Q4 2021 American Axle & Manufacturing Holdings Inc Earnings Call

Good morning, My name is Rocco and I will be your conference facilitator today.

Speaker 1: Good morning, my name is Rocco and I will be your conference facilitator today.

Speaker 1: At this time, I would like to welcome everyone to the AAM's Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

At this time I would like to welcome everyone.

Fourth quarter 2021 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer period.

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If you'd like to ask a question. During this time somebody wants to start. He then the number one on your telephone keypad.

Speaker 1: If you would like to withdraw your question, please press the star key then the number two. As a reminder today's call is...

We would like to withdraw your question. Please press Star then the number two.

As a reminder, today's call is being recorded.

Speaker 1: I would now like to turn the call over to Mr. David Lim, Head of Investment Relations.

I would now like to turn the call over to Mr. David Lim.

S Relations. Please go ahead Mr alone.

Speaker 2: Thank you and good morning. I'd like to welcome everyone who is joining us on AAM's fourth quarter earnings call. Earlier this morning, we released our fourth quarter of 2021 earnings announcement. You can access this announcement on the investor relations page of our website, www.aam.com and through the PR Newswire services. You can also find supplemental sites for this conference call on the investor page of our website as well.

Thank you and good morning, I'd like to welcome everyone, who is joining us on Aam's fourth quarter earnings call earlier. This morning, we released our fourth quarter of 2021 earnings announcement, you can access this announcement on the Investor Relations page of our website at Www Dot AAM Dot com.

The PR Newswire services you can also find supplemental slides for this conference call on the Investor page of our website as well.

Speaker 2: To listen to a replay of this call, you can dial 1-877-344-7529, replay access code 732-3464. This replay will be available beginning at 1pm today through February 18th.

A replay of this call you can dial 187734475 to nine replay access code 700 32346 for this replay will be available beginning at one P. M. Today through February 18.

Speaker 2: 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 should not be predicted or quantified and which may cause future activities and results of operations different materially from those discussed.

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.

Speaker 2: For additional information, we ask that you refer to our filings with the Securities and Exchange Commission.

For additional information, we ask that you referring to our filings with the Securities and Exchange Commission.

Speaker 2: Also, during this call, we may refer to certain non-GAAP financial measures.

During this call we may refer to certain non-GAAP financial measures.

Speaker 2: information regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to get financial information is available on our website. With that, let me turn things over to AEM's Chairman and CEO , David Dow.

Formation regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.

With that let me turn things over to Aam's, Chairman and CEO David out thank.

Speaker 3: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the fourth quarter and full year of 2021.

Thank you David and good morning, everyone. Thank you for joining us today to discuss Aam's financial results for the fourth quarter and full year of 2021.

Speaker 3: Joining me on the call today are Mike Szymanyi, AM's President, and Chris May, AM's Vice President and Chief Financial Officer.

Joining me on the call today are Mike somebody AAM as President and Chris May Aam's, Vice President and Chief Financial Officer.

To begin my comments today I'll review the highlights of our fourth quarter and full year 2021 financial performance next I will cover how we are pivoting to electrification, while securing our core business.

Speaker 3: To begin my comments today, I'll review the highlights of our fourth quarter and full year 2021 financial performance.

Speaker 3: Next, I'll cover how we are pivoting to electrification while securing our core business.

Lastly, I'll discuss our 2022 financial outlook and our three year, new business backlog before turning things over to Chris.

Speaker 3: Lastly, I'll discuss our 2022 Financial Outlook and our three-year new business backlog before turning things over to Chris.

Speaker 3: After Chris covers the details of our financial results, we will open up the call for any questions that you may have.

After Chris covers the details of our financial results, we will open up the call for any questions that you may have so let's begin.

Speaker 3: AM delivered solid operating results and cash flow performance in the fourth quarter and full year 2021, despite market dynamics and continuing challenges with the global supply chain.

AAM delivered solid operating results and cash flow performance in the fourth quarter and full year 2021, despite market dynamics and continuing challenges with the global supply chain.

Speaker 3: Fortunately, our team did an outstanding job managing the areas under their control.

Fortunately our team did an outstanding job managing the areas under their control.

And fourth quarter of 2021 sales 124 billion and for the full year of 2021, AAM sales were approximately $5 2 billion.

Speaker 3: AM's fourth quarter 2021 sales were $1.24 billion. And for the full year of 2021, AM sales were approximately $5.2 billion.

Speaker 3: In 2021, we experienced volume recovery from the impact of the 2020 global pandemic, but semiconductors supply shortages impacted AM by over $600 million.

In 2021, we experienced volume recovery from the impact of the 2020 global pandemic, but semiconductor supply chain shortages impacted.

By over $600 million.

Speaker 3: From a profitability perspective, AIM's adjusted EBITDA in the fourth quarter of 2021 was 164.6 million or 13.3% of sales.

From a profitability perspective am's adjusted EBITDA in the fourth quarter of 2021 was $164 6 million or 13, 3% of sales for.

Speaker 3: For the full year of 2021, AM's adjusted EBITDA was $833.3 million or 16.2% of sales.

For the full year of 2021, Am's adjusted EBITDA was $833 3 million or 16, 2% of sales.

Speaker 3: In 2021, we were negatively impacted by supply chain disruptions, namely semiconductors, and we received very little forewarning to changes in production schedules, which disrupted our operations and construction.

In 2021, we were negatively impacted by supply chain disruptions, namely semiconductors.

We received very little for warning to changes in production schedules, which disrupted our operations and cost structure.

Speaker 3: However, I'm proud to say the AMT managed through these obstacles and delivered strong EBITDA margins and conversion for the full year.

However, I'm proud to say the AAM team managed through these obstacles and delivered strong EBIT margins and conversion for the full year.

Am's adjusted earnings.

Speaker 3: AMS adjusted earnings per share in the fourth quarter 2021 was a loss of $0.09 per share. For the full year 2021 AMS adjusted EPS was 93 cents per share compared to 14 cents per share in 2020.

Earnings per share in the fourth quarter 2021 was a loss of nine cents per share.

For the full year 2021, and adjusted EPS was <unk> 93 per share compared to <unk> 14 per share in 2020.

Speaker 3: AMP continued to deliver strong pre-cashflow generation in 2021.

<unk> continued to deliver strong free cash flow generation in 2021 a.

Speaker 3: AMS adjusted free cash from the fourth quarter of 2021 was 43.6 million.

Adjusted free cash flow in the fourth quarter of 2021 was $43 6 million.

Speaker 3: And for the full year of 2021, AM's adjusted free cash flow was $423 million.

And for the full year of 2021, and adjusted free cash flow was $423 million.

Speaker 3: This is a record adjusted pre-cash flow performance for AM and I'm extremely proud of my team.

This is a record adjusted free cash flow performance for a that'd be.

Streaming proud of my team.

Our goal has been to strengthen the balance sheet and last year, we delivered we reduced our gross debt by approximately $350 million and a turn of leverage we will continue to work to improve our balance sheet strength going forward.

Speaker 3: Our goal has been to strengthen the balance sheet, and last year we delivered. We reduced our gross debt by approximately $350 million and a turn of leverage. We will continue to work to improve our balance sheet strength going forward.

Speaker 3: Chris will provide additional information regarding the details of our financial results in just a few minutes.

Chris will provide additional information regarding the details of our financial results in just a few minutes.

Speaker 3: Let me talk about some key highlights for 2021 and the start of 2022, which you can see on slides four and five of our slide deck.

Let me talk about some key highlights for 2021 and the start of 2022, which you can see on slides four and five of our slide deck.

We secured an agreement was reached on electric drive units, we were named the sole supplier of front and rear pickup axles for Gm's Ashwin truck plant.

Speaker 3: We rename the sole supplier front and rear pick up axles for GM's Ashford truck.

Speaker 3: We want two new PACE awards for our partnership and innovation for our electric drive line technology.

One two new pace awards for our partnership and innovation for our electric Driveline technology.

We secured New York differential business for their electric vehicles.

Speaker 3: We secured neo-differential business for their electric vehicle.

Speaker 3: We were selected to supply Track Right Differentials for the new GM Hummer EV program.

Were selected to supply track rate differentials for the new GM Hummer EV program.

Speaker 3: We're supplying PTUs for the all-new Ford Bronco Sport and Maverick program.

We are supplying to use for the all new Ford Bronco sport and Maverick programs, we secured a traditional core axle business to fund our electrification future.

Speaker 3: We secured a traditional core axle business to fund our electrification.

Speaker 3: We are selected as a GM Overdrive Award winner and received multiple other customer awards for our performance.

We were selected as a G M Overdrive Award winner and received multiple other customer awards for our performance.

Speaker 3: And we advance our environmental sustainability and DEI initiatives.

We advanced our environmentally environmental sustainability and D I initiatives and just most recently here in the beginning of the year AAM was recognized as one of America's best large employers and top five in the automotive category.

Speaker 3: And just most recently here in the beginning of the year, AM was recognized as one of America's best large employers and top five in the automotive category.

Now, let's talk about the first pillar of our two pronged strategy, which is securing the core.

