American Axle & Manufacturing Holdings, Inc.

Good morning. My name is Chad and I will be your conference facilitator today. At this time, I would like to welcome everyone to American Axle in Manufacturing, first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press the star key then the number one on your telephone keypad. If you would like to withdraw your question, please press the star key, then the number two. As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, and good morning. I'd like to welcome everyone who is joining us on AM's first quarter earnings call. Earlier this morning, we released our first quarter of 2021 earnings announcement. You can access this announcement online on the investor relations page of our website, www.aam.com, and through the PR Newswire services. You can also find supplemental slides for this conference call on the investor page of our website as well. To listen to a replay of this call, you can dial 1-877-344-7529, replay access code 10152565, This replay will be available beginning at 1 p.m. today through 1159 p.m. Eastern Time, May 14th. Before we begin, I'd like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risk and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures, as well as a reconciliation of these non-GAAP measures to GAAP financial information, is available on our website. With that, let me turn things over to AEM's Chairman and CEO, David Dowk.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the first quarter of 2021. Joining me on the call today are Mike Simani, AM's president, and Chris May, AM's vice president and chief financial officer. To begin my comments today, I'll review the highlights of our first quarter of 2021 results. Next, I'll touch on some exciting recent business announcements with Ford and RE, and lastly, we'll discuss the challenges within the supply chain and our financial outlook. After Chris covers the details of our financial results, we will then open up the call for any questions that you may have. In the first quarter of 2021, AM delivered solid operating performance and strong cash flow generation. Although the industry is facing continuity of supply issues, we continue to navigate through these challenges while delivering very strong results. AM sales for the first quarter of 2021 were $1.43 billion, up approximately 6%, compared to $1.34 billion in the first quarter of 2020. The increase in our revenues on a year-over-year basis primarily reflects the recovery from COVID-19-related industry shutdowns that we experienced last year. Although North American industry production was down 4%, according to third-party estimates, light truck production was up 5% year-over-year, and volumes on our core platforms increased 9% year-over-year. Furthermore, light truck inventory on a number of the key platforms that we support remained extremely low. Consumer demand for light trucks remained strong, and our customers are building them as much and as fast as possible. We believe the demand environment for these products will continue for an extended period of time. AM's adjusted EBIT in the first quarter of 2021 was $262.9 million, or 18.4% of sales. This margin performance is a first quarter record for AAM. This compares to $213.3 million last year, or 15.9% of sales. In addition to benefiting from higher production levels, our intense focus on optimizing the business and flexing our cost structure to align with the global market demand contributed greatly to our performance in the first quarter of 2021. AAM's adjusted EPS in the first quarter of 2021 was 57 cents per share compared to 20 cents per share in the first quarter of 2020. Cash flow generation was strong in the quarter. We generated adjusted free cash flow of over $174 million compared to $83 million in the first quarter of 2020. Our operating performance and commitment to reducing capital spending drove this high level of free cash flow. Furthermore, we prepaid over $100 million of our term loan in the quarter. As we previously stated, we are committed to reducing our debt and strengthening our balance sheet throughout 2021. On the business front, we are happy to announce that we are providing both air-cooled and liquid-cooled power transfer units, which are part of our EcoTrac product family, for the all-new Ford Bronco Sport. This is a great new product offering from Ford that is being very well received in the marketplace. And as for electrification, We're excited to announce that AM and RE Automotive have agreed to jointly develop an exciting new electric propulsion system for e-mobility. As we shared in our last call, RE Automotive is a leading provider of e-mobility solutions. The company's core innovation includes integrating traditional vehicle components into the wheel, allowing for a flat and modular platform. AM's partnership with RE intends to incorporate our lightweight, highly efficient next-generation electric drive units which feature fully integrated high-speed motors and inverters into RE's highly modular technology that enables a fully flat EV chassis for multiple commercial vehicle applications. The electric drive units will be developed at AM's Advanced Technology and Development Center here in Detroit. We are very excited to partner with RE Automotive to bring new EV mobility technologies to the market. This is an important step in growing AM's electric propulsion business and expanding our addressable market. In addition, our electrification dialogue with multiple OEMs continues to intensify, and our technology, engineering, and new product offerings are attracting strong global interest. 2021 will be an exciting year for us in this space. Our engineering teams, in collaboration with our technical partnerships with Inovance and Hoffer Engineering, are quickly achieving technology advancements for our next generation of products. On a separate but related matter, we are also pleased to announce that AM will receive a grant from the US Department of Energy in support of the development of our three-in-one electric drive unit. This award further recognizes AM's technology and innovation to support new energy vehicles. As for our current generation of electric vehicle products, we are presently in the process of launching multiple new programs globally including components, sub-assemblies, and electric drive units. These innovations and advancements are allowing AM to compete to win business with our traditional customer base, while also positioning AM to win business with new OEM entrants in the space. We're also very pleased to announce that we recently published our 2020 sustainability report. I'm very proud to say we exceeded our initial sustainability goals this year, this past year, and now are in the process of setting even higher goals. AM's sustainability program is set by our cultural values and strategic principles as a company that stress teamwork, diversity and inclusion, community involvement, and respect for the environment. Our sustainability program has become more transparent in consideration of the interests of our shareholders, customers, suppliers, associates, and other stakeholders. We are deeply committed to profitably growing our business in a way that is sustainable and socially responsible. Before I transition to Chris, I want to talk about our current operating environment and our financial guidance. In my 35-year career in the industry, I've never seen such stress on the value chain stemming from shortages in semiconductors, labor, steel, containers, and port delays, and the rising commodity prices that we're experiencing. We believe the second quarter of 2021 will be the trough of the semiconductor shortage issue with improvement in the second half of the year. However, we expect this issue will carry into 2022. For AM, we will continue to work with our customers and our extended supply base to protect continuity of supply. Although there is significant operating uncertainty, especially with the availability of semiconductors, we continue to maintain our current financial guidance. In fact, based on what we know today, and assuming our customers continue to prioritize full-size truck production with minimal disruption, we can see a path to the high end of our ranges. Our current guidance remains as follows. From a revenue standpoint, $5.3 to $5.5 billion. On an adjusted EBITDA basis, $850 to $925 million. And adjusted free cash flow, $300 to $400 million. Operationally, our business is running extremely well. We continue to manage our expenses, improve our operational efficiency, and tightly control capital expenditures. Even with all the pressures we face, we believe 2021 can be an outstanding year for AM. And this has the AM team both very motivated and excited. With that, let me now turn the call over to our Vice President and Chief Financial Officer, Chris May. Chris?