Q1 2025 American Axle & Manufacturing Holdings Inc Earnings Call
Good morning, My name is Gary and I will be your conference facilitator today.
Gary: Good morning, my name is Gary and I will be your conference facilitator today.
Gary: At this time, I would like to welcome everyone to the American Axle & Manufacturing First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
At this time I would like to welcome everyone to the American axle and manufacturing first quarter 2025 earnings conference call.
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. 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. As a reminder, today's call is being recorded.
After the Speakers' remarks, there will be a question and answer period, if he 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 than the number two.
As a reminder, today's call is being recorded.
David Lim: I would now like to turn the call over to Mr. David Lim, Heaven Investor Relations. Please go ahead, Mr. Lim. Thank you and good morning. I'd like to welcome everyone who is joining us on AEM's first quarter earnings call.
Speaker Change: I would now like to turn the call over to Mr. David Lim head of Investor Relations. Please go ahead Mr. Lim.
Speaker Change: Thank you and good morning, I'd like to welcome everyone, who is joining us on Aam's first quarter earnings call.
David Lim: Earlier this morning, we released our first quarter of 2025 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 of our website as well.
Speaker Change: This morning, we released our first quarter 2025 earnings announcement, you can access this announcement on the Investor Relations page of our website Www Dot M Dot com.
Speaker Change: Through the PR Newswire services you can also find supplemental slides for this conference call on the Investor page of our website as well to listen to a replay of this call you can dial 87734 475 to nine replay access code 349.
David Lim: To listen to a replay of this call, you can dial 877-344-7529. Replay access code 349-2897. This replay will be available through May 9.
Speaker Change: 897, this replay will be available through midnight.
David Lim: Before we begin, I'd like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, please reference slide 2 of our investor presentation or the press release that was issued today. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures as well as a reconciliation of the non-GAAP measures to GAAP financial information is available in the presentation.
Speaker Change: Before we begin I'd like to remind everyone that the matters discussed in this call may contain comments and forward looking statements that are subject to risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed for additional information. Please.
Speaker Change: Referencing slide two of our investor presentation or the press release that was issued today.
Speaker Change: Also during this call we may refer to certain non-GAAP financial measures information regarding these non-GAAP measures as well as a reconciliation of the non-GAAP measures to GAAP financial information is available in the presentation.
David Lim: Today's call is not intended and does not constitute an offer to sell or the solicitation of an offer to subscribe for or by securities of AEM or DALEs in any jurisdiction where such offers or solicitations are not permitted by law. The subject matter of today's call will be addressed in a proxy statement that will be filed with the SEC. Investors should read the information in the proxy statement in its entirety when it becomes available. Information regarding the participants and the proxy solicitation is contained in AEM's case, in AEM's annual proxy materials filed with the SEC, and in DALE's case, in DALE's equivalent filings and announcements made in accordance with applicable UK law.
Speaker Change: Today's call is not intended and does not constitute an offer to sell or the solicitation of an all participants five for or buy securities of AAM or delays in any jurisdiction, where such offers or solicitations are not permitted by law.
Speaker Change: Subject matter of today's call will be addressed in the proxy statement that will be filed with the SEC investors should read the information in the proxy statement in its entirety when it becomes available information regarding the participants and proxy solicitation is contained in the <unk> case in Aam's annual proxy materials.
With the S E T and in <unk> case in <unk> public filings and announcements made in accordance with applicable U K law with that let me turn things over to Aam's, Chairman and CEO David Dauch.
David Dauch: With that, let me turn things over to AAM's Chairman and CEO, David Dauch. Thank you, David. And good morning, everyone. Thank you for joining us today to discuss AM's financial results for the first quarter of 2025. Joining me on the call today is Chris May, AM's Executive Vice President and Chief Financial Officer.
Speaker Change: Thank you David and good morning, everyone. Thank you for joining us today to discuss Aam's financial results for the first quarter of 2025.
Chris May: Joining me on the call today is Chris May Am's, Executive Vice President and Chief Financial Officer.
David Dauch: To begin my comments, I will review the highlights of our first quarter finance performance. Next, I'll touch on some AM business updates, commentary about the industry, and guidance. After Chris covers the details of our financial results, we will open up the call for any questions that you may have. So, let's begin. AM's first quarter 2025 sales were $1.41 billion. AM's adjusted earnings per share was $0.09 per share. Operating cash flow was $55.9 million and adjusted free cash flow was a use of $3.9 million. North American production was down approximately 5% year over year. From a profitability perspective, AM's adjusted EBITDA in the first quarter was $177,000,000, or 12.6% of sales.
Chris May: To begin my comments I'll review the highlights of our first quarter financial performance.
Chris May: Next I'll touch on somebody and business updates commentary about the industry and guidance.
Chris May: After Chris covers the details of our financial results, we will open up the call for any questions that you may have so let's begin.
Chris May: Aam's first quarter of 2025 sales were 141 billion.
Chris May: Adjusted earnings per share was nine cents per share.
Chris May: Operating cash flow was $55 9 million and adjusted free cash flow was a use of $3 $9 million.
Chris May: North American production was down approximately 5% year over year.
Chris May: From a profitability perspective am's adjusted EBITDA in the first quarter was 177 million or 12, 6% of sales.
David Dauch: On a sequential basis, adjusted EBITDA margin improved approximately 100 basis points based on our trend of a positive operational performance and continued cost controls.
Chris May: A sequential basis adjusted EBITDA margin improved approximately 100 basis points based on our trend of a positive operational performance and continued cost controls.
Chris May: Let me talk about some business updates once you can see on slide four.
David Dauch: Let me talk about some business updates which you can see on slide 4. In the quarter, we exited our Hefei AM Automotive and Luochou AM Automotive joint ventures in China. As a result, we collected approximately $30 million in cash. These exits were a result of a comprehensive analysis of our product portfolio plan, which balances numerous factors, including the focus on our core businesses and capital allocation. In addition, we also received approval from the Competition Commission of India, otherwise known as CCI, to proceed forward with our previously announced sale of our AM commercial vehicle axle business to Bharat Forge Limited.
Chris May: In the quarter, we exited our hefei, a automotive and would show a automotive joint ventures in China.
Chris May: As a result, we collected approximately $30 million in cash.
Chris May: Accents were a result of a comprehensive analysis of our product portfolio plan, which balances numerous factors, including the focus on our core businesses.
Chris May: And capital allocation.
Chris May: In addition, we also received approval from the competition Commission of India, otherwise known as GCI to proceed forward with our previously announced sale of our a M commercial vehicle axle business to broad forced limited our expectation is that this deal will close in the second quarter of 2025.
David Dauch: Our expectation is that this deal will close in the second quarter of 2025.
Chris May: Next I'd like to give you a progress report on our transformational transaction with <unk> to combine the jinky in automotive and powder metal business, just where they are.
David Dauch: Next, I'd like to give you a progress report on our transformational transaction with Dowlay to combine the GKN Automotive and Potter Metal businesses with AM. As previously announced, this strong combination is anticipated to yield significant size and scale to better weather operating cycles, such as the one that we're experiencing today. Deliver strong synergy potential for approximately $300 million in synergy. Generate significant cash flow to support our focus on deleveraging. and institute a more balanced capital allocation policy in the future. This strategic combination will unlock significant shareholder value, and the teams are making great strides and working diligently together.