Speaker 3: Now let's talk about the first pillar of our two pronging strategy, which is securing the core.

Speaker 3: which is fundamental to our transformation to electric.

It's fundamental to the transformation to our transformation to electrification.

Speaker 3: And earlier today, we announced that AM has secured multiple next-generation full-size truck axle programs with global OEM customers with lifetime sales valued at greater than $10 billion.

And earlier today, we announced today <unk> has secured multiple next generation full size truck actual programs with global OEM customers with lifetime sales valued at greater.

Greater than $10 billion.

Speaker 3: These replacement business awards are key developments as we leverage the cash flow generation to bring the future faster with our electrification technology.

These replacement business warrants are key developments as we leverage the cash flow generation to bring the future faster with our electrification technologies.

Speaker 3: And on the electrification front, we continue to make significant progress with our 3-in-1 electric drive technology.

And on the electrification front, we continue to make significant progress with our three in one electric drive technology.

Speaker 3: Recently we displayed our electric drive technology at CES.

Recently, we displayed our electric drive technology at CES, the power density and compactness Navarre proprietary design was very well received the technology platform can accommodate electric propulsion needs across all light vehicles segments from small cars to light commercial applications.

Speaker 3: The power density and compactness of our proprietary design was very well received.

Speaker 3: The technology platform can accommodate the electric propulsion needs across all light vehicle segments from small cars to light commercial applications.

Speaker 3: The flexibility and modularity provide legacy and startup OEMs with many options from components, gear boxes, motors, power electronics, to full systems and EVmax.

Flexibility and modularity provide legacy startup Oems with many options from components gear boxes Motors power electronics, the full system and E beam axles.

Our design was recently given the Altair in the Light award the automotive industry is only award dedicated to light weighting and sustainability again, something we're very proud of.

Speaker 3: Our design was recently given the Altair and Lightning Award, the automotive industry's only award dedicated to lightweighting and sustainability. Again, something we're very proud of.

Speaker 3: That said, 2022 is an exciting year with multiple electrification launches on top of us, including our high-performance eDrive system for a premium luxury European OEM. This system will be applied across multiple vehicle variants, proof that our technology is not only state-of-the-art, but meets the high standards of this iconic manufacturer.

That said 2022 is an exciting year with multiple electrification launches on top of us, including our high performance E drive system for a premium luxury European OEM. This system will be applied across multiple vehicle variants proof that our technology is not only state of the art that meet the highest standards of this iconic manufacturer.

We will also be launching multiple electric propulsion components with several globally a global Oems this year.

Speaker 3: We will also be launching multiple electric propulsion components with several global OEMs this year.

In addition, we recently announced our investment in auto Tech ventures, which is an early stage venture capital firm.

Speaker 3: In addition, we recently announced our investment in Autotech Ventures, which is an early-stage venture capital firm.

Speaker 3: This firm invests globally in mobility startups and AM is leveraging the relationship with Autotech to identify new opportunities with companies aimed at electrification and mobility.

From invest globally in mobility startups, and AAM is leveraging the relationship with auto tech to identify new opportunities with companies aimed at electrification and mobility.

The pivot to electrification is well underway and we embraces change to make the environment more sustainable.

Speaker 3: The pivot to electrification is well underway, and we embrace this change to make the environment more sustainable.

Speaker 3: Our engineering teams continue to develop game-changing electric mobility solutions, and AM is well-positioned to support our customers with cutting-edge technology and a strong value proposition.

Our engineering teams continue to develop game changing electric mobility solutions.

AAM is well positioned to support our customers with cutting edge technology and the strong value proposition.

And on the ESG front I'm also very happy to share that AAM was named to Newsweek's list of America's most responsible companies. We look forward to building on that positive momentum in 2022, as we advance our environmental sustainability and <unk> initiatives.

Speaker 3: And on the ESG front, I'm also very happy to share that AM was named to Newsweek's list of America's most responsible companies.

Speaker 3: We look forward to building on the positive momentum in 2022 as we advance our environmental sustainability and DEI initiatives.

Speaker 3: Be on the lookout for our new sustainability report in April of this year. At AM, we believe in a strong ESG foundation and commitment are critical to running the business for long-term success.

Beyond the lookout for our new sustainability report in April of this year.

And.

We believe in a strong ESG foundation and commitment are critical and running into the business for long term success.

Before I turn it over to Chris Let me cover Aam's three year, new business backlog, and our 2022 financial full year outlook.

Speaker 3: Before I turn over to Chris, let me cover AM's three year new business backlog and our 2022 financial full year outlook, which we included in our press release.

Which we included in our press release earlier this morning.

We expect our gross new business backlog covering three year period of 2022 through 2024 to be approximately $700 million.

Speaker 3: AIM expects our gross new business backlog covering three-year period of 2022 through 2024 to be approximately $700 million.

Speaker 3: We expect the launch cadence of this backlog to be $175 million in 2022, $325 million in 2023, and $200 million in 2024.

We expect the launch cadence of this backlog to be $175 million in 2000 $20 million to $325 million in 2023 and $200 million in 2024.

Speaker 3: And as usual, our backlog factors in the impact of updated customer launch timing and our latest customer volume expectations.

And as usual our backlog factors and the impact of updated customer launch timing and our latest customer volume expectations and does not include the replacement business only new and incremental business.

Speaker 3: This does not include the replacement business, only new and incremental business.

You can also see the backlog breakdown on slide six with about 55% of this new business backlog relates to global light trucks, including crossover vehicles and most importantly, 35% stems from electrification. This is more than double than the 15% last year that we had.

Speaker 3: You can also see the backlog breakdown on slide 6, with about 55% of this new business backlog relates to global light trucks, including crossover vehicles, and most importantly, 35% stems from electrification. This is more than double than the 15% last year that we had.

Speaker 3: Our approach to electrification from selling components and subsystems to full electric drive units is gaining traction in our book of this.

Our approach to electrification from selling components and subsystems to full electric drive units is gaining traction in our book of business.

Speaker 3: Currently, AM is quoted at approximately $1.5 billion of revenue, with two-thirds of the quotes coming from electrification-based programs.

AAM has quoted at approximately $1 5 billion of revenue with two thirds of the quotes coming from electrification based programs.

Speaker 3: Now let me turn to our financial outlook, which you can see on slide 7. An AMS targeting sales in the range of $5.6 to $5.9 billion, adjusted EBA of approximately $800 to $875 million, adjusted free cash flow of approximately $300 to $375 million, and that assumes our capital spending in the range of 3.5 to 4% of sales.

Now, let me turn to our financial outlook, which you can see on slide seven.

I am targeting sales in the range of five six to $5 9 billion.

Adjusted EBITDA of approximately $800 million to $875 million.

Free cash flow of approximately $300 million to $375 million and that assumes our capital spending in the range of 3.5% to 4% of sales.

Speaker 3: And from a launch standpoint, we have 25 launches here in 2022, which should drive growth over the next several years.

From a launch standpoint, we have 25 launches here in 2022, which should drive growth over the next several years.

And from an end market perspective, we forecast production at approximately $14 eight to $15 2 million units for our primary North American market. This represents about a 14% to 17% increase over last year's performance.

Speaker 3: And from an end market perspective, we forecast production at approximately 14.8 to 15.2 million units for our primary North American market. This represents about a 14 to 17 percent increase over last year's performance.

Speaker 3: Going forward, an improving production environment stemming from strong demand and inventory replenishment will set up AM nicely for the future.

Going forward and improving production environment stemming from strong demand and inventory replenishment will set up nicely for the future.

Speaker 3: In summary, 2021 was an unprecedented year filled with numerous challenges, but AM delivered solid financial results.

In summary, 2021 was an unprecedented year filled with numerous challenges, but AAM delivered solid financial results.

Speaker 3: 2022 and beyond, we'll continue to focus on securing our core business

In 2022 and beyond we will continue to focus on securing our core business generating strong free cash flow strengthening our balance sheet advancing our electrification portfolio and position AAM for profitable growth.

Speaker 3: generating strong free cash flow, strengthening our balance sheet, advancing our electrification portfolio, and positioning AM for profitable growth.

I'm very excited about what lies ahead for a yeah.

Speaker 3: That concludes my remarks. Let me now turn the call over to our Vice President and Chief Financial Officer, Chris May.

That concludes my remarks, I'll turn the call over to our Vice President and Chief Financial Officer, Chris Me, Chris. Thank.

Speaker 4: Thank you, David. And good morning, everyone. I will cover the financial details of our fourth quarter and full year 2021 results with you today.

Thank you David and good morning, everyone I will cover the financial details of our fourth quarter and full year 2021 results with you today.

Speaker 4: I will also refer to the earnings slide deck as part of my prepared comment.

I'll also refer to the earnings slide deck as part of my prepared comments.

Before I begin to discuss the specific details let me provide a macro overview of our fourth quarter.

Speaker 4: Before I begin to discuss the specific details, let me provide a macro overview of our fourth quarter. On the surface, you will note our sales were down nearly $200 million on a year-over-year basis.

Surface you will note our sales were down nearly $200 million on a year over year basis. However, understanding the factors driving this change is crucial.

