Thanks. We're ready to kick off our next session, which is with management of Adient. Just to introduce this, Adient has come a really long way over the past five years. Their consolidated EBITDA margins were around 3% in 2019. They got to 5.5% last year, up 120 basis points if you exclude the impact of an insurance recovery. This year, Adient's expecting to reach roughly 6%. This is on a consolidated basis that we're talking about. Obviously, over the next couple of years, there's this sense that it's going to be tougher because production growth is slowing. Maybe some of the mix tailwinds that we've seen over the past few years could slow. That could affect the trajectory. Adient, nonetheless, is still projecting that their margins are going to climb to over 8% over the next few years. I'm expecting that we're going to walk through some of the drivers of that and why, over time, Adient believes that they can outperform the market and continue to improve. With that, I'm very pleased to welcome Mark Oswald, the company's CFO, and Jim Conklin, who's the head of the Americas for Adient. Thanks, guys, for joining us. Thanks. So maybe just to kick things off, let's start with macro. So global production has already recovered from 74 million units in 2020, was 89 million units in 2023. Consensus is volumes flatten out from here? Is that how you see it from here? Yeah, I'd say that you're right. Volumes have gravitated back towards that 89-90 million mark. I'd say that when we look at it, you almost have to look at it by region, right? So, you know, China still continues to grow. We still see growth over there. That's obviously, you know, when we look at Adient, that's going to be the growth driver for us, right? I think you'll see, like within EMEA, you know, that market probably doesn't return. We said it probably doesn't return to the 20 million units that it used to be before COVID. Consumption will still be there, but I think you'll see imports from China coming into the European market. And then I think, you know, the Americas, I think you'll still see, you know, that 16 million mark somewhere in there, maybe a little bit higher. I think you'll start to see some mix shift. I think you've written about this, right, where you look at some of the Japanese OEMs or the Hyundai- Kias, you know, starting to take the market there maybe from the traditional D3. We're aligned with that. So let's just key off of that and just let's make sure that is your microphone on? I just wanted to make sure that there is a light on the top? Just make sure. It is. Okay. All right. Good. So flattening environment is different than what we've seen over the past couple of years. Over the past four years, if we look at the Western OEMs, the Europeans, and the Americans, they've lost around 900 basis points of market share to the Chinese, to Tesla. So within Adient, as you're looking at business planning, do you spend a lot of time thinking about that? And how do you think Adient would be affected by the share shifts that you see coming up? Yeah, we do look at it. Check, check. Okay. Thank you. We do look at that, Rod. You know, we look very carefully just in terms of who we want to grow with, what platforms we want to grow with, right? We look at it as a capital allocation, right? So where do we want to invest that next dollar, right? So whether it's in China, you know, who do we think are going to be the longer term players that are going to succeed? And we carry that same mentality here to the Americas or over to Europe, right? So it's a very well thought out decision in terms of, again, which platforms we want to grow. Okay. So how do you see it? Do you have sufficient exposure to the Koreans? Do you have sufficient exposure to the domestic Chinese? We do. So if I look at, again, by region, right, if I look at the Americas, right, a little less than 50% of our exposure is to what I'd call the Japanese OEMs as well as Hyundai Kia, right? So as, you know, you've seen certain of the D3 start to cede some of that market share, we've done extremely well, especially on the Japanese OEMs, right? If you look at their strategy and their approach with plug-in hybrids, for example, right? Their production has been stronger. It's been more stable, right? And so it's served us extremely well. There's a couple of new wins that I can't talk about today, but, you know, again, with certain of those customers that we see as continuing to grow. And the same thing over in China, right? If I look at, you know, the NIOs, the XPengs, right, the Li Autos, you know, making sure that we have the right exposure there. I think if you look at, you know, the last earnings deck, you know, we had indicated that we had won some content with components with BYD, for example, right? So, again, making sure that we are diversified and making sure that we're growing with who we think are going to succeed, you know, next few years down the road. So you mentioned that you're going to go from 40%-60% domestic Chinese manufacturers within China in the next 3-5 years. So are you taking market share from someone else when that's happening, or is that just a function of the Chinese that are? It's a function of the Chinese that are expanding, making sure that we're on the right programs with the right customers. When