Earnings call transcript Q2 2023

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Operator

Good morning, everyone. My name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. reminder, is a being As Instructions] today's also event recorded. [Operator

ahead, turn time, of over go I'd this the Investor Lim. like Please Head At Lim, to floor David to Relations. Mr. Mr.

David Lim

joining we good morning. earnings earnings to who second Thank you, second us this quarter I'd AAM's morning, and on Earlier announcement. our welcome like everyone is released call. XXXX quarter of

announcement our Newswire this access on website services. through can Relations of the You page PR and the Investor

for replay this access of dial slides call call, You on well. be page can supplemental XXX-XXXX, code also can Investor conference our will replay To available the find replay you This (XXX) X listen of through as XXX-XXXX. website August to a this XX.

remind this materially to discussed the cause forward-looking which to everyone future which comments and and quantified, and Before that call operations discussed. subject contain be results we in differ to risks cannot may from activities statements those uncertainties, I'd matters may or begin, predicted like of

For call, well we and these during non-GAAP Information as with these Also filings reconciliation Exchange a GAAP to Commission. refer on the this you additional regarding to website. non-GAAP available ask may non-GAAP financial measures our Securities refer measures certain measures. information information, of to financial as we our that is

With me and Chairman Dauch. let that, David turn things AAM's over CEO, to

David Dauch

our begin for financial I'll quarter everyone. Executive Financial good the second today morning, performance. my To discuss joining results AAM's Chris call us financial quarter for of on review May, and and Vice Thanks David, you, Thank comments, Chief highlights XXXX. the is With the Officer. second to AAM's President of me today

business on some in incremental Next, news quarter. development I'll touch electrification the

components and driving to the and and applications. momentum continues across units, our our technology to interest is multiple Our and gain global our segments through market drive approach

results, output, be propulsion AAM superior questions to that delivers transition the unfolds, cutting-edge power electric call of robust the electrification have. the compact to Chris details open designs. technology may with After change forefront our our up at covers any will we'll MVH financial you the and As that that of

AAM's number downtime quarter customers. billion. be our $X.XX were to a intermittent at impacted So of XXXX second of by AAM let's begin. sales continues

it factors we difficult overall causes is availability production industry second sales. of focused labor active the we $XXX environment believe supply continue regarding these – a macro to more control. adjusted management has On AAM's of Although downtime, remain lack million have chain inventory become improvement some we that of or to including we of reflects this was to customers. inflation. and sequentially seen volatility quarter pinpoint on will positive profitability by the combination note, the but it a and our can challenges, the The continuing issues, impact From in monitor continue EBITDA the that a perspective, performance XX.X% margin we and

we In in experience driven part launch inefficiencies and by costs addition, to labor availability. elevated continue large

provide more to adjust of will financial few moments. around business the details year the We half improve as expect appropriately. a we costs these our our in throughout performance Chris second

earnings flow flow per free the cash adjusted in positive the in $X.XX quarter. AAM's AMM's million a generated of nearly XXXX strong second adjusted per share. at the $XXX second cash was very AAM share quarter. in strong quarter was

our announced you Stellantis. we Last which Let me presentation X quarter, a on award talk about can some of significant with e-Beam axle deck. see Slide business updates,

is OEM. we're light-duty The application following with in award for program an quarter undisclosed up e-Beam China. with This our truck another

we're a share for our very inclusive standpoint, on global and well we diversity product technology fostering that electric in Forbes AAM's a supporting our Europe. focused OEMs wins graduates. best North portfolio, also new broad our components made announcing wins AAM vehicle and These is Additionally, as both approach electric America reinforce Today's are to excited additional business. with in safe, America's for capabilities, AAM the accepting multiple as our to and announcements programs recognition From employers were environment. market. work

of newly goals one is social our future community to a not addition, for will leaders, future hired In business sense AAM's to and but only also graduates the have responsibility. develop strong drive and growth profitability who for company, become the

sales To North in our billion and adjusted $X.XX million units. million EBITDA approximately American my to approximately million. flow of guidance, production of of essentially $X.XX free AAM is close shows on Slide which X to And billion, the $XXX million comments cash out adjusted is unchanged. $XXX approximately $XXX million range $XXX forecasting to targeting we're XX.X

stabilization sales is environment the performance year past half in significant see the However, started of hopeful additional and are as operating with And specific dependent the of industry our to dynamic, we of theme all of second platforms remains on certain signs that the that. continuation several the see starting the production more know, you to years, but over customers.

