Q2 2024 American Axle & Manufacturing Holdings Inc Earnings Call

Gary: Good morning. My name is Gary, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing second quarter 2024 earnings conference call.

Operator: At this time, I would like to welcome everyone to the American Axle & Manufacturing 2nd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press the star key, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the star key, then the number 2.

Operator: At this time, I would like to welcome everyone to the American Axle & Manufacturing second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press the star key, then the number one on your telephone keypad. If you would like to withdraw your question, press the star key, then the number two. As a reminder, today's call is being recorded.

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

Gary: After the speaker's remarks, there will be a question and answer period.

Gary: If you would like to ask a question during this time, simply press the star key, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the star key, then the number 2.

David Lim: I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

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, Gary, and good morning.

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

Gary: I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

David Lim: Thank you, Gary, and good morning. I'd like to welcome everyone who is joining us on AEM second quarter earnings call. Earlier this morning, we released our second quarter of 2024 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.am.com, and through the PR Newswire Services. You can also find supplemental slides for this conference call on the Investor page or a website as well. To listen to a replay of this call, you can dial 1-877-344-7529, Replay Access Code 273-3759. This replay will be available through August 16th.

David Lim: Thank you, Gary, and good morning. I'd like to welcome everyone who is joining us on AEM's second quarter earnings call. Earlier this morning, we released our second quarter of 2024 earnings announcement. You can access this announcement on the investor relations page of our website, www.aem.com, and through the PR Newswire services. You can also find supplemental slides for this conference call on the investor page or on our website. To listen to a replay of this call, you can dial 1-877-344-7529 with the replay access code 273-3759. This replay will be available through August 16th.

David Lim: Thank you, Gary, and good morning. I'd like to welcome everyone who is joining us on AEM's second quarter earnings call.

Speaker Change: Earlier this morning, we released our second quarter of 2024 earnings announcement. You can access this announcement on the investor relations page of our website, www.aem.com, and through the PR Newswire services.

Speaker Change: You can also find supplemental slides for this conference call on the investor page or our website as well. To listen to a replay of this call, you can dial 1-877-344-7529.

Speaker Change: Replay access code 273-3759. This replay will be available through August 16th.

David Lim: Now, 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 that 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.

David Lim: Now, 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, in which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures, as well as reconciliation of these non-GAAP measures to catch financial information, is available on our website.

Speaker Change: Now, 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

Speaker Change: 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.

Speaker Change: Information regarding these non-GAAP measures as well as reconciliation of these non-GAAP measures to GAAP financial information is available on our website. Now with that said, let me turn things over to AAM's Chairman and CEO David Dauch.

David Lim: Information regarding these non-GAAP measures, as well as reconciliation of these non-GAAP measures to GAAP financial information, is available on our website. And with that said, I will turn things over to AAM's Chairman and CEO, David Dauch.

David Dauch: With that said, let me turn things over to EAM's Chairman and CEO, David Duck. Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the second 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 second quarter financial performance. Next, I'll touch on some business development news and commentary about the industry. After Chris covers the details of our financial results, we'll open up the call for any questions that you all may have.

David Dauch: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the second 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 second quarter financial performance. Next, I'll touch on some business development news and commentary about the industry. After Chris covers the details of our financial results, we'll open up the call for any questions that you all may have. So let's begin with our financial highlights. AM's second quarter of 2024 sales were $1.63 billion. Adjusted earnings per share was $0.19 per share.

Chris May: Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the second quarter of 2024. Joining me on the call today is Chris May, AM's Executive Vice President and Chief Financial Officer.

David Dauch: Adjusted EBITDA in the second quarter was $208 million, or 12.8% of sales, and our adjusted free cash flow was approximately $98 million. These solid results reflect positive contributions from buy-in-and-mix and continued operational performance. Let me provide you some perspectives on our performance. Overall, volumes for the industry and for a number of our key platforms were higher sequentially and year-over-year, according to third-party forecasts. As you all know, production consistency is very important for EBITDA flow-through. Production stability that we experienced in the first quarter continued into the beginning of the second quarter. That stated, we did experience periods of higher than anticipated downtime near the end of the second quarter.

Chris May: To begin my comments, I'll review the highlights of our second quarter finance performance.

Chris May: Next, I'll touch on some business development news and commentary about the industry.

Chris May: After Chris covers the details of our financial results, we'll open up the call for any questions that you all may have.

David Dauch: So let's begin with our financial highlights. AM's second quarter of 2024 sales were $1.63 billion. Adjusted earnings for share was 19 cents per share. Adjusted EBITDA in the second quarter was 208 million, or 12.8% of sales. And our adjusted free cash flow was approximately 98 million. These solid results reflect positive contributions from buy and mix, and continued operational performance. Let me provide you some perspectives about our performance. Overall, binds for the industry and for our number of our key platforms were highly sequenced, were higher, higher sequentially, and year over year according to third party four casters.

Chris May: So let's begin with our financial highlights.

Chris May: AM's second quarter of 2024 sales were $1.63 billion.

Chris May: Adjusted earnings per share was $0.19 per share. Adjusted EBITDA in the second quarter was $208 million, or 12.8% of sales. And our adjusted free cash flow was approximately $98 million.

Chris May: These solid results reflect positive contributions from buy-in-and-mix and continued operational performance.

David Dauch: We will closely monitor this trend in the second half of the year. On a positive note, in some cases, customers were providing more advanced shutdown notices given the a.m. time to make necessary cost adjustments. From an operational standpoint, we are making good overall progress, as seen by our results. The team continues to work diligently on driving positive operational performance and delivering AM's high standards of operational excellence. I'm also happy to share that we have concluded most of our commercial discussions related to inflation for the year. We do have some minor open discussions remaining, but generally, this is in the rearview mirror for us here in 2024.

Chris May: Let me provide you some perspectives about our performance.

Chris May: Overall, volumes for the industry and for a number of our key platforms were higher sequentially and year-over-year according to third-party forecasters. As you all know, production consistency is very important for EBITDA flow-through.

David Dauch: As you all know, production consistency is very important for EBITDA flow through. Productions and stability that we experience in the first quarter are contingent to the beginning of the second quarter. That stated, we did experience periods of higher than anticipated downtime near the second quarter end. We will closely monitor this trend in the second half of the year. On a positive note, in some cases, customers were providing more advanced shutdown notices given an AM time to make necessary cost adjustments. From an operational standpoint, we are making good overall progress, as seen by our results. The team continues to work diligently on driving positive operational performance and delivering AM's high standards of operational excellence.

Chris May: Production stability that we experienced in the first quarter continued into the beginning of the second quarter. That stated, we did experience periods of higher-than-anticipated downtime near the second quarter end.

Chris May: We will closely monitor this trend in the second half of the year.

Chris May: On a positive note, in some cases, customers were providing more advanced shutdown notices given the a.m. time to make necessary cost adjustments.

Chris May: From an operational standpoint, we are making good overall progress as seen by our results. The team continues to work diligently on driving positive operational performance and delivering AM's high standards of operational excellence.

David Dauch: I'm also happy to share that we have concluded most of our commercial discussions related to inflation for the year. We do have some minor open discussion remaining, but generally this is in the rearview mirror. Press here in 2024.

Chris May: I'm also happy to share that we have concluded most of our commercial discussions related to inflation for the year. We do have some minor open discussions remaining, but generally this is in the rearview mirror for us here in 2024.

David Dauch: So overall, the good, solid, and positive quarter for team AM.

David Dauch: So overall, a good, solid, and positive quarter for Team AAM. 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 has been awarded business to supply components for a global European OEM's modular vehicle platform that will support a multitude of propulsion systems, including internal combustion, hybrid, and electric vehicle derivatives. Highlighting certain of our products that are agnostic to powertrain applications.

Chris May: So overall, a good, solid, and positive quarter for Team AAM.

David Dauch: Let me talk about some business updates, which you can see on slide four of our presentation deck. We are very pleased to announce that AM has been awarded business to supply components for a global European OEM, OEM's module vehicle platform that will support a multitude of propulsion systems, including internal combustion, hybrid, and electric vehicle derivatives. Highlighting certain of our products that are agnostic to powertrain applications. Furthermore, AM will supply a luxury European OEM with helical drive gears for electric drives for a future EV program. This is a nice incremental win for our components business and played to our strategy of providing a comprehensive approach in both components and full systems and providing OEMs with strong optionality for their respective EV powertrain needs.

Chris May: Let me talk about some business updates, which you can see on slide 4 of our presentation deck.

David Dauch: Furthermore, AM will supply a luxury European OEM with helical drive gears for electric drives for a future EV program. This is a nice incremental win for our components business and plays to our strategy of providing a comprehensive approach in both components and full systems and providing OEMs with strong optionality for their respective EV powertrain needs. We believe our strategy well positions AM to be the supplier of choice. In addition, AIM was recently awarded business to provide traditional axles for a next-generation full-size van program. This is a great example, illustrated in ICE for Longer Feasts.

Chris May: We are very pleased to announce that AM has been awarded business to supply components for a global European OEM's modular vehicle platform that will support a multitude of propulsion systems including internal combustion, hybrid, and electric vehicle derivatives.

Chris May: Highlighting certain of our products that are agnostic to powertrain applications.

Chris May: Furthermore, AM will supply a luxury European OEM with helical drive gears for electric drives for a future EV program.

Speaker Change: This is a nice incremental win for our components business and plays to our strategy of providing comprehensive approach in both component and full systems and providing OEMs with strong optionality for their respective EV powertrain needs.

David Dauch: We believe our strategy will position AM to be the supplier of choice. In addition, AM was recently awarded business to provide traditional axles for a next generation full-size man program. This is a great example illustrating an ice for longer thesis. This program is scheduled to launch later in the decade.

Speaker Change: We believe our strategy well positions AM to be the supplier of choice.

Speaker Change: In addition, AIM was recently awarded business to provide traditional axles for a next-generation full-size van program. This is a great example illustrating an ICE for longer thesis.

David Dauch: This program is scheduled to launch later in the decade. Finally, AIM was named one of Newsweek's Greatest Workplaces for Women in 2024. We're very pleased with this award, as it is AIM's goal to support and promote a diverse, inclusive, and safe work environment.

David Dauch: Finally, AM was named one of the most greatest workplaces for women in 2024. We're very pleased with this award, as it is AM's goal to support and promote a diverse, inclusive, and safe work environment.

Speaker Change: This program is scheduled to launch later in the decade.

Speaker Change: Finally, A.M. was named one of Newsweek's Greatest Workplaces for Women in 2024. We're very pleased with this award, as it is A.M.'s goal to support and promote a diverse, inclusive, and safe work environment.

David Dauch: Now let's talk about the industry. The wins that I just mentioned reinforces AM view that ice, hybrid, and EV powertrains will coexist for a long time. Although we believe electrification technology is compelling, the adoption and consumer acceptance will take time, driven by affordability, range performance, and charging infrastructure. Meanwhile, AM will continue to manage factors under our control to facilitate this transition and drive profitable growth. This includes making selective investments in closely monitoring technology and policy shifts. In the near term, it appears to us that OEMs are still evaluating future product planning strategies, especially within the propulsion systems, which more clarity is likely to come.

David Dauch: Now let's talk about the industry. The wind that I just mentioned reinforces AMVU's belief that ICE, hybrid, and EV powertrains will coexist for a long time. Although we believe electrification technology is compelling, its adoption and consumer acceptance will take time, driven by affordability, range performance, and charging infrastructure. Meanwhile, A.M. will continue to manage factors under our control to facilitate this transition and drive profitable growth. This includes making selective investments and closely monitoring technological and policy shifts.

Speaker Change: Now let's talk about the industry.

Speaker Change: The winds that I just mentioned reinforces AM's view that ICE, hybrid, and EV powertrains will coexist for a long time.

Speaker Change: Although we believe electrification technology is compelling, the adoption and consumer acceptance will take time, driven by affordability, range performance, and charging infrastructure.

Speaker Change: Meanwhile, A.M. will continue to manage factors under our control to facilitate this transition and drive profitable growth.

Speaker Change: This includes making selective investments and closely monitoring technology and policy shifts.

David Dauch: In the near term, it appears to us that OEMs are still evaluating future product planning strategies, especially within the propulsion systems, for which more clarity is likely to come. As such, the bidding pipeline reflects this current environment. What is clear is that the capacity being put into place for EVs has been re-scoped, delayed, or, in some cases, canceled. AIM's view is to maintain and develop a deep and diverse product portfolio to support current and emerging powertrain trends and be agnostic to the market. We believe EV adoption by region and by segment will differ materially.

Speaker Change: In the near term, it appears to us that OEMs are still evaluating future product planning strategies, especially within the propulsion systems, which more clarity is likely to come.

David Dauch: As such, the bidding pipeline reflects this current environment. What is clear is that the capacity being put in place for EVs has been re-scoped, delayed, or, in some cases, canceled. AIM's view is to maintain and develop a deep and diverse product portfolio to support current and emerging powertrain trends and be agnostic to the market. We believe EVA adoption by region and by segment will differ materially. Not to our guidance.

Speaker Change: As such, the bidding pipeline reflects this current environment. What is clear is that the capacity being put in place for EVs has been re-scoped, delayed, or in some cases, cancelled.

David Dauch: Contour Guidance, With two quarters now completed, we're raising our full-year sales and EBITDA guidance. AM is now targeting sales in the range of $6.1 to $6.3 billion versus our previously guided sales direction of $6.05 to $6.35 billion. Our adjusted EBIT will be approximately $705 to $755 million, which is higher than the previously communicated $685 to $750 million. And our adjusted pre-cast vote will remain unchanged at approximately 200 to 240 million.