Speaker 4: However, understanding the factors driving this change is crucial.

Speaker 4: AM's product sales were down more than $300 million on a year-over-year basis due to semiconductor shortages and over...

<unk> product sales were down more than $300 billion on a year over year basis to semiconductor shortages and overall market dynamics.

Speaker 4: Partially offsetting the drop in product sales was a $100 million increase in index-related metal market costs that we passed through to our customers at no market.

Partially offsetting the drop in product sales was $100 million increase in the index related metal market costs that we pass through to our customers.

Martin.

Speaker 4: As we talk through the details today, keep in mind that mental market pass-through has a significant adverse impact on the calculation.

As we talk through the detail today keep in mind that metal market pass through has a significant adverse impact on the calculation of our margins.

Speaker 4: However, when it's all said and done, you'll take away three key points about a fourth quarter result.

However, when it's all said and done you'll take away three key points about our fourth quarter results.

First AAM sales and profits were impacted by lower industry volumes.

Speaker 4: First, AM sales and profits were impacted by lower industry volumes.

Speaker 4: Two, AAM's margins were impacted not just by lower sales, but also by rising metal market pass-through recoveries. And three, and most importantly, we continue to perform and optimize our business despite the macro-level headwinds.

Two EMS margins were impacted not just by lower sales, but also by rising metal market pass through recoveries and three and most importantly, we continued to perform and optimize our business despite macro level headwinds.

Let's go ahead and get started with sales.

Speaker 4: On slide 10, shows a walk down of the fourth quarter 2020 sales to the fourth quarter of 2021 sales.

On slide 10 shows a walk down in the fourth quarter 2020 sales for the fourth quarter of 2021 sales.

In the fourth quarter of 2021, AAM sales were $1, two 4 billion compared to 144 billion in the fourth quarter of 2020.

Speaker 4: In the first quarter of 2021, AM sales were 1.24 billion compared to 1.44 billion in the fourth quarter of 2020.

Speaker 4: We estimate that AAM was unfavorably impacted by the industry-wide semiconductor shortage by approximately $137 million in the fourth quarter of 2021.

We estimate that AAM was unfavorably impacted by the industry wide semiconductor shortage by approximately $137 million in the fourth quarter of 2021.

Speaker 4: We note that high production volatility experienced in the third quarter continued well into October . Although volatility improved some in November and December on a month-over-month basis, we still experienced short lead time production changes from our customers and reduced output.

We note that high production volatility experienced in the third quarter continued well into October although volatility improved some in November and December on a month over month basis, we still experienced short lead time production changes from our customers and reduced output.

Speaker 4: Other volume and mix in pricing was negative by $200 million. Overall, we experienced some lower global light truck volumes and lower overall component sales in several markets as customer schedules fluctuated and they rebalanced inventories versus a very different environment than we experienced in the prior year.

Other volume and mix and pricing was negative by $200 million overall, we experienced some lower global light truck volumes and lower overall component sales in several markets as customer schedule has fluctuated and they rebalanced inventories versus a very different environment than we experienced in the prior year.

This brings us to the fourth quarter 2021 sales subtotal, which excludes recoveries for index related metal market costs and foreign currency impacts we hedged this risk with our customers by passing through the majority, but not all of these index related changes.

Speaker 4: This brings us to the fourth quarter 2021 sales subtotal, which excludes recoveries for index-related metal market costs in foreign currency impacts.

Speaker 4: We hedge this risk with our customers by passing through the majority, but not all, of these index related changes.

Speaker 4: The middle portion of this column reflects these elevated pass-throughs on a year-over-year basis.

The metal portion of this column reflects these elevated pass throughs on a year over year basis.

Speaker 4: Metal markets and foreign currency accounted for an increase of approximately $94 million to our total sales in the quarter.

Markets in foreign currency accounted for an increase of approximately $94 million to our total sales in the quarter.

For the full year of 2021, AAM sales were $5 6 billion as compared to the $4 71 billion for the full year of 2020.

Speaker 4: For the full year of 2021, AM sales were $5.16 billion as compared to the $4.71 billion for the full year of 2020.

The primary drivers of the increase was the return of Covid related volumes and increase of over $300 million in index related metal market pass throughs and foreign currency, partially offset by volumes lost due to semiconductor chip shortages that exceeded $600 million for 2021.

Speaker 4: The primary drivers of the increase was the return of COVID-related volumes, an increase of over $300 million in index-related metal market pass-throughs and foreign currency, partially offset by volumes lost due to semiconductor chip shortages that exceeded $600 million for 2021.

Speaker 4: Now let's move on to profitability. Growth profit was $140 million or 11.3% of sales in the fourth quarter of 2021, compared to 237 million or 16.4% of sales in the fourth quarter of 2020.

Now, let's move on to profitability gross profit was $140 million or 11, 3% of sales in the fourth quarter of 2021 compared to $237 million or 16, 4% of sales in the fourth quarter of 2020.

Adjusted EBITDA was $165 million in the fourth quarter of 2021 were 13, 3% of sales. This compares to $262 million in the fourth quarter of 2020 or 18, 2% of sales.

Speaker 4: Adjusted EBITDA was $165,000,000 in the fourth quarter of 2021, or 13.3% of total.

Speaker 4: compares to $262 million in the fourth quarter of 2020, or 18.2%.

You could see a year over year walk down of adjusted EBITDA on slide 11.

Speaker 4: You can see a year-over-year walk down of Adjusted EBITDA on slide 11.

Speaker 4: During the quarter, semiconductor sales disruptions and other volume convicts had a negative impact of $39 million and $59 million, respectively.

During the quarter semiconductor sales disruptions at other volume and mix had a negative impact of $39 million and $59 million respectively.

Speaker 4: This was partially offset by the benefits of ADM continued productivity and restructuring programs and successful recoveries of some ED&D costs.

This was partially offset by the benefits of continued productivity.

Activity in restructuring programs and successful recoveries or some <unk> costs.

Speaker 4: As I just mentioned earlier in our sales discussion, we are facing year-over-year increases in index-related metal market costs. The retained portion impacted this quarter, plus FX, is approximately $30 million.

As I just mentioned early on our sales discussion youre facing year over year increases in index related metal market costs routine portion impacting this quarter plus effects was approximately $30 million.

Speaker 4: You can see on our EBITDA walk the dynamic this has on our EBITDA margin calculation.

You can see our EBITDA walk the dynamic this has on our EBITDA margin calculations. If you exclude this impact our margins would have been meaningfully higher there's nothing untoward.

Speaker 4: If you exclude this impact, our margins would have been meaningfully higher had it not gone awry.

For the full year of 2021, and adjusted EBITDA was $833 million and adjusted EBITDA margin of 16, 2% of sales.

Speaker 4: For the full year of 2021, AM's adjusted even, it was $833 million, and adjusted even a margin of 16.2% of sales.

Speaker 4: Now I'll cover SG&A. SG&A expense, including R&D in the fourth quarter of 2021, was $78 million or 6.3% of sales.

Now I'll cover SG&A SG.

SG&A expense, including R&D in the fourth quarter of 2021 was $78 million or six 3% of sales. This compares to $83 million in the fourth quarter of 2020 or five 8% of sales.

Speaker 4: to $83 million in the fourth quarter of 2020, or 5.8% of sales.

Speaker 4: AM's R&D spending in the fourth quarter of 2021 was approximately $20 million, compared to $31 million in the fourth quarter of 2020.

R&D spending in the fourth quarter of 2021 was approximately $20 million compared to $31 million in the fourth quarter of 2020.

The fourth quarter of 2021 includes higher E. D N D recoveries as we prepare to launch multiple new programs.

Speaker 4: The fourth quarter of 2021 includes higher ED&D recoveries as we prepare to launch multiple key new programs.

This activity drove a significant portion of the net year over year reduction in R&D.

Speaker 4: This activity drove a significant portion of the net year-over-year reduction in our.

As we head into 2022, we will continue to focus on controlling our SG&A costs. While also capitalizing on the growing number of electrification opportunities that are before us and we would expect R&D to increase in 2022 by approximately $45 million to support these new multiple new opportunities. This is in line with our previous R&D spend trajectory.

Speaker 4: As we head into 2022, we will continue to focus on controlling our SG&A costs.

Speaker 4: while also capitalizing on the growing number of electrification opportunities that are before us.

Speaker 4: we would expect R&D to increase in 2022 by approximately $45 million to support these new multiple new opportunities. This is in line with our previous R&D spend trajectory commentary.

Commentary.

Okay.

Let's move on to interest taxes and pensions.

Net interest expense was $42 million in the quarter of 2021 compared to $50 million in the fourth quarter of 2020.

Speaker 4: Net interest expense was $42 million in the quarter of 2021 compared to $50 million in the fourth quarter of 2020.

Speaker 4: We expect this favorable trend to continue in 2022 as we benefit from our debt reduction and refinancing action.

We expect this favorable trend to continue in 2022, as we benefit from our debt reduction and refinancing actions.

In the fourth quarter of 2021, we recorded an income tax benefit of $2 3 million compared to an expense of $13 9 million in the fourth quarter of 2020.

