Q1 2024 American Axle & Manufacturing Holdings Inc Earnings Call
Jason: At this time I would like to welcome everyone to the American axle and manufacturing first quarter 'twenty 'twenty four 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, if you'd like to ask a question. During this time simply press. The Star Key then the number one on your telephone keypad.
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Operator: As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim. Thank you, and good morning.
As a reminder, today's call is being recorded I would now.
Like to turn the call over to Mr. David Lim head of Investor Relations. Mr. <unk>. Please go ahead Mr. Lim.
David H. Lim: Thank you and good morning from Detroit. I'd like to welcome everyone who is joining us on AAM's first quarter earnings call. Earlier this morning, we released our first quarter 2024 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 slides for this conference call on the investor page of our website as well. To listen to a replay of this call, you can dial 1-877-344-7529 using replay access code 944-4230. This replay will be available through May 10th.
Good morning problem, Detroit I'd like to welcome everyone, who is joining us on Aam's first quarter earnings call earlier. This morning, we released our first quarter of 2024 earnings announcement, you can access this announcement on the Investor Relations page of our website.
You Ww dot a M dot com and through the PR Newswire services. You can also find supplemental slides for this conference call on the Investor page of our website as well.
So listen to a replay of this call you can dial one.
<unk> 770, 344, $75 29 replay access code 94, four desk for 230.
This replay will be available through May test.
David H. Lim: Before we begin, I'd like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also, during this call, we may refer to certain non-GAAP financial measures.
Before we begin I would like to remind everyone on 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.
For materially from those discussed for additional information, we ask that you refer to our filings with the Securities and Exchange Commission also during this call. We may refer to certain non-GAAP financial measures information regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.
David H. Lim: Information regarding these non-GAAP measures as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website. With that, let me turn things over to AEM's Chairman and CEO, David Dauch. Thank you, David, and good morning, everyone.
Let me turn things over to Aam's, Chairman and CEO David.
David C. Dauch: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the first quarter of 2024. Joining me on the call today is Chris May, AM's Executive Vice President and Chief Financial Officer. To begin my comments, I'll review the highlights of our first quarter financial performance. Next, I'll touch on some business development news and provide commentary about the industry. 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.
Thank you David and good morning, everyone. Thank you for joining us today to discuss Aam's financial results for the first quarter of 2024.
Joining me on the call today is Chris May Am's, Executive Vice President and Chief Financial Officer.
To begin my comments I'll review the highlights of our first quarter financial performance.
Speaker Change: Next I'll touch on some business development news and provide commentary about the industry.
Speaker Change: 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.
David C. Dauch: AM's first quarter of 2024 sales were $1.61 billion. AM's adjusted earnings per share was $0.18 per share, and our adjusted free cash flow was a use of $21 million. The first quarter production environment was relatively more stable compared to the previous quarter, thus supporting our production system efficiency. Volumes on our key programs were also stronger than a year ago. From a profitability perspective, AM's adjusted EBITDA in the first quarter was $206,000,000, or 12.8% of sales.
Speaker Change: Aam's first quarter of 2024 sales were $1 six $1 billion.
Speaker Change: <unk> adjusted earnings per share was <unk> 18 per share and our adjusted free cash flow was a use of $21 million.
Speaker Change: First quarter production environment was relatively more stable compared to previous quarters supported our production system efficiency volumes on our key programs were also stronger than a year ago.
Speaker Change: From a profitability profitability perspective, am's adjusted EBITDA in the first quarter was $206 million or 12, 8% of sales the year over year margin improvement stemmed from the benefits of production stability stronger volumes and our improvement initiatives.
David C. Dauch: The year-over-year margin improvement stems from the benefits of production stability, stronger volumes, and our improvement initiative. Our results demonstrate on a sequential basis that we are experiencing good traction with our performance plan. Margins for both of our business units increased in the first quarter from the fourth quarter.
Speaker Change: Our results demonstrate sequential basis that we are experiencing good traction with our performance plans.
Speaker Change: Margins for both of our business units increased in the first quarter from the fourth quarter. So 'twenty 'twenty four 'twenty 'twenty four is off to a solid start.
David C. Dauch: So 2024 is off to a solid start. Chris will provide more details about our overall financial performance during the prepared remarks. Now, let me talk about some business updates, which you can see on slide 4 of our presentation deck. We are very pleased to announce that AM, working with our key partner InAdvance, will supply X-Pane DD with 3-in-1 electric drive units in China. The start of production is slated for later this year.
Speaker Change: Chris will provide more details about our overall financial performance during the prepared remarks.
Chris: Let me talk about some business updates, which you can see on slide four of our presentation deck. We're very pleased to announce today I'm working with our key partner in the Vas will supply ex paying D. D with three in one electric drive units in China.
Chris: Startup production is slated for later this year, thus far our shipments are approaching almost a half a million electric drive units in China over the last several years, there's clearly demonstrates a M technology and the market demand for our electric drive systems.
