Adient plc
Q1 2020 Earnings Call Transcript

Published: 31 Jan 2020

[Operator:]

Thank you for standing by and welcome to the Q1 FY '20 Earnings Call. Today’s conference is being recorded. If do you have any objections, please disconnect at this time. [Operator Instructions]I would now like to turn today’s call over to Mark Oswald. Sir, you may begin.

[Mark Oswald:]

Thank you, Jacqueline. Good morning and thank you for joining us as we review Adient’s results for the first quarter of fiscal year 2020. The press release and presentation slides for the call today have been posted to the Investor section under our website at adient.com.This morning, I am joined by Doug DelGrosso, Adient’s President and Chief Executive Officer; and Jeff Stafeil, our Executive Vice President and Chief Financial Officer. On today’s call, Doug will provide an update on the business, followed by Jeff, who will review our Q1 financial results and 2020 outlook. After our prepared remarks, we will open the call to your questions.Before I turn the call over to Doug and Jeff, there are 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 those forward-looking statements made on the call. Please refer to Slide 2 of our 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 to these non-GAAP measures to the closest GAAP equivalent can be found in the Appendix of our full earnings release.This concludes my comments. And I will turn the call over to Doug. Doug?

[Doug DelGrosso:]

Great. Thanks, Mark, and thanks to our investors, prospective investors, analysts joining the call this morning, and spending time with us, as we review our first quarter results.Turning to Slide 4. Similar to previous earnings calls, I will start a quick review of Adient's recent developments and key highlights. First, Adient reported strong Q1 financial results. The results build on the positive momentum established in the second half of last year and demonstrate that an improvement phase of our turnaround plan is solidly on track.Sales at $3.9 billion were in line with internal expectations. Adjusted EBITDA increased to $297 million, up $121 million year-on-year. This marks the fourth consecutive quarter of sequential improvement and the first quarter of year-over-year improvement since our fourth quarter of 2017.In addition to the benefits associated with our turnaround actions, which accounted for much of the improvement, the quarter also benefited from certain items, namely the resolution of various commercial settlements that tend to be lumpy between periods. Jeff will expand on this in just a few minutes.Moving on, adjusted earnings per share for the most recent quarter were $0.96 versus $0.31 per share last year. And finally we ended the quarter with $965 million of cash on hand. Outside of our strong financial results, the team also made portfolio moves, selling its RECARO Automotive Seating business. The sale further demonstrates Adient's commitment to the core business and focus on capital allocation.Besides RECARO, Adient announced an agreement this morning with our joint venture partner Yanfeng to restructure the existing joint venture relationships. This includes the sales of 30% ownership stake in Yanfeng Automotive Interiors to Yanfeng for $379 million. We also agreed to extend the term of our YFAS joint venture to December 31, 2038. The extension demonstrates Adient's continued commitment to partnership in the region.In addition, we agreed to sell certain patents and other intellectual property exclusives we used in our seating mechanism business to AYM for $20 million. And finally, Adient and Yanfeng agreed to amend AYM joint venture agreement to update AYM's business scope to allow AYM to carry out its seating mechanism business both in and outside of People's Republic of China, PRC -- for both PRC and non PRC customers.Adient intends to leverage AYM's expanded presence in the global seating mechanism market as we continue to rightsize our own metals business. These actions are important. Not only do they further our position for long-term success, they also demonstrate the company's commitment to driving shareholder value.From a product innovation standpoint earlier this month, we participated and partnered with electronics leader LG at the CES to display our AI19 vehicle interior. The interior showcase the integration of LG's electronic technology with our future mobility solutions that address trends and mobility, such as autonomous and semi-autonomous driving. We are pleased with our collaboration with LG and the potential opportunity it creates.Overall, the team successfully executed on many fronts during the quarter. The strong start to fiscal 2020 lays a solid foundation for the company to deliver on its full-year commitments. In fact, the operations steadily improving driving earnings and cash flow growth combined with proceeds with strategic actions just discussed, we are expecting to accelerate a portion of our debt pay down later this year.Turning to Slide 5, just a few points related to new business wins and launch status. You can see from the examples highlighted on the left, Adient continues to win new and replacement business. The selected wins demonstrate solid mix across regions, SUVs and luxury platforms, such as a large SUV from Toyota, the Junior Jeep, the Alfa Romeo Kid, and pictured in the middle Ford Mustang Mach E.Speaking of the Mustang Mach E, it's worth noting as we called out on the slide, the significant number of program wins within China, EMEA, and the Americas are the EV platforms. In fact, we presently hold approximately 70% market share of the EV market in Europe. And our customers continue to develop and launch new and alternative proposition platforms, Adient's leading market position is expected to strengthen given the diversification in powertrains.Turning to right hand side of the slide, we’ve illustrated a variety of programs that were recently launched or scheduled to launch in the coming months, including the Nissan Leaf, Toyota Tacoma, Cadillac CT5 program, which was launched at our BWI facility in Lansing Michigan and the Tesla Model 3 launched in China.Bottom line, our focus on launch management has resulted in significant improvement in launch execution. In fact, the Cadillac CT5 launched in our BWI facility achieved a flawless launch scorecard. We call it 00,100,100,90, which breaks down to 0 safety incidents, 0 customer rejects, a 100% on-time delivery, 100% achievement of financial targets within 90 days from start of production.In addition, I'd like to mention certain of the launches that we called out last quarter. The Chevrolet Onyx and the Toyota Corolla in South America also achieved flawless launch scorecard and were recognized by our customers. The Tesla Model 3 launch is another success story worth mentioning, given the compressed timing of the program to complete seat business was awarded to Adient joint venture, YFAS, in July of 2019 with the first batch of seats delivered in late December of that year. Adient's focus on adherence-proven process, these enabled a successful launch despite the start of production occurring to 6 months post program award.Turning to Slide 6 and the progress we are making on the turnaround plan. As mentioned on our last earnings call, the company began its transition to the improvement phase of our turnaround plan having stabilized business in 2019, underpinning the earnings and cash flow growth reported this morning for Adient's first quarter and expected to continue through 2020, our four focus areas