the Chinese start to expand into Europe and other markets, do they bring you with them? They can, right? So obviously we have the footprint set up over there. So if you look at, you know, BYD, for example, as they, you know, continue to aspire to sell into Europe, right? Are they going to be building a facility out there? They'll probably have some sort of footprint. You know, obviously we have our components and we have, you know, the capability of supplying into them. So absolutely. If I look at some of the imports that are going into Europe, we're very well connected on certain of those manufacturers that are importing into Europe. Okay. One of the things that maybe if you take a step back from outside of the industry and you look, every seating company is telling us that their margins are going to be higher in the future. So are you. You're targeting 8% EBITDA margins. It's quite a bit higher than it's been in the past couple of years. I'll ask you about Adient specifically in a minute, but do you think that that's really a theme that the investment community should believe in, that structurally the margins of this sector are going to be better in the future? Yeah, I think so. And if I think about why, right, if you think about over the last couple of years, we've really been hammered by, you know, supply chain, inefficient operations at the plants, right? Trapped labor. I think if you look out over the next couple of years, right, everybody has, you know, their equation in terms of how they're going to grow margin. Every company is slightly different. Everybody has different levers to pull. But when I think about Adient, and that's why we have Jim here to talk about, you know, certain of the drivers of our business performance, it's really looking at how do you evolve your business model, right? So from our perspective, and what Jim's going to talk about here in a second, and he's got a few slides to flip through, is really how do we change, you know, the way that we're doing business? So in the past, you know, we used to bring a lot of different components and ship them separately into our JIT manufacturing plants, right? At the JIT manufacturing plants, then they were assembled and basically then transported out to our customers. What Jim and team have been focused on is, you know, what we call our modularity, right? Where basically we could leverage our footprint down in Mexico. You know, we have certain of what I'd call the metal structures down there that then we could bring and we have the different components that are basically assembled down there and then we'll ship that into, you know, the JIT plant. So it saves quite a bit of transportation. It saves transport costs, right? We get, you know, obviously Scope 3 benefits of that. But that's just one driver of how we see business performance continuing to improve, right? We also have long-distance JIT, for example, that we use. And maybe this might be a good time to have Jim kind of flip through a couple of those slides just to give you a better idea just in terms of what is one of the drivers? Because we do get that question a lot. You know, we look at that bucket on the earnings bridges and it'll be like business performance and you've seen it and, you know, what's included in there, right? It's getting better, you know, operating patterns at our plant. It's getting rid of that ops waste, right? It's getting rid of some of those wasted freight costs. And again, it's continuing to look at modularity in terms of how that could benefit. So long answer, but I do think that everybody has their own, what I'd say, recipe to expand margins here over the next couple of years. Yeah. Jim, you want to talk a little bit about how the vertical integration and modularity works? Sure. Can you hear me okay? Yep. All right. So we'll get into it a little bit. So again, my name is Jim Conklin. I've been with the company for this is my 24th year. Spent most of my time within the operations and manufacturing side, currently leading the P&L for what we call the Americas region, North and South America. It's about $7 billion of the global Adient business. So Rod, to your question and to answer your point a little bit, one of our key strategies for not only reducing costs, but continuing to overcome the challenges of the U.S. labor market and that cost growth and that evolution is to pivot ourselves a little bit for how we can take a more strategic approach for how we do final seat assembly. So if we go to, I think, the third slide, what we're seeing thank you. What we're seeing is an increased amount of content in the seat product as a whole going into vehicles. This is especially starting within the China region that Mark referred to earlier. Examples of higher content is more features, more kind of attributes, massage systems, things like that that are adding to the feature content within seats. We're working with customers right now on things like integrated sound. Our customers are able to reduce cost of the vehicle by taking audio systems out of the vehicle, out of door panels, and putting them into this headrest of the seat. What this also drives is a little bit of individuality. If I'm riding with my kids in the car, I might not want to listen to Dua Lipa. I want to listen to Beastie Boys. Each