Chris May: As previously announced the strong combination is anticipated to yield significant size and scale to better weather operating cycles, such as the one that we're experiencing today.
Chris May: Deliver strong synergy potential for approximately $300 million in synergies.
Chris May: Generate significant cash flow to support our focus on deleveraging.
Chris May: And Institute, a more balanced capital allocation policy in the future.
Chris May: This strategic combination will allow significant shareholder value and the teams are making great strides and working diligently together.
David Dauch: On the financing side, the bridge syndication is completed, our core credit agreement amendments have also been completed, and on the regulatory front, USHSR antitrust clearance was received in March. Additionally, we have now completed all other initial antitrust submissions with the required jurisdictions listed in the January announcement. Both AIM and DALI shareholder's votes are expected to take place in the third quarter. We're very excited about this transformational acquisition and the value it brings to our stakeholders. Our teams are working well together on the integration planning process, as I mentioned earlier. We are on track to close this transaction in the fourth quarter of 2025.
Chris May: On the financing side, the British syndication is completed.
Chris May: Our core credit agreement amendments have also been completed.
Chris May: On the regulatory front U S. HSR antitrust clearance was received in March.
Chris May: Additionally, we have now completed all other initial antitrust submissions with the required jurisdictions jurisdictions lifted in the January announcement.
Chris May: Well I am in Dallas shareholders votes are expected to take place in the third quarter. We're very excited about this transformational acquisition and the value it brings to our stakeholders.
Chris May: Our teams are working well together on the integration planning process as I mentioned earlier.
Chris May: And we are on track to close this transaction in the first and the fourth quarter of 2025.
David Dauch: Now let's talk about the auto industry as a whole. There's been plenty of macro uncertainty driven by new trade policy. But for AM, our operating policy is to buy and build local. Approximately 90% of the products we produce in North America are USMCA compliant and we are evaluating other actions required to improve this percentage. Nearly all of our steel and aluminum buy is from the U.S. sources for North American production. What we produce in Mexico is predominantly delivered to our customers in Mexico. And we do have some open capacity to relocate manufacturing to the U.S.
Chris May: Now, let's talk about the auto industry as a whole.
Chris May: There's been plenty of macro uncertainty driven by new trade policies.
But for a or operating policy is to buy and build local.
Chris May: Approximately 90% of the products that we produce in North America or U S. MCA compliant and we are evaluating other actions required to approve this percentage.
Chris May: Nearly all of our steel and aluminum by us from the U S sources for North American production.
Chris May: What we produce in Mexico is predominantly delivered to our customers in Mexico.
Chris May: And we do have some open capacity to relocate manufacturing to the U S. If needed. This war required close coordination with our OEM customers as they finalize their plant loading and respective production plants.
David Dauch: if needed. This will require close coordination with our OEM customers as they finalize their plant loading and respective production plans. specifically on tariffs. We are working diligently to mitigate what tariff impact we can and as far as the remainder, our intent is to pass those tariff costs on to our customers since they have the end market pricing power which the supply base does not. Even in this world of tariff uncertainty, there are positives that leverage AM's strength. For example, we are receiving inquiries about our U.S. metal forming operations that will leverage our installed capacity as our customers are weighing on-shore options to address the tariff concerns that are out there.
Chris May: Specifically on tariffs.
Chris May: We're working diligently to mitigate what tariff impact we can what we can and as far as the remainder of our intent is to pass those tariff costs onto our customers since they have the end market pricing power, which the supply base does not.
Chris May: Given in this world of tariff uncertainty there are positives that leverage a M. Strength. For example, we are receiving inquiries about our U S metal forming operations that will leverage our installed capacity as our customers are way in onshore the options to address the tariff concerns that are out there.
David Dauch: Furthermore, as we combine with DALE, this combination and capability will be expanded and enhanced. As communicated before, the AM Management team will stay focused on the matters that we can control and make necessary adjustments to our businesses based on market conditions.
Chris May: Furthermore, as we combine with DALI does combination then capability all be expanded and enhanced.
Chris May: And as communicated before the management team will stay focused on the matters that we can control and making.
Chris May: Necessary adjustments to our businesses based on market conditions.
Chris May: Yeah.
David Dauch: Now let's talk about our guidance. Recognizing we have a lot of data points, estimates, and uncertainty, we have updated our 2025 Guidance Range AM is now targeting sales in the range of $5.65 billion to $5.95 billion. Adjusted EBITDA in the range of approximately $665,000,000 to $745,000,000 and adjusted free cash flow of approximately $165,000,000 to $215,000,000. And our guidance ranges are supported by an assumed North American production volume of 14.0 million units on the bottom side, 15.1 million units on the top side. Chris will provide additional details on the assumptions underpinning our guidance. To say we are busy may be an understatement, but to say that we are excited about our future can't be overstated.
Chris May: Now, let's talk about our guidance recognizing we have a lot of data points estimates and uncertainty we have updated our 2025 guidance ranges.
Chris May: A M is now targeting sales in the range of $5 six 5 billion to $5 95 billion.
Chris May: Adjusted EBITDA in the range of approximately 665 million to $745 million.
Chris May: And adjusted free cash flow of approximately 165 million to $215 million.
Chris May: Our guidance ranges are supported by an assumed north American production by them of 14.0 million units on the bottom side 15.1 million units on the top side.
Chris May: Chris will provide additional details on the assumptions underpinning our guidance.
Chris May: To say, we are busy maybe an understatement.
Chris May: To say that we are excited about our future can't be overstated at our core operations are gaining performance momentum.
David Dauch: Our core operations are gaining performance momentum, as you can see in our results. Our combination with Dahle is on track in gaining speed, and our experience of the past are guiding the AM team to deal with the uncertainty of today in a positive and constructive manner.
Chris May: You can see in our results our combination with DALI is on track and gaining speed and our experience of the past are guiding the AAM team to deal with the uncertainty of today and are positive in a constructive manner.
David Dauch: And to conclude my remarks, our aim is on the future, and we're going to continue to drive our efforts towards, first and foremost, closing and integrating the DALA transaction, generating strong free cash flow, strengthening our balance sheet, advancing our ICE, hybrid, and EV portfolio to be more agnostic, and positioning AM for future profitable growth.
Chris May: And then conclude my remarks, our aim is on the future and we're going to continue to drive our efforts towards first and foremost closing and integrating the dollar transaction.
Chris May: Generating strong free cash flow strengthened our balance sheet advancing our ice hybrid and EV portfolio to be more agnostic and position <unk> for future profitable growth.
Christopher May: So now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for his first quarter financial details. Thank you, David. And good morning to everyone. I will cover the financial details of our first quarter 2025 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments.
Chris May: So now let me turn the call over to our executive Vice President and Chief Financial Officer, Chris May for its first quarter financial details.
Chris May: Thank you David and good morning to everyone I will cover the financial details of our first quarter 2025 results and our updated guidance 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 first quarter of 2025, AAM sales were $1.41 billion compared to $1.61 billion in the first quarter of 2024. Slide 8 shows a walk of first quarter 2024 sales to first quarter 2025 sales. Volume Mix & Other was lowered by $166 million, primarily driven by lower overall volumes in North America. Metal Market Passthroughs and FX lowered sales by approximately $28 million. More than half of this is related to foreign exchange, particularly from a weaker Brazilian REAI.
