Adient PLC Aktie

All right. Good morning, everyone. Welcome to day 2 of the -- my name is Rajat Gupta. I'm a member of the Automotive Equity Research team at JPMorgan. Very pleased to kick off day 2 with the team from Adient, Mark Oswald, Executive Vice President and Chief Financial Officer; and Jim Conklin, Executive Vice President of the Americas region.

I believe the Adient team has a couple of slides they want to run through, and then we'll go into Q&A.

Great. Thanks so much, Rajat. And thank you very much for hosting us today. Really appreciate being out here today. Thank you for joining us this morning. As you know, Adient released its Q3 fiscal year '26 earnings last week. So I'm not going to go into a lot of detail just in terms of the financials. A lot of people have looked at those. We've had the post earnings calls. But I do think it was worthwhile to kind of go through at least a summary of how we see '26 shaping up. We've got one quarter left here and then more importantly, what we're seeing as we head into '27. And then I'll turn it over to Jim Conklin. Jim heads up our Americas operations within the Americas. So I know there's going to be a lot of questions just in terms of what the Americas team is doing in terms of onshoring, how they're implementing automation across the enterprise, what they're doing in terms of margin expansion. So I'll leave some time for Jim and then obviously take some questions, Rajat.

So just starting off with '26, I'd say the key takeaway there is we're delivering on our commitments, right? So we laid out some commitments at the beginning of the year. Team has done a good job at executing against that. The Adient operating model is working extremely well. There have been some external macro challenges, obviously, with Middle East, higher input costs, right? But what we've shown is each of the regions have been very resilient. We've been able to battle through certain of those. We do view those as temporary. When I look at what's more sustaining, though, is really the growth over market that we're seeing within the Americas division, what we're seeing over in China. We would expect that to continue as we look into '27.

Again, if I look at what we're doing from a capital allocation perspective, we said that we're going to be balanced with the capital allocation. We've been buying shares back. We expect to buy more shares back here in the fourth quarter. It's all about generating cash flow, how can we return that to the shareholders, whether it's through buybacks, whether it's through some voluntary debt paydown, so you could expect more of that. So when I look at that, as we exit '26 into '27, I think we are entering '27 from a position of strength. We expect that the program wins that Jim and team have done through the onshoring in the U.S., obviously, will help the top line there. Growth over market in China is going to be continued strong in 2027. That's going to allow us to continue to increase our business performance, right, business performance improving on the backs of whether it's automation, whether it's the restructuring that we've spent over in Europe starting to take hold, the continuous improvement. That in turn will continue to drive margins higher as we go into '27 from '26.

So again, as we look into '27, there's a lot of positive notes that we're seeing on that front. We did indicate that there's a few things that need fine-tuning as we go through the next couple of months here, right? We still have to look to see where inventories end up in '26, what that's going to impact in terms of overall vehicle production in '27.

Restructuring, kind of hard to call at this point. We're looking -- especially over in Europe, we spent quite a bit of dollars restructuring in the past couple of years. That's going to be dependent in terms of what happens with our customers in terms of what they're going to do with their product programs, what they're going to do with their plants. Does it have a ripple effect into us. And some of those bills could be $20 million to $30 million. That's why when we're sitting here today, I can't give you a specific number in terms of restructuring other than say that we'll continue to operate in a fiscally responsible way and spend the money if we need to with you in mind.

And then we'll look at other items such as CapEx as we continue to spend in automation, right? Again, being fiscally responsible, but understanding that we need to continue to invest in the automation to continue to drive the business performance and margins higher. So really positive about where we're finishing '26. Very positive in terms of heading into '27 that the Adient business operating model will continue to drive the results positive. So from this view right now, very positive in terms of next year.

And with that, I'll turn it over to Jim where he could touch base on the Americas.

Yes. Thanks, Mark. So the Americas for us is about a $7 billion region, made up of North and South America. We have a little over 40 plants within the network. And just a little bit of color specifically on Americas specifically. As Mark mentioned, we continue to execute extremely well. It's our day-to-day execution with our customers that's really the key foundation for us to be able to have the growth that we're anticipating, call it, over $400 million of new incremental conquest and onshoring business over the next couple of years that really allows us to be one of the key drivers of growth within the network. That includes going over recent launches. We recently launched the Kia Telluride seats as well as Rivian R2 seats. We'll continue to see more and more of that as we go forward and executing very well.

From the customer and supplier partnerships, we continue to stay very close with our customers, not only on the launch activities, but how we're growing, where we're growing and how to bring the right level of innovation and creative solutions for our customers as they execute onshoring, new program launches and things like that. For example, we've had multiple customer meetings just even in the month of July. We had one customer with members of their Board of Directors come to one of our manufacturing plants and their top executive team to walk them through how we're executing today on their products and our vision with very tangible evidence on our shop floor of how we're executing the next generation with a new level of innovation, automation, implementation of AI in order to be more cost effective, driving the right quality solutions for our customers going forward. And a lot of that customer interaction includes dealing with some of the ups and downs that we've seen over the, call it, 2026 in the truck market, making sure that we're staying ready, available and adaptable and flexible. However, they choose to be able to run trucks from a high content version to a low content version and some of the erratic nature that we're getting passed on some of the truck production that we have.

On the innovation and automation side, this is where we're spending one of the biggest parts of our energy and efforts right now. What's clear to us is that if you're not thinking of the next way to make seats or any type of interior product, if you're sticking with the traditional manufacturing mentality in this market, you're going to be left behind. So we have to be very aggressive. We have to be very creative on how we're driving cost out of our network, whether it's the cost of labor going forward, availability of labor going forward or simply a way to drive the overall vehicle price down. This has to be and is a way that we continue to challenge ourselves on the next way to manufacture, design and manufacture seats going forward.

So we've started at this. We've been very aggressive with this. We started by targeting what I'd call the non-value-added activities as a part of seat manufacturing. Non-value-added activities would mean the end customer doesn't really care about it. End customer doesn't care if you have to test the seat to make sure it functions correctly or it looks pretty at the end of your seat assembly line. So we started on really focusing on automation on that. Since then, we've expanded that to look at how do we do more of the value-added content. How do we install components and parts as a part of the manufacturing process to be more cost-effective?

So we've launched multiple pilots that are actually currently going on in our plants right now that all have, frankly, less than a 2-year payback period. While a lot of the generation and creativity of these innovations start in the laboratory environment, start at our corporate offices, we worked very quickly to get it on to the shop floor. What we've seen is that once we get this technology and these new ideas and these new innovations into a plant's hands, they're going to drive a whole new level of execution and creativity to it to make sure that we have the right uptime, that we're delivering the right quality and most importantly, we're getting the payback that we've committed their valuable capital dollars to. It's a part of a payback period to make sure that we're seeing the cost-effectiveness on this and not just increasing our fixed cost as a part of that going forward. So that continues to be a very high priority for us. Our customers are extremely interested in it. And this is one of the keys that's driving a lot of our -- it's a contributing factor to how we're growing within this market in the region of Americas.

And then finally, on growth, I mentioned a little bit about the growth that we've had. We've recently announced wins on Dodge Dakota, the VW business, Conquest business in South America. And finally, a lot of replacement business that we have today like on the Ford Mustang. So we continue to be in a favorable position with several of our customers and have the ability to chase, pursue and win business with the right customers, with the right products where it makes sense. For example, the Dodge Dakota win for us was very strategic for us. We already supply Jeep seats to Stellantis on their Toledo campus since the Dodge Durango will be built on that campus. For us, this fits in very well to our existing footprint, utilization of existing resources and assets. It will build on one of the Jeep lines we already have today. So it's very strategic for us while increasing revenue and profitability while minimizing the amount of investment going forward.

As a part of this growth, there's also a little bit of offset we've been very open and transparent about, about continuing to execute our strategy and minimizing third-party metals business. In our next fiscal year, we'll have a little bit less, around $100 million less on third-party metals business going forward. We'll continue to execute metals business with the right customers that like to have full integration that we do very well with. We want to continue to grow with them, and that's a part of the business model we have with them. And while we're growing, we're also trying to make sure that we're being very smart about our fixed costs. Over a 2-year period, we'll be restructuring growth through rightsizing. We'll be consolidating 4 plants within our network over the next 2 years. Some of that's already started. Some of that is yet to be announced. So we're making sure while we're growing, we're not just taking on the growth, but we're also trying to be very smart and strategic about how we mitigate our fixed costs and use some of the sale of those assets to fund some of our restructurings and some of that growth going forward.

Great. No, thanks so much for that quick overview. Maybe -- and there are like 5 or 6 topics, I think, which investors have been debating. Free cash flow is like a big topic, then capital allocation, Europe restructuring, China margins and then Americas is obviously a pretty good story. Maybe I'll just start with Americas first. Could you unpack a little bit the GM conquest win that you had? How much of it came down to modularity, footprint, ability to support long-distance low-cost labor. Just help us run through like what helped you get that win?

Yes. GM is a great customer for us. We do have very strong relationships with them. We have an existing footprint. We have an existing footprint within the Kansas City area that supplied the GM plant there for a number of years. The feedback we got is really -- that helped us win that business is, frankly, around the creativity that we brought, a combination of modularity from a long distance perspective, utilizing long distance subassembly deliveries using low-cost markets where possible as well as a combination and commitment we've made to automation and that part of the innovation to be able to execute accordingly. That's really the feedback we got from General Motors. They really liked our creativity and aggressiveness on that. We have a very strong network within our Mexico region. And so utilizing those assets where we can build the trim for that product, the foam for the product and incorporate the metals that will come from someone else, executing nontraditional manufacturing solutions to be able to make sure we're optimizing the cost of that seat product going into GM's plant there was really what set us apart is the feedback we've got.

So we're trying to maintain that level of creativity and aggressiveness while staying very flexible and nimble based on what happens with USMCA. We have multiple strategy and multiple solutions that -- while we control the things we can control and have, I'd like to say, operating, we're walking around on roller skates to be able to stay nimble and flex as we need to on what we can't control, which is where USMCA ends up in some of those negotiations.

Maybe double-clicking on automation. Can you give us a sense of what the payback looks like, where the incremental margin opportunity sits as you're rolling these out?

Yes. So again, every project we look at is ideally a minimum worst-case scenario under a 2-year payback, right? And that's going to vary based on where we're implementing the automation, what type of environment we're operating in, the cost structure of the facility where we're automating. We have great teams in our plants. And so what we like to make sure we're prioritizing is augmenting the great work that our teams do today while equipping them with the right tools to be able to automate some of those non-value-added activities.

A great example for that for us within the region is we stay very close globally with our peers globally. For example, we have teams that work globally on the right way to move material around on the shop floor. Our plants in China operate without a single team member doing a non-value-added activity of moving material around the shop floor to take it from a material storage area to line side to be built into a seat. They are our benchmark to be able to execute that within the Americas.

So moving material around on the shop floor is an area that to us is low-hanging fruit as non-value-added to be eliminated, all the way to actually installing components on the seat line side, installing headrest, installing the plastic side shields with the controls to move the seats. We've got a lot of innovation that are being executed right now and some that are actually successful in plants that we can now roll out to the rest of our network. And we do a lot of global partnership to make sure that we're taking the innovation and creativity around the globe and executing that in each region.

And the other point on that, Rajat, is it's across all of our components, right? So Jim's team will focus on not only automation within the JIT plant, but also within our foaming operations, right? If you ever want to come and look at a metals plant, if you look at the weld inspection, right, what they're doing on that, what they're doing on the trim, the cut and sew, right? And again, it's not only Jim's network, but it's across the whole globe, right? And so as he indicates, we have the subject matter experts that share best practices, how do we look to move that from one region into another region, right? And so it's really a global effort on that in terms of making sure that we can get that across our network.

One of your competitors obviously talks about being a lot ahead when it comes to automation. I mean, what's the difference in approach would you say that you have versus some of your bigger peers? Where do you think Adient is ahead? Or where do you think there's still more work to do?

Yes. I can't speak to whether we're ahead or not. We're trying to be as aggressive as we can within our market. And I believe our competitors are also doing things extremely well. I'm not going to say it's better or worse. But again, what we've seen is to be able to get the equipment -- to get a new process into our plants as soon as possible to allow them to take it, call it, from a 40%, 50% concept, something that works well in the laboratory, to get it into the hands and actually have it executed on a shop floor is a real big enabler for us.

Our plant managers are awesome, but they can also be very stubborn, right? Why you gave me this new toy to play with, right? Is it going to be reliable? Is it going to give us the right quality? How many maintenance people do I have to be able to, right -- to be able to keep it up and running. So once we get it to the shop floor, we really see it really boom and grow to be able to be executable. We can get one plant and one plant manager and their team to be able to find success in that. It's really easy to make that team a champion to tell their peers to say, no. We got it in and we kicked the tires on it. We found a way to execute it. We changed X, Y and Z. Now it runs awesome. It's got 99.5% uptime and those types of things. We can then sell it to the rest of our network, those other stubborn plant managers, if you will, that have their own financial commitments to make sure we're getting the payback at every site that we need to.

Got it. Maybe just rounding out Americas a little bit. You have the $100 million metals business rolling off. I mean, it's low margin. I imagine then you have the $400 million backlog rolling in. How comfortable you are with Americas outgrowth into '27? And do you think like investors or us, are we underestimating the margin opportunity here given the mix dynamics and also the payback you can start to get from automation?

Yes. We're very optimistic and very happy about the growth that we're seeing. It's a very exciting time to be within Americas region because of the growth that we're seeing. And it's really based on the execution we see every day of our teams. The relationships from our business unit teams at our corporate offices with our customers continue to be extremely strong, driven and supported by the execution of our plant teams day in and day out. For example, our South American region, the Conquest business that we got there is almost a 50% improvement in their revenue on an annual basis that we get right now. So very excited and not concerned as far as we're looking to maintain that.

As we continue to see a level of onshoring within the region, Ford just announced yesterday that they're going to be moving some Lincoln production from China back into the Americas. Toyota recently announced that they're going to be moving Tacoma vehicle production by 2030 back into the Texas area. Each one of those moves and announcements is an opportunity for us. So each one of those, we approach very aggressively with those customers that we continue to have very strong relationships with. So we have a lot of confidence in our ability to continue that growth above market that we've been describing.

Understood. That's helpful color. Maybe going to like a little more global, maybe on Europe. So you have the same metals roll-off margin mix benefit that you would get. But I think you kind of indicated that the growth is a little more challenging. Maybe you could double-click on that. What are you seeing there? What are the risks? And given some of the uncertainty around growth, how comfortable are you with still expanding margins in that region?

No, good question. And so as we look at Europe, you're absolutely right. We think of it as a low growth, no growth region for us, right? I mean if you think about where we were a few years ago back to where we are now, right, we're down to about $4.5 billion revenue. And so we recognize that. So we've taken some actions over the last couple of years to obviously [indiscernible]. I think we've done a good job on that. The big question mark is what's happening over in Europe in terms of our customers, what they're going to do with their programs, what plants they're going to be operating in, what does that do to us in terms of we're supplying that plant.

Put that aside, we'll continue to focus on SG&A. [indiscernible] know that the restructuring dollars that we spent over the last couple of years will add to that business performance as I go from '26 to '27. I do have, call it, $90 million of third-party metals business rolling off within that region. So that's going to contribute to that business performance. Continuous improvement is going to continue. So I do have a good line of sight just in terms of even in a no-growth environment that margins can increase from where we are today.

So let's just say that we're at 2.5% margins in Europe today. If I look out over the next couple of years, again, just on the roll-off -- roll-on, roll-off, if I look at the automation that's taking place there, if I look at the restructuring spend and the benefits of that, I do see the margins improving over in Europe, and we're confident with that. The question becomes what's the terminal margin for Europe, right? Do I think that, that region will ever get to, call it, a 6%, 7%, 8% margin? No. I think it's structurally different than the other pieces of Adient. Do I see it going from, say, a 2.5% margin business to a 4%, 4.5% over the next couple of years? Yes. I do see opportunity of that. And then if you think about just the overall growth for the company, right, if I look at Jim's region, I see that top line continuing to grow, I look at China and APAC continuing to grow, my weighting for Europe is going to be less. So even if I get margin improvement there with no growth as a whole, I still continue to improve my margins over the next several years as we continue to march up from where we are today.

Got it. Is there a scenario where margin expansion might be difficult at all from these levels in Europe, given what you know today?

Yes. I'd say based on what we know today and all else equal, I still say with my insight into the balance in balance out, my benefits from restructuring, right, and my automation, it still improve margins at that point, right? The uncertainty is what happens, right, to the broader economy over there, what happens to consumer demand, what happens to some of those knock-on effects that could influence. But from what we have control, I see margins walking higher.

Understood. Maybe just pivoting to China a little bit. It seems like you're tracking a little bit better than what you communicated on just the margin headwind this year, the 100 basis points and maybe some of that flows into next year. Maybe help us understand like how it's coming better, why it's coming better? Are we up for another surprise next year? Maybe just help us run through that.

Yes. I'd say that we've been very transparent over the course of the last year, indicating that as we pivot from being more concentrated in the past, go back 2 years ago, we were probably 60% weighted towards foreign manufacturers, 40% to local Chinese manufacturers. We announced a couple of years ago, based on our backlog, based on our wins, that we'd see that pivoting and we'd be more representative of what the Chinese macro look like in the industry there. And today, we're sitting at, call it, 60%, 65% Chinese local, 40% foreign.

Well, as that has happened, we indicated that there would be margin compression as certain of our legacy customers like the Volvos of the world, the Mercedes of the world sold less and the Chinese manufacturers sold more. But the team has done a good job at managing that. So we gave you the guidance of about 100 basis points. Team has done a good job of offsetting certain of those headwinds, right, whether it's through automation, whether it's being more efficient with SG&A, right?

So as Jim and his team continues to work to expand margins over there, the APAC team and the China team is working very hard to at least minimize any type of degradation, right? So that's why you're seeing the margins result come out a little bit better this year. But if some of that bleed into '27, probably we'll be out within, call it, 1st of November with our guidance for '27. But our overall thought is if we can contain that margin degradation to, call it, 100, 150 basis points in total from where we were starting with, which was a very robust double-digit margin, right, as long as we're continuing to grow the top line, it's going to convert into additional EBITDA, going to convert into additional cash flow, right? Net-net, it's better for the region and for the company.

Got it. And so once you are done with the 150 basis points and maybe in a couple of years, you would still be happy with the trade-off of maybe -- is there a risk of like more maybe ongoing compression, but you offset that with like much higher growth?

Yes. And I think as we get out 2 years, we'll have to evaluate, right? So if you look at our growth over market today, it's extremely strong, right? I wouldn't plan on that happening in perpetuity. So is it 3x? Is it 2x? It's going to be growth over market. I just don't know in 2 or 3 years what that's going to be. And then obviously, you have to do the analysis to say, okay, does it still make sense to go after and continue to outpace the market even if it could be further decremental to your margins, right? So we'll do that analysis.

But again, I think if you look out into the next couple of years, when you start looking at automation, when you start looking at what the team can do over there to continue to drive their business performance, I don't see any risk of that. I see that being a continuous double-digit margin, highly generative part of the business for Adient.

Understood. Maybe I'll just pause to see if there's any questions from the audience here. Not yet. So maybe just to continue on that path, I mean, whenever we talk about China and Europe, we had to talk about some of the intricacies between the 2 regions given the whole export dynamic. A lot of talk about OEMs localizing production -- Chinese OEMs localizing production in Europe at some point. How is Adient positioned for that? Where do you expect to win content, foam, trim, recliner? And could that even maybe help change the margin profile of Europe?

Yes. It's a good question. So I think we're very well positioned, right? So the fact that we are -- if I just look at our history in China, we've been in the China market for 20-plus years. We have a very good relationship with the Chinese OEMs, as I indicated, that's why we're winning the business. Our manufacturing capabilities, the speed that we're able to produce and run for them is at their speed, which they really enjoy and like. So as they've continued to move outside of China, we've been partnering with them, right? So if I look at BYD, for example, as they moved into Thailand, for example, we're able to source and win certain of the component business over there, whether it's trim, whether it's foam. As they move to Eastern Europe, it's the same, right?

So we continue to have those relationships. We're continuing to quote on that. There's some, what I'd say, limitations from being certain of the JIT suppliers over there, right, especially for like a BYD where they can do it internally. But again, if I look at and I focus on my foaming business or I think about the trim business, those are good margin components for us, and we'll continue to source and continue to win that business with them now.

Understood. Maybe just putting it all together, if we look at -- you've also given us a little high-level color on fiscal '27. But it looks like Americas, you have decent outgrowth visibility despite the metals roll-off. China looks like a good guy. Europe is kind of uncertain. But it looks like in totality, you still have -- there's still like revenue growth, excluding FX and other one-timers. And from a margin perspective, you clearly have the mix benefit of the metals roll-off. Maybe some Chinese margin pressure continuing, but then you have the benefits of automation continuing and then just the incremental margins that come in Americas. And then you have a lot of like onetime stuff from this year, like that hurt you like $35 million to $40 million, the Middle East disruption related. I mean, is there any way you can help size -- it looks like you have both growth and decent margin expansion opportunity, but any way to size or range bound that for us?

