Q4 2019 Earnings Call
M continue to deliver strong free cash flow generation 2019 am adjusted free cash from the fourth quarter 2019 was 117 million for the full year 2019 am just a free cash was 208 million. We reduced our gross debt by a hundred fifty million in 2019 and began twenty-twenty with another hundred million prepayment of our senior notes doing twenty twenty two month. We are committed to continuing to reduce our debt and further strengthen our balance sheet in 2020.
Chris
Provide additional information regarding the details of our financial results in a few minutes. Let's now turn to our segment performance for the fourth quarter of 2018. The Driveline business unit recorded sales of a little over 1 billion in the fourth quarter of 2019, which delivered 124.9 million to segment adjusted ebitda sales in probably in this business unit. We're down versus the fourth quarter 2013 do mainly due to the impact of the GM work stoppage. We have also included our El Carmen manufacturing facility, which was retained as part of the sale of our testing operations as part of our drive home this unit and will do so going forward.
We expect to see Improvement in even in margins for this business shooting in 2020 as we benefit from the full run-rate of recently launched programs and greater productivity.
The metal flooring business unit recorded sales of 401 million and segment adjusted ebit of 66.2 million in the fourth quarter 2019. Despite lower sales do the GM work stoppage in lower European. This business unit performed at 16.5% of the ebitda margin level for the quarter and on a full year basis this business units performed very well with an adjusted ebitda margin of over 70% the US casting business unit recorded sales of 127.5 million and segment adjusted ebit of 2.4 million this business. She was also impacted by the gym were damaged and continue to be affected by the weakening commercial and Industrial markets the US Cassie business unit was sold in mid December and will no longer be reported on it as part of our financials going forward.
Let me wrap up to.
Nineteen, but the look back at some of the overall highlights which you can see on slide six of the presentation package despite the challenges that we face was still a solid in Goodyear 4 a.m. In many regards wage 2019, am celebrated twenty-five years world-class quality technology leadership and operational excellence operationally, we completed approximately fifty program launches we 1:17 a.m. For Quality Awards and multiple supplier of the Year Awards. We utilize our flexible cost structure to adjust our operations to the new market demand as well as for the GM work stoppage. We completed the key MPG integration in New Jersey and achieve the Synergy attainment wall above the original targets. We put forth. We generated significant free cash flow and strengthen our financial profile through gross pay Downs.
From a technology perspective. They're awarded our third electric Drive program later this year. We will begin supplying an electric Front Drive Unit to saic GM Lane for the baojun choice program through our joint venture in China. We are excited about this verse electric Drive business unit business went in China and our first out of value brand front-wheel drive passenger car off.
We're also named as a 20.
The Automotive Pace Award finalist of our industry-leading front rear axle electric Drive technology features a Jaguar i-pace this nomination further validates our position as a technology leadership and hybrid-electric Driveline systems. We also had multiple business winds on the components for electric powertrains that will be featured on fully electric pickup and commercial trucks.
We continue to see electrification as an exciting area of growth and diversification pray and look forward to our new drive a drive business you launch as in 2020 and keeping you updated on further developments strategically. We finalized a sale the testing operations in mid-December which allowed us to streamline our business while accelerating our debt reduction issues and enhance our margin profile in addition in the fourth quarter. We acquired the operations and meet Tech Automotive in Germany, which specializes in Balance shaft and MGH gear based Solutions, which will complement our portfolio to support down in hybridization. Well, this acquisition was relatively minor is a great example of a and be an opportunistic in order to enhance our technology leadership and Geographic footprint and an economical price.
and on the sustainability
We made the great strides and strengthening the monitoring reporting and performance of our sustainability program during the year. We update our Global safety and environmental policies adopted a global human rights policy home to disclose rcdp energy greenhouse gas and water assessments to our investors and established our top 10 sustainability priority topics and set specific goals to reduce energy use water consumption in a greenhouse gas emissions. We were recognized by our customers for our work in this area as we won the gold Supplier Diversity award from GM and the sustainability award from 4 during the year. It's an honor that our key customers Buddhist has important partners are driving significant improvements in both diversity and sustainability throughout the industry and within the supply base. We work forward to sustaining this positive momentum be here in 20 20
If I turn it over to Chris, let me cover a 3 or a new business backlog in our 2020 full year Financial Outlook that was included in our press release this morning.
Damn, expect our gross new business backlog for the 3-year period covering 20, 20, 20 22 to be approximately $750. You can see the breakdown of this backlog and slides off about 70% of this relates to the global light trucks including cross over vehicles and another 10% relates to hybrid electric powertrains nearly half of this work will be realized outside North America continuing our trend of diversifying geographically on an organic basis. We expect to launch Cadence of this backlog to be 400 million and 20 twenty two hundred million + 2021 + 150 million in 20 22.
a new business backlog
Also factors in the impact of the sale that you casting operations updated customer launch timing and our latest customer volume expectations.