David C. Dauch: Thus far, our shipments have approached almost half a million electric drive units in China over the last several years. This clearly demonstrates AM technology and the market demand for our electric drive system. Furthermore, we want contracts with multiple luxury European OEMs to supply electric vehicle components. In addition to our strong ICE and hybrid business, our two-pronged electrification strategy of providing full electric drive systems and components for electric vehicles positions AM to take advantage of the growing global electrification market.
Chris: Furthermore, we won contracts with multiple luxury European OEM to supply electric vehicle components.
Chris: In addition to our strong hybrid business, our two pronged electrification strategy of providing full electric drive systems and components for electric vehicles, and well positioned to take advantage of the growing global electrification market.
David C. Dauch: Now let's talk about the industry. Although time is fluid, electric vehicles have established a footing in the developed market. However, in the near term, OEMs are reformulating their respective powertrain strategies given the recent consumer adoption rate, especially here in North America. What this means is current ICE platforms will run longer than originally expected, and there potentially could even be additional future generations of ICE vehicles, especially with hybrid applications. Either way, this is highly beneficial for American Axle.
Speaker Change: Now, let's talk about the industry.
Speaker Change: Although timing is fluid electric vehicles has established a flooding in the developed markets. However in the near term Oems are reformulating their respective powertrain strategies, given our recent consumer adoption rates, especially here in North America.
Speaker Change: What this means is current ice platforms will run longer than originally expected and there potentially could even be additional future generations of ice vehicles, especially with hybrid applications either way. This is highly beneficial for American axle.
David C. Dauch: I've said this before, the market is the boss, and the end customer will also influence what is moving through the showroom. While battery technology, charging infrastructure, and cost structure improve over time, AM will continue the development of our electric product portfolio and further position itself to be agnostic to changes in propulsion system technology. But as a company, AIM is very focused on maximizing our current product portfolio and driving profitable growth. But given the dynamics I just mentioned...
Speaker Change: That's before the market is the boss and young customer will ultimately influence what is moving through the showroom.
Speaker Change: While battery technology charging infrastructure and cost structure improve over time, and we'll continue the development of our electric product portfolio and further position ourselves to be agnostic to changes and propulsion system technologies.
Speaker Change: But as a company aim is very focused on maximizing our current product portfolio and driving profitable growth.
Speaker Change: Given the dynamics I just mentioned.
David C. Dauch: It's not a growth-at-all-costs approach. We will be disciplined, we will seek appropriate returns, and we will make hard but necessary decisions while pursuing new business, especially in the area of electrification. In other words, any business we take on must make business sense and add value to our company. From an ESG perspective, we are also very pleased to announce that we have recently published our 2023 Sustainability Report. Some of the key highlights from that report include: we achieved ISO 5001 certification at all of our manufacturing facilities; and we received 21 quality performance awards. We exceeded our 2023 U.S. Renewable and Carbon-Free Energy Goals. We increased our supplier diversity spend year-over-year by 12%, and we launched a global transportation campaign to reduce emissions.
Speaker Change: It's not a growth at all cost approach will be disciplined we will seek appropriate returns and we will make hard but necessary decisions, while pursuing new business, especially in the area of electrification.
Speaker Change: In other words any business, we take on must make business sense and add value to our company.
Speaker Change: From an ESG perspective, we're also very pleased to announce that we recently published our 2023 sustainability report.
Speaker Change: Some of the key highlights from that report include we achieved ISO 5001 certification at all of our manufacturing facilities. We received 21 quality performance Awards.
Speaker Change: Our 2023 U S renewable and carbon free energy goals.
Speaker Change: We increased our supplier diversity spend year over year by 12% and we lost a global transportation campaign to reduce emissions.
David C. Dauch: Clearly, A.M. is committed to properly growing our business, but in a sustainable and socially responsible way. So let's quickly talk about our guidance. A strong first quarter performance gives us added confidence about our full year guidance. However, the year is still early, and much can change between now and December 31st. As such, our guidance remains unchanged for now. AIM is targeting sales of $6.05 to $6.35 billion. Our adjusted EBITDA is of approximately $685 million to $750 million and adjusted free cash flow of approximately $200 to $240 million.
Speaker Change: Clearly a M is committed to profitably growing our business, but it is sustainable and socially responsible way.
Speaker Change: So let's quickly talk about our guidance the strong first quarter performance gives us added confidence about our full year guide. However, the euro is still early and much can change between now and December 31st as such our guidance remains unchanged for now.
Speaker Change: AAM is targeting sales of $6.05 billion to $6.35 billion, our adjusted EBITDA of approximately 685 million to $750 million and adjusted free cash flow of approximately $200 million to $240 million.
David C. Dauch: To conclude my remarks, and as I have communicated previously, our aim is the future, and we will continue to drive our efforts towards securing our primary legacy business, and we've made great progress on that, generating strong free cash flow, strengthening our balance sheet, Advancing our Electrification Portfolio, and Positioning AM for Profitable Growth. So with that, let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May. Okay, Chris?
Speaker Change: To conclude my remarks, and as I have communicated previously our aim is on the future and we will continue to drive our efforts towards securing our primary legacy business. We made great progress on that generating strong free cash flow strengthening our balance sheet advancing our electrification portfolio and possess.
Speaker Change: For profitable growth.