Chris May: So let's go ahead and begin with sales.
Chris May: In the first quarter of 2025, Aam's sales were $1 41 billion compared to $1 six 1 billion in the first quarter of 2020 for fly.
Chris May: Slide eight shows a walk of first quarter 2024 sales to first quarter 2025 sales.
Chris May: Mix and other was lower by $166 million, primarily driven by lower overall volumes in North America.
Chris May: Metal market pass throughs, and FX lowered sales by approximately $28 million.
Chris May: More than half of this is related to foreign exchange, particularly from a weaker Brazilian reais.
Christopher May: Now, let's move on to profitability. Growth profit was $173.9 million in the first quarter of 2025 as compared to $198.5 million in the first quarter of 2024. For the first quarter of 2025, adjusted EBITDA was $177.3 million and adjusted EBITDA margin was 12.6% versus $205.6 million and 12.8% last year. You can see the year over year walk down of adjusted EBITDA on slide nine. In the quarter, adjusted EBITDA was lower due to volume mix in other by $44 million versus the prior year, resulting in a decremental margin related to sales volume of approximately 27%. R&D was slightly lower year over year, and performance and other was favorable to adjusted EBITDA at $13 million.
Chris May: Now, let's move on to profitability.
Chris May: Gross profit was $173 9 million in the first quarter of 2025 as compared to $198 5 million in the first quarter of 2024.
Chris May: For the first quarter of 2025, adjusted EBITDA was $177 3 million and adjusted EBITDA margin was 12, 6%.
Chris May: Versus $205, six 6 million and 12, 8% last year.
Chris May: You can see the year over year walk down of adjusted EBITDA on slide nine.
Chris May: The quarter adjusted EBITDA was lower due to volume mix and other by $44 million versus the prior year, resulting in a decremental margin related to sales volume of approximately 27%.
Chris May: R&D was slightly lower year over year and performance in other was favorable to adjusted EBITDA by $13 million.
Christopher May: driven primarily by operational improvements within our metal form business. Even with lower sales, the metal form EBITDA margin improved 150 basis points year-over-year and 370 basis points quarter-over-quarter. This performance is demonstrating our continued productivity improvements are driving profitability uplift.
Chris May: Driven primarily by operational improvements within our metal forming business unit.
Chris May: With lower sales the metal form EBITDA margin improved 150 basis points year over year and.
Chris May: And 370 basis points quarter over quarter.
Chris May: This performance is demonstrating our continued productivity improvements are driving profitability uplift.
Christopher May: We continue to be very positive on the momentum of performance for both of AAM's businesses.
Chris May: We continue to be very positive on the momentum of our performance for both of Aam's business units.
Speaker Change: Let me now cover SG&A.
Christopher May: Let me now cover SG&A. SG&A expense including R&D in the first quarter of 2025 was 90.9 million or 6.4% of sales. This compares to 98.3 million or 6.1% of sales in the first quarter of 2024. AM's R&D spending in the first quarter of 2025 was approximately $36 million, which as I mentioned, slightly lower year over year. For the full year, we expect R&D expense to be down on a year-over-year basis by approximately $20 million as we optimize our spend in this area to reflect current market requirements.
Speaker Change: SG&A expense, including R&D in the first quarter of 2025 was $90 9 million or six 4% of sales.
Speaker Change: This compares to $98 3 million or six 1% of sales in the first quarter of 2024.
Speaker Change: Aam's R&D spending in the first quarter of 2025 was approximately $36 million, which as I mentioned is slightly lower year over year.
Speaker Change: For the full year, we expect R&D expense to be down on a year over year basis by approximately $20 million as we optimize our spend in this area to reflect the current market requirements.
Speaker Change: Let's move on to interest and taxes net interest expense was $37 3 million in the first quarter of 2025 compared to $40 7 million in the first quarter of 2024.
Christopher May: Let's move on to Interest and Tax. Net interest expense was $37.3 million in the first quarter of 2025 compared to $40.7 million in the first quarter of 2024. The weighted average interest rate of our outstanding long-term debt was lower year-over-year, and we also had lower debt balance. In the first quarter of 2025, we recorded income tax expense of $14 million compared to $15.9 million in the first quarter of 2024. As we head into 2025, we expect our adjusted effective tax rate to be approximately 50% at the midpoint. This elevated book tax rate is due to valuation allowances on certain foreign jurisdictions and interest deduction limitations in the U.S.
Speaker Change: The weighted average interest rate of our outstanding long term debt was lower year over year, and we also had lower debt balances.
Speaker Change: In the first quarter of 2025, we recorded income tax expense of $14 million compared to $15 9 million in the first quarter of 2024.
Speaker Change: As we head into 2025, we expect our adjusted effective tax rate to be approximately 50% at the midpoint. This elevated tax rate is due to valuation allowances on certain foreign jurisdictions and interest deduction limitations in the U S.
Christopher May: We expect cash taxes of approximately $60 to $75 million this year. Taking all these sales and cost drivers into account, our gap net income was $7.1 million or $0.06 per share in the first quarter of 2025, compared to a net income of $20.5 million or $0.17 per share in the first quarter of 2024. The Jelted Earnings Per Share, which excludes the impact of items noted in our Earnings Press Report. 9 cents per share in the first quarter of 2025 compared to earnings per share of 18 cents for the first quarter of 2024.
Speaker Change: We expect cash taxes of approximately $60 million to $75 million this year.
Taking all these sales and cost drivers into account our GAAP net income was $7 1 million or six cents per share in the first quarter of 2025 compared to a net income of $20 5 million or <unk> 17 per share in the first quarter of 2024.
Speaker Change: Adjusted earnings per share, which excludes the impact of items noted in our earnings press release.
Speaker Change: <unk> per share in the first quarter of 2025 compared to earnings per share of <unk> 18 cents for the first quarter of 2024.
Speaker Change: Let's now move to cash flow and the balance sheet net cash provided by operating activities for the first quarter of 2025 was $55 $9 million compared to $17 8 million in the first quarter of 2024, driven by strong working capital performance in inventory and other areas.
Christopher May: Let's now move to cash flow and the balance sheet. Net cash provided by operating activities for the first quarter of 2025 was $55.9 million compared to $17.8 million in the first quarter of 2024, driven by strong working capital performance in inventory and other areas. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the first quarter of 2025 were $68.7 million. Cash payments for restructuring and acquisition related activity for the first quarter of 2025 are $8.9 million. Reflecting the impact of these activities, AM's adjusted free cash flow was a seasonal use of $3.9 million in the first quarter of 2025.
Speaker Change: Capital expenditures net of proceeds from the sale of property plant and equipment on the first quarter of 2025 or $68 $7 million.
Speaker Change: Cash payments for restructuring and acquisition related activity for the first quarter of 2025 or $8 9 million.
Speaker Change: Reflecting the impact of these activities Aam's adjusted free cash flow was a seasonal use of $3 $9 million in the first quarter of 2025. This was a significant improvement from prior year.
Christopher May: This was a significant improvement from prior year. From a debt leverage perspective, we ended the quarter with net debt of $2.1 billion and LTM adjusted EBITDA of $720.9 million, calculating a net leverage ratio of 2.9 times at March 31, 2025. We also maintained a very strong cash position of well over $500 million due to our operational performance and the benefit of the proceeds from the sale of our joint venture interests that David shared with you. 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 facility.