[Jeff Stafeil:]

Thanks, Doug, and good morning, everyone. I will start my comments on Slide 9. And adhering to our typical format, the page is formatted with the reported results on the left and our adjusted results on the right hand side of the page. We will focus our commentary on the adjusted results, which exclude special items that we view as either one-time in nature or otherwise skew important trends and underlying performance.For the quarter, the biggest drivers of the difference between our reported and our adjusted results relate to an asset impairment related to the write-down associated with the expected sale of Adient's 30% stake in YFAI, a loss associated with the sale of our RECARO Automotive Seating business, purchase accounting adjustment, our amortization and to a lesser extend restructuring costs. Details of these adjustments are in the Appendix of the presentation.Sales were $3.9 billion, down 4% year-over-year excluding the impact of FX. Adjusted EBITDA for the quarter was $297 million, up $121 million or 69% year-over-year and is more than explained by improved business performance across Americas, EMEA and Asia. Included in the results are roughly $30 million of commercial settlements from various customers that tend to be lumpy across quarters; and another, call it, $10 million in tax credit at various JVs in China. I will have more on these items as we walk through the segment results.Finally, adjusted net income and EPS were up significantly year-over-year at $90 million and $0.96, respectively. As you can see, the improved operating results were partially offset by higher tax rate in this year's first quarter versus a year-ago. As we've discussed, our tax expense is higher in the current year due to booking valuation allowances in several geographies in the second half of fiscal '19.Now let's break down our first quarter results in more detail. Starting with revenue on Slide 10. We reported consolidated sales of $3.9 billion, a decrease of $222 million compared to the same period a year-ago. Lower volume and mix across North America, Europe and Asia, impacted the year-over-year results by approximately $179 million.As a side note, in North America the impact of the GM labor strike impacted results by about $55 million. In addition, the negative impact of currency movements between the two periods, primarily in Europe impacted the quarter by $43 million. Worth noting the call out at the bottom of the slide, consolidated sales in China were up 6% year-on-year, well ahead of vehicle production in China, which was up approximately 1%.Unfortunately, for the line with internal expectations discussed with you in November, significant volume declines in Thailand, Japan and South Korea, more than offset China's performance in the APAC region.With regard to Adient’s unconsolidated seating and SS&M revenue, driven primarily through our strategic JV network in China, sales were up about 4% when adjusting for FX, again outpacing the 1% increase in China's vehicle production over the same period. Sales for unconsolidated interiors recognized through a 30% ownership stake in Yanfeng Automotive Interiors were down 3% when adjusted for FX. Important to note, about half of this business is conducted outside of China.Moving to Slide 11, we provided a bridge of adjusted EBITDA to show the performance of our segments between periods. The bucket labeled, Corporate, represents central costs that are not allocated back to the operations, such as executive office, communications, corporate finance, legal and marketing.Big picture, adjusted EBITDA was $297 million in the current quarter versus $176 million last year. The corresponding margin related to the $297 million of adjusted EBITDA was 7.5%, up approximately 330 basis points versus Q1 last year. Excluding equity income, as noted at the bottom of the slide, our margin increased 260 basis points year-over-year to 4.8%.Although the team made significant progress during the quarter, as demonstrated by the year-over-year improvement, these results do not reflect the desired level of profitability for the business. The team remains focused on executing the turnaround plan to drive Adient's margins to best-in-class.The year-over-year improvements in adjusted EBITDA is largely driven by improved business performance in the Americas and EMEA. In addition, lower SG&A costs to Americas and EMEA combined with an increased equity income in Asia benefited the quarter. On a side note, this is the first quarter of year-over-year improvement since the fourth quarter of 2017.Sequentially with the fourth quarter of 2019, Adient's Q1 performance improved by $82 million, the fourth consecutive quarter of improvement and further evidence that operating environment in Americas and EMEA continues to improve. Finally, Americas and EMEA SS&M business progressed in a positive direction with plants manufacturing results improving just under $40 million versus last year's Q1 and approximately $14 million better compared with the fourth quarter of 2019.Similar to past quarters, we’ve included detailed bridges for our reportable segments, which consist of Americas, EMEA, and Asia on Slide 12, 13 and 14.Turning to Slide 12 in the Americas. Adjusted EBITDA increased to $94 million, up $51 million year-on-year. The corresponding margin of 5.1% was up 290 basis points versus last year. Business performance led the way improving $40 million year-over-year. The key drivers within this bucket