Speaker Change: So with that let me now turn the call over to our executive Vice President and Chief Financial Officer, Chris Mapes, Chris.
Chris May: Okay, thank you, David. And good morning to everyone.
Chris May: Okay. Thank you David and good morning to everyone I will cover the financial details of our first quarter 2024 with you today I will also refer to the earnings slide deck as part of my prepared comments.
Chris May: I will cover the financial details of our first quarter of 2024 with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales.
So let's go ahead and begin with sales.
Chris May: In the first quarter of 2024, AAM sales were $1.61 billion compared to $1.49 billion in the first quarter of 2023. Slide 8 shows a comparison of first quarter 2023 sales to first quarter 2024 sales. Positive Volume Mix and Other was $114 million, driven in part by our backlog with key programs such as GM's midsize truck and a Cherry SUV in China. In addition, we've had better-than-expected volumes on certain programs, including the T1xx platform.
Chris May: In the first quarter of 2020 for AAM sales were $1 six 1 billion compared to $1 four 9 billion in the first quarter of 2023.
Chris May: Slide eight shows a walk of first quarter 2023 sales to first quarter 2024 sales.
Speaker Change: Positive volume mix and other was $114 million driven in part by our backlog with key programs, such as Gm's midsize truck and a cheery SUV in China.
Speaker Change: In addition, we've had better than expected volumes on certain programs, including the T. One X X platforms.
Chris May: Metal market pass-throughs in FX increased sales by approximately $6 million. The increase was mainly from metals, which were higher than a year ago. Now let's move on to profitability. Gross profit was $198.5 million in the first quarter of 2024, as compared to $160.6 million in the first quarter of 2023. Adjusted EBITDA was $205.6 million in the first quarter of 2024 versus $175.4 million last year. You can see the year-over-year walk-down of adjusted EBITDA on slide 9.
Market pass throughs, and FX increased sales by approximately $6 million. The increase was mainly from metals, which were higher than a year ago.
Speaker Change: Now, let's move on to profitability gross profit was $198 5 million in the first quarter of 2024 as compared to $160 6 million in the first quarter of 2023.
Speaker Change: Adjusted EBITDA was $205 6 million in the first quarter of 2024 versus $175 4 million last year.
Speaker Change: You can see the year over year walk down of adjusted EBITDA on slide nine.
Chris May: In the quarter, volume, mix, and other added a net $31 million of adjusted EBITDA versus the prior year, resulting in a profit conversion rate of approximately 27%. R&D was lower year over year as the timing of R&D spend can be lumpy from quarter to quarter. And net inflation, performance, and others was favorable by $8 million, driven by a combination of the efficiency benefits of less production volatility and our operational improvement initiatives, partially offset by inflation costs. Let me now cover SG&A.
Speaker Change: In the quarter volume mix and other added a net $31 million of adjusted EBITDA versus the prior year.
Speaker Change: Resulting in a profit conversion rate of approximately 27%.
Speaker Change: R&D was lower year over year as timing of R&D spend can be lumpy from quarter to quarter and net inflation performance in other was favorable by $8 million driven by a combination of the efficiency benefits of less production volatility and our operational improvement initiatives, partially offset by inflation costs.
Chris May: SG&A expense, including R&D, in the first quarter of 2024 was 98.3 million, or 6.1% of sales. This compares to an identical 98.3 million, or 6.6% of sales, in the first quarter of 2023. AMS R&D spending in the first quarter of 2024 was approximately $37 million. We expect our R&D spend to be flattish year-over-year and anticipate about $35 to $40 million per quarter on average, but as I mentioned, this amount can vary from quarter to quarter. We anticipate R&D spending should moderate in the coming years as we finish developing our electric platform technology.
Speaker Change: Let me now cover SG&A.
Speaker Change: SG&A expense, including R&D in the first quarter of 2024 was $98 3 million or six 1% of sales.
Speaker Change: This compares to an identical $98 3 million or six 6% of sales in the first quarter of 2023 and R&D spending in the first quarter of 2024, it was approximately $37 million.
We expect our R&D spend to be flattish year over year, and anticipate about $35 million to $40 million per quarter on average, but as I mentioned this amount can vary from quarter to quarter.
Speaker Change: We anticipate R&D spending should moderate in the coming years as we finished developing our electric platform technologies.
Chris May: Let's now move on to interest and tax. Net interest expense was $41 million in the first quarter of 2024 compared to $45 million in the first quarter of 2023, due in part to a lower debt balance. In addition, we paid down over $10 million of debt in the quarter.
Speaker Change: Let's now move on to interest and taxes net.
Speaker Change: Net interest expense was $41 million in the first quarter of 2024 compared to $45 million in the first quarter of 2023 due in part to lower debt balances. In addition, we paid down over $10 million of debt in the quarter.
Chris May: In the first quarter of 2024, we recorded income tax expense of $15.9 million compared to no tax expense in the first quarter of 2023. This increase in our elevated effective tax rate was driven by higher profitability and an expense for valuation allowances primarily related to interest expense deduction limitations in the U.S. As we head into 2024, we expect our adjusted effective tax rate to be approximately 40 to 45 percent. This elevated book tax rate is a function of the valuation allowance I just described.