David Dauch: With two quarters now completed, we're raising our full-year sales and EVA guidance. AIM is now targeting sales in the range of 6.1 to 6.3 billion versus our previously guided sales direction of 6.05 to 6.35 billion. Our adjusted EVA will be approximately 705 to 755 million, which is higher than the previously communicated at 6.85 to 750 million. And our adjusted pre-cashable will remain unchanged at approximately 200 to 240 million. Our second half of the year includes multiple significant launches, including the next generation RAM heavy duty program. In addition, we continue to monitor industry inventories, transaction prices, incentive spending, and overall interest rates.

Speaker Change: On to our guidance.

Speaker Change: With two quarters now completed, we're raising our full year sales and EBITDA guidance.

Speaker Change: AM is now targeting sales in the range of $6.1 to $6.3 billion versus our previously guided sales direction of $6.05 to $6.35 billion.

Speaker Change: Our adjusted EBIT will be approximately $705 to $755 million, which is higher than the previously communicated $685 to $750 million.

Speaker Change: And our adjusted pre-cast vote will remain unchanged at approximately $200 to $240 million.

David Dauch: Our second half of the year includes multiple significant launches, including the next generation RAM heavy-duty program. In addition, we continue to monitor industry inventories, transaction prices, incentive spending, and overall interest rates. 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, which is, in all honesty, substantially complete, and generating strong free cash flow.

Speaker Change: Our second half of the year includes multiple significant launches, including the next-generation RAM heavy-duty program.

Speaker Change: In addition, we continue to monitor industry inventories, transaction prices, incentive spending, and overall interest rates.

David Dauch: To conclude by remarks, and as I have communicated previously, RAM is on the future and we will continue to drive our efforts towards securing our primary legacy business, which in all honesty is substantially complete, generating strong free cash flow, strengthening our balance sheet, and we continue to pay down debt every quarter, and advancing our classification portfolio and positioning it for profitable growth.

Speaker Change: and David Lim, David Dauch, Christopher May.

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, which in all honesty is substantially complete.

David Dauch: Strengthening our balance sheet, we continue to pay down debt every quarter and advance our electrification portfolio and position AM for profitable growth. So, let me now turn the call over to our Executive Vice President, Chief Financial Officer, Chris May.

Speaker Change: generating strong free cash flow, strengthening our balance sheet, we continue to pay down debt every quarter, and advancing our electrification portfolio and positioning AM for profitable growth.

Christopher May: So let me now turn the call over to our Executive Vice President, Chief Financial Officer, Chris May. Chris. Thank you, David, and good morning, everyone. I will cover the financial details of our second quarter of 2024 with you today. I will also refer to the earnings slide deck as part of my prepared comments.

Speaker Change: So let me now turn the call over to our Executive Vice President, Chief Financial Officer, Chris May.

Chris May: Thank you, David, and good morning, everyone. I will cover the financial details of our second 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.

Chris May: Thank you, David, and good morning, everyone. I will cover the financial details of our second quarter of 2024 with you today. I will also refer to the earnings slide deck as part of my prepared comments.

Christopher May: So let's go ahead and begin with sales. In the second quarter of 2024, AM sales were 1.63 billion compared to 1.57 billion in the second quarter of 2023. Slide 7 shows a walk of second quarter of 2023 sales to second quarter of 2024 sales. Positive fine mix and other was $94 million, driven by a number of our key programs and backlog in the quarter, including the GM midsize truck platform in North America and a Cherry SUV platform in China. Metal market pass-throughs and FX decreased sales by approximately $20 million, and both were lower in the quarter.

Chris May: In the second quarter of 2024, AM sales were $1.63 billion, compared to $1.57 billion in the second quarter of 2023. Slide 7 shows a comparison of second quarter 2023 sales to second quarter 2024 sales. Volume, mix, and other positive was $94 million, driven by a number of our key programs and backlog in the quarter, including the GM midsize truck platform in North America and a Cherry SUV platform in China. Metal market pass-throughs and FX decreased sales by approximately $20 million, and both were lower in the quarter.

Chris May: So let's go ahead and begin with sales. In the second quarter of 2024, AM sales were $1.63 billion compared to $1.57 billion in the second quarter of 2023.

Chris May: Slide seven shows a walk of second quarter 2023 sales to second quarter 2024 sales.

Chris May: Positive volume, mix, and other was $94 million, driven by a number of our key programs and backlog in the quarter, including the GM midsize truck platform in North America and a Cherry SUV platform in China.

Chris May: Metal market pass-throughs and FX decreased sales by approximately $20 million and both were lower in the quarter.

Christopher May: Now let's move on to profitability. Growth profit was $217.3 million in the second quarter of 2024, as compared to $178.2 million in the second quarter of 2023. Adjusted EBWA was $208.4 million in the second quarter of 2024 versus $191.6 million in the second quarter of last year. You can see a year-over-year walk-down of adjusted EBWA on slide 8. In the quarter, fine mix and other added a net $22 million of adjusted EBWA versus the prior year, resulting in a conversion rate of approximately 23%.

Chris May: Now let's move on to profitability. Growth profit was $217.3 million in the second quarter of 2024 as compared to $178.2 million in the second quarter of 2023. Adjusted EBITDA was $208.4 million in the second quarter of 2024 versus $191.6 million in the second quarter of last year. You can see a year-over-year walkdown of adjusted EBITDA on slide 8. In the quarter, Buy, Mix & Other added a net $22 million of adjusted EBITDA versus the prior year, resulting in a conversion rate of approximately 23%. R&D was higher year over year, as timing of R&D spend can be lumpy from quarter to quarter, and Net Inflation, Performance, and Other was positive by $16 million. This was driven by a combination of operational improvements.

Chris May: Now let's move on to profitability.

Chris May: Growth profit was $217.3 million in the second quarter of 2024 as compared to $178.2 million in the second quarter of 2023.

Chris May: Adjusted EBITDA was $208.4 million in the second quarter of 2024 versus $191.6 million in the second quarter of last year.

Chris May: You can see a year-over-year walkdown of adjusted EBITDA on slide 8.

Chris May: In the quarter, Buy, Mix & Other added a net $22 million of adjusted EBITDA versus the prior year, resulting in a conversion rate of approximately 23%.

Christopher May: R&D was higher year-over-year as timing of R&D spend can be lumpy from quarter to quarter, and net inflation performance and other was favorable by $16 million. Driven by a combination of operational benefits of less production volatility and inflation offsets.

Chris May: R&D was higher year-over-year, as timing of R&D spend can be lumpy from quarter-to-quarter. And net inflation, performance, and other was favorable by $16 million. Driven by a combination of operational improvements,

Chris May: Benefits of Less Production Volatility and Inflation Offsets. Let me now cover SG&A. SG&A expense, including R&D, in the second quarter of 2024 was $105.2 million, or 6.4% of sales. This compares to $91.1 million, or 5.8% of sales, in the second quarter of 2023. AAM's R&D spending in the second quarter of 2024 was approximately $44.5 million. The year-over-year R&D expense increase of $7 million was driven by the timing of our engineering spend and programs that we are currently supporting.

Chris May: Benefits of Less Production Volatility and Inflation Offsets

Christopher May: Let me now cover SGNA. SG&A expense including R&D in the second quarter of 2024 was 105.2 million or 6.4% of sales. This compares to 91.1 million, or 5.8% of sales, in the second quarter of 2023. AAM's R&D spending in the second quarter of 2024 was approximately $44.5 million. The year-over-year R&D expense increase of 7 million was driven by the timing of our engineering spend and programs that we are currently supporting. We expect our R&D spend to be in line with our initial estimates for the year, but it can vary from quarter to quarter. We will continue to support the needs of our business with the appropriate R&D spending levels.

Chris May: Let me now cover SG&A.

Chris May: SG&A expense, including R&D, in the second quarter of 2024 was $105.2 million, or 6.4% of sales.

Chris May: This compares to 91.1 million or 5.8% of sales in the second quarter of 2023.

Chris May: AAM's R&D spending in the second quarter of 2024 was approximately $44.5 million.

Chris May: The year-over-year R&D expense increase of $7 million was driven by timing of our engineering spend and programs that we are currently supporting.

Chris May: We expect our R&D spend to be in line with our initial estimates for the year, but it can vary from quarter to quarter. We will continue to support the needs of our business with appropriate R&D spending levels. That said, we anticipate R&D spend should moderate in the coming years as we finish developing our electric platform technologies and mitigate spending in this area to match current industry powertrain trends. So let's move on to interest and tax.

Chris May: We expect our R&D spend to be in line with our initial estimates for the year, but it can vary from quarter to quarter. We will continue to support the needs of our business with the appropriate R&D spending levels.

Christopher May: That said, we anticipate R&D spend should moderate in the coming years as we finish developing our electric platform technologies and mitigate spending in this area to match current industry powertrain trends.

Chris May: That said, we anticipate R&D spend should moderate in the coming years as we finish developing our electric platform technologies and mitigate spending in this area to match current industry powertrain trends.

Christopher May: Let's move on to interest in taxes. That interest expense was 41.8 million in the second quarter of 2024 compared to 44.3 million in the second quarter of 2023, due in part to lower balances, debt balances. In addition, we paid down over 30 million dollars of senior notes in the second quarter, and we continue to lower our debt balances with yet another 50 million dollar paid down of senior notes here in August. In the second quarter of 2024, we recorded income tax expense of 17.2 million compared to 5.3 million of income tax expense in the second quarter of 2023.

Chris May: Net interest expense was $41.8 million in the second quarter of 2024 compared to $44.3 million in the second quarter of 2023, due in part to a lower debt balance. In addition, we paid down over $30 million of senior notes in the second quarter, and we continue to lower our debt balances with yet another $50 million paid down of senior notes here in August. In the second quarter of 2024, we recorded an income tax expense of $17.2 million compared to $5.3 million of income tax expense in the second quarter of 2023.

Speaker Change: So let's move on to interest and taxes.

Chris May: Net interest expense was $41.8 million in the second quarter of 2024 compared to $44.3 million in the second quarter of 2023, due in part to debt balances.

Chris May: In addition, we paid down over $30 million of senior notes in the second quarter and we continue to lower our debt balances with yet another $50 million paid down of senior notes here in August .

Speaker Change: and David Lim, David Lim, David Dauch, Christopher May.

Chris May: In the second quarter of 2024, we recorded income tax expense of $17.2 million compared to $5.3 million of income tax expense in the second quarter of 2023.

Christopher May: 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. We expect our adjusted effective tax rate to be approximately 45 to 50 percent. This elevated book tax rate is a function of evaluation allowance I just described. We also expect cash taxes of approximately $60 million this year.

Chris May: 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. We expect our adjusted effective tax rate to be approximately 45 to 50 percent. This elevated book tax rate is a function of the valuation allowance I just described.

Chris May: 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.

Chris May: We expect our adjusted effective tax rate to be approximately 45 to 50 percent. This elevated book tax rate is a function of the valuation allowance I just described.

Chris May: We also expect cash taxes of approximately $60 million this year. Taking all these sales and cost drivers into account, our gap net income was $18.2 million, or 15 cents per share, in the second quarter of 2024, compared to $8,000,000 or $0.07 per share in the second quarter of 2020. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.19 per share in the second quarter of 2024 compared to $0.12 per share in the second quarter of 2023.

Chris May: We also expect cash taxes of approximately $60 million this year.

Christopher May: Taking all these sales and cost drivers into account, our gap net income was 18.2 million or 15 cents per share in the second quarter of 2024 compared to 8 million or 7 cents per share in the second quarter of 2023. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was 19 cents per share in the second quarter of 2024 compared to 12 cents per share for the second quarter of 2023.

Chris May: Taking all these sales and cost drivers into account, our GAAP net income was $18.2 million, or $0.15 per share, in the second quarter of 2024, compared to $8 million, or $0.07 per share, in the second quarter of 2023.

Speaker Change: Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.19 per share in the second quarter of 2024 compared to $0.12 per share for the second quarter of 2023.

Christopher May: Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the second quarter of 2024 was $142.8 million. Capital expenditures, net proceeds from the sale of property, plant, and equipment, and government grants for the second quarter of 2024 are 46.6 million. Cash payments for restructuring and acquisition-related activity for the second quarter of 2024 were $1.7 million. Reflecting the impacts of these activities, AM's adjusted free cash flow was 97.9 million in the second quarter of 2024.

Chris May: Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the second quarter of 2024 was $142.8 million. Capital expenditures net of proceeds from the sale of property, plant, and equipment and government grants for the second quarter of 2024, or $46.6 million. Cash payments for restructuring and acquisition-related activity for the second quarter of 2024 were $1.7 million. Reflecting the impacts of these activities, AM's adjusted free cash flow was $97.9 million in the second quarter of 2024.

Chris May: Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the second quarter of 2024 was $142.8 million.

Speaker Change: Capital expenditures net of proceeds from the sale of property, plant and equipment and government grants for the second quarter of 2024 were $46.6 million.

Speaker Change: Cash payments for restructuring and acquisition-related activity for the second quarter of 2024 were $1.7 million.

Chris May: Reflecting the impacts of these activities, AM's adjusted free cash flow was $97.9 million in the second quarter of 2024.

Christopher May: From a debt leverage perspective, we ended the quarter with net debt of 2.2 million and LTM adjusted EBITDA of $740 million, calculating a net leverage ratio of 3.0 times at June 30th. Our focus is to continue to strengthen the balance sheet by reducing debt. AAM ended the quarter with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities.

Chris May: From a debt leverage perspective, we ended the quarter with net debt of $2.2 billion and LTM adjusted EBITDA of $740 million, calculating a net leverage ratio of 3.0 times at June 30th. Our focus is to continue to strengthen the balance sheet by reducing debt. AAM ended the quarter with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit.

Chris May: From a debt leverage perspective, we ended the quarter with net debt of $2.2 billion and LTM adjusted EBITDA of $740 million, calculating a net leverage ratio of 3.0 times at June 30th.