seat can have its own audio system. So there's a lot more content that we're seeing as a part of the evolution coming into the products that will help us have a growth portfolio. Hidden tie-downs are enabling us to be able to have different styling and contours, concavity to the seats that our customers from a styling perspective to individualize and set themselves apart are really looking for. So we're seeing this increase in content start in China and we're seeing it start to come into Europe and North America as well. That'll help us drive some of that incremental profitability. Go to the next slide. This really gets into what we're calling modularity. Essentially, the traditional just-in-time or seat assembly process will include multiple components being shipped to a final seat assembly location, typically in the U.S., where we have to be very close to our customers. When a customer builds a vehicle, we need to have that seat set specific to that vehicle, line side at their operation ready to go. That requires us to be very close to our customers. Right now, all these components ship into these seat assembly locations, right? What we're seeing is a true opportunity that we're launching with customers right now this year is to be able to take these components and assemble them in a lower cost country, more where the products could be made. I see this happening in two real phases. The first phase is when we have metal structures, for example, produced in Mexico. We are launching a product right now with one of our customers where we can add the components of that. In this case, it's a cushion frame, the lower structure that flows back and forth and supports underneath the seat. We're able to add those components, wire harnesses, heating, cooling systems, lumbar support systems. As a part of phase I, we can add those components in our Mexico operations, therefore driving labor costs down at our final JIT seat assembly location in the U.S., as well as de-risking the U.S. labor market for us to be able to find other labor entries in the market itself. These products essentially will ship what I call free as a part of the frame system that we're shipping up from Mexico to the U.S. right now. That also is a way that we're going to be impacting what we call Scope 3 as a part of sustainability. All those logistics routes that are delivering those different components to the seat assembly plant are now narrowed down and eliminated down into a single logistics lane between Mexico and the U.S. operation. Now then, we could take that further to phase II and also add the trim and foam onto those metal structures itself. Therefore, basically a seat is basically a cushion subassembly and a back subassembly. By doing all of that assembly content in Mexico in a lower cost operation, we're able to then reduce labor costs and that content within the U.S. final assembly location. So are you saying you're shipping the entire seat with the cover and everything from Mexico? So there's no more JIT? No, you still have to do a final assembly location to, for example, the obstacle we're going to get into is a labor save versus logistics costs, right? So if you have a back subassembly and a cushion subassembly, that's going to be a little worse from a pack density standpoint versus just the frames itself with the components within it. So it's really a distance location, a distance factor versus the labor cost save as a part of it. If we go to the next page, really what this does is this allows us to drive our customers and have those challenging conversations on supplier locations, right? So if we're going to put those components on those major metal parts and trim and foam, you know, we need to have partnerships with our suppliers as well as our supplier partners and customers as a part of where those components are coming from in order to be very efficient with that, right? The other thing is complexity reduction. The more different flavors or final flavors on a seat within a vehicle makes this thing a little bit more, this activity a little bit more challenging. So we're working very closely with our customers to limit the number of variants, right? That helps us be way more efficient to be able to execute modularity. Imagine, for example, if there is only one seat type, one color that went into a vehicle. Everything, every seat had a power structure to it with a single color, right? We'd be able to not worry about cost of sequencing and those types of things, right? What sets Adient apart is our strength within the Mexico region. We do have frame manufacturing within the Mexico region as well as trim and foam operations. This allows us to be able to work with our customers to be able to centralize all this modularity activity within the strength of our Mexico operations. And some of our, most of our plants within Mexico, we're having about a 2%-3% turnover right now versus some of our U.S. operations. In general terms, we're more around 8%-10% right now post-COVID. So this is what allows Adient to be successful and unique in this situation. So what's the financial impact of this? So right now you've got, I mean, what I'm hearing is you're going to take out a lot of high cost labor at these just-in-time assembly plants. So the seating industry, just so that everybody