Yes. I think your summary was spot on. So when we look at the bridge from '26 into '27, there's a lot of reasons to be optimistic, right? So we're going to continue with the outgrowth. Business performance is going to continue to move forward. That's going to drive margins higher. And again, it's supported by a combination of factors, whether it's automation, whether it's the top line growth, whether it's the roll-on, roll-off, et cetera.

Premature to tell you exactly what that EBITDA will end up being, right? I could just indicate that would we be expecting, obviously, margin expansion from '26 to '27? Absolutely. And that would be in what I'd say, even if I look at current expectations for IHS at this point, just in terms of -- depending on where you think you're going to go with FX rates, production obviously can move over the next couple of months, right? So we will fine-tune that. But even based on where we are today, if I just do the math of the top line right now, I still see that margin expansion as we go into '27 for total company.

Got it. And if you look at just business performance, $75 million-ish this year onetime stuff. You've done around $100 million in the past. With all the benefits from automation and the restructuring, is it reasonable to expect that you have a better contribution from business performance?

I think we'd be disappointed if we weren't targeting that $75 million to $100 million.

Got it. Understood. Now again, going from like that framework to like free cash flow, which is a big topic, $130 million this year, you have $50 million of onetime stuff that does not repeat next year. There are some of the -- you're going to have like natural margin expansion in the Middle East, costs not repeating to some degree. I think the 2 big TBDs you've talked about are restructuring and CapEx. If you could just dig into those a little bit. Like where is the uncertainty coming from? When are we -- what are you waiting for to get more visibility on those?

So you're absolutely right. If you think about Adient's calls for cash, right? So if you start off with your adjusted EBITDA assumption, if I just look at my calls for cash, right, my cash taxes should be lower from '26 to '27 because '26, we indicated that there is $20 million of what I'd call a onetime settlement in one of our jurisdictions that we had to pay, right? So that should be a good guy as I move from '26 and '27. My interest expense, we're somewhere around that $190-ish million in cash interest this year. We're doing a lot of work on the capital structure to make sure that we can bring those cash interest costs down. In fact, we're in the market this week refinancing the 7% notes. So again, it's just what I'd say a constant chipping away. So I'd expect our cash interest to be down year-on-year.

The 2 big unknowns are really the CapEx and the restructuring as indicated. I talked a little bit so far this morning on the restructuring dollars, right? We're somewhere around $120 million this year. Most of that is primarily in Europe. Still working very closely with certain of our customers over in Europe as they finalize their production plans, where their products are going to be made, right? What impact does that have? So it's really week-to-week conversations with them. So that's why there's big uncertainty there just in terms of -- if there's a plant that's impacted, it could be a $30 million to $40 million tab that either us, the customer or a combination of us and the customer would have to eat. So that's why we're being a little bit vague as it relates to that.

And then the CapEx number, we guided to $300 million this year. It's all going to come down to, right, we know what programs we've won. Obviously, there's the cost that goes along with that. So as Jim and his team have won the onshoring business, his CFO constantly reminds me, growth is not free, right? And I push back and I say, "Well, you have to be more efficient and resourceful with how you spend that CapEx." But there's going to be an element of automation that has to go in the plants. Again, that's what the customers are expecting, as Jim indicated earlier, if you just look at the onshoring wins that we have with GM, there's a level of expectation that we do have to take some labor out of the plants. We do have to be more efficient, right? So that's again, each of us then will sit, Jerome, myself. Each of the heads of the regions will sit over the coming weeks, months. We'll review all the automation projects. We'll look at the returns on those. We'll look at the paybacks and decide ultimately where it makes sense to spend that. So again, that's the other uncertainty. So some puts, some good guys there, probably some headwinds there. We'll look and we'll provide you a little bit more color in November in terms of where that ultimately lands.

Got it. And how much is the automation spend typically within that CapEx number?

If I go back a couple of years ago, it was, call it, $20 million. I think this year, we're closer to $40 million. And so again, just as Jim and team puts things back in the plants then to sort of implement, right, it's going to go higher than $40 million. It's just going to be a level of how much higher.

Got it. So that's kind of like the main toggle on the CapEx. And then just lastly, since you have a minute left, so 1.7x net debt to EBITDA. You've given us indication that you're going to start buying back stock for your fourth quarter results. Just curious like you used to talk about like some refinance, you're refinancing the 7%, you have the 8% next year. How should we think about priorities on capital allocation outside of the buyback as well?

Yes. Great question and a great point about the net leverage. We came out with a target a couple of years ago indicating that we'd like to be between 1.5 and 2. If I looked at what my cost of debt was back then versus where it is today, it was a lot lower, right? I think our cash interest expense back then was about $150 million. We're closer to $190 million. So even though we're within that nice, what I'd say, range, we still recognize there's a lot of cash going out the door. So like 8.25% is a perfect example. If I can go out in the open market and I look at where those are trading for now, it's like somewhere around [ 103 ]. That's a little less than a year payback. So I'll be apt to sprinkle a little bit of that in there with the share repurchases. We've always said that we're going to be balanced. Again, if the stock is trading $18, $19, I'll probably be a little heavier towards the repurchases. I do think that we're very much undervalued where we're sitting today. But I also have to address certain of the debt stack. So again, it's going to be the combination of the 2, and we'll just be optimistic or opportunistic in terms of how we've operated in the last couple of years. In fact, if I look at over the last couple of years, we basically returned $600 million to investors, $520 million of that with repurchases, $80 million with debt, right? So again, I'll look to be a little bit more balanced probably as I go out over the next...

Understood. That makes a lot of sense. And with that, we're on time. So thanks, Mark and Jim for doing this. Appreciate it.

Thank you for having us.

Thank you very much.

Welcome to Adient's Third Quarter 2026 Earnings Call.

[Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Linda Conrad. Thank you, and you may begin.

Thank you, Shirley. Good morning, everyone, and thank you for joining us.

The press release and presentation slides for our call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer.

On today's call, Jerome will provide an update on the business. Mark will then review our Q3 financial results and our outlook for the remainder of our fiscal year. After the prepared remarks, we will open the call to your questions.

Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement.

In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release.

And with that, it is my pleasure to turn the call over to Jerome.

Thanks, Linda. Good morning, everyone, and thank you for joining us today.

I'll begin with a business update on our third quarter performance as well as provide an update on how we are managing through the current operating environment and why we remain confident in the strength of Adient's operating model.

Before that, though, I want to take a moment to recognize our global team. Their unrelenting focus on execution, launch discipline, customer responsiveness and operational performance is what reinforces Adient's position as the supplier of choice. Our strong relationships with our customers continue to drive new business awards and support the durability of our revenue base.

I would also like to thank our customers for their continued trust and partnership. Their confidence in Adient and their willingness to rely on us on some of their most important vehicle programs is something that we never take for granted. We remain committed to earning that trust every day through flawless execution, innovation and operational excellence. With that, let's turn to the Q3 summary page.

Our third quarter performance aligned with our internal expectations even as external conditions pressured near-term results. Consolidated revenue was approximately $3.9 billion, up 5% year-over-year, while the adjusted EBITDA was $225 million, flat compared with prior year.

The point I want to highlight is that the pressure we are seeing this year has been largely external and in our view, temporary. Vehicle production remained relatively stable overall, but certain customer programs have faced headwinds and the Middle East conflict drove macro-related pressure, including elevated commodity and freight costs and lower exports into the Middle East, primarily from Asia outside of China.

In commodities and freight, specifically, costs remain elevated, but we are beginning to see signs of stabilization. Overall, we see these headwinds as manageable.

Most importantly, our business performance remains solid. The operating model is delivering. Our book of business remains strong, and we believe Adient is well positioned to capitalize on top-line growth as the external environment normalizes.

We also demonstrated our disciplined approach to capital allocation during this quarter. We returned $30 million to shareholders through share repurchases in Q3, bringing year-to-date repurchases to $55 million, and we remain committed to our balanced capital allocation strategy as we move through Q4.

Stepping back, Q3 was another quarter where the team executed well through volatility. The near-term headwinds put downward pressure on reported results, but the underlying performance of the business remains solid, and our operating model continues to position us well for future growth and shareholder value creation.

Moving now to the regional update on Slide 5. As we look across the business this quarter, what stands out is the resilience of our regions to deliver even as conditions remain mixed across the global automotive industry.

Each of our regions is managing through a combination of external pressures, customer-specific volume fluctuations and ongoing geopolitical impacts. At the same time, we are seeing encouraging evidence of the actions we've taken to strengthen the business are translating into resilient performance and positioning us well for the future.

Starting with the Americas. The region delivered a solid quarter supported by strong operational execution, favorable customer mix and disciplined cost management. We achieved sales growth and margin expansion despite temporary operational inefficiencies and customer-driven interruptions. The team remains focused on controlling what we can control, including managing through elevated commodity and freight costs related to the Middle East conflict.

At the same time, we are engaged in constructive discussions with customers around onshoring opportunities. While we have nothing new to announce today, we believe Adient is well positioned to benefit from these trends over time given our North America manufacturing footprint, engineering capabilities and strong embedded and durable customer relationships.

Moving now to EMEA. The environment remains challenging. Lower customer production levels and ongoing market softness are pressuring volumes and profitability. That said, we are seeing the benefits of the restructuring and operational actions we've implemented over the past several years take hold. Business performance is improving, cost discipline remains strong, and we are working closely with customers to navigate the current environment.

We also have line of sight on the roll-off of our underperforming metals business, which we view as a positive contributor as we move into fiscal year '27. While there is still work to do, the team remains focused on improving the quality of the business and driving further operational progress.

Moving to Asia. China remains a dynamic market. While the broader market has softened, our business once again outperformed and continues to benefit from strong positions with many of the customers gaining share in the market today. Customers such as NIO and Leapmotor supported by new launches, premium content programs and continued customer confidence in adding it's capabilities.

In addition, our mix is rapidly moving closer to the industry profile, where approximately 70% of production is represented by local OEMs. While that shift has created some expected margin pressure, the impact is occurring more gradually than we initially anticipated. As a result, we do expect some additional margin compression as we move into fiscal year '27.

While attention is typically focused on China, it's also important to highlight the strength of our business across the rest of Asia, which generates nearly $2 billion in annual revenue. We are a leading seating supplier in the region, and our combination of scale, customer diversity and disciplined execution provides a solid foundation for continued profitable growth. For additional context, we have included an overview of this business in the appendix that we would encourage you to review.

The strength of our Asia business outside of China, combined with our strong competitive position within China, continues to support attractive earnings and cash flow generation. Asia remains an accretive region for Adient and will continue to be an important contributor to our long-term growth, profitability and shareholder value creation.

When we step back and look across the portfolio, we see a business that is executing well. The Americas is building momentum. EMEA is making measurable progress despite a challenging environment, and Asia is selectively growing with market leaders while maintaining profitability and supporting our long-term growth strategy.

These regional trends reinforce our confidence in the strength of our operating model, the quality of our customer relationships and our ability to create sustainable shareholder value over the long term.

Moving to Slide 6. I would like to spend a moment on what sits behind these results because our performance is not accidental, it is intentional. It is the direct product of Adient's position as a supplier of choice, and that status is earned every day across 4 dimensions. It starts with launch execution.

Consistent flawless launches are the foundation for everything else. Our proven ability to deliver complex programs on time with strong quality and responsiveness is what earns the confidence of our customers. This is reinforced by our engineering and innovation.

We are involved in early vehicle development, bringing innovative products that support content growth and partnering with customers to take cost out of the value stream. We strengthened that foundation further with our world-class footprint, which allows us to support customers globally.

Collectively, this is what allows us to execute on programs consistently across regions with the scale and operational flexibility our customers need. Supplier of choice status matters. It converts directly into tangible business wins, deeper customer relationships and long-term shareholder value.

Nowhere is that clearer than a customer recognition, and this quarter gave us several standouts. We were recently honored by both Toyota and Mitsubishi for being an outstanding supplier. And we are especially proud of the Adient team in the Americas for once again being named GM Supplier of the Year for the fifth consecutive year, which reinforces the strength of our relationship and the confidence customers have in Adient's execution. That same trust supported the recent Chevrolet Equinox conquest and onshoring win we announced last quarter.

Furthermore, in China, Adient recently received NIO's highest supplier recognition, the Guardianship Award. This reflects more than a decade of mutual trust and collaboration with NIO. Adient was also named to NIO's primary and preferred partner list, recognizing us as NIO's primary seating supplier.

Adient also received Chery's highest supplier recognition, The Excellent Supplier Award in recognition of our outstanding launch execution and support for the KP31 pickup export program. That award ties directly back to the importance of launch execution already mentioned.

Customer recognition is the leading indicator. Being a trusted partner ultimately results in new business awards. On the next slide, we will walk you through a few of those as well as a few premium program launches.

Slide 7 highlights several proof points that support Adient's future growth and durable revenue visibility. They reflect the strength of our customer relationships, our engineering capabilities and our ability to launch complex seating programs across regions. We are winning business where our customers need a partner that can support them from design and engineering through launch and production.

There are a couple of themes here worth calling out. First, our platform wins reinforce the long-cycle nature of our revenue. Programs such as the Ram Dakota, Honda Pilot and Tata Nexon are not only important awards for Adient, but they are also important platforms for our customers. Being selected on these programs reflects the trust our customers place in Adient and helps strengthen our long-term position on vehicles that are central to their future plans.

We also want to highlight the commercialization of innovation and its growth across customers. As an example, ProForce Massage Flow is moving from concept to production across multiple customers in Asia as shown with the recent awards on the Changan Avatr E518 and the Dongfeng Voyah H77B.

And finally, our launch execution remains a competitive advantage. In EMEA, we are supporting vertically integrated launches with global OEMs, including the Volvo EX60 and Mercedes-Benz AMG.EA-GT. In Asia, we are launching complete seat systems featuring premium content such as zero gravity seating and power swivel on the Leapmotor D99.

Taken together, these wins show the foundation of Adient's operating model is delivering tangible commercial outcomes. We are leveraging engineering, manufacturing scale, vertical integration and customer trust to secure higher-value business and support future content growth. That is what gives us confidence in the durability of our revenue stream and our ability to convert execution into long-term value creation.

Let's take a closer look at a specific example on Slide 8. As you may recall, we mentioned the launch of the all-new Nissan Elgrand last quarter. It is worth spending a minute talking about this program because it represents the breadth of capabilities that Adient brings to its customers.

The Elgrand is Nissan's first major redesign of this platform in more than a decade and is an important program in the premium MPV segment. For Adient, this program showcases how we help customers differentiate their vehicles through content-rich seating solutions. The vehicle includes zero gravity seating, enhanced comfort and adjustability features and a unique third row architecture that combines passenger flexibility with cargo functionality.

In addition, this program showcases Adient's ability to provide our customers with vertical integration, which optimizes seating design and manufacturability across foam, trim and JIT, resulting in improved cost and quality for our customers.

Looking a bit more internally at Adient and the how of what we do. The Elgrand program also highlights our ability to drive manufacturing process innovation. A few examples of this is that the program has AI-enabled weld inspection, fully automated rail assembly, automated loading and unloading at the end of line and seat inspection. Our commitment to manufacturing process innovation helps improve quality, consistency and operational performance.

If you have a chance after the call, I'd encourage you to take a look at the short video linked on this page, which shows an example of our AI weld inspection process in action and provides a practical example of how we're applying automation and artificial intelligence on the plant floor, not only to improve quality, but also reduce costs to improve the competitive position of Adient and its customers.

Innovation at Adient is not just about a few new features. It's about integrating engineering, manufacturing, automation and launch execution to help our customers win in the marketplace while enhancing the strength of our operating model.

Moving to Slide 9. In closing, before I hand it over to Mark, I want to come back to a point I made earlier. Adient is executing through a volatile environment, external cost pressures, customer-driven disruptions and uneven market conditions are creating near-term headwinds, but the underlying performance of our business remains resilient.

Across the portfolio, we're focused on controlling what we control. That means advancing regional improvement plans, driving operational excellence and investing in actions that strengthen the business over the long term. A good example is how we're responding to the production volatility we're seeing on certain customer programs, in particular, full-size pickup trucks. Rather than simply absorbing these inefficiencies, we're accelerating investments in automation, digital manufacturing and advanced material handling technologies.

These initiatives are helping us improve productivity, increase operational flexibility and reduce labor intensity as well as better manage fluctuations in customer production schedules. Those are the kinds of self-help actions that enhance our competitiveness and strengthen our operating model regardless of the external environment.

On the regional progress, the Americas is building momentum. EMEA is making progress through restructuring and customer collaboration, and Asia remains accretive to Adient supported by strong customer relationships and growth with market leaders, creating a world-class competitive moat.

At the same time, customer recognition, launch execution and new business awards reinforce the strength of our operating model and support our confidence in the outlook. Our focus remains on finishing fiscal year '26 strong, delivering our commitments and positioning Adient for success in fiscal year '27 and beyond.

With that, I will hand it over to Mark to walk us through the financial results and outlook.

Thanks, Jerome.

Let's turn to the 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. My comments will focus on the adjusted results, which exclude special items that we view as either onetime in nature or otherwise not reflective of the underlying performance of the business.

Full details on these adjustments are included in the appendix of the presentation for reference. That said, moving to the right side, high level for the quarter.

Sales for the quarter were $3.9 billion, up 5% year-over-year, reflecting favorable FX, strong volumes, particularly in the Americas and Asia and solid commercial discipline. Adjusted EBITDA was $225 million, relatively flat year-on-year, reflecting the impacts from the Middle East conflict-related costs and temporary operating headwinds, which we'll get into further in a couple of slides.

Equity income was lower year-over-year as a result of lower volumes with certain customers in China, primarily driven by softer demand on ICE vehicles. Adjusted net income was flat year-over-year at $38 million or $0.48 per share. Let's dive into the quarter beginning with revenues.

Turning to Slide 12. Consolidated revenue increased 5% year-over-year to approximately $3.9 billion, reflecting favorable volume, pricing and foreign exchange. Looking at regional performance, the Americas outperformed the market, benefiting from strong volumes with key customers, pricing and recent program launches.

While we're pleased with the momentum, we would expect that the level of outgrowth to moderate into fiscal year '27 as certain lower-margin third-party metals business rolls off, which is consistent with our portfolio optimization strategy.

In EMEA, sales remained below market levels, primarily reflecting customer mix. As Jerome noted earlier, this remains a difficult volume environment across the region. We are managing through that directly with our customers, staying closely engaged on current production dynamics and taking the actions necessary to support performance as market conditions evolve.

China remained a significant source of growth. Consolidated sales increased approximately 33% year-over-year despite a softer market, driven by strong production ramp-ups at customers such as NIO, Leapmotor and Nissan.

While launch-related growth will naturally moderate over time, these programs reinforce our strategy of aligning with customers that are gaining share and expanding in attractive growth segments.

The rest of Asia underperformed the broader market, primarily due to customer mix as certain customers faced greater volume pressures than the overall region.

On the unconsolidated side, sales declined approximately 17% year-over-year, primarily in China, reflecting lower volumes on legacy ICE vehicle platforms as the market shifts towards NEVs as well as modest impacts from Middle East-related disruptions. Importantly, this trend largely reflects customer mix dynamics rather than any change in our competitive position.

Overall, the key takeaway is that we're continuing to grow where the market is growing. Our customer portfolio launch cadence and exposure to leading programs that support above-market growth in our consolidated business even as we navigate differing regional and customer-specific dynamics.

Moving on to Slide 13. Q3 adjusted EBITDA was $225 million or 5.7% of sales. During the quarter, we absorbed approximately $32 million of temporary operating related to Middle East conflict and customer supplier-driven disruptions, reflecting higher net input costs related for commodities, freight and operational inefficiencies.

Excluding those items, EBITDA margin would have been in the mid-6% range, about 80 basis points higher than our reported results and are above our prior year levels. We believe that this better reflects the strength of the underlying business and the progress we're making through operational execution, commercial discipline and ongoing self-help actions.

While these external pressures weighed on results, the operating model performed as expected, supporting our confidence in the business and our ability to deliver on our commitments.

As per our usual format, the appendix waterfalls provide an additional insight into the regional details. I'll walk through these relatively quickly. In the Americas, adjusted EBITDA increased $13 million year-over-year to $125 million, supported by favorable volumes, partially offset by temporary customer and supplier-driven inefficiencies and Middle East conflict-related costs.

In EMEA, adjusted EBITDA declined $7 million to $14 million. Volume and mix remained a headwind, but business performance improved through restructuring benefits and SG&A discipline, which helped offset part of the regional pressure.

In Asia, adjusted EBITDA was $107 million, down $6 million year-over-year. The region remained highly profitable, but results reflected lower equity income, expected mix margin compression in China, lower ICE vehicle demand and higher launch investment to support our growth plans.

Overall, the results reinforce the same message Jerome delivered in his opening remarks. The business is executing well through volatility. Temporary external pressures are weighing on near-term results, but the underlying operating performance remains resilient, and we remain focused on delivering our full year commitments.

Let's move now to our cash flow walk on Slide 14. We generated $138 million of free cash flow in the third quarter, bringing year-to-date free cash flow to $161 million. There are a few important items to keep in mind as you think about our year-to-date cash performance.

As you'll recall, our free cash flow generation is heavily weighted in the back half of the year due to seasonality of our business. This quarter benefited from approximately $45 million of customer payment timing, which we expect to reverse in the fourth quarter and reflected in our outlook.