Chris May: Our focus is to continue to strengthen the balance sheet by reducing debt.

Chris May: AAM ended the quarter with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities.

Christopher May: And for the full year outlook on slide five, we are adjusting our revenue and EBITF outlook. For sales, our target rate range is at the 6.1 to 6.3 billion for 2024. This sales target is based upon a North America production of approximately 15.8 million units. As you all know, our sales results are more sensitive to the performance of certain key programs versus just macro changes to the overall industry production. From an EBITF perspective, our new range is $705 to $755 million. Our adjusted free cash flow target remains $200 to $240 million, and we anticipate cat-backs at approximately 4% of sales.

Chris May: As for the full year outlook, on slide 5, we are adjusting our revenue and EBITDA outlook. For sales, our target range is between $6.1 and $6.3 billion for 2024. This sales target is based on North American production of approximately 15.8 million units. As you all know, our sales results are more sensitive to the performance of certain key programs versus just macro changes to the overall industry production. From an EBITDA perspective, our new range is $705 to $755 million.

Chris May: As for the full year outlook, on slide 5, we are adjusting our revenue and EBITDA outlook.

Chris May: For sales, our target range is at the $6.1 to $6.3 billion for 2024.

Chris May: This sales target is based upon a North America production of approximately 15.8 million units.

Chris May: As you all know, our sales results are more sensitive to the performance of certain key programs versus just macro changes to the overall industry production.

Chris May: From an EBITDA perspective, our new range is $705 to $755 million.

Chris May: Our adjusted free cash flow target remains $200M to $240M, and we anticipate CapEx at approximately 4% of sales. Our adjustments to our guidance are based on what we currently see in future production bills. According to third-party estimates, the GM T1XX platform is forecast at approximately 1.4 million units for the full year, with production waited towards the first half.

Speaker Change: Our adjusted free cash flow target remains $200M to $240M and we anticipate CapEx at approximately 4% of sales.

Christopher May: Our adjustments to our guidance are based on what we currently see in future production builds.

Speaker Change: Our adjustments to our guidance are based on what we currently see in future production builds.

Christopher May: According to their party estimates, the GMT1 XX platform is forecasted approximately 1.4 million units for the full year, with production weighted towards the first half of the year. The 1.4 million units continues to represent the midpoint of our guidance range.

Speaker Change: According to third-party estimates, the GMT-1XX platform is forecast at approximately 1.4 million units for the full year, with production weighted towards the first half of the year.

Chris May: The 1.4 million units continues to represent the midpoint of our guidance. Additionally, in addition to normal seasonality, we are in the process of launching some of AAM's largest next-generation programs in the second half of this year. These launches include driveline systems for the next-generation GM Delta crossover vehicle program and the next-generation Ram medium and heavy-duty trucks.

Speaker Change: The 1.4 million units continues to represent the midpoint of our guidance range.

Christopher May: Equally important, in addition to normal seasonality, we are in the process of launching some of AAM's largest next-generation programs in the second half of this year. These launches include drive-line systems for the next-generation GM Delta crossover vehicle program and the next-generation RAM medium and heavy-duty trucks. As you know, with any launch, there are ramp-up costs and volume volatility, some of which can be unpredictable.

Speaker Change: Equally important, in addition to normal seasonality, we are in the process of launching some of AAM's largest next-generation programs in the second half of this year.

Speaker Change: These launches include driveline systems for the Next Generation GM Delta Crossover Vehicle Program and the Next Generation Ram, Medium and Heavy Duty Trucks.

Chris May: As you know, with any launch, there are ramp-up costs and volume volatility, some of which can be unpredictable. Of course, these important launches will serve as part of the key foundational sales pillars for many, many years to come, and this is a very good position to be in. Furthermore, we are making good progress with our performance initiatives that we have shared with you, and we have closed most of our commercial discussions for the year.

Speaker Change: As you know, with any launch, there are ramp-up costs and volume volatility, some of which can be unpredictable.

Christopher May: Of course, these important launches will serve as part of the key foundational sales pillars for many, many years to come, and this is a very good position to be in.

Speaker Change: Of course, these important launches will serve as part of the key foundational sales pillars for many, many years to come. And this is a very good position to be in.

Christopher May: First or more, we are making good progress with our performance initiatives that we have shared with you and have closed most of our commercial discussions for the year. Putting all this together, from a full year 2024 perspective, we are tracking to deliver year-over-year margin improvement, have reduced our outstanding debt, continue to win new business, and by the end of the year, we will have completed significant next-generation product launches. And this is all really good stuff. So thank you for your time and participation on the call today.

Speaker Change: Furthermore, we are making good progress with our performance initiatives that we have shared with you and have closed most of our commercial discussions for the year.

Chris May: Putting all this together, from a full-year 2024 perspective, we are tracking to deliver year-over-year margin improvement, have reduced our outstanding debt, we will continue to win new business, and by the end of the year, we will have completed significant next-generation product launches. And this is all really good stuff. So, 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.

Speaker Change: Putting all this together, from a full-year 2024 perspective, we are tracking to deliver year-over-year margin improvement, have reduced our outstanding debt,

Speaker Change: Continue to win new business, and by the end of the year, we'll have completed significant next-generation product launches.

Speaker Change: And this is all really good stuff.

Operator: I'm going to stop here and turn the call back over to David so we can start the Q&A. Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your question to no more than two. So, at this time, please feel free to proceed with any questions 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. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: So, 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.

Operator: 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 you may have. At this time, I would like to remind everyone, in order to ask...

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 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.

Speaker Change: 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.

Speaker Change: We'll pause for just a moment to compile the Q&A roster.

Joe Speck: The first question today is from Joe Speck with UBS. Please go ahead. Hey, team. All right, Chris. I just want to sort of just talk a little bit about second half here. In that inflation performance, I think 24 million year-to-date. But in thinking about second half, how should we think about that driving the EBITDAQ? Because you mentioned, recovering negotiations are underway. I don't know if you could give us some indications of what we could expect there. But then also on a year-over-year basis, I think you had some warranty issues last year that shouldn't repeat and also the inefficiencies which have seemingly gotten better.

Speaker Change: The first question today is from Joe Spak with UBS. Please go ahead.

Unidentified Analyst: Hey team. Good morning Chris.

Joe Spak: Hey team. Morning, Chris. I just want to sort of

Unidentified Analyst: I just want to sort of.. talk a little bit about the second half here, you know, net inflation performance, I think 24 million year to date. But in thinking about the second half, how should we think about that driving the EBITDA, because, you know, you mentioned recovery negotiations are underway. I don't know if you could give us some indications of what we could expect there, but then also on a year-over-year basis, I think you have some.

Joe Spak: Let's talk a little bit about second half here, you know, net inflation performance. I think 24 million year to date But in thinking about the second half, how should we

Speaker Change: think about that driving the EBITDA, because you know, you mentioned, recovery negotiations are underway. I don't know if you could give us some indications for what we could expect there. But then also on a year over year basis, I think you had some

Speaker Change: warranty issues last year that shouldn't repeat and also the inefficiencies which have seemingly gotten better. But on the other hand, you just sort of indicated it's a pretty heavy launch schedule, which might weigh on performance a little bit. So what are you guys embedding, I guess, for performance in the back half?

Joe Speck: But on the other hand, you just sort of indicated it's a pretty heavy launch schedule, which might, you know, weigh on performance a little bit. So what are you guys embedding, I guess, for performance in the back half?

Unidentified Analyst: Warranty issues last year that shouldn't repeat and also the inefficiencies, which have seemingly gotten better. But, on the other hand, you just sort of indicated It's a pretty heavy launch schedule, which might, you know, weigh on performance a little bit. So what are you guys embedding, I guess, for performance in the back half? Yeah, Joe, as you think about what we're stepping into here in the back half, you know, it really, you know, the midpoint, talk about the midpoint, obviously, starting with a nice strong first half of the year.

Joe Speck: Yeah, Joe, if you think about what we were stepping into here in the back half, you know, really, you know, talk about the midpoint, obviously starting with a nice strong first half of the year. But from a production standpoint, just normal production, right, first half, second half, clearly overweighted into the little bit into the first half, whether it's on the full size truck platforms. Europe, our European operations a little bit weighted towards the first half as well. And then you have what's called normal seasonality in the back half of the year, right, just from a production landscape perspective.

Joe Spak: Yeah, Joe, as you think about what we're stepping into here in the back half, you know, it really, you know, at the mid, you know, talk about the midpoint, obviously starting with a nice, strong first half of the year, but from a production standpoint, just normal production, right, first half, second half, clearly over-weighted into the little bit into the first half, whether it's on the full-size truck platforms,

Unidentified Analyst: But from a production standpoint, just normal production, right, first half, second half, clearly overweighted a little bit into the first half, whether it's on the full-size truck platforms, your European operations a little bit weighted towards the first half as well. And then you have what's called normal seasonality in the back half of the year, right, just from a production landscape perspective. And some of the key items we're talking about that we'll weigh in the back half of the year, of course, are these large transitions we're having for our next generation programs, and these are some, as you know, key products that support not only revenue generation but profit generation in the back half, and they can be a little bit volatile as we sort of work through that.

Speaker Change: Our European operations are a little bit weighted towards the first half as well. And then you have what's called normal seasonality in the back half of the year, just from a production landscape perspective.

Joe Speck: And some of the key items we're talking about that will weigh on the back half of the year, of course, are these large transitions we're having for our next generation programs. And these are some, as you know, some key products that support not only revenue generation, but profit generation in the back half. And they can be a little bit volatile as we sort of work through that. So that's a key piece of the second half that obviously will work through the course of the year. And then, as we exit, the 25 bills will be behind us.

Joe Spak: And some of the key items we're talking about that will weigh on the back half of the year, of course, are these large transitions we're having for our next generation programs, and these are some.

Speaker Change: As you know, some key products that support not only revenue generation, but profit generation in the back half, and they can be a little bit volatile as we sort of work through that. So that's a key piece of the second half that obviously we'll work through the course of the year, and then as we exit in 2025, those will be behind us.

Unidentified Analyst: So that's a key piece of the second half that we'll work through the course of the year, and then as we exit the 25, those will be behind us. From a performance standpoint, you know, we would expect to continue to show continued improvement in our metal forming operations, in particular.

Joe Speck: But from a performance standpoint, you know, we would expect to continue to show continued improvement in our metal forming operations, in particular. You can see that trend continuing through their segment disclosures and their margin performance. So I'd expect that to continue from a recovery standpoint. Our negotiations are substantially complete. So that's already embedded in our first half and second half run rates. You're not going to get any additional lift, per se, in the back half of the year versus the first half there. So that's sort of what we call level from period to period. And then again, a little bit of normal seasonality in the back half.

Chris May: You can see that trend continuing through their segment disclosures and their margin performance, so I would expect that to continue. From a recovery standpoint, our negotiations are substantially complete, so that's already embedded in our first half and second half run rates. You're not going to get any additional lift, per se, in the back half of the year versus the first half there, so that's sort of what we call "level" from period to period. And then, again, a little bit of normal seasonality in the back half.

Joe Spak: But from a performance standpoint, you know, we would expect to continue to show continued improvement in our metal forming operations in particular. You can see that trend continuing through their segment disclosures and their margin performance. So I would expect that to continue.

Joe Spak: From a recovery standpoint, our negotiations are substantially complete, so that's already embedded in our first half and second half run rates. You're not going to get any additional lift, per se, in the back half of the year versus the first half there, so that's sort of what we call level from period to period.

Joe Speck: You do have an overweight, some of your fixed costs with the holiday schedules, etc. as part of the industry trends. That's how I would think about it. But, as we said here today, stepping into these launches, you know, we're trying to be measured here with the back half, but we expect the underlying performance of the business to continue. That's helpful. One quick follow-up there. I think before you indicated your like the midpoint of your guide assumes, you know, roughly 1.4 million on the T1. Is that still sort of the going assumption, or has that changed at all?

Chris May: You do have an overweight on some of your fixed costs with the holiday schedules, et cetera, as part of the industry trends. That's how I would think about it, but as we sit here today stepping into these launches, you know, we're trying to be measured here in the back half, but we expect the underlying performance of the business to continue. That's helpful. One quick follow up there. I think before you indicated your like, the midpoint of your guide assumed, you know, roughly 1.4 million on the T1.

Joe Spak: And then, again, a little bit of normal seasonality in the back half. You do have an overweight to some of your fixed costs with the holiday schedules, etc., as part of the industry trends. That's how I would think about it, but as we sit here today, stepping into these launches, you know we're trying to be measured here with the back half, but we expect the underlying performance of the business to continue.

Unidentified Analyst: Is that still sort of the going assumption? Or has that changed? No, that is still the going assumption.

Speaker Change: That's helpful. One quick follow-up there, I think before you indicated your, like the midpoint of your guide assumed, you know, roughly 1.4 million on the T1, is that still sort of the going assumption or has that changed at all?

Joe Speck: No, that is still the going assumption. Okay. And just one, one more quick one.

Chris May: Okay, and just one more quick one. The E-beam contract that was canceled, any update there? I know you were trying to get some recoveries. How are negotiations for that going? Well, Joe, this is...

Speaker Change: No, that is still the going assumption.

Speaker Change: Okay and and just one one more quick one.

David Dauch: The e-beam contract that was canceled any, any update there. I know you were trying to get some recoveries. How are negotiations for that for that going? Joe, this is David. As we indicated to you before, that contract has been canceled or terminated, and we've turned in cancellation costs to our customers, and we're still in negotiation with them at this time. So nothing further to announce right now. Thank you.

Speaker Change: The E-beam contract that was canceled, any update there? I know you were trying to get some recoveries. How are negotiations for that going?