Speaker 4: Fourth quarter of 2021, we recorded an income tax benefit of $2.3 million, compared to an expense of $13.9 million in the fourth quarter of 2020.

Speaker 4: As we head into 2022, we expect our adjusted effective tax rate to be approximately 15 to 20 percent.

As we head into 2022, we expect our adjusted effective tax rate to be approximately 15% to 20%.

Speaker 4: And lastly, during the fourth quarter, AAM completed the transfer of nearly $100 million of pension obligations to an insurance company. This transaction was paid entirely through pension plan assets and continues our journey to strengthen AAM's balance sheet in this area.

And lastly, during the fourth quarter AAM completed the transfer of nearly $100 million of pension obligations to an insurance company. This transaction was paid entirely through pension plan assets and continues our journey to strengthen aam's balance sheet in this area.

As a result of this transaction AAM recorded a noncash pretax pension settlement charge of $42 million.

Speaker 4: As a result of this transaction, AAM recorded a non-cash pre-tax pension settlement charge of $42 million.

Speaker 4: Taking all these aforementioned items into account, including the pension settlement charge, our gap net loss was $46 million, or $0.41 per share, in the fourth quarter of 2021, compared to an income of $36 million, or $0.30 per share, in the fourth quarter of 2020.

Taking all these aforementioned items into account, including the pension settlement charge, our GAAP net loss was $46 million or 41 per share in the fourth quarter of 2021 compared to an income of $36 million or <unk> 30 per share in the fourth quarter of 2020.

Yeah.

Speaker 4: Adjusted earnings per share excludes the impacts of the items noted in our earnings press release.

Adjusted earnings per share excludes the impacts of the items noted in our earnings press release.

Adjusted loss per share for the fourth quarter of 2021 was <unk> compared to 51 cents earnings per share in the fourth quarter of 2020.

Speaker 4: Adjusted loss per share for the fourth quarter of 2021 was $0.09, compared to $0.51 earnings per share in the fourth quarter of 2020.

Speaker 4: The full year of 2021, AM earned a adjusted earnings per share of $0.93 versus $0.14 in 2020. Let's now move on to

For the full year of 2021 AAM earned adjusted earnings per share of <unk> 93 versus 14th 2020.

Let's now move on to cash flow and the balance sheet.

Net cash provided by operating activities for the fourth quarter of 2021 was $102 million.

Speaker 4: That cash provided by operating activities for the fourth quarter of 2021 was $102 million.

Capital expenditures net of proceeds from the sale of property plant and equipment in the fourth quarter was $65 million.

Speaker 4: Capital expenditures, net proceeds from the sale of property, plant, and equipment in the fourth quarter was $65 million.

Speaker 4: Cash payments for restructuring and acquisition-related activity for the fourth quarter of 2021 were $9.8 million.

And cash payments for restructuring and acquisition related activity for the fourth quarter of 2021 were $9 8 million.

Reflecting the impact of these activities AAM generated adjusted free cash flow of $44 million in the fourth quarter of 2021.

Speaker 4: Reflecting the impact of these activities, AAM generated adjusted free cash flow of $44 million in the fourth quarter of 2021.

Speaker 4: For the full year of 2021, AAM generated adjusted free cash flow of $423 million compared to $311 million in the full year of 2020. As David mentioned, this is a record for AAM. As a team, we've been focused on free cash flow conversion, including tightly managing CapEx and reducing restructuring charges. Our results demonstrate success in these areas.

For the full year of 2021, AAM generated adjusted free cash flow of $423 million compared to $311 million in the full year of 2020.

As David mentioned this is a record for AAM as a team we've been focused on free cash flow conversion, including tightly managing capex and reducing restructuring charges.

Our results demonstrate success in these areas.

Speaker 4: From a debt leverage perspective, we ended the year with net debt of $2.6 billion and LTM adjusted EBITDA of $833 million, calculating a net leverage ratio of 3.1 times on December 31st. This is a reduction of nearly a full third of leverage in 2021.

From a debt leverage perspective, we ended the year with net debt of $2 $6 billion and LTM adjusted EBITDA 833 million customers.

Looking at net leverage ratio of three one times at December 31.

This is a reduction of nearly a full turn of leverage in 2021.

Speaker 4: In 2021, we prepaid over $350 million of gross debt. We utilized the free cash flow generating power of AAM to strengthen the balance sheet by reducing our debt and lowering our future.

In 2021, we prepaid over $350 million of gross debt.

Utilize the free cash flow generating power of AAM strengthen the balance sheet by reducing our debt and lowering our future interest payments.

Ended 2021 total available liquidity of approximately $1 5 billion.

Think of available cash and borrowing capacity on Aam's global credit facilities, and we continue to maintain a strong liquidity position and debt maturity profile.

Speaker 4: and we continue to maintain a strong liquidity position and debt maturity profile.

Speaker 4: Before we move into the Q&A, let me close my comments with some thoughts on our 2022 financial outlook.

Before we move into the Q&A, Let me close my comments with some thoughts on our 2022 financial outlook.

Speaker 4: In our running slide deck, we have included walks from 2021 actual results to our 2022 financial targets. You can see those starting on slide 13.

And our earnings slide deck, we have included walks from 2021 actual results to our 2022 financial targets you can see those starting on slide 13.

Speaker 4: As for sales, we are targeting the range of $5.6 to $5.9 billion for 2020.

As for sales, we are targeting the range of $5 $65 9 billion for 2022.

The sales target is based upon North American production estimates of 14, 8% to $15 2 million units.

Speaker 4: The sales target is based upon North American production estimates of 14.8 to 15.2 million units.

Speaker 4: New business backlog launches of $175 million and attrition of approximately 100.

New business backlog launches of $175 million and attrition of approximately $100 million.

Speaker 4: Given the market volatility, our sales guidance assumes a range of semiconductor recovery of approximately one-third at the low end and two-thirds at the high end versus what we experienced in 2021.

Given the market volatility our sales guidance assumes a range of semiconductor recovery of approximately one third at the low end and two thirds at the high end versus what we experienced in 2021.

We continue to experience this issue in January and February of this year. However, we do expect improvements throughout the year.

Speaker 4: We continue to experience this issue in January and February of this year, however, we do expect improvements throughout the year.

Speaker 4: In addition, on a year-over-year basis, we expect a continued increase in index-related metal market pass-throughs in foreign currency.

In addition on a year over year basis, we expect to continue to increasingly exploited metal market pass throughs and foreign currency.

Speaker 4: As noted on our fourth quarter walks, the 2021 exit rate on a year-over-year basis was the highest of the year. Our guidance is based on current trends.

As noted on our fourth quarter walks to 2021 exit rate on a year over year basis with the highest two year guidance.

On current trends.

From an EBITDA perspective, we're expecting adjusted EBITDA in the range of 800 $875 million.

Speaker 4: From an EBITDA perspective, we're expecting just an EBITDA in the range of $800 to $875 million.

Speaker 4: As I would expect, you may ask some questions in this area. Let me provide some very direct comments on the key elements of our year-over-year EBITDA walk.

As I would expect you may ask some questions in this area. Let me provide some very direct comments on the key elements of our year over year EBITDA walk.

Speaker 4: First, yes, we expect to convert our year-over-year product sales.

First yes, we expect to convert our year over year product sales increases and expected contribution margins of approximately 25% to 30% as shown on a year over year walk.

Speaker 4: at expected contribution margins of approximately 25% to 30% as shown on our year-over-year walk.

Speaker 4: Two, yes, we intend to invest in our future through more in R&D as we continue to have growth opportunities with a variety of customers and products.

Yes, we tend to invest in our future through more in R&D as we continue to have growth opportunities with a variety of customers and products.

Speaker 4: And yes, we are experiencing inflation. By way of perspective, this net amount reflected on our walk represents only slightly more than 1% of our annual purchase component buy. And yes, lastly, we expect AM to continue to deliver operational productivity to mitigate some of these costs, as well as offset more cost pressures we are experiencing inside of our own operations.

And yes, we are experiencing inflation by way of perspective. This net amount reflected on our walk represents only slightly more than 1% of our annual purchase component by and just lastly, we expect AAM to continue to deliver operational productivity to mitigate some of these costs as well as offset core cost pressures, we are experiencing inside of her.

Our own operations.

Speaker 4: You can see continued year-over-year performance on our walk of nearly $35 million.

You can see continued year over year performance on our work with nearly $35 million.

Speaker 4: From an Adjusted Free Cash Flow perspective, we are targeting approximately $300 to $375 million in 2022, and the main factors driving our cash flow change are as follows. We have slightly higher capital expenditures as we are coming upon some key launches.

From an adjusted free cash flow perspective, we are targeting approximately $300 million to $375 million in 2022, and the main factors driving our cash flow change are as follows we had slightly higher capital expenditures as we are coming up on some key launches.

Speaker 4: However, our capex to sales ratio is still very low by our historical measures, as we are targeting capex to the percent of sales of approximately three and a half to four percent.

However, our capex to sales ratio is still very low by our historical measures as we are targeting capex as a percent of sales of approximately three 5% to 4%.