knows, pretty much every auto plant has a seating plant that's doing just-in-time assembly really close by and shipping just-in-time to that plant. You're moving that to low cost countries. That's where the savings is. And by consolidating things, you're also maybe saving a little bit on logistics too. Is there a way to think about what does that... Yeah, I'd look at it this way, Rod. If you think about the cost of goods sold, labor, direct labor there is about, you know, call it 7%. This saves about 30% reduction, right? So if you think of a seat set costing $1,000, you're probably somewhere in that $25, you know, range. Are you changing the way that you do business with your customers in order to enable this? Because a lot of this stuff is kind of directed, right, by the automaker. To be honest, right now the customers are actually coming to us as we kind of market this to them when we start talking about quoting next generation programs, right? They're very interested in this and this is really what's going to start separating and people are going to be looking for this. I look at this as being one step that we're taking, as Jim indicated, but this will continue to grow as we put it out into more platforms and more, you know, business wins that come in the, you know, next year, two years, three years. Do you have a target for this is going to be the percentage of our business? We haven't provided that. No. But again, going back to your question, right? You know, what do we see as the drivers of business performance and margin enhancement? This is one of those factors that now we have a line of sight in that gives us confidence in terms of when I look out over the next year, two years, right, where I see my margin growth coming from. Is this different than what your competitors can do? You have a big structures business. So does this something where we could say Adient is differentiated in this way? I think to Jim's point, right, what differentiates us here is the fact that we've spent a lot of time talking about metals and how metals has been a headwind for us, right, over the last couple of years. It's important to separate the fact that that was really like the Tier 2 metals that basically we're selling into our competitors, right? And we've been very targeted and focused in terms of trying to reduce that. This is actually helping our, you know, it goes within our vertical integration. And as Jim pointed out, we own that real estate down in Mexico, the seat pan, the cushion there, right? So it really separates us. You have to own that real estate in order to be able to do this. Okay. Let's talk about the trajectory of margins from here. So you guys have basically been on this upward trajectory of 100 basis points per year. This year is half of that, but there's really, you had this big insurance gain last year that made it even bigger last year. So you're comping against that. There's a few business changes and the strike, of course. So, but directionally that's sort of the trajectory. And the way we look at the business at a high level, you're a $16 billion revenue company. So to improve margins by 100 basis points, $160 million. Can you maybe just give us a little bit of how we sort of underwrite that? So what is embedded in that 160 in terms of the performance, the rolloffs, the vertical integration, all the things that you're talking about? Yeah, I'd say the best way to look at it, and I think we've done a good job at least simplifying our bridges, right? You know, on the earnings and how to think about the company going forward. Really you have that one bucket called business performance and then you have another bucket volume, right? And those are typically positive. As we spoke about earlier today, you know, volume is starting to level off. In fact, there's not a lot of tailwind from volume as we look at 2024. Yet in 2024, it's a good example that we are still expanding our margins. How are we doing that? We're doing that by business performance, right? And so when I think about that bucket business performance, it's how are we getting more efficient at the plants? How are we executing our continuous improvement? How are we reducing the ops waste? It's items like this in terms of modularity, right? And if you look at those combined, right, that's got to be positive for us. And it is positive. If you look at the net result for this year, and clearly that's then helping to offset, let's just say labor inflation, for example, right? So as a management team, we are focused on making sure that business performance model continues to be positive to grow those margins out. Okay. So how big is the labor inflation component for you now? Because you have to be exceeding that. We are exceeding that. So if I just look at just, you know, that bridge, right, into 2024 versus 2023, you know, clearly the business performance is quite positive if you just think about the other elements of that bridge, right? We indicated that, you know, FX was going to be a headwind this year. We said that was going to be, call it $60 million headwind. We said equity income was going to be down year-on-year. We said that we're going to get, you know, a footprint, you know, headwind there. And so then if you think that the volume bucket is pretty much flat in order