Speaker Change: From a debt leverage perspective, we ended the quarter with net debt of $2 $1 billion and LTM adjusted EBITDA of $729 million calculating a net leverage ratio of two nine times at March 31 2025.
Speaker Change: We also maintained a very strong cash position of well over $500 million due to our operational performance and the benefit of the proceeds from the sale of our joint venture interests that David shared with you.
Speaker Change: 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: Now, let's talk about tariffs, there's been quite a bit of news on this front as it relates to regulation rates in general updates.
Christopher May: Now, let's talk about tariffs. There's been quite a bit of news on this front as it relates to regulation rates and general updates. To drill down a little deeper as it relates to AM, we thought it best to provide you with the dimensions of our primary product movement so you can better understand our positioning as it relates to tariff. So let's get started. For AAM, most of the products we ship to customers in North America, as David mentioned, are USMCA compliant. Almost all of the steel and aluminum consumed in North America is from U.S.-based sources, so we are generally in a very good spot with these commodities.
Speaker Change: Drill down a little deeper as it relates to a M. We thought it best to provide you with the dimensions of our primary product movement. So you can better understand our positioning as it relates to tariffs.
Speaker Change: So let's get started for most.
Speaker Change: Most of the products, we ship to customers in North America, as David mentioned, our U C. R. U S M C a compliance.
Speaker Change: Almost all of Aam's steel and aluminum consumed in North America is from U S. Based sources. So we're generally in a very good spot with these commodities.
Speaker Change: For our U S operations, we import from Mexico up to a $150 million on an annual basis.
Christopher May: For our US operations, we import from Mexico up to $150 million on an annual basis. the majority of which is USMCA compliant. And we are now evaluating how to reduce this amount even further. We import from Canada, approximately $25 million on an annual... The majority of which is USMCA compliant and we are also evaluating how to reduce this amount. We directly import very little from China into the U.S. and therefore have very minimal exposure. And lastly, AM's rest-of-the-world import exposures are approximately $100 million of annualized values, and we are working to mitigate these exposures as well as any additional exposures our supply base may have while gaining clarity on final tariff agreements.
Speaker Change: The majority of which is U S. MCA compliant and we are now evaluating how to reduce this amount even further.
Speaker Change: We import from Canada, approximately $25 million on an annual basis, the majority of which is U S. MCA compliant and we're also evaluating how to reduce this amount.
Speaker Change: We directly import very little from China into the U S and therefore have very minimal exposure here.
Speaker Change: And lastly, aam's rest of the world import exposures are approximately $100 million of annualized values and we are working to mitigate these exposures as well as any additional exposures our supply base may have while gaining clarity on final tariff agreements.
Speaker Change: Yeah.
Christopher May: As David stated, our intent is to work closely with our OEM customers to mitigate the tariff impact and receive recoveries for any incremental tariff costs. As we work through the year and the respective recovery processes, there can be some timing lags, but overall, our assumption is clear.
Speaker Change: As David stated our intent is to work closely with our OEM customers customers to mitigate the tariff impact and receive recoveries for any incremental tariff costs as.
Speaker Change: As we work through the year and the respective recovery processes, there can be some timing lags, but overall our assumption is clear.
Christopher May: With that background in place, let's talk about our guidance on slide six. Our outlook has been adjusted from our initial targets provided on February 14. The New Outlook is designed to provide you with a framework, or guideposts, if you will, of our best estimate of the tariff-related volume impact based on recent third-party volume estimates. While some clarity has been provided as it relates to terrorists, we note that the situation is very fluid and dynamic.
Speaker Change: With that background in place, let's talk about our guidance on slide six.
Speaker Change: Our outlook has been adjusted from our initial targets provided on February 14th.
Speaker Change: The new outlook is designed to provide you with a framework or guideposts. If you will of our best estimate of the tariff related volume impact based on recent third party volume estimates.
Speaker Change: Some clarity has been provided as it relates to terrorists. We note that the situation is very fluid and dynamic.
Speaker Change: Our updated targets are as follows for sales our new range is $5 65 to $5 95 billion. This this sales target is based upon our north American production range of 14.0 million to $15 1 million units and certain assumptions for our key programs.
Christopher May: Our updated targets are as follows. For sales, our new range is $5.65 to $5.95 billion. This sales target is based upon a North America production range of 14.0 million to 15.1 million units and certain assumptions for our key programs. We continue to anticipate GM's full-size pickup truck and SUV production in the range of 1.3 to 1.4 million units in that range. From an EBITDA perspective, the range is now $665 to $745 million. At the lower end versus previous guidance, this represents a flow-through decremental margin in the low 20% range. which highlights AAM's intent to actively work our playbook to mitigate downside impacts should they occur.
Speaker Change: We continue to anticipate Gm's full size pickup truck and SUV production in the range of $1 three to one 4 million units in that range.
Speaker Change: From an EBITDA perspective, the range is now $665 million to $745 million.
Speaker Change: At the lower end versus previous guidance. This represents a flow through decremental margin in the low 20% range, which highlights aam's intend to actively work our playbook to mitigate downside impacts should they occur.
Christopher May: At the higher end of our guidance, you can see our performance delivering very good profitability flows. We now anticipate adjusted free cash flow in the range of $165 to $215 million. Our CapEx assumption is unchanged at approximately 5% of sales as we ready the organization for important upcoming launches, especially for one of our major franchise truck programs. In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring related payments for AAM as a standalone entity to continue to be in the range of 20 to $30 million for 2025 as we look to further optimize our business and further reduce fixed costs.
Speaker Change: At the higher end of our guidance you can see our performance delivering very good profitability flow through.
Speaker Change: We now anticipate adjusted free cash flow in the range of $165 million to $215 million.
Speaker Change: Our capex assumption is unchanged at approximately 5% of sales as we ready the organization for important upcoming launches, especially for one of our major franchise truck programs.
Speaker Change: In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring related payments for am as a standalone entity to continue to be in the range of $20 million to $30 million for 2025, as we look to further optimize our business and further reduce fixed costs.
Speaker Change: As mentioned on our fourth quarter earnings call. We are assuming the pending sale of our commercial vehicle axle business in India will be completed by the end of the first half of 2025, and our financial guidance reflects that timing.
Christopher May: As mentioned on our fourth quarter earnings call, we are assuming the pending sale of our commercial vehicle axle business in India will be completed by the end of the first half of 2025. And our financial guidance reflects that timing. We underscore that the guidance figures we are providing today are on an AAM stand-alone pre-combination basis and exclude any costs or expenses related to our announced DALAway transaction.
Speaker Change: We underscore that the guidance figures, we are providing today are on an aam's standalone pre combination basis, and excluding any costs or expenses related to our announced Delaware transaction.
<unk> first quarter results represent a very good start to the year and we believe we still have work to do to drive even further performance.
Christopher May: AM's first quarter results represent a very good start to the year, and we believe we still have work to do to drive even further performance. We remain focused on executing our key performance drivers inside of our corporate. We are also actively managing the evolving tariff environment, which continues to introduce new complexities and uncertainties in the industry.
We remain focused on executing our key performance drivers inside of our core business.
Speaker Change: We're also actively managing the evolving tariff environment, which continues to introduce new complexities and uncertainties in the industry looking.
