Q1 2021 American Axle & Manufacturing Holdings Inc Earnings Call
Good morning, My name is Chad and I will be your conference facilitator today at this time I would like to welcome everyone to American axle and manufacturing first quarter 2021 earnings conference call.
All lines have been placed on mute to prevent any background noise and after the Speakers' 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 from your telephone keypad.
And we'd like to withdraw your question. Please press Star then the number two.
As a reminder, today's call is being recorded.
I'd now like to turn the conference over to Mr. David Lim head of Investor Relations. Please go ahead Mr. Webb.
Thank you and good morning, I'd like to welcome everyone, who is joining us on Aam's first quarter earnings call from.
And here. This morning, we released our first quarter of 2021 earnings announcement, you can access this announcement on the Investor Relations page of our website www dot and dot com and through the PR Newswire services.
And also find supplemental slides for this conference call on the Investor page of our website as well.
So listen to a replay of this call and you can dial one eight and 700 734 475 to nine replay access code 10152565. This replay will be available beginning at one PM today through 11 59 P. M. Eastern time may 14th.
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.
Billable on our website with that let me try and things over to Aam's, Chairman and CEO David Dauch.
Thank you David and good morning, everyone. Thank you for joining us today to discuss Aam's financial results for the first quarter of 2021.
Joining me on the call today are Mike Sumani, Aam's, President and Chris May Aam's, Vice President and Chief Financial Officer.
To begin my comments today I'll review the highlights of our first quarter of 2021 results next I'll touch on some exciting and recent business analysis with Ford and re.
And lastly, we will discuss the challenges within the supply chain 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.
And the first quarter, our 2020, one a M delivered solid operating performance and strong cash flow generation, although the industry has faced and continuity of supply issues. We continue to navigate through these challenges while delivering very strong results.
<unk> sales for the first quarter and 2021 or $1 43 billion up approximately 6% compared to $1 34 billion and the first quarter of 2020.
The increase in net revenues on a year over year basis, primarily reflects the recovery from COVID-19 related industry shutdowns that we experienced last year.
Although the North American industry production was down 4%. According to third party estimates light truck production was up 5% euro per year and volumes on our core platforms increased 9% year over year.
Furthermore, light truck inventory and a number of the key platforms and we support remained extremely low consumer demand for light trucks remains strong and our customers are building them as much and as fast as possible. We believe the demand environment for these products will continue for an extended period of time.
And as adjusted EBITDA and the first quarter 2021 was $262 9 million or 18, 4% of sales.
This margin performance is a first quarter record for AAM.
This compares to $213 3 million last year or 15, 9% of sales.
And it doesn't to benefiting from higher production levels, our intense focus on optimizing the business and flexing our cost structure to align with the global market demand contributed greatly to our performance and the first quarter of 2020 one.
And adjusted EPS and our first quarter 2021 was 57 per share compared to <unk> 20 per share and the first quarter of 2020.
Cash flow generation was strong and the quarter, we generated adjusted free cash flow of over $174 million compared to $83 million and at first quarter 2020.
Our operating performance and commitment to reducing capital spending drove this high level of free cash flow.
Furthermore, we prepay and over $100 million of our term loan and the quarter as.
As we've previously stated we are committed to reducing our debt and strengthened our balance sheet throughout 2020 one.
And the business front, we're happy to announce that we are providing both air cooled and liquid cooled power transfer units, which are part of our eco track product family for the all New Ford Bronco Sport. This is a great new product offering from Ford and it's being very well received and the marketplace.
And as for electrification, we're excited to announce today and re Automotives have agreed to jointly develop and exciting new electric propulsion system for E mobility.
As we shared on our last call re automotive is a leading provider of E mobility solutions. The company's core innovation includes integrating traditional vehicle components into the wheel, allowing for flat and modular platform.
Ames partnership with re intends to incorporate our lightweight highly efficient next generation electric drive units, which feature fully integrated high speed motors and Inverters and the res.
Modular technology that enables a fully flat EV chassis from multiple commercial vehicle applications.
The electric drive units will be developed a day and advanced technology and development Center here in Detroit.
We're very excited to partner with re automotive to bring new E mobility technologies to the market.
This is an important step and growing aam's electric propulsion business and expanding our addressable market.
In addition, our electrification dialogue with multiple Oems continues to intensify and our technology engineering and new product offerings are attracting strong global interest in 2020, one will be and exciting year for us in this space, our engineering teams and collaboration with our technical partnerships with innovative and half for engineering or.