Speaker Change: In the first quarter of 2024, we recorded income tax expense of $15 $9 million compared to no tax expense in the first quarter of 2023.
Speaker Change: This increase in our elevated effective tax rate was driven by higher profitability and an expense for valuation allowances primarily related to interest expense deduction limitations in the U S.
Speaker Change: As we head into 2024, we expect our adjusted effective tax rate to be approximately 40% to 45%. This elevated book tax rate as a function of the valuation allowance I. Just described we also expect cash taxes of approximately $50 million to $55 million this year.
Chris May: We also expect cash taxes of approximately $50 to $55 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $20.5 million, or $0.17 per share, in the first quarter of 2024, compared to a net loss of $5.1 million, or $0.04 per share, in the first quarter of 2023. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.18 per share in the first quarter of 2024 compared to a loss of $0.01 per share for the first quarter of 2023.
Taking all these sales and cost drivers into account our GAAP net income was $20 5 million or <unk> 17 per share in the first quarter of 2024 compared to a net loss of $5 1 million or four cents per share in the first quarter of 2023.
Speaker Change: Adjusted earnings per share, which excludes the impact of items noted in our earnings press release was <unk> 18 per share in the first quarter of 2024 compared to a loss of <unk> <unk> per share for the first quarter of 2023.
Chris May: Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the first quarter of 2024 was $17.8 million. Capital expenditures, net of proceeds from the sale of property, plant, and equipment for the first quarter of 2024 were $44.9 million. Cash payments for restructuring and acquisition-related activity for the first quarter of 2024 were $5.7 million. Reflecting the impact of these activities, AM's adjusted free cash flow was a seasonal use of $21.4 million in the first quarter of 2024.
Speaker Change: Let's now move on to cash flow and the balance sheet.
Speaker Change: Net cash provided by operating activities for the first quarter of 2024 was $17 $8 million.
Speaker Change: Capital expenditures net of proceeds from the sale of property plant and equipment for the first quarter of 2024 were $44 $9 million.
Speaker Change: Cash payments for restructuring and acquisition related activity for the first quarter of 2024 were $5 $7 million.
Speaker Change: Reflecting the impact of these activities Aam's adjusted free cash flow was a seasonal use of $21 4 million in the first quarter of 2024.
Chris May: From a debt leverage perspective, we ended the quarter with a net debt of $2.3 billion and LTM adjusted EBITDA of $723.5 million, calculating a net leverage ratio of 3.2 times at March 31st. Our focus is to continue to strengthen the balance sheet by reducing our debt. AAM ended the quarter with total available liquidity of approximately $1.4 billion, consisting of available cash and borrowing capacity on AAM's global credit facility.
From a debt leverage perspective, we ended the quarter with a net debt of $2 $3 billion and LTM adjusted EBITDA of $723 5 million calculating a net leverage ratio of three two times at March 31.
Speaker Change: Our focus is to continue to strengthen the balance sheet by reducing our debt.
Speaker Change: AAM ended the quarter with total available liquidity of approximately $1 4 billion consisting of available cash and borrowing capacity on Aam's global credit facilities.
Chris May: As for the full-year outlook on slide 6, it remains unchanged from when we initially provided 2024 guidance on February 6th. For sales, our target range is at $6.05 to $6.35 billion for 2024. This sales target is based upon North America production of approximately 15.8 million units, and assumptions for our key programs remain unchanged from our previous outlook. As you all know, our sales results are more sensitive to performance of these key programs versus just macro changes to overall industry production. Compared to past quarters, the production environment was less volatile.
Speaker Change: As for the full year outlook on slide six it remains unchanged from.
From when we initially provided 2024 guidance on February 16th.
Speaker Change: For sales our target range is at 6.05 to $6 35 billion for 2024.
Speaker Change: This sales target just based upon our north American production of approximately $15 8 million units and assumptions for our key programs remain unchanged from our previous outlook.
Speaker Change: You all know our sales results are more sensitive to performance of these key programs versus just macro changes to overall industry production.
Speaker Change: Relative to past quarters, the production environment was less volatile and we hope this trend continues for the balance of the year.
Chris May: And we hope this trend continues for the balance of the year. From an EBITDA perspective, the range remains at $685 to $750 million, and our adjusted free cash flow target is $200 to $240 million. Although our first quarter financial results were off to a good start, the year is just beginning. However, from a timing perspective, later in the year, several key programs that we support will be launching and transitioning to new models. In addition, certain third-party estimates have the T1XX platform production to be first announced in their latest forecast.
Speaker Change: From an EBITDA perspective, the range remains at 685% to $750 million and our adjusted free cash flow target is $200 million to $240 million.
Speaker Change: Although first quarter financial results, we're off to a good start the year is just beginning.
Speaker Change: From a timing perspective later in the year several key programs that we support will be launching in transitioning to new models.
Speaker Change: In addition, certain third party estimates have the T. One X X platform production to be first half weighted and their latest forecast.
