American Axle & Manufacturing Holdings, Inc.

At this time, I would like to welcome everyone to the American Axle and Manufacturing fourth quarter 2023 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'd like to withdraw your question, you may press star and two. As a reminder, today's event is being recorded. At this time, I'd 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, everyone. 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 2023 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 270-3442. This replay will be available through February 23rd. 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 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 Dowek.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the fourth quarter and full year of 2023. Joining me on the call today are Chris May, our Executive Vice President and Chief Financial Officer. To begin my comments today, I'll review the highlights of our fourth quarter and full year 2023 financial performance. Next, I'll cover our achievements in 2023 on both our electrification and legacy businesses. 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. From a big picture standpoint, AM's fourth quarter operating results were negatively impacted by the UAW work stoppage. However, our performance was on track with our improvement objectives that we shared with you on the last call, ending a challenging 2023 on a positive trajectory. In addition, we continued to generate positive cash flow and pay down our debt along the way. AM's fourth quarter of 2023 sales were $1.5 billion, and for the full year, AM's sales were approximately $6.1 billion. From a profitability perspective, AM's adjusted EBITDA in the fourth quarter was $169.5 million or 11.6% of sales. For the full year, AM's adjusted EBITDA was $693.3 million or 11.4% of sales. AM's adjusted earnings per share in the fourth quarter of 2023 was a loss of $0.09 per share. For the full year, AM's adjusted EPS was also a loss of $0.09 per share. For the full year, AM's adjusted free cash flow was $219 million. This cash flow was deployed in 2023 to support debt reduction and electrification investments to position us for future growth. Chris will provide additional information regarding the details of our financial results in a few minutes. On slide four of our presentation deck, we are providing an update to our performance objectives overview slide that we initially shared with you in the last quarter. First, we experienced more customer stability in the latter part of the fourth quarter, and that trend has continued into the first quarter of 2024, which is a positive. However, it is early in the year, and we remain optimistic but a little cautious. The UAW work stoppage ended in the fourth quarter, and impacted plants have all resumed production We now consider this matter closed in its entirety. As for commercial recoveries, we concluded a number of discussions at the very tail end of the year with positive results. We accomplished our primary objectives for 2023 and now have a few customers to close out in the first quarter here in 2024. We're also making steady progress on improving operations at a number of underperforming plants. And we're on track with our objectives and progress has been good. We will continue to allocate the necessary resources to get these plants back to AM standards and in the timeframe that we noted on the chart. Overall, we feel very good about the glide path we are on to resolve the app prevention topics. Let me now talk about business updates and the 2023 highlights, which you can see on slides five and six. New for the quarter, we are very pleased to announce that AM will supply Dongfeng with final drive units for a four-wheel drive plug-in hybrid SUV program in the China market. We're also happy to share that AM will provide e-locking differentials to a Mahindra SUV program launching here in 2024. And lastly, we have begun shipping electric vehicle components to VinFast for its midsize electric vehicle program from our recent Tech4 acquisition. On the recognition side, AM China operations was recently recognized by SAICGM for quality excellence and supply chain stability, and also earned an excellent supplier of the year award from Cherry itself. On slide six, it clearly highlights that 2023 was a challenging year from many perspectives, but it also was an eventful year for us with many accomplishments, and I just want to highlight a few of those accomplishments. After sharing with you our eBEAM awards with EcoMobility and Jupiter, we announced a significant win with Stellantis, supplying 3-in-1 eBEAMs for a future EV program launching in the latter part of the decade. This was soon followed up with an eBEAM award announced with Skywell and Mahindra. In addition, our cutting-edge eBEAM technology is a PACE pilot award finalist. As you already know, we've won multiple PACE awards for our electric driving customer collaboration over the years. so I'm excited about what we continue to do in that area. Our technology is certainly being recognized, and it gives us further confidence about our competitiveness. In addition, our legacy business continues to gain traction globally. We announced awards with FAW Group, supplying independent front axles for multiple plug-in hybrid vehicle models, and with J2R, providing power transfer units and rear drive modules for multiple all-wheel drive SUV programs. These awards signify AM's broad product portfolio that supports multiple powertrain configurations. Finally, in 2023, AM was recognized with a number of business and DEI awards. In particular, Forbes named AM one of America's best employers for diversity in 2023. AM continues to make great strides in diversity, equity, inclusion, as well as environmental sustainability. And we look forward to publishing our new sustainability report in the near future. Now let's talk about our strategy. And we'll continue to secure our legacy core business, which we've made very good progress on. We're improving and optimizing our operations. We're driving EBIT and free cash flow performance and generation. And as you know, our business model is designed to yield solid conversion with consistent volumes. And those volumes are getting stronger. At the same time, we'll continue to invest in electrification and solidify our position as a global leader in e-propulsion systems providing the OEMs with cost-effective, high-value solutions from e-beam axles and electric drive units to components as well. However, the reality is the industry is in an air pocket as OEMs reassess their respective electrification strategies, driven by many factors, including consumer adoption, electric infrastructure, cost, and government regulations, just to name a few. As these factors are being weighed, AM will continue to run our aforementioned playbook and be ready for any shifts in powertrain needs. Before I turn it over to Chris, let me discuss our three-year business backlog and our 2024 full-year financial outlook that was included in our press release this morning. AM expects our gross new business backlog covering the three-year period of 2024 through 2026 to be approximately $600 million. For the backlog breakdown, please refer to slide seven. About 50% of our backlog stem channel electrification, and this is up from last year, which was at 40%. We expect the launch cadence of our backlog to be $300 million in 2024, $175 million in 2025, and $125 million in 2026. The new backlog nicely encompasses a mix of ICE and electric programs, including pickups, CUV programs in Asia, and additional model variants for other sophisticated electric drive units to highlight a few. Our backlog factors in the impact of updated customer launch timing, our latest customer volume expectations, and does not include replacement business, just and only new and incremental business. And the backlog encapsulates recent OEM powertrain trends and timing estimates. From a launch standpoint, we have 19 launches in calendar year 2024, which should drive growth over the next several years. 2024 is a big year for AM in terms of launch activity. In addition to our healthy 300 million new business backlog this year, we have major replacement business launches taking place already in the beginning of this year, and particularly with the RAM heavy-duty truck, the ICE version, and GM midsize CUV platforms. Both of these sizable and popular platforms will continue to help fuel AM's business into the next decade. So let's talk about 2024 from an end market perspective. We forecast production at approximately 15.8 million units for our primary North American market. We are monitoring multiple factors that can swing production, including interest rates and the health of the consumer. Slide eight illustrates AM's 2024 financial outlook. AM is targeting sales of $6.05 to $6.35 billion, adjusted EBITDA of approximately $685 to $750 million, and adjusted free cash flow of approximately $200 to $240 million. In the longer term, we'll continue to stay focused on securing our core business, generating strong free cash flow, strengthening our balance sheet, advancing our electrification portfolio, and position AM for profitable growth. Team AM looks forward to a positive and productive 2024. That concludes my formal remarks. Let me now turn the call over to our Executive Vice President, Chief Financial Officer, Chris Mann. Chris?