American Axle & Manufacturing Holdings, Inc.

Good morning, everyone. My name is Jamie, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle and Manufacturing Second 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 keypads. If you would like to withdraw your question, you may press star and the number two. As a reminder, today's call is being recorded. At this time, I'd like to turn the conference call 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 AEM's second quarter earnings call. Earlier this morning, we released our second quarter of 2021 earnings announcements. You can access this announcement 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 10156999. This replay will be available beginning at 1 p.m. today through 1159 p.m. Eastern Time, August 6th. 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 risks 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 second quarter of 2021. Joining me on the call today are Mike Cimani, 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 second quarter 2021 financial results. Next. I'll touch on some exciting business development news in the quarter, including announcements with the Chinese EVOM, NEO, and our recent communication about GM's Oshawa plant. And lastly, we'll discuss the ongoing and unprecedented 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. AM delivered strong operating performance in the second quarter of 2021, navigating industry production volatility stemming from the continuity of supply challenges. These challenges were greater than we originally anticipated at the beginning of the quarter, but our team did an excellent job in managing these obstacles, resulting in solid financial results. AM sales for the second quarter of 2021 were $1.28 billion, up approximately 149% compared to $515 million in the second 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. North American industry production was up approximately 130% according to third-party estimates. Light truck production was up 150% year-over-year, and volumes of our core platforms increased significantly year-over-year. Inventory levels on key light truck programs that we support remain well below normal levels. Consumer demand for light trucks remains robust, and our OVM customers are building them as fast as possible. We believe the demand environment for these products, combined with a lack of inventory, should lead to an extended recovery through 2022, which will certainly benefit AAM. AAM's adjusted EBITDA in the second quarter of 2021 was $222.6 million, or 17.3% of sales. This compares to a loss of $52.1 million last year. In addition to benefiting from higher production levels, our intense focus on optimizing the business and flexing our cost structure over the past several quarters greatly contributed to our performance in the quarter. We remain committed to driving efficiency and managing factors underneath our control. AM's adjusted EPS in the second quarter of 2021 was $0.29 per share compared to a loss of $1.79 in the second quarter of 2020. And as for cash, I'm very excited about our cash flow generation in the quarter. We generated adjusted free cash flow of over $136 million, compared to an outflow of approximately $162 million in the second quarter of 2020. Our operating performance and commitment to efficient capital spending drove this high level of free cash flow. Additionally, we prepaid over $140 million of term loans in the second quarter. And since the fourth quarter of 2020 to the second quarter of 2021, we have paid down approximately $360 million of long-term debt. As we previously stated, we are committed to reducing our debt and strengthening our balance sheet this year, and we are delivering on that goal. We achieved 2.5 times net leverage ratio in the second quarter. It is this management team's focus to further strengthen AM's balance sheet. On the business front, we are very excited to announce that we will be supplying electric vehicle components to NIO, supporting their next generation of e-powertrain program. And for those of you who don't know who NIO is, NIO is a leading Chinese electric vehicle OEM and a pioneer in China's electric vehicle market. We continue to see good growth opportunities to support electric vehicles with drive units and a wide range of sub-assemblies and components. This applies with both existing and new customers. Today's announcement clearly underscores AM's technology in electric vehicle propulsion and our commitment to excellence within the space. We're very eager to support this new customer. The electrification dialogue with multiple global OEMs continues to be very constructive as manufacturers are intensely focused to support this transformation. We see plenty of opportunities over the next several years as our state-of-the-art technology, engineering, compact design, and new product offerings are attracting strong global interest. Our engineering teams are rapidly developing next-generation technology while supporting the launch of multiple new electrification programs globally. Our technology, innovation, and focus on customer service are strong value propositions allowing OEMs to compete to win business with both traditional and the startup OEMs. It's our goal to be the supplier of choice when it comes to the electric drive units, sub-assemblies, and components. Clearly, these are very exciting times for AEM. Having said that, we continue to deliver on our theme of securing the future by protecting the core. We are very pleased to reiterate that AM would be the sole supplier of front and rear pickup axles for the production at GM's Oshawa facility. This development demonstrates our high-quality products and on-time delivery capabilities, as well as our strong relationship with General Motors. We look forward to supporting GM as they expand their production of their successful full-size trucks to meet consumer demand and rebuild their inventories. In the quarter, we completed an acquisition which specializes in producing powder metal components. And as we mentioned before, we will do smart, quick-return, bolt-on acquisitions that will complement our core business, drive synergies, and provide solid financial returns. This was a compelling, high-value purchase which should immediately benefit AM and is also part of our long-term lightweighting component strategy. Finally, we were recognized as GM Overdrive Award winner in 2020. We're very grateful for this award as it demonstrates our commitment to the continuity of supply while addressing an unfortunate industrial fire last year. Operational excellence is a core value for AM and will certainly benefit us and provide us the competitive advantage going forward. Before I transition to Chris, I want to talk about our current operating environment and our financial guidance. The stress on the value chain stemming from shortages in semiconductors, labor, steel, shipping containers, port delays, and rising commodity prices is unprecedented. Second quarter 2021 was a challenging environment with the semiconductor challenges causing the production volatility that we saw in our schedules. These headwinds are continuing and schedules will remain volatile. We believe the second quarter 2021 still to be the trough of this issue and the semiconductor availability to improve in the second half of the year However, we expect supply chain challenges related to this and other constraints to continue into 2022. For AAM, we will continue to work diligently with our customers and our extended supply base to protect continuity of supply and support our customers. Let's discuss our financial guidance. Although there is continued operating uncertainty, especially within the availability of semiconductors, we are maintaining our guidance for revenue and raising the low end of our EBITDA range, we are also raising our adjusted free cash flow outlook. Our guidance is as follows. Our revenue will be $5.3 to $5.5 billion, adjusted EBITDA $875 to $925 million, and adjusted free cash flow of $350 to $425 million. Chris will provide more details about our guidance in his prepared remarks. Aside from the impact of the semiconductor issue and metal market challenges, operationally our business is running very, very well. We are focused on managing our costs and expenses while ensuring operational and capital efficiency to optimize our business. As I've mentioned before, these fundamentals should support strong margin opportunities as we return to normal operating conditions. At AEM, we have two overachieving priorities, and both are equally important. First, we're focused on the here and the now. That means operational excellence, strong cost management, and an unwavering commitment to support our customers. We have continually demonstrated these qualities and managed factors that we can control, leading to strong free cash flow generation and, yes, a stronger balance sheet. Second, we're focused on our future. We will continue to make investments in R&D to develop the next generation of electrified products, and lightweighting of components to drive possible future growth. Our engineering teams are developing creative solutions to offer solid value propositions to our customers. This is demonstrated by high interest in our electric vehicle products. And for us, our breadth and depth in drive chains provides us with a competitive advantage in not only technology development, but also an understanding of the OEMs, what the OEMs want from the propulsion system. Clearly, these are very exciting times, and the future is very bright for AEM. And with that, let me turn things over to Chris May. Chris?