David Dauch: No, Joe, this is David. As we indicated to you before, that contract's been, you know, cancelled or terminated, and we've turned over cancellation costs to our customers, and we're still in negotiations with them at this time, so we have nothing further to announce right now.

David: No, Joe, this is David. As we indicated to you before, that contract's been, you know, canceled or terminated and we've turned in cancellation costs to our customers and we're still in negotiations with them at this time, so nothing further to announce right now.

Operator: The next question is from Tom Narayan with RBC. Please go ahead.

Tom Narayan: The next question is from Tom Narayan with RBC. Please go ahead. Anything taking that question? The first one is on the 2024 guidance. So if my math is right, you're raising, I think, the EBITDA by 12.5 million at the midpoint, but the cash from operations is going down by 16 million. Just curious, what's driving that? My sense is probably working capital. You've talked about this new launches in H2, but I would think some of those launches maybe were already known about. Just trying to understand what has changed since the last time I guess you gave the guidance in this regard on potentially working capital.

Speaker Change: Thank you. Thank you. The next question is from Tom Narayan with RBC. Please go ahead.

Tom Narayan: Thanks for taking my questions. The first one is on the 2024 guidance. So if my math is right, you're raising, I think, EBITDA by $12.5 million at the midpoint, but cash from operations is going down by $16 million. Just curious what's driving that. My sense is probably working capital. You've talked about those new launches in H2, but I would think some of those launches maybe were already known about. Just trying to understand what has changed since the last time you gave guidance in this regard on potentially working capital. And then I have a follow-up. Thanks.

Speaker Change: Thank you for taking the questions. The first one is on the 2024 guidance.

Speaker Change: If my math is right, you're raising, I think, the EBITDA by $12.5 million at the midpoint.

Speaker Change: But the cash from operations is going down by $16 million.

Speaker Change: Just curious what's driving that. My sense is probably working capital.

Speaker Change: You've talked about those new launches in H2, but I would think some of those launches maybe were already known about. Just trying to understand what has changed since the last time, I guess, you gave the guidance in this regard on potentially working cap, and then I have a follow-up. Thanks.

Tom Narayan: Thanks. Yeah, no, it's really two elements. Our cash taxes up slightly, so that's a piece of it, in terms of where our previous guide was, and also it's going to simply fall down to working capital timing in terms of the balance. We had a favorable adjustment a little bit on our cat-backs. Cash taxes up a little bit, and then the balance is working capital timing. Got it. And then my second one, you know, one thing we've noticed this earning season is that some tier one suppliers, I know we have, for that matter, have talked about something similar to what you're saying, you know, the R&D coming down, etc.

Chris May: Yeah, no, it's really two elements. Our cash tax is up slightly, so that's a piece of it in terms of where our previous guide was. And also, it's going to simply fall down to working capital timing in terms of the balance. We had a favorable adjustment a little bit on our CapEx, cash tax is up a little bit, and then the balance is working capital timing.

Speaker Change: Yeah, no, it's really two elements. Our cash tax is up slightly, so that's a piece of it in terms of where our previous guide was.

Speaker Change: It's going to simply fall down to working capital timing in terms of the balance.

Speaker Change: We had a favorable adjustment a little bit on our capex, cash tax is up a little bit, and then the balance is worth capital timing.

Tom Narayan: Got it. And then my second one, you know, one thing we've noticed this earnings season is that some Tier 1 suppliers, and OEMs, for that matter, have talked about something similar to what you're saying, you know, the R&D coming down, etc. And they've decided to increase capital returns to shareholders in the form of share buybacks, given the depressed market values of their equity. In some cases, we've even seen companies lever up to do buybacks.

Speaker Change: Got it.

Speaker Change: And then my second one, you know, one thing we've noticed this earnings season is that some Tier 1 suppliers, and OEMs for that matter,

Speaker Change: have talked about something similar to what you're saying, you know, the R&D coming down, et cetera. And they've decided to increase capital return to shareholders in the form of share buybacks, given the depressed market values of their equity.

Tom Narayan: And they've decided to increase capital return to shareholders in the form of share buybacks, given the depressed market values of their equity. In some cases, we've even seen companies lever up to do buybacks.

Tom Narayan: I know you have that slide that shows three times leverage and one and a half billion of liquidity in your priorities to reduce debt. But just curious, as you look at where your stock is trading and, you know, potentially pushing investments out, what is your appetite for potentially doing more on the share buyback?

David Dauch: I know you have that slide that shows a three times leverage, and one and a half billion of liquidity in your priorities to reduce debt, but just curious, as you look at where your stock is trading and potentially pushing investments out, what is your appetite to potentially doing more on the share buyback? Thanks.

Speaker Change: In some cases, we've even seen companies lever up to do buybacks. I know you have that slide that shows a three-times leverage.

Speaker Change: 1.5 billion of liquidity in your priorities to reduce debt, but...

Speaker Change: Just curious, as you look at where your stock is trading and, you know, potentially pushing investments out, what is your appetite to potentially doing more on the share buyback? Thanks.

David Dauch: This is David. Listen, our capital allocation priorities are to continue to be disciplined and support our organic growth and our backlog of new business, and to continue to pay down debt. We obviously are more highly levered than some of our competitors and some of the other industry peers. At the same time, we're continuing to look at inorganic growth opportunities. So I don't really see a near-term future where we're looking at major stock buybacks or shareholder-friendly activities.

David Dauch: This is David. You know, listen, our capital allocation priorities are to continue to be disciplined to support our organic growth and our backlog of new business. Continue to pay down debt. We obviously are highly lever than some of our competitors and some of the other industry peers. At the same time, we're continuing to look at our organic growth opportunities. So I don't really see a near-term future where we're looking at major stock buybacks or share other friendly activities. But at the same time, those are the four allocations of capital, and we always look at those.

Speaker Change: This is David. Listen, our capital allocation priorities are to continue to be disciplined and support our organic growth and our backlog of new business.

Speaker Change: We continue to pay down debt. We obviously are more highly levered than some of our competitors and some of the other industry peers.

Speaker Change: At the same time, we're continuing to look at inorganic growth opportunities, so I don't really see a near-term future where we're looking at major stock buybacks.

David Dauch: But at the same time, you know, those are the four allocations of capital, and we always look at those. But we try to do what we think is right for the business. But right now, I don't see it deviating from the discipline that we've had, you know, in the previous quarters and in previous years. Chris, I don't know if there's anything else you want to say. Yeah, no, Tom. I also, you know, we paid some debt down as a priority capital allocation in the second quarter. And I don't know if you caught my prepared remarks, but we paid yet another $50 million of debt down here in the third quarter. So that should

Speaker Change: or shareholder-friendly activities.

Speaker Change: But at the same time, those are the four allocations of capital, and we always look at those.

Christopher May: We try to do what we think is right for the business, but right now I don't see it deviating from the discipline that we've had in the previous quarters in previous years. Chris, I don't know if there's anything else you want to say. Yeah, no time. Also, you know, we've paid some debt down as a priority capital allocation second quarter. And I don't know if you caught in my prepared remarks. We paid yet another $50 million of debt down inside and here in the third quarter. So that should be very positive and appreciative to our investors as well.

Speaker Change: We try to do what we think is right for the business, but right now I don't see it deviating.

Speaker Change: from the discipline that we've had in the previous quarters and previous years. Chris, I don't know if there's anything else you want to say.

Chris May: Yeah, no, Tom, also, you know, we've paid some debt down as a priority capital allocation in the second quarter, and I don't know if you caught in my prepared remarks, we've paid yet another $50 million of debt down inside and here in the third quarter, so that should be very positive and accretive to our investors as well.

Tom Narayan: Got it. Thank you.

Dan Levy: The next question is from Dan Levy with Barclays. Please go ahead. Hi, good morning. Thank you for taking the question. I wanted to just follow up on that last question from Tom. And more specifically on the leverage ratio. So if you're right now, you know, three times, maybe you can give us a sense of, you know, just given the current business dynamics and how you're thinking of free cash and the current EBITDA profile.

Chris May: The next question is from Dan Levy with Barclays. Please go ahead.

Tom: Got it. Thank you.

Operator: At this time, I would like to welcome everyone to the American Axle & Manufacturing Second Quarter 2024 Earnings Conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: The next question is from Dan Levy with Barclays. Please go ahead.

Dan Levy: Hi, good morning. Thank you for taking the time to answer the question. I wanted to just follow up on that last question from Tom and more specifically on the leverage ratio. So, I believe you're right now, you know, at three times. Maybe you can give us a sense of, you know, just given the current business dynamics and how you think of free cash and the current EBITDA profile, what is a reasonable time frame to expect to get down to two times leverage, which then unlocks a greater set of capital allocation opportunities?

Dan Levy: Hi, good morning. Thank you for taking the questions.

Dan Levy: Follow up on that last question from Tom and more specifically on on the leverage ratio. So I believe you're right now You know at three times

Operator: After the speakers remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press the star key, then the number one on your telephone keypad. If you would like to withdraw your question, press the star key, then the number two. As a reminder, today's call is being recorded.

Dan Levy: Maybe you can give us a sense of, you know, just given the current business dynamics and how you're thinking of free cash and the current EBITDA profile, what is a reasonable timeframe to expect to get down to two times leverage, which then unlocks a greater set of capital allocation opportunities?

Christopher May: What is the reasonable timeframe to expect to get down to two times leverage, which then unlocks a greater set of capital allocation opportunities? Dan, this is Chris. Look, if we continue to perform and increase our EBITDA, of course, this would be on a decent macro backdrop, meaning production volumes continue to remain strong, right? We continue to improve our operational performance. We can deliver. Good performance over the next couple of years, strong cash flow generation. You know, you're going to start to enter that zip code. You can do the math over the next couple of years.

David Lim: I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim. Thank you, Gary. Good morning. I'd like to welcome everyone who is joining us on AEM Second Quarter Earnings call. Earlier this morning, we released our second quarter of 2024 Earnings announcement. You can access this announcement on the Investor Relations page of our website, www.aem.com and through the PR Newswire Services. You can also find supplemental slides for this conference call on the Investor page or a website as well. To listen to a replay of this call, you can dial 1877-344-7529, Replay Access Code 273-3759. This replay will be available through August 16th.

Chris May: Dan, this is Chris. Look, if we continue to perform and increase our EBITDA, of course, this would be on a decent macro backdrop, meaning production volumes continue to remain strong. If we continue to improve our operational performance, we can deliver good EBITDA performance over the next couple of years, and strong cash flow generation. You're going to start to enter that zip code. You can do the math over the next couple of years.

Dan Levy: Yeah, Dan, this is Chris. Look, if we continue to perform and increase our EBITDA, of course, this would be on a decent macro backdrop, meaning production volumes continue to remain strong, right? If we continue to improve our operational performance, we can deliver...

Speaker Change: Good performance over the next couple of years. Strong cash flow generation. You're going to start to enter that zip code. You can do the math over the next couple of years.

Christopher May: And is any of this, is there additional opportunities like CapEx down or, you know, opportunities on the working capital side? Look, if you look at our CapEx spend, it's been at some of the lowest levels in our company's history over the past couple of years. You know, we're very kind to continue to support the appropriate maintenance capital inside the business, which we will not thrift because that's critical to our ongoing operational success. And then it will ebb and flow with the new programs that we launch from a working capital perspective. You know, we're pretty tight on receivables and payables.

Dan Levy: And is any of this, are there additional opportunities to flex CapEx down or, you know, opportunities on the working capital side?

Dan Levy: And is any of this, is there additional opportunities to flex CapEx down or, you know, opportunities on the working capital side?

Chris May: Look, if you look at our CapEx spend, it's been at some of the lowest levels in our company's history over the past couple of years. You know, we're very cognizant to continue to support the appropriate maintenance capital inside the business, which we will not shrink because that's critical to our ongoing operational success. And then it will ebb and flow with the new programs that we launch. From a working capital perspective, you know, we're pretty tight on receivables and payables.

Speaker Change: Look, if you look at our CapEx spend, it's been at some of the lowest levels in our company's history over the past couple of years. You know, we're very cognizant to continue to support the appropriate maintenance capital inside the business, which we will not thrift because that's critical to our ongoing operational success.

David Lim: Now, 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, in 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-gap financial measures. Information regarding these non-gap measures, as well as reconciliation of these non-gap measures to cap financial information, is available on our website.

Speaker Change: and then it will ebb and flow with the new programs that we launch. From a working capital perspective, you know, we're pretty tight on receivables and payables.

Chris May: I think we've been one of the best benchmarks from an inventory perspective, though I do think there's continued cash flow opportunity there, which we'll, you know, squeeze out of the business over the next year or two. But that continues to fund a good, solid delivery of cash flow for the next couple of years.

Christopher May: I think we've been one of the best benchmarks from our inventory perspective. So I do think there's continued cash flow opportunities there, which will, you know, squeeze out of the business over the next year or two. But that continues to fund a good solid delivery of cash flow in the next couple of years.

Speaker Change: We've been one of the best benchmarks from an inventory perspective, though I do think there's continued cash flow opportunity there, which we'll, you know, squeeze out of the business over the next year or two, but that continues to fund a good, solid delivery of cash flow over the next couple of years.

Dan Levy: Great. Thank you.

Dan Levy: Great, thank you. And then maybe a follow-up, David, more of a strategic question. You know, understandably, you know, there was a large bidding pipeline, and you were trying to expand your portfolio of opportunities. And, you know, obviously that's changed, as you noted in your remarks, and the bidding pipeline has certainly shifted. A question is, what is the forward opportunity on bidding? And what are the aspirations for actual to diversified beyond the core North America truck exposure, which has consistently been your core exposure?