included improved launch, ops waste and freight, which together totaled about $18 million and commercial, which also improved by $18 million year-over-year.A component of commercial would include various routine customer settlements, which tend to be lumpy in nature between quarters. During the quarter, we resolved the backlog of open issues with a variety of customers. These settlements are common, especially towards the end of the calendar year as our customers close out their own year.SG&A was another strong contributor in the quarter as Americas benefited from a reduction in net engineering, increased efficiencies and the deconsolidation of Adient aerospace, partially offsetting these benefits with the negative impact of lower volume and mix, which can be largely explained by the temporary impact of the GM strike.Now turning to Slide 13 and discussing EMEA's results. Overall, adjusted EBITDA increased to $49 million with a corresponding margin of 3.1%, up $47 million, while margin improved 300 basis points respectively year-over-year. Again good progress, but significantly below optimal levels.Like Americas, substantial improvements in launch, ops waste and freight combined with positive commercial actions drove a $44 million improvement in business performance. The EMEA team also worked hard to reduce SG&A costs, which improved $12 million compared with Q1 of last year. Lower volume and mix partially offset these benefits.Finally turning to Slide 14, and our Asia segment performance. For the quarter, adjusted EBITDA was $177 million or $23 million higher than compared with Q1 2019. Equity income increased $26 million, driven by an approximate $10 million benefit associated with tax credit at various JVs and $5 million of commercial settlements. In addition, improved operational performance both at the seating JVs and YFAI contributed to the increase in equity income.Important to remember, equity income is historically strongest in Q1, our fiscal Q1, mirroring the seasonality of China's vehicle production pattern. We continue to expect a significant reduction heading into fiscal Q2, primarily driven by lower vehicle production surrounding the Chinese New Year holidays as well as the developing impact of the coronavirus. More on our outlook in just a minute.In addition to equity income, business performance increased by about $9 million year-over-year, driven primarily by improved material margin. Lower volume and mix combined with higher engineering costs associated with the current launch schedules were partial offsets.Now let me shift to our cash and capital structure on Slide 15. On the left hand side of the page, we break down our cash flow. Adjusted free cash flow defined as operating cash flow less CapEx was a $148 million for the quarter. The $121 million improvement in adjusted EBITDA, improved trade working capital and a $53 million reduction in capital spending between the two periods explain the vast majority of the increase in free cash flow versus last year.Trade working capital, as mentioned on several of our past calls and noted on slide tends to be quite volatile throughout each quarter. However, over the course of the year, the impact generally tends to balance out. Also note that our AR factor in Europe was approximately $50 million higher at December 31 than at September 30.For capital spending, the year-over-year decline is partially related to the timing of our customers launch plans as well as an increased scrutiny over spending. The teams are working closely to identify opportunities to reuse capital were appropriate. As a result, we’re expecting to spend less in capital -- CapEx this year versus prior expectations. More on that in a minute.As you can see on the footnote, we continue to break out CapEx by segments. On the right hand side of the page, we detailed our cash and debt position. At December 31, 2019, we ended the quarter with $965 million of cash and cash equivalents. Gross debt and net debt totaled $3,754 million and $2,789 million respectively on December 31. It's worth mentioning there are no near-term maturities. Thanks to the refinancing completed last May.And speaking of the refinancing, at that time, we intentionally increased the company's liquidity to ensure the team had appropriate funding to execute the turnaround plan. With our turnaround plan firmly rooted and gain momentum, and as evidenced by the several quarters of improving operating and financial results, we're confident, we can continue to execute the plan with a lower level of liquidity. As we move through the next couple of quarters, we'd expect to pay down between $100 million to $200 million of debt using the excess liquidity residing on our balance sheet.Now moving to Slide 16 and just a few comments on the strategic transactions that we’ve recently announced and how those actions offer additional opportunity to strengthen Adient's balance sheet. First, the divestiture of RECARO Automotive Seating. As you know, RECARO serve the niche market, providing low volume in specialty seating. The business was essentially breakeven.Realizing we would be -- we need to make significant investment in next-generation product and incur restructuring costs to improve its profitability, we elected to divest the business, which is very consistent with our commitment to our core business and focus on capital allocation.The strategic actions with Yanfeng announced earlier this morning, major components of the agreements include