And the achieving technology advancements for our next generation of products.
And a separate but related matter and we're also pleased to announce today and will receive a grant from the U S Department of energy and supported the development of our three and one and electric drive unit.
Ward further recognizes and technology and innovation to support new energy vehicles.
That's for our current generation of electric vehicle products, we are presently and the process of launching multiple new product programs globally and coating components sub assemblies and electric drive units.
Patients and advancements are allowing them to compete to win business with our traditional customer base, while also positioning them to win business with new OEM entrants in this space.
We're also very pleased to announce that we recently published our 2000, Twenty's and sustainability report and I'm very proud to say, we exceeded our initial sustainability goals. This year. This past year and now are and the process of studying even higher goals.
And I am sustainability program is set by our cultural values and strategic principles as a company that stress teamwork diversity and inclusion community involvement and respect for the environment.
Our sustainability program has become more transparent and consideration of the interest of our shareholders customers suppliers and associates and other stakeholders we.
We are deeply committed to profitably growing our business and a way that is sustainable and socially responsible.
Before I transition to Chris I wanted to talk about our current operating environment and our financial guidance and.
And my 35 year career, and the industry I've never seen such stress on the value chain stemming from shortages and semiconductors labor steel containers and port delays and the rising commodity prices and are experiencing.
We believe the second quarter 2021 will be the trough on the semi conductor shortage issue with improvement and the second half of the year. However, we expect this issue will carry into 2022.
Right, Yeah, and we will continue to work with our customers and our extended supply base to protect continuity of supply.
Although there is significant operating uncertainty, especially with the availability of semiconductors, we continue to maintain our current financial guidance and.
In fact based on what we know today and assuming our customers continue to prioritize full size truck production with minimal disruption, we can see a path to the high end of our ranges.
Our current guidance remains as follows from a revenue standpoint, five three to $5 5 billion.
Adjusted EBITDA basis, $850, and $925 million and adjusted free cash flow of 300 and $400 million.
Operationally our business is running extremely well, we continue to manage our expenses and improve our operational efficiency and tightly controlling capital expenditures.
Even with all the pressures we face we believe 2021 can be an outstanding year for a.
And this has a M T and both very motivated and excited.
With that let me and I'll turn the call over to our Vice President and Chief Financial Officer, Chris May Chris.
Thank you David and good morning, everyone I will cover the financial details of our first quarter results with you today.
And we'll also refer to the earnings slide deck as part of my prepared comments.
So let's begin with sales.
And the first quarter of 2021.
Sales were $1 43 billion compared to $1 $3 4 billion and the first quarter of 2020.
Slide eight shows a walk of first quarter 2020 sales, our first quarter 2021 sales.
First we add back the impact of COVID-19 of approximately $169.
And if we account for the unfavorable impact semiconductor shortage.
Estimate to be approximately $64 million.
On a year over year basis, we were impacted by GM has transitioned from a rear beam axle, Duane new lightweight and highly efficient independent rear drive axle Champs, new full size, SUV, which impacted sales by about $38 million.
The first quarter of 2021 is the last quarter of this year over year impact to occur.
Other volume and mix was negative by $26 million.
Pricing had an unfavorable impact of $4 million on a year over year basis.
Metals and FX accounted for an increase and sales of $44 million during.
During the last six months, we've continued to see an increase and the primary index related inputs to the metal based materials that we purchase.
You may recall, we hedged this risk by passing with our customers by passing through the majority of index related changes.
The metal portion of this column reflects these elevated pass throughs on and year over year comparison.
Now, let's move on to profitability.
Gross profit was $227 1 million or 15, 9% of sales and the first quarter of 2021 compared to $195 3 million or 14, 5% sales and the first quarter of 2020.
Adjusted EBITDA was $262 9 million and the first quarter of 2021 or $18 four per cent of sales.
This compares to $213 3 million and the first quarter of 2020 or 15, 9% of sales.
As David mentioned this one.
First quarter, adjusted EBITDA margin and our company's history.
You can see and year over year walk down of adjusted EBITDA on slide nine we benefited from the contribution margin on the increase and net sales from last year, but most importantly, we continued our strong cost reduction actions, reflecting a year over year benefit of $28 million.
I'll cover SG&A.
SG&A expense, including R&D and the first quarter of 2021 was $90 million or six 3% of sales.
This compares to a similar amount and the first quarter of 2020 or six 7% of sales.
