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 Fourth Quarter 2022 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'd like to ask a question during this time, simply press the star key followed by the number one on your keypads. If you'd like to withdraw your question, you may press the star key and the number two. As a reminder, today's call is being recorded. I'd now like to turn the floor over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, Jamie, and good morning. I'd like to welcome everyone who is joining us on AEM's fourth quarter earnings call. Earlier this morning, we released our fourth quarter of 22 earnings announcement. You can access this announcement on the Investor Relations page of our website. 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 510-8684. This replay will be available through February 24th. 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 Dowek.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AEM's financial results for the fourth quarter and full year of 2022. Joining me on the call today are Mike Cimani, AM's President, and Chris May, AM's Executive Vice President and Chief Financial Officer. To begin my comments today, I'll review the highlights of our fourth quarter and full year 2022 financial performance. Next, I'll cover our achievements in 2022 on both electrification and on our legacy business. After Chris covers the details of our financial results, we'll open up the call for any questions that you all may have. So let's begin. AM's fourth quarter operating results, similar to the third quarter, were negatively impacted by industry macro conditions. However, AM concluded the year with strong cash flow performance for the fourth quarter and the full year of 2022. We continue to stay focused on managing the factors that are under our control. AM's fourth quarter of 2022 sales were $1.4 billion, and for the full year, AM sales were approximately $5.8 billion. From a profitability perspective, AM's adjusted EBITDA in the fourth quarter was 158 million, or 11.3% of sales. For the full year, AM's adjusted EBITDA was 747 million, or 12.9% of sales. It was simply a challenging year. AM was negatively impacted by supply chain disruptions, including semiconductor availability, which likely impacted global production by over 4 million units in 2022. Combined, these factors drove significant customer production volatility, and additionally, we navigated higher input costs throughout the year, including rising utility, labor, and material costs. Relative to the first half of the year, the second half of 2022 was a more difficult operating environment for us. That stated, even with these challenges, we found solutions to mitigate a number of these issues and still advance key long-term initiatives on many fronts. I'll cover some of these topics in a few moments. AMS adjusted earnings per share in the fourth quarter of 2022 was a loss of $0.07 per share. For the full year, AMS adjusted EPS was $0.60 per share. AMS cash flow performance continued to shine. AMS adjusted free cash flow in the fourth quarter was $99 million, and for the full year, AMS adjusted free cash flow was $313 million. This cash flow was deployed in 2022 to support significant debt reduction, our acquisition of TECFOR, and investing in electrification to position us for the future. Chris will provide additional information regarding the details of our financial results in a few moments. Let me talk about business updates and key highlights, which you can see on slides 4 and slide 5. We are very pleased to announce that AM will supply Jupiter Electric Mobility with E-beam axles for the company's 2.2 ton battery electric light commercial vehicle. Jupiter Electric Mobility is part of India's Jupiter Wagons Limited, which manufactures rail cars, commercial and heavy vehicles, and marine containers. We note that this is our second E-beam announcement with our first being Ecomotors. This second announcement attests to AM's ability to combine electric drive technology to a full beam axle configuration, providing optimal performance for electric commercial vehicle applications. Also, we're very happy to share that AM will supply TrackRite electronic locking differentials for a new electric SUV program, providing superior traction for multiple applications and enhancing passenger safety. During CES, many of you experienced this technology firsthand. This vehicle is a derivative of what is out in the market today, and the performance of the SUV version should be equally as impressive. AIM is in a great position to provide a full portfolio of products from EV components, such as gears and differentials, to full electric drive systems. For the full year of 2022, it was certainly an eventful year with many accomplishments. I want to highlight just a few. After much anticipation, we announced and launched one of the most sophisticated and highly engineered electric drive units in a Mercedes-AMG GT63 performance vehicle. This vehicle is an engineering marvel, and we are excited to support a globally recognized premium performance brand in Mercedes-AMG. In addition, last year we were awarded multiple contracts with major global OEMs for electric components and drive units. Our strategy to support the full e-propulsion value chain to OEMs is taking hold and expanding. As a technology leader with a focus on innovation, we are excited to be recognized with three Automotive New Pace Awards in 2022 for our current P3 