Now turning to our 2020 Financial Outlook. You can see that on slide eight of the presentation package a.m. Is targeting full-year sales between 5.8 and 6 billion and twenty twenty. We're talking a custody bit of margins in 2020 of approximately 16% projected an improvement over a hundred basis points from 2019-2020. And we're targeting adjusted free cash flow approximately half a million dollars which contemplates cap spending Capital spending of approximately 5.5% of sales from an End Market perspective. We see the North American light vehicle production wage in the 16.3 to 16.5 million unit range.
And as it relates to the specific North American programs, we continue to expect favorable mix weighted heavily towards pickup trucks SUVs and crossover Vehicles light trucks made them nearly seventy percent of production in North America in 2019, and we knew to see no signs of that slowing down in 2020.
The launch activity decreases significantly here in North America in 2020. There are still some key new and refreshed programs will be focused on during the year including launching the independent rear drive axles on the edge of a full size SUVs and re-contract disconnecting all-wheel-drive systems on another vehicle platform later this year.
In Europe, we believe there is continued pressure due to factors such as stricter CO2 regulations and they continued impact of brexit. We are expecting these production volumes to be down approximately 1 to 3% off. However, we do have a key watch related to our second electric Drive business award expected to launch this year at the same time. We've got a good European backlog. We have our recent acquisition and we have strong growth in our vibration controls business which are all highlights for the region despite the lower overall vehicle production expectations. When you turn the chime, you're trying to provide just the most uncertain of expectations out of the three key markets as you all know China food to be very difficult to Market to predict heading into last year and being able to determine if I am in the Chinese market will recover from its decline last year is only been made more difficult and compounded by the extended shutdowns of the automotive production facilities caused by the court coronavirus containment efforts dead.
We are currently expecting light vehicle.
Production in China to be down three to 5% this year at the midpoint of our twenty-twenty sales Target. We have included an estimated impact of lower production China due to the Corona virus outbreak approximately $25 which assumes a.m. And our customers resuming production over the second half of February and then too early March this represents our best estimate at this time. However, impact of this virus is prolonged beyond the time frame or begins impact production and other regions of the world. They could have a greater impact on a just like others
What was great to celebrate a very successful and accomplished twenty-five years for a 2019 it is our future that has us more energized as we look towards 2020 Jeep. We are focused on further free cash flow generation and debt-reduction while continuing to invest in advanced propulsion Technologies to drive future profitable growth for our company. If you look at the history of our company, we have a proven track record of being very profitable directly after heavy periods of launch as the day-to-day operations become more stabilized normalized and dialed in we suggest that being the case again if you're in 2020,
that concludes my
My prepared remarks for today. Let me now turn the call over to our vice president and Chief Financial Officer Chris met Chris. Thank you, David and good morning. Everyone. I will cover the financial details of our fourth quarter 2019 results with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and get started with sales in the fourth quarter of 2019 am sales. We're 1.43 billion compared to 1.69 billion and the fourth quarter of 2018 slide eleven shows a walk down a fourth quarter 2018 sales to fourth quarter 2019 sales year-over-year decrease relates mainly to the General Motors work stoppage which we estimated to be approximately $186 million dollars while the strike began in mid-september. Our operations felt most of the impact and the fourth quarter during the entire month of October and beginning of November.
In the middle of December, we sold the US casting operations. We estimate the law sales related to this divestiture to be approximately $15 our new business backlog at a patrician was upset by other vitamin mix factors do mainly to lower Global Production volumes across each of the key regions that we have discussed on the last few calls and lastly decreases after market indices and related customer pass-throughs and foreign currency translation. Also impacted sales this quarter by forty eight million dollars on a year-over-year basis as a reminder the metal Market passed through Ellis is a key risk mitigation mechanism we have for certain index related costs for the full year 2019. Am sales were 6.53 billion as compared to seven point five billion for the full year. Of2018. The GM work stoppage lower Global Production volumes and lower middle-market pastors and ethics translation all played a significant role in this year-over-year decrease dead.
Now let's move on to profitability gross profit was 183.4 million or 12.8% of sales in the fourth quarter 2019 adjusted ebitda was 193.5 million in the fourth quarter of 2019 or 13.5% of sales this compares to 244 million in the fourth quarter of 2018. You can see a year-over-year walk down of a game on slide twelve. Do you have work stoppage impacted adjusted ebitda by $66 in fourth quarter 2019. This represents the contribution margin of lost production as well and efficiencies related to restarting production that was idled in some cases for nearly two months pricing for the year continue to track around ten million dollars per quarter and we saw a slight benefit as it relates metal Market in FX on a year-over-year basis.
For the second quarter in a row, we saw tangible year-over-year benefits from a performance and launch perspective this quarter if waiting to approximately $16 and we continue to see benefits of our synergies and business consolidation Savings of $12.
in the fourth quarter
2019 we encourage restructuring and acquisition-related costs which included one-time costs related to our sale and final accounting of the US casting operations and the acquisition of meat Tech since the acquisition check with a bargain purchase. We recorded a ten point eight million dollar gain related to this transaction. We also completed a financially successful pension buyout program. And as a result, we're required to record the course of action settlement accounting resulting in a nine point eight million dollars of expense these costs and gains have been excluded from adjusted ebitda and adjusted eps.