We also expect higher taxes, and we would expect working capital outflows as their sales and related activity are increasing year over year.

Speaker 4: And we would expect working capital outflows as our sales and related activity are increasing year over year.

Speaker 4: And lastly, we estimate our restructuring payments to be in the range of $20 to $30 million for 2022. This is a year-over-year reduction by nearly half of our cash restructuring payments from the prior year.

Lastly, we estimate our restructuring payments to be in the range of $20 million to $30 million for 2022. This is a year over year reductions by nearly half of our cash restructuring payments from the prior year.

We expect to use free cash flow generated in 2022 to continue to reduce leverage and further solidify our position electrification and take advantage of select market.

Speaker 4: We expect to use pre-cash flow generated in 2022 to continue to reduce leverage and further solidify our positional electrification and take advantage of select market opportunities to support growth.

Opportunities to support growth.

So in conclusion, the tenants of our business approach already yielding results that David mentioned, we secured significant new awards with our legacy business strong free cash flow potential.

Speaker 4: So in conclusion, the tenets of our business approach are already yielding results. As David mentioned, we've secured significant new awards with our legacy business to give strong free cash flow potential.

Speaker 4: Our new 3-in-1 electric drive platform and components are driving global interest, and as such, our backload electrification mix is now at 35%.

Our new three in one electric drive platform and components are driving global interest and as such our backlog electrification, which is now at 35%.

Speaker 4: and we generate strong free cash flow. A company best in 2021, and we look to generate solid free cash flow in 2022 while ramping up new business launches to drive growth.

And we generated strong free cash flow the company best in 2021, and we look to generate solid free cash flow in 2022, while ramping up new business launches to drive growth.

Speaker 4: We're looking forward to a great year for AAM and building value for all our students.

Looking forward to a great year for AAM and building value for all our stakeholders.

Speaker 4: 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. David? Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your questions to no more than two. So at this time, please feel free to proceed with any questions that you may have.

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 David Thank you, Chris and David we have reserved some time to take questions I would ask that you. Please limit your questions to no more than two so at this time. Please feel free to proceed with any questions that you may have.

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.

Speaker 1: At this time, I'd like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Pause for just a moment to compile the Q&A roster.

Okay.

Speaker 1: Your first question today comes from John Murphy at Bank of America. Please go ahead. Good morning everybody.

So the first question today comes from John Murphy of Bank of America. Please go ahead.

Good morning, everybody.

Speaker 2: A first question on your North American volume assumptions of 14 to 70 percent is a little bit higher than we're at, and I think some folks are at. So I'm just curious your comfort in that, but also does that actually really matter that much when you're doing sort of a bottom-up forecast on your specific program?

Our first question on North American volume assumptions or 14% to 70% is a little bit high.

Higher than we were at and I think some folks are at so I'm just curious your comfort in that but also does that actually really matter that much when you're doing sort of a bottom up forecast on your specific programs I'm just trying to gauge how.

Speaker 2: I'm just trying to gauge, you know, how the 14 to 17% seems kind of aggressive. But if you drop into your programs when the mix has been pretty strong.

The 14th 70% seems kind of aggressive, but if you drop into your programs when the mixing being pretty strong.

Speaker 2: And probably will continue to be, you know, that might not be that aggressive. So I'm just trying to, you know, gauge your thoughts there and how you're building that up.

And probably will continue to be that might not be that aggressive. So I'm just trying to gauge your thoughts there and how you're building that up.

Speaker 4: Yeah, John , this is Chris. So you're exactly right in your comment, where when we build our forecast, we do a bottoms up approach, clearly very focused on select key platforms that drive our business, such as the General Motors full size truck, the Ram heavy duty, and a few other key crossover platforms.

Yes, John this is Chris so you're exactly right in your comment when we build our forecast we do a bottoms up approach clearly very focused on select key platforms that drive our business such as the general Motors full size truck the Ram heavy duty and a few other to keep crossover platforms.

Speaker 4: But that production element that we use 14.8 to 15.2 does drive some of our component business, which we look to do. So what we're trying to signal here is while we see a market estimate out there by third party to call it 15.2, you know, we certainly see some of the challenges in the early part of the year associated with delivering that, semiconductors and otherwise. We wouldn't expect that to happen, but would be at the high end of our ranges. So we do build some conservatism.

But production element that we used 14, 8% to 15, two does drive some of our component business, which we look to do so what we're trying to signal here as well, we see a market estimates out there by third party had call. It 15 to we certainly see some of the challenges in the early part of the year associated with delivering that semiconductors and otherwise we wouldn't expect.

Spect that to happen, but it would be at the high end of our ranges. So we do build some conservativism.

Speaker 4: and associated with the macro market assumptions. But at the end of the day, it's a bottom-up build by the specific platforms we support and the unique volumes associated with them.

Associated with the macro market assumptions, but at the end of the day at the bottom up build by the specific platforms, we support and the unique volumes associated with them.

Speaker 2: Okay, that's helpful. And then just a second question on slide 6 on the backlog. You know, I appreciate the electrification is going up from 15% to 35% year-over-year in the backlog, so that's great. But if we think about sort of the cadence of that mix changing over time, I don't know if you have this breakdown for us right now, but how much would electrification be of your 23 and 24 backlog versus what it is in 2022? How much is this growing sequentially?

Okay. That's helpful. And then just second question on slide six on the backlog.

I appreciate your electrification is going up from 15% to 35% year over year in the backlog. So that's great, but if we think about sort of the cadence of that mix changing over time I don't know if you have this break down for US right now, but how much wood electrification would be of your 'twenty, three and 'twenty four backlog versus what it is in 2022, how much I'm just curious.

Growing sequentially, yes, John we don't we don't disclose the specific by your element, but what I would tell you as you see the market transitioning more to electrification our backlog is experiencing that same trend in dynamic increases year over year over year.

Speaker 4: Yes, Jeff, you know, we don't we don't disclose the specific by your element. But what I would tell you as you see the market transitioning more to electrification, our backlog is experiencing that same trend and dynamic increases year over year over

Speaker 2: So it would be fair to say probably in 23 and 24, it's probably above 50% by the time we get out to 2024. And the quoting opportunities are much higher on EV than anything else, as David mentioned, right? Clearly by the last year, meaning 24, as some of these programs are starting to come online, we do have some significant launches in 23 that are a balance between electrification and also some of our traditional business as well. That concept would be more oriented towards 24. Okay, great.

So it would be fair to say, probably 'twenty three 'twenty four it it's probably about 50% by the time, we get out to 2024 and the quoting opportunities are much higher on Evs and anything else as David mentioned right now clearly by the last year, meaning 24 as some of these programs are starting to come online we do have some significant launches.

In 2003 that are a balance between electrification and also some of our traditional business as well.

That concept would be more orientated towards 24.

Okay, great. Thank you very much guys.

Our next question today comes from Ryan Brinkman Jpmorgan. Please go ahead.

Speaker 1: And our next question today comes from Ryan Brinkman at J.P. Morgan. Please go ahead.

Speaker 5: Hi, thanks for taking my question. Like I said, it's surprising to me that your 2021 free cash flow yield is as high as

Hi, Thanks for taking my question.

Like I said, it's surprising to me that your 2021 free cash flow yield is as high as 46% of today's market cap and in your guidance for 'twenty. Two suggest another year of I think like 37% free cash flow yield at the midpoint and you know it's.

Speaker 5: 46% of today's market cap and your guidance for 22 suggests another year of

Speaker 5: I think like 37% free cash flow yield at the midpoint and

Speaker 5: you know it's it's just interesting that that you can generate the amount of cash that you do the free cash conversion that you do and and and consistently positive cash flow in years with vastly different macro and industry backdrops with you know uh... debt uh... yet you know repayments uh... mandatory payments you know sort of pretty far out there and you know that you can do all this without more of an impact on the share price i think it suggests that

It's just interesting that that you can generate the amount of cash that you do the free cash conversion that you do and consistently positive cash flow in years with vastly different macro and industry backdrops with you know our debt repayment.

Our repayments mandatory repayments, you know sort of pretty far out there and you know that you can do all of this without more of an impact on the share price I think it suggests that <unk>.

Speaker 5: Investors suppose that the amount of cash flow you're generating is

Investors suppose that the amount of cash flow, you're generating is I guess not sustainable what do you think are the primary contributing factors are contributing to just this almost distress level about CF yield as it.

Speaker 5: I guess not sustainable, you know, what do you think are the primary contributing factors?

Speaker 5: uh... contributing to you know just this almost distressed level of fcf yield is it uh... transition to electrification which you've highlighted as a positive uh... or uh... you know maybe that the financial leverage which you know you're focused on on lowering and i'm curious how you think about capital allocation in the context of uh... this fcf yield on the one hand if leverages the investor concern weighing on the multiple which you trade then you know allocation for cash flow toward that pay down you know does seem appropriate on the other hand

Transition to electrification, which you've highlighted as a positive.

Or.

Maybe the financial leverage, which I know you're focused on lowering and I'm curious how you think about capital allocation in the context of just <unk>, yeah, I mean on the one hand, if if leverage is the investor concern weighing on the multiple at which you trade in the allocation of free cash flow towards debt pay down you know it does seem appropriate on the other hand, if the valuation is so disconnected or if it's <unk>.