R&D spending and the first quarter of 2021, it was $32 million compared to $37 million and the first quarter from 2020.
And you haven't been able to capture and increase in sales no net increase and SG&A expense.
We will not only continue to focus on controlling our SG&A costs, but also further our investments and key technologies and innovations with an emphasis on electrification.
This emphasis includes an appropriate level of funding to be successful and meet our objectives, but it also includes shifting resources from traditional product support to new technology development, and a very cost effective manner.
Let's move on to interest and taxes.
Net interest expense was $48 2 million and the first quarter of 2021 compared to $48 7 million and the first quarter of 2021.
We expect this favorable trend to continue as we benefit from continued debt reduction.
And the first quarter of 2021, we recorded income tax expense of $8 8 million compared to $3 3 million and the first quarter of 2020.
As we continue into 2020, one we expect our book effective tax rate to be approximately 20%.
And would expect cash taxes to be and the $30 million to $40 million range for 2021.
Taking all these sales and cost drivers into account our GAAP net income was $38 6 million or <unk> 33 per share and the first quarter of 2021 compared to a loss of $501 3 billion or $4 45 per share and the first quarter of 2020.
Adjusted earnings per share excludes the impact of the items noted in our press release.
Adjusted EPS from the first quarter of 2021 was <unk> 57 per share compared to <unk> 20 per share and the first quarter of 2020.
Let's now move onto cash flow and the balance sheet.
Net cash provided by operating activities from the first quarter of 2021 was $179 million compared to $139 million last year.
Capital expenditures net of proceeds from the sale of property plant and equipment from the first quarter was $40 million.
Cash payments for restructuring and acquisition related activity for the first quarter of 2021 or $23 million and cash outflows related to the recovery from the Malvern and fire. We experienced in September of 2020 net of insurance proceeds were $11 million and the quarter.
And we anticipate the Melbourne and fire to BBB neutral cash impact from the full year as timing and cash expenditures and cash insurance proceeds and align overtime.
In total.
We would expect $50 to $65 million and restructuring and acquisition costs and 2021. This is no change from prior guidance.
Reflecting the impact of this activity.
We generated adjusted free cash flow of $174 1 million and the first quarter of 2021.
From a debt leverage perspective, we ended the quarter with net debt of $2 8 billion LTM adjusted EBITDA of $769 million calculating a net leverage ratio of three six times at March 31.
This continues the trend of declining leverage ratio and keeps us on track delivering at least a full turn of leverage reduction and each year.
Based on Aam's strong free cash flow and the first quarter of 2021, we prepaid over $100 million on our term loss.
We continue to expect to strengthen our balance sheet by reducing our gross debt and lowering future interest payments and.
In fact subsequent to the end of the first quarter and paint and additional $89 million and our German walls.
Before we move to the Q&A portion of the call. Let me close my comments and some thoughts on our 2021 financial outlook.
We're reiterating our targets that we provided on February 12 of this year.
Our outlook encapsulates the best information, we currently have regarding customer production schedules their prioritization of building full size pickups, and Suvs and the uncertain backdrop related and semiconductors and.
David and based on these inputs and assumptions, we can see a trends at the high end of the guidance ranges we provided.
The strong free cash flow number as a result focused restructuring and cost reduction initiatives year over year margin growth working capital optimization and reduced capital spending.
Our EBITDA and free cash flow generation, we used to fund our R&D programs supporting future growth and reduce leverage as we are very focused on improving our financial profile.
While we do not provide quarterly guidance I would expect the second quarter impact related to semiconductors to be greater than the first quarter based on recent customer announcements and supply chain challenges.
And continues to lay a solid framework for long term success and shareholder value.
We continue to invest and electrification to develop highly efficient electric drive units.
<unk> and components that are a compelling value to Oems that will drive our growth.
Our customers continue to reward us business on core platforms that will yield strong cash flow as well into the future and core to a a M. We are.
Passionately focused on managing our cost structure, optimizing our performance and delivering best in class results at.
At the end of the day, the first quarter of 2021 was a fantastic start to the year. We also understand there are near term challenges and uncertainties related to the supply chain and we must manage and navigate.
And this management team is confident in addressing these challenges.
Thank you for your time and participation on the call today I'm going to stop here and turn the call back over to David So we can start the Q&A.
And David we have reserved some time to take questions I would ask that you. Please limit your questions and no more than two.
So at this time vs feel free to proceed with any questions you may have.
Thank you.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Pause for just a moment to compile the roster.