We also recorded the non-cash Goodwill accounting impairment charge in the fourth quarter, 2019, 440 million dollars and our metalforming business unit. As you know, we are required by us gaap to perform an annual good test which we perform in the fourth quarter of every year at a reporting unit basis. This was driven primarily by lower projected Global Production volumes compared to a year ago, but as David mentioned this Gap accounting charge does not change view on the long-term success of this business unit or our overall business for the full year 2019 a.m. To adjusted ebitda was nine hundred thousand million dollars and adjusted even a margin for the full year of 2019 was 14.9% of sales Let Me Now cover sg&a sg&a expense including R&D and the 4th of 2019 was ninety million dollars or 6.3% of sales. This compares to $97 in the fourth quarter of 2018 or 5.7% of sales a.m.
R&D spending in the fourth quarter of 2009
Teen was 39.8 million. 235.9 million in the fourth quarter of 2018. As we have discussed in previous calls, we have increased our R&D Investments over the last couple of months and are starting to spend towards the higher end of our normal range of 35 to 40 million dollars per quarter and we expect that to continue this trend into twenty-twenty.
However, you can see the positive benefits are restructuring actions is lower year-over-year sg&a costs even when you factor in higher R&D.
Let's move on to interest in taxes that interest expense was $51 in the fourth quarter of 2019. Two fifty three point four million in the fourth quarter of 2018 wage is favorable Trend to continue in to win in 2020 as we benefit from continued debt paid outs.
In the fourth quarter of 2019. We recorded an income tax benefit of 11.5 million compared to a benefit of eighty eight point five million in the fourth quarter of 2018. When adjusting for the same impact of the restructuring and acquisition-related items impairment charges and other non-recurring items. We were running and an effective tax rate of around 13% for the full year of 2019.
as we head into 20
We expect our effective tax rate to be around 20% increase in our effective tax rate year-over-year relates to hire projected tax expense in various tax returns.
Taking all these sales and cost drivers into account. Our gaap net loss was 454.4 million or $4.04 per share in the fourth quarter of 2019 compared to 361.8 million or $3.24 per share in the fourth quarter of 2018 for the full year 2019 net loss was 284.5 million or $4.31 per month compared to 57.5 million or $0.51 per share in the year 2018.
Justin earnings per share excluding the impact of the items discussed on this call and note it in our earnings press release adjusted EPS for the fourth quarter of 2019 or 13 cents per share compared to $0.55 per share in the fourth quarter of 2018 for the full year of 2019 adjusted EPS with $1.62. Let's now move on to cash flow and the balance sheet.
Net cash provided by operating activities for the fourth quarter of 2019 was $181 Capital expenditures net proceeds from the sale of property plant and equipment for the fourth quarter was ninety six million dollars cash payments for restructuring and acquisition-related activity for the fourth quarter of 2019 with 30.5 million dollars reflecting the impact of this activity. Am generate wage adjusted free cash flow 116.5 million in the fourth quarter of 2019.
For the full year 2019 am generated adjusted free cash flow of 207.8 million dollars compared to 322.3 million in the Fleer 2018 the difference primarily wage or even a set by lower Capital expenditures.
From a debt leverage perspective. We ended the year with a net debt of 3.1 billion and LTM adjusted ebitda 970 million calculating a net leverage ratio of 3.2 times at December 30th in the fourth quarter of 2019. We prepaid $60 on our turn Bloom B and in early 2020, we pre paid another $100 of our senior notes doing $22 a month. We were pleased to utilize the free cash flow generating power of a.m. Along with the proceeds from the sale of our operations to do exactly what we said. We would do reduce our debt computer interest payments.
And a 2019 with total available liquidity of one point five billion dollars consisting of available cash and borrowing capacity on a Global Credit facilities. We continue to maintain a strong liquidity fact that majority profile before we move on to Q&A. Let me close my comments with some thoughts on our 2020 Financial Outlook and our earnings slide deck. We've included Walks from 2019 actual to our 2025 Financial targets. You can find these starting on slide fourteen as for sales. We are targeting the range of 5.86 billion for 2020 a new business backlog of four hundred million dollars strong in 2020 it all it is offset by our normal business attrition of 200 million + 225 million of impact related to General Motors full-size truck program sourcing as a reminder 20-26 the last year that we feel a significant year-over-year impact from that sourcing decision.
We expect pricing to be $50 headwind in twenty-twenty right in line with our fifty two hundred basis points a year that we typically experience.