coming in believe such, the positive years. stable positioned for we As industry the and is trajectory

our our is and AAM we'll AAM our securing our by electrification strengthening portfolio for towards drive on very strong As efforts our The cash legacy flow, and underpinned technology. bright free profitable business, our communicated position is award-winning before, to we aim future continue balance for sheet, growth. focus have electrification generating and the advancing future,

Let and turn May. the to our Chief President over Chris? Vice Financial me Chris now call Officer, Executive

Chris May

of quarter and everyone. the I also comments. today. financial I as earnings our you, details slide will prepared second will cover refer good to the of Thank morning, with you part David, my deck

and So to begin walk quarter X a compared in quarter billion let's of XXXX. Slide XXXX, quarter billion second XXXX second sales ahead shows $X.XX $X.XX of XXXX were the sales. with AAM's quarter sales second second of to the sales. In go

and on with mix million GM a was $XX approximately the Overall, $X and And Tekfor metal a the with by year-over-year million, primary beginning was close last American lower. pricing basis. year, up completed metal other quarter, while platforms acquisition impact, lowered truck to passthroughs our million $XX FX the X%. was volume the year-over-year, million $XXX Stellantis June and net production lastly, were In XX% positive and contributed full-size at North of just over both up and FX sales market

profit in Now second profitability. XXXX. of second let’s of million quarter XXXX Gross $XXX the second quarter the $XXX year. XXXX move EBITDA as $XXX.X on million was quarter million of versus in was to last in the compared to million $XXX.X Adjusted

the reflecting see a down adjusted and quarter, contribution year-over-year EBITDA adjusted EBITDA, XX% X. In million sales. higher on mix of You of can added AAM’s margin $XX volume, Slide the walk other on

and OEM our Net inflation $X approximately year with technology be to of should AAM’s development. and a most expect resolution approximately remain customers. headwind the recovery the half product million. launches our by cost electrification ongoing support achieved million in we our customers inflationary increased with of of discussions was R&D $XX second

and at AAM’s launch of to volatility as performance certain impacted by approximately combination $XX programs, million new segment Driveline a this The performance of the costs, were quarter. good The significant combination other by plants. by overall the continue production ramp inefficiencies we impacts in of behind costs and offset up the EBITDA bucket drivers launch

successive would expect in Going quarters improve. forward, We should production also diminish customer to our launch launch volatility costs to curves. progress as AAM’s along continue we

need which resolved – which challenges As costs. expedited expect to we are underperforming some largely year. matters locations, scrap, availability, the delivery throughput, for from these other underpinning be labor Again, inefficiencies, impacting for we are stem addressing at premium and this

X.X% the million quarter sales me or of XXXX of the in in XXXX. SG&A. of in sales. million SG&A second $XX.X quarter of million. to second XXXX second expense now was AAM’s of or Let spending cover $XX the $XX.X including R&D This compares approximately R&D quarter was X.X%

the million that continue launch R&D to on launch – number range electrification per into will in trend are programs. before growing entering indicated, and quarter electric invest we $XX drive us of we into the opportunities technology, in As new XXXX, our are capitalizing as

Let’s second to the move of was expense taxes. million XXXX, XXXX. interest quarter quarter interest $XX.X to of million compared on the second and in in $XX.X Net

rate year-over-year is the is basis, debt the total rising increase. our end quarter expense on lower driving at a environment Although interest

second quarter in to $X.X as our the XXXX, million was of compared $X.X second expense million expense of XXXX. In income quarter of the tax an

adjusted we XX% to rate mentioned of at our first on range For call. guidance for due our expect effective tax approximately the to be quarter allowance as somewhat elevated midpoint our XXXX, valuation a

We also million cash taxes expect this $XX approximately of year.