Year-to-date, free cash flow has benefited from strong operational execution, disciplined working capital management and lower restructuring cash spending compared to the prior year.

As a reminder, we had a nonrecurring tax settlement that was paid out last quarter, and we've had an increase in capital expenditures this year to support growth initiatives.

I would also note that our teams have done an excellent job proactively managing cash generation across the business. We have accelerated certain customer recoveries and tooling-related collections where possible and remain focused on working capital discipline, which helped strengthen our cash position entering the final quarter of the year.

Turning to Slide 15. Our balance sheet remains strong and flexible, which is critical in today's operating environment. At quarter end, we had approximately $1.8 billion of total liquidity, including $924 million of cash and roughly $834 million of available revolver capacity, giving us substantial financial flexibility to manage volatility, support the business and remain disciplined in our capital allocation.

As I highlighted on the previous slide, it's important to note that the quarter end cash balance included the approximate $45 million of customer payment timing, which we expect to reverse in the fourth quarter.

The progress we've made strengthening the business was also recognized externally with Moody's upgrading Adient's corporate credit rating to Ba3 during the quarter. We view that as a validation of our improved balance sheet, consistent execution and disciplined financial management.

Our leverage ratio ended the quarter at 1.7x, comfortably within our targeted range of 1.5 to 2x. Also mentioned that we have no near-term debt maturities. We've also returned capital to our shareholders, repurchasing approximately 1.3 million shares for $30 million during the quarter.

As always, we'll remain disciplined and balanced in how we deploy capital, prioritizing long-term shareholder value while maintaining financial flexibility to support the business. Overall, we believe we're entering the final quarter of the year from a position of strength with a healthy balance sheet, ample liquidity and flexibility to navigate a dynamic operating environment.

Turning to our updated outlook for fiscal '26. We are increasing our revenue guidance to approximately $15 billion, primarily reflecting improved customer production schedules and to a lesser extent, favorable foreign exchange. The higher revenue outlook is supported by recent launch activity, growth with key customers and expected strong execution across the business.

At the same time, we are maintaining our adjusted EBITDA guidance of approximately $885 million and free cash flow guidance of approximately $130 million. While underlying operational performance remains solid, persistent headwinds resulting from the ongoing Middle East conflict such as elevated commodity and freight costs, are expected to pressure near-term results.

As we enter Q4, our priorities remain clear, execute for our customers, manage the factors within our control, deliver on our commitments and position Adient to create value in fiscal year '27 and beyond.

Before we open the line for questions, I want to spend a few moments on Slide 17 and briefly share our thoughts on a few of the key drivers likely to impact fiscal year '27 results. We will issue formal guidance for fiscal '27 in November as in prior years as the team continues to fine-tune and gain clarity on such items as vehicle production, foreign exchange, trade policy, input costs, capital expenditures and restructuring.

That said, based on what we see today, we believe the business is positioned for above-market growth in the Americas and China, supported by onshoring wins, recent new and conquest awards and ramping programs with key customers, especially with our continued progress with domestic Chinese OEMs in our Asia business.

In the Americas, that growth will be partially offset by planned exit of certain low-margin third-party metals business. We expect positive business performance to be driven by our focus on automation, restructuring, commercial discipline and continuous improvement across all disciplines.

From a capital allocation perspective, our priorities remain unchanged. We expect to maintain a strong and flexible balance sheet, operate within our target leverage range and continue balancing investment and profitable growth with returning capital to our shareholders.

As we've discussed, approximately $80 million remain under our current share repurchase authorization. Given our balance sheet position and cash generation profile, we expect the Board to increase the authorization later this year. So while it's still early, the underlying indicators support our confidence in the positive momentum of the business as we look towards fiscal 2027.

And with that, operator, we can move to the question-and-answer portion of the call.

[Operator Instructions] Our first question comes from Joe Spak with UBS.

Mark, maybe just to start on some of the higher Middle East costs and resins. And I just want to make sure I understand some of the commentary here. So, I guess you're going to sort of try to go back and retroactively get some payment for the higher costs incurred. We'll see, I guess, how successful that is.

But your other comment about stabilization, I just want to make sure I understand that secondarily. Like does that mean that if that those price increases moderate from here, like you'll begin to be able to reprice for those higher prices, so that's less of a headwind. And when should we expect that to occur if it does stables?

Yes. Good question. I guess I'd look at it in 2 fronts, Joe. So first of all, the costs that we're incurring there, you could break it up into 2 buckets, the Middle East cost, which for the quarter, call it about $20 million, that includes like higher freight, fuel and as you indicated, the resin costs or the commodity costs for our chemical foaming operations, right?

For the foaming operations, we do have pass-throughs and escalators in place with about 90% of that business, right? So those refunds or those recoveries will come. It will obviously be on, call it, about a 2-quarter lag is what we typically experience. And so, with the war continuing, we would expect that to also continue into Q4, right, with some of the recovery starting obviously in Q4.

So, for full year, call those Middle East costs somewhere in that $35 million to $40 million from where we are today. The other, call it, $10 million or $12 million that make up that $32 million that we called out this quarter is really the customer-driven costs, right? And those would be just inefficient operating patterns at certain of our customers as they continue to work with what I'd call inefficient operating patterns there. So that was about $12 million for the quarter, bringing that total to $32 million.

So, we would look as we go into Q4, those to start to subside, right? So net-net, as I look at full year, that $32 million probably becomes somewhere around $35 million, $40 million for the full year. Does that help?

Yes. That does. And then the second question is, I guess, just on restructuring. And I know you sort of -- was on sort of your list of potential challenges, I guess, for next year.

I guess just to maybe start, is there an updated restructuring number for this year? I think you previously mentioned something like $120 million, but it looks like it's only $77 million year-to-date. So, I don't know if that means there's a larger amount coming or maybe some things are coming a little bit better.

And then just bigger picture with concern over some customers restructuring in Europe, even though I know that's probably not necessarily happening next year. But just to help level set investors, like if you assume the worst case and you had to like completely close the facility, like what -- would that cost you like $30 million? Or like can you sort of ballpark frame what that would sort of cost so we can level set expectations?

Sure. I'll start, and Jerome, feel free to jump in. So, for the full year, we have not changed our outlook. So call that somewhere in that $120 million range, right? As I look into '27, that's one of the elements that we said we still need to get clarity on. We're working with customers as they look at their platforms, they look at their end of production, where they're going to move production to. That's the big wildcard, Joe.

So, you're absolutely right with your magnitude, right? If there's a certain platform that all of a sudden is in one of our facilities and it comes out, you could be looking at a bill of $30 million or more.

And that's why Jerome and I, as we went through this year, we said we'd love to give you like what the next 1, 2, 3 years of restructuring charges looks like so that you guys could have clarity. The problem is we just don't have that clarity yet from our customers.

And so, we'll continue to if there is restructuring to do it in a very efficient way, we've come up with, I'd say, different tactics in the back past where we've done long distance, for example, where we've been able to save on restructuring charges. But that is really the big wildcard as we go into 2027.

Is it fair to say that -- I mean, I know you sort of talked about sort of like the more long-term normalized restructuring level is lower. But is it fair to say that given timing and some of your initiatives and obviously, some of the restructuring that you're doing now rolls off that it's unlikely to get worse? Or still...

Yes. I think it's -- yes, it's just probably too early to tell only because, again, I'm waiting to hear from our customers in terms of what their final plans are. Do I think that over time, it should trend down? Yes, but it's going to be very lumpy because it's all going to be dependent on when certain of those programs actually end production.

For certain of the regions like Americas, for example, Joe, they've done a great job at what I call self-funding, right? So, if they have to shut a facility down, we've done very good at selling the plant, selling the facilities right.

So there are, what I'd say, different offsets to that, too, that we also have to, what I'd say, fine-tune as we go through the next couple of months because there will be some asset sales, there'll be some building sales, right, that we could lean on to help out with what I'd call the distributable cash that obviously gets put back to our owners.

Our next question comes from Emmanuel Rosner with Wolfe Research.

My first question is on Asia and China. Just for China, can you just dimension for us your exposure to exports from the region to other regions, to what extent you're sort of like broadly in line with the sort of industry weight more or less? And then on Asia, just with the direction of margins year-to-date, maybe a couple of points or lower. Just how do we think about it on a go-forward basis, please?

I'll take the first one, Emmanuel, and thank you very much for the question. As far as our export exposure in China directly, we are below what the total market export rate is today. A lot of that is driven by our historical joint ventures that we were engaged in when we wound those down. Yanfeng would have kept a large presence with a lot of the exporters there.

And now we focus more on certainly rotating our portfolio to the domestics, but then also rotating it towards domestic production that will remain in China that we view as more durable in the longer term. So we are under-indexed to total export volume in China.

And I hope that answers your question on that part, and then I'll turn it over to Mark for the second one.

Does that help, Emmanuel?

Yes, yes.

And then for your second question, just in terms of the margin contraction there, obviously, we've been very transparent as we've gone through the year there. We did say that's going to be very manageable, call it, 100 basis points or so. You've seen the outperformance there. So again, big picture, as long as I can continue to grow my top line, convert that into EBITDA and free cash flow, right? I view that as very manageable.

The team is also doing a very good job at mitigating how much of that margin contraction there is. They're using, as Jerome indicated, whether it's automation, they're looking at different techniques, operating patterns over within the region over there. So again, extreme focus on minimizing the impact of that contraction. I still look for that region. It's still a very, what I'd say, profitable region, very cash-generative region for us, and it will remain that way.

Got it. And then just a question on free cash flow, please. So last quarter, you had showed walk towards normalized free cash flow, which was maybe something like $100 million more than what you have this year. About half of it is lower restructuring. And I understand that this is still TBD as we look into next year in terms of restructuring spend. I was curious about sort of like some of the other buckets, like are those -- would those still be on track to improve for 2027?

Okay. I'll start with the response, and then I'll hand it over to Mark. I think as we look at that normalized cash flow and really then the distributable cash flow that we believe is the potential of Adient. Long term, that is still our clear objective and where we clearly view that we can get to.

I think as you begin to size up '27 and kind of turning back to what Joe's question was, restructuring will be an unknown that we'll sort through. On the capital expenditure side, which will be another large bucket, would anticipate an uptick in capital expenditure given just the growth that we're going to see that we talked about earlier in the Americas, in China and also our drive for automation.

As we look to expand margins and drive margins higher, automation is going to be a key lever associated with that. And that's why we haven't called it out yet what we expect capital expenditures to be because it's just too early to call based on some of our more recent wins and the timing associated with them and when the capital will roll in.

On the other buckets, such as interest expense, we will continue to be prudent on our capital allocation program. And then it is worth noting, as Mark said, taxes are notably higher this year. due to a one-time payment that we had in one of our jurisdictions. We expect that to trend towards a more normal level as we get into already fiscal year '27.

Mark, anything else to add?

No, Jerome. [indiscernible]

Okay. You had one more bar in there, which was fiscal '25 pull-ahead actions of $30 million. I assume that, that's still -- that would still not recur going forward, right?

Correct. Correct.

Our next question comes from Rajat Gupta with JPMorgan.

I just wanted to follow up on like just the Asia and China margin question. You had expected like 100 basis points China margin compression this year. Curious if you could quantify like how it was year-to-date and how we should think about just the fourth quarter and into 2027? And I have a quick follow-up.

Yes, sure. So, we -- you're absolutely correct. We did indicate about 100 basis points of compression. If I look at this year, I would expect us to track pretty close to that as we go through the balance of this year.

Again, it just when I think about the mix of vehicles, the launch of vehicles that come on, what's happening from the commercial side of the business, right? When you think about commercial recoveries, that all plays into what I'd say, the cadence of that margin as you progress through the year. And so again, it's going to be lumpy between quarters, but I think that 100 basis points is pretty much the bogey that we're looking for.

Any read into 2027 yet on the trajectory for those margins?

Yes. Again, early days, we're still going through, obviously, certain of the fine-tuning there. I think what we do have very good insight is into the growth over there, what vehicles are going to be launching, what we're winning business with. As I indicated, we expect that to remain significantly above market over there.

The team also right now is going through, I'd say, the fine-tuning for what they're going to be doing in terms of -- from an operational perspective, right, what type of automation tools they're going to implement at the plants, et cetera, right?

So, as they go through and fine-tune that, obviously, that will weigh on the performance of whether or not we could contain the margins even, I'd say, closer to less than 100 basis points. But too early, but I'd say that overall, still very manageable in terms of what we see in the forecast for remainder of '26 and into '27.

Understood. And just a follow-up, the China export question like in reverse. I'm curious like what you're hearing from some of your European OEMs who export into China. Curious like how -- has there been any change in like launch timing, any delays that you're observing? Just curious what the latest conversations have suggested and how you feel about the 2027 margin trajectory in the region.

You broke up a little bit, but I think part of the question was around exports in our European business into China. And given our profile -- yes, so given our profile there, and even if you go back several years where Europe was a net exporter, they're now a net importer. And our exposure to exported platforms into China was generally, I'd say, fairly low with the exception of S-Class, where we supplied all the components on S-Class, and that was a large exporter into China.

Outside of that, I wouldn't say significant exposure or risk on a go-forward basis on vehicle platforms that are exported over into China. As far as the margin profile of our European business going forward, Mark already talked about, we already have now a clearer line of sight on metals projects that will start to roll off in fiscal year '27, which will present a tailwind for us.

We also have positive balance in of other projects and then some of the restructuring actions that were taken starting in '25, completed through '26, taking hold as well in '27. So all else being equal, we would expect to see margin expansion in our European operations next year.

Our next question comes from Colin Langan with Wells Fargo.

Just a follow-up on Europe. I mean, on your slide, you indicated you expect outperformance in the Americas and Asia next year, but not Europe. Is that just purely the roll-off -- because you just mentioned a second ago that you have sort of backfill business there. Was that the roll-off of the metals business? Or is there like a customer mix issue that's kind of dragging the performance down? And any way to remind us the size of the metals business? Is that something like $500 million that's going to eventually roll off? Or is it bigger or smaller?

Yes, Colin. So that is primarily the driver next year. I'd say next year, you're probably talking about $90 million of it rolling off followed by '28, another chunk of it, probably a little bit bigger in '28 rolling off versus '27. But for planning purposes, yes, $90 million next year rolling off is what you should be penciling in.

Yes. And to the first part of your question, as Mark said, in particular, a portion of that is the metals business rolling off there. I do think I wouldn't necessarily refer to it as a customer mix issue as much as it is, it's been targeted by us on certain platforms where we've just deprioritized them or exited them, coupled with certain vehicle assembly plants being idled in Europe where we had exposure to. So it's really a mix of all 3 of those, Colin.

Got it. That makes sense. And then one of your top competitors talks a lot about automation. I noticed it was on your slides and in your commentary today. I mean, where do you think you stand in sort of the need to automate your production and how you think you are relative to your peers? Is that a disadvantage? Or do you think you have some catching up to do? Do you think you need to spend more there in automation? Any thoughts there?

The first part of your question, I think automation in certain regions we operate in is an absolute necessity. If you look at some of the more recent union agreements that have been settled, that's all public information, you can see the wage inflation that we're facing.

And we're committed to working to offset that through essentially looking at our supply chains, working with our partners in the plant and automation where required. So automation is going to be a necessity moving forward.

And that's part of -- if you go back to the color I added to Emmanuel's question on cash flows in '27, we will see an increase in automation spending in order to expand margins and not just keep pace, but really drive it forward with earnest.

In terms of how we're positioned versus our competitors, I think if you look across our portfolios, I believe we are competitively positioned across all of them in terms of the technology we have available to us, the partners that we work with on the outside to drive the automation through and where we're able to implement it at scale.

I think what we need to be cognizant of is we are very targeted in where we deploy automation and making sure that we're not trading a variable cost such as labor that we can flex on some of our more unstable programs with a fixed cost that you then you're essentially stuck with and it becomes a much more difficult commercial negotiation.

So, we've been very targeted in how we deploy automation in our JIT factories based on kind of the run rate stability and ongoing prospects of some of those chip platforms. If you contrast that to trim, metals and foam, where we're really, I'd say, leading or world-class in those areas, it has been a very aggressive deployment because we share those factories across multiple customers, we're better able to flex the fixed costs. Hopefully, that answers your question on automation.

Our next question comes from Dan Levy with Barclays.

I wanted to start out with just what's going on with Americas and the backlog. Maybe you could just talk to this very strong outperformance you saw in the third quarter, which I know you said is unlikely to recur.

But the additional piece of this is you talked about above-market growth in the Americas. At one point in the past, you had mentioned that you could see Americas growth over market at mid-single digits. You've also said at some point that there could be $400 million of potential backlog opportunity in '27, which would equate to a pretty significant step-up of revenue. So maybe you could just go through some of the program revenue dynamics for the Americas business.

Yes, I'll start, and then I'll hand it over to Mark. In the Americas business on our high return on capital product lines. And when we talk about those, we're thinking about JIT, trim and foam. I think we are -- we do have a line of sight to above-market growth on those. We talked about the backlog with the onshoring. A good deal of those onshoring wins were fully integrated or will become fully integrated in the '28 time frame.

And so I think when we look at those product lines, we continue to see above-market growth. Is it 2%, 3% or 5%? I think we'll have to see how mix shapes up next year and how quickly some of our truck platforms recover, that's going to be key. And I think you have to weigh against that when you look at the total region revenues is the wind off of metals programs, which we've talked about. We continue to talk about that, and we will continue to see that as we move through fiscal year '27 and '28.

So while the region as a whole may be slightly above market growth to potentially flat to market growth and our high return on capital product lines, we will see above-market growth, which will lead to margin expansion. And as we look at kind of net of automation deployment, expanding cash flows.

As a follow-up, I wanted to just ask about some of the dynamics of mix and the conversion to revenue. So in the second -- in the third quarter, we saw volume mix on the EBITDA line was negative 2% on $147 million of incremental revenue. Maybe you could just explain that.

But as we go into '27 and you have the step-up of Americas backlog, you have a wind down of revenue of programs where the margin was fairly low, what types of incremental margins we should expect on the revenue dynamics? Should it be theoretically higher than what you've seen in the past because you have this lower-margin business rolling off?

Yes. I think -- and I'll start there, and Jerome, feel free to jump in. But what we've typically said is somewhere in that 16%, 17% range is what I would look at for my incremental. And I wouldn't think that next year would be any different from that.

I think when you look at this past year, for example, we've been absorbing certain of the Middle East costs, certain of the customer-driven costs, right, despite some of the higher volumes there. So I think that gets behind us as we go into 2027.

As Jerome mentioned, we will have some of that metals business rolling off next year, call it about $100 million of metals business rolling off in the Americas. So again, I'd say that you're probably right around that 16%, 17% incremental as you see that revenue roll in next week -- next year.

At this time, I'll turn the call back over to the speakers.

Thank you, Shirley. Thank you, everyone, for your interest in Adient. We appreciate your interest. And if you have any follow-up questions, please don't hesitate to reach out. As a reminder, we will be in New York City next week at the JPMorgan Conference. Hope to see many of you there. Thank you, and have a nice day.

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.

Welcome to Adient's Second Quarter Earnings. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Linda Conrad. Thank you. You may begin.

Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for the call today have been posted to the Investors section of our website at adient.com.

This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our second quarter financial results and our outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions.

Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement.

In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release.

And with that, it is my pleasure to turn the call over to Jerome.

Thanks, Linda. Good morning, everyone, and thank you for joining us to review our second quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook.

Overall, Q2 results came in line with our expectations, reflecting typical seasonality in China and some temporary production inefficiencies on a few key programs. Despite that, revenue was up 7% year-over-year, driven largely by FX tailwinds with underlying growth in both the Americas and Asia. Adjusted EBITDA was down modestly year-over-year, reflecting temporary mix, launch costs and customer-driven inefficiencies, partially offset by favorable FX and SG&A. Free cash flow in Q2 reflected the normal seasonality of the second quarter, and we ended the quarter with a cash balance of $831 million and $1.6 billion of liquidity. Given normal cash flow seasonality and the increased geopolitical uncertainty, we paused stock repurchases during the quarter, consistent with our approach last year.

Turning to growth. We continue to aggressively pursue new business in all regions. In the Americas, more OEMs are announcing their intention to onshore production in the United States. We are working with our customers to capitalize on these opportunities as their plans materialize. We have also won significant conquest programs in South America and China. And in China, our growth over market remained strong despite the overall production volume challenges in the region.

Finally, as we look beyond the quarter to the full year, based on what we know today, we are increasing our guidance modestly for revenue, adjusted EBITDA and free cash flow. Favorable volumes and strong business performance are being muted by $35 million of expected input cost headwinds, which Mark will outline further in his remarks.

Turning now to Slide 5. While I just noted that Adient is raising guidance slightly for fiscal year 2026, we acknowledge that the overall macro environment remains volatile. The ongoing geopolitical conflicts, elevated energy and commodity costs, trade policy uncertainty and shifting consumer sentiment continue to influence the industry. While nobody can predict what will happen for the remainder of the fiscal year, what differentiates Adient in this environment is our operating model. We combine strong commercial discipline and pricing mechanisms with exceptional operational execution, flexing labor, controlling costs and launching flawlessly, supported by a strong balance sheet with ample liquidity. That allows us to execute at a high level even amid production volatility and supply chain challenges.