No Market, Netflix impacts sales about seventy-five million dollars as well on a year-over-year basis primarily representing lower customer pass-throughs that are relatively neutral profitability and lastly overall wage should be favorable mainly reflecting some of the year-over-year production games in 2020. We expect as a result of the genome work stoppage in a second half of 2019 as well as some overall puts and takes on our Global programmes we support
From an even a perspective. We are expecting an adjusted even a margin of approximately 16% of sales which we would represent a over 100 basis-point growth from the 14.9% We experience in 2019 month and you can see on the walk down at page fifteen. We expect positive volume and mix contribute to profitability in 2020 as I mentioned back in mid 2019. We expect to benefit from lower launch activities with higher productivity additional Synergy benefits and improved operational performance in 2020. The positive impact of these activities is approximately sixty million dollars and lastly we expect approximately fifteen billion dollars, primarily R&D spending in line with previous commentary on these important investments in a future especially as it relates to Alternative propulsion solutions from an adjusted cash flow perspective. We're targeting approximately three hundred million dollars in 2020. And the year of your walk is very simple the main factor driving it increased from 2019 to 2020 of around a hundred million dollars is lower lower caps off.
managers lower interest
And working capital requirements are anticipated to offset slightly higher tax payments, but the show on twenty-twenty is able to Performance and capital expenditure reductions, and we are excited to get at both of these objectives.
For a 2020 Kings perspective in addition to our typical seasonal use of cash in the first quarter. We are also experiencing some customer down time on several Platforms in the first quarter. Also as David mentioned we expect more down time in the first quarter in China than initially expected due to the containment efforts related to the coronavirus which we expect to be approximately twenty-five million dollars 2 a.m. And our customers Ram production back up in late February early, March a current guidance today reflects the best estimates based on what we know.
Lastly we anticipate some down time in the first half of 2020 to support the launch of General Motors exciting new full-size SUV.
To wrap things up despite the challenges we face in 2019. We experienced many more benefits that allowed us to achieve solid operational performance and generate significant cash flow and reduce. Our debt are flexible operations variable cost structure ample liquidity and solid debt maturity profile position as well for 2020. We expect to benefit from lower capex for at least the next few years, and we continue to look up in our financial profile with an objective in the current environment organically reduce net debt leverage around a quarter turns per year. We expect 2020 to be operational excellence margin expansion free cash generation and propulsion Innovation. We're looking forward to a great year for AEM. Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to Jason so we can start the Q&A.
Thank you, Chris and David.
We have reserved some time to take questions. I would ask you. Please leave me your questions and no more than two. So at this time, please feel free to proceed with any questions you may have.
Ladies and gentlemen at this time. If you would like to ask a question, you may press star and then one on your telephone keypads will pause for a moment to compile the Q&A roster off.
You know first question today comes from last from Wolf research, please go ahead with your question.
Good morning, everybody. Wanted to just I had a couple of questions one is you meet some adjustments to the net new business. It looked like maybe fifty million pushed out from twenty to twenty one is is that basically what we're seeing there and as you look out to 2022 any update on a non-renewal because you you provide the the gross backlog yesterday Dana mentioned that they had not gotten a renewal on the Colorado Canyons. I was curious about whether there's any update there for you.
I'll take the first part of that question as it relates to the difference between twenty and Twenty-One the 21 is additional new business that we had one since our last disclosure. The 20 was a true up a little bit further reduction of the emission of our sale of castings, which had a little bit in the backlog and just some final true up on volume that we see in 2020.
And then this is David and respect the Colorado canyon is, you know, the current programs got another two to three years to run, you know at the same time, you know, we're not authorized to comment on any sort sooner Business Awards. That's just a condition of doing business with the oems. You know, what I will say is that we have and will continue to be the industry leader when it comes to access those lines, you know going forward and then as you see in in the presentation day as far as our backlog a new business, there is some growth in the 2022 period of time. Okay, great and was hoping you can comment on kind of the longer-term outlook for capex and R&D is capex sustainable at this five and half percent level. What do you consider maintenance Cat-Back Samsung? You just feed the V R and D. Do you see yourselves getting to where you need to be competitively in electric drivelines slowly through kind of or gas.
means
You know just maybe a little bit of color on on what's been happening. Cuz obviously there's been some m&a activity as other companies are are trying to pick up assets.
Yeah, this is David. Again. We feel very confident regards to our capex. We've been saying for years that we would be bringing our capex spending down as we watch a lot of these new programs. So we're a little under 7% last year. We've guided the street here at 5.5% this year. We definitely feel that we can hold it at that level when it comes to maintenance capitalist, you know, depending two business units, but it's somewhere in the range of 1 to 2% but we feel very good that we could hold that and still support the the organic growth opportunities that are out there, but when it comes to electrification, we've increased our R&D spending and electrification you saw that last year you can continue to see that this year. We have been successful as you know in regards to the booking of programs. We've already watched the one that jlr program. That's up for the Pace Award. We do have our second European luxury that we will be launching yet this year and then we've Conquest the name.
Program in China are first in China.