David Duck: Now, with that said, let me turn things over to EAM's Chairman and CEO David Duck. Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the second 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 second quarter financial performance. Next, I'll touch on some business development news and commentary about the industry. After Chris covers the details of our financial results, we'll open up the call for any questions that you all may have.

Speaker Change: Great, thank you. And then maybe a follow-up.

Dan Levy: And then maybe a follow-up, David, more of a strategic question. You know, understandably, you were – there was a large bidding pipeline, and you were trying to expand your portfolio of opportunities. And, you know, obviously, that's changed, as you noted in your remarks, and the bidding pipeline has certainly shifted. The question is, what is the forward opportunity for bidding, and what are the aspirations for Axle to diversify beyond the core North America truck exposure, which has consistently been your core exposure?

Speaker Change: David, more of a strategic question. Understandably, there was a large bidding pipeline and you were trying to expand your portfolio.

Speaker Change: And, you know, obviously that's changed, as you noted in your remarks, and the bidding pipeline has certainly shifted.

Dan Levy: Or is the strategy shifting a bit to say, okay, like, you know, given where we are right now, this is an exposure we're very happy with, and we're happy to flex down some of the spend and stay where we are?

Speaker Change: The question is, what is the forward opportunity on bidding and what are the aspirations for Axle to diversify beyond the core North America truck exposure, which has consistently been your core exposure, or is the strategy shifting a bit to say, okay, like, you know, given where we are right now,

David Duck: So let's begin with our financial highlights. AM's second quarter of 2024 sales were $1.63 billion. Adjusted earnings for share was $0.19 for share. Adjusted EBITDA in the second quarter was $208 million, or 12.8% of sales. And our adjusted free cash flow was approximately $98 million. These solid results reflect positive contributions from buy and mix and continued operational performance. Let me provide you some perspectives about our performance. Overall, volumes for the industry and for our number of RT platforms were highly sequenced, and year-over-year according to third-party forecasters.

David Dauch: Or is the strategy shifting a bit to say, okay, like, you know, given where we are right now, this is an exposure we're very happy with and we're happy to flex down from the spend and stay where we are right now. Yes, I mean clear; our responsibility is to protect the overall health of the company. We're going to continue to focus on driving operational performance and strengthen the balance sheet. But to your point, I mean, we don't control the market and the consumers that readily accept an electrification, which was the path that the whole industry was going.

Speaker Change: This is an exposure we're very happy with, and we're happy to flex down some of the spend and stay where we are right now.

David Dauch: So Dan, clearly our responsibility is to protect the overall health of the company. We're going to continue to focus on driving operational performance and strengthening the balance sheet. But to your point, we don't control the market, and the consumer is not readily accepting electrification, which was the path that the whole industry was going down. And everyone's had to throttle back.

Speaker Change: Our responsibility is to protect the overall health of the company. We're going to continue to focus on driving operational performance.

Speaker Change: and strengthen the balance sheet. But to your point, I mean, we don't we don't control the market and the consumer is not readily accepting electrification, which was the path that the whole industry was going.

David Dauch: And everyone's had to throttle back. And, as I commented, all the OEMs are evaluating their long-range product plans right now. And we're hopeful to get some more clarity on that as we go forward here. But meanwhile, there's kind of like an air pocket going through the industry. It's impacting us and other suppliers in regards to quoting opportunities, both on the ice side and especially on the EV side. And what we're doing is, as I said, we're substantially completing and securing our next generation ice and hybrid business. We're in discussions with a number of customers in regards to looking at contract extensions to some of that business as well.

David Dauch: And as I commented, all the OEMs are evaluating their long-range product plans right now, and we're hopeful to get some more clarity on that as we go forward here. But meanwhile, there's kind of like an air pocket going through the industry.

Speaker Change: And everyone's had to throttle back, and as I commented, all the OEMs are evaluating their long-range product plans right now.

David Duck: As you all know, production consistency is very important for EBITDA flow through. Productions and Stability that we experienced in the first quarter continued into the beginning of the second quarter. That stated we did experience periods of higher than anticipated down time near the second quarter end. We did overall progress as seen by our results. The team continues to work diligently on driving positive operation performance and delivering AM's high standards of operational excellence.

Speaker Change: And we're hopeful to get some more clarity on that as we go forward here.

David Dauch: It's impacting us and other suppliers in regards to quoting opportunities, both on the ICE side and especially on the EV side. And what we're doing is, as I said, substantially completing and securing our next generation ICE and hybrid business. We're in discussions with a number of customers in regards to looking at contract extensions to some of that business as well, you know, beyond the years that we were originally being contemplated.

Speaker Change: But meanwhile, there's kind of like an air pocket going through the industry that's impacting us and other suppliers in regards to quoting opportunities, both on the ICE side and especially on the EV side.

Speaker Change: And what we're doing is, as I said, we're substantially completing and securing our next generation ICE and hybrid business.

Speaker Change: We're in discussions with a number of customers in regards to looking at contract extensions to some of that business as well, you know, beyond the years that we were originally being contemplated.

David Dauch: Beyond the years that we're originally being contemplated. A lot of the EV business, as we said, has been retimed, delayed, or even canceled. So that's impacting not OEM but the industry and our peers. And we're just trying to understand where it is, but meanwhile we're being selective in regards to where we're placing those investments. Between the different power chain propulsion systems, now truck has been a strong point for us. It's going to continue to be a strong point for us. We think for decades we're in a solid position with respect to that. So we'll have strong cash generation there.

David Dauch: A lot of the EV business, as we said, has been re-scoped, re-timed, delayed, or even canceled. So that's impacting not only AM but the industry and our peers. And we're just trying to understand where it is, but meanwhile, we're being selective in regards to where we're placing those investments between the different power chain propulsion systems. Now, TRUCK has been a strong point for us and is going to continue to be a strong point for us, we think, for decades.

Speaker Change: A lot of the EV business, as we've said, has been re-scoped, re-timed, delayed, or even cancelled, so that's impacting not only AM, but the industry and our peers.

Speaker Change: And we're just trying to understand where it is, but meanwhile we're being selective in regards to where we're placing those investments between the different power chain propulsion systems

David Duck: I'm also happy to share that we have concluded most of our commercial discussions related to inflation for the year. We do have some minor open discussion remaining, but generally this is in the rearview mirror press here in 2024. To overall, a good solid and positive quarter for team AM.

Speaker Change: Now, TRUCK has been a strong point for us, is going to continue to be a strong point for us, we think, for decades. We're in a solid position with respect to that, so we'll have strong cash generation there. But we also recognize that we need to get more diversification.

David Dauch: We're in a solid position with respect to that, so we'll have strong cash generation there. But we also recognize that we need to get more diversification, with customers as well as geographically in our business. It's part of why we're doing tactical acquisitions like Tech4 that allow us to grow with other customers. So that's why I also indicated that the electrification strategies are gonna vary by region. Obviously, in Asia, especially in China, they're going all in on hybrid and full battery electric vehicles.

David Dauch: But we also recognize that we need to get more diversification with customers, as well as geographically, in our business. It's part why we're doing tactical acquisitions like Tech Four that allows us to grow with other customers. So that's why I also indicated that the electrification strategies are going to vary by region. Obviously, in Asia, especially in China, they're going all in on hybrid and full battery electric vehicles. Europe feels strongly about it as well, but maybe lags a little bit behind China. North America, I think everyone's going to be in a holding pattern until we see where the election comes out in the November period of time and consumer acceptance.

David Duck: Let me talk about some business updates, which you can see on slide four of our presentation deck. We are very pleased to announce that AM has been awarded business to supply components for a global European OEM, OEM's module vehicle platform that will support a multitude of propulsion systems including internal combustion, hybrid and electric vehicle derivatives. Highlighting certain of our products that are agnostic to powertrain applications. Furthermore, AM will supply a luxury European OEM with helical drive gears for electric drives for a future EV program.

Speaker Change: with customers as well as, you know, geographically in our business.

Speaker Change: It's part why we're doing tactical acquisitions like Tech4 that allows us to grow with other customers.

Speaker Change: So, you know, that's why I also indicated that the electrification strategies are going to vary by region. You know, obviously in Asia, especially in China, they're going all in on hybrid and full battery electric vehicles.

David Dauch: Europe feels strongly about it as well, but maybe lagging a little bit behind China. And North America, I think everyone's gonna be in a holding pattern until we see where the election comes out in the November period of time and consumer acceptance. And you know what the consumer issues are, and it's all about affordability right now. It's about range anxiety, and it's about charging infrastructure. And until those issues get fixed, I think the US is gonna lag behind for a period of time, which is gonna impact all of us, which just means we're gonna be making more ICE and EV for a longer period of time, or ICE and hybrid, excuse me, for longer periods of time.

Speaker Change: Europe feels strongly about it as well, but maybe lagging a little bit behind China, and North America, I think everyone's going to be in a holding pattern until we see where the election comes out.

David Duck: This is a nice incremental win for our components business and played to our strategy of providing comprehensive approach in both components and full systems and providing OEMs with strong optionality for their respective EV powertrain needs. We believe our strategy will positions AM to be the supplier of choice. In addition, AM was recently awarded business to provide traditional axles for a next generation full size VAN program. This is a great example illustrating an ice for longer thesis.

David Dauch: And you know what the consumer issues are, and it's all about affordability right now. It's about range anxiety and it's about charging infrastructure. And until those issues get fixed, I think it's going to lag in the US for a period of time. Which is going to impact all of us. Which just means we're going to be making more ice and EV for a longer period of time. Or ice and hybrid, excuse me for a longer period of time. So, as I said, let me either grow organically or you grow interactively, right? And so we're trying to manage both, but the organic growth side of things is slowing down, not just for AM, but just for the industry in general.

Speaker Change: in the November period of time and consumer acceptance.

Speaker Change: You know what the consumer issues are and it's all about affordability right now. It's about range anxiety and it's about charging infrastructure.

Speaker Change: And until those issues get fixed, I think it's going to lag in the U.S. for a period of time, which is going to impact all of us, which just means we're going to be making more ICE and EV for a longer period of time, or ICE and hybrid, excuse me, for longer periods of time.

David Dauch: So, as I said, you either grow organically or you grow inorganically, right? And so we're trying to manage both. But the organic growth side of things is slowing down, not just for AM but just for the industry in general. And so that's why we're also trying to figure out other means for us to grow, both within our current space, meaning auto, or there are adjacent markets that we need to leverage our competencies to actually... Hopefully, that addresses your question. That's very helpful.

Speaker Change: So, as I said, you either grow organically or you grow inorganically, right? And so we're trying to manage both. But the organic growth side of things is slowing down, not just for AM, but just for the industry in general.

David Duck: This program is scheduled to launch later in the decade.

David Duck: Finally, AM was named one of Newsweek's greatest workplaces for women into 2024. We are very pleased with this award as it is AM's goal to support and promote a diverse, inclusive and safe work environment.

David Dauch: And so that's why we're also trying to figure out if there are other means for us to grow both within our current space, meaning auto, or there adjacent markets that we need to leverage our competencies to exercise. Hopefully, that's a very helpful question. That's very helpful.

Speaker Change: And so that's why we're also trying to figure out other means for us to grow, both within our current space, meaning auto, or there are adjacent markets that we need to leverage our competencies to exercise.

David Duck: Now let's talk about the industry. The wins that I just mentioned reinforces AM view that ice, hybrid, and EV powertrains will coexist for a long time. Although we believe electrification technology is compelling, the adoption and consumer acceptance will take time driven by affordability, range performance, and charging infrastructure.

David Dauch: Thank you. Yep.

Speaker Change: Hopefully that addresses your question.

Atai McKelley: The next question is from Atai McKelley with City. Please go ahead. Great things. Good morning everyone. Just a couple of follow-ups. Could you maybe just quantify the top-line impact from the second half of launches you talked about? Yeah, we haven't quantified those specifically, Atai, but you can clearly see that embedded inside of, you know, to follow, for example, the midpoint of our guidance. If you have a reasonable conversion rate on our sales, if you're comparing first rate or first run rate, half run rate compared to second half, obviously we'll probably click, click the step down a little bit to higher contribution margin due to the products that in terms of weighted from trucks for a staff versus second half.

Operator: The next question is from Itay Micheli with Citi. Please go ahead.

Speaker Change: Thank you. That's very helpful. Thank you.

Itay Michaeli: Great, thanks. Good morning, everyone.

Speaker Change: The next question is from Atai McKellie with Citi. Please go ahead. Great. Thanks. Good morning, everyone. Just a couple follow-ups. Could you maybe just quantify the

Itay Michaeli: Just a couple follow-ups. Could you maybe just quantify the... The top line impact from the second half launches you talked about? Yeah, we haven't quantified those.

David Duck: Meanwhile, AM will continue to manage factors under our control to facilitate this transition and drive profitable growth. This includes making selective investments in closely monitoring technology and policy shifts. In the near term, it appears to us that OEMs are still evaluating future product planning strategies, especially within the propulsion systems which more clarity is likely to come. As such, the bidding pipeline reflects this current environment.

Atai McKellie: The top line impact from the second half launches you talked about.

Chris May: Yeah, we haven't quantified those specifically, Itay, but you can clearly see that embedded inside of, you know, if you follow, for example, the midpoint of our guidance. If you have a reasonable conversion rate on our sales, if you're comparing first rate or first run rate, half run rate compared to second half, obviously, we'll probably click the step down a little bit to higher contribution margin due to the products in terms of weighted from trucks, first half versus second half. The balance of that...

Atai McKellie: Yeah, we haven't quantified those specifically, Itai, but you can clearly see that embedded inside of, you know, if you follow, for example, the midpoint of our guidance.

Speaker Change: If you have a reasonable conversion rate on our sales, if you're comparing first run rate, half run rate compared to second half, obviously we'll probably click the step down a little bit to higher contribution margin due to the products in terms of weighted from trucks, first half versus second half.