[Mark Oswald:]

Jacqueline, if we can take the first question.

[Operator:]

Absolutely. [Operator Instructions] Our first question comes from John Murphy of Bank of America. Your line is open.

[John Murphy:]

Good morning, guys and congrats. Again a lot done this quarter. Just first on the Yanfeng transactions. I’m just curious why you're pulling the trigger on this now? Is it something, Doug, that you kind of started working on once you got there and it just took some time to get it done, or what was really the impetus for doing this right now?

[Doug DelGrosso:]

Okay, John. Just so -- first of all, good morning and thanks for calling in. Which transaction specifically?

[John Murphy:]

The Yanfeng transactions on the JVs.

[Doug DelGrosso:]

Okay. Just wanted to make sure. It's a little [indiscernible]. So as Jeff mentioned, the opportunity arose as we look to renew our YFAS joint venture in China. That’s been a tremendous asset for the company. We were in talks with YF and we were looking to find a way to take that relationship to the next level. We felt that, that was best served as we built the relationship not only extending in China, but also looking towards our mechanism business to see how we could globally leverage that business. As part of that discussion, we've been looking for opportunities to extract cash out of China to our advantage. YFAI became an opportunity for us and because that’s not really a core business on the interior side that we participate in, we just felt the timing makes sense to go after it. So that’s generally how the stars aligned, if you will, and we're really excited about the opportunity to continue to build that relationship with YF. I don’t know, Jeff any other comments?

[Jeff Stafeil:]

No, I think you hit it well. Just as you look at YFAI, we talked about that being non-core in finding that opportunity, but John if you look here, it was very important for us to extend the joint venture with YFAS, highly successful and expanding that relationship with AYM, just dovetails right in with the plan, Doug has outlined, to improve the cash flow of this business by taking some of the emphasis off of the mechanisms business that’s historically used a lot of capital and hasn’t necessarily had a great return. AYM has really done the opposite, they’ve had great returns, we own 50% of that business, so this allows a nice harmony and it all kind of came together. It took a while to get together. So it's not like we just worked on it this quarter, but it's been in the making for a while.