So we're excited about that. And then we've also been recently awarded some component work on an electric pickup and a commercial vehicle going forward. So we will continue to invest they're both organic our sales at the same time will continue to look for partners or appropriate Acquisitions at the at the right time to complement our our capability there and just lastly if you don't mind. Any updated views on accelerating the the debt-reduction between beyond that quarter-turn per year. Are there any are you guys contemplating any kinds of thousands of other actions aside from just generating the cash and paying it down organically? Well, the biggest thing we did was sell off our we took that in in contributed to paying down at Bolton 2019 as well as right here in the beginning of the year in 2020. We are evaluating our product lines to identify some non-core products. We do think there will be some other divestitures.
Will make but but nothing mature.
But that that will be that those proceeds will be used to service debt going forward or support some of our technology advancements on propulsion Systems Great. Thank you. Thank you.
Internet question comes from our mental sink of dishes from Morgan Stanley, please go ahead with your question. Great. Good morning. Thank you for taking the question. When I look at the the the the the bridge for, you know from from 2019 to 2020. There's you know about 20. Let me see. It's
You have a 5 to 40 volume and mix coming back into play for adjusted ebitda in 2020 versus nineteen. Just trying to see how much how much of the the General Motors strike. Do you anticipate getting back in in 2020 versus what you had lost in in 2019. Yeah. I might just this is Chris there also that's able to walk your dog completed as well and you can see a part of that sales walk is I would call it the far right column volume mixing other which is about fifty to two hundred fifty million included in that it would be primary, that strike recovery, but we would anticipate around two-thirds going from nineteen twenty in terms of recovery of those sales based on that, you know line capacities with our customer some of their commentary
Okay.
What are some of the headwinds then you know that are that are impacting volume mix and other because you know, if I if I take the math from you know, 2019 it was about, you know, 243 million of Revenue off two-thirds of that is is about 162 million that that takes you right at the midpoint there. What's what's you know dialing that back a bit? Yeah, you know, you know some of the commentary we talk about China production here this morning that that is a piece of that that we're looking to obviously is included in there a couple of platforms on a global white truck faces outside of North America that are a little weaker, especially in the office space and you're just some puts and takes on some of our other platforms around the boat. Okay, great. Thank you. All right. Thank you very much. Our next question comes from Jeff from RBC Capital. Please note with your question.
Thanks, good morning. I guess I wanted to try to to get at some of the Outlook and a little bit of a different perspective. I know you provided with a sales and ebitda, um, you know with the sale of castings, but if we also, you know, you also provided the impact of the GM stretch. So like on a complete apples-to-apples basis off it looks like you know, you had to sales of something a little bit over six billion. That's like the high end of your your guidance for this year. But the margins are sixty basis points lower on your God verses like a a pro forma strike 16 six and nineteen so is is that just I mean, I know all you talk about some higher R&D. Is there anything else that's driving that lower margin on, you know, roughly the same amount of sales.
Yeah, Joe, this is Chris.
You know, if you if you annualize if you will the back half of our 16 or 2019 performance adding back the strike pro forma basis, right? We're slightly over 16% which I think is where you're starting your point off. But if you sort of walk that from a margin perspective then into 2020 and realized that a couple of things right you should get a little better with the removal of the things which you indicated, you know, and overall wage like the back half or slightly lower. So you do drop the contribution. Margin there call it anywhere from twenty-five to thirty percent. So they kind of remotes slightly Around The Edge on that 16% Margin you do have the final piece of the General Motors full-size truck conversion that we talked about that publicly that has a slightly higher margin mix than our overall profile and you've seen that play out Metcalf 2019 mention also the already step-up and the price decreases which Falls dollar-for-dollar now those are offset by you know, several initiatives we have in terms of our Synergy step-ups as well as the elimination of some project expensive dog.
wants but a lot of that performance we were starting to
Current benefit from in the back half of 2019 as well. So those are some of the kind of the main puts and takes to get you to around that 16%
Okay, and then the second question just back to the the the backlog. I know you won't sort of comment on the renewals but I think in the past you've indicated wage that you know on average for a year you do, uh, you know, sort of have you know, a hundred fifty to two hundred million of of normal attrition and you can you know, you know this year or two hundred but I mean if we if we keep that, you know into into twenty one and twenty two, it's sort of implies zero net backlog growth. Is that is that correct? Yeah. Yes.
Okay. Okay. Thank you.
Our next question comes from James piccirillo from keybanc Capital markets, please go with your question. Hey, good morning guys. So what's in the three-year backlog number? What what portion of last year? It's one point two five billion attributed to u.s. Casting. I think the comment was that it was small. Just just wondering if you could provide that. Yeah like 5 to 10%
Okay, I mean roughly in line with their proportional survive revenues got it. And then just what's your overall assessment of the the business? It looks like you know backlog is down 40% and almost fifty million or so. Just wondering what the what the according activity looks like. Have you seen any notable launch or program or delays? Thanks. Well, this is David speaking on the current business in production today. The GL are volumes for the eyepiece are down compared to what we originally had plans. So, that's some of the impact there as I mentioned, you know, we feel good about the the the business that we have booked that will be launching our second program this year and and another program of value based program going forward. We are continuing to quote on over a billion five worth of new and incremental business opportunities and not all of that is electric electrified but but a portion of it there is and as a comedy club
earlier remarks
We have Conquest some component work on electric pickups and commercial vehicles. So we convert that into the backlog that may be out a little bit further than you know, the timing that we discovered the 25-day period of time, but we continue to be very bullish in regards to opportunities in the electrification space.