Chris May: This compares to an almost even split, first half versus second half, when we gave our guidance back in February. But all that said, we're making great progress on the performance drivers in our business, and we look forward to the remainder of 2024 and continuing to drive positive results.
This compares to an almost even split first half versus second half when we gave our guidance back in February.
Speaker Change: But all that said, we're making great progress on the performance drivers in our business and we look forward to the remainder of 2024 and continuing driving positive results. Thank.
Chris May: Thank you for your time and participation on the call today. I'm going to stop here and turn it back over to David so we can start Q&A. David? Thank you, Chris and David. We have reserves.
Speaker Change: Thank you for your time and participation on the call today I'm going to stop here and turn it back over to David. So we can start 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.
Operator: Please limit your questions to no more than two. At this time, please feel free to proceed with any questions you may have.
David: So at this time, please feel free to proceed with any questions you may have.
Operator: At this time, I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Joseph Spak from UBS. Please go ahead.
Speaker Change: 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.
David: Pause for just a moment to compile the Q&A roster.
David: Our first question comes from Joe Spak from UBS. Please go ahead.
Joseph Spak: Thanks. Good morning, gentlemen.
Joseph Spak: Hi, Thanks, good morning, gentlemen.
Joseph Spak: Yeah look there is obviously a stronger quarter and I think the street was looking for it to reiterate the guidance and is.
Joseph Spak: Is that really in your view just sort of some of the cadence of some of the key programs I think I think the midpoint of your guide assumed about $1 4 million you know tier one food again, but maybe you could confirm that and like for there to be some upside as it really would you say more execution driven at this point.
Joseph Spak: You know, look, it was obviously, you know, a stronger quarter than I think the industry was looking for. To reiterate the guidance, is that really, in your view, just sort of, you know, some of the cadence of some of the key programs? I think I think the midpoint of your guide assumed about 1.4 million T1s from GM, but maybe you could confirm that. And, you know, for there to be some upside, is it?
Joseph Spak: Hey, Joe Good morning. This is Chris yeah, but a couple of points in there start yes, our mid point of our guidance is approximately $1 4 million units on the GM full size truck platform that remains consistent from where we were a quarter ago in our view from that perspective, but in terms of drivers you know I would expect through the course of the year for us to continue.
Chris May: Hey Joe, good morning this is Chris. Yeah, let's get a couple points in there start. Yes, our midpoint of our guidance is approximately 1.4 million units on the GM full-size truck platform. That remains consistent from where we were a quarter ago in our view from that perspective. But in terms of drivers, I would expect, through the course of the year, for us to continue to remain on a progressive trend of improvements and hold the sticky performance that we achieved here in the first quarter. But obviously, we have got to continue to build on this momentum. I think about the back half of the year. We have some large transitions going on, and some of our key platforms that we support that are
Chris: To remain on a progressive trend of improvements and hold sticky performance that we achieved here in the first quarter, but obviously, we got to continue to build on this momentum I think about the back half of the year, we have some large transitions going on in some of our key platforms that we support that are <unk>.
Chris: Inverting into new models, so that would impact some of our volumes in the back half of the year.
Chris: We're starting to see a little bit of some light truck downtime here in the second quarter from one of our customers and they talked about this publicly on their calls but.
Chris: But at the end of the day I think we're in a pretty good spot where we sit here in the first quarter and we got some things yet to play out through the year hopefully that addresses your question.
Chris May: Yeah, no, I appreciate it. What about just on R&D spend? I mean, I think in the past you sort of said, you know, you expected to run sort of a 40 million pace. I think it might have been a little bit below that this quarter. But I'm just wondering if there's an opportunity to, you know, rethink some of that spend or push some of that spend, because as David sort of mentioned, right, like, clearly, some electrification plans have been pushed. So I wanted to understand how you're thinking about that spend going forward.
Speaker Change: Yeah, No I appreciate it.
Speaker Change: What about just on the R&D spend I mean, I think in the past he sort of said.
Speaker Change: You expect to run sort of a $40 million pace I think it might've been a little bit below that this quarter, but I'm. Just wondering if you think there's an opportunity to rethink some of that spend or put some of that spend is because as David mentioned right like clearly some electrification plans.
Speaker Change: <unk> had been pushed so wanted to understand how you're thinking about that spend going forward.
Chris May: Yeah, so included in our guidance for this year, meaning 2024, you know, we are expecting to spend closer to that $40 million per quarter range. We're just shy of that here in the first quarter.
Speaker Change: So included in our guidance for this year, meaning 2024.
Speaker Change: And the spend closer towards that $40 million per quarter range. We're just just shy of that here in the first quarter. It does move around from quarter to quarter. You know, we experienced last year quarters, where it was over that average and some in some instances where it was less than that amount, but throughout the course of the year very close to about $35 million to $40 million a quarter, we have a lot of activity going on obviously.
Chris May: It does move around from quarter to quarter, you know; we experienced last year quarters where it was over that average, and some instances where it was less than that amount, but throughout the course of the year, very close to about $35 to $40 million a quarter. You know, we have a lot of activity going on. Obviously, last year, inside of our business, we were developing our electrification platform, and we expect that to continue here into this year. We have, you know, a fair amount of interest in some of our key products and platforms.