Atai McKelley: The balance of that will squeeze out as sort of some of a launch impact that you will feel in both the third and fourth quarters. The top one, thank you.

David Duck: What is clear is that the capacity being put in a place for EVs has been re-scoped, delayed, or in some cases canceled. AIM's view is to maintain and develop a deep and diverse product portfolio to support current and emerging powertrain trends and be agnostic to the market.

Speaker Change: The balance of that we'll squeeze out is sort of some of the launch impact that you'll feel in both the third and fourth quarters.

Itay Michaeli: That's helpful. Thank you.

Atai McKelley: And then just maybe thinking beyond 2024, how should we think about the ascending cash tax rate for the company? And also if you just need to give us a bit of a help on the second half kind of outlook for SDNA. Yeah, SDNA will reverse SDNA. We're sort of targeting that 6 to 6.5 percent range. I would expect that to continue in the back half. You know, I would expect R&D to be relatively flatish near that 40 million accord, which is a key piece of that SGNA as well that doesn't necessarily flex with sales, so you got to contemplate that.

Speaker Change: That's helpful, thank you. And then just maybe thinking beyond 2024, how should we think about the effective cash tax rate for the company? And also if you just maybe give us a bit of a help on the second half kind of outlook for SG&A.

Itay Michaeli: And then maybe thinking beyond 2024, how should we think about the effective cash tax rate for the company? And also, if you could just maybe give us a bit of help on the second half, kind of an outlook for SG&A. Yeah, SG&A, we won't reverse SG&A. We're sort of targeting that six to six and a half percent range. I would expect that to continue in the back half. You know, I would expect R&D to be relatively flattish near that 40 million a quarter, which is a key piece of that SG&A as well.

Speaker Change: Yeah, SG&A, we won't reverse SG&A. We're sort of targeting that six to six and a half percent range. I would expect that to continue in the back half. You know, I would expect R&D to be, you know, relatively flattish near that 40 million a quarter, which is a key piece of that SG&A as well that doesn't necessarily flex with sales. So you got to contemplate that.

Chris May: We've not given tax-specific guidance for forward-looking years, but you can see our recent cash tax rates would probably be very similar going forward. Of course, as you become more profitable, you will pay more cash tax.

David Duck: Versus our previously guided sales direction of 6.05 to 6.35 billion. Our adjusted EBA will be approximately 705 to 755 million, which is higher than the previously communicated 685 to 750 million. And our adjusted pre-cashful will remain unchanged at approximately 200 to 240 million.

Atai McKelley: We've not given tax specific guidance for forward looking years, but you can see our recent cash tax rates would probably be very similar going forward. Of course, as you become more profitable, you will pay more cash tax. Effective rates in the US are 21 percent. We've been higher than that, closer to that 45 to 50, due to some of our interest deduction limitations. So it's going to be probably somewhere between the US effective tax rate and sort of the higher rate we're experiencing currently right now, meaning as you get more profitable, those limitations start to roll off.

Speaker Change: We've not given tax-specific guidance for forward-looking years, but you can see our recent cash tax rates would probably be very similar going forward.

Chris May: The effective tax rate in the U.S. is 21 percent. We've been higher than that, closer to that 45 to 50 due to some of our interest deduction limitations. So it's probably going to be somewhere between that U.S. effective tax rate and sort of the higher rate we're experiencing currently right now, meaning as you get more profitable, those limitations start to roll off. So it's going to be somewhere between the two.

Speaker Change: Of course, as you become more profitable, you will pay more cash tax.

Speaker Change: Effective rate in the U.S. is 21 percent. We've been higher than that, closer to that 45 to 50 due to some of our interest deduction limitations.

David Duck: Our second half of the year includes multiple significant launches, including the next generation RAM Heavy Duty program. In addition, we continue to monitor industry inventories, transaction prices, incentive spending, and overall interest rates.

Speaker Change: So it's going to be probably somewhere between that U.S. effective tax rate and sort of the higher rate we're experiencing currently right now, meaning as you get more profitable, those limitations start to roll off. So it's going to be somewhere between the two.

Atai McKelley: So it's going to be somewhere between the two. That's all very helpful. Thank you.

Itay Michaeli: Perfect, that's all very helpful. Thank you.

Jake Shaw: The next question is from Jake Shaw with BMP. Please go ahead. Hey, guys. I just wanted to dig in a little bit on profitability. So obviously the first half has performed pretty well at that 12.8 level, and there's pretty big fall off in the second half. And I know the second half, you know, you're dealing with a combination of lower industry volumes and RAM and Delta changeovers. So, as we look beyond this year, is there other structural reasons why the business can operate in that 12 and a half to 13 percent range?

Speaker Change: Perfect. That's all very helpful. Thank you.

Operator: The next question is from Jake Shaw with BNP. Please go ahead.

Speaker Change: Thank you very much.

Speaker Change: The next question is from Jake Shaw with BNP. Please go ahead.

David Duck: To conclude by remarks, and as I have communicated previously, RAM is on the future, and we will continue to drive our efforts towards securing our primary legacy business, which in all honesty is substantially complete, generating strong free cash flow, strengthening our balance sheet, and we continue to pay down debt every quarter, and advancing our electrification portfolio, and positioning AIM for profitable growth.

Jake Shaw: Hey guys, I just wanted to dig in a little bit on profitability. So obviously, the first half performed pretty well at that 12.8% level, and there's a pretty big fall off in the second half. And I know in the second half, you know, you're dealing with a combination of lower and...

Jake Shaw: Hey guys, I just wanted to dig in a little bit on profitability. So, obviously the first half has performed pretty well at that 12.8% level and there's a pretty big fall off in the second half.

Speaker Change: And I know in the second half, you're dealing with a combination of lower industry volumes and RAM and Delta changeovers. So as we look beyond this year, are there any structural reasons why the business can't operate in that 12.5% to 13% range? Thank you.

Chris May: So let me now turn the call over to our Executive Vice President, Chief Financial Officer, Chris May. Chris? Thank you, David, and good morning, everyone.

Jake Shaw: Thank you. Yeah, no, it's a great question. And you know, it's always difficult to extrapolate a forward-looking failure based on a single quarter, right? Because there's a lot of different dynamics that go inside the quarter, inside our business, whether it's launches or normal seasonality. But I guess what I would encourage is take a look at our full year guidance that we provide today holistically over 12 months. Obviously, our performance trend continues to be positive. That's with a decent also volume macro backdrop. And then I would expect performance to continue to drive forward into our years past 2024.

Chris May: Yeah, no, it's a great question and, you know, it's always difficult to extrapolate a forward-looking full year based on a single quarter, right, because there are a lot of different dynamics that go into the quarter inside our business, whether it's launches or normal seasonality. But I guess what I would encourage you to do is take a look at our full year guidance that we provide today, holistically over 12 months Obviously, our performance trend continues to be positive, and that's with a decent volume macro backdrop.

Speaker Change: Yeah, no, it's a great question and, you know, it's always difficult to extrapolate a forward-looking full year based on a single quarter, right, because there's a lot of different dynamics that go inside the quarter inside our business, whether it's launches or normal seasonality.

Chris May: I will cover the financial details of our second quarter of 2024 with you today. I will also refer to the earnings slide deck as part of my prepared comments.

Chris May: So let's go ahead and begin with sales. In the second quarter of 2024, AIM sales were 1.63 billion compared to 1.57 billion in the second quarter of 2023. Slide 7 shows a walk of second quarter of 2023 sales to second quarter of 2024 sales. Positive fine, mix, and other was $94 million, driven by a number of our key programs and backlog in the quarter, including the GM Midsize Truck Platform in North America, and a Cherry SUV platform in China. Metal market pass-throughs and FX decreased sales by approximately $20 million and both were lower in the quarter.

Speaker Change: But I guess what I would encourage you is to take a look at our full year guidance that we provide today, holistically over 12 months. Obviously, our performance trend continues to be positive. That's with a decent, also, volume macro backdrop.

Chris May: And then I would expect performance to continue to drive forward into the years past 2024. And some of these, I'll call them, premium costs associated with launches in the back half start to subside. So I think full year, stepping into next year, is a good way to think about it, making a couple of those adjustments for what I just described.

Speaker Change: And then I would expect performance to continue to drive forward into the years past 2024 and some of these, I'll call it premium costs associated with launches in the back half start to subside.

Jake Shaw: And some of these I'll call it premium process associated with launches in the back has started to subside.

Jake Shaw: So I think full year stepping in the next year is a good way to think about making a couple of adjustments for what I just described.

Speaker Change: So I think full year, stepping into next year is a good way to think about it, making a couple of those adjustments for what I just described.

Jake Shaw: Thank you, and then, as the overall EV market flows down a little bit, how should we think about the profitability of your EV business? I know you have also the Mercedes-AMG and the efficiency of the EV programs, but how should we think about that? Our current EV business is only a couple percent of our current revenues today, but as we go and source and secure new business, especially the release of electrification, we have certain financial hurdles that we have instituted and are very focused on as we're looking to win that business and secure that for the future. So, our goal and our objective is to continue to strive to have a top performing profile business with our ICE, with our hybrid, and with our EV business.

Jake Shaw: And then, as the overall EV market slows down a little bit, how should we think about the profitability of your EV business? I know you have Mercedes-AMG in addition to the EV programs, but how should we think about that? Yeah, our current EV business is only a couple percent of our current revenues today.

Speaker Change: Thank you. Thank you.

Speaker Change: As the overall EV market slows down a little bit, how should we think about the profitability of your EV business? I know you have also the Mercedes AMG in addition to the EV programs, but how should we think about that?

Chris May: Now let's move on to profitability. Growth profit was $217.3 million in the second quarter of 2024 as compared to $178.2 million in the second quarter of 2023. Adjusted EBITDA was $208.4 million in the second quarter of 2024 versus $191.6 million in the second quarter of last year. You can see a year-over-year walk-down of adjusted EBITDA on slide 8. In the quarter, BIM, mix, and other added a net $22 million of adjusted EBITDA versus the prior year, resulting in a conversion rate of approximately 23%.

Chris May: Our current EV business is only a couple percent of our current revenues today, but as we go and source and secure new business, especially as it relates to electrification, we have certain financial hurdles that we have instituted and are very focused on as we're looking to win that business and secure that for the future. So our goal and our objective is to continue to strive to have a top performing profile business with our ICE, with our hybrid, and with our EV.

Speaker Change: Our current EV business is only a couple percent of our current revenues today.

Speaker Change: But as we go and source and secure new business, especially as it relates to electrification, we have certain financial hurdles that we have instituted and are very focused on as we're looking to win that business.

Speaker Change: and secure that for the future. So our goal and our objective is to continue to strive to have a top performing profile business with our ICE, with our hybrid, and with our EV business.

Chris May: R&D was higher a year-over-year as timing of R&D spend can be lumpy from quarter to quarter. And net inflation, performance, and other was favorable by $16 million, driven by a combination of operational improvement, benefits of less production volatility and inflation offsets.

Speaker Change: [inaudible]

Speaker Change: [inaudible]

John Murphy: Thank you, gentlemen. Your last question comes from John Murphy with Bank of America. Please go ahead. Good morning, guys. Good morning. Through your commentary, you have the GMCV program; you mentioned the VAND program later in the decade, and there are some other comments. It's kind of an indication that the bidding is going fairly well to grow the backlog over time, but we're also seeing this extension of ICE programs. When I think, when you look at your backlog, you'll net out or roll off programs that you're exiting or being wound down over time, but some of those may be actually extended.

Operator: Thank you, gentlemen. Your last question comes from John Murphy with Bank of America. Please go ahead.

Chris May: Let me now cover SGNA. SGNA expense including R&D in the second quarter of 2024 was 105.2 million or 6.4% of sales. This compares to 91.1 million or 5.8% of sales in the second quarter of 2023. AAM's R&D spending in the second quarter of 2024 was approximately 44.5 million. The year-over-year R&D expense increase of 7 million was driven by timing of our engineering spend and programs that we are currently supporting. We expect our R&D spend to be in line with our initial estimates for the year, but it can vary from quarter to quarter.

Speaker Change: Thank you, gentlemen. Your last question comes from John Murphy with Bank of America. Please go ahead.

John Murphy: Good morning, guys. In your commentary, you have the GMC-EUV program you mentioned, the Venn program later in the decade, and there are some other comments. It's kind of an indication that the bidding is going fairly well to grow the backlog over time. But we're also seeing this extension of ICE programs. When you look at your backlog, you'll net out or roll off programs that are exiting or being wound down over time, but some of those may actually be extended.

John Murphy: Good morning, guys. Through your commentary, you have the GMC-EUV program you mentioned, the ZEVAN program later in the decade, and there were some other comments. It's kind of an indication that the bidding is going fairly well to grow the backlog over time. But we're also seeing this extension of ICE programs.

Speaker Change: I think when you look at your backlog, you'll net out or roll off programs that you're exiting or being wound down over time, but some of those may be actually extended. So it just seems like the backlog from a...

John Murphy: It just seems like the backlog from a growth basis is getting better and, potentially, from a net roll-off, will get better as some of these ICE programs get extended. How do you think about the backlog potential as we grind into the end of the year and into next year, that it could potentially be significantly higher than it was at the start of the year?

John Murphy: It just seems like the backlog from a gross basis is getting better and potentially from a net, roll off will get better as some of these ICE programs get extended. How do you think about the backlog potential as we grind into the end year and into next year? They could potentially be significantly higher than it was. You know, it started the year. John, I mean, you know our normal nutrition rates are about 100 million to 200 million on a given year. This year, it's a little bit higher. You know, going forward, I mean, what you're going to see is our core ICE and hybrid programs are going to extend further.