Got it. That's helpful. You previously you guys provided that the the framework of targeted opportunities within I think it was fifty to seventy-five an internal Improvement for 2020. Just wondering within your current ebitda bridge. I guess it would be in that $60 million bucket. What portion of that would a tribute to those those internal targets? Yeah, so that previous Target you refer to that is that $60?
So keep in mind. Okay, we announced the 1575 you also had casting and other things in there. So you have to remove little bit of casting in this puts us right near the high end of that range.
Okay.
Thanks guys. Thanks.
Our next question comes from Dan Levy from credit Swiss. Please. Give me with your question.
Hi, good morning. Thank you. First of all, just wanted to ask, you know, just underlying platform assumptions. Just tell us what volume you're assuming or K2 T1. And if we wanted to sensitize your keep it. To increase production should just assume the typical mid to high 20% contribution or even on that wage.
So as it relates to our Assumption of the full size General Motors platform the platform you see where you know, we're generally aligned with my adjusting our customer on that commentary, but that is often possible programs as we discussed previously and like you saw experience has experienced during the work stoppage in the back half of 2019. It's more near the 30 to 35% contribution. Margin reach
And then similarly I assume you're in line with IHS on being up 9%. This is very high contribution. Margin Burger.
This includes maybe some other.
It's in in that disclosure. We we are not we're more a little bit flattish displayed increase.
Thank you. That's awful II wanted to ask I guess this more strategically so one of the prior questions and one of the key developments, obviously, we saw the flyer land off as of late too easy. It's just consolidation of two large supplies and power train arena. So realize you don't really compete with either of these suppliers and the traditional combustion products that but TV there is overlap. You're making drive units one of these other suppliers is making drive units. So a couple of questions on this one you currently Outsource Motors in Power Electronics. Is it your view that insourcing these components isn't an advantage or would you ultimately were able to bring some of these capabilities in house and second to what extent is there some opportunity for you to form Partnerships with others that maybe help defray the costs or to enhance the overall offering?
Yeah, this is David. David speaking. I'll start with the second part of your question. We're already involved in Partnerships today that are
Electric drive units we are not making Motors or the Power Electronics or the inverter specifically today. We're working with partners and then we're integrating those into our electric dragon Solutions. So we've got that integration capability let alone the the gearbox capability. So, you know, we'll continue with that partnership Arrangement at the same time. We're continuing to spend R&D dollars there a way to expand our capability. We'd like to have a greater capability, but we're also comfortable with the partnership Arrangements that we have and will continue to pursue and look at evaluating other Partnerships are alternatives that will complement our portfolio as we go forward here. But we expect to be relevant. We expect to control our cost structure at the same time. We expect to be able to provide a value proposition to our customer. The critical thing is going to be working on fully Integrated Solutions, which they call more of a 3 and one type solution and we think we're well prepared to support that going forward.
Mm sourcing of the motors in and Power Electronics. That's simply The View that that's the most resource or Capital efficient way for you to address those capabilities. Yeah at this time at the same time. It doesn't mean that Partnerships are you know strategic relationships can't come together. We'll just have to evaluate data as time goes forward.
Okay. Thank you very much.
Our next question comes from Ryan Brinkman from JPMorgan, please go ahead with your question.
Good morning. This is rajat Gupta on Brian did just had a question on the 2020 either. Bridge the sixty million from performance Lawns and synergies, It looks like it just like slightly offset the pricing headbands but you know in 2019 you had a number of you know, one-time costs related to Performance, you know in efficiencies and launch costs and things like that often said that that are automatically you know should should be a Tailwind over here and then you had the restructuring actions also that it took so two questions. I mean, why is it that sixty Million Dead higher because it's just barely offered in pricing and then if you look forward to 20 21, it looks like pricing would still be the same and then you know, what would be I mean, how how did you like what would be the offset to that going forward? I mean they doing restructuring again this year, but you know, just trying to think like, uh, what would be the other officer price and going forward and then also, you know for this year's Bridge, you know, why isn't he dead?
And I have a follow-up. Thanks.
Yeah, no, that's a good question. And certainly this aligns with what we were sharing with you what we were expecting walking into twenty twenty and fifty to seventy-five million dollar range, but keep in mind a lot of these operational issues see them quarterly calls, you know, we're putting these the rest into bed. So the back half of 2019 was starting to deliver performance Improvement follow up where we were the second quarter of 2019 the first quarter 20 tap the back half of 2018. So a lot of that's already built into your run rate going into 2020. So this is a step up from that perspective. And then of course we use this to offset price. We got corporate activity that you also have or productivity offsetting things like inflation as well. So those are some of the key elements
So say order to get that cord productivity going forward and twenty Twenty-One. I mean would that require like continued continued restructuring or would that you know just walk away on its own, you know part of the premise we've been talking about why we're so excited about 20 20. Our operations just are coming through now big launch activities. So the operations are much more stages so you up for productivity that will continue to keep Pace or beat inflation at the same time, you know, look continue to assess our capacity globally. If I need to make some actions to restructure our capacity to align our cost structure for performance. We will continue to do
Just another follow-up on the free cash flow.