Speaker Change: Last year inside of our business developing our electrification platform. All we expect that to continue here into into this year. We have you know a fair amount of interest in some of our key products and platforms and we're also getting ready to launch some key programs over the next couple of years as well. So those will continue to consume some R&D dollars and these new programs are both eyes.
Chris May: And we're also getting ready to launch some key programs over the next couple of years as well, so those will continue to consume some R&D dollars. And these new programs are both ICE, hybrid, and as well as EV programs.
Speaker Change: Right and as well as EV programs, it's nice that exclusive to EV.
Chris May: So it's launch and customer driven. There's, you don't really see a certain opportunity to either pull back a little bit or push. I think there's a little bit of a bigger... Yeah, in the near term, I would expect the run rate to be pretty consistent. But as we've said,
Speaker Change: So its launch and customer driven.
Speaker Change: You don't want to use for an opportunity to sort of you know either pulled back a little bit of a push some of that spend.
Speaker Change: There's a little bit of a bigger inflection in.
Chris May: Yeah, in the near term, I would expect the run rate to be pretty consistent, but as we've said a couple of times, you know, we would expect over the next year or two, as our platform technologies, especially as it relates to electrification, start to, you know, mature, and are in a good spot, you will start to see that, call it the development side, start to step down. I would expect to see some benefits in the, call it midterm, associated with that.
Speaker Change: In the near term I would expect the run rate to be pretty consistent but as we've said a couple of times, we would expect over the next year or two as our platform technologies, especially as it relates to electrification start to.
Mature and in a good spot you will start to see that caused the development side start to step down I would expect to see some benefits in the call. It mid term associated with it.
Speaker Change: Thanks, guys.
Operator: The next question comes from Dan Levy from Barclays. Please go ahead.
Speaker Change: The next question comes from Dan Levy from Barclays. Please go ahead.
Dan Levy: Hi, good morning. Thank you for taking the questions.
Dan Levy: Hi, Good morning, Thank you for taking the questions.
Dan Levy: I'm wondering if you could just start by addressing metal forming, sequential step-up. You know, you talked on the last call that you're going to continue to see progress on some of these operational issues in terms of labor availability and, you know, output and whatnot. So, maybe you could just talk about where metal forming stands and what are the additional steps to improve it from here?
Dan Levy: I'm wondering if you could just start by addressing our metal forming.
Dan Levy: On a sequential step up.
Dan Levy: You had talked on the last call that youre going to continue to see progress on some of these operational issues in terms of labor availability and output whatnot. So maybe you could just talk to where metal forming stands and what are the additional steps you improve it from here.
David C. Dauch: Yeah, Dan, this is David. We saw some marked improvement in regards to our metal forming operations, but it's still not where we want it to be. The biggest thing we need to do is stabilize some of the operations, which we've done for the most part. Now it's just a matter of rebuilding the profitability of some of the select plants or select product lines. We had, as you know, some major labor scarcity issues out there.
Dan Levy: Yeah, Dan This is David Yeah, we saw some marked improvement in regards to our metal forming operations, but still not where we want it to be the biggest thing we need to do is stabilize some of the operations are which we've done for the most part now it's just a matter of rebuilding.
Dan Levy: Rebuilding the profitability of some of the select plants are so select product lines. We had as you know some major labor scarcity issues are out there we've addressed a lot of those issues by reloading some of our plants are changing the compensation structure at some of the existing plants and bringing talent in from other other area. So.
David C. Dauch: We've addressed a lot of those issues by reloading some of our plants, changing the compensation structure at some of the existing plants, and bringing talent in from other areas. So manpower isn't as big of a problem as it was in the past. One of the areas we do still have in manpower that's a challenge is just the skill set today is a little bit different from what it was before, meaning that we need to put more training and emphasis into their development, which takes a little bit longer when it comes to production efficiencies and all.
Dan Levy: Manpower is as big of a problem as it was in the past before you know one of the areas. We do have still in manpower. That's a challenge is just the skill sets are a little bit different today than what it was before medium that we need to put more training and an emphasis into their development, which takes a little bit longer when it when it comes to production efficiencies at all but overall, we're pleased with the <unk>.
David C. Dauch: But overall, we're pleased with the progress that we're making. Overall, our forging business continues to run very strong, meaning the steel forging business. We've got some issues in powder metal that we're working our way through. That's really what we highlighted before to you. And we continue to make favorable progress in that area, and we will do so quarter to quarter as we go forward also. Chris, I don't know if you want to comment. Yeah, you can see the trend in our margin trajectory for that business segment.
Dan Levy: Regress that we're making overall or for our forging business continues to run very strong me into steel forging business. We've got some issues in powder metal that we're working our way through that's really highlighted what we highlighted before to you and we continue to make favorable progress in that area, we will quarter to quarter as we go forward. It also.
Dan Levy: No.
Dan Levy: Chris I don't know if you want to comment and you can see the trend in our margin trajectory of that business segment for us in terms of metal forming our performance here in the first quarter that was the best it's been in the last four quarters. So that was been especially sequentially. The steps, we're taking youre seeing translate into two positive performance for us and we expect that to continue.