net Taking or income XXXX. second $X of the all in this a million was million XXXX, second net into income or account, of share GAAP $XX.X our share to quarter quarter compared in per $X.XX of per $X.XX the

second of press share, quarter our Adjusted release for excludes to earnings in $X.XX impact quarter XXXX, XXXX. noted per in was of the items per share the the earnings $X.XX per compared of share which second

operating Let’s cash activities expenditures the now the second property, proceeds balance cash quarter plant on net sale to of Capital the from sheet. by million. quarter for for $XX.X second and the XXXX XXXX million. of of Net move of equipment flow and was $XXX.X were provided

second leverage restructuring June debt impact $XX.X $XXX these of net ended XXXX were related the activity the leverage calculating with of XX. acquisition quarter Reflecting billion, million, of X.Xx of the an in for million quarter cash adjusted of for generated million. of payments AAM the Cash $X.X and activities, free flow debt net perspective, we at EBITDA quarter. LTM ratio From adjusted a a $X.X

outstanding the sheet in debt we power the continue over strong AAM our $XX continue AAM’s utilize strengthen million. to reduce cash by second of to by cash debt. by Driven reducing the outstanding to our performance We’ll quarter, flow generating free flow balance

the year, guidance. As rest X full for of shows year our the Slide

are targets unchanged. financial XXXX Our

range approximately America for a targeting upon For million units. our assumptions to sales for target production a is North XXXX. This key $X.XX based and are programs our sales, of we billion of production XX.X $X.XX billion

basis. overall that to total production For continue to approximately on XX% of platforms key just more are sensitive note certain to to the program sales flat inventory be GMTXXX we X% production. a to up We anticipate year-over-year versus our guidance to range, our

In in into terms the back half and of quarterly would we the cadence recoveries quarter launch inflation expect to improve costs customer year. of third considerations,

diminish the Operational the over of inefficiencies should balance year.

optimistic remains, cautiously operating the continue that the are throughout will industry we While to improve year. environment uncertainty

Our target million million target $XXX $XXX and $XXX million million. is flow to free $XXX to adjusted EBITDA is adjusted our cash

we strides will about optimistic continue it good business make our and costs, are our our with we efficiency about reduced on – launch progress discussions gains commercial continue and with conclusion, electrification technology, customers. to In recovery development

updrafts on nimble, optimizing head business they looking we are into some we interesting remaining capturing as As and forward times, focused conditions to and macro our materialize.

Thank going stop your Q&A. and here call over today. to and David? on can participation we to David, the time turn back start for so the I’m call you

David Lim

Thank you, Chris and David.

your would to We that please than I questions. more you have ask two. reserved no time take some to limit questions

you may questions So at this any free to have. please time, feel with proceed

Operator

from go Our comes Instructions] Bank ahead of your question. with first [Operator America. question today Please Murphy John from

John Murphy

morning, Hi. Good guys. Thanks time. the for

one… Just

David Dauch

Good morning, John.

John Murphy

on you question on One or about and incremental XX% quick mix. the were margin the volume EBITDA revenue, first flow-through talking

something also the in the from schedule $XX You EBITDA about that walk. mega of was mentioned performance some of the pressure million volatility on bar

that that's the incremental? are and we out the be saying in about us how calling Maybe just I volatility quarter? you So you incrementals that that should forward? of And going part give the number these on costs mean not if could thinking

Chris May

running sort range Yes. based It you've our contribution so historically XX% relates that us about. heard will on mix. as that's profit, is XX% XX%, Sure. pure anywhere we to it our variable on from of talk about When to margin talk volume EBITDA at

on profit variable pure $XX talking this incremental. sales piece they're the decremental. case, that our you're million is that's performance incremental in about In those The or So bucket.

from the hopefully time we're the a to perspective. about QX. that the that related to half You some to think half of beginning That's from sequential bucket And QX is Does other impact That's activity of I to the the in balance about expect diminish a over year that to bucket from quarter, of quantifies… related that the talking continue that kind of of the QX to half is standpoint. inefficiencies. bucket these and then especially through launch of would inefficiency performance an

John Murphy

Yes. zero statement? as a the that expectation that close to fair year. Is is we And your exit

Chris May

it yes. will It mean I that Yes. should be definitely be. trending way,

John Murphy

side, how EV customers the just ramp. America, fund and you're for on just that business margins interpreting or the David, or EV to generate large second and and will shift that means their expectations customers your you near run for I'm term. on large it core the for just curious North the may question EV side? long your cash just strategy pushing what here heavily business. what in back Does Obviously, term curious going the And in future that and flow transition. three, investing that means the two are way this maybe keep may running volume I'm the mean, two of you and your business you're and