[John Murphy:]

And maybe if I can follow-up on the AYM side. I mean, it sounds like this is allowing you to maybe rationalize the -- your core consolidated structures business a bit faster. Is there the potential there could be asset sales from your core business into the AYM JV that might raise more cash or is that kind of a -- sort of a no-no?

[Doug DelGrosso:]

No, that’s not a no-no. That’s something we will look. This is the first step. We think there's more that can be done. Nothing announced today, but that’s something we will -- absolutely we would be looking at.

[John Murphy:]

Okay. And then, Doug, just as we think about the margins, I mean, you got ways to go to grind to sort of peer or "normalized" margins. But this quarter kind of showed you’re making some real definitive progress on some of the issues of premium freight excess cost and launches issues. I mean what is kind of your thought process as to when you might be able to get to "normalized" peer margin? Is this something that's still going to take 2 to 3 to 4 years as you’re rolling off some of the old bad contracts, or is it something you get to maybe sooner than that?

[Doug DelGrosso:]

Well, if we take some of the macro environmental issues out of the equation, to answer your question, I think we've made good progress. I still think this is a multi-year journey, we're not changing that time horizon as a result of our Q1 performance. But it is clearly demonstrating when we focus on the basics from a launch in operational performance and meet our customers' expectation that we really change the environment with our customers and we can get a lot more done. So that’s always been our approach, stabilize and meet our customers' expectations from a delivery performance quality and then that opens the door for us to engage with them, I will say, commercially and also on a cost side of the equation. So still multiyear, but we're pretty satisfied with the performance that’s reflected in Q1.

[John Murphy:]

Great. Thank you very much.

[Doug DelGrosso:]

Thank you.

[Jeff Stafeil:]

Thanks, John.

[Operator:]

Thank you. Our next question comes from Joseph Spak of RBC Capital Markets. Your line is open.

[Joseph Spak:]

Good morning, everyone. Thanks for taking the question. I guess, just to start on the commercial settlement, it sounds like what you're saying is this is lumpy, this is based on some recoveries and sort of contractual recoveries, is that right? And this is not a result of some of the other sort of commercial settlements you've talked about and going back to customers and trying to sort of reprice some of the contracts?

[Doug DelGrosso:]

It's both. As we’ve always said, there's been a backlog of issues that were difficult to close out with our customer because we have performance issues that were in our control standing in the way. So as we’ve addressed our performance issues, that's allowed us to come and engage with our customer and resolve some of the backlog, if you will. The other element is a function of the way the calendar and fiscal year end, and we get a lot of things done at the end of our customers calendar year that benefit us in our first quarter fiscal year. So it's both, if you will.

[Joseph Spak:]

Okay. In the remaining China JVs, your guidance, I think, like if you -- on an apples-to-apples basis, it's kind of steady. But one quarter was much stronger than expected, and there was sort of that $10 million tax credit. So it implies some significantly lower implied margins in the seating JVs over the course of the year. What's driving that? And is that a sort of a more new normal rate to think about in China?

[Doug DelGrosso:]

It's a little bit of the latter. So we align our forecast with what our customers provide us for the immediate. And then we look at IHS to give us an idea what we can expect to -- beyond the releases that we have with our customers, or what our stated customers' volume are projected to be. Part of it is mix. We have customers like SGM and Ford, who have been struggling in the market that takes that number down. But that really defines most of it [indiscernible] side. I don’t know, Jeff, do you have any additional comments.

[Jeff Stafeil:]

Yes. Joe, I would say, for the most part as we look at China it's got pretty high decremental margins, it's pretty -- it's strong business. So as we predict weaker sales environment that’s going to drive some margin reduction, mostly just because of the decremental side. I would say, what we’re seeing in Asia largely has been a volume story and not really a margin story, but to some degree there's a mixed story within that margin. SGM, Doug, mentioned, is a key customer. It's also significantly -- presumably to be impacted pretty heavily, about 20% of their productions is in Wuhan in China. So as we look at -- going forward, that’s an important customer for us, but in general, what we projected here is mostly driven just by volume expectations in the market.