Chris May: Yeah, you can see the trend in our margin trajectory for that business segment for us in terms of metal forming. Our performance here in the first quarter, Dan, was the best it's been in the last four quarters. So that has been, especially sequentially, those steps we're taking you're seeing translate into positive performance for us, and we expect that to continue.
Chris May: So as far as the cadence through the rest of the year is concerned, is it fair to assume that there's a continued positive cadence? Yes, I would expect so, especially on a year over year basis.
Chris: So as far as cadence through the rest of the year is it fair to assume that there is a continued positive cadence.
Chris May: Yes, I would expect so, especially on a year-over-year basis, because, if you may recall, on a year-over-year basis, it really started to sort of step down from a margin performance in the second quarter of last year and sort of dropped off in the third, but we're now starting to see that upswing, and we still have a little bit of work to do to drive some further improvements there. Again, we did a lot of activity in the fourth quarter, we saw a lot of activity in the first quarter, and a lot of it appears to be sticky in terms of performance run rates. We have to continue to hold those and then build upon those going forward.
Yes, I would expect so, especially on a year over year basis, because if you may recall.
Chris: On a year over year basis, it really started to sort of step down from our margin performance in the second quarter of last year that sort of dropped off in the third.
Chris: But we're now starting to see that upswing and we still have a little bit of work to do to drive. Some further improvements. There again, we made a lot of activity in the fourth quarter. We saw a lot of activity in the first quarter a lot of it appears to be sticky in terms of performance run rates are we got to continue to hold those and then build upon those going forward.
Dan Levy: Okay, thank you. My second question is just on resource allocation and specifically on CapEx, where in the last few years your CapEx has been running pretty low, you know, roughly $200 million or less a year. You know, CapEx as a percent of sales, and we call it the 3% range. You're talking about going to something in the 4, 4.5% range this year. But, you know, David, you alluded in your prepared remark that, you know, automakers are rethinking some of their You are seeing platforms getting extended, and just wondering why there isn't maybe more of an opportunity for CapEx to structurally stay below, call it that $200 million range, closer to 3% of sales, as you're seeing an extension of these platforms. You know, what is the runway to keep CapEx maybe low
Speaker Change: Okay. Thank you.
Speaker Change: My My second question is just on resource allocation and specifically on Capex, where the lab.
Speaker Change: Last few years your Capex has been running pretty low you know roughly $200 million over the last year.
Speaker Change: Capex as a percent of sales.
Speaker Change: In the call it the 3% range when you were talking about going to something in the 445% range this year, but.
Speaker Change: David you alluded in your prepared remarks that you know automakers are rethinking some of their plan you are seeing platform is getting extended and just wondering why there was it maybe more of an opportunity for capex to structurally stayed below call it that $200 million range closer to 3% of sales as you're seeing an extension.
Speaker Change: These platforms you know what is the runway to keep Capex maybe low.
David C. Dauch: If you remember, historically, AM ran in that 4% to 6% of sales. When we bought MPG, our CapEx jumped up to that 6% to 8% of sales. We made an commitment to everyone to get down to that 4% to 5% range and then ultimately below 4%. We've been disciplined in regards to the administration and execution of that CapEx management. To your point that we've been running between 3% and 4% for the last couple of years here.
David: Yeah, Yeah, if you remember historically a M ran in that 4% to 6% of sales when we bought M. P. G. Our capex jumped up to that 6% to 8% of sales. We made a commitment to I wanted to get down to that 4% to 5% range and then ultimately below four we've been disciplined in regards to the administration and execution of that Capex management.
David: To your point that we'd been running deal between three and 4% the last couple of years here.
David C. Dauch: We've got some big things that we're launching as far as next generation products go. That product will run for a long time, so we've got to upgrade some of the equipment there. That's driving some CapEx needs there.
David: We've got some big things that we're launching it as far as next generation product that product will run for a long time. So we've got to upgrade some of that equipment. There. So that's driving some capex needs. There obviously, there's electrification programs and other new ice and hybrid business that are in our backlog as well that we've got to be able to support so where we can.
David C. Dauch: Obviously, there are electrification programs and other new ice and hybrid business in our backlog as well that we've got to be able to support. Where we can be disciplined and cut costs and manage the CapEx tighter, we'll do that. We have to make the necessary investments in order to protect the product programs that we have committed to our customers and also support how we want to run our operations going forward. You know us well enough that we're very disciplined in that area.
To be disciplined and cut costs out and manage the capex tighter, we'll do that but we have to make the necessary investments in order to protect protect the product programs that we committed to our customers and also support how we want to run our operations going forward, but you know you you know as well enough that we're very disciplined in that area. We've demonstrated it based on.
David C. Dauch: We've demonstrated it based on our performance over the last several years. We'll continue to look at tightening that down. It only helps us to manage it very tightly because it allows us to pay down debt, strengthen the balance sheet,
Our performance the last several years and we'll continue to look at tightening that down it only helps us to manage it very tightly because it allows us to pay down debt strengthen our balance sheet or continue to you'll find electrification growth <unk> looked at other tactical acquisitions that we can work on.