Christopher May: Looking ahead, we are confident in our ability to navigate these challenges and also leverage the opportunities that they will present for us. Going forward, if we see a reduction in the level of macro uncertainty, tariff cost mitigation takes hold, and industry production is stable, we believe the risk to our guidance may potentially be to the upside in that range, especially as we gain more momentum on our internal performance improvements, volume levels become more clear, and new trade deals are negotiated.
Speaker Change: Looking ahead, we are confident in our ability to navigate these challenges and also leverage the opportunities that they will present for us.
Speaker Change: Going forward, if we see a reduction in the level of macro uncertainty tariff cost mitigation takes hold in industry production stable. We believe the risk to our guidance may potentially be to the upside in our range, especially as we gain more momentum out of our internal performance improvements.
Speaker Change: I am levels become more clear and new trade deals are negotiated.
Gary: Thank you for your time and participation on the call today.
Speaker Change: 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 Q&A.
Gary: I'm going to stop here and turn the call back over to David so we can start Q&A. 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.
Speaker Change: 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.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Gary: 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: Yeah.
Speaker Change: Okay.
The first question is from Joe Spak with UBS. Please go ahead.
Joseph Spak: The first question is from Joe Spak with UBS, please go ahead. Good morning, team. I guess I just want to... to start the conversation talking about, you know, how you're thinking about Some potential future contingencies. I know you mentioned you do have some excess capacity in the US, like maybe you could give us a sense as to sort of what utilization is there. And then even if you wanted to sort of up that, I know, you know, about a year ago, we were sort of talking about some labor challenges. So is that something else we need to consider in that?
Joe Spak: Hi, good morning.
Speaker Change:
Speaker Change: I guess I just want to start the conversation.
Speaker Change: Mercedes and talking about you know how youre thinking about some potential future contingencies. I know you mentioned you do have some excess capacity in the U S. Like maybe you could give us a sense of sort of what utilization is there.
And then even if you wanted to sort of up that I know you know about a year ago, we were sort of talking about some labor challenges. So.
Speaker Change: Is that something else, we need to need to consider in that in that situation.
Yeah, Joe This is David good morning to you.
David Dauch: Yeah, Joe, this is David. Good morning to you. You know, obviously, you know, our policy is to buy and build local, like we've communicated. So we want our products are larger products, we want to be in close proximity to our customers. That's what we've done. That's what we'll continue to do. What we need to do is just get clarity from the government, and our OEMs, to be honest with you, not only their long range financial or long range product plans, but also their plant loading and product requirements. And then from there, we'll make the necessary adjustments that we need to make to support our business and do that, like I said, in my opening comments, in concert with the customers.
Speaker Change: Obviously, you know our policy is to buy and build local like we've indicated so we want our products our larger products, we won't be in close proximity to our customers. That's what we've done that's what we'll continue to do what we need to do is just get clarity from the government and our Oems to be honest with you I'm not only there.
Speaker Change: Long range financial our long range product plans, but also their plant loading.
Speaker Change: Product requirements.
Speaker Change: And then from there, we'll make the necessary adjustments that we need to make to support our business and do that like I said in my opening comments in concert with the customers.
Speaker Change: We tried to drive high capacity utilization in our facilities it but we do have some open capacity in three rivers are we exited out of programs and we have some open capacity in our three rivers facility.
David Dauch: We try to drive high capacity utilization in our facilities. But we do have some open capacity in our three rovers facility that we can accommodate. At the same time, we have some open capacity in a couple other smaller facilities that we can make some adjustments and realign our operations where we move some of our component and machining operations to maybe some of the smaller plants to free up open space in the larger plants, more of the assembly operations. And then as I mentioned, with LA, assuming that that deal goes through at the end of the year here, we'll pick up even more capacity in the US, which will give us more of an opportunity to work with that.
Speaker Change: That we could accommodate at the same time, we have some open capacity at a couple of other smaller facilities that we can make some adjustments and realign our operations, where we move some of our component and machining operations to maybe some of the smaller players to free up open space in the larger plants more of the assembly operations.
Dolly: And then as I mentioned with Dolly.
Dolly: Assuming that that deal goes through at the end of the year here will pick up even more capacity in the U S. A which would give us more of an opportunity to work with that overall are we always try to drive our capacity utilization at a minimum to that 85% level, but obviously, we've got a little bit of latitude there that will work with our press person were willing.
David Dauch: Overall, we always try to drive our capacity utilization at a minimum to that 85% level. But obviously, we've got a little bit of latitude there that we'll work with our customers and we're willing to make the necessary adjustments that we do to support our customers on a go forward basis. On the labor side of things, the labor situations improve.
Dolly: To make the necessary adjustments that we need to to support our customers on a go forward basis.
Dolly: On the labor side of things the labor situations improved.
Dolly: I wouldn't say, it's fixed obviously.
Dolly: Everyone's got to pay up market to be able to do attract the appropriate talent.
Dolly: But even with that being said if more jobs are required to come back to the states that I think it's always going to require a greater level of robotics and automation to be able to deal with things on a go forward basis and quite honestly, we're doing a lot of that already ourselves.
Dolly: But at the same time, if we need to add incremental volume to that that will accelerate those initiatives even further.
Dolly: Yeah.
Dolly: So hopefully hopefully that addresses your question yeah, yeah, yeah. Thanks for that.
Joseph Spak: Hopefully that addresses your question. Yeah. Thanks for that.
Joseph Spak: The second question is, and again, I'm not I'm not sure what what you can say here, although presumably, you have been doing diligence on this as well. But can you help us understand what some of the tariff exposure would look like for Dalai? Yeah, Joe, this is Chris. I'll take that in terms of DALI exposure. Obviously, they need to comment on them as a standalone company. We're not at liberty to speak on their behalf. However, if you look at their footprint, in many cases, very similar to us, they have US production, Mexico production. They also have a European footprint, and they're managing their tariff exposure in a very similar way that we are.
Dolly: Second question is.
And again I'm not I'm not sure what what you can say here, although presumably you have been doing diligence on this as well but.
Speaker Change: Can you help us understand what some of the tariff exposure would look like for Galway.
Speaker Change: Yes, Joe This is Chris I'll take that in terms of a dollar exposure obviously, they need to comment on them as a standalone company. We are not at Liberty to speak on their behalf. However, if you look at their footprint and in many cases very similar to us they have U S production in Mexico production. They also have a European footprint.
Speaker Change: And they are managing their tariff exposure in a very similar way that we are.
Speaker Change: And as David mentioned, it's all combined will bring us even more I would call it size and scale and production locations to navigate through exactly to say items that we're talking about here today. So we actually see some benefits as we come back together in this in this topic.
Christopher May: And as David mentioned, this will combine will bring us even more, I would call size and scale and production locations to navigate through exactly the items that we're talking about here today. So we actually see some benefits as we combine together in this in this topic. Thanks for that. Thanks.
David Lim: Thanks Scott.
Speaker Change: The next question is from Edison you with Deutsche Bank. Please go ahead.
Edison Yu: The next question is from Edison Yu with Deutsche Bank. Please go ahead. Hey, good morning. Thanks for taking our questions. First off, GM obviously had earnings this weekend, and they seem pretty, pretty, I would say positive on the volume outlook. Are you incorporating that in the assumptions and the guidance on the full size truck? Yeah, Edison, so underpinning our guidance, as I mentioned in some of my prepared comments, was 1.3 to 1.4 million units of the full-size truck platform. As you know, that's been a very, very strong platform over the last couple of years. We typically, I would say, are bullish on that platform.