for us to go from, you know, call it the 908 last year insurance adjusted up to the 985, which was our guide last week, right? That big bucket there is business performance, right? Within that business performance, if you just do that simple math, you know, somewhere, you know, +150-170, right? So that's a clear positive in your offsetting labor inflation in that bucket, right? It's a net number. Yeah. Automation, is that coming in yet into what? It sounds like there's still going to be a lot of labor in low-cost countries, but is automation coming into play as well in your business? A significant part of it. Yeah. We actually have already introduced a lot of automation and are spending a lot of energy on the next level of automation to bring to our operations. Example, instead of a typical way to secure trim covers to foam, we do a manual, what we call a hog ring, clipping it together. Now we're actually using robots to actually install clips embedded into the foam, making the final seat assembly operation of trim to foam that much easier and that much more efficient. Really to prioritize our team members in the value-added category that can't be performed by a robot. Things like end-of-line function testing to confirm the function of a seat, we're utilizing robots, smaller ones that can be utilized around other team members, not protected in a cage, to be able to drive out that cost and again, de-risk. Yeah. Sounds like it's a big opportunity, especially with this modularity and combining it. It is. Let me ask you about just the growth. Historically, Adient's outgrowth versus the market's been 150 basis points. Jim was talking about all the additional content that's coming into vehicles. And so that seems reasonable. But you've also acknowledged that some customers are slowing down the pace of new product introductions, maybe some of the EVs, just based on market conditions. So how do we sort of bring that together, just the slowdown of the roll-off and the roll-on of new business? What's the financial impact of that? Yeah, I think you got to look at it this way, right? When we talk about growth over market, it varies by region for us, obviously, right? As I indicated earlier, China is our largest growth driver of the company. So, you know, last week we indicated, you know, China's growth over market still expected to be, you know, call it 500-600 basis points, right? Clearly, as you're seeing like the Americas start to, I'd say, you know, certain of the customers pushing off certain launches, right? The growth has subsided in the Americas for right now. Europe, same thing. It's pretty flat. So really the growth driver for us is China. Again, going back to our earlier conversations, making sure that you're on the right platforms with the right customers. So we see that growth. We understand our backlog. We know where it's going. But you bring up a good point, right? I mean, there's the other element that's not picked up in growth over market, right, is the added content, right? It's the vertical integration. So, you know, as we went through 2023, we said that, you know, 90%-95% of our business was basically had some sort of vertical integration on it, right? Whether it's foam, whether it's trim, etc., in addition to just the JIT, right? So again, that's going to be another driver for us just in terms of content per seat that continues to grow, although you're not going to see it really, you know, materialize in the growth over market numbers. There's another element of it in that you have some part of your business that is less profitable and you were waiting for that to kind of roll off. What's the impact of that? Because some of those less profitable businesses are going to be... Good question is, you know, if I think about that business performance, right, we were very transparent indicating a part of that was going to be the balance in, balance out, right? So as new products came in, they were going to replace old products that had a lower margin rolling off. As we indicated last week, you know, there is certain, what I would say, ICE programs that are being extended. Certain of those programs have our metals content on it. And this is the Tier two metals that we were talking about earlier, which is, you know, dilutive to where our margin targets want to be, right? So one of two things or probably a combination of two things are going to happen on that front, Rod, is one, it gives us an opportunity to go have a commercial discussion with the customer. If he says, "Hey, we want to run this program for another 12, 18, 24 months," we'll say, "Okay, but it's going to cost you X," right? The other piece of it is there are going to be some programs that continue to roll off, right, that aren't extended. So when that happens, then, you know, we have to go through our strategic plan and we have to sit there and say, "Okay, what does that look like from a capacity standpoint within metals, for example, within Jim's region in the Americas? Can we do some self-help to make sure that we could bring, you know, some presses or stampings from one plant that's very much underutilized into another, right, to increase that utilization there, which would mean some additional restructuring?" But, you know, so it's going to be a combination of commercial. It's