David Dauch

don't Yes, to it of much. business obviously, get and our continue that strategy think our most optimize John, I to changes that the mean, business. we're I ICE out value really core going

As But per dedicated to the current as what's we're to of is regards spend transition future. helping approximately electrification. in quarter indicated, the performance $XX commented, business that us And cost. R&D going fund you our the of million Chris has to is most towards supporting really

in to going portfolio, our we're new continue to our our in out while core continue So grow backlog business. business round to electrification optimizing

John Murphy

guys. very you much Thank great. Okay,

Chris May

Well, thanks, John.

Operator

question. comes question Brinkman next from go from your Our JPMorgan. with Please ahead Ryan

Ryan Brinkman

customer to that prepared question. or being harder may program. downtime XX.X production I to public sounded automakers lower unexpected some North production have the experiencing downtime. semiconductor at adverse into I on least more I you down a versus it the clearly taking when the some the say wanted the et dig It still remarks be your programs guide, of in XX.X for sort cetera. say only there it particular XX.X reiterated despite might related, maybe you pin been million Thanks to earlier. expecting some that reason be could were million customer now Hi. like about mix of heard my heard for versus earlier million America

could presumably you do which if side you to you're a tracked might program customer say the do it's supply have don't supply taking adjust programs which or you lower to suspect that like able could And that relates that know it due continue? more into like to think I downtime to explanation softer? instead Or So demand, resolve? to

Chris May

here. your Ryan, take question of the Chris. this I'll is Yes, first part

XX.X I our process. is, of view units. our but million to that crux up contributing didn't think we question thought is the That's what and your from guidance from a view, raise macro yet sales production standpoint previous is

in previously be example, to and XX% our you prepared year-over-year drive we So platform do up to elevated continues have Those remain the what for production the pretty sort Metal same platforms some the underpinning some as to that Motors. And look it's I as our assumptions in would ones a General supply, ancillary see and this was our it, from our quarter range we other changed Stellantis our our and – last, of General platforms a as you as sales, our remain with quarter-over-quarter. it platforms. truck We flat benefit group. for on will top with smaller components, to continue full-size through of foremost, Forming the frank, bracketing X% company much specific well to of other consistent I tell you remarks, the over is, our really on first big if call really the the at on not two. mentioned told or the view Motors view

do get that, of not on but little main you programs, on. have changed a our we lift So our views bit

Ryan Brinkman

Okay. Are are operating know, schedules in customer environment Or want such the about overall Thanks. that environment? improvements the costs moderating comment reporting the how suppliers production about earlier other being business same lot quarter? upon on did that versus chain or, about freight sort are Slide in a I backdrop? generally this feeling check don't environment of other you as guidance on supply industry just steadier I X you business business the the based the current the seeing – to non-commodity

Chris May

Yes.

second of still you downtime, of into is quarter. and downtime, saw our of Ryan, I standpoint, quarter think notification but of year. better what a in what That negatively, the experienced terms to in go duration downtime, I impacted would from quarter the tell continue does production than this we first third

example, perspective July. down, month two of is One white truck a endpoint our plants for of the thirds from largest of

is an we our the continue. also from but on early favorability experienced looking of So than we've labor a and it that better are chain, conditions perspective, that the some macro continue, cost well what we like through utilities up year. pressures pressures sequentially base, things but in freight, as seen does From pass face inflationary they're standpoint supply from experiencing cost inflation those on who as these type still our the to of from part

Ryan Brinkman

Okay. Thank you. Very helpful.