Edison: Hey, good morning, Thanks for taking our questions.
Jim.
Speaker Change: Yes.
Speaker Change: First time G. M. Obviously had had earnings this weekend and they seem pretty.
Speaker Change: Pretty I would say positive on this.
Speaker Change: Volume outlook.
Speaker Change: Are you incorporating that in the in the assumptions in the guidance.
Speaker Change: On the full size trucks.
Speaker Change: Yeah Edison So is underpinning our guidance as I've mentioned in some of my prepared comments was one three to one 4 million units of the full size truck platform. As you know that's been a very very strong platform over the last couple of years. We typically I would say are bullish on that platform I think the results have shown that over the last couple of years.
Christopher May: I think the results have shown that over the last couple of years as well.
As well as we think about that platform stepping into the to the year, it's really broken down into I would call. It three components, there light duty heavy duty and their SUV applications and if you think about the core products, we support, especially on the heavy duty side very strong demand of course built here in Flint, Michigan, a fab also somewhat.
Christopher May: As we think about that platform stepping into the year, it's really broken down into, I would call it, three components. They're light-duty, they're heavy-duty, and they're SUV applications. And if you think about the core products we support, especially on the heavy-duty side, very strong demand. Of course, built here in Flint, Michigan, they have also some capacity and production in Canada to serve that market. Again, strong demand from that. We don't see that really waning on the heavy-duty side. The SUV's been very strong demand, built in Arlington, Texas, which is great, and we continue to supply and support that operation.
Speaker Change: Capacity and production in Canada to serve that market again strong demand from that we don't see that really waning in the heavy duty side. The SUV. He's been very strong demand building in Arlington, Texas, which is great.
Speaker Change: We continue to supply and support that operation and then on the light duty side. They have a few assembly plants to support that demand still seems to be robust and we supply all of their assembly plants to support that but we are generally very bullish on that platform and we continue to expect good solid demand, but we did articulate at least a range inside of our guidance, how we think about that.
Christopher May: And then on the light-duty side, they have a few assembly plants that support that. Demand still seems to be robust, and we supply all of their assembly plants that support that. But we are generally very bullish on that platform, and we continue to expect good, solid demand.
Edison Yu: But we did articulate at least a range inside of our guidance on how we think about that. Understood.
Speaker Change: Understood.
Edison Yu: And then second question on on Dalai, I know you you reiterated the timing and at least the votes will be both votes will be in the third quarter. How has the kind of macro volatility around policy affected it? It seems like it hasn't had much impact, but I'm curious if you can maybe comment on or, or, you know, give us your view on if this is kind of delayed or made it more tricky, the process. This is David Dauch. It doesn't make the process any more complicated. I think as Chris indicated, they've got a similar policy that we do to try to buy and build local in the region.
Speaker Change: I'll take your question on on Dolly I I know you reiterated the timing and at least at the votes will be both a little bit in the third quarter.
Speaker Change: How how is that kind of macro volatility around policy effective date. It seems like it hasn't had much impact, but I'm curious if you can maybe.
Comment on or give us your view on this is just kind of.
Speaker Change: Delayed or made it more tricky process.
Speaker Change: Allison This is David I'll get it it doesn't make the process are they more complicated I think as Chris indicated they've got a similar policy that we do to try to buy and bill local in the region. They've obviously got to navigate their U S. MCA compliancy as well as Chris also indicated that we identified as part of the synergistic opportunity. We also.
David Dauch: They've obviously got to navigate their USMCA compliancy as well. As Chris also indicated, we identified as part of the synergistic opportunity, we also think that there's, you know, insourcing opportunities that we can leverage each other's strengths. But in the meantime, we have to operate as two independent companies and make those decisions independently. But as we come together, then obviously we'll take advantage of those opportunities, leverage the required footprints that are in place. But back to your original question as far as how does the policy impact it, I think, you know, they're no different than any other supplier right now.
Speaker Change: I think that there's you know in sourcing opportunities that we can leverage each other's strengths, but in the meantime, we have to operate as two independent companies and make those decisions independently on our own but it's become together then obviously, we'll take advantage of those opportunities leverage the required footprints that are in place.
Speaker Change: But back to your original question as far as how does the policy impact that I think they're they're no different than any other supplier right. Now we're all just trying to get clarity from.
Edison Yu: We're all just trying to get clarity from the government on the policies and the direction, understand the impact that it has on each of the individual OEMs, because it varies by OEM, so that we can put the right plans in place to support our customers. Great, thank you.
Speaker Change: From the government on the policies and the direction understand the impact that it has on each of the individual Oems because it varies by OEM. So that we can put the right plans in place to support our customers.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Yep.
Itay Michaeli: The next question is from Itay Michaeli with TD Cowan. Please go ahead. Hey, this is Justin. I'm for Itay. Thanks for taking the question. So quick one on just general customer schedules. How are things looking near term wise? You know, we've heard from a bunch of other suppliers just looking to get your view on near term production schedule.
Speaker Change: The next question is from ethane to Kelly with TD Cowen. Please go ahead.
Speaker Change: Hi, This is Justin on for <unk>, Thanks for taking the questions.
Speaker Change: So quick one on just general customer schedules.
Speaker Change: Things looking near term wise, you know we've heard from a bunch of other suppliers just looking to get your view on near term production schedules.
David Dauch: Yeah, what I would say on the customer schedule side of things, we did start seeing a little bit more volatility at the end of the first quarter, beginning here the second quarter. Again, largely due to just what's going on with the tariff policy issues that are out there. And again, everyone just needs to understand and get clarity so we can plan our businesses is really what it comes down to. But there is volatility that's in the schedules. Some programs are running very solid, very strong. And we're experiencing that ourselves where we have very strong schedules at this point in time.
Speaker Change: Well, what I would say on our customer schedule side of things, we did start seeing it a little bit more volatility at the end.
Speaker Change: End of the first quarter or beginning here in the second quarter again, largely due to just whats going on with the tariff policy issues that are out there and again I would just need to understand and get clarity. So we can plan. Our businesses is really what it comes down to but there is volatility that's in the schedules some programs.
Speaker Change: We're running very solid very strong and we're experiencing that ourselves where we have very strong schedules at this point in time, we had some softening in the in the first quarter.
Christopher May: We had some softening in the first quarter, largely because of some inventory adjustments or some launches that were going on with some of our key customers, but those are starting to subside. But there is some volatility that's found its way into the schedules, no doubt about it.
Speaker Change: Largely because of some inventory adjustments with some launches that are going on with some of our key customers, but those are starting to subside a.
Speaker Change: But there is some volatility that's found its way into the scheduled no doubt about it.
Christopher May: Yeah, and Justin, this is Chris, you know, we're keeping a close eye on the end of the second quarter July shutdown activity. But as David mentioned, some of our core platforms running running strong. However, we are keeping a little bit of eye towards the end of the second quarter July shutdown. Yeah, and some of the customers, some of the customers have taken certain assembly plants down that's impacted multiple suppliers. You know, fortunately for us, we haven't been impacted as much by that. And we're benefiting from the strong performance of the key platforms that we're on.
Chris May: Justin This is Chris you know, we're keeping a close eye on the end of the second quarter July shutdown activity, but as David mentioned some of our core platforms running running strong. However, we are keeping a little bit of eye towards the end of the second quarter July shut down it.