Despite these external headwinds, our year-to-date results reinforce our ability to execute. We continue to drive positive business performance despite temporary disruptions and customer-driven inefficiencies. We continue to outpace the market in China as expected. And we maintain margin discipline across regions, while preserving a strong and flexible capital structure. This is how we manage what's within our control and why we continue to deliver on our commitments and maximize long-term shareholder value.

Before I get into the regional update, I want to recognize our global team's exceptional performance year-to-date. We have received over 60 awards in the last 2 quarters, comprised of recognition from our customers, industry organizations and independent quality assessors across the globe, a testament to our operational excellence and the trust our customers place in Adient. In addition to these noteworthy accomplishments, Adient continues to be recognized as an employer of choice in the regions we do business, validating our commitment to our people and enabling us to attract and retain top talent worldwide, which strengthens our ability to execute. These recognitions validate that our strategy is working. We are winning with customers, investing in our people and delivering the consistent quality that builds long-term partnerships and shareholder value.

Now, let's talk a bit more about the regions on Slide 6. While our business is global, each of our regional businesses is impacted by unique market dynamics, and each is facing its own set of opportunities and challenges. In the Americas, we are navigating a complex and dynamic environment, driven in part by tariff policies, which are manageable at current rates but continue to be fluid. Onshoring and growth remain a key focal point for the Americas team, especially as onshoring momentum continues. In addition, the teams are driving margin improvements through our continuous improvement programs, automation and optimizing our manufacturing footprint. The team is also focused on launch execution for multiple programs, including the Kia Telluride, Rivian R2 and the Toyota RAV4.

In EMEA, market uncertainty and overcapacity persist and continue to impact not just Adient, but the overall industry. Our team continues to rise to these challenges. We are pursuing and winning new and replacement business and continue to strengthen our supplier-of-choice status in the region. Operationally, the European team is driving favorable business performance through commercial execution, cost discipline and restructuring actions that more than offset the current volume headwinds, all while successfully executing more than 30 launches so far this year.

Turning to Asia. The market dynamics with shorter vehicle development cycles and innovation are a key differentiator. As we will highlight in a few slides, our Asia team continues to commercialize innovation products, which our customers are excited to invest in. Despite industry pressures in China, we continue to outperform the market through launches with local OEMs, which now represent about 70% of our wins. Our world-class JV structure further strengthens our local presence and expands our market. Beyond China, Asia outside of China is also positioned for above-market growth in the second half of this year as new launches ramp. While we do expect some manageable margin compression, the region is expected to remain accretive to Adient's EBITDA and cash generation.

While each region is distinct, what ultimately defines Adient is that we operate as one unified company. Across every region, our teams are aligned around the common purpose, serving our customers, supporting our employees and delivering value for our shareholders. We do that through disciplined execution, seamless collaboration across borders, a strong culture of integrity and the ability to adapt quickly as conditions change.

Turning to Slide 7. This page highlights how our growth strategy has continued to gain momentum. In the Americas, onshoring and conquest wins continue to drive meaningful volume gains. This quarter, we secured roughly 200,000 incremental units from the Chevrolet Equinox U.S. onshoring and conquest win, along with approximately 180,000 units from Volkswagen conquest programs in South America.

These wins reflect the strength of our footprint and our ability to execute reliably as customers regionalize production. That momentum is showing up in our forward book as well. FY '27 booked business has increased to about $400 million and FY '28 to roughly $630 million, representing close to 700,000 incremental vehicles and market share gain. Importantly, that figure reflects what we booked to date. Onshoring trends continue, and we remain in active discussion with global OEMs on additional opportunities that extend beyond what's captured here. We continue to see ourselves as a net beneficiary of customer onshoring.

In Asia, our team has done an exceptional job of competing and winning in a highly dynamic market. As I mentioned in the last slide, approximately 70% of our new business wins in China are with local OEMs, reflecting strong customer relationships, faster development cycles and Adient's ability to localize engineering and execute at scale. That execution is translating into above-market growth with China up 10% in Q2 versus a declining industry. Taken together, this reinforces the momentum we're building across regions as onshoring, conquest and localized execution continues to expand our growth runway.

Moving to the next slide. After the quarter-end, we announced the completion of a tuck-in acquisition that expands our foam manufacturing footprint in the Americas. We acquired a foam production plant in Romulus, Michigan, which supports multiple OEM seating programs, expanding our Americas foam network to 10 plants and 30 plants globally. This is a strategic core business move that strengthens our vertical integration capabilities and helps improve supply assurance and responsiveness for our customers. Our focus is on a smooth integration with uninterrupted service, and we see opportunities over time from logistics advantages, operational flexibility and productivity improvements. This targeted acquisition strengthens Adient's operational model by further improving control over critical inputs, lowering execution risk and supporting more resilient margins. We are thrilled to welcome the Romulus employees to Adient and are excited about the capabilities and commitment they bring to our organization.

Moving on to Slide 9. I want to spend a moment and talk about our recent launches and the new business wins because these are important proof points on how Adient is growing. These wins aren't about volume alone. They reflect higher content, more complex seating systems and deeper integration with our customers across the regions. In the Americas, Adient continues to be a net beneficiary of customer onshoring trends. We are happy to announce the recent conquest win with the Chevrolet Equinox, highlighting once again our world-class footprint, consistent operational execution and strong customer partnerships reinforce our supplier-of-choice status.

We also recently won conquest business on several Volkswagen platforms in South America. This is strategically important growth for Adient as it deepens our footprint with a major global OEM, strengthens our regional manufacturing relevance and positions us for sustained revenue growth and incremental opportunities in the market over the coming years.

In EMEA, program wins such as the new Porsche SUV and recent launch of the Citroen C4 demonstrate continued momentum with leading global OEMs. Importantly, these wins reflect disciplined, selective growth, where we are prioritizing programs that align with our operational strengths, higher value content and improved earning resilience in the region.

In Asia, growth is being driven by domestic OEMs and EV platforms, including Xpeng, Leapmotor and Changan, where we are delivering advanced comfort features, high adjustability and multivariant seating architectures, often with Adient-led engineering development in region. Importantly, many of these awards involve premium comfort content, higher complexity and greater value per vehicle.

When you look at this slide, I think it's important to step back and look at the balance of our growth portfolio. On one hand, programs like the Chevrolet Equinox represent disciplined growth on high-volume onshore ICE platforms, where Adient is winning complete seat content, taking share through conquest and leveraging our market-leading North American footprint, delivering strong execution and solid cash generation. At the same time, launches like the Rivian R2 and Leapmotor D19 position us on next-generation EV platforms, where higher complexity, tighter integration and engineering-led execution support higher content per vehicle and stronger higher-quality earnings over time.

Together, these programs demonstrate that we're not making an either/or choice between legacy and next-gen. We're deliberately building a portfolio that balances scale and cash flow today with complexity-driven higher-quality earnings tomorrow. That balance is exactly what underpins the sustainability of our results and our confidence in the long-term outlook. Overall, this slide reinforces why Adient continues to be the supplier of choice, winning across regions, technologies and vehicle segments, while executing complex launches at scale.

Turning to Slide 10. I want to highlight 2 recent innovation milestones that underscore how Adient continues to turn technology leadership and realize commercial execution. Most recently, we achieved an industry-first launch of our StepJoy foot massage system on the NIO ES9. This is a key example of how we're expanding seating comfort beyond traditional lumbar and back applications, while maintaining compact packaging, cost efficiency and automotive-grade reliability. Importantly, this is not a concept. It is in production today, validating our ability to industrialize differentiated comfort solutions at scale.

In parallel, we're advancing our mechanical massage portfolio with ProForce Massage Flow, which builds on our already validated ProForce platform. ProForce Massage significantly expands massage coverage and gives customers the ability to offer premium seating experience, providing differentiation over traditional highly commoditized massage offerings offered by our competitors. The modular design and production validation allows this technology to be deployed across multiple seat architectures and vehicle segments within an OEM, enhancing scalability, and is already scheduled for production on 2 C-OEM models. The ProForce system is differentiated from what our competitors offer. Together, these launches demonstrate how we're leveraging innovation to drive higher content per vehicle, deepen OEM relationships and support higher-quality earnings over time. This is how innovation plays into Adient's operating model, disciplined, scalable, differentiated and commercially focused to help our customers enhance their overall in-vehicle experience.

Before turning this over to Mark, I want to pause here on Slide 11 because this slide really connects the dots between our operating model and what it delivered this quarter. We speak a good deal about operational excellence, profitable growth, innovation and being a supplier of choice, but these are not abstract concepts. They are the foundation that allows us to execute consistently, especially in an environment like this one. In the second quarter, that execution showed up in very tangible ways. We delivered multiple complex launches as planned, continued to convert supplier-of-choice recognition into conquest and onshoring wins, and advanced innovation programs that are already in production and generating value for our customers.

We also strengthened our footprint and reduced execution risk through a targeted tuck-in acquisition. Our teams have received more than 60 customer and industry awards across the region over the past 2 quarters, reflecting Adient's day-to-day execution and quality, launch performance, responsiveness and employee satisfaction. This recognition is translating directly into outcomes, key talent retention, deeper customer trust, conquest and onshoring wins, and the ability to launch more complex, higher-content programs consistently. That external validation reinforces why our operating model continues to scale in a challenging environment. These proof points are the direct result of how we run the business every day, and they're what gives us the confidence in our ability to convert performance into cash flow generation and sustainable value creation going forward.

Now, I'd like to turn it over to Mark to walk you through the financials.

Thanks, Jerome. Let's turn to financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. As a reminder, the prior period included a onetime noncash goodwill impairment charge of $333 million related to the EMEA goodwill impairment, which impacted our GAAP reported results in Q2 of fiscal year '25 and affects the year-over-year comparability. My comments will focus on the adjusted results, which exclude special items that we view as either onetime in nature or otherwise not reflective of the underlying performance of the business. Full details of these adjustments are included in the appendix of the presentation for reference.

Moving to the right side, high level for the quarter. Sales for the quarter were $3.9 billion, up 7% year-over-year, reflecting favorable FX, solid volumes and strong underlying business performance. Adjusted EBITDA was $223 million. While this was down year-over-year, the comparison reflects the impact of near-term customer-driven production inefficiencies and increased launch expense as we continue to invest in future growth. Equity income was lower year-on-year as a result of lower volumes with certain of our customers in China. Adjusted net income was $41 million or $0.52 per share.

Let's dig a bit deeper into the quarter, beginning with revenue on Slide 14. I'll go through the next few slides relatively quickly as details for the results are included on the slides, allowing sufficient time for Q&A. We reported consolidated sales of $3.9 billion in the quarter, which was an increase of $254 million compared to the same period last year, primarily reflecting better FX tailwinds, along with favorable volume and pricing.

On the right side of the page, we are presenting regional performance on a trailing 12-month basis. This view helps normalize seasonality and timing effects inherent to our operating model and provides a clear picture of the underlying trends. In the Americas, we are seeing growth of 5%, outperforming a flat market, primarily driven by Adient's customer profile, pricing and new vehicle launches. In EMEA, sales have trailed the market, reflecting customer volume and mix and deliberate portfolio actions such as the recent closure of our Saarlouis Ford plant.

For China, while the trailing 12-month view is influenced by earlier-period softness, recent performance has notably been stronger. This quarter, sales in China grew at double digits, while the overall market declined, building on first quarter's significant outperformance. We expect this trend to continue over the next several quarters based on our book of business and launch schedule.

Unconsolidated revenue declined year-over-year, reflecting planned program exits in Europe and lower volumes in China.

Turning to Q2 EBITDA performance. Adjusted EBITDA of $223 million included approximately $8 million of temporary customer-driven production inefficiencies, which we expect to recover in future periods, and $11 million of launch expense, which supports future growth in our expanding program portfolio. Excluding these items, Adient's underlying business performance remains solid, reflecting the strength of our operating model and the continued focus our teams have on operational excellence and delivering on our full year commitments.

As shown on the chart, volume and mix was an approximate $18 million headwind, mainly driven by the shift to China OEMs versus foreign manufacturers in China, which, as mentioned previously, will result in margin compression that we view as manageable, plus a variety of higher volumes on lower-margin platforms in North America in Q2. As in prior quarters, we've provided detailed segment-level performance slides in the appendix of the presentation for your review, but I'll briefly summarize each region at a high level.

In the Americas, we had a solid underlying business performance, reflecting strong execution and program momentum. Results for the quarter were partially impacted by mix, temporary production inefficiencies and launch costs to support the region's future growth. In EMEA, the team continued to focus on driving positive business performance despite a challenging macro environment. And along with FX tailwinds, this helped mitigate the ongoing mix headwinds in the region. In Asia, results were impacted by equity income, the timing of commercial negotiations and planned increases in launch as the region invests in new programs and growth. Equity income was unfavorable year-on-year, primarily reflecting lower volumes in our China joint ventures.

Moving on, let me flip to our cash, liquidity and capital structure on Slides 16 and 17. Starting with cash on Slide 16. For the quarter, the company generated $8 million of free cash flow, defined as operating cash flow less CapEx. In addition to the typical seasonality of our business, second quarter cash flow benefited from approximately $90 million of timing-related items, specifically related to a commercial agreement and a hedging transaction. Both items will reverse and become outflows in the third quarter.

On a year-to-date basis, free cash flow totaled $23 million and included the benefit of the same $90 million timing effect just mentioned. Excluding this impact, year-on-year cash flow performance reflects favorable working capital fluctuations, driven by typical period-to-period swings, lower cash restructuring outflows in Europe, timing of dividend payments, and an increase in cash spending, supporting Adient's growth initiatives and automation spend.

Important to point out, last quarter, we highlighted a nonrecurring tax settlement in a certain jurisdiction that increased our tax -- cash tax forecast for fiscal year '26. That settlement was paid out in our second quarter. Despite the expected $90 million outflow in the third quarter, we continue to expect strong free cash flow in the second half of the year, consistent with our historical seasonality, and remain confident in delivering on our free cash flow commitment.

Turning to our balance sheet on Slide 17. Adient continues to maintain a strong and flexible capital structure. As of March 31, we had a total liquidity of approximately $1.8 billion, consisting of $831 million of cash on hand and $957 million of undrawn revolver capacity. Again, worth mentioning, the $90 million, which benefited second quarter free cash flow, was also included in the March 31 cash balance. I would also point out, Adient did draw on our ABL during the quarter due to typical seasonality and normal working capital fluctuations for our business. The ABL was fully repaid within the quarter.

On a trailing 12-month basis, our net leverage was 1.8x, which remains comfortably within our targeted range of 1.5x to 2x, reflecting both disciplined capital management and the underlying earnings power of the business. Importantly, we have no near-term debt maturities, providing us with significant financial flexibility as we navigate a dynamic operating and macro environment. Overall, the capital structure remains strong and flexible.

Turning now to our expectations as we move from the first half into the second half of fiscal year 2026. The first half of fiscal 2026 delivered solid business performance that was in line with our internal expectations despite a challenging operating environment. We remain focused on what was within our control, maintained discipline in execution and cost management, and exited the first half with a solid cash position and a healthy balance sheet.

As we look to the second half of fiscal year '26, we currently anticipate approximately $35 million of input cost headwinds. Approximately $25 million is related to Middle East conflict through higher chemical and freight costs, and additional $10 million is driven by higher costs as a result of the LyondellBasell chemical supply disruption. This $35 million of higher input costs is expected to be more than offset with the benefits from volume and the acceleration of business performance. The team remains focused on driving business performance and generating cash.

Turning to our updated outlook for fiscal 2026. Based on our performance year-to-date, improved customer production schedules, we are modestly increasing full year guidance for revenue, adjusted EBITDA and free cash flow. We now expect consolidated revenue of approximately $14.8 billion, up from our prior outlook of approximately $14.6 billion, reflecting solid first half performance, updated near-term customer production schedules and the latest S&P Global production assumptions.

Adjusted EBITDA is expected to be approximately $885 million, up from our prior guidance of $880 million, reflecting the impact of higher revenues and increased business performance, which are helping to offset the $35 million of anticipated higher input costs. As a result of these updates, we now expect free cash flow of approximately $130 million, up from $125 million previously. This improvement reflects the pull-through of incremental adjusted EBITDA and continued focus on working capital discipline and cash generation. Cash taxes are still expected of approximately $125 million, no change from prior guidance. CapEx also remains unchanged at approximately $300 million. We have included a simple adjusted EBITDA bridge within the materials on Slide 20 that illustrates the components of our revised guidance.

Before wrapping up, I want to spend a moment on Slide 21 because this page speaks to the durability and trajectory of our cash generation. As we've discussed, the $130 million of free cash flow expected this year reflects several elevated and transitional cash uses that are not structural to the business. As these items normalize, we expect materially stronger EBITDA to free cash flow conversion. Capital expenditures are expected to remain at about $300 million, supporting growth, innovation, operational excellence, while remaining aligned with our long-term capital allocation framework. Restructuring cash flows are expected to normalize as European actions progress. Similarly, interest expense is expected to ease with opportunistic repricings and voluntary debt paydown. And finally, cash taxes are expected to revert to a more normalized level following this year's nonrecurring settlement payment.

Taken together, these actions clearly outline the path to a structurally higher free cash flow profile. Longer term, as business performance and volume continue to scale and calls for cash remain relatively stable, we believe Adient is well positioned to generate materially stronger free cash flow, supporting disciplined and balanced capital allocation, driving enhanced shareholder value.

With that, let's move to the question-and-answer portion of the call. Operator, can we have our first question, please?

[Operator Instructions] Our first question does come from Colin Langan with Wells Fargo.

Any color on why the revenue increase? I mean, we've seen S&P actually lowered numbers, at least on the calendar year. Anything in particular that's driving that? Is that just a geographic mix, certain platform mix?

Yes. Colin, I'd say it's a combination of, one, you have to adjust that we're on the September 30 fiscal year, right? Obviously, we're 2 quarters through. Third quarter, we have pretty good visibility now based on production call-offs, right? And then, it's -- as you indicated, it's based on geographic mix, it's customer platforms that we're exposed to, et cetera.

Okay. And any color on the onshore bidding? I mean, you seem to have won a pretty large chunk of that so far. Has this been sort of a short-term action wave and then more actions will come in a few years? Or is this actually still even early days for some of the onshoring opportunities, and we'll see the larger numbers coming as more stuff gets bid and onshored?

Yes. I think we're -- in terms of the discussions with the customers, I think they're still very active, still very dynamic. At the point where we're at now, I think a lot of them are waiting to see how the USMCA negotiations and discussions go. Once there is clarity on how that shapes up and what the rules in terms of content, how long that agreement will be, whether it will be an annual evergreen or another 7-year bilateral or trilateral, whatever that shapes up to be, I think that will then free up the next wave of onshoring discussions.

I think what's important though and how you think about Adient and how we're positioned, and we've presented figures on this in the past, among seating suppliers, we have the best footprint to be able to capitalize on this. We have more JIT facilities than anyone -- than any other seating supplier in the U.S. From a geographic standpoint, we're best positioned to be able to capitalize on this. We have the capacity to be able to do it. And then, because of our leading modularity, ModuTec, and capabilities, and now with the foaming acquisition, we have the capital ready to be able to deploy the footprint to be able to deploy it and the customer relationships to be able to capitalize on this. And I think we still feel pretty strongly we'll be a net beneficiary of onshoring.

Our next question comes from Nathan Jones with Stifel.

This is Andres Loret de Mola on for Nathan Jones. Just on margins, the decline of 70 bps, can you maybe give a little bit more color on the temporary customer-driven costs? And are they recoverable later on?

Yes. So good question. So yes, if you look at that 70 bps, I'd say 60 bps is really related to mix. And as I indicated in my prepared remarks, a lot of that mix was -- obviously, we were very transparent that as we continue to shift and pivot to the Chinese local manufacturers there, there's going to be margin compression. That's the majority of that. There was also some, I'd say, higher-volume, lower-margin business in the Americas that we saw for the quarter. We do view the mix shift over in China to be very manageable. We've indicated that's going to be falling up somewhere around 100 basis points when we get through the year. So 1 quarter does not make a trend. We have a pretty good line of sight in terms of what launches are coming on, where production is heading over there. Same thing with the Americas just in terms of where we see the volumes heading over there in the next couple of quarters.

Got it. That's helpful. And then, just on the split domestic versus foreign OEMs in China, I mean, can you guys -- I know you said 70% launches with local OEMs. Can you provide a kind of breakdown of what that mix is now and sort of what you expect for 2026?

Yes. So last year, we ended 2025, we were somewhere just north of 60-40 mix over there. And so, as we continue to win -- and we indicated last year, our 2025 wins was also skewed about 70% local Chinese to 30% foreign. So, as we continue to launch this year, that's going to be trending from, call it, that low-60% to that 70% mark over the course of the next 12 months or so.

Yes. And I think as we indicated in the prepared remarks today, our bookings this year are mirroring that same bookings rate, so 70% domestic, 30% [ transplant ] for the win rate. So if you look at our forward roll-on, we would expect our roll-on to continue to drive mirroring that 70% domestic, 30% [ transplant ], so continuing a very aggressive roll-on business and rotation into the domestic OEM. And it really is leveraged by our world-class joint venture footprint that we have there, working with our joint venture partners and really the way we operate our business in China for China with local Chinese leadership, local Chinese management and leveraging our technology. And that's why we talked a lot today about technology, bringing technology to scale there, and it's not commoditized technology. It is leading-edge technology there that allows our customers to be able to price for value, price for the customer in that region through the products we deliver there.

