American Axle & Manufacturing Holdings, Inc.

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 and Manufacturing Third 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 and the number one on your telephone keypads. If you would like to withdraw your questions, please press the star key and then the number two. As a reminder, today's conference call is being recorded, and I would now 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 AAM's third quarter earnings call. Earlier this morning, we released our third quarter of 2021 earnings announcement. You can access this announcement on the investor relations page of our website, www.aem.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 10159521. This replay will be available beginning at 1 p.m. today through 1159 p.m. Eastern Time, November 12th. Before we begin, I would 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 AAM's Chairman and CEO, David Dowk.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the third 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 third quarter 2021 results. I'll then touch on some exciting business development news, including the electrification announcements with RE and our largest customer, General Motors. And lastly, we'll discuss the ongoing supply chain challenges 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. So let's begin. AM delivered solid operating performance in the third quarter of 2021, despite unprecedented supply chain challenges that impacted industry production in the third quarter. When we reported second quarter earnings, our expectation was that the worst of the shortage was behind us. This turned out not to be the case. Production volatility, stemming from the semiconductor chip shortage, took another leg down, which eventually forced OEMs to idle production at many facilities, including their full-size truck plants that were largely protected previously. However, the AM team did a great job in managing these obstacles and factors under our control, resulting in solid financial performance. AM sales for the third quarter of 2021 were $1.21 billion, down approximately 14% compared to $1.41 billion in the third quarter of 2020. The decrease in our revenues on a year-over-year basis primarily reflects the impact of the semiconductor supply chain disruptions of nearly $245 million. North American industry production was down approximately 25% according to third-party estimates. Light truck production was down 20% year-over-year, and volumes on our core platforms decreased significantly from a year ago. The industry is at a point where a lack of inventory is beginning to impact retail sales. Data supply on key products that we support were at or below 30 days, with certain platforms in single digits and large SUVs closer to 20 days. Once the supply chain issues are resolved, which will take some time, we foresee an extended recovery to meet customer demand and replenish dealer inventories. AM is in a great position to benefit from the strong demand in light trucks, especially pickups and SUVs and the replenishment of crossover vehicles. AM suggested EBITDA in the third quarter of 2021 was 183 million, or 15.1% of sales. This compares to 297 million last year. Excluding the impact of metal markets and currency, our EBITDA margins would have approximated 19%. This is a testament to our optimization efforts and our strong cost control, yielding strong EBITDA conversion. AM's adjusted EPS in the third quarter of 2021 was $0.15 per share compared to $1.15 in the third quarter of 2020. As for cash flow, we continue to generate positive pre-cash flow in the third quarter. AM's adjusted pre-cash flow was approximately $69 million. Earlier this year, we announced a development agreement with REIT. We are pleased to share that we have secured an initial platform business award with our partner, And AM plans to supply REE with high-performance electric drive units for its highly modular and disruptive REE corner technology that enables full-flat EV chassis for multiple applications. This is a great electrification opportunity for AM, and it's validation of our innovative industry-leading advanced electric drive technology. And we're excited to build upon this win with REE going forward. Investors and other interested parties may have an opportunity to see our wheel and drive units and other EDU portfolio on display at trade shows beginning in January of 2022. In addition, AM announced today that we will be supplying track right differentials for the new GMC Hummer EV. These differential sub-assemblies distribute power generated by the electric drive motor to the left and right wheels. This enhances the experience for drivers looking for exceptional vehicle performance both on and off-road. We are very happy to support GM on this great product, and we look forward to supplying GM for their future electric driveline needs. Our strategy and approach to the market continues to take hold. Our opportunity to succeed in full electric drive units, sub-assemblies, and components are well displayed with these two announcements. As we all know, electrification is coming fast, and it is a great growth opportunity for AM. We have a strong product portfolio in EDUs and E-beam axles, gearboxes, sub-assemblies, and components. As such, our technology is garnering interest around the globe from new and established OEMs, from small cars to light commercial vehicles. We are in numerous discussions with manufacturers, and our business prospects look very positive. Because of our deep driveline experience, we believe we have an edge among the competition, especially when it comes to systems integration and NVH. Before I transition to Chris, I want to talk about the industry supply chain challenges and our financial guidance. What the industry has and continues to experience is unprecedented. The lack of semiconductor availability continues to drive high production volatility with very minimal warning. Additionally, rising commodity costs, labor shortages, logistical challenges, and port delays continue to stress the value chain. We are hoping to see semiconductor stabilization over the next successive quarters, but it's difficult to ascertain when the industry will return to normal as global demand for chips remains strong and new capacity will take time to come online. We expect this issue will continue well into 2022 and possibly into 2023. That said, our priority at AM is to execute our game plan, which means to produce high-quality products deliver on time, and be cost efficient to support our customers and protect the continuity of supply, regardless of the operating conditions, and we're doing just that. One of the management's top priorities is to diligently optimize the cost structure and improve efficiency, and we are doing that. Now let's discuss our financial guidance. Operating uncertainty continues in the fourth quarter, especially with the availability of semiconductors and rising commodity prices. And as such, we have updated our guidance. For the full year, we now target revenue in the range of $5.15 to $5.25 billion, adjusted EBITDA in the range of $830 to $850 million, and adjusted free cash flow of approximately $400 million. Chris will provide more details about our guidance in his prepared remarks. In conclusion, We had a good and solid operating quarter. We did what we do best, that is, we delivered operational excellence. The team delivered positive adjusted earnings and adjusted free cash flow under a very difficult operating environment. We are confident that our strong operating fundamentals should support solid financial performance, especially as volumes recover over time. In the meantime, we continue to secure our core truck, SUV, and crossover business and and generate strong cash flow to fund our electrification future. In addition, we will continue to invest in advancing our electrification platform technology and our overall EV portfolio to serve multiple vehicle segments. Our goal is to be the electrification supplier of choice for the broader OEM community, and we are making significant strides to bring our vision to reality. Clearly, the future is very bright for AM. Chris?