And the first question today will come from Rod Lache with Wolfe Research. Please go ahead.
Hey, this is a strength patel on for Rod.
Thanks, Good morning, I wanted to.
Hey, just wanted to.
Pick up on that last point about the second quarter.
You did mentioned is going to be the trough in terms of the semi issue any way you can kind of frame that.
Magnus <unk> of debt of the decline based on what Youre seeing and and how confident are you that supply is coming back and it's starting to come online and by the second half should improve.
Yes, I would tell you the truth this is Chris.
Disclosed for our first quarter impact from a revenue perspective.
Climbed to $64 million, what I would tell you our expectation and second quarter as it will be greater than that and.
And that would moderate a little debt and the second half of the year on a quarter by quarter basis.
That's how I would frame it as we sit here today from a revenue perspective, and then obviously.
Little bit more I would call customer schedule and disruption in the second quarter versus the first quarter and we'll have a little bit of temporary inefficiencies and size of our production schedules, which will just again sort of be discrete with insight and the second quarter.
Okay. Okay.
And then you know and in.
And in the quarter it looked like <unk>.
Performance and.
And the cost performance was quite good.
I think it was I think it was plus 28 million euro per year. I was just wondering was there any semi and were there any supply chain cost in the quarter and and maybe where some of the factors that really drove.
And the strong performance.
Yes, I would tell you inside of that inside of our first quarter, we did experience a little bit of drag as it relates to metal market indices, and we do pass that through but we only passed about 90% through so it was slightly a little bit negative from that perspective, and a little bit associated with premium freight and.
We coordinated our supply and logistics through the semiconductor issues, but in terms of a year over year Holistically performance you may recall in the second quarter of last year as COVID-19 was on setting upon the entire industry, we announced and discussed significant cost saving measures for the balance of the year and you may recall, we talked about a quarterly run rate of nearly 20 million.
So the first quarter of last year, it didn't have that benefit and and if you will we are still experiencing and benefiting from those initiatives. We started really in the second quarter of last year that continue through the balance of last year and the beginning of this year.
Okay and then just lastly on the on the agreement with re just wanted to understand a little bit more about the scope of this of this agreement. So it looked like this was going to be.
Co develop co developed propulsion system for commercial applications could that be something is that is that going to be different from what you already have developed on the light vehicle side.
In terms of in terms of your product portfolio and then.
Is it is it kind of an exclusive agreement and so they would work with the.
A disproportion system would go into their platform going forward, just trying to get a sense of that yet.
Yeah. This is David Dauch speaking as we've communicated to all of you before that we've been working very actively and regards to our next generation products for electrification and and our designs are modular and scalable at the same time, we've integrated the motor and inverter and the gearbox and into the EU.
So there's a much smaller packaging space, we wanted to drive power density and performance and performance electrification is really measured in the form of efficiency.
And all of that and we've designed the product. So we can meet various vehicles segments and support the different regions of the world and clearly, we're adopting and and and transitioning that product to be able to support a re automotives.
Designs and design needs.
So that we can support not only there, but our E mobility solutions for the marketplace, but no debt.
It gives them an opportunity to even enhance their product even more as far as the designs that we've come up with we're integrating that into their check.
Assay design and so it's a full a flat type designed for commercial vehicle type application we.
And we feel very good about the relationship and the partnership and are excited about what the future holds for our two organizations and.
<unk> timeline, you know to develop the product for them, but we have a strong foundation that we're already working from.
And we can bring this to the market sooner than later.
Okay, Yes.
So kind of leveraging your existing.
And should we kind of think about.
Content per vehicle kind of similar to what you've talked about in the past and things like $2500 something like that.
Yeah, but the only thing I would comment to that is there's four per.
Vehicle.
Got it and it should be much much higher price based on the application and the design strategy.
To support their.
Platform design chassis design.
Okay, great. Thanks, so much.
Thank you.
The next question will come from Ryan Brinkman with Jpmorgan. Please go ahead hi.
Thanks for taking my question I guess this is the third quarter and our ROE now you've a pretty substantially exceeded our sort of either your own margin guidance or consensus expectations and I realize.
And you've got some difficult year over year margin comparison in the back half of the year, but still wanted to sort of check in and the likelihood of Incrementals are decelerating from like 61 per cent and <unk> to something more like 16% and net remaining quarters of the year and then maybe just kind of looking beyond all of this noise with regard to COVID-19, a year ago, and semis and commodities this year and how're you.