The next question comes from Joe Spak with UBS.

Mark, I want to go back to your comments on normalized free cash flow. And I want to sort of bridge that a little bit to sort of next year as well. And I realize like you're not going to guide '27 now and a lot can happen between now and then. But you are talking about $400 million on the backlog. So even if we assume 10% incremental margin, that's like $40 million in EBITDA. The recoveries from the Middle East is another $25 million. The supply disruption is another $10 million. You have business performance. There's the $100 million in free cash flow timing items you mentioned in '26. So I guess what I'm getting at is, it seems like based on what we know now, and I know things can change, it seems like free cash flow could be up over $200 million next year. I'm just wondering if we're thinking about that correctly, if there's any other offsets we should be thinking about? And if we do see that, I know you said you paused the buyback activity for uncertainty, but why wouldn't you sort of try to maybe get ahead of what seems like a pretty good inflection of cash flow and buy back the stock when it's at relatively attractive valuations?

Yes. Great questions, Joe. I think you're thinking about the buckets the right way. Clearly, there's going to be revenue growth that we've been very transparent in mentioning. So obviously, that will convert. If I look at my calls from cash, as I indicated, those will be relatively stable to improving, right, as my cash taxes trends back to its normalized level. Restructuring -- now, again, restructuring over time will trend back to its normal level in Europe. We obviously still have to look to see the European landscape over there. I don't think anybody is expecting that to get much better over there, right? So we have to see what our customers do with their programs, what that means for our restructuring. But all in all, that will trend back down to its normalized level.

Interest expense, as I indicated, we're opportunistic with repricing like we've been doing with the Term Loan B as we basically do some voluntary debt paydown because we do recognize that the disciplined capital allocation policy includes not only share buybacks, but also debt paydown, right, inorganic growth opportunities as we demonstrated this past quarter with the Woodbridge business. Yes, I think you're right. I think the cash definitely trends higher. So I think you're thinking about that in the right way, Joe.

In terms of why not get in front of it earlier and we hit the pause button this year on the share repurchases, as I indicated, we got into Q2 -- because of normal seasonality and working capital needs, we actually did draw on the ABL, right? So we drew $150 million that will be called out in our Q this afternoon when we release that. When we paid that back, clearly, the war in the Middle East, it started, it escalated. We started to see chemical prices increase. We had the supplier [indiscernible] right. So there was greater uncertainty. So it was prudent for us to do that as we went through Q2.

As we go through the balance of the year and we go into next year, there's really been no change in our capital allocation policy. We still expect to be good stewards of capital. We'll still be balanced with our allocation policy right. So, no change from that perspective.

I guess, the second question, just I want to go back to China. Again, on the one hand, you're talking about 70% of the wins in China is domestic. That's coinciding with margin degradation in the region, which I know you said you can expect, and I think the slides had a comment about how it's manageable. But can you just help us like level set like -- because it's sort of tied up within the -- what you show for APAC. I know some of the China business is unconsolidated. Like, where are we now? What level does that backlog really come on at from a margin perspective? And like where can we see margins going? I think you've been very clear, and we can appreciate that, that's going to be a margin headwind. But what's sort of the steady-state level for that business?

I think as we go through the balance of this year, as I indicated, do I still expect us to be down about 100 bps in 2026? Absolutely. As we continue to win new business over in that region, the team has been working very hard just in terms of, again, using automation over there, right? They're basically being sourced, the whole seating, whether it's trim, foam, JIT, right, metals, right, which continues to help out the overall earnings profile of that business over there, right? So the team is working hard to continue to maintain it at 100 basis point degradation. We view that as manageable. As we get into 2027 and start to finalize 2027, and we'll be back out with that. But again, I think that 100 basis points is probably good for your modeling at this point.

The next question comes from Mike Ward with Citigroup.

Mark, maybe just to follow up a little bit on what Joe was asking. On the excess cost, the $25 million, $35 million, does that -- if you're able to recover it by the end of this year, does that provide some upside to your current forecast?

Yes. So again, Mike, if you think about chemicals in particular, right, we have pass-through agreements and escalators with our customers, right? Those typically come on at a 2-quarter lag, right? So third quarter, I'm not expecting any recoveries. Am I going to start getting some of those recoveries in the fourth quarter? Absolutely. Will some of that bleed into '27? Yes. Some of the, what I'd say, customer production inefficiencies, right, we called that out. Is the Americas team going to go back and work with our customers to try and recoup some of that in the back half of this year? Yes, there will be tough commercial negotiations. So could there be some upside, Mike? Possibly. But again, tell me when the war in the Middle East is going to end, tell me what oil prices are going to do, tell me how fast LyondellBasell can get their facility up and operating, right? So those -- we're trying to balance what I'd say is the risk for the balance of the year versus, as you indicate, some opportunities for the balance of the year. That's why we came out with the $885 million guide. That's our best 50-50 look right now in terms of where we think the year is going to end.

Makes sense. And maybe, Jerome, on more of a strategic standpoint, I mean, the trim acquisition, in North America, what type of level of vertical integration do you have for a typical seat?

Yes. So the Woodbridge plant is a foaming plant for us. If you look at our business in North America, I mean, on an average contract, given our customer mix and our customer platform mix, especially when we talk about the large truck platform that we acquired, it would have been 2 quarters ago when we went from just having the JIT and foam, we acquired JIT, trim and foam on that, we will be well over 80%, probably 85% vertically integrated on our business in North America. It is a very, very healthy level now in our North America business. And when I say vertically integrated, I speak about JIT, trim and foam. We've talked a lot about the metals business and trying to look at the metals business and wind out some of our non-healthy metals business. So we've been, I think, very transparent on that. But on the JIT, trim and foam level, it's a very healthy level of vertical integration now in the Americas business. And it's one of the reasons why you've seen the Americas business really have a, I think, nice progression on the margin expansion and the cash flow progression as well.

Up next is Emmanuel Rosner with Wolfe Research.

I was hoping to first follow up a little bit on the commodities outlook. I know obviously, a lot of moving parts between the disruption and the conflict. But at least in terms of the disruption piece, do you have good visibility in terms of the supply? Is it really just a question of higher pricing and basically recoveries coming with a lag? Or is there also -- I guess, what sort of visibility do you have in terms of essentially ensuring supply? And then, what does that look like into 2027?

Yes, I think you have to -- I think, Emmanuel, you have to break it down into 2 pieces. I think you have to break down the LyondellBasell issue and then maybe break down the Middle East/Strait of Hormuz issue. So on LyondellBasell, I think our team in the Americas, with our customer group, has done a very good job of working through alternative means of supply and securing alternate supply chains. So I think we have good line of sight, alternative chemicals supplied, validation underway with our customers. I think we've been able to tie that off.

On the Strait of Hormuz, at the moment, I think we have line of visibility as much as anyone in the industry can have when it comes to supply. I'll go back to Mark's comments. I don't think we can sit here today and be any better forecasters or prognosticators that would say, if it remains the way it is, I can't tell you what's going to happen in 3 months, 5 months, 6 months or anything along those lines. I don't know that I can give you a better answer than anyone else can on that topic, Emmanuel, nor should we really be doing that.

So again, on LyondellBasell, I think we've done a very good job working with our teams. I think we're supplied. We have supply secured. On Strait of Hormuz, I don't think we're in any better condition or any worse of a condition than anyone else in the industry on that topic.

That's helpful. And then, one follow-up on the normalized free cash flow. So obviously, a decent piece of it would be normalization of restructuring spending. It doesn't seem like 2027 would necessarily be the year, first, with potential restructuring needs in Europe. I guess, what would need to happen to be able to sort of like lower this restructuring need? It just feels like in Europe, there's maybe some structural industry trends that would require ongoing restructuring for longer.

I think it's too early to say, Emmanuel, whether 2027 is normalized or not normalized, whether there's a tail-off or not a tail-off. I think we're very much in active discussions with a couple of key customers around the key -- a couple of key JIT manufacturing sites right now and what the future of those sites will be. So it's just -- it's too early to say what '27 and even '28 look like at this point.

In terms of what needs to happen in Europe, I think there needs to be stabilization within the European theater on industry volumes and capacity rationalization across not only the JIT landscape and the seating landscape, but also our customers' manufacturing landscape. And I think there's still announcements coming out at our customers, where they're trying to repurpose their manufacturing facilities. You've seen announcements around that. And with that, that opens up opportunities for us to be able to service them in different ways than maybe we would traditionally do. And it's some of those discussions that we're in with them. So I think it's too early to say what our '27 restructuring looks like, whether it tapers off or it doesn't, and the same would go for '28.

The next question comes from Dan Levy with Barclays.

Your second half guidance, you're basically saying that you're offsetting the weaker half-over-half revenue and the onset of some of these commodity costs with better business performance, which you've done a really good job putting up. Maybe you could just remind us sort of like what's hitting now? And then, you've broadly talked about a number of different work streams in terms of restructuring, balance-in, balance-out, labor efficiency. Maybe just give us a sense where you are on your journey on business because it's been so good for so long. And what else is sort of the next front here on continuing to drive those benefits as opposed to sort of clearing out already the low-hanging fruit?

Yes, Dan, maybe I'll start on what we see first half, second half, and Jerome can comment just in terms of certain of the automation, which is going to contribute to the efficiencies and business performance. But you're absolutely right. When I look at first half, second half, sales are going to be down slightly where we called out $35 million of higher input costs. But I've also got the benefit of lower launch costs in the second half of the year. I've got better business performance. As we indicated, business performance starts to accelerate, whether that's through the lower launch costs, my ops waste, my C&I efficiencies that the plant builds as I go through the second half of the year, right? Some of the, what I'd say, frictional costs that [ hit ] in Q2 with the customers, we'd expect that to subside as we go through Q3, Q4. So it's really the acceleration of business performance that really gives me comfort in terms of confidence in what I think I can do in second half versus first half despite the lower levels of [ buying ].

Yes. And then, to your -- second part of your question, what is the -- I'll use my words, the next frontier of driving business performance? We've talked a lot about automation starting to flow in. And even this year, if you look at the capital expenditures that we're putting into the business, that step-up year-over-year in automation, that will start to pay dividends as we get into '27 and '28. And we're really leading the industry in terms of some of the automation we're doing in our foaming business, some of the automation we're putting into our metals business, our trim business, and then, on the JIT side of it, what we've been able to do with our modularity. The feedback we get from our customers is your modularity offerings are leading edge. It's one of the reasons we've been able to conquest and expand our backlog in the JIT side is through our modularity offerings. With that, we're not only able to offer more competitive pricing to our customers, but it also leads to some of this margin expansion story, better roll-on, roll-off into the business. And so, when you look at the restructuring coming in, in Europe starting to pay dividends, but then also modularity, better roll-on, roll-off and then the automation piece of it, that's really where we see this then starting to fuel some of the additional margin expansion that we'll see in the Americas and in our European business going forward and that sustainability piece.

And then, just coming back to some of the questions that we had earlier in the call around Asia and China in particular. I think it is worth continuing to highlight that even though there will be margin compression on the Asia side -- or the Asia Pacific business, as revenues grow there, even with that margin compression, it will still be cash-accretive, margin-accretive and still expanding cash flows for Adient overall. I think it's always important to keep that in mind.

Great. As a follow-up, I wanted to just -- I asked a similar question on the last earnings call, but I think it just gets to a broader theme on where we are on market share dynamics in the seating market and more specifically within North America because one of your competitors has talked about sort of a growing pipeline and traction on awards. So can you just give us a sense, broad strokes, what we are seeing on market share dynamics? Is there sort of a consolidation within yourselves and another one of your competitors away from the rest of the field?

Yes. I think that that's a fair way to characterize it. I think if we look at where the wins are occurring, where some of the market share is coming from and how that pie is shaping up, I think based on the competitive offering that we're able to bring forward, our modularity solutions, the technology that we're able to put in place, I think the pie continues to shrink into those who are able to bring the most competitive offerings forward, who have the balance sheet to be able to do it, who are able to deploy the capital and who are the suppliers of choice into their customers. And I think Adient is certainly one of those, if not the preeminent one in the space.

And I think with that, we're at the bottom of the -- or I guess, the midpoint of the hour. I just want to close the call by first thanking all of the 70,000 Adient employees around the world for your commitment to making the company what it is, and then thank all of our customers for your continued support to the business and to the company, and then thank all of our owners and shareholders for your ongoing support. Thank you very much, everybody.

Thank you.

Thank you. And in closing, I want to thank you once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. With that, operator, we can close the call.

Thank you. That does conclude today's conference. We thank you for your participation. Have a wonderful day. And at this time, you may disconnect your lines.

Welcome to Adient's First Quarter 2026 Earnings Call. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Linda Conrad. Thank you. You may begin.

Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer.

On today's call, Jerome will provide an update on the business. Mark will then review our Q1 financial results and our outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions.

Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement.

In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release.

And with that, it's my pleasure to turn the call over to Jerome.

Thanks, Linda. Good morning, everyone, and thank you for joining us to review our first quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook. We will also discuss new business awards and launches as well as share some insights on our expectations for the future beyond fiscal year 2026.

Before we get into the results, I would like to take a moment to acknowledge the hard work and dedication of our more than 65,000 employees that work diligently every day to deliver on our commitments, especially in light of the significant challenges during the past quarter. The management team and I appreciate the team's collective efforts, which resulted in a solid start to fiscal year 2026.

I would also like to thank our customers around the world who continue to recognize Adient as the world's pre-eminent seating supplier. Thank you.

Turning to Slide 4, which summarizes our first quarter results. The beginning of the year was filled with uncertainty. The Novelis fire, then Nexperia shortage and JLR productions were all unknowns. But as the Adient team does time and time again, we manage through each of these events by leveraging a resilient operating model. Thankfully, the uncertainty of these events is nearly behind us, and we are focused on execution to meet the needs of our customers.

For the most part, volumes are expected to recover within our fiscal year and we expect to mitigate much of the overall impact of these events. Our revenue for the quarter was up 4% year-over-year, primarily driven by FX tailwinds from Europe. Excluding FX, revenue in China was up significantly as expected, delivering on our growth commitments and more than offsetting production headwinds from North America.

We remain laser-focused on new business wins and ensuring we remain our customers' supplier of choice. We are supporting our customers' onshoring efforts in North America, both direct and indirect, and continue to view Adient as a net beneficiary of onshoring. While we have no new programs to announce at this time, we remain highly optimistic about the near-term potential for a large domestic OEM program.

Our free cash flow generation and balance sheet remains strong, which allowed us to allocate capital in a disciplined manner. We returned an additional $25 million to shareholders through share repurchases this quarter, which Mark will detail further in his section, and we ended the quarter with $855 million in cash.

Focusing beyond the operations and the quarterly financials, I would like to highlight that we have issued our 2025 sustainability report, which we will talk about in more detail in a few slides. Finally, as we look beyond the quarter to the full year, we are raising our guidance for revenue, adjusted EBITDA and free cash flow, which Mark will outline in more detail during his section.

Let's turn now to Slide 5. As fiscal year 2026 has become another year of transition for the industry, analysts and investors have been asking about fiscal year '27 and beyond. So we wanted to provide our perspective on this year as well as some insights on where Adient is heading.

We have said a key factor impacting this year's outlook is volume, which is very true. We are a volume-driven business. Production volumes are trending higher, particularly in North America and overall industry volume indicators remain positive. With this production outlook and our resilient operating model, we are confident that we can deliver solid business performance, and as a result, we are able to raise our guidance.

But this year is much more -- is about much more than just volume. It's about launching several key and complex new programs flawlessly. It's about continuing our drive for automation, it's about exceeding our customers' expectations with new and innovative products, it's about ensuring that our teams have the tools and the skills to evolve as AI takes hold. These are the things we are focusing on this year that go beyond our drive for operational excellence.

Whether it's cross-functional or cross regional, our teams are collectively working together to ensure Adient is equally focused on operational excellence and growth. As a result, this is what we expect for 2027 fiscal year and beyond. We expect our investments in automation to ensure continued positive business performance as most projects have a payback under 2 years. We are capitalizing on approximately 400,000 units of near-term onshoring opportunities and will support our customers as they continue to re-evaluate their manufacturing footprints.

Our innovative products and processes such as sculpt the trim will help us win new business as they are expected to improve styling and also reduce costs by nearly double-digit percent. We have accelerated our growth with China domestic OEMs and will exit this year at 60% of our revenue in China from domestic OEMs. We expect this trend to continue.

We expect our growth and cash flow generation to continue to reinforce our disciplined and balanced approach to capital allocation. It is for all these reasons that Adient is well positioned for the long-term shareholder value creation.

In addition to outlining our expectations, I also want to provide some additional specific context around our growth opportunities. As we have discussed, onshoring in North America remains a clear focus, and we are actively working with all of our customers to support their onshoring activities. To date, we have won approximately 150,000 units of direct onshoring business, and hope to be able to provide an update on another significant in the near term.

For clarity, when we talk about onshoring, onshoring for us means a business that is produced outside of the borders of the U.S. and has moved within the borders of the U.S. In addition to direct onshoring opportunities, we've also won indirect opportunities resulting in an incremental 25,000 units for Adient. Beyond onshoring, our customers have continued to recognize us as a supplier of choice, resulting in approximately 100,000 units of new and conquest business in the Americas.

The collective impact of these wins and anticipated wins is an additional estimated revenue of $500 million worth with $300 million impacting fiscal year '27 and the full $500 million impacting fiscal year '28.

Looking beyond the Americas, the growth outlook for Asia is also solid. We expect China will continue to have double-digit growth through fiscal year '28, in spite of relatively flat overall vehicle production. In addition, Asia outside of China is expected to grow above market in both fiscal year '27 and '28.

Turning to Europe. Our teams continue to win new business in Europe. We expect these wins to offset the impact of our planned strategic program actions in the region and also expect these wins to be margin accretive.

Now that we have outlined our future expectations, let's turn back to the near term and talk about the regions on the next slide on Page 7. For the Americas, as we have discussed, the team delivered positive business performance in the first quarter despite the production disruptions and expect their favorable business performance to continue. In addition, they are focused on executing key launches, including the [indiscernible] and the Rivian R2. Our manufacturing teams are also focused on expanding automation across plants wherever possible. Commercially, the team is laser-focused on growth and onshoring opportunities, which they will continue to aggressively pursue as we already mentioned.

In Europe, the overall industry remains challenged by volumes, capacity and the importing of vehicles from China. This will continue to stretch the industry and the European team. But they remain committed to delivering positive business performance for the remainder of the year, just as they did this quarter. The European team is also focused on a complex launch with a German customer. The team continues to pursue and win new and conquest business and restructuring activities remain on track as planned.

Finally, in Asia, the team is aggressively pursuing innovation and is winning new business as customers recognize Adient as a supplier of choice. This would not happen without Adient's focus on operational excellence, which the team will continue to demonstrate as they launch new programs throughout the year.

In China, the team continues to strengthen relationships with both China domestic OEMs and suppliers to drive top line growth. As you can see in each of our regions, Adient's resilient operating model is focused on driving value for all of our stakeholders.

Turning to Page 8. We continue to win new and conquest business in all regions we operate in and have many successful ongoing launches to highlight. Starting in EMEA, as highlighted during our last earnings call, it appeared as if the region was showing signs of stabilization. We have seen customers move forward with some sourcing decisions, which is positive.

We have recently won new metals business with Ford on a compact crossover SUV and have other sourcing decisions pending. We expect to see some of these benefits on these programs coming online in late fiscal year '27 and early '28. We have also just successfully launched complete seat business on the Mercedes GLB for the region. With that said, we are also hearing some mixed signals from customers on near-term volume concerns, and so Europe remains a bit more of a wait and see at this point.

In Asia, our momentum continues to build, highlighted by new conquest business with leading domestic OEMs, key replacement business and the successful launch of the Hyptec A800, which features a zero-gravity passenger seat and showcases the region's ability to deliver innovation at scale.

And finally, in the Americas, we continue to strengthen our position with key replacement wins such as the Honda Pilot and MDX Metals business and we successfully launched the region's first long-distance JIT program with the Chevy Bolt, which we commented on 18 months ago as a conquest win. A clear demonstration of our operational capabilities and our ability to meet customers' evolving needs.

Before we move on, I want to underscore why we continue to win new and conquest business across every region. These wins are not coincidental. They're a direct result of our team's excellence in operational execution and their track record of successful launches and innovation, not only in product design, but also in manufacturing.

I'd like to recognize the entire Adient team and the relentless effort and focused execution across the globe in delivering for our customers day in and day out.

Customers continue to recognize Adient as a reliable, high-performing partner because we deliver. Our teams consistently meet and often exceed customers' expectations and that performance builds trust, which translates into new awards, expanded platforms and increased share with both global and domestic OEMs. Our success in securing these programs is a reflection of the credibility our operations have earned over time, and it positions us exceptionally well as we look ahead to fiscal '27 and beyond.

These wins set the stage for innovations we're bringing to market that will further enhance our competitive position. For a closer look at one of these innovations, let's move to Slide 9. Adient is clearly focused on innovation. And within the last few weeks, we announced the introduction of ModuTec, which showcases Adient's forward-thinking approach to modular manufacturing. This advancement will benefit Adient, our customers and the ultimate end user greatly.