[Joseph Spak:]

Okay. And quickly on the AYM portion of the JV actions. How long does it -- will it take for them to get set up on mechanisms? And can you offload or, I guess, you like outsource business to them, or is this more for go-forward contracts?

[Doug DelGrosso:]

So they …

[Jeff Stafeil:]

Yes, yes and yes is probably right. Well, they have -- they essentially provide all of our mechanisms in the China market today and …

[Joseph Spak:]

So they're set up today?

[Jeff Stafeil:]

… they’re are well today. In fact they’re incredibly well set up today. They have a plant in China that is world-class at not only supplies, the majority of our product in the region also exports to Europe and North America quite well.

[Joseph Spak:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Dan Levy of Credit Suisse. Your line is open.

[Dan Levy:]

Hi. Good morning.

[Doug DelGrosso:]

Good morning.

[Dan Levy:]

Taking questions. Just wanted to follow-up again on the commercial settlements here. How should we think about how many more contracts you have that really need to be repriced? And just what's the -- if they’re reprices, it's just for like a one-time annual benefit or is this for the duration of the contract? Just trying to get a sense of the sustainability of these benefits into out years? And how much more you have to reprice within your contracts and programs?

[Jeff Stafeil:]

Yes. Dan, before Doug talks about some of those other points, let me just maybe get a little bit of a primer on sort of the commercial settlements for us. We have obviously enormous number of contracts with our customers that have volume components that have all kinds of different components that impact the price our customer pays to us. And we also have productivity or price reductions that we estimate that we will give to them through the year. What you’re -- what we're talking about here for the most part in this commercial settlements is routine activity of the company that happens year in, year out. If you go back and look at history, we had these since the beginning of time. But they tend to be lumpy and we're trying to basically emphasize that comment here. We tend to make an estimate, let's say of what productivity number we might give to a customer and as we get to the end of the year with the mix of all the other commercial issues, we either overestimate or underestimate where that is. What we tend to be is, we tend to be a bit conservative as a company on this. So we generally as we reach the final conclusion with each of these customers, which typically happens at the end of our -- at the end of the calendar year we tend to have a bit of a benefit. So in our first quarter fiscal year, historically, our accruals would sort of suggest this over time is pretty consistent. We get a similar type benefit. You just can't annualize it through the period and that’s we’re trying to really emphasize here and calling it out.

[Doug DelGrosso:]

And maybe if I can just further that. What I would add to it, a year-ago we had a lot of unresolved contractual issues with our customer for the most part, those have been addressed. What I will say as we move forward and its somewhat the nature of our business is, our product tends to change quite a bit. And that creates opportunity for us to engage with our customers and offer solutions that could benefit our bottom line. That’s just the nature of the Seating business. That’s something we’ve recommitted our activities to support. So when we talk about VAVE, that's not just necessarily running workshops to find ways to take cost out of, that’s an important part. It's also telling our customers where there's real value in the product based on our assessment of the market and benchmarking their product into what we takes most valuable and then operating mid-cycle solutions that otherwise they wouldn’t be investigating. And that's really our focus as we move forward is continuing to drive value. Many of our customers are looking for ways to take cost out of the Seating product to address some of their needs. Many of our customers are looking to move away from controlling that value chain and giving us the opportunity to control it, if we can offer a better commercial proposal for them. So it is kind of a continuous activity that we've recommitted ourselves to that our regional groups understand and our customer groups understand. And so when we talk about closing that gap to our peers, a lot of it will be a result of just being more commercially savvy with our customers.

[Dan Levy:]

Okay, great. Thank you. Second question. Your organic growth, revenue growth in quarter was minus 4%, but that's actually a couple of points better than what light vehicle production did in the quarter. And you’ve now had a couple of quarters, a handful of quarters of organic revenue outgrowth versus the market, it's lumpy, but it's still outgrowth. And this is even with what should be downsizing of SS&M. So can you just give us a sense of what's happening in your organic growth or the incremental content? Is it just better platform exposure? And what might this tell us about how to think of in the future your relationship of organic growth versus LVP, call it the outgrowth, setting aside what's going to be the likely impact of future downsizing of SS&M, which I suspect we haven't really seen yet in the revenue results.