Generally thinking about normalized margin potential has moved beyond the current period, including you know maybe relative to what your answer it might've been.
Prior to COVID-19.
Yes, Hi, and good morning. This is this is Chris.
Certainly you're spot on a lot of noise and puts and takes with COVID-19 and semi has been sort of.
Remove that from our conversation and also kind of look a little bit of our performance and the first quarter always a challenge to extrapolate a full year and run rate performance from a particular quarter, but in terms of key elements to think of on a go forward basis, certainly a lot of the cost initiatives and restructuring initiatives we've been putting.
And place over the last 12 months, you've continued to see that benefit the company I would expect that to continue to benefit the company on a go forward basis.
And discrete in terms of the first quarter relative to the I would say balance of the year of this year again, excluding semis and a little bit and the impacts associated with that and the second quarter, but.
And wise R&D was a little light and the first quarter or full year. How we typically look at that perspective from anywhere from $30 million to $40 million per quarter $35 million to $40 million, a quarter or a little white and the first quarter.
And the ebb and flow with the launching of our electrification activity, but we think sized right to support our objectives.
Pricing from.
And your pricing impact in terms of the first quarter and a little light that comes on and usually in the little bit second third and fourth quarters for US and then cadence up our launches was a little bit light and the first quarter from a project expense that comes on and aligning the back half of the year little debt.
Big picture.
We expect you could see our full year guidance you do the math on it and it's nearly 17% at the high end of our ranges and running at a very strong healthy pace business and continued opportunity to grow margins based on our continued attacking our cost structure and optimization of footprint and throughput.
Clearly within line of sight, and our guidance would indicate that.
Okay, and then yeah again, another on the collaboration with re announced today I realize they were using a fully flat or skateboard type chassis. This but I'm not sure can you remind would this technological solution and qualify it as a so called hub motor approach and then maybe a related question I think per.
Obviously, you haven't been as interested in expanding at least organically to compete more in the commercial vehicle driveline market than you do now just given all of the considerable investments that incumbents already have there and what that might imply for margin et cetera, but I'm just curious with all of the technological change taking place that could potentially.
Different to remediate, maybe a lot of the current investments and it was some of the things that youre looking at with the re et cetera, if it might make sense or you might be evaluating a potential you know organic.
Expansion and to that end market.
Yeah, and we're very excited about the technology that we've developed and we're very excited about the technology that we've seen no read automotive develop combined together, we think we bring differentiated and technology to the marketplace to serve multiple vehicle segments and flu.
And the commercial vehicle space.
So yes, we're very excited about possibly expanding and other served markets that we have today.
And and the re automotive.
You know flat chassis.
And ill will allow us to open up some of those other type market applications for us. So we're excited but at the same time and technology that we're bringing to the table for them.
Is that more freedom and functionality.
For their customers as well and will and strengthen their product offerings to the marketplace. So we think it can just be a tremendous opportunity for us to work together and to address the market, where we both can benefit greatly from the partnership okay. Thank you.
And the next question will come from John Murphy with Bank of America. Please go ahead.
Good morning, guys and good morning, just wanted to.
Just want to ask a first question on Gm's trucks, and maybe even some of your robotics products that are that have been protected by the customers. So far if there were incremental pressures that they came from chip shortages and the second quarter on production.
Do you have a higher than normal decremental margin in the second quarter and then also if we think about those potential losses, not saying, they're absolutely and happened, but potential losses do you think theres capacity.
Cash back up on some of that loss production, specifically on Gm's trucks. It seems like they're kind of running hot and there's not a lot of room to make up that production, but so would that just be net loss production and that couldnt be made back up later in the year. If you see losses, specifically around GM trucks, Yeah. John This is David I'm trying to look at the other way as well.
And I get that incremental margin and you know GM has got their products are protected from a semiconductor chip issue, they've clearly prioritize their full size truck.
We're seeing the benefit of that they're seeing the benefit of that and that's fantastic news.
Right now theyre running their plants flat out and Max overtime, where they can at the same time, you saw or heard and their earnings announcement that you know they they plan their bringing the St Catharines facility onboard.
To add incremental and not St. Catherine excuse me, the Asheville facility and Bosch, Washington, So that will bring incremental capacity to them going forward and the marketplace remember their inventory levels are extremely low right now because they haven't fully recovered from the strike that took place over a year ago, and then obviously things were impacted with COVID-19.
But right now you know we didn't just see pedal to the metal with respect to the GM full sized truck platform.
So maybe if we get back that another way David.