Speaker 5: if the valuation is so disconnected or if it's driven by no doubt about electrification or uh... there's something else you know that that maybe suggest that sherry purchase or a more balanced approaches maybe more warranted relative to being uh... as focused on on debt pay down at the app

By no doubts about electrification or or something else. You know does that maybe suggest that share repurchase or a more balanced approach is maybe more warranted relative to being as focused on debt pay down has happened.

Speaker 3: So, Ryan, there was a lot there, but let me try to comment on what I think I've heard. And I'll let Chris comment from there. This is David. You know, we're very proud of what we've been able to do consistently year over year in regards to our free cash flow generation.

So Ryan there there was a lot there, but let me try to comment on what I think I heard I'll, let Chris comment there. This is David.

We're very proud of what we've been able to do consistently.

Consistently year over year in regards to our free cash flow generation and we've only gotten stronger as a company over the last several years. We've used this crisis to really optimize our business and really focus on other things that we needed to do it in the business to generate sustainable cash flow, yes, we do feel.

Speaker 3: We've only gotten stronger as a company over the last several years. We've used this crisis to really optimize our business and really focus on other things that we need to do in the business to generate that sustainable cash flow.

Speaker 3: Yes, we do feel we're going to continue to generate strong cash flow as we go forward here. And as you mentioned, it's a significant percentage of our overall market cap. Clearly, the investors aren't recognizing that the full potential and performance of American Exit when it comes to our EBITDA and our cash flow performance.

It's unique to Joe generate strong cash flow as we go forward here and as you mentioned is a significant percentage of over overall market cap really the investors are recognizing that the full potential performance of American axle. When it comes to our EBITDA and our cash flow performance. The two things that are really impacting us we hear in the market.

Speaker 3: The two things that are really impacting us that we hear in the marketplace is just.

Places just our balance sheet, yes, we knew we were levered at the same time, we took almost a full turn on turn off of our leverage this past year.

Speaker 3: our balance sheet. Yes, we knew we were levered. At the same time, we took almost a full turn.

Speaker 3: turn off of our leverage this past year, we've demonstrated our commitment to strengthening that balance sheet. We're going to continue to focus on improving that balance sheet going forward. We don't see it being a problem in the future, okay, because of our strong resolve and our strong commitment.

We've demonstrated our commitment to strengthening our balance sheet, we're going to continue to focus on improving our balance sheet going forward, we don't see it being a problem in the future okay because of our strong resolve and our strong performance not only what we've delivered but what we will deliver going forward in the future.

Speaker 6: performance, not only what we've delivered, but what we will deliver going forward in the future.

Investors can make those decisions.

Speaker 3: The other issue associated with our stock price today is largely, you know, the pivot to electrification. If people want to see our backlog of new business grow, which they're now seeing, we expect that to continue to grow as we go forward. As I indicated, we're quoting a billion and a half, and two-thirds of that is electrification. We've already increased, you know, our backlog already, you know, year over year, and greater penetration on the electrification side from 15% to 35%.

Other issue associated with our stock price today is largely the pivot to electrification if people wanted to see our backlog of new business grow which they are now seeing.

We expect that to continue to grow as we go forward as I indicated, we're quoting 1 billion and a half to two thirds of that is electrification we've already increased.

Our backlog already year over year, and greater penetration on the electrification side from 15% to 35%. So we're delivering on everything that we said we're going to deliver on that.

Speaker 7: So we're delivering on everything that we said we're going to deliver on, and the things that we can control. And we said when we did the MPG acquisition that we were going to generate significant free cash flow in our business, we're doing just that.

So we can control and we said when we did the NPG acquisition that we were going to generate.

Significant free cash flow in our business, we're doing just that at.

Speaker 3: At the same time, it's allowing us to fund, you know, paying down the debt, it's allowing us to fund the advancement of our electrification portfolio, it's allowing us to fund our launches. And at the same time, we've been able to bring our capex as a percentage of sales down over the past several years in addition to it.

At the same time is allowing us to fund you know paying down the debt is allowing us to fund the advancement of our electrification portfolio, it's allowing us to fund our launches.

And at the same time, we've been able to bringing our capex as a percentage of sales down over the past several years.

In addition to it.

Speaker 3: Yes, it's going to be up a little bit because we've got 25 launches this year.

Yes, it's going to be up a little bit because we've got 25 launches this year.

Speaker 3: But at the same time, we expect to convert a lot of our equipment over to electrification. But obviously, there's going to be some uniqueness in some of the applications that we have that are electrification-based.

At the same time, we expect to convert a lot of our equipment over to electrification, but obviously theres going be some unique features that we'd have a better legislation base, but yes.

Speaker 3: I think that would be my initial response to your question, Chris. I don't know if there's anything else you want to add to what I just commented on. Yeah, no, Ryan, your observation on our cash flow generating power, if you look back over the last five years, our conversion of EBITDA to cash flow was about 20%, maybe five years ago. It's driving into the 40, 50% range at this point. And that's a concentrated effort by this team, as David mentioned, to manage our CapEx, utilize and maximize the use of our assets.

I think that'd be my initial response to your question, Chris I don't know if there's anything else you want to add to what I. Just commented I know Ryan your observation on our cash flow generating power. If you look back over the last five years, our conversion of EBITDA into cash flow was about 20% maybe five years ago, it's driving into the 40% 50% range at this point and that's a concentrated effort.

By this team as David mentioned to manage our capex utilize and maximize the use of our assets reduce our interest costs strengthen our balance sheet and we're seeing that play out just I think as we articulated over the last couple of years as it relates to capital allocation and electrification and valuation I think David comment some of it was up nicely will continue to drive our backlog up a lot.

Speaker 4: reduce our interest costs, strengthen our balance sheet, and we're seeing that play out just, I think, as we articulated over the last couple of years.

Speaker 4: As it relates to capital allocation and electrification and valuation, I think David's comment sums those up nicely. We'll continue to drive our backlog of electrification. We'll continue to have a nice balanced capital allocation and continue to stay focused on de-risking our balance sheet and also looking to grow where we can. So I think that's, I'll pause there and turn it back if you have any other questions.

Depreciation will continue to have a nice balanced capital allocation and continue to stay focused on de risking our balance sheet and also looking to grow where we can so I think that's I'll pause there and turn it back do you have any other questions alright. That's helpful. Thanks, Yeah. Just lastly, specifically curious what you've planned for G M production.

Speaker 5: All right, that's helpful. Thanks. Yeah, just lastly, specifically, I'm curious what you've planned for GM production in North America. I think they gave like a 25 to 30 percent, you know, global growth. I don't think they broke that down by region, but obviously they're looking for, they're very optimistic. Not all the suppliers have flowed that. They're just curious what your revenue guidance assumes there. Thanks.

In North America, I think they gave like a 25% to 30% global growth I don't think they broke that down by region, but obviously theyre looking for and they're very optimistic not all of the suppliers to flowed that through just curious what your revenue guidance assumes there. Thanks.

Speaker 4: Yeah, and this is Chris. Look, our revenue guidance, you can see what we assume at the macro level for that. In terms of key platforms, we typically don't articulate our views on that. You know, obviously the largest GM platform we supply would be the full-size truck platform. You know what IHS estimates are there. We're close to that. The higher end of the ranges, we're probably a little bit more, tad bit more bullish than that, but we're close to IHS in terms of how we think about their large platform. Thank you. Yep.

This is Chris look our revenue guidance you can see what we assumed at the macro level for that in terms of key platforms. We typically don't articulated our views on that obviously the largest GM platform, we supply would be the full size truck platform you know what IHS estimates or there were close to that at the higher end of the ranges were probably a little bit more tap it more bullish than.

But we're close to IHS in terms of how we think about their large platform. Thank you yep.

And our next question today comes from.

Speaker 1: And our next question today comes from Joseph Sprack with RBC Capital Markets.

Joseph.

We see capital markets. Please go ahead.

Speaker 8: Thanks, everyone. Maybe just to follow up on that and going back to...

Ah Thanks, everyone, maybe just to follow up on that and going back.

Speaker 8: to John's question as well on production. I mean, your growth.

To John's question as well on production.

Your your growth.

Speaker 8: your revenue growth that you're calling for, especially if you sort of back out the metals market, seems to be below not only what, you know, maybe people are looking for in North America broadly, but even if we sort of look at, you know, T1xx or just broadly North American truck production. So is there some other element where we're missing there, or are you just sort of taking a fairly conservative stance here? It didn't sound like that specifically because you just mentioned you're sort of more in line with IHS on some of that.

Your revenue growth that you are calling for especially if certain back out the metals market seems to be below not only what you know maybe people are looking for in North America broadly, but even if we sort of look at it.

<unk> or just broadly north American truck production. So is there some other element where we're missing there or are you just sort of taking a fairly conservative stance here. It didn't sound like that specifically because you just mentioned your.

It sort of more in line with IHS and some of those programs.