Operator

Our next question comes Barclays. from from Dan question. Please ahead with go your Levy

Dan Levy

taking for you Thank Hi. the questions.

comment more or is launch slightly on margins? on that's color but the there bridge down specifically, the addressed just margin have bridge. anything And a may this at the Is costs cost – us And XH dissipating, I revenue the purely in metal dissipating? your maybe have Chris, you little can to on think point. launch with a you midpoint, color, just give XH the but up optical you the

Chris May

performance be Yes, half if half first are if which higher the you're sales there call days about our midpoint equal, about, lower first – totality, production you in half, of at think slightly range, about second imply would the second would it, the day revenues talking because half. per in

gaining Our our little volume consistent larger back to view revenue are from is the then is a from of absolutely, half absolute year of some bit more more perspective into will the yes, platforms the here working perspective. a on related plus availability larger an first would meaningful imply second platform labor into as and weighted And continue backlog for as way quarter level was of think how we've that we that. elimination mid-size year. to our launch in these in programs half I some margin launched the improve exit were and of start some quarter the second of quarter fourth. performance, and dissipated of quarter been uptick as parts they of that's our costs first truck that would also that a some during as by GM the some third early of driven an the then of example, to the efficiencies third in itself launched will Think the those the of, That's well that quarter in through about the

Dan Levy

on some their a seeing terms you. thought EV David, that OEMs earlier, of to John's volume I just vertical this you outsourcing the have Are out and this And question Thank in as in pushed of efforts DX. to would drive then on for they integration by change the certain just issue targets bit opportunity And of any components? so focus the for plays getting justify Okay. you integration, in vertical units? maybe to enough opportunity won’t this a follow-up on the more

David Dauch

do the the in Yes. as they that. place they’re demand are how integration Dan, obviously to out that product question sure we us do what to outside they portfolio to I well mean, plans still uncertainty figure any proper very What’s is All able The strategy that that to it. of make going do? to go are of going type we’ve is to clear satisfy there’s to range to OEMs and long And much that part want got be for is trying vertical we’re they to product to the have. positioned their want support.

we you do final a capabilities. do sub-assembly can it assembly, we’re it for a and things is can unit, EDU, carrying electric And approaching As applicable it We We like standpoint. that e-Beam from we’ve which like component to can at conveyed standpoint. standpoint. assembly. before, pickups final that low either more from a from where be a drive the a complete And market assembly we do in or an gearbox can in can all go it to

the hopeful much to continue a volumes very time, longer But those be back think dependent segments and think now. right So bit. the comment think. number consumer ICE can I’ve same of but materials, pushing take in the fully technology. here adopted, others still time, a on Again, accelerated earlier standpoint, there’s we’re a regards to same from the making standpoint open be integration maybe been charging longer station I to a from little vertical very strategies. bit it’s little addressed that. get all in to out at the their going grow that infrastructure standpoint, in to an affordability John’s the a maybe market. At of to But I’m to a is because that be than growing going we rate, big the maybe mass believer I just the affordability issues got at going these we’re that’s about electrification OEMs vocal from to

future then what’s ultimately here, demonstrate to OEMs And to fund their going forward. because got continue the ultimately ability make and fund the also that’s to to going money organizations

a prepared in support is same balance balance I going So feeling at there’ll future but whatever time be to that what to is think, personal to my TBD, we’ll think I and the going be be the is be. mix mix that

Dan Levy

Thank Great. you.

David Dauch

Yes, thanks, Dan.

Chris May

Dan. Thanks,

Operator

BNP question from ahead Picariello from Please James comes next question. Our with your Paribas. go

James Picariello

Hi, good morning, everyone.

David Dauch

Hi, James.

James Picariello

right, the metals of $XX your the in FX benefit of I flow remains intact. through on first course guidance, think and original million is seen which an EBITDA half Just

to You million. baked a full $XX about year EBITDA in of headwinds

on any And the the the Thanks. driving are peso major about you thinking provide managing the the year? what’s can to of exposure delta to just how to you’re color follow your and impact that, there your conversion? then associated you rest Mexican how So there and on

Chris May

first perspective, seen some certainly. half I’ll as you a of here those this metal metal if we’ve take some Yes, in this a the have of market benefit we James. indices. seen year From will, softening

XX% XX% to every for up. a the bit you you’re relationship How back up inverse Typically, to but when go of of days. XX down, a meaningfully. of change they start not year? the know, The these them course of unfolding second a here down, the when to towards quarter, translate capture go the seen we balance in in they profit as they upside. half little little we We’ve about do trend think the positive So typically residual happens but that our bit revenues seeing that go

the For where assume indices. us, from level runway – exited of we run just a sort quarter we second rate metals of