I think we kind of think you know historically they did 161 7 million of those trucks and you're right now and I think capacity is right around one point to plus or minus love to hear your thoughts on that but as you bring your onshore on where do you think that takes that up to you and and what is the potential upside and revenue maybe you take the other side of the coin right and I agree with you.
And I IHS has it around 135 million units for that platform and what we're closer in line with that and that does not include Oshawa. So we expect that number to go north of that based on the volume that they they ultimately and tend to produce out of that facility.
Okay. That's very helpful. And then just a second question on the re agreement and you think about the change of the powertrain or potential change of powertrain architecture, and I would say this would be only and in limited cases.
And you look at debt instead of a hub setup. However, you want it and you know whatever you want exactly call. It you know.
And what does that mean for your content because I guess in some ways. The pessimists would say hey, listen you basically eliminating axles.
And that you know and that set up but the reality is I think you have a lot of content potential there anyway. So I mean can you just help us think about what that that means for you as far as content and if theres any real significant risk to your you're somewhat more traditional setup, even on evs going forward, yes. So John this is David again.
On the traditional products I mean, obviously enjoys from a content per vehicle today with electrification with similar architectures, but and integrated design and as I mentioned with the motor and inverter and gearbox, we'd actually we think that we can improve our content or increase our content on the traditional you'll let's say driveline system. That's.
And place with respect to the re automotives and their approach, which is heavily weighted towards the commercial vehicle, but it kind of obviously expand other vehicles segments and our content per vehicle should go up greatly because there there's four of them.
And for every one of the vehicles that are there. So we feel really good about where we are or product that we've designed developed and is getting a lot of attention both from the traditional Oems as well as some of the new entrant Oems.
Evidenced by you know what.
The partnership and collaboration we're putting together with Ray and the other partnerships that they already have in place with with the.
Hendra and Hino and some of the other customers that they're working with and have announced so.
And we're extremely excited about our technology extremely excited about the receptivity from the various customers and are happy to be adding to our partnership with respect to read automotive.
John This is David.
Yeah, Yeah, I was going to say a couple months ago. When we laid out a lot of our next generation of architectures and we focus very much on it being scalable modular and kind of debt to a lot of different platforms. This is this is a textbook of what we're talking about.
And I'm, sorry, just one follow up on that kind of a setup the payload and and towing capacity how does that compare from a more traditional axle set up as opposed to these these hub motor setups and if if you will I mean are these are for lighter duty commercial vehicles or could these be kind of things that really truly you compete with.
And frame typical setups.
And it's still to be proven out go and going forward. Your I think overtime you know its more of a light light side, but at the same time, I think it and try and be enhanced it can be enhanced to to compete at the other side, but I still think you're going to have body and frame vehicles for an extended period of time and we just want to make sure that we're in a position that we can be agnostic to the market and.
You know the traditional ice and hybrid applications available, while also having an electric offerings and.
Different forms that we're talking about the job the traditional design from but from electric electrification standpoint, but now also with this.
And this re automotive design has come to the marketplace on this low let's say low load floor flat load for EV chassis.
Very helpful. Thank you guys.
And.
Our next question comes from James Picariello with Keybanc. Please go ahead.
Hi, good morning, guys.
I've got a a content question as well, but maybe.
Maybe you have the more traditional variety can you provide any C. P V colour on the power transfer units your supply and to the Bronco sport.
And typically on our all wheel drive applications, where we're supplying.
Meaning a rear drive module and a pizza you think of it and $1200 range and on the Bronco sport, we're always playing a btu. So it's roughly half or slightly less and that is how you should think about it from that perspective.
Okay. That's helpful.
And the company took and Ya and accelerated depreciation charge in Brazil. During the quarter you know last year at this time, it was and Thailand.
And it was axles exit from from the country. There just wondering what your thoughts are on you know the company's future and Brazil.
We still see a very strong future and Brazil were just responding to customer change and their strategy.
Yes.
Okay. Thanks.
And the next question will come from Dan Levy with Credit Suisse. Please go ahead.
Hi, Good morning, Thank you for taking the question.
First just a question on the guidance for the year and and maybe the cadence for how.
And how the year plays out and specifically could you give us a sense for maybe how much premium fleet you incurred.
And the first quarter, how we should expect that over the course of the year and then just second as far as the dynamic on commodities go because I know that you know there's a lot of it and pass through but maybe you could give us a sense for the cadence on a what do you expect on the day metal market or a commodity side and how much you know what the the spill.