going to be a combination of self-help, right? And that's going to help us to offset, I'd say, the headwinds from some of these elongated programs that, you know, are now rolling off 12, 18 months past what we had seen. There's some things that... We could do internally. Exactly. Let me just ask one more here. You bought back $100 million worth of stock in the fiscal first quarter. It was actually three times the highest number that you'd seen prior to that. But when we look at what you're capable of doing, your leverage is already in that 1.5-2 turns that you've been targeting. You mentioned that your minimum cash is $700 million. You're like $1 billion right now. And you're looking at generating $200 million of free cash this year. So what is the right level of cash and why wouldn't cash returns to shareholders be even more aggressive than what we've seen? I think, you know, as we said all along, we're going to take a measured and balanced approach. So when I think about how I, you know, have that flexibility or how I think about balancing that, right, clearly we're going to return money to the shareholders, right? And we've demonstrated that with Q1. That's going to continue as I go out through 2024. But then when I look at that cash balance, I really got to sit there and say, "Okay, what do I need that cash balance for?" Right? And so part of it is going to be we've got some 3.5% notes that come due this year, call it $130 million. We're going to continue to execute on our share repurchases. One, you know, whether or not you want to go down to your minimum level of cash balance, right, within the next 6 or 9 months. If I look at the overall macros, right, you know, with, you know, concerns over affordability, if I look at, you know, we've got two wars going on in the world right now, right? So I probably want to be a little bit conservative because then I also want to have the flexibility to do some inorganic growth opportunities if something presents itself. Nothing to announce today. There's nothing, you know, that we're looking at. But again, just to have that optionality, if you go back over the last 18-24 months, we've been solely focused on deleveraging and fixing the balance sheet, right? So we've gotten to the point where now we can be flexible and we can at least entertain if someone calls with an opportunity like that, right? So it's making sure we have that dry powder because if I went down to our minimum level of cash today and all of a sudden, you know, something became available that I thought was in the shareholders' best interest in terms of growth over the next, you know, three, four, five years, and I couldn't take that call, or the only reason I could take that call is if I had to increase my debt, not a good position to be in. So again, the message is it's going to be a balanced approach and trying to balance that between three, four different levers. So maybe $700 million is minimum. What's appropriate? What's the level that you want to have? Yeah, it's probably going to be north of that, whether that's $800, you know, you know, it's hard to pinpoint that at this point. Again, because I don't look at it, you know, in the broader scheme of where we are in the cycle versus where the macros are, where we see it. But I don't think it's prudent right now just to run a company on its minimum levels. Okay. Any last questions? The audience? Go ahead, Matthew. With BYD and the Chinese expanding all around the world, how do you think this is going to impact suppliers like Adient and across all commodities with the Chinese also coming in, in addition to the Aisins and the Densos and the Mobises of the world? I'll start, maybe, Jim, and if you want to add in. I'd look at Adient, though, just in terms of our global capabilities, right? I mean, we have capabilities across the globe. We have, you know, some of the best, you know, tech centers out there. We have proven results. We're working with all those customers, you know, outside of the Americas, right? So as they bring them over here, we already have a presence with them. We already have a footprint. We have the relationships and we have, you know, results that have been well documented just in terms of our strength of execution, right? So I think all of that helps us as they continue to move over here. And it really solidifies our position in terms of being able to provide components to them. If you don't mind flipping two slides ahead, the other thing I think that would set us apart and remain competitive in what you've described is really our execution, right? Along with, you know, the operational execution and continues to have to be cost competitive in order to retain what we've got and build upon it is also from a product evolution side. There's examples of this out in the reception area right now. But like our UltraThin technology, what we're able to bring to customers is a smaller footprint, you know, shorter base underneath the seat so that customers can put battery packs underneath. There's innovations that we bring that Mark had alluded to, not just from a day-to-day execution, but also from a product integration standpoint. Fortunately, we're out of time, but I want to thank you guys, Jim and Mark. It's great having you here and great content. Thank you. Thanks, Rod.