Dan Levy: Just in general, if companies are extending, if OEMs are extending the life of their platforms, that presumably, all else equal, would reduce your CapEx because you've already incurred that spend, correct?
Just in generally if companies are extended Italians are extending.
David: With their platform.
David: That presumably all else equal would reduce your capex because you've already incurred that's that's correct.
David C. Dauch: Well, we have, obviously, an established portfolio today as far as equipment and stuff is concerned, and we do normal maintenance on that. But at the same time, as I said, the key thing is that many of our big programs, our key platforms, are going through next-gen products, and there are some revisions to that. Once those products get launched, I think you're right. I think that it'll be more in a maintenance capital mode and not so much the bigger investment that we're having to spend now for the next-generation products.
Well you know, we we have obviously had established portfolio today as far as equipment and stuff and we got normal maintenance on that.
David: But at the same time as I said you know the key thing is as many of our big programs are our key platforms are going through next gen products and there are some revisions to that once those products get launched I think you're right I think that it'll be more in a maintenance capital mode and end and not so much the bigger investments that we're having to spend now for the next generation product. So we're kind of getting hit both ways.
David C. Dauch: So we're kind of getting hit both ways in regards to the next-generation product as well as electrification, but at the same time, that next-generation product will fade over the next few years as we get those programs launched.
David: In regards to the next generation product as well as electrification, but at the same time that next generation product will subside over the next few years as we get those programs launched.
Speaker Change: Okay. Thank you.
Operator: Thank you, gentlemen. Your last question comes from Federico Marendi from Bank of America.
Speaker Change: Thank you gentlemen, your last question comes from Federico Miranda from Bank of America. Please go ahead.
Federico Marendi: Good morning, guys. Good morning, Frederic.
Good morning, guys I'm only put a rig count.
Federico Marendi: One quick question on the second half. So your larger customer talked about the ramp of EV production in the second half. And if I heard correctly, you said that part of it might be in the guidance. What's the risk to that number in case that customer, uh...
Federico Miranda: Quick question on the <unk> the second half so your larger customer talked about the ramp of EV production mean.
Federico Miranda: The second half and if I heard correctly, you said that part of it might be in the guidance.
Federico Miranda: What's the risk to that number in case that customer.
Chris May: I don't know, they have, let's say, a delay in production right now. Well, I think you're referring to their electrification platform. Our commentary in terms of production volume for the second half is on their, I'll call it, traditional ICE platform for the full size truck. And we articulated that at about 1.4 million units at the midpoint. And we continue to see good, solid demand for that. As you know, they've articulated some of their cadence through the year on the build of that platform.
Federico Miranda: They have let's say a delay in the production right.
Federico Miranda: Well I think you were referring to their electrification platform our commentary in terms of production volume second half is on there are I'll call. It traditional ice platform for the full size truck and we articulated that at about $1 4 million units at the midpoint and we continue to see still good solid demand for that as you know they've articulated some of their cadence through the year on the build of that pipe.
Chris May: But if they continue to drive demand for that vehicle, there's, you know, either upside or downside to that, depending on their production cadence. Thank you. Thank you. The second question I have is on... Restructuring, sorry, Restructuring Actions. Could you give us some details on what you expect to be the payback time and the magnitude of the savings that those actions are going to generate?
Federico Miranda: But if if if if they continue to drive demand for that vehicle. There's you know either upside or downside to that depends on their production cadence.
Speaker Change: Thank you and.
Speaker Change: Second question I have is on the restructuring sorry, the restructuring actions.
Speaker Change:
Speaker Change: So could you give us some details on what do you expect to be the payback time in and the magnitude of the savings there.
Speaker Change: Those actions have go into January.
Chris May: Yes, we continue. I mean, our guide for this year is somewhere between 15 to 25 million in terms of restructuring, call it cash and P&L and integration. So some of that relates to the integration of some previous acquisitions that are nearing completion, but in addition, you know, we do have some restructuring activity to optimize our business and reduce our cost structure. All that is already included inside, at least for the current year, inside of our guidance ranges that we have provided, but some of the initiatives that we're taking in terms of, you know, fixed capacity reductions, i.e., a plant reduction, will provide us future benefits and continue to drive us in terms of margin enhancement performance going forward.
Speaker Change: Yes, we continue I mean, our guide for this year is somewhere between $15 million to $25 million in terms of restructuring a call it cash and P&L and integration. So some of that relates to integration of some previous acquisitions that are nearing completion, but in addition, you know we do have some restructuring activity to optimize our business reduce our cost structure all of that is already included.
Speaker Change: Inside at least for the current year inside of our guidance ranges that we have provided but some of the initiatives that we're taking in terms of you know fixed capacity reductions I E. A plant reduction.
Speaker Change: I'll provide us future benefits and continue to drive us in terms of margin enhancement and performance going forward.
Federico Marendi: Thank you. And have a great week. Thank you all.
Speaker Change: Thank you and have a great weekend.
Speaker Change: Thank you.
David C. Dauch: Thanks, Frederico, and we thank all of you who have participated in this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future.
He's very ricoh 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.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yes.
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