Through effect into 2020 two might be yesterday and this is this is Chris first on your premium freight sort of day.
And mentioned earlier and a call. We spent I would say maybe a few million dollars inside of the first quarter, our premium freight for a variety of reasons most of it related to coordinating with our supply chain and some of the disruptions that we've been talking about I would expect that to increase a little bit here into the second quarter, and then sort of dissipate for the back half of the year.
From a premium freight perspective, and so as it relates to metals just just as a reminder, you know we.
The metal pass through elements of our agreements are really contractual by design and they're set to certain industries and inside of the market depending on the metal. These prices reflect current market pricing every 30, 60, or 90 days and they will reset automatically through that process. So as metal goes up we will reset price isn't it.
Typically anywhere from a 30 to 90 day lag and the change of the indices. So thats dynamic both with our supply base as well as with our customer base and it will pass throughs. So you'll have over a period of time. This flow is very well together during different quarters once and while it can get just from a timing perspective, a little bit a couple, but then it reconnects and subsequent quarter that may.
Sense, so based on current prices today, you've seen the impact for us on the first quarter. If they go down our metal pass throughs would go down and if they go up next month. It will go up so it's hard to predict on a go forward basis as they are subject to market conditions.
And so let's just assume that that prices stay flat versus going going forward into 2020 to bite.
And there won't be as much of an effect because most of the the lags that a little more limited is that correct. Yes. So if states prices stay flat to where they are today. So you may if you look back at the indices as I sort of mentioned or they've been trending up sort of month to month to month through the first quarter. So you'll have some kind of recalibration and the second quarter as I mentioned.
I have a little bit of lag and then they would run flat from there.
Okay great.
My second question I, just wanted to zoom out and and think about the cycle.
Second you know we have this massive inventory rebuild ahead, given just how tight the inventories and how strong the demand has been.
And so whenever the supply gets back online and probably tells us the true.
Potentially well positioned into 2022.
And I can maybe help accelerate deleveraging. So I know you can't take any action right now given there was a lot of macro uncertainty, but maybe you could give us a sense that you have better visibility and if you're earning stream starts to accelerate you could give us a sense of you know what types of options that opens up what the playbook.
And what are the things that you might be doing which you werent doing right now I assume that.
From opportunity to accelerate the prepayment of debt what's the flexibility. There are you know and how does that affect the EBIT development, So what is and accelerating cycle and and.
A large inventory rebuild and.
And April you to do that you can't do today and should not even as much as well.
This is David though okay, and as we indicated we see a very bright future and a very strong demand from the various platforms that we support for years to come.
And especially because of where the inventory levels are and because of the the consumer demand that exists in the marketplace and as I said.
And as fast as the Oems can build them and.
And the consumer.
Consumers are buying them. So I think it's going to take an extended period of time to rebuild the inventory levels, that's going to put us in a very healthy position to generate a lot of cash for our business, we'll use that cash and we always have to continue to support our organic growth a big shift and our organic growth was towards electrification. So we'll continue to fund our.
R&D and electrification and then you'll get and with the intent of profitably growing our backlog and new business and.
In addition, we will stay very focused and very disciplined with respect to paying down debt and will accelerate paying down debt debt. Much like you know, we just paid $100 million. This past quarter with respect to further supporting our commitment to get this balance sheet, where it needs to be crystal and about one out and Dan. This is Chris you asked what type of debt, we would have pre payable.
And our entire terminal and stack. That's due in 2024 is pre payable at par and at any time and then the bonds and the subsequent years are now starting to fall into call position. So we have a lot of options available to us to address that.
Okay.
Yeah. Thanks, David.
The next question will come from Joseph Spak with RBC capital markets. Please go ahead.
Thank you everyone.
You know.
If we go back and in time, a little bit and we know that and <unk>.
And I'm sort of made a sourcing decision on on sort of the actuals for and you pick up and you retain some and they they took some in house.
And they've obviously been protecting that program, which.
And I think overall and sort of how you view I guess, what I'm curious to know is and what I have less visibility into as you know sort of the mix within the mix of that and whether you think you know the the plants and programs.
Within that pickup truck mix and have favored.
The axle SKU supply do you do you have any sense of that.
But between GM and a M or make it all the actions we can to support their vehicle production and as they expand their vehicle production and we expect it will make it more axles going forward.
And Joe keep in mind, we supply the heavy duty the SUV and the splits on the light duty right. So.
And those others ones grow.
Benefits from that directly yeah.