Chris May: We will continue to support the needs of our business with the appropriate R&D spending levels. That said, we anticipate R&D spend should moderate in the coming years as we finish developing our electric platform technologies and mitigate spending in this area to match current industry powertrain trends.

Speaker Change: Grow Spaces is getting better and potentially from a net, roll-off will get better as some of these ice programs get extended. How do you think about the the backlog potential as we grind into the end of the year and into next year? That it could potentially be significantly higher than it was you know at the start of the year?

Chris May: So let's move on to interest in taxes. That interest expense was 41.8 million in the second quarter of 2024 compared to 44.3 million in the second quarter of 2023 due in part to lower balances, debt balances. In addition, we paid down over $30 million of senior notes in the second quarter, and we continued to lower our debt balances with yet another $50 million paid down of senior notes here in August. In the second quarter of 2024, we recorded income tax expense of 17.2 million compared to 5.3 million of income tax expense in the second quarter of 2023.

David Dauch: You know, John. I mean, our normal attrition rate's about 100 million to 200 million on a given year. This year it's a little bit higher.

Speaker Change: You know, John , I mean, you know our normal attrition rate is about 100 million to 200 million on a given year. This year it's a little bit higher.

David Dauch: You know, going forward, I mean, what you're going to see is our core ICE and hybrid programs are going to extend further. We don't include that in our backlog. That's part of our base business. So we only in our backlog show new and incremental business to the base business that we have. Because of this air pocket going through the industry, I think it's going to challenge not only us but other suppliers going forward in regards to that backlog.

Speaker Change: You know, going forward, I mean, what you're going to see is our core ICE and hybrid programs are going to extend further. We don't include that in our backlog. That's part of our base business.

John Murphy: We don't include that in our backlog. That's part of our base business. So we only, in our backlog, show new and incremental business to the base business that we have. Because of this air pocket going through the industry, I think it's going to challenge not only us but other suppliers going forward in regards to that backlog. But we still have a healthy backlog at 600 million today, and obviously we'll update that appropriately at the right time next year. But we're just trying to manage our way through those issues right now. But if you want to factor in extensions on core business today, then certainly our backlog would be going up.

Speaker Change: So we only in our backlog show new and incremental business to the base business that we have.

Speaker Change: Because of this air pocket going through the industry, I think it's going to challenge not only us, but other suppliers going forward in regards to that backlog. But we still have a healthy backlog at $600 million today, and obviously we'll update that appropriately at the right time next year.

David Dauch: But we still have a healthy backlog of 600 million today, and obviously, we'll update that appropriately at the right time next year. But we're just trying to manage our way through, you know, those issues right now. But if you want to factor in, you know, extensions on core business today, then certainly, our backlog would be going up. But that's not how we have historically done it. You know, as I said, we only include new and incremental business to our backlog.

Chris May: 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. We expect our adjusted effective tax rate to be approximately 45 to 50 percent. This elevated book tax rate is a function of evaluation allowance I just described. We also expect cash taxes of approximately $60 million this year.

Speaker Change: We're just trying to manage our way through those issues right now, but if you want to factor in extensions on core business today, then certainly our backlog would be going up, but that's not how we have historically done it.

John Murphy: But if that's not how we have historically done it, you know, as I said, we only include new and incremental business, you know, to our backlog. I don't know Chris. No, John, you wouldn't see our, you know, nutrition as we thought about it before. Obviously, would quote unquote slow down, right? Because our programs, as David indicated, will be extended or also being replaced with additional equivalents going into their next generation of products as well. So that's a critical factor to keep in mind. Are you getting actual clarity on that at this point? Or is that kind of a little bit of a guessing game in conjunction with your partners?

Chris May: Taking all these sales and cost drivers into account, our gap net income was 18.2 million or 15 cents per share in the second quarter of 2024 compared to 8 million or 7 cents per share in the second quarter of 2023. Adjusted earnings for share, which excludes the impact of items noted in our earnings press release, was 19 cents per share in the second quarter of 2024 compared to 12 cents per share for the second quarter of 2023.

Speaker Change: said we only include new and incremental business, you know, to our backlog.

Chris May: I don't know what Chris is going to say.

Chris May: Yes, no, John, you wouldn't see our attrition, as we thought about it before, obviously would quote-unquote slow down, right, because our programs, as David indicated, will be extended or also replaced with additional equivalents going into their next generation of products as well. So that's a critical factor to keep in mind.

Speaker Change: Donald Cressier, I'd like to introduce you all to the show.

Chris May: Yes, no, John , you wouldn't see our attrition as we thought about it before obviously would quote-unquote slow down, right, because our programs, as David indicated, will be extended or also being replaced with additional equivalents going into their next generation of products as well. So that's a critical factor to keep in mind.

John Murphy: But are you getting actual clarity on that at this point, or is that kind of a little bit of a guessing game, you know, in conjunction with your partners? Are you actually seeing that directly, you know, in the next, you know, in current schedules and program changeovers? So, our schedule's out.

Chris May: Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the second quarter of 2024 was $142.8 million. Capital expenditures net proceeds from the sale of property, plant, and equipment and government grants for the second quarter of 2024 were $46.6 million. Cash payments for restructuring and acquisition related activity for the second quarter of 2024 were $1.7 million. Reflecting the impacts of these activities, AM's adjusted free cash flow was $97.9 million in the second quarter of 2024.

Speaker Change: Are you getting actual clarity on that at this point or is that kind of a little bit of a guessing game, you know, in conjunction with your partners? Are you actually seeing that directly, you know, in the next, you know, in current schedules and program changeovers?

David Dauch: Are you actually seeing that directly in current schedules and program changes? This is still very strong. It's just a matter of how long ICE and hybrid are going to continue to run, which we think will be for a long period of time. The OEMs are essentially adopting and protecting their ICE business while at the same time making the necessary investments in EV and hedging their VETs. We've said that we don't have the deep pocketbook that an OEM has, but we need to be more selective on where we're placing our investments in EV, and that's exactly what we're doing on certain customers and certain programs, and investing in certain technology development.

David Dauch: Our schedules on our core business today, John, are very strong and holding there. I mean, obviously, we're going through some launches, so it's impacting a little bit of the volume, especially on the RAM and on the D22, as we highlighted earlier.

Speaker Change: Our schedules on our core business today, John , are very strong and holding there. I mean, obviously, we're going through some launches, so it's impacting a little bit of the volume, especially on the RAM and on the D22, as we highlighted earlier. But the balance of our core business is still very strong.

David Dauch: But the balance of our core business is still very strong. It's just a matter of how long ICE and hybrid are going to continue to run, which we think will be for long periods of time. So listen, the OEMs are essentially adopting and protecting their ICE business while at the same time making the necessary investments in EV and hedging their bets. And we've said, listen, we don't have the deep pocketbook that an OEM has, but we need to be more selective on where we're placing our investments in EV, and that's exactly what we're doing with certain customers, on certain programs, and investing in And again, we want to be agnostic to the market. We want to be relevant to the market.

Speaker Change: It's just a matter of how long ICE and hybrid are going to continue to run, which we think will be for a long period of time. And listen, the OEMs are essentially adopting and protecting their ICE business.

Chris May: From a debt leverage perspective, we ended the quarter with net debt of $2.2 billion and LTM adjusted EBITDA of $740 million, calculating a net leverage ratio of 3.0 times at June 30. Our focus is to continue to strengthen the balance sheet by reducing debt. AAM ended the quarter with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities.

Speaker Change: while at the same time making the necessary investments in EV and hedging their bets.

Speaker Change: And we've said, listen, we don't have the deep pocket book that an OEM has, but, you know, we need to be more selective on where we're placing our investments in the EV, and that's exactly what we're doing on certain customers, on certain programs, and investing in certain technology development.

David Dauch: Again, we want to be agnostic to the market. We want to be relevant to the market, and we want to give the OEMs a choice of the propulsion systems that whatever they need, we want to have something on the shelf to support them. John, if you look at some of the recent announcements from some of the OEMs, they were not EV related, which of course certainly supports and grows some of our base internal combustion engine and hybrid business. Okay, great.

Speaker Change: Again, we want to be agnostic to the market, we want to be relevant to the market, and we want to give the OEMs a choice of the propulsion systems. Whatever they need, we want to have something on the shelf to support them.

Chris May: And for the full year outlook on slide 5, we are adjusting our revenue and EBITF outlook. For sales, our target range is at the 6.1 to 6.3 billion for 2024. This sales target is based upon a North American production of approximately 15.8 million units. As you all know, our sales results are more sensitive to the performance of certain key programs versus just macro changes to the overall industry production. From an EBITF perspective, our new range is $705 to $755 million.

John Murphy: John, if you look at some of the recent...

Speaker Change: And John , if you look at some of the recent announcements from some of the OEMs, they were not EV related, which of course certainly supports and grows some of our base internal combustion engine and hybrid business.

John Murphy: Okay, great. Yeah, just one comment on the cap allocation stuff. I think paying down debt can be very creative for equity over time. So, you know, keep that up. Thanks, guys.

John Murphy: Yeah, just one comment on the cap allocation stuff. I think paying down debt can be very creative to the equity over time, so you'll keep that up. Thanks, guys. I appreciate it.

Speaker Change: Okay, great. Yeah, just one comment on the cap allocation stuff. I think paying down debt can be very creative to the equity over time. So, you know, keep that up. Thanks, guys. Thanks, Tom. Appreciate it.

David Dauch: Thanks, Tom; I appreciate it.

David Lim: That was our final question. This concludes our question and answer session. I would like to turn the conference back over to David Lim for any closing remarks.

Operator: That was our final question. This concludes our question and answer session.

David Lim: I would like to turn the conference back over to David Lim for any closing remarks. Thank you, and we thank all of you who participated on this call and appreciate your interest in AEM. We certainly look forward to talking with you in the future. Thanks.

Speaker Change: That was our final question. This concludes our question and answer session. I would like to turn the conference back over to David Lim for any closing remarks.

Chris May: Our adjusted free cash flow target remains $200 to $240 million, and we anticipate cat-backs at approximately 4% of sales. Our adjustments to our guidance are based on what we currently see in future production builds. According to their party estimates, the GMT1 XX platform is forecasted approximately 1.4 million units for the full year, with production weighted towards the first half of the year. The 1.4 million units continues to represent the midpoint of our guidance range.

David Lim: Thank you, 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.

David Lim: Thank you 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. Thanks.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you. .

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Chris May: Equally important, in addition to normal seasonality, we are in the process of launching some of AAM's largest next-generation programs in the second half of this year. These launches include drive-line systems for the next-generation GM Delta crossover vehicle program and the next-generation RAM medium and heavy-duty trucks. As you know, with any launch, there are ramp-up costs and volume volatility, some of which can be unpredictable. Of course, these important launches will serve as part of the key foundational sales pillars for many, many years to come, and this is a very good position to be in.

Chris May: First or more, we are making good progress with our performance initiatives that we have shared with you and have closed most of our commercial discussions for the year. Putting all this together, from a full backing to deliver year-over-year margin improvement, have reduced our outstanding debt, continue to win new business, and by the end of the year, we will have completed significant next-generation product launches, and this is all really good stuff.

Operator: So thank you for your time and participation on the call today.

Operator: I'm going to go in to stop here and turn the call back over to David so we can start the Q&A. Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your question to no more than two. So at this time, please feel free to proceed with any questions 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. We'll pause for just a moment to compile the Q&A roster.

Joe Spack: The first question today is from Joe Spack with UBS. Please go ahead. Hey, team. Hi, Chris. I just want to sort of just talk a little bit about second half here. That inflation performance, I think 24 million year-to-day, but in thinking about second half, how should we think about that driving the EBITDAQ? Because you mentioned recovering negotiations are underway. I don't know if you could give us some indications of what we could expect there, but then also on a year-over-year basis, I think you had and some warranty issues last year that shouldn't repeat and also the inefficiencies which have seemingly gotten better.

Joe Spack: But on the other hand, you just sort of indicated it's a pretty heavy launch schedule which might, you know, weigh on performance a little bit. So what are you guys embedding, I guess, for performance in the back half?

Joe Spack: Yeah, Joe, if you think about what we were stepping into here in the back half, you know, really, you know, talking about the midpoint, obviously starting with a nice strong first half of the year. But from a production standpoint, just normal production, right, first half, second half, clearly overweighted into the little bit into the first half, whether it's on the full size truck platforms, European operations a little bit weighted towards the first half as well.

Joe Spack: And then you have what's called normal seasonality in the back half of the year, right, just from a production landscape perspective. But some of the key items we're talking about that will weigh on the back half of the year, of course, are these large transitions we're having for our next generation programs. And these are some, as you know, some key products that support not only revenue generation, but profit generation in the back half.

Joe Spack: And they can be a little bit volatile as we sort of work through that. So that's a key piece of the second half that obviously will work through the course of the year. And then as we exit in 25 bills will be behind us. But from a performance standpoint, you know, we would expect to continue to show continued improvement in our metal forming operations in particular. You can see that trend continuing through their segment disclosures and their margin performance.

Joe Spack: So I'd expect that to continue. From a recovery standpoint, our negotiations are substantially complete. So that's already embedded in our first half and second half run rates. You're not going to get any additional lift per se in the back half of the year versus the first half there. So that's sort of what we call level from period to period. And then again, a little bit of normal seasonality in the back half.

Joe Spack: You do have an overweight to some of your fixed costs with the holiday schedules, et cetera, as part of the industry trends. That's how I would think about it. But as we said here today, stepping into these launches, you know, we're trying to be measured here with the back half, but we expect the underlying performance of the business to continue. That's helpful.

Joe Spack: One quick follow up there. I think before you indicated your like the midpoint of your guide assumes, you know, roughly 1.4 million on the T1. Is that still sort of the going assumption or is that has that changed at all?

Joe Spack: No, that is still the going assumption. Okay.