ModuTec is a modular seat design solution that greatly simplifies the seat build process that opens the door for a higher level of automation across our plants. For our customers, ModuTec means enhanced seat comfort and craftsmanship, faster and more flexible launch execution and a lower delivery cost, all while enabling long-distance JIT and a more resilient supply chain solution. These advantages directly support our OEM partners' onshoring priorities and their ability to compete and make vehicles more affordable for the end customer.

ModuTec unlocks another level of modularity. The early benefits we are seeing from modularity are compelling with upwards of 20% total value chain savings driven by significant labor and freight efficiencies and nearly a 15% reduction in JIT floor space requirements. No other seat supplier is delivering a modular architecture at this scale.

With this level of manufacturability improvement, modularity strengthens our position as a supplier of choice and enhances our ability to win new business, especially as our customers look to optimize their footprint. Ultimately, both ModuTec and modularity drive sustained margin expansion, capital efficiency and enhanced free cash flow conversion. This is a prime example of how innovation in our product and process drives durable value, not only by lowering our cost structure, but by expanding our competitive advantage and our ability to drive sustainable shareholder value.

Turning to Slide 10. Adient remains focused on driving sustainable growth into our business and reducing our impact on climate change. We strive for responsible use of natural resources by improving energy efficiency in our operation, reducing the carbon footprint of our finished products and developing processes that protect our planet's natural resources. Adient is pursuing the use of sustainable materials and products by identifying materials and manufacturing methods that minimize our environmental impact and promote a circular approach to product development.

Some of the highlights for fiscal year 2025 include: we have had a 42% reduction in Scope 1 and Scope 2 emissions since 2019. We are proud to share that 30% of our electricity is now attributable to natural or to renewable resources. Our total water withdrawal was reduced by 6% year-over-year and 80% of our suppliers have been assessed with a sustainability rating.

These accomplishments aren't just environmental milestones. They demonstrate the discipline and execution that underpin Adient's operating model. They show that our teams are embedding sustainability into the way we run our business, strengthening our cost structure through efficiency, reducing long-term risk and increasing resilience across our global footprint.

Just as importantly, they reinforce our position as a trusted supplier to the world's leading OEMs who are increasingly prioritizing responsible sourcing and measurable climate action. We view this as progress and as a competitive advantage, a value driver and a key component of our long-term strategy.

Let me leave you with a few takeaways before I hand it over to Mark. The company consistently delivers positive business performance through our focus on operational excellence, which allows us to meet or exceed our stakeholders' expectations and drive margin expansion. Our commitment to innovation and automation is reflected in our products, our processes and our people cross-functionally and across regions to deliver value-added solutions to our customers.

While the company remains focused on operational excellence, we are also focused on delivering growth by being a supplier of choice with our customers. Adient is committed to being good stewards of capital on behalf of our shareholders through a disciplined approach to balanced capital allocation. Adient is well positioned for growth and committed to delivering long-term shareholder value.

And with that, I'll turn it over to Mark to take you through the financials and our outlook.

Thanks, Jerome. Let's move to the financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. I will focus my commentary on the adjusted results which excludes special items that we view as either one-time in nature or otherwise skew important trends in underlying performance.

While the details of all adjustments for the quarter are listed in the appendix of the presentation for reference, I would like to specifically highlight one adjustment related to our tax expense. You may recall on our fourth quarter call when we gave our outlook for fiscal year '26, we mentioned a one-time non-recurring tax settlement in a non-U.S. jurisdiction. That settlement was recorded this quarter and is the key driver of the GAAP net loss of $22 million.

Moving to the right side, high level for the quarter. Sales of $3.6 billion were 4% better than first quarter fiscal year 2025 with adjusted EBITDA of $207 million. As Jerome mentioned earlier, there were some temporary customer production disruptions during the quarter. And despite these challenges, the team improved adjusted EBITDA by 10 basis points year-over-year to 5.7%. This improvement continues to demonstrate the resilience of the Adient operating model and the team's ability to efficiently and effectively manage external disruptions.

Moving on, equity income was favorable year-on-year, primarily due to increased sales at our joint ventures. Adient reported adjusted net income of $28 million or $0.35 per share during the quarter.

Let's move to the revenue and regional performance versus the market on Slide 14. I'll go through the next few slides relatively quickly as detail for the results are included on the slides to allow adequate time for Q&A.

Adient reported consolidated sales of approximately $3.6 billion in Q1, which was a $149 million increase compared to the same period last year primarily driven by FX tailwinds and favorable volume and pricing in the quarter. Shifting focus to the regional performance on the right-hand side of the slide, in the Americas, Adient's consolidated sales were generally in line with the broader market.

In EMEA, sales trailed the market reflecting customer mix and deliberate portfolio actions. Asia outperformed, driven by expected significant growth in China as new programs with domestic OEMs ramped throughout the quarter. The remainder of Asia lagged the industry trends, particularly in Japan and India, where our customer presence is more limited.

In Adient's unconsolidated revenue, year-over-year results declined approximately 3% adjusted for FX. Results were primarily affected by the joint venture portfolio rationalization action in the Americas that was finalized in late first quarter 2025, while both our EMEA and China unconsolidated businesses experienced growth year-over-year.

Turning to Slide 15. We provided a bridge of adjusted EBITDA to show the performance of our segments between the periods. Adjusted EBITDA was up 6% at $207 million versus the same period last year. The primary drivers of the year-on-year comparison are detailed on the page. Business performance improved by $8 million year-over-year despite the temporary inefficiencies experienced this quarter due to customer disruptions.

As we've highlighted in the past, commercial recoveries tend to be a bit lumpy throughout the year and the favorable timing of some recoveries partially offset these inefficiencies as well as the planned increases in launch costs during the quarter.

Equity income was favorable $8 million year-over-year mainly due to higher sales and favorable business performance in our joint ventures. FX was a $6 million tailwind, stemming from a combination of translational and transactional benefits. And finally, volume and mix was an $11 million headwind during the quarter, driven by anticipated margin compression in China as well as unfavorable customer mix due to disruptions with key customers in the Americas.

Overall, it was a solid start to the year and the Adient team did well from an operational perspective, continuing to execute and manage what is within our control. As in past quarters, we provided our detailed segment performance slides in the appendix of the presentation for your review. High level, both the Americas and EMEA continue to drive positive business performance. In Asia, business performance was impacted by the timing of certain growth investments, namely increased engineering spend and launch costs.

Before we move to the cash and liquidity section, I'd like to point out that we have provided additional context on how our customer base is distributed across regions. In the appendix, the Adient at a glance slide provides a hopeful view of our customer mix and revenue contribution based on our fiscal year '25 consolidated revenue as well as some of our top programs by region.

Moving on, let me flip to our cash, liquidity and capital structure on Slide 16 and 17. Starting on Slide 16. For the first quarter, the company generated $15 million of free cash flow defined as operating cash less CapEx. This was higher than our internal expectations leading into the quarter. The team did a lot of good work to drive this number higher. We also benefited from an approximately $20 million timing impact from the previously mentioned non-U.S. jurisdictional tax settlement, which is now expected to be paid out in Q2.

On the right side of the slide, we have highlighted the key drivers impacting the free cash flow during the quarter. These include timing and amount of net customer tooling payments, reduced restructuring spend year-over-year in Europe and higher adjusted earnings compared to the same period last year. These benefits were offset by timing and level of VAT tax payments, timing and level of commercial settlement payments as well as your typical period-to-period working capital movements. As we've mentioned in the past, our cash flow is typically more second half weighted due to the seasonality of our business. We continue to expect solid cash generation for the full year. In fact, our expectations have increased to $125 million. I'll have more on our outlook in just a minute.

As a reminder, as mentioned on our last earnings call, there are a few timing and nonrecurring items placing temporary downward pressure on our free cash flow this year. such as the one-time nonrecurring tax settlement previously discussed. Beyond fiscal year '26, we expect free cash flow to return to normalized levels and benefit from our increased sales, earnings and a lower level of cash restructuring.

Moving now to Slide 17 for our liquidity and capital structure. Total liquidity for the company was $1.7 billion at December 31, 2025, comprised of $855 million of cash on hand and $823 million of undrawn capacity under our revolving line of credit. During the quarter, the company returned a total of $25 million to its shareholders, repurchasing approximately 2.1 million shares, leaving approved authorization of $110 million. In addition, Adient continues to proactively manage our debt maturity and costs. In January, subsequent to the quarter end, we successfully repriced our Term Loan B and achieved a 25 basis point reduction, resulting in an annual savings of approximately $1.5 million.

Focusing on our balance sheet, Adient's debt and net debt position totaled approximately $2.4 billion and $1.5 billion, respectively, at December 31, 2025. The company's net leverage at December 31 was 1.7x, comfortably within our target range of 1.5 to 2x.

Moving now to Slide 18. Let's review our updated expectations for the remainder of the fiscal year. As we highlighted in our Q4 call, when we provided our full year fiscal year '26 guidance, we anticipated an improvement in production volume environment would be meaningful impact on our results. That said, with North America vehicle production now expected to be in the 15 million unit ballpark for fiscal year '26, up from the 14.6 million at the time we gave the original guidance, we are raising our outlook for revenue, adjusted EBITDA and free cash flow.

For the full year, we now expect sales to be approximately $14.6 billion, up from a previous guidance of $14.4 billion. Adjusted EBITDA is now expected to land around $880 million, up from our previous guidance of $845 million. And free cash flow, as I indicated earlier, is now expected to be $125 million, up from $90 million in our previous guidance. Keep in mind, this revised guidance reflects our current production schedules, FX rates and assumes no significant changes to the current tariff policies.

We continue to expect our overall earnings will be weighted towards the second half of the year. While we don't provide quarterly guidance, it's important to note that our second quarter results are expected to be impacted by the seasonality of the Chinese New Year as in past quarters. The lower level of production forecast for Q2 versus Q1 will translate into lower consolidated sales, earnings and equity income for the region. Obviously, regaining momentum in Adient's Q3 and Q4 as production picks up.

Given the puts and takes in production across the regions, we'd expect Q2 EBITDA to look very similar to the quarter just completed. For purposes of our analysis, we don't expect any meaningful changes to equity income, interest expense or cash taxes from our previous guidance, and CapEx is expected to remain at the elevated this year due to customer launch schedules and increased investment in innovation and automation.

To summarize, production schedules are normalizing, and that improved backdrop is showing up in our execution. We're carrying momentum into the balance of the year through disciplined cost and commercial management, and we expect solid free cash flow as the operating performance is expected to continue to flow through our bottom line.

With that, we can now move to the question-and-answer portion of the call.

Operator, can we please have our first question?

[Operator Instructions] The first question today comes from Colin Langan with Wells Fargo.

There's been some media headlines that there's possible disruption around -- maybe it's a little worse for the F1 -- F-Series recovery. Have you seen any impact in your schedule so far? And is there any way to kind of help frame maybe the risk to guidance if there is some hiccups in the recovery?

So first of all, Colin, thanks very much for the question. I think as we handled in the -- what would have been our Q4 call, we're not going to kind of front run forward. I think what we have guided to currently represents what we have on releases and our best information that we have today.

When Ford says kind of F-Series, we always have to remember there's going to be a split between F-150, which is the platform we have and then Super Duty production that they have in Kentucky. So we don't know if there is going to be a disruption, how that disruption will unfold. And then in terms of framing what the disruption will be, I think that's why we put into the appendix material kind of what the split is, what our key platforms are and how those key platforms break out.

I think if they're -- once Ford comes on, I think they've said on the 10th, they'll give kind of their guidance and kind of updated figures. If there is something meaningful, we can always circle back with you guys. But as of now, it's kind of best known information. And I think as we said in the commentary or in my commentary in the prepared remarks, we kind of anticipate making up any of that production that we lost in Q1 kind of now throughout the back half of the year, that's what we've tried to reflect in the guide as best we can.

Got it. That's helpful. And maybe if you could just talk a bit on the onshoring opportunity that you flagged. I think it was a couple of quarters ago, you said it was $175 million. So we're up to $500 million. And also in your commentary today, I'm not sure if I heard it right, that there's a significant near-term win that you're hoping to update us on. So any color on maybe how quickly some of these wins could come because I feel like some might start trailing out into '29 and beyond? Or are these actually going to still be things that hit in '27 and '28?

Yes. So the -- so what I would say is -- so the $175 million has grown to $500 million. That includes the conquest win that's in there as well. So we picked up a conquest win call that, it's about $100 million to $150 million. So between onshoring and conquest now, it's up to $500 million. And the big thing that's still left to get that I think we feel confident in is a domestic OE who is moving production from Mexico into the U.S.

We're in the quote process, kind of the final stage of that right now. I think we're hopeful that we'll hear something in the next couple of weeks on kind of the final decision. And that now makes up kind of the gap of between -- we're at, what I'd call $250 million of booked, $250 million to $300 million. That will make up the gap between the $300 million to the $500 million. So kind of the -- if you want to think of the bridge, last time we gave you an update, we were at $175 million. We're now kind of on the books for $300 million, and we've got another $200 of wood to chop, and we hope to know about that in the next, I'd say, 2 weeks or so.

Yes. And then, Colin, with regard to your question in terms of what rolls on, right, assuming that all comes in, we've indicated that about $300 million of that $500 million comes in, in '27 and the other -- rest of it, the run rate -- full run rate comes in, in '28.

Yes. I think that's a good point. I mean, we really don't see that -- any of that really pushing out into '29. I mean it's -- some of it's already launching in this year with a lot of it now coming on in '28. So it is known booked revenue. We're spending capital now in launching up now to be able to roll it on in '27.

Just to quickly clarify the win that you're hoping to get from the domestic going from Mexico to the U.S., is that in the $500 million already? Or is that -- that would be incremental?

Yes. No, that would be in the $500 million. That would be the bridge from kind of $300 million on the books going to $500 million.

The next question is from Nathan Jones with Stifel.

This is [ Andres ] on for Nathan Jones. Regarding Europe restructuring spend, can you please provide an update as to the progress you're making in restructuring the European business?

Yes. So what we've indicated in the past and what we've guided to looking forward, right, if you look at the elevated spend last year, call it, around that $130 million-ish, most of that was in Europe. This year, '26, another, call it, $120 million, $130 million in restructuring, primarily Europe. We did indicate that, that goes down in fiscal year '27.

Beyond that, we said it's very hard for us to give you a good line of sight because a lot of -- any type of restructuring that goes out beyond '27 is really dependent on what our customers do with their programs, right? So we're in active discussions with them, just looking to see end of production for certain programs, what new programs might be rolling into plants. And so really, we'd love to be able to tell you what's happening in 2029. There's going to be restructuring. It's just a question of the magnitude of that. And again, it's really relative to what our customer production plans are.

Awesome. And then just one more, that's helpful. Asia adjusted EBITDA declined $7 million, driven by increased engineering spending for new programs. Should this be expected to continue, sustain? Just trying to get a better idea as to the timing there?

Yes. I'd say that overall, APAC, right, if I look at business performance, that's going to be positive for full year '26. Clearly, there's going to be certain quarters where we have increased launch and engineering costs, but again, those are going to be offset as I go through the quarter with other ops, other efficiencies that roll on. But we did indicate that net engineering and launch, we're going to be higher this year as we continue to grow out and spend for the growth.

The next question is from Emmanuel Rosner with Wolfe Research.

I was hoping to ask you about the commercial settlements. I think it's -- you mentioned it in a few slides as a factor in terms of at least timing and some time magnitude. Can you just help us understand if the magnitude of it is beyond what's usual sort of like this year, if that's kind of like helping the outlook? Or if you're just flagging it as essentially a cadence or calendarization impact?

Yes, Emmanuel, it's a good question, and thanks for the call and question. I'd say it's more of timing and cadence. As you know, our business is a transactional business, there's always certain commercial negotiations that are planned for the year. So we did have, what I'd say, a bucket of what I'd say, planned commercial actions that the team had to go out there and get. Obviously, first quarter was benefited from, I'd say, the timing pull forward of certain of those commercial actions. So nothing that I would say is extraordinary versus what we were planning within the original '26 plan.

Okay. And then if we were trying to think about fiscal '26 is sort of like a bridge sort of like in future years? Are there any sort of extra recoveries expected this year that we shouldn't be capitalizing? Or is that sort of normal course of business?

I'd say normal course of business.

Okay. Understood. I also wanted to ask you about the Asia business. Obviously, joint venture income trending in the right direction. Can you just remind us when does Adient get the cash from the joint venture?

Yes. So it depends on the joint venture, right? So we have them cadenced throughout the course of the year. So in the first quarter, we'll get certain dividends in, if you look at our largest joint venture over there, KEIPER, right, that's typically back half weighted in terms of when the dividends come in.

The next question comes from Joe Spak with UBS.

I wanted to just go back to the growth opportunities and I know you gave a lot of good color here, but it does seem like maybe the pie is also growing, right, versus sort of what you indicated prior. And like I just want to get your sense of sort of whether you think most of these reshoring decisions, at least on production, maybe not sort of the sourcing for that production is done more or if you're continuing to see customers look to move more here so that could maybe grow over time even if it doesn't come in necessarily in a '27 time frame.

And then on the EMEA portion, I know you mentioned accretive balance and balance out and that's long been part of the plan, but it's been delayed. And are you implying that you now see better line of sight to that really start to kick in, in '27 where margins can start to move higher?

So first, thanks for the questions, and both are really good questions. On the near-shoring or maybe onshoring, I think, yes, we see an acceleration in the discussion with our customers on onshoring opportunities. And what we've highlighted today are ones that we are actively in the quote process or awarded on. And that's what kind of totals to that $400 million to $500 million, including the conquest win.

That said, to your point, we are seeing more activity with -- particularly with the Japanese OEMs where we are very well positioned given our long-term partnerships with those customers for additional potential volume growth in the '28-'29 time frame, whether that be some of their vehicles kind of 2- and 3-row SUV type things that they're looking to move back here. I do think there is that potential.

A lot of it will come down to their capital allocation decisions and long-term, where does USMCA set up next generation. So I think, as they make their footprint decisions over the next possibly 6 to 8 months, that will then influence their loading of their vehicle assembly plants. And what's key for us is given those relationships, given where our JIT facilities are and given how well we service them, we are ideally suited to be able to capitalize on that growth. And so I do think we see a potential tailwind even beyond what we've talked to today, and there'll be more to come as they make their slotting decisions.

So yes, I do think there is potential there. On your second question on EMEA, we are getting a greater line of sight on some of the roll-on, roll-off. I think as we look into fiscal year '27 and '28, we do see recovery, Mark, and I have been talking to you about the recovery in the balance in, balance out. So it's not anything that's going to be above and beyond what we've been speaking, seeing another, call it, 25, 50 basis points as we move out of '26 into '27 and just continue to slug through that region there.

I just think it's getting the credibility in our customers' ability to launch the programs there. Certainly, the new business that we're bidding, the new business that we're rolling on is coming on at accretive margins. It's just the timing associated with it.

And what's really driving the timing of our customers launching programs over there is the different legislation around emissions and when are they going to phase out the current products and are their current products competitive or not? And then what's happening, especially in the A&B segment, with respect to Chinese onshoring, are they competitive or aren't they? And they're really evaluating the things that I have in the pipeline, are they competitive? And if they're not, they're going back to the drawing board, scrapping them, which is leading to delays in their product cycle, which is leading to our delays and our ability to then launch some of these new projects. Hopefully, that answers your question.

Yes. No, it does. I appreciate that. Maybe just as a second question and Mark, sort of a quick follow-up to your recoveries comment. I just -- like it does seem like it helped the results in the quarter from an earnings perspective. Can you just help me understand the minus $37 million outflow you're showing in the cash from commercial negotiations? Like is that just timing of when like you're booking versus the cash? Like just any color on that would be helpful.

It really is, Joe. So again, as I indicated, yes, it did benefit the quarter, helped to offset some of those operational inefficiencies. But again, it was pulled ahead either from a Q3 or a Q4 or Q2 timing right into Q1. So again, over the course of the year, it's no different than what we are expecting from a commercial.

And again, whenever we have commercial recoveries, there's always a timing mismatch between what we're trying to recovery versus when that expense or when that cost actually hit. Tariffs is a perfect example, right? We'll have a tariff impact in our financials, but yet we don't get the recovery for that for several quarters after that, right? So it's normal course what I'd say, timing.

So that also helps the free cash flow cadence in the back half because that's when you expect to get that.

Correct.

[Operator Instructions] The next question comes from Andrew Percoco with Morgan Stanley.

Great. I do just want to come back one more time to the Europe dynamics. It sounds like you're expecting some improvement in that market in 2027. But in your prepared remarks, you talked about how one of the headwinds is essentially the China import volumes into that market. That doesn't seem like something that is maybe going to slow any time soon. So I guess my question would be what are you doing to essentially either buffer yourself or manage margins if that continues?

And I guess maybe a second part to that question would be is there an opportunity to support those customers? Obviously, you've seen some success with the domestic China -- OEMs in China. But as they export more volumes to other markets, I'm just wondering if there's an opportunity to be a supplier of choice there, and that might also help in terms of the margin improvement in that market.