And as we've said to you before they have and installed capacities are utilizing debt installed capacity and the and the incremental growth has been supported by.
Okay.
And then maybe just to go back to the.
Yeah, and the joint development agreement with a R E.
I guess can you just talk a little bit more about this like like what types of vehicles do you expect I guess or a range of vehicles do you expect this to be applicable for and.
And you know maybe a little bit if you can sort of who's doing what and like you know how far into the propulsion like the propulsion system. You know do you go I think they I believe they might have sort of like a skateboard architecture as well and I'm, assuming like youre not getting into into that element, but any any more color. There would be helpful. Yeah, where we're not getting into the air Force base.
So of the the skateboard or the you know the modular platform and what we're doing is integrating our newly innovative designs with the integrated motor and inverter and gearbox capability into the into the wheel and configurations for all four wheels that allows them to.
Have you all are.
And even lower and more compact fully flat you know and chassis.
It supports multiple vehicle program applications are heavily weighted on.
The commercial vehicle side of things, but I can expand multiple segments.
Okay. So it so.
And it's it's better suited for larger vehicles as the as and the application or it.
It can be scaled up and down the vehicle segments, but are targeted towards the middle to higher and.
Right now okay. Okay. Thank you very much.
Thanks, Joe.
Yes.
Thank you gentlemen, your last question comes from Brian Johnson with Barclays. Please go ahead.
Thank you just.
Wanted to follow up you know, we we everyone focuses on driveline brightly scope.
Segment, however, it looks like some pretty dramatic margin improvement and metal forming.
Good day, and the businesses and part and you got from metal Die and then.
It had some issues. So could you maybe talk a little bit about the margin expansion, there and where it could go.
Yeah, Brian This is David I'll make some first our initial comments and Christian I pick up from there but.
Obviously you know.
And we took over the metal day in operations and incorporate into our operations, which were as large or larger and.
And we've really worked very hard over the last three years as you're aware to fully integrate that capability and we can.
Consolidated facilities, we've increased capacity utilization at the remaining facilities we've optimized.
And the workforce appropriately to the new market demand at the same time, we've integrated a lot of am advancements from an operating and standpoint into the facility, which drive throughput and productivity.
And we're very pleased about that we've been able to minimize some of the capex expenditures and each of the individual companies may have spent because of some excess capacity that existed there because of the market conditions that are out there right now and our buying power and the marketplace and we've been able to pick up some new business and the metal forming side as well one because of some of the openings.
But also our buying power from a steel standpoint.
And that's been very positive.
Positive for our company at the same time, we've got a proven reputation and issue for and operational excellence standpoint, and we're seeing customers come to us to protect their continuity of supply and this dynamic environment, Chris anything you want and Brian as you think about the margin performance and that business unit.
And I don't really quite strong for us as well as 16, and 17% you're now seeing and sort of at the 18% to 19% plus and.
And the vast majority and does have to do with that capacity rationalization, both from a physical plant and also throughput optimization and <unk>.
Inside our factories, but also some purchasing power with our strong and broad steel buys and things like that have also benefited this group that was part of the thesis when we acquired NPG and how we benefit this business unit and then.
This is David again, the only other thing I would say is youre thinking traditional fortunate only from metal forming but we've also.
A lot of work there in regard to the central business, So think powder metal connecting rods and core powder metal parts and we're also doing some high pressure die casting and from an aluminum standpoint, and that and that business segment.
Great and second question is about more housekeeping prompted by the trade muscle behind your headquarters.
Is it is what kind of think about Q2 is there any sort of shipments that you were able to book, leaving the factory, particularly and so low.
And that May you may not you know when you kind of talk about the end of <unk>.
To extent their shutdowns or production disruptions and <unk> that and in fact that the parts are on their way. So you might see a little dip in terms of orders or is it more even if that happens.
Because of the rebuild back another colleague talk competitor call you talked about.
And you're not really worried about that.
Brian This is Chris speaking to customers for the most part take delivery and our docs, they do ship and do ship trucks, but once they take delivery and our doctor that's ourselves.
Okay, I will do the simple way to think about it so could there be some work and process that they wouldn't need to order and <unk>.
That would probably most likely depend on you know their initial July shut down plants, but again don't look weekly orders they take delivery and our Doctor We book the sales.
Okay, great. Thanks.
Okay. Thank you, Brian and we thank all of you who have participated on this call and appreciate your interest and EM. We certainly look forward to talking with you and the future.
And <unk>.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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