I mentioned, some Aluminum very have of some of and the some was We commodities. In strong mixed of an they end saw profitability standpoint, increasing metal content at last saw relationship. elevated. other inverse on year. terms We the trends like

whims. into was metals our a guidance that going playing from changes the XX This with days we’re design the again, customers would these be That little obviously a are to our year. point. for my subject of contracts us insulate metal The So and is level macro out better our perspective. But changes. a of and protect us to us every for in first type bit

important point for the very obviously is peso We side. basis currency perspective. that about over Yes, billion an buy on X pesos. from a annual over a cost consume Second you’ve us or asked currency

here for hedged years XX% a a of a head little be a out. have frames to we’re basis, of into But $XXX to exposure. the XX%. program strengthening small we up We peso year. between, us And three a next and call – of our typical bit XX-month timeframe, We this for we’re anywhere more of will good Hopefully between any worth of balance that relationships, year. disclose hedge we is think our zero in obviously amount headwind as it for of that in of hedging it year, few million rolling where very next our that inside a So do pretty that But pesos. course, a this Q. hedge terms all rolling in spot on

James Picariello

through will just any completely you operations, on That’s is through that just Understood. right that color joint And e-Beam region helpful. axle be guys? done Or award going be relationship to in any the consolidated for just Thanks. China, in your there? venture

David Dauch

not in do the we’re asked the this will know to has and that just that that. based time, you customer on time But on time. us comment able appropriate let Yes, this we at point at at certainly what

James Picariello

it. Thanks. Got

David Dauch

Yes.

Operator

your ahead RBC. And from Please today come with last ladies Narayan and from our go question question. Tom will gentlemen,

Tom Narayan

Oh, a yes, how are could taking labor if confidence know Yes, guys that quarters specifically of the question. doing that’ll availability. color improve? the now. you what some thanks out that provide gives for just Actually, – I called maybe what and you you you’ve improving specifically you’re couple

David Dauch

is mean, David. area Tom, I talent obviously, the from. extending pool to foremost, Yes, we’re we’re that and in this first looking attract the

We’re wages multiple increased paying bonuses, bonuses. we’re our times. retention referral paying We’ve

we We’re roles in to and that how and demonstrating of greater positions hiring have. the are type regards we flexibility

We’re also because putting thing [ph] vet in skillset then appropriate it’s them. also development and training them but retain and them, to hire then one

and year. off highly in and issues slow can it just everything care marketplace the the of and rate pay the in other taken address going we’re to we that’s attrition on down with are some definitely But we’re starting So of of we’ll I competent today. starting to and covered of things you a these number that have get half resolved here the second

Chris May

Yes.

that other could elements looking loads open labor that that look product elsewhere of to optimize some some well from – have also availability the perspective has automation, you’ve availability implement as us as or I should can at as as, time in capacity we some time. we so over about facilities, issues heard that talk well takes for leverage labor that of say doesn’t And Tom, to that our our

So we’re areas that support as well. to looking for

fronts. attacking So really this we’re on all

Tom Narayan

volume in much OEMs. as we’re seeing Got the And issue DX happen maybe European not Thanks. on then North America, with follow-up it. BEV that necessarily my

of to OEMs? Or OEM have to curious American? your kind strategy developing if, you you these you that your fixed selling possible kind other that making North shift customers are are to just you’re of able, existing more it if are EV is products, on maybe Just products for

David Dauch

protect work electrification programs That’s to well Europe is the the existing broken growing of in want sizable down before, service market awards in highlighted so the to that in have while in is we America, as also different we that But outlined approach here I business our XX% today earlier. mean, I market No, from standpoint, global to Clearly, we electrification based. as the we segments a to that. one China. as all our we’ve also North approach

we’ll again, are time OEM’s their the the to respective opportunities the think where what of be respective for same in will programs. be decisions time So the launch regards at go they

Tom Narayan

Thanks. Great. right. All

Chris May

thanks Tom. Yes,

David Dauch

I Thank We and you our last talking on of was who certainly believe you all that question. this have appreciate in and interest with you AAM. in Thank future. the we forward look Tom, to call participated your you. thank

Operator

and gentlemen, we’ll thank for presentation. and with conference conclude Ladies call joining. today’s you that We

disconnect may your You now lines.

American Axle & Manufacturing (AXL) 4 Aug 232023 Q2 Earnings call transcript