Speaker 4: Joe, this is Chris. Good morning. Let me take that. I think there's a couple of things you need to think about. I'm assuming when you're making that comment in terms of growth, you're talking from 21 production levels of 13 million, in North America anyway, stepping up to 15.2 in terms of IHS. So yes, in John's previous question, trying to articulate we're below IHS at a macro level, I would argue that's a little bit conservative.

Yes, Joe This is Chris Good morning, Yeah, Let me, let me take that I think Theres a couple of things you need to think about.

I'm, assuming when you're making that comment in terms of growth. We're talking from 'twenty, one production levels of $13 million stepping in North America anyway stepping up to $15. Two in terms of IHS. So yes as John's previous question trying to articulate we're below IHS at a macro level I would argue that's a little bit conservative there, but what do you think about our business you have to think.

Speaker 4: But when you think about our business, you have to think about really that trajectory of our sales, not just from 21 to 22, but you actually have to go back to 2020. And why do I say that? If you think about North America production in 2020 was 13 million units.

Really that trajectory of our sales not just from 'twenty one to 'twenty, two but you actually have to go back to 2020.

Why do I say that if you think about North American production in 2020 was 13 million units in 2021. It was 13 million units. Yes, you can exclude metal from my commentary here, our sales X metal group and why is it because the platforms that we support I think a full sized trucks and otherwise had an outsized proportion of group.

Speaker 4: In 2021, it was 13 million units. Yeah, you can exclude metal from my commentary here. Our sales, X metal, grew. And why is that? Because the platforms that we support, think of full-size trucks and otherwise, had an outsized proportion of growth in 21 versus 20.

Both in 'twenty, one versus 'twenty.

Speaker 4: So some of that year-over-year growth, in terms of absolute volumes you're seeing, is really over a two-year span. So as we step into 2022, some of the full-size platforms that we supply are not experiencing that same level of year-over-year growth because they started to capture that in 2021. Where we're seeing that growth now is back on our crossover vehicle platforms to a much lesser extent into our passenger car and component elements inside of our business, which are tracking more with those type of growth.

So some of that year over year growth in terms of absolute volumes Youre seeing is really over a two year span. So as we step into 2022 some of the full sized platforms that we supply are not experiencing that same level of year over year growth because we started to capture that in 2021, where we're seeing that growth now is back on our crossover.

Your vehicle platforms to a lesser much lesser extent into our passenger car component elements inside of our business, which are tracking more with those type of growth elements and then you have to look at the balance of our business. So we know a little bit flat in China.

Speaker 4: And then you have to look at the balance of our business, a little bit flat in China and in Europe , probably similar to North America. Hopefully that helps articulate it, but you really have to look at over how this volume stepped up and the sub-platforms over the last

In Europe , probably similar to North America, hopefully that helps articulate it but you really have to look it over how this volume stepped up in the sub platforms over the last two years.

Speaker 8: Yeah, I mean, that is helpful. I mean, maybe we could start to take us offline, but when I look at at least the latest IHS, it looks like, you know, the T1 program is still up like a little double digit. So that I think that's what's maybe causing some.

Yeah, I mean, just.

Helpful.

Because we can take it offline, but when I look at at least the latest IHS. It looks like the PD. One program is still up like low double digit so that and I think that folks maybe causing some.

Speaker 8: confusion, but we could follow up. I guess the other question is just sort of on...

Confusion, but we could we could follow up.

I guess the other question is just sort of on.

You know inflation and that's obviously sort of hitting you know how do you how do we sort of think about that.

Speaker 8: you know, inflation and that's obviously sort of hitting you now. How do you how do we sort of think about that?

Speaker 8: more mid-term, is there more you could do to offset what seems to be, you know, clearly a more inflationary environment, not just on materials, which might fluctuate, but labor and such, and, you know, and logistics.

More mid term is there more you could do to offset what seems to be clearly a more inflationary environment and not just on materials, which might fluctuate, but labor et cetera, and you know in logistics et cetera.

Speaker 9: Yeah, Joe, obviously, that's a very hot topic, not only for us, but the entire industry and almost every industry, quite frankly.

Yes, Joe obviously, that's a very hot topic, not only for us, but the entire industry in almost every industry quite frankly.

Speaker 4: But if you think about some of our core strengths as a company, our operating system, our productivity is driving focus to mitigate inflationary factors outside of that.

Do you think about some of our core strengths as a company our operating system. Our productivity is driving focus to mitigate inflationary factors outside of that purchase component elements. So automation throughput optimization things of this nature are helping contain some of the inflation impact that we experienced on labor and protect in particular for example.

Speaker 4: purchase component elements, so automation, throughput optimization, things of this nature are helping contain some of the inflation impact that we experience on labor in particular, for example, entry-level wages.

Every level wages or inflation that would creep through.

Speaker 4: inflation that would creep through indirect things that we buy, such as tooling and utilities. So that's a critical factor to keeping some of that inflation at bay.

Indirect things that we buy such as tooling and utilities so.

That's a critical factor to keeping some of that inflation at Bay.

Okay.

Speaker 10: Okay, last, real quick. Have you thus far seen any impact from the issue at the Canadian border?

Last real quick have you thus far.

<unk> seen any impact from the issue with the Canadian border.

Yeah. John This is David our operations have not been impacted directly because of the impact of the Canadian border.

Speaker 3: Listen, David, our operations have not been impacted directly because of the impact at the Canadian border, you know, clearly some of the OEM customer plants are adjusting their shifts.

Clearly some of the OEM customer plants are adjusting their shifts.

Speaker 3: or changing their line rates just because of some of the bumps that are taking place right now.

Or changing their line rates just because of some of the bumps that are taking place right now.

Speaker 11: Hopefully level heads will prevail and that'll subside here, you know, going forward, but it's just another variable thrown into everything else that we've been juggling. But to answer your direct question, no, we have not been impacted directly by the border constraint.

Hopefully level heads will prevail and that will subside here, you'll going forward, but it's just another variable thrown into everything else that we've been juggling, but.

To answer your direct question no we have not been impacted directly by by the border constraint.

Okay. Thank you.

The next question today comes from there.

Speaker 1: And our next question today comes from Dan Levy with Credit Suisse. Please go ahead.

Credit Suisse. Please go ahead.

Speaker 12: Hi, good morning. Thank you for taking the question. First, I want to just go into the contribution margin that you're assuming for 2022. It's the typical

Hi, Good morning, Thank you for taking the question.

First.

I wanted to just go into the contribution margin that youre assuming for 2022, it's the typical.

Speaker 12: pretty standard for you guys, 25 to 30%. But I think there are some moving parts in here, and I'm hoping you can just disaggregate those if possible. I mean, you're talking about more growth from crossovers that's generally going to be lower contribution margin, but then I'm wondering what the offset is. Is it just that you had some inefficiencies in the system in 2021 and those reversed in 2022? So maybe you could just unpack that contribution margin assumption.

It's pretty pretty stand for you guys, 25% to 30%.

But I think there are some moving parts in here and I'm, hoping you can just disaggregate those if possible I mean, you're talking about more growth from crossovers, that's generally going to be a lower contribution margin, but then.

I'm wondering what the offset is is it just that you had some inefficiencies in the system in 'twenty, one and that was reversed in 'twenty. Two so maybe you could just unpack that a contribution margin assumption.

Speaker 13: Yeah, at the, you know, purest level of our contribution margin, this is just on our product volume changes, and so typically we said, look, it can range anywhere from 25% up to 35%. And of course, 35 would be much more heavily weighted on our full size truck applications. And you've seen that at time to time, when our full size truck applications have been impacted.

Yeah.

Paris level of our contribution margin or this is just on our product volume changes and so typically we said look it can range anywhere from 25% up to 35 and of course 35 would be much more heavily weighted on our full size truck applications and you've seen that at time to time.

When our full size truck applications have an impact.

But the.

Speaker 4: Sort of absolute volume and mixed netted altogether we have on our walk at the midpoints around 29%. So what you have happening is sort of our new business backlog and attrition is probably rolling off a little bit at the lower part of that. Our semiconductor sales recovery is right in line with the sales mix that we estimate was lost in 2021. And there is some full-size truck elements associated with it.

Sort of absolute volume and mix net it all together we have on our work at the midpoint is around 29%. So what do you have happening is sort of our new business backlog and attrition is probably rolling off a little bit at the lower part of that our semiconductor sales recovery is right in line with the sales mix that we estimate was lost in 2021 and there is some full size truck.

<unk> associated with it it's predominantly a little more weighted towards crossover is yes. That's why you sort of see that below the 30% range in terms of contribution margin and then the all other volume and mix also has a balance of some full size truck, but also some of our crossover vehicles. So that's why you see this sort of kind of resonating on a contribution margin basis sort of near to just below the midpoint.

Speaker 4: Predominantly a little more weighted towards crossovers, yes. That's why you sort of see that below the 30% range in terms of contribution margin. And then the all other volume and mix also has a balance of some full-size truck, but also some of our crossover vehicles. So that's why you see this sort of kind of resonating on a contribution margin basis, sort of near, just below the midpoint of our typical contribution margin.

Our typical contribution margins.