Speaker Change: Got it and then some of the customers some of the customers who have taken certain assembly plants thousands impacted multiple suppliers.
Speaker Change: Fortunately for US we haven't been impacted as much by that and we're benefiting from the strong performance of the key platforms that we're on.
Speaker Change: Yeah.
Itay Michaeli: Perfect, definitely appreciate the color there.
Speaker Change: Perfect definitely appreciate the color there, but maybe you hit the low end it for my second question on the low end of the north.
Itay Michaeli: Maybe at the low end for my second question, low end at the North America production range, the 14 million, any key assumptions in there outside of the GM programs that you might be baking in for key program exposure, just maybe better trying to understand the low end of that range relative to the revision on the low end of the sales guide. Yeah, as we thought about the implications for the low end, Justin, I would say aside from our positioning on the full size truck for General Motors, obviously, our second largest platform is the Ram heavy duty.
Speaker Change: Erika production range of 14 million any key assumptions in there outside of the GM programs that you might be baking in core key program exposure, just maybe better trying to understand the low end of that range relative to the revision on the low end of the sales guide.
Speaker Change: Yes, we thought about the implications for the low end, Justin I would say aside from our positioning on the full size truck for General Motors, obviously, our second largest platform as the Ram heavy duty.
Itay Michaeli: We, they had they had a low volume of production as they were stepping into their next generation of product in the first quarter. And they continue to step through that. But we still generally speaking think of that as a fairly robust platform. Absent those two programs. For our guidance, as we think about the low end, we generally took a broad based approach to overall reductions across most platforms to get to the lower end.
Speaker Change: They they had a low volume production as they were stepping into their next generation of product in the first quarter and they continue to step through that but we still generally speaking think of that as a fairly robust platform.
Speaker Change: Absent those two programs.
Speaker Change: For our guidance as we think about the low end, we generally took a broad based approach to overall reductions across most platforms to get to the lower end.
Speaker Change: Perfect. Thank you so much for the color appreciate it.
Itay Michaeli: Thank you so much for the call.
Itay Michaeli: I appreciate it.
Speaker Change: 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. Hi, thanks for taking the questions. So, you know, currently the tariff policies, it's worded, says USMCA parts are Compliant Parts Are Exempt From Tariffs. But then there's this kind of room for further evaluation, I guess, from the administration on, you know, potentially further US contenting. But it sounds like you guys, not just you guys, sounds like everybody is assuming that this this stick And in this event, the direct tariff impact to you guys is quite limited. Is that fair to say? Under the current US MCA regime, yeah, I would tell you based upon our imports from Mexico and Canada, yes, reasonably limited, though, as I mentioned, in some of our prepared remarks, we do bring product in from outside of the North America region, not a lot, but some.
Tom Narayan: Hi, Thanks for taking the questions.
Speaker Change: Currently the tariff policies, it's worded says U S M C a parts.
Tom Narayan: Sure.
Tom Narayan: Blaine parts are exempt from tariffs, but then there's this kind of room for further evaluation I guess from the administration on you know potentially further U S content, but it sounds like you guys. Not just you guys sounds like everybody is assuming that this this sticks.
Tom Narayan: Hmm.
Tom Narayan: And then in this event the direct tariff impact to you guys is quite limited is that is that fair to say.
Tom Narayan: Under the current U S. MCA regime, Yeah, I would tell you based upon our imports.
Tom Narayan: From Mexico, and Canada, Yes, reasonably limited, though as I mentioned in some of our prepared remarks, we do brings.
Tom Narayan: Bring product in from outside of the North America region, not a lot, but some so it's probably a few million dollars a month of I would call it tariff payment or tariff expense that we're working to mitigate <unk> pass along into our customer base and it sort of sits today.
Tom Narayan: So it's probably a few plus million a month of I would call it tariff payment or tariff expense that we're working to mitigate and or pass along into our customer base. And it sort of sits And then just kind of a fuzzy question. You know, this week, there seems to be kind of a somewhat of a sentiment shift probably since the Tuesday administration policy adjustment. We've heard it from some OEMs reporting results this week as well, that sounds more kind of constructive or optimistic that the administration perhaps is looking to, with some more nuance as it relates to the U.S.
Tom Narayan: And then just kind of a fuzzy question.
Tom Narayan: This week, there seems to be kind of a somewhat of a sentiment shift probably since the Tuesday.
Speaker Change: <unk> policy administration policy adjustment.
Speaker Change: We've heard it from some Oems reporting results this week as well that sounds more kind of constructive we're optimistic.
Speaker Change: That the administration, perhaps is looking too with some more nuance as it relates to the U S auto industry.
Tom Narayan: auto industry.
Speaker Change: I know, it's not a it's not an actual specific American axle specific question, but I'd love to hear your guys' thoughts on this kind of at a high level. If you would agree you're sure that that sentiment. Thanks.
Tom Narayan: And it's not an Axle-specific, American Axle-specific question, but I'd love to hear your guys' thoughts on this kind of at a high level, if you would agree or share that sentiment.
David Dauch: Tom, this is David. Listen, Trump is doing exactly what he said he was going to do when he was campaigning is he wants to build a strong manufacturing base in the U.S. He wants to support and strengthen the U.S. auto industry. He wants to bring jobs back to America and strengthen our economy. We're going through a bumpy road right now. We all just need to be patient and work our way through this whole thing together and not overreact. At the same time, when we get to the other side, I think America will be much stronger.
David Lim: Yes, Tom This is David listen Trump is doing exactly what he said he was gonna do when he was campaigning as he wants to build a strong manufacturing base in the U S.
David Lim: He wants to support and strengthen the U S auto industry.
David Lim: Wants to bring jobs back to America and strength of our economy.
David Lim: Going through a bumpy road right now we all just seem to be patient and work our way through this whole thing together not overreact at the same time when I when we get to the other side I think.
Speaker Change: America will be much stronger at the same time. He is he's driving a lot of investment by foreign companies into the U S. Instead of a lot of money going offshore it's gonna stay in the U S is going to create those jobs for Americans here I mean part of the concern. It was kind of raised by Joe earlier is labor availability, there's a lot of open jobs today.
David Dauch: At the same time, he's driving a lot of investment by foreign companies into the U.S. Instead of a lot of money going offshore, it's going to stay in the U.S. and it's going to create those jobs for Americans here. I mean, part of the concern that was kind of raised by Joe earlier is labor availability. There's a lot of open jobs today. That's why I think automation, robotics and other things are going to have to come into play in order to be able to support the amount of jobs that potentially can be created with the policies that are put into place.
Speaker Change: That's why I think you'll all automation robotics and other things are going to have to come into play in order to be able to support the amount of jobs that potentially can be created with the policies that are putting into place, but make no mistake I mean to trumpet just attacking the tariff imbalance that existed for decades, and he's just trying to level the playing field to give the U S automotive.
David Dauch: But make no mistake, I mean, Trump is just attacking the tariff imbalance that existed for decades. And he's just trying to level the playing field to give the U.S. auto industry and other industries, for that matter, a competitive playing field or a level playing field to do business. And if we didn't, then there was a risk of some of those businesses being at risk longer term. And so overall, I'm very supportive of what he's doing, or we're supportive of what he's doing. It has created some issues for, you know, as far as additional work for all of us.