[Doug DelGrosso:]

Okay. So it's certainly -- a lot of it has to do with mix. And one of the great things about our revenue portfolio of products is we have great mix to SUV, light truck, luxury customers. And as that mix -- as the market mix turns in that direction, that certainly gives us benefit and that’s particularly true in the Americas, where we're well-positioned in the light truck market. I think that’s part of the answer. If we look at -- we’re not releasing the projected backlog, because our relationships with our customers have significantly improved, our performance has improved, we've resolved commercial issues, we feel very confident about our backlog. The numbers we typically talk about is incumbent business that we continued with. And we're operating, in the case of China, it can get a 100% and the high 90s everywhere else in the world. So we feel good longer-term that, that backlog continues to come on. I think that really covers -- I think it answers your question. Any additional comments to that, Jeff?

[Jeff Stafeil:]

No.

[Doug DelGrosso:]

I guess that’s how we would look at it.

[Dan Levy:]

There is no sort of backlog, air pocket or anything like that when we've heard of some of your competitors talk about conquest business, it sounds like, you're saying that you’re winning all the JIT business, the backlog is intact. There's no future air pocket that make her between now versus when these rewins that you’ve talked about occur. Is that a fair assessment to this relationship, is that [multiple speakers].

[Doug DelGrosso:]

That’s a fair assessment. The only disclaimer I would put on that is the comments we made in our formal remarks that there are business that we're taking a hard look at, and if we can't put together a thoughtful financial projection and gets us a return on investment, then we’re prepared to walk away from that. At this stage, nothing to announce. But that's, again, a different attitude I think we have when we look at new business opportunity. Nothing sacred. And we weigh each opportunity, each customer in each region for each product different. They’re not weighted equally and we take that all into account before we decide whether we want business or not.

[Dan Levy:]

Okay. Thank you.

[Mark Oswald:]

And Jacqueline can we take our last question from Bryan.

[Operator:]

Yes. Our last question comes from Brian Johnson of Barclays. Your line is open.

[Brian Johnson:]

Two questions. First on the SS&M licensing and arrangement with Yanfeng. Does this open up the possibility to engage in value engineering discussions with North American and European customers about moving sourcing mechanisms to China, or to …?

[Doug DelGrosso:]

In fact, we’re already doing that. That was happening independent of this, we just think bringing these businesses closer together allows us to make buy decisions even within our existing asset base to decide where its best to put business. I think we’re more aligned today the way we think about that, engaging our purchasing organization than historically we’ve been. So we’re making those moves as we speak and have been making them, say over the last year plus.

[Brian Johnson:]

And in terms of the impact on supply chain logistics, just a smoothment for the JIT factories, what’s the customers' reaction to those suggestions?

[Doug DelGrosso:]

Typically -- well, first, our operations in China with AYM are outstanding operations. Many of our customers know them either from their relationship through China or as a result of the products that we shifted them through our JIT plants. So there are no entity. For certain products they're very cost-effective, and so that's taken into consideration. We always take into consideration extending supply -- our supply chain and the logistics costs and currency risk etcetera associated with that. So that's all baked in to the cake, if you will. And when we can bring forward a -- an attractive business proposal taking all those issues into account, we are pretty transparent with our customers, they understand the benefit that they will receive and they are usually very much aligned with the decision and support it.

[Jeff Stafeil:]

And effectively they’re producing the same parts that we’re. We design these together. Remember, it's our JV, so it's common. We both produce the same recliner 3000 series. They’ve just been able to do it at a lower cost, but the output of the product is the same. So for the customer its -- yes.

[Doug DelGrosso:]

Yes and one additional point. We also operate a technical center through AYM. So this is not just the traditional low-cost country sourcing. They’ve got a lot of technical prowess. They can support the customers in region beyond just manufacturing side of things.

[Mark Oswald:]

Great. Thank you, Brian. And Jacqueline, it looks like we’re at the bottom of the hour, so this will conclude the call this morning. If anybody did not get their chance to ask questions, please feel free to reach out, Jeff and I will be available today. Thank you.

[Doug DelGrosso:]

Thanks, everyone.

[Jeff Stafeil:]

Thanks, everyone.

[Operator:]

Thank you for your participation in today’s conference. You may now disconnect at this time. Have a wonderful day.