Yes. So I think there's two ways that we think about addressing that. So the first one is understanding where the Chinese exports are coming into Europe, what segments they're attacking there and trying to insulate ourselves from the segment. So primarily as they're coming into Europe, they're heavy on the A&B segment. And so we've been very focused on going up segment.

If you look at a lot of our conquest wins in the region, they've been with, say, kind of, call it, C segment, luxury segment, Porsche vehicles, the higher-end segment, Volvo high segment type of platforms. And so the business that's rolling on, we talked with -- we didn't give the platform name. We're in the middle of a complex launch with the German OE at the moment that's on a very high-end segment type of vehicle. And so it's going up segment on vehicles that are insulated at the moment from the Chinese -- where the Chinese are succeeding within Europe.

And so that's one way that we're going about it. Another way that we're going about it is as the Chinese are localizing within Europe, more able to win components business there, we're also able to bid on some of the JIT products and win some of the JIT content where possible. That's another avenue that we're able to actually attack and benefit from some of that.

And then the last way that we see is, where possible, what vehicles are the Chinese exporting into China from -- or exporting into Europe from China and can we win share there. In some cases, because the large exporters would be with SAIC. And SAIC is historically one of our competitors' territory, Yanfeng. So that's not territory that Adient plays in. But when it's a NIO or where it is a -- I'll point to, say, Geely as an example. And we've just recently signed a joint venture with one of Geely's largest seating suppliers that we're able to capitalize on, and that will give us access into that export market.

That's why we were very strategic in signing that joint venture to be able to gain access into the export market for vehicles that are exported into Europe. And so it really is kind of a 3-layered approach into looking at it, insulate ourselves from the segments that are being attacked, where we can't do that, can we gain components on vehicles that are being produced in there? And then looking at what vehicles are being exported and can we gain content directly on the export vehicles?

Got it. Okay. That's super helpful context. And maybe just continuing on the onshoring debate and opportunity, I guess, I'm curious and this may be a few years out, but I'm curious to what extent you're hearing or having conversations with the China domestic OEMs in terms of their aspirations to come to the U.S. or Canada market?

Obviously, recently, Canada making a deal with China on reducing tariffs on EVs. I'm just wondering if that's going to become a bigger opportunity for you guys going forward and if you're starting to have those preliminary conversations.

Yes. So maybe -- so the first thing I would say, and it's because you had said on the onshoring debate. I mean I just want to be very clear. I mean, there is no debate, Adient will be a net beneficiary from onshoring. I mean, of all the seating suppliers, we will be a net winner from onshoring. It's already being shown today, we will be a net beneficiary, net winner from onshoring. I mean that's already shown and that trend will continue.

Secondly, to your question then, as it pertains to the Chinese kind of coming to whether it be Canada or Mexico. I think Mexico is another potential depending on how USMCA plays out. And if the U.S. leverages Mexico into putting tariffs on, I mean, we are working through our China because there's such strong ties in China with some of those OEs that may explore a relationship with Canada or with Mexico.

So absolutely, we're having those discussions with the BYDs of the world, with the Geelys of the world on. If they want to go to Canada or if they want to go to Mexico, we could be there to service them. The question is what is their real appetite for doing so. But if they want to explore that, we would absolutely be able to service them. The question is do they want to and what are those long-term trade and industrialization ties look like. But absolutely, because of our strong, strong relationships in China, we are able and we do have those discussions.

The next question comes from Dan Levy with Barclays.

I wanted to first start with a question on your equity income and specifically, the margin dynamics. This quarter was especially strong, higher equity income despite lower revenue. And I think this is interesting in context of our understanding that some of the increased China business was supposed to roll on at lower margins.

So maybe you could just talk through what occurred in the first quarter on the China equity income and how we might expect some of the margin dynamics to play out as you get some of this new China business, how margin dilutive is it? And what's your confidence that the net profit will in fact be better?

Yes. So maybe a couple of points there, Dan, and thanks for the question. We talk about the new business rolling on in China, which would result in what I'd call manageable compression in our margins over there. That's really the consolidated business, right? So think of that, whether it's business with the Chinese locals that we're funneling through our consolidated sales, consolidated EBITDA, et cetera, in China.

For the equity income piece, that's really derived from our joint ventures, right, like with KEIPER and certain of the other joint ventures that we have over in EMEA. Those sales, as I mentioned in my prepared comments were actually higher this quarter and so again, it drove my performance and my better operating performance at those joint ventures, right. KEIPER being one of those joint ventures. So I think it's important to differentiate between each of those buckets, the consolidated piece as well as the unconsolidated piece.

Great. Understood. And then second, wondering if you could just comment on one of your competitors who reported this morning pointed to a large conquest win for complete seats on a U.S. automakers truck program. I know you gave some positive updates here on onshoring, but maybe you could just talk about maybe some of the dynamics within sourcing for large trucks, which we know are a key program for you and also for this competitor as well on some of the other platforms out there? Just if you could comment on that development from them.

Yes. I mean I think what you're getting at, do we lose any large truck programs. And so there's -- we haven't lost any large truck programs. I think their win isn't reflective of any Adient losses. So I would anticipate that it is something that one of our competitors has lost, which you guys know the market pretty well, so you can anticipate where that loss would have come from.

But I think -- stepping back more strategically and saying, what does this mean for the market? First of all, congratulations to Ray and Frank and Jason up there in Southfield, and I mean that. I think more strategically, though, what it means for the market is, and this is what I think both they've been saying and we've been saying is this is a market that needs consolidation. The competitor who had that business, we have been actively conquesting their business. We've conquested a large portion of their other business that sits in other portions of the U.S. So we've taken quite a few of their dots off the map. We've taken dots off of their map elsewhere.

And I just think it's representative of a larger symptom of what needs to happen in seating, which is consolidation. And so I think for them, I think it's -- I'll assume it's a good thing. And I think for seating, the more of this that can may be forced through consolidation is generally what needs to occur in the space. But for Adient, it's no impact. It isn't anything that we had. It's none of our business in terms of anything that we were an incumbent on.

Thank you, and there are no further questions.

Perfect. Thanks, Denise. And so in closing, I want to thank everyone once again for your interest in Adient. If you do have any follow-up questions, please feel free to reach out to me. Also, I would like to acknowledge that we will be in New York City next week participating at the Wolfe Conference and hope to see many of you then.

With that, operator, we can close out the call.

Thank you. This does conclude today's call. We thank you for your participation. At this time, you may disconnect your lines.

Welcome to the Adient's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Linda Conrad. Thank you. You may begin.

Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for our call today have been posted to the Investors section of our website at adient.com. This morning, I am joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer.

On today's call, Jerome will provide an update on the business. Mark will then review our Q4 and full-year financial results as well as our guidance for fiscal year '26. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement.

In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release.

And with that, it is my pleasure to turn the call over to Jerome.

Thanks, Linda. Good morning, everyone, and thank you for joining us to review our fourth quarter and full year fiscal '25 results. We will also discuss our fiscal '26 outlook and share additional information on how we are positioning ourselves for long-term success.

Turning now to Slide 4, which summarizes our fourth quarter and full year results. With business execution remaining strong, we delivered an adjusted EBITDA margin of 6.1% and free cash flow of $134 million in the quarter. It's worth noting that full-year free cash flow ended at $204 million versus the previous high end of our guidance range of $170 million, leaving us with ample liquidity when it comes to '26 capital allocation, which Mark will cover in his section. This performance comes amidst challenging business conditions, not just in the fourth quarter, but throughout the year, including customer volume reductions and dynamic tariff policies.

The Adient management team would like to recognize all of our employees for stepping up and meeting these challenges. By working together with both our customers through commercial negotiations and remapping value chains and our suppliers through supply chain management, we have successfully mitigated the lion's share of our tariff exposure this year. On a full-year basis, we generated $881 million of adjusted EBITDA and $14.5 billion in sales with an adjusted EBITDA margin of 6.1%.

Customer volume reductions continue to be offset with strong business performance. From a cash perspective, we were able to generate an additional $204 million of free cash flow this year, net of funding our European restructuring program. Given our solid cash generation, we're able to return capital to our shareholders through $125 million of share buybacks, which represented a 7% reduction of our beginning year share count and 18% since the start of the program.

Mark will provide additional details in his section, but we also want to highlight the amendment and extension of our ABL revolver. The team has worked diligently to optimize our debt structure and day-to-day cash needs over the last few years. We have taken the opportunity to better align our liquidity needs and reduce interest expense.

Moving now to Slide 5. Let's take a moment to emphasize some of our accomplishments this year. Our operational performance and focused execution have continued, whether it's launching new business, managing the uncontrollables such as tariffs, or driving continuous improvement, the Adient team has delivered over $100 million of business performance this year, excluding the net impact of tariffs. We have actively pursued and won onshoring opportunities, and we'll continue to do so as customer footprint strategies evolve. We have pursued and won important conquest and replacement business, including replacement business on one of our largest platforms, the F-150, which we will talk about on the next slide.

We have won $1.2 billion of new business in China, with nearly 70% of those wins with domestic China OEMs, as we aggressively work to confirm ourselves as the premier seating supplier in China. We are winning new profitable business in Europe, putting us on track to drive revenue and margin growth in the region in the out years. Adient is committed to driving long-term shareholder value by investing in innovation across every facet of our business. We are strategically integrating artificial intelligence into our operations for manufacturing and engineering to support functions, to enhance safety, efficiency, quality, and scalability. To ensure we maximize the benefits of these technologies, we are proactively equipping our workforce with the skills needed to leverage AI and adapt to a rapidly evolving digital environment. These initiatives position Adient to capitalize on emerging opportunities, strengthen our competitive advantage, and deliver sustainable growth for our investors.

Turning now to Page 6. We continue to prioritize winning new and conquest business while also successfully launching several new programs. As previously mentioned, we have secured the replacement of the JIT and foam business on the Ford F-150. In addition, we were able to conquest incremental content and secure the trim business as well, which we will talk more about on the next slide. In addition to the F-150, in the Americas, we have won conquest JIT foam and trim business with an Asian OEM on a full-size SUV and another conquest win on metals content on the Mercedes GLE and GLS in the Americas and replacement on the S-Class in EMEA.

In Asia, we continue to grow with leading domestic China OEMs, including BYD. We have also continued to penetrate new domestic OEMs such as Cherry with our recent complete seat win on their upcoming pickup truck. We could not continue to win the new businesses like those just mentioned without delivering on our customers' expectations through successful launches. These programs continue to showcase our high level of execution and our ability to meet the rigorous safety, quality, and on-time delivery standards of our customers, reinforcing our supplier of choice status.

We have just been talking about what we are doing to win new business, but it's not just about our execution excellence and which programs we are winning. It's about how we are driving sustainable value for our customers, which is the cornerstone of our future growth.

Turning to Slide 7. Winning the F-150 business was not just about winning the JIT and foam replacement business. It was also about working with our customer to drive enhanced craftsmanship through design collaboration. By collaborating on design to optimize foam, trim, and JIT manufacturing, we have been able to improve overall quality, appearance, and the customer experience. It is this kind of partnership that reinforces the value we bring to our customers every day and why we remain a supplier of choice.

On the innovation front, we have continued to see more demand from our customers on enhanced safety features as consumer seating trends for comfort and autonomy drive additional requirements for occupant on position protection. Through our joint development agreement with Autoliv, as announced earlier this month, we are providing our customers with enhanced safety solutions built around the principle of multidimensional collaborative protection.

Adient's Z-Guard is a dynamic safety system designed to protect occupants in the event of a collision when in deeply reclined positions. As electrification and smart technologies continue to evolve the passenger experiences, this will position Adient and Autoliv at the forefront of seating and safety solutions. Each of these items just mentioned are meaningful by themselves, but it's the combination of them together with the execution excellence, customer collaboration, and investments in innovation that will collectively drive our future growth. When we look forward to 2027, Adient has line of sight to double-digit growth over market in China, mid-single-digit growth over market in North America, and growth at market in Europe.

As we turn to Slide 8, we would like to highlight our commitment to that growth through a new strategic partnership. We are pleased to announce that we have secured a partnership in China that builds on Adient's long-standing local business model and strong customer relationships. This agreement expands our operational footprint, which accelerates and deepens our engagement with China's leading OEMs to further strengthen our competitive position and support sustainable growth in this key market. The new unconsolidated JV is targeted to close in Q1 fiscal year '26.

Moving to Slide 9. It is clear that Adient's end-to-end innovation strategy is creating sustainable value for shareholders. Across every area of our business, we are focused on initiatives that strengthen our competitive position and drive long-term growth. Here are just a few examples that demonstrate this. First, automation by design. We're working closely with our customers on product design, optimizing plant layouts for more efficient automation, and enabling long-distance jet and modularity. We have recently launched our first long-distance jet operation in North America and are looking to expand this with other programs and customers in the region in the future. This approach reduces cost, improves efficiency, and offers greater flexibility for our customers in the dynamic North American market, where an ever-shifting tariff landscape and geopolitical landscape requires greater flexibility.

When it comes to process automation, we have introduced smart manufacturing technologies such as AI-driven relaxed ovens in partnership with the University of Michigan, which improve quality, enhance energy efficiency, and optimize labor. On product innovation, we recently launched our deep recline mechanical massage seat, which sets a new standard for occupant comfort and fatigue relief while maintaining industry-leading safety and durability. We already have 2 programs in production, with more actively being quoted across multiple customers. Through design innovation, we are launching sculpt the trim in Q2 fiscal year '26, which is the next generation of seat trim that delivers complex shapes that were previously unachievable with current cut-and-sew processes. This product offers greater design flexibility, superior craftsmanship, and continued labor optimization.

Not only that, it leapfrogs automated sewing by replacing the sewing process. With this end-to-end innovation mindset, we will be able to capitalize on enhanced in-cabin customer experiences, mobility trends, and evolving customer requirements to drive value for all of our stakeholders.

As we move to Slide 10, let's take a look at the key initiatives that each of our regions will focus on in fiscal year '26. In the Americas, the key driver will be what happens with production volumes. Right now, the forecast is based on October's S&P, and that shows a decline. In 2025, we also expected volumes in the region to decline, and they did not. If that repeats again in North America in 2026, our outlook would improve significantly. In the meantime, we will continue to drive business performance, capture onshoring opportunities, and invest in new and conquest business. For EMEA, the key drivers are successful launches, business performance, and continuing to make progress on our multiyear restructuring plan. Balance in, balance out will begin, but it is being impacted by changes in customer programming timing where program and the productions are being delayed.

Despite that, we expect margins to begin improving toward the mid-single digits beyond fiscal year '26. In Asia, we are driving for growth, especially with local China OEMs. We know that there will be some margin compression as we pursue this business, but expect incremental growth to help offset this and sustain double-digit regional margins and strong cash flow generation.

As we focus on fiscal year '26, what Adient must deliver is clear, but it's also clear that the world will continue to be dynamic with many uncertainties. Tariff policies, the geopolitical landscape, and ever-changing supply chains, just to name a few. With that said, the management team wants to assure you that Adient will continue to execute on what we can control and aggressively mitigate what we cannot control to maximize the results for our shareholders.

Moving now to Slide 11. So what do we want to leave you with today? Adient is clearly focused on flawless execution and planting the seeds for our future growth, both of which are needed to drive long-term sustainable value. We are investing in innovation and our people. We have created a team fully dedicated to automation to expand innovation across all of our plants globally. We will continue to leverage our world-class footprint and are laser-focused on our strategic objectives and delivering value to all of our stakeholders. We will deliver on our European restructuring plan. And if needed, we will pursue additional restructuring as customer requirements evolve. We will continue to be good stewards of capital and execute our balanced capital allocation strategy. We are committed to being a supplier of choice for our customers. We are driving profitable new business, including onshoring opportunities as they arise, and replacing legacy contracts that have weighed on our bottom line for too long.

These are the key drivers that make Adient well-positioned for future growth, cash flow generation, and sustainable shareholder value. With that, I'd like to hand it over to Mark to take you through our financials and our outlook.

Thanks, Jerome. Let's jump into the financials. Adhering to our typical format, Slides 13 and 14 detail our reported results on the left side and our adjusted results on the right side. We will focus our commentary on the adjusted results, which exclude special items, which we view as either one-time in nature or otherwise skew important trends in underlying performance. Details of all adjustments are in the appendix of the presentation. High level for the quarter, sales of $3.7 billion were 4% better than fiscal year '24 with adjusted EBITDA of $226 million and adjusted EBITDA margin of 6.1%.

Adjusted EBITDA and adjusted EBITDA margin were both down year-on-year, primarily due to the timing of commercial settlements and equity income, reflecting the impact of modifications to our KEIPER joint venture agreement, which were partially offset by favorable cost impacts and business performance for both the Americas and EMEA. In addition, equity income was also impacted by a few one-time nonrecurring items within the JVs, such as an income tax adjustment and timing of engineering expense and recovery. Adient reported adjusted net income of $42 million or $0.52 per share.

For the full year, as shown on Slide 14, sales came in at approximately $14.5 billion, down 1% year-over-year due to lower customer volumes and unfavorable mix, which was partially offset by FX tailwinds. Adjusted EBITDA landed at $881 million, essentially flat with 2024 despite the increase -- decrease in volume, positive business performance offset the unfavorable volume mix headwinds as well as lower equity income year-on-year.

For the year, we reported adjusted net income of $161 million or $1.93 per share, which represents a 5% improvement on adjusted EPS versus the prior year. I'll go through the next few slides briefly, as details of the results are included on the slides. This should ensure we have sufficient time for Q&A.

Digging deeper into the quarter and beginning with revenue on Slide 15. We reported consolidated sales of approximately $3.7 billion in Q4, which was $126 million increase compared to Q4 fiscal year '24, primarily driven by FX tailwinds and favorable volume and pricing in the quarter. Shifting gears to the right side of the slide, Adient's consolidated sales were favorable to the broader markets in the Americas, while sales in EMEA underperformed due to customer mix and intentional portfolio actions. Sales in China trailed the market due to production declines from our traditional premium OEM customers, while the rest of Asia outperformed due to customer launches in prior years ramping to full production this year.

In Adient's unconsolidated revenue, year-on-year results declined approximately 4% adjusted for FX. Results were primarily affected by JV portfolio rationalization items in the Americas that were finalized in Q1 of fiscal year '25. We saw growth in both EMEA and China on consolidated businesses.

Turning to Slide 16. We provided a bridge of adjusted EBITDA to show the segment performance between periods. Adjusted EBITDA was $226 million during the quarter, down $9 million year-on-year. The primary drivers of the year-on-year performance include, as mentioned earlier, the timing of commercial settlements, which tends to be lumpy from quarter to quarter and was particularly impacted by certain actions pulled into our third quarter of this year. The year-over-year decline in equity income mentioned previously, which was partially offset by positive business performance in the Americas and to a lesser extent, in EMEA.

FX and net commodities provided modest tailwinds in the quarter, and overall business performance was favorable year-on-year despite a net $4 million tariff impact during the quarter. Moving to Slide 17 and our full-year results. Adient's adjusted EBITDA was $881 million, essentially flat with the prior year. Adient drove nearly $100 million in favorable business performance year-on-year, which included $17 million of net tariff expense. Our commitment to operational excellence drove additional efficiencies and lower launch expenses during the year, which offset the $50 million of unfavorable volume and mix headwinds due to lower volumes in Europe and other customer mix headwinds in Asia.

In addition, net commodities were a $28 million headwind year-on-year, primarily resulting from the timing of recoveries. Despite the challenges presented in fiscal year '25, the Adient team was able to expand margins by 10 basis points year-on-year. As in past quarters, we provided our detailed segment performance slides in the appendix of the presentation. High level, for the Americas, we expanded margins by 40 basis points for the full year and drove $41 million of incremental favorable business performance through lower launch costs, commercial actions, and input costs year-on-year despite a $17 million net tariff impact during the year. Volume and mix was a $19 million tailwind for the year in prior year slowing ramp launches reaching full production volumes in 2025. Net commodities were a $28 million headwind for the year, driven by the timing of contractual pass-throughs.

In EMEA, fiscal year '25 results were influenced by volume mix, which was a $36 million headwind during the year due to lower customer production volumes. Positive business performance of $17 million during the year due to improved net material margin and improved operating performance, partially offset by $12 million in unfavorable FX due to the transactional exposure to the zloty.

And finally, in Asia, business performance was a $34 million tailwind during the year due to improved net material margin, lower launch costs, and improved engineering and administrative expenses, which offset the $33 million volume mix headwind during the year due to lower sales in China and adverse customer mix in the region. FX was a $17 million tailwind in '25 due to the transactional impacts of Asian currencies and translational effects versus the USD.

To sum up the regional performance in 2025, the team has done an outstanding job of demonstrating continued resiliency, driving positive business performance in the face of macro challenges. I would just reinforce what Jerome has already highlighted, the Adient team is doing what it needs to be done to control what's in our power and to control focusing on operational execution.

Turning to Adient's cash flow now on Slide 18. For the full year fiscal year '25, the company generated $204 million of free cash flow, which is defined as operating cash flow less CapEx. On the right side of the slide, we have highlighted the key drivers impacting the full-year free cash flow. During the year, we benefited from certain fiscal year '24 dividends that were delayed and paid in fiscal year '25 from certain of our China joint ventures. This favorable timing of dividends was more than offset by elevated cash restructuring in EMEA and the timing of customer tooling recoveries. In addition, cash flow was favorably impacted by approximately $30 million of items pulled ahead from '26.