electric drive unit, our collaboration with Mercedes-AMG, and for our highly integrated 3-in-1 drive unit that will launch in the coming years. All the while, we secured our legacy core business with more than $10 billion of lifetime revenue for next-generation full-size truck axle programs from mid-decade to beyond the 2030 calendar year period time. AM was also recently named the new axle supplier for GM's next-generation Colorado and Canyon programs, a conquest business win for us. This is a great program for us, and it fits nicely with our mission of securing legacy business as we transition to electric. We anticipate full production ramp, yet this year, as 2023 unfolds, we'll see the full effect of that. We also welcome the TechFort group to the AM family. Their technical expertise in improving friction and surface treatment is extremely pertinent for e-propulsion applications, as well as expanding customer and geographic diversification. Furthermore, we received a number of additional recognitions, including being named one of Forbes' best large employers not only in 2022, but also already here in 2023. Additionally, Newsweek recognized AM as one of America's most responsible companies. Now let's talk about our long-term strategy. As I said before, our strategy is very straightforward. We'll continue to secure our legacy core business, optimize our operations, and drive EBITDA and cash flow generation. And as volumes return, this business model is designed to yield handsome conversion. At the same time, we will continue to invest in electrification and solidify our position as a global leader in e-propulsion systems, providing OEMs with cost-effective, high-value solutions. On the electrification front, we recently hosted an investor event and displayed our electric drive systems and components at CES, where we demonstrated our industry-leading electric drive technologies. It's great to see many investors experience our engineering firsthand while having the opportunity to drive our electrification demonstration vehicles across multiple vehicle segments. What differentiates AM is our platform technology that can accommodate the electric propulsion needs across light vehicle segments, ranging from small cars to light commercial vehicle applications. The flexibility and modularity provides legacy and startup OEMs with superior optionality from components, gearboxes, motors, power electronics, to full systems and E-beam axles. We hope that we clearly conveyed that message to you at CES. Before I turn it over to Chris, let me reiterate our three-year new business backlog that we shared during our technology day when we also discussed our 2023 full-year financial outlook that was included in our press release this morning. AM expects our gross new business backlog covering a three-year period of 2023 to 2025 to be approximately $725 million. We expect the launch cadence of this backlog to be $350 million in 2023, $225 million in 2024, and $150 million in 2025. Our backlog factors in the impact of updated customer launch timing, our latest customer volume expectations, and does not include replacement business, only new and incremental business. From a launch standpoint, we have 17 major launches here in 2023, which should drive growth over the next several years. For the backlog breakdown, please refer to slide six in our presentation package. About 40% stems from electrification compared to 35% last year, and our approach to electrification is gaining attraction in our book of business. And currently, as we've communicated before, we're quoting approximately $1.5 billion of new and incremental business with over 75% of the quotes that we're working on coming from electrification programs. Let's talk about 2023 from an end market perspective. We forecast production at approximately 14.5 million to 15.1 million units for our primary North American market. This represents anywhere between a 1% to a 6% increase over last year. Because of the industry's recent production trends stemming from multiple factors, including the supply chain challenges and macro environment I mentioned earlier, we remain cautious about the build environment in 2023 at this time. As such, slide 7 illustrates AM's 2023 financial outlook. AM is targeting sales of $5.95 to $6.25 billion, adjusted EBITDA of approximately $725 to $800 million, and adjusted free cash flow of approximately $225 to $300 million, which assumes capital spending in the range of 3.5% to 4% of sales. In the near term, we will remain focused on mitigating inflation, optimizing our business, and addressing cost recoveries. Furthermore, we'll remain aggressive in our plans to position the company for future margin expansion. This includes our focus on plant capacity and utilization, variable and structural cost improvements, and further reducing the capital intensity of our business. These initiatives will have a positive impact on our business over the next several years, and as we stated at CES, our goal is to continue to be a top-tier margin performer and cash flow generator. In the longer term, we will continue to focus on securing our core business, generating strong free cash flow, strengthening our balance sheet, advancing our electrification portfolio, and positioning AM for profitable growth, especially in the area of electrification. I'm very excited about what lies ahead for AM, and that includes my remarks today. Let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May. Chris?