Joe Spack: And just one more quick one. The e-beam contract that was canceled any update there. I know you were trying to get some recoveries. How are negotiations for that?

David Duck: Well, Joe, this is David. As we indicated you before, that contract has been, you know, canceled or terminated. And we've turned in cancellation costs to our customers. And we're still in negotiation with them at this time. So nothing further to announce right now. Okay. Thank you.

Tom Narayan: The next question is from Tom the Ryan with RBC. Please go ahead. Anything taking a question.

Tom Narayan: The first one is on the 2024 guidance. So if my math is right, you're raising, I think the EBITDA by 12.5 million at the midpoint, but the cash from operations is going down by 16 million. Just curious what's driving that my sense is probably working capital. You've talked about this new launches in H2. But I would think some of those launches maybe we're already known about just trying to understand what has changed since the last time I guess you gave the guidance in this regard on potentially working cap.

Tom Narayan: And then I'll follow up. Thanks. Yeah, no, it's really two elements, our cash taxes up slightly, so that's a piece of it, in terms of where our previous guide was, and also it's going to simply fall down to working capital timing in terms of the balance. We had a favorable adjustment a little bit on our cash taxes up a little bit, and then the balance is working capital timing. Got it.

Tom Narayan: And then my second one, you know, one thing we've noticed this earning season is that some tier one suppliers, I know we have for that matter, have talked about something similar to what you're saying, you know, the R&D coming down, etc. And they've decided to increase capital return to shareholders in the form of share buybacks given the depressed market values of their equity.

David Duck: In some cases, we've even seen companies lever up to do buybacks, and then you have that fly that shows a three times leverage and one and a half billion of liquidity in your priorities to reduce debt, but just curious as you look at where your stock is trading and potentially pushing investments out, what is your appetite to potentially doing more on the share buyback? Thanks. This is David. You know, listen, our capital allocation priorities are to continue to be disciplined to support our organic growth and our backlog of new business. Continue to pay down debt. We obviously are high more highly lever than some of our competitors and some of the other industry peers.

Chris May: At the same time, we're continuing to look at inorganic growth opportunities, so I don't really see a near term future where we're looking at major stock buybacks. Or share other friendly activities. But at the same time, those are the four allocations of capital and we always look at those. We try to do what we think is right for the business, but right now I don't see it deviating from the discipline that we've had in the previous quarters and previous years.

Chris May: Chris, I don't know if there's anything else you want to say. Yeah, no time. Also, you know, we've paid some debt down as a priority capital allocation second quarter. And I don't know if you caught in my prepared remarks. We paid yet another $50 million of debt down inside here in the third quarter. So that should be very positive and appreciative to our investors as well. Got it. Thank you.

Dan Levy: The next question is from Dan Levy with Barclays. Please go ahead. Hi, good morning. Thank you for taking the question. I wanted to just follow up on that last question from Tom and more specifically on the leverage ratio. So if you're right now, you know, three times, maybe you can give us a sense of, you know, just given the current business dynamics and how you're thinking of recaching the current EBITDA profile.

Chris May: What is the reasonable timeframe to expect to get down to two times leverage, which then unlocks a greater set of capital allocation opportunities? Dan, this is Chris. Look, if we continue to perform and increase our EBITDA, of course, this would be on a decent macro backdrop, meaning production volumes continue to remain strong. Right. We continue to improve our operational performance. We can deliver. Good performance over the next couple of years, strong cash flow generation. You know, you're going to start to enter that zip code. You can do the math over the next couple of years.

Chris May: And is any of this, is there additional opportunities like CapEx down or, you know, opportunities on the working capital side? Look, if you look at our CapEx spend, it's been at some of the lowest levels in our company's history over the past couple of years. You know, we're very kind to continue to support the appropriate maintenance capital inside the business, which we will not thrift because that's critical to our ongoing operational success.

Chris May: And then it will ebb and flow with the new programs that we launch from a working capital perspective. You know, we're pretty tight on receivables and payables. I think we've been one of the best benchmarks from our inventory perspective. So I do think there's continued cash flow opportunities there, which will, you know, squeeze out of the business over the next year or two. But that continues to fund a good solid delivery of cash flow in the next couple of years. Great, thank you.

Dan Levy: And then maybe a follow up David, more of a strategic question. You know, understandably, you know, there was a large bidding pipeline and you were trying to expand your portfolio of opportunities. And, you know, obviously that's changed as you noted in your remarks and the bidding pipeline has certainly shifted.

David Duck: A question is, what is the forward opportunity on bidding? And what are the aspirations for actual to diversified beyond the core North America truck exposure, which has consistently been your core exposure? Or is the strategy shifting a bit to say, okay, like, you know, given where we are right now, this is an exposure we're very happy with and we're happy to flex down from the spend and stay where we are right now.

David Duck: Yes, I mean clear, our responsibility is to protect the overall health of the company. We're going to continue to focus on driving operational performance and strengthen the balance sheet. But to your point, I mean, we don't control the market and the consumers that readily accept an electrification, which was the path that the whole industry was going. And everyone's had to throttle back. And as I commented, all the OEMs are evaluating their long range product plans right now.

David Duck: And we're hopeful to get some more clarity on that as we go forward here. But meanwhile, there's kind of like an air pocket going through the industry. It's impacting us and other suppliers in regards to quoting opportunities both on the ice side and especially on the EV side. And what we're doing is, as I said, we're substantially completing and securing our next generation ice and hybrid business. We're in discussions with a number of customers in regards to looking at contract extensions to some of that business as well.

David Duck: Beyond the years that we're originally being contemplated. A lot of the EV business, as we said, has been retimed delayed or even canceled. So that's impacting not OEM but the industry and our peers. And we're just trying to understand where it is but meanwhile we're being selective in regards to where we're placing those investments. Between the different power chain propulsion systems. Now, truck has been a strong point for us. It's going to continue to be a strong point for us.

David Duck: We think for decades we're in a solid position with respect to that. So we'll have strong cash generation there. But we also recognize that we need to get more diversification with customers as well as geographically in our business. It's part why we're doing tactical acquisitions like tech four that allows us to grow with other customers. So that's why I also indicated that the electrification strategies are going to vary by region. Obviously in Asia, especially in China, they're going all in on hybrid and full battery electric vehicles.

David Duck: Europe feels strongly about it as well, but maybe lag a little bit behind China. North America, I think everyone's going to be in a holding pattern until we see where the election comes out in the November period of time and consumer acceptance. And you know what the consumer issues are and it's all about affordability right now. It's about range anxiety and it's about charging infrastructure. And until those issues get fixed, I think it's going to lag in the US for period of time.

David Duck: Which is going to impact all of us. Which just means we're going to be making more ice and EV for longer period of time. Or ice and hybrid, excuse me for longer period of time. So, as I said, so let me either grow organically or you grow interactically, right? And so we're trying to manage both but the organic growth side of things is slowing down not just for AM but just for the industry in general.

David Duck: That's very helpful. Thank you.

David Duck: Yep.

Itay Michaeli: The next question is from Atai McKelley with City. Please go ahead. Great. Thanks.

Itay Michaeli: Good morning, everyone. Just a couple of follow-ups. Could you maybe just quantify the top line impact from the second half launches you talked about? Yeah, we haven't quantified those specifically, Atai, but you can clearly see that embedded inside of, you know, to follow, for example, the midpoint of our guidance. If you have a reasonable conversion rate on our sales, if you're comparing first rate or first run rate, half run rate compared to second half, obviously we'll probably click, click the step down a little bit to higher contribution margin due to the products that in terms of weighted from trucks for a staff versus second half. The balance of that will squeeze out as sort of some of a launch impact that you will feel in both the third and fourth quarters. The top one. Thank you.

Itay Michaeli: And then just maybe thinking beyond 2024, how should we think about the ascending cash tax rate for the company? And also if you just need to give us a bit of a help on the second half kind of outlook for SDNA. Yeah, SDNA will reverse SDNA. We're sort of targeting that 6 to 6.5 percent range. I would expect that to continue in the back half. You know, I would expect R&D to be relatively flatish near that 40 million accord, which is a key piece of that SDNA as well that doesn't necessarily flex with sales, so you got to contemplate that.

Itay Michaeli: We've not given tax specific guidance for forward looking years, but you can see our recent cash tax rates would probably be very similar going forward. Of course, as you become more profitable, you will pay more cash tax. Effective rates in the US is 21 percent. We've been higher than that closer to that 45 to 50 due to some of our interest deduction limitations. So it's going to be probably somewhere between that US effective tax rate and sort of the higher rate we're experiencing currently right now, meaning as you get more profitable, those limitations start to roll off. So it's going to be somewhere between the two. That's all very helpful.

Itay Michaeli: Thank you.

Jake Shaw: The next question is from Jake Shaw with BMP. Please go ahead. Hey, guys.

Chris May: I just wanted to dig in a little bit on profitability. So obviously the first half has performed pretty well at that 12.8 level and there's pretty big fall off in the second half. And I know that in the second half, you know, you're dealing with a combination of lower industry volumes and RAM and Delta changeovers. So as we look beyond this year, is there other structural reasons why the business can't operate in that 12 and a half to 13 percent range?

Chris May: Thank you. Yeah, no, it's a great question. And you know, it's always difficult to extrapolate a forward looking failure based on a single quarter. Right, because there's a lot of different dynamics that go inside the quarter inside our business, whether it's launches or normal seasonality. But I guess what I would encourage is take a look at our full year guidance that we provide today holistically over 12 months. Obviously our performance trend continues to be positive.

Chris May: That's with a decent also volume macro backdrop. And then I would expect performance to continue to drive forward into our years past 2024. And some of these, I'll call it premium process associated with launches in the back half start to subside. So I think full year stepping into next year is a good way to think about making a couple of adjustments for what I just described. Thank you.

David Duck: And then, as the overall EV market flows down a little bit, how should we think about the profitability of your EV business? I know you have also the Mercedes-AMG and the efficiency of the EV programs, but how should we think about that? Our current EV business is only a couple percent of our current revenues today, but as we go and source and secure new business, especially the release of electrification, we have certain financial hurdles that we have instituted and are very focused on as we're looking to win that business and secure that for the future. So our goal and our objective is to continue to strive to have a top performing profile business with our ICE, with our hybrid and with our EV business. Thank you, gentlemen.

John Murphy: Your last question comes from John Murphy with Bank of America. Please go ahead. Good morning, guys. Good morning. Through your commentary, you have the GMCV program, you mentioned the event program later in the decade and there's some other comments. It's kind of an indication that the bidding is going fairly well to grow the backlog over time, but we're also seeing this extension of ICE programs when you look at your backlog, you'll net out or roll off programs that you're exiting or being wound down over time, but some of those may be actually extended. So it just seems like the backlog from a growth basis is getting better and potentially from a net, roll off will get better as some of these ICE programs get extended.

David Duck: How do you think about the backlog potential as we grind into the end of the year and into next year? They could potentially be significantly higher than it was start of the year. John, I mean, you know our normal interest rate is about 100,000 to 200,000,000 on a given year. This year, it's a little bit higher. You know, going forward, I mean, what you're going to see is our core ICE program and hybrid programs are going to extend further.

David Duck: We don't include that in our backlog. That's part of our base business. So we only in our backlog show new and incremental business to the base business that we have. Because of this air pocket going through the industry, I think is going to challenge not only us but other suppliers going forward in regards to that backlog, but we still have a healthy backlog at 600 million today and obviously we'll update that appropriately at the right time next year.

David Duck: But we're just trying to manage our way through those issues right now. But if you want to factor in extensions on core business today, then certainly our backlog would be going up. But that's not how we have historically done it. As I said, we only include new and incremental business to our backlog. I don't know if you're going to say so. Yes, no, John, you wouldn't see our, you know, nutrition as we thought about it before, obviously, would quote unquote slow down, right? Because our programs as David indicated will be extended or also being replaced with additionally equivalent going into their next generation of products as well. So that's a critical factor to keep in mind.

David Duck: Are you getting actual clarity on that at this point? Or is that kind of a little bit of a guessing game in conjunction with your partners? Are you actually seeing that directly in current schedules and program changes? This is still very strong. It's just a matter of how long ICE and hybrid are going to continue to run, which we think will be for a long period of time. The OEMs are essentially adopting and protecting their ICE business while at the same time making the necessary investments in EV and hedging their bets.

David Duck: We've said that we don't have the deep pocket book that an OEM has, but we need to be more selective on where we're placing our investments in EV and that's exactly what we're doing on certain customers and certain programs and investing in certain technology development. Again, we want to be agnostic to the market. We want to be relevant to the market and we want to give the OEMs a choice of the propulsion systems that whatever they need, we want to have something on the shelf to support them. John, if you look at some of the recent announcements from some of the OEMs, they were not EV related, which of course certainly supports and grows some of our base internal combustion engine and hybrid business.

David Duck: Okay, great.

John Murphy: Yeah, just one comment on the cap allocation stuff. I think paying down debt could be very creative to the equity over time, so you'll keep that up. Thanks, guys. Thanks. I appreciate it.

Operator: That was our final question.

Operator: This concludes our question and answer session.

David Lim: I would like to turn to the conference back over to David Limb for any closing remarks. Thank you and we thank all of you who participated on this call and appreciate your interest in AEM. We certainly look forward to talking with you in the future. Thanks.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

Operator: John Murphy, James Picariello, John Murphy, Tom Narayan, Ryan Brinkman John Murphy, James Picariello, John Murphy, Tom Narayan, Ryan Brinkman, Matthew Girlando, John Murphy, Tom Narayan, Ryan Brinkman, Matthew Girlando, John Murphy, Tom Narayan, Ryan Brinkman John Murphy, Tom Narayan, Ryan Brinkman, Matthew Girlando, John Murphy, Tom Narayan[inaudible]