Excluding these actions, Adient would have been at the high end of its guidance range, how about $170 million. These actions resulted from a combination of timing for customer payments and actions taken by the company to proactively mitigate the potential impact of timing from JLR-related receivables due to their cyber event. One last item to highlight on the slide, at September 30, 2025, we had approximately $185 million of factor receivables versus $170 million at the end of '24. Adient continues to utilize various factoring programs as a low-cost source of liquidity.

Moving to Slide 19 for our liquidity and capital structure. On the right side of the slide, you'll note that Adient ended the fiscal year with strong liquidity, totaling $1.8 billion, comprised of $958 million of cash on hand and $814 million of undrawn capacity under our revolving line of credit. During the fiscal year, the company returned a total of $125 million to its shareholders for full year '25, retiring approximately 7% of its shares outstanding at the beginning of the fiscal year.

In addition, Adient continues to proactively manage our capital structure. In September, before the close of the fiscal year, we launched an amend and extend initiative on our ABL, which closed in mid-October. This action extended the maturity from 2027 to 2030. As Jerome pointed out earlier, the team has optimized our cash needs over the past 2 years, so we were able to reduce the revolver by $250 million and opportunistically reduce our annual interest expense on both drawn and undrawn capacity by approximately $2 million per year.

Focusing now on our balance sheet, Adient's total debt and net debt position totaled $2.4 billion and $1.4 billion, respectively, at September 30, 2025. The company's net leverage ratio at September 30 was 1.6x, near the lower end of our target range of 1.5 to 2x. As you could see, Adient does not have any near-term debt maturities.

Moving now to Slide 21. We'll review some of the key underlying assumptions to our fiscal year 2026 outlook. As we typically do, we have based our outlook on a combination of the October S&P vehicle production forecast, near-term EDI releases, and any customer production announcements. In addition to volumes, FX rates have also changed year-on-year, with the euro moving most significantly. Tailwinds from the euro will essentially mask the volume pressure as we look at revenue. As you can see, Adient is expected to grow significantly above market in China, however, face stiff headwinds in Europe and North America. As we will discuss further on the next slide, it should be noted that we have put in a Q1 adjustment for Ford not yet reflected in the October S&P production estimates, which slightly skews the growth over market comparison negatively for North America.

With that as a backdrop, let's turn to Slide 22 to see the expected impact to Adient's fiscal year '26 results. First, I would like to specifically address our assumptions around F-150 volumes, which is Adient's second-largest platform in the Americas. When it comes to the F-Series and reflecting on the impact to their customer fire, we have reflected the downtime that has been announced to date, which is currently through the week of November 10. Because Ford has not indicated the mix of F-Series vehicles that will be down, specifically the mix between F-150 and the Super Duty vehicles, including cadence for recoveries, we do not think it prudent for Adient to come up with our own forecast, especially with regard to make plans.

Of course, we are actively monitoring the situation, and we'll provide additional insights once we have more clarity from Ford. In addition to the F-150 volumes, we are also proactively monitoring other current events such as the potential chip supply challenges from Nexperia. We view these events as more as production disruption issues versus fundamental demand challenges. Given the underlying macro factors remain stable, especially in North America, we remain hopeful that volume stability will continue into 2026. As we look beyond specific events, basing our outlook on the current S&P assumptions, North America and Europe revenue are projected to be down by approximately $650 million year-on-year, but this will be partially offset by growth over market in China for a net decline year-on-year of approximately $480 million.

Typically, you would expect the adjusted EBITDA impact of this to be roughly $75 million, but you could see we have a higher decremental mix impacted by continued mix headwinds in Europe and margin compression in China. While we expect to maintain double-digit margins in China, the combination of growth with domestic China OEMs and volume headwinds from the luxury global OEMs in China is expected to compress overall margins, as we are forecasting headwinds of roughly 100 basis points. While margins in China are forecast to compress with an offset of positive EBITDA from growth, we do not expect the adverse impact to overall Adient margins.

As we executed approximately $100 million of business performance in '25, we are targeting a similar amount for fiscal year '26. However, as we are also focused on growth, about $35 million of that performance is expected to be invested in growth through launch costs and engineering for future programs, resulting in a net impact of business performance at $75 million. For illustrative purposes, if we were to hold volumes constant year-on-year, you can see that our financial outlook would show approximately $14.8 billion in sales and $925 million of adjusted EBITDA, resulting in adjusted EBITDA margin of about 6.3%.

Turning to free cash flow on Slide 23. The year-on-year decline that is forecasted free cash flow is driven by 3 factors: the offsetting impact of the favorable $30 million pull-ahead actions previously mentioned in 2025; elevated cash taxes in fiscal year '26, driven by approximately $20 million for a potential settlement associated with an ongoing tax audit within a specific jurisdiction as well as lower adjusted EBITDA and higher CapEx, reflecting our investment in future growth and innovation. The cumulative impact of these items results in free cash flow of approximately $90 million based on current volume assumptions. However, we would expect that to be closer to $170 million at constant volume.

I do want to remind everyone that below free cash flow, Adient expects to have an additional dividend of approximately $85 million to our nonconsolidated interest or NCI. As Jerome mentioned in his section, we are committed to investing in future growth. The investments we are making today are expected to drive double-digit growth overall market in China and single-digit growth overall market in North America. These investments are expected to drive volume, profitability, and incremental cash flow in the out years. The combination of our execution excellence and our investment in future growth and innovation is why Adient expects to maintain strong, sustained cash flow generation for 2027 and beyond as we ensure our investments today drive shareholder value in the future.

Turning now to our guidance on Slide 24. I've already walked through several key items on the slide, so I won't read through those. In addition to what we have discussed, I would add our guidance on equity income remains approximately $70 million. Based on our current debt levels, our interest expense is expected to be approximately $185 million to $190 million. As we have said throughout the presentation, our guidance reflects Adient's commitment to controlling what it can. Our business execution and commitment to continuous improvement will continue to drive strong business performance. We will manage through the volume challenges and continue to invest in the future as Adient is committed to driving long-term shareholder value.

Turning to Slide 25 before going into Q&A. In closing, I would like to reiterate that Adient is firmly committed to executing our balanced plan for capital allocation. Driven by our business performance, we enter fiscal year '26 from a position of strength with strong balance sheet and solid liquidity. We ended fiscal year '25 with $958 million of cash on the balance sheet, well ahead of the roughly $800 million we need for ongoing operations. This provides Adient the opportunity to proactively manage its capital allocation, whether it's through investment for future growth, debt paydown, or continued share repurchases.

As a reminder, Adient has $135 million of authorization remaining on its share repurchase program, leaving room for additional purchases as appropriate in fiscal year 2026. By utilizing the levers I just mentioned, the Adient team is committed to prudent capital allocation and maximizing shareholder value.

And with that, we can move to the question-and-answer portion of the call. Operator, can we have our first question, please?

[Operator Instructions] That is going to come from Colin Langan with Wells Fargo.

Maybe if we could start with the 1% forecast underperformance versus S&P. Any color on the major puts and takes there? I think you mentioned the F-150. Did you say that you factored in the downtime that's expected, but not the recovery that Ford has actually kind of indicated this recovery? And then any color maybe in particular on the wind-down of unprofitable business in Europe? Is that another big driver there that we should be considering in sort of the 1% drag? Yes.

So thanks, Colin, for the question. I'll take it. So on the F-150 in particular, we -- out of respect for our partner for the customer, we don't want to get ahead of them. And so what they've indicated on their call was F-Series. And F-Series is a mixture of F-150, F-250, and the entire Super Duty lineup. And they haven't officially made any announcements of where that recovery is going to come from and how all of the downtime will mix into that. So what we have forecast in our guidance is the downtime that we know today, what we actually have in our EDI releases, which takes us through the week of November 10, with a restart on November 17 with no recovery. So no makeup of any volume.

In addition to that, what we don't know is what that recovery in makeup volume will look like. Will it come with significant overtime? Will it come with additional crews, additional makeup? Will it be kind of low-calorie makeup type revenue? And what will that mix look like? So that's part of that 1%. When S&P comes out with an updated at a November number, I think we'll tie out closer to that because they will capture some of the F-150 downtime. So that's part of it. The other piece of it is the European picture. So the -- we now have the full Star Louis, our plant in Star Louis, the exit of that business as that winds off, as well as a plant in Novamesto in Slovakia, the exit of that business as well, winding down, which would be below kind of S&P performance. So hopefully, that answers your questions on that.

I mean are those major contributors to the 1% overall? Or are those combined still?

Yes. I mean would be -- those would really capture the 1% overall, yes.

And then if I just look at the walk on Slide 22, the volume mix drag is, I think, something like a 26% decremental, which seems pretty high. Any color on why such a high decremental for the lost volume?

Yes, I'll start, and then Mark can add any color if he needs to. There's a couple of factors that go into that. First of all, we have things like F-150 factored into that. And you have to remember, that's not coming out at a normal decremental because of the nature of how that F-150 downtime is coming in. It's coming in first at a very short notice. It's coming in. Initially, it was basically half shifts. So we were having to staff 2 full plants fully, but only getting half volume on it. It ran like that for several weeks, and now we're having to run it at full down weeks, but still having to pay subpay. And given that is 6% of our total sales, that's a pretty severe decremental for us for a very large portion of our Q1.

In addition to that, in our Q1, we also have Nexperia downtime. And that Nexperia downtime is coming -- it's been public announcements at one of our very large Japanese customers, significantly impacting our North America operations. So when you think about Q1, it's going to have a very significant decremental in it because of those 2 factors, Nexperia and F-150, very short notice, partial shifts that are running either half or sub-pay impacted with very high decrementals associated with them that we're not really able to manage just given the short notice of them. Those are 2 factors.

The third factor in there is one that I would say we will monitor closely throughout the year, which goes a bit to why we've given our official guide, and then if it were flat volumes, the mix of what S&P is calling off. They have called off in their October release some of our platforms, which are maybe higher contribution margin, being down year-over-year, and we'll see how that plays out throughout the year. And then the fourth factor, which is what Mark talked to, we're rolling on in our China business, significant new business this year. As that business rolls on, it isn't rolling on in its first year of production at full kind of incremental margins, right? We have significant launch costs going into it. We're rolling on with some of the China local OEs. As those roll on, they're not rolling on at kind of the regional contribution margin level. It takes us some time to bring those up to the standard margin level.

And I'd say that's the fourth factor associated with some of that volume mix. But the first 2 are very significant, just how some of those downtime -- that downtime is coming at us in Q1.

The next question comes from Emmanuel Rosner with Wolfe Research.

First question is on the growth investments, $85 million investment for the future. Can you just comment a little bit more around how much of that is discretionary, how far out in terms of the future we're looking at for this payback versus things that are nearer term and just needed because you have new launches coming up?

Yes. I'll start, and I can turn it over to Mark for additional comments. Yes, I'd say it's an investment that's needed to really drive the growth. In my prepared comments, we kind of commented on what we see '27 shaping up to be where we see North America being able to grow in the mid-single digits over kind of vehicle volume, especially when we take kind of the metals out of that, which we've said we want to wind down metals. And we see China and Asia growing at kind of double digits over market. And we have that line of sight. And so we see that investment as needed. That's what I would call kind of the program growth and some of the engineering associated with it.

The other thing that I would point you to, Emmanuel, where we're really driving business performance aggressively is on the automation and AI side. If I look at '25 versus '26, in '25, we spent 20 -- just round numbers, $25 million on automation and AI in our plants, and that yielded about $20 million in savings. As we begin to ramp up these efforts, we have a facility in Moore, Hungary that's dedicated to capital improvement, AI, and automation. We have a MIRO facility in Plymouth, Michigan that's dedicated to the same activities. We will spend upwards of about $60 million in AI and automation. And on a run rate basis, that will yield almost $40 million in savings. So the capital is roughly doubled, but the savings is more than doubled on a run rate basis. And that's factored into that total expense improvement or increase year-over-year. So I wouldn't necessarily label it as discretionary as much as it is driving business performance. an improvement into the business year-over-year.

Yes. And Emmanuel, the payback on that CapEx that Jerome was talking about, innovation is typically about 2 years. It could be anywhere from 1.5 to 2 years. That's what we try and focus on there. And as Jerome indicated, the other, call it, $35 million is really engineering and launch support for programs that are being launching with our customers. So think of it in 2 buckets.

Yes. And we'll see those launches, Emmanuel, really start coming on in the end of '26 fiscal year and then accelerating through '27. Okay.

And then I was also hoping for a potential update on onshoring. There wasn't as much discussion on this in this quarter than in the past. I think that you had obviously mentioned already previous wins, but it sounded like you were getting close to some potential additional wins there. So just curious where that's tracking. I guess, what will be the timeline of it starting to help the revenue?

Yes. So in terms of helping the revenue, the one product that we announced is a Japanese customer. It's now -- initially, it's with Nissan on the road, that's now in production. So that is in our kind of '26 figures, that incremental volume as they have onshored back into the U.S. It's unfortunately being offset by some other production challenges that we see just in terms of volume. The other Japanese customer, we expect that to launch at the end of our fiscal year '26. It will be running up to full volume. And then as far as other onshoring wins, we are, I'd say, in the final kind of last rounds of negotiation with a significantly large program, around between 200,000 to 250,000 units that will move from Mexico into the U.S. It would be incremental volume for us, utilizing existing footprint for us. And I would anticipate we'll have more news on that in the next call it, 3 to 4 months or so.

The next question is from Dan Levy with Barclays.

You gave some impressive growth over market targets for '27. And I know that there's some mix issues here in '26. Basically, can you just walk us through what the line of sight? And I know that there's obviously the macro environment can move. But what is the line of sight of sort of secure business? It's a function just of launches coming out? And how do you factor in -- there is still some uncertainty on how automakers might be moving their plans, powertrain stuff moving around. What is the line of sight on that growth of market?

Yes, I'll start, and then Mark can add comments. I'd say the line of sight, Dan, if I just kind of go region by region. In China, as we spoke kind of on the last earnings call, it really comes down to customers' ability to launch and execute. We were, I'd say, impacted last year. And if you look at kind of half-over-half, we saw almost a -- I think it's, call it, what, 50 basis point -- sorry, 500 basis point improvement, half 1 to half 2 in terms of mix improvement or growth over market improvement in China because our launch has finally started to accelerate there. And that's what really gives us confidence in our '26 and then moving into '27 is, one, our mix shift to the China OEMs, but then their ability to now launch and their launch cadence is finally picking up. So I think in China, we have a reasonable kind of line of sight.

Within the Americas, which is our other region now that we're starting to gain some significant traction, it's really dependent on the Japanese OEMs and their ability to, I think, rotate some of their powertrain and rotate some of their plants. What gives us confidence is they generally do what they say they're going to do. Their level of execution, their level of commitment, their ability to plan, do, and execute is at a high level. So I think we have generally a high level of confidence when we look at what happens in the last quarter of '26, that's when a lot of these launches kind of time in and cadence in, thus the high level of engineering and elevated CapEx spend this year, and as that rolls into '27. So I think generally, we feel pretty good about what we see moving into '27 for the business.

And then the other key piece of that, especially in the Americas, is when we think about growth over market, and we'll have more of this as we roll through '26 and really into '27 is it's also the portfolio. We've talked about this is rolling off some of that third-party metals business, and then really looking at growing the JIT, trim, and foam. And so it's that portfolio rotation that will also help to accelerate growth over market in those markets we really want to play in. And that's why the F-150 business not just winning what we had on the JIT and the foam, but also conquesting that trim business, getting more down the vertical integration stream, and providing that value proposition with Ford, codeveloping with them a better end product for the end customer was really crucial.

As a follow-up, same vein, I know that '26 on the margin side has some unique volume mix issues. But you've talked about this midterm 8% EBITDA margin target. There's a few different work streams in terms of balance in, balance out Europe. Should we understand '26 just as a transition year, but the broader positive margin trajectory is still on track with each of these work streams, and that 8% is still something that you're shooting for and is a realistic target over time?

Yes, Dan. I would say that nothing has fundamentally changed. Obviously, '26 significantly impacted by volume. That said, we continue to drive the positive business performance. We're investing in the growth. As Jerome just mentioned, we have a good line of sight in terms of where that growth is coming from in '27 and '28. That balance in, balance out story still holds, right, albeit certain of those programs have been extended in terms of their end of production life, right? So it's sort of muted the impact in '26. But I think when you get into '27, right, you've got your growth, you've got your balance in balance out, right? You've got your portfolio mix starting to change. Those are all the elements that will continue to walk us up from the current level of margin up to, call it, that 7%, 7.5% approaching that target.

And the next question comes from Nathan Jones with Stifel.

I guess I'll just start with a question bluntly on the first quarter, given the disruption of the F-150 and your expectations there. So just if you could provide any more color on what you're expecting specifically for revenue margins in the first quarter of '26.

Naty, we don't provide quarterly guidance, but I think as you're adjusting your model and you're fine-tuning based on your production assumptions, we did, call it, $195 million of EBITDA last year in the first quarter. There was no production declines at that point last year. As Jerome indicated, this year, we're facing not only F-150, but the on-off shifts related to the Nexperia chip shortages there. So is it possible that you're going to see a $15 million, $20 million decline in overall EBITDA quarter year-on-year for the first quarter? Absolutely, right? And then you throw in there JLR, right? They just started to produce their units, right, at the capacity. So again, it's those macro factors that I think probably puts Q1 at the trough for the year, and then we start building on that as we get into Q2, 3, and 4 as F-150 comes back as you have the supply chain shortages worked out with Nexperia, right? You have JLR. So that's sort of the way I see the calendarization as I go through the year.

And I guess my other one is on capital allocation. Lower free cash flow in '26. But as you noted, you have more cash than you need to run the business. Any expectations for what share repurchases in 2026 is likely to be relative to 2025?

Yes. So again, we'll opportunistically look to balance that between the share repurchases, debt paydown. As I indicated, we have $135 million left of repurchases on the current authorization. So we'll time the repurchases and the magnitude of the repurchases in line with how we see clarity with production playing out this year, as we see the cadence of our cash flow coming in this year, right? And so, without giving you a specific number, I'd just say that we'll balance taking the cash off the balance sheet between debt paydown as well as the repurchases.

The next question comes from Joe Spak with UBS.

Super helpful detail on the decrementals in your '26 guidance. I just want to maybe talk through one other element because I know you said you're not counting on some of that F-150 volume coming back. But if it does, is it fair to assume that the incrementals on that volume actually don't come close to the decremental margins because of all the trap labor and costs and some of the inefficiencies you mentioned? So it will help dollars, but the overall decrementals will still look a little bit worse than we would normally expect. Is that fair?

Yes. I think that's right, Joe. I mean if you just think about how that volume comes back on, as Jerome indicated, are they going to be running over running weekends, right? So that goes into that equation.

Any help, any guidance on sort of what we could expect the incrementals on that volume to be if it does come back?

I think it's too early to say still. A lot of it's going to depend on how does it come back? What are some of the discussions we have with Ford around the total recovery mechanism of it. I think it's too premature to engage in those types of forecasts. And that's one of the reasons why, again, out of respect for our partner, Ford, we didn't want to put anything in here because we just -- we don't know the timing cadence. If it's going to be run over, let's say, the Easter break, I mean, that's going to be a lot of premium costs. It's just going to be run over Saturday and Sunday, that's a different model. So it just -- it's too early to say at this time what that even looks like.

The second question, I guess, is just on free cash flow, and apologies if I missed this. I know you spoke about elevated restructuring in '26. I think it was about $130 million in '25. Did you give an actual number for '26? And then you talked about more normal levels beyond that, but I just want to get your sense of sort of what gives you confidence that continued restructuring, particularly in Europe won't be needed that you're going to be more rightsized after '26.

Yes, Joe, so good question. So we did about $130 million of cash restructuring last year. I think that drops down to about $120 million this year, right? Normalized run rate for us, right, is probably going to be somewhere in that $50 million, right, plus or minus, once we get through, I'd say, the elevated restructuring in Europe. Part of it, and we've been very transparent, and you and I have talked about this before, right? We do see that trending down. But in terms of the overall timing, some of that's going to be dependent on customer just program runoffs, right, and what they decide to do with their facilities and where they're going to source certain of their programs. So again, for modeling purposes, I'd assume a $50 million run rate.

So again, when you think about this year for '26, right, a couple of the elements, the calls for cash that are elevated, right? I'd say my cash taxes at $120 million are elevated; those typically would be in that $100 million, $105 million mark on a run rate basis. My restructuring dollars, rather than $120 million, should be falling back to that $50 million run rate. And then it's just a function of EBITDA, right? So if you were going to ask what's the normalized level of free cash flow, start with your EBITDA. Let's just say we do $900 million CapEx. We've always said that, that will be running somewhere in that $280 million to $300 million, especially with the growth investments and the automation that Jerome talked about, cash interest, call that $185 million, $190 million, cash taxes, $100 million and restructuring $50 million. So you get to a normalized level, call it, somewhere around that $250 million, $260 million mark at a $900 million EBITDA, right? So that's the way I think about free cash flow, what's normalized levels for us.

That's the bottom of the hour. So if you can move to wrap the call up, that would be great.

So in closing, I want to thank everyone once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. Also, I'd like to acknowledge we will be in New York City later this month, participating in the--