I mean you just walking through from either to the five ninety million of operating cash flow. You looks like the 945 MB but that the mid-point, you know, like 240 million of resurgence of interest in care or interest in taxes, you know, thirty-five million or so of cash restructuring give me that gets us to somewhere around six thirty six $65 million. So looks like I mean working capital like seventy-five to eighty million in 2020 given the fact that you know, the overall revenues are flat here. I mean just trying to see is there any opportunity or consistency there from looking at prospective or is that is that normal? Yeah, that that would be all you get a little bit of timing.
at the end of the year points on your sales and your payables and receivables that by the flow there, but obviously continuing to reduce inventory and working capital file structure even company is a priority off your spot on
Great. Okay. Thanks a lot for your questions or most question comes from like from City, please go ahead with your question. Great. Thanks. I guess everybody just just first on China's. I hope that you can share the where the 2019 Revenue came in and I know it'll be the 10K hoping you can share that and then perhaps, what the guidance assumes for China Revenue in 2020.
Yeah.
You'll see in our 10-K published today are China revenue of about 315 million dollars for 2019 and you saw our general guidance for the overall market for China down 35% also will have probably a little bit of an accelerated impact as we mentioned today on the coronavirus around 25 million dollars that says we know today that's what you think about it in terms of food market decline as as you expect plus the $25 million sort of what you're looking at at this point. We also have a little bit of our backlog right that launched into the China market. So you'll get a little lift from that as well.
So I got it and you mentioned going back to the coronavirus risk that you know, the guys that did not contemplate any potential other production disruptions around the world that something that you're you're hearing from your customers as an as an imminent issue. Just wondering kind of what you're being told by the customer is around the the overall kind of global supply chain. I wouldn't say it's a life critical imminent issue right this moment just because of the pipeline of inventory that exists, you know between China and and the rest of the world. However, that pipeline is shrinking so there's a concern that's out there because clearly there's a full of product that comes out of China into Europe as well as in to to North America. So we're all keeping a watchful eye on that. The critical thing for us is understanding what the China government jobs allowing as relates to companies coming back to work. The good news for us is that we've got the majority of our plants back to work now, they started up on Monday the 10th at the same time as the final wage.
Silly that we have will be.
You up and running on the 15th. We still got a monitor some of our suppliers cuz not all of our suppliers are up and running at this point in time, but there is a full of product to US based off that existed before so, you know, I think it's just a dynamic situation that the whole industry is going to have to watch very closely here. Hopefully we can control and contain it to an in China itself off. We also all need to be prepared that it could have Global implications that's very helpful in just just lastly, you know in the past the other company used to provide a 3-year free cash flow Outlook, and I was hoping maybe you can give us a couple of pointers as to have to think about your view of the next three years just directionally both in terms of free cash generation capability versus twenty-twenty and then Thursday overall rate of leveraging that you're generally targeting for the balance sheet.
Yeah, he died. This is Chris. You know if you think about starting at the macro obviously driving your sales and even a we talked about the performance elements of our business, but from a sales perspective, you know, a relatively flat to sleep corrosion over this time. We mentioned catbacks we expect to maintain and have five to six percent or call it flat range is period of time which really sets us up well to generate cash flow through this next period of years continue to decline in terms of Interest calls on the companies we pay down debt is another key element of that as well. And then we'll of course tightly manage working capital as we talked about on one of the pre-owned questions. That's how I would think about over the next three years. And as I mentioned in my prepared remarks, you know, we're looking in an environment like that, but we can we can reduce our leverage, you know around a quarter attorney here.
But that's helpful. Thank you. Our next question comes from Brian Johnson from Barclays, please go ahead with your question.
Yeah, just want to talk a little bit more about the e Drive theme, you know, just a couple of things. You know first last year is about 10% of your backlog, which would be about $25 million this year. It's 10% of your backlog. That's $75 million. So are there bookings that you got that are not in the backlog because sort of or raised their stuff added fifty or three that was sort of swamped by what you were doing for Jaguar and others this year.
No Brian, this is this is David. You know again, you know, the Jaguar volumes are down but that's contemplated in our base, you know by you know, we're launching the Next Generation program for a second product issue. You'll hear this year, you know that launched curve is a little bit different than what we had originally forecasted. So we just got to work our way to you know, the launches there and then we're bringing out in the third programme, you know, they're after the third program isn't contemplated in our backlog because it's to our joint venture operations and then the other programs that we just recently identified are outside of that backlog boy, this is Chris. Also keep in mind comparing the two backlog. You know substantial amount launched here in 2019, right? That was my point. But in terms of you know, the other players who are positioning for the future, we'll talk about bookings or Pursuit opportunities. Could you maybe talk a bit more about that? And then I have a just a follow-up question off that probably get this is David. I mean clearly it's a very competitive wage.