Speaker 12: Hopefully, that helps. OK. And then just as far as maybe.

Hopefully that helps.

Okay, and then just as far as maybe.

Speaker 12: inefficiencies or trapped labor beyond just, you know, I see you're guiding to.

Inefficiencies are trapped labor beyond just I, you know I see.

You're guiding to.

Speaker 12: uh cost inflation of 40 million what what what did you have in aggregate in 2021 for

Cost inflation of $40 million.

Well, what what what did you have in aggregate in 2021 for.

Speaker 12: you know, inefficiencies, trapped labor, premium freight? And what are you assuming for 2022? Yeah, look, I think, you know, as David mentioned in his prepared remarks, you know, our ability to sort of navigate these challenges operationally, the teams have done a fantastic job, you know, think of premium freight, for example, which I know several companies are getting hit.

Inefficiencies trapped labor premium freight and what are you assuming for 'twenty. Two yes look I think as David mentioned in his prepared remarks, our ability to sort of navigate these challenges operationally. The team has done a fantastic job I think of premium freight for example, which I know several companies are getting hit.

Speaker 4: pretty significantly through the course of 2021. You know, we were maybe a couple million dollars a quarter. And, you know, we'll still have some of that here in 2022. A little bit of that may go away as we continue to refine our operations and some of those disruptions, especially that we saw sort of at the mid part of 21, go away. So some of that is a little bit included in our productivity, to be frank.

Pretty significantly through the course of 2021, we were maybe a couple of million dollars a quarter.

Still have some of that here in 2022, a little bit of that May go away as we continue to refine our operations and some of those disruptions, especially that we saw sort of in the mid part of 'twenty one.

Go away so somebody that has a little bit included in our productivity to be Frank.

Speaker 4: In terms of labor and things like that, the fight we face there is inflationary pressures, not necessarily cost optimization pressures, because our intense focus has been on optimizing our factories through the course of 2021 in trying to navigate these disruptions from

In terms of labor and things like that.

The point, we face there is inflationary pressures not necessarily cost optimization pressures because of our intense focus has been on optimizing our factories through the course of 2021 and trying to navigate these disruptions from a production standpoint.

Speaker 12: Okay, cool. And then the second question is just on the backlog. So, A, you know, usually this is a gross backlog. You know, maybe you could just give us some indication of actually what it is on a net basis. And then any color on that 35 percent electric mix, what the composition of that is between drive units, you know, subassemblies, et cetera. Thanks.

Okay Cool and then the.

Second question is just on the on the backlog.

So.

Hey, usually this is a gross backlog.

You can just give us some indication of actually what it is on a net basis.

Any color on that 35% electric mix, what the composition of that is between drive units.

Sub assembly.

Et cetera.

Yes, and this is Chris again on the new business backlog is gross 175, we also disclose our attrition is $100 million. So you should think of those sort of combined so a net plus a $75 million.

Speaker 4: Yeah, and this is Chris again. On the new business backlog is gross $175. We also disclosed our attrition is $100 million. So you should think of those sort of combined. So net plus $75 million going from 21 into 2022. And typically, each year we have attrition somewhere between $100 to $200 million of our product. In 2022, it happens to be right around $100 million. So it's sort of the lower end of that range.

Going from 21 into 2022 and typically.

Each year, we have attrition somewhere between $100 million to $200 million of our product in 2022 happens to be right around.

$100 million, so it's sort of at the lower end of that range.

Speaker 4: And as it relates to our electrification backlog mix, you know, think about the announcements that we have made through the course of this past year, 18 months, right? Winds would.

And as it relates to electrification backlog mix, you know think about the announcements that we have made through the course of this past year or 18 months right wins with Neil and General Motors Sledgehammer on the component side, we are launching drive units with companies such as re is also our European.

Speaker 4: NIO and General Motors slash Hummer on the component side. We are launching drive units with companies such as Rhee. It's also our European manufacturer. We've yet to disclose the name on. That'll be a big drive unit win, and also drive units that we've been in China. So it's a really nice, healthy mix across our entire product suite and many, many different customers.

A manufacturer we have yet to disclose any bond that'll be a big drive unit. When had also tried units that we've been in China. So it's a really nice healthy mix across our entire product suite and many many different customers.

Great. Thank you very much I appreciate the color.

And ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one.

Speaker 1: And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then 1.

Today's next question comes from Brian Johnson Barclays. Please go ahead.

Speaker 1: Today's next question comes from Brian Johnson at Barclays, please go ahead. Thank you. Just kind of a follow on to that, just to get more specific on that 35% electric slice of the pie. When I think about the legacy.

Thank you I, just kind of a follow on to that just to get more specific on that 35% electric slice of the pie when I think about the legacy metals.

Speaker 14: metal dime businesses heavily involved in producing parts for transmissions and combustion engines. To what extent is some of this backlog coming in, not necessarily to the e-drives you talked about, but into e-motor or other e-gearing components that can utilize your metal dime footprint?

Metaldyne business is heavily involved in producing parts for transmissions and combustion engines to what extent is some of this backlog coming in not necessarily to the E drive she talked about but into E motor or other E gearing components that can utilize your metal dawn footprint.

Speaker 3: Yeah, this is David. You know, clearly, a lot of our equipment can be converted over from making your traditional forgements and years for high point type application.

Yes, Brian This is David you'll clearly a lot of our equipment can be converted over from making your traditional forged mints and years for high point type applications.

Speaker 15: to more helical type applications that are more utilized from a BEV standpoint. So, we're seeing wins and opportunities on the gear side and shaft side of the business. So, we're very happy with what we're seeing there. We're also, as Chris just commented earlier, we've had a number of differential awards. That plays right into our metal forming business.

More helical type applications that are more utilized from a bev standpoint, so we're seeing wins and opportunities I think your side and shaft side of the business.

So we're very happy with what we're seeing there. We're also as Chris just commented earlier, we've had a number of differential awards.

That plays right into our metal forming business.

Speaker 3: regards to their gear capability and then our overall machining capability and assembly capability as a company. So we're still seeing growth within our traditional products on the metal forming side especially as the market's starting to consolidate even further. But we're also position ourselves and seeing an experience and realizing growth on the electrification side of the metal forming.

In regards to their gear capability, and then our overall machining capability and assembly capability as a company.

So we're still seeing growth within our traditional products on the metal forming side, especially as the market is starting to consolidate even further but we're also positioned ourselves and CNN experienced and realizing growth on the electrification side of the metal forming business.

Speaker 14: I want to pick up on the first part of the last thing you said, which is consolidation. Over in the truck engine space, Cummins is benefiting from consolidation of engine platforms and outsourcing. Are you seeing a similar dynamic in internal combustion engines in terms of, in particular, the metal-bond product line?

I wanted to pick up on the first part of the last thing you said, which is consolidation. So you know over in the truck engine space come in just benefiting from consolidation of engine platforms and outsourcing are you seeing a similar dynamic in internal combustion engines.

In terms of in particular, the metal by product line.

Speaker 14: competitors dropping out, moving on to other segments, and leading more business for good? Yeah, the answer is yes. Clearly, some of our competitors or some of the peers in the auto space have indicated that they want out of some of the powertrain or the driveline technologies. We don't have a problem being a consolidator in that space. We started that with the MPG activity, and that's benefited us greatly. We know how to do it. We know how to realize the integration synergies.

Competitors dropping out moving on to other segments and we do more business for good yeah.

Yeah.

The answer is yes, you'll you know clearly there is some of our competitors or some other peers in the auto space have indicated that they want out of some of the powertrain of the driveline technologies, we don't have a problem being a consolidator in that space, we started that with the M. P. G activity.

This greatly we know how to do it we know how to realize that.

<unk> synergies.

Speaker 16: At the same time, our buying power continues to get stronger there when it comes to steel, especially in a volatile market like we're dealing with here today. So we do see opportunities for further consolidation in that space. And, you know, obviously we need to balance that with, you know, strengthening our balance sheet and then also making the necessary investments in R&D to support the pivot to electrification. Okay. Thank you.

At the same time, our buying power continues to get stronger there when it comes to steel, especially in a volatile market like like what we're dealing with here today. So we do see opportunities for further consolidation in that space and then obviously, we need to balance that with strengthening our balance sheet and then also making the necessary investments in R&D to support the pivot to electrification.

<unk>.

Okay. Thank you yeah. Thanks, Brian Thank you Brian .

Operator, ladies and gentlemen.

Speaker 17: And ladies and gentlemen, yes, sir, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Bloom for any closing remarks. Great. Thank you, Brian , for the last question there. And thank you, Rocco. And we thank all of you who have participated on this call and appreciate your interest in AEM. We certainly look forward to talking with you in the future. Thank you.

Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to Mr. Wilson for any closing remarks.

Thank you Brian .

For the last question there and thank you Rocco and we thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future. Thank you.

Ladies and gentlemen. This concludes today's conference call. We thank you all for participating in today's conference. You May now disconnect your lines and have a wonderful day.

Speaker 1: Ladies and gentlemen, this concludes today's conference call. We thank you all for participating in today's conference. You may now disconnect your lines and have a wonderful day.