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 Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute, preventing 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, followed by the number one on your telephone keypad. If you would like to withdraw your questions, please press star and then two. As a reminder, today's call is being recorded. I would now like to turn the floor 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 2022 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 2211523. This replay will be available through August 12th. Regarding the investor relations calendar, we would like investors to save the date for a technology investor event in the City of Lights, Las Vegas, on January 4, 2023, a day before CES opens. Additional details will be forthcoming in the coming months. With that said, 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. Now, let me turn things over to AEM's Chairman and CEO, David Dowek.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AEM's financial results for the second quarter of 2022. Joining me on the call today are Mike Zimani, AEM's President, and Chris May, AEM's Vice President and Chief Financial Officer. I will review the highlights of our second quarter financial performance. And next, I will touch on some exciting business development news in the quarter, including our recent announcement regarding Mercedes-AMG, a number of new electrification component wins, and the completion of our Tech4 acquisition. Lastly, I'll discuss our updated 2022 financial outlook before turning things over to Chris. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin. AM's second quarter 2022 financial results were impacted by rising input costs and the continuing global supply chain volatility. We cannot control the macro environment, but we can manage our business, which includes the continuity of supply to our customers, product quality, and manufacturing optimization, all while positioning AM for sustainable profits and free cash flow generation. AM's second quarter sales were $1.44 billion Production shutdowns continue to occur, but to a lesser degree compared to last year, but similar to recent quarters. In our view, OEMs will likely continue to prioritize their light truck output, which is good for AM. OEMs cannot build their large trucks fast enough as inventory levels on key platforms that we support remain low and consumer demand appears to be resilient. However, we are closely monitoring the macroeconomic background that you are all aware of. As for our products, we believe all-wheel drive and four-wheel drive mix tend to be more resilient compared to other vehicle features, especially with full-size trucks. AMs adjusted even in the first quarter of 2022 was 195 million, or 13.6% of sales. In the quarter, the results were negatively impacted by rising input costs, semiconductor availability, and other supply chain constraints. Semiconductor conditions continued to improve, but we believe supply chain challenges will persist into 2023, and in certain regions, these headwinds may take longer to resolve. That said, we remain focused on sales contribution conversion, supporting R&D, and mitigating inflationary headwinds. Chris will cover more details with you. Additionally, we're happy to share that we have made very good progress on commercial inflation recovery discussions with our OEM customers and in line with the expectations that we shared with you last quarter. AM's earnings per share in the second quarter of 2022 was 19 cents. AM's adjusted EPS was 22 cents per share. Even with these challenges, AM continued to deliver positive adjusted free cash flow generation in the quarter. This is a compelling strength of our operating model. AM's second quarter 2022 adjusted free cash flow was $114 million. Our capital allocation strategy, supported by our free cash flow, is very straightforward. Strengthen the balance sheet, continue with our long-term goals in electrification, and conduct smart, high-value, bolt-on M&A when it makes tactical and strategic sense. And in the second quarter, we did just that. We deploy capital to a high-value acquisition and continue to pay down gross debt. Now let's talk about some recent key highlights for the quarter, which you can see on slide four. Our electrification dialogues with OEMs continue to be very constructive. The auto manufacturers remain extremely focused with their respective electrification product plans. It is our goal to be a partner and supplier with our strong leadership in electric drive units, sub-assemblies, and components. Our technical and commercial efforts are experiencing very positive traction and reaction from our customers. In the quarter, we also announced that AM has begun to supply electric drive units for Mercedes-AMG. This rear drive unit was recently named a 2022 Automotive News PACE Award finalist. We are very pleased to partner with and support Mercedes-AMG as we continue to grow this relationship. This P3 drive technology is also garnering interest from other manufacturers. AM was also awarded numerous electric vehicle component contracts in the quarter with multiple global OEMs. Our proven electric gear and component technology will support both front and rear drive units for these OEMs respective programs. In addition, our proven and strong electric technology is driving the possibility of various technical partnerships with manufacturers. For AM, this is an excellent step to further build already solid relationships and support current and future customers, and we see this as a growing opportunity. Finally, AM's acquisition of TechPort became effective on June the 1st. As a reminder, the acquisition has strong synergy potential, improves our geographic mix, and enhances our portfolio in electrification components. Techfor generated approximately €285 million in sales in 2021. AM acquired Techfor on an enterprise value of approximately €125 million. This purchase adheres to our strategy of high value, quick return, bolt-on acquisitions. While we just closed on this transaction in June 2022, we believe we are on track to bring meaningful synergies in 2023 as we leverage our strengths, capabilities, and product portfolio. We're very excited about TECFOR and we once again welcome the TECFOR team to the AM family. Now let's talk about our guidance on slide five. We've updated our financial outlook to reflect the best information we had available and to take into consideration the completion of the TECFOR acquisition. AM is now targeting sales of 5.75 to 5.95 billion compared to 5.6 to 5.8 billion previously. Adjusted EBITDA of approximately $790 to $830 million compared to $785 to $830 million previously. And adjusted free cash flow of approximately $300 to $350 million, which is unchanged. From an end market perspective, our North American production assumption is unchanged at approximately 14.3 to 14.7 million units as the second half is difficult to predict with the number of macro and supply chain factors. However, we are hoping to see greater volumes in the second half. During these uncertain times, we are managing variables that are under our control, and we believe we are nicely positioned when the production environment improves, driven by strong demand and inventory replenishment. We underscore that the AM team is confident in successfully navigating these possible future economic challenges with our deep industry experience. In conclusion, our aim is on a future, and we will continue to focus on generating strong free cash flow, strengthening our balance sheet, securing our traditional business, which we've made tremendous progress on, advancing our electrification product portfolio, and positioning AM for profitable growth, especially in the area of electrification. Let me now turn the call over to our Vice President and Chief Financial Officer, Chris May. Chris?