higher production volumes and increased utility, labor, and freight costs [120]. - Restructuring and impairment costs rose to $7 million in Q1 fiscal 2023, a 75% increase from $4 million in Q1 fiscal 2022 [123]. - Other pension expense rose by $10 million in Q1 fiscal 2023, primarily due to an $8 million curtailment loss related to employee termination benefits [126]. - Income tax provision increased by 48% to $31 million in Q1 fiscal 2023, influenced by valuation allowances and foreign tax rate differentials [127]. Operational Challenges - The automotive industry is expected to face challenges in fiscal 2023 due to supply chain disruptions, inflationary pressures, and softening consumer demand [111]. - Adient expects higher overall operating costs to persist for the remainder of fiscal 2023, influenced by inflationary pressures on input costs [144]. - The company experienced input cost increases due to price volatility in commodities, which may not be fully offset through customer negotiations [162]. Financing and Capital Structure - Adient maintains an asset-based revolving credit facility (ABL Credit Facility) with a revolving line of credit up to $1,250 million, including $950 million for North America and $300 million for Europe [148]. - As of December 31, 2022, Adient had not drawn down on the ABL Credit Facility and had availability of $971 million, net of $13 million in letters of credit [148]. - Adient's Term Loan B Agreement provides for a $985 million senior secured term loan facility, amortizing at 1.00% per annum, with a final maturity on April 8, 2028 [149]. - Net financing charges decreased to $41 million in Q1 fiscal 2023, down 18% from $50 million in Q1 fiscal 2022, due to lower outstanding debt levels [125]. Restructuring and Workforce - The company committed to a restructuring plan of $7 million in fiscal 2023, expected to reduce annual operating costs by approximately $4 million [156]. - Approximately 12,000 employees have been separated from Adient as part of the restructuring plans, which also included twenty-seven plant closures [157]. - Adient's board authorized a share repurchase program of up to $600 million, with no shares repurchased during the three months ended December 31, 2022 [160]. Cash Flow and Working Capital - The company reported cash provided by operating activities of $44 million for the three months ended December 31, 2022, compared to cash used of $14 million in the same period of 2021 [152]. - Adient's working capital as of December 31, 2022, was $669 million, slightly up from $662 million as of September 30, 2022 [155]. - As of December 31, 2022, Adient had $181 million funded under supply chain financing programs, down from $269 million as of September 30, 2022 [161].