Escape when it comes to
Electric drive you have the the gearbox guys, like ourselves participate in that you have a lot of the motor and power electronic guys that are competing there. You've seen some of the consolidation or acquisition is that are taking place in the marketplace. You know, you're I think you're going to see more of that in the future just like you're going to see more OEM consolidation. I believe in the future as well. I think that that activity is going to take place and grow as as is yours go forward what we're trying to do. As I said is just make sure that we're significantly relevant when it comes to electrification that we've got, you know, bookshelf technology that satisfy the different vehicle segments as well as the the geographic regions of the world cuz they all differ based on what their their vehicle requirements and the timing are going to be but you know, we're going to continue to look at what we need to do ourselves to grow organically, but will also be opportunistic from a strategic standpoint either too technical or strategic Partnerships or outright Acquisitions in the future, Brian. Okay? Yep.
Lines with our increased spending Rd that we've been talking about really allowing us to play in the entire spectrum of the E drive units as well. So I mean we've seen a lot of exciting opportunities from that perspective. Okay, and just
You know outside of just electric that would be part of it. But just what are you thinking Zahn broader consolidation? Of course, you let the way was consolidator you then Consolidated them? We've seen more recently forged Delphi, you know, just where are you thinking the next steps in consolidation for the drive line power train industry and how would American Axle fit into that?
Well, we we've said all along that we want to be a consolidate or we did that with the mpg in regards to you know, the metal forming side of the business that impacted, you know, you know the power train them we want to continue to look at doing that both on the drive line side of our business as well as in the metal form side of the business. We also have to be cognizant that the market penetration Vehicles is increasing and we just need to make sure that we're positioned to offer product portfolio that will satisfy satisfy everything from it engines two hybrids to Electric propulsion systems. Yeah, really what I've instructed the team here that we want to be agnostic to the market. We went to have product portfolio that'll satisfy our customers and and and the in the markets and the regions of the world and and be prepared for that and that's the path of the working on right now.
Okay. Thanks.
Thank you. Thank you. Ladies and gentlemen. Our last question will come from John Murphy from Bank of America. Please go ahead with your question. Good morning guys and just staying on.
B side of things I'm just I'm just curious if if you look at the electric pickups that are being proposed by by GM and Ford and he and even rivian and you think about the potential content for you on those relative to the K2. I'm just curious, you know, if you give us a a range of potential content you think could be on these body-on-frame EV, you know pickup trucks versus what your delivery on the ice side.
Yeah, I would say it's it's too early to really speculate on that because some of the architecture's are still evolving at this point in time. It could be a a large range and that I don't really want to get specific about that today you understand our content for vehicle and the various products that we have today, you know mainly be in around $1,600 on the full size truck platform, you know, you also understand on some of the service Drive programs that we have our contents, you know around $2,500. So again, you know, I think it'll be a a sizeable number. I just can't tell you exactly what that number is right now cuz it all depends on what the configuration of the vehicle is going to be. How many Motors are going to be involved. What's what's the horsepower and torque requirements in the in the payload requirements of those vehicles and a lot of that still evolving but I you know while we're trying to do is make sure that we're significantly relevant as I mentioned earlier. I think a lot of the activities that you're seeing in electric pickup and SUV space today is more for your leisure or lifestyle.
Vehicles, I still think the I see.
Will be around for a long period of time and those products meaning that the president pick up and SUVs. However, like I said, we want to make sure that we protect our Core Business and that you know, we're agnostic to the market based on the the propulsion Solutions at the market and the consumer are looking for and that's the direction we're working towards and we're doing a lot of work in that area right now to protect the course, you know pickup truck type work as well as crossover vehicle and you know already that we're in the luxury and performance passenger car and now the value Brands out of China based on the the recent Conquest win that we have them.
It's it's a is it a fair statement to say it? It's likely materially higher at this point based on everything. We know I mean, it sounds like it potential wage. I think it'll be equal to or higher than yes.
Okay, and then just just one last question on on you know the backlog and I think you may have stated this but I missed it on what you're you know bidding on right now incrementally above and beyond the 750 million bucks, you know, and and when you think maybe if give us some color, you know what the time frame of that is is it's more sort of 20/22 stuff or you know quit there be some incremental business that rolls on in 2021 Jonway. We had mentioned 1.5 billion is what we're actively quoting on right now. Most of what we're working on is $22 and Beyond there may be a slight increase in the twenty to count your period of time, but it's beyond that so I don't really see anything meaningful in 2020 or 2021.
Thank you very much.
I bet you thanks John. We think all of you who participated on this call and appreciate your interest in a m. You certainly look forward to taking with you talking with you in the future.
Well, ladies and gentleman with that will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.