Speaker Change: History in other industries for that matter are competitive plainville or a level playing field to do business and if you. If we didn't then there was a risk of some of those businesses being at risk longer term yeah.
Speaker Change: So overall I'm very supportive of what he's doing there were supportive of what he's doing it has created some issues for you as far as additional work for all of us.
David Dauch: But at the same time, you do what you need to do to manage through these tough times. But at the same time, as we said in our comments, Chris and I, together, we see this as an ultimate positive when it's all said and done. And we think that we can actually gain business, especially through our metal forming business with a lot of the the onshore and the reshore that needs to take place here. So we're just staying true to our policies and our procedures about buying and building local. We're trying to leverage our capacities wherever needed.
Chris May: Same time, you do it you need to do to manage through these tough times, but at the same time as we said in her comments, Chris and I are together, where we see this as an ultimate positive when it's all said and done and we think that we can actually gain business, especially through our metal forming business with a lot of the the onshoring that reassured that needs to take place here. So.
Chris May: We're just staying true to our policies and our procedures about buying a building local we're trying to leverage our capacities wherever needed and we're coming to our customers with solutions to help them address some of the concerns and some of the issues that exist right now so that's.
David Dauch: And we're coming to our customers with solutions to help them address some of the concerns and some of the issues that exist right now. So that's my view, Chris.
Speaker Change: That's my view, Chris I don't know if you have anything else you want to comment on something that gets exactly.
Christopher May: I don't know if you have anything else you want to comment on. So that's exactly.
Chris May: Okay.
Chris May: Great. Thanks, a lot.
Chris May: Thank you.
Moderator: The next question is from James Picariello with BNP Paribas. Please go ahead.
James Picariello: The next question is from James Picariello with BNP Paribas. Please go ahead. Hi, good morning, guys. My question is on GM. They announced, you know, the 50,000 annualized units.
Chris May: Okay.
James Picariello: Hi, good morning, guys.
Chris May: Mike My question is on G M.
Chris May: They announced the 50000 annualized units.
James Picariello: Moving from Mexico to their Fort Wayne plant, and just curious, will they be able to insource, like fully insource and support those axles, or is there a situation whereby, you know, you guys come in and supply, you know, the full driveline system at the Fort Wayne plant? Yeah, I mean, Fort Wayne today is being supported by both AM and General Motors. So yes, there's an incremental volume that's going there. At the same time, you know, GM's got contractual obligations, and we'd expect them to honor those contractual obligations. But as I said earlier, we'll work collectively with our customer, in this case, GM, to manage that opportunity there.
Chris May: Moving from Mexico to their Fort Wayne plant and just curious well.
Speaker Change: Will they be able to in source like fully endorse and support those actuals or is there a situation whereby you guys come in and and supply you know the full driveline system at the Fort Wayne plant.
Speaker Change: Yeah, I mean for Fort Wayne today is being supported by both a M and general Motors.
Speaker Change: So, yes, theres, an incremental volume that's going there at the same time, you know Jim's got contractual obligations and we would expect them to either of those contractual obligations, but as I said earlier, we'll work collectively with our customer in this case G M to manage that that opportunity, there, but but they're responding appropriately to what what Trump has asked them to do it in regards.
David Dauch: But they're responding, you know, appropriately to what Trump has asked them to do in regards to looking at bringing certain work back to the US. Plus, they're also mitigating their own financial exposure due to the tariffs. We respect all those decisions, and we'll support our customer whatever way we need to on this going forward. But we do supply all the GM assembly plants around North America, based on the portfolio that we have in place and the plants that we have in place. So we're supplying Fort Wayne, Arlington, Flint, Oshawa, and go on.
Speaker Change: So looking at bringing certain work back to the U S. Plus there are also mitigating their own financial exposure due to the tariffs we respect all those decisions and it will support our customer whatever way we need to on this going forward, but we do supply all the GM Assembly plants.
Speaker Change: You know all around it you know North America based on the portfolio that we have in place and the plans we have in place we're supplying Fort Wayne Arlington Flint Oshawa I can go on so, but we'll just have to work that out with the customers as we get a little bit more clarity.
James Picariello: So we'll just have to work that out with the customer as we get a little bit more clarity. So the content for AAM is very similar in terms of the Mexico versus Fort Wayne plants? Yes. No, absolutely. At the same time, GM only has so much installed capacity on the Axle side, based on the agreements that we have. And like I said, there's contractual obligations there as well. But we'll work with them. If they permanently reload things, we'll have to have those discussions about what we need to do on a go-forward basis. Got it.
Speaker Change: So the content for AAM is very similar.
Speaker Change: In terms of the Mexico versus Fort Wayne.
Speaker Change: Yes, yes no.
Speaker Change: Absolutely at the same time, Jim only has so much installed capacity on the axle side based based on the agreements that we have and like I said theres contractual obligations, there as well, but we'll work with them that they permanently reload load things will have to have those discussions about what we need to do on a go forward basis.
Speaker Change: Got it and then just a housecleaning thing I think I missed the clarification. The the business that you sold in the in.
David Dauch: And then just a housecleaning thing. I think I missed the clarification. The the business that you sold In the first quarter here, you know, that shows up in the cash flow statement is that that is the India business that that we talked about, you know, likely likely getting sold in the second half. or is it something? This is not the India business. This is our interest in two joint ventures in China that we sold and received proceeds of about $30 million for the India sale of our commercial vehicle axle business. That will be in the second quarter.
Speaker Change: In the first quarter here.
Speaker Change: That shows up in the cash flow statement is that that is the India business that.
Speaker Change: That we talked about likely.
Speaker Change: It likely likely getting sold in the second half.
Speaker Change: Or is it something different.
Speaker Change: This is done at the India business. This is our interest in two joint ventures in China that we sold and received proceeds of about $30 million for the India sale.
Speaker Change: Sale of our commercial vehicle axle business that'll be in the second quarter. In addition to activity you saw in the first quarter.
James Picariello: That's in addition to activities on the Perfect, thank you.
Speaker Change: Perfect. Thank you.
Speaker Change: The next question is from Dan Levy with Barclays. Please go ahead.
Dan Levy: The next question is from Dan Levy with Barclays. Please go ahead. Hi, good morning. Thanks for taking the questions. I wanted to follow up on the on the questions on modifying footprint, and maybe you could just talk about some of the CapEx considerations. Obviously, if your CapEx here is maintained, but how do you think about the potential magnitude of CapEx changes ahead? And what is the potential for that to be reimbursed by your customer?
Dan Levy: Hi, Good morning, Thanks for taking the question wanted to follow up on that on the questions on.
Dan Levy: Modifying footprint, maybe you could just talk about some of the capex consideration that'd be safe here.
Dan Levy: Capex here is maintained but how do you think about the potential magnitude.
Dan Levy: Capex changes ahead, and what is the potential for that to be reimbursed by our customers.
Speaker Change: Yeah, Dennis it's too early to speculate what that Capex number may be because we don't have clarity yet.
David Dauch: Yeah, Dan, it's too early to speculate what that CapEx number may be because we don't have clarity yet. At the same time, you know, we're in a capital intensive business and we try not to have a lot of excess capacity sitting around, try to keep our assets utilized. Obviously, as I said, we'll do it in close coordination. into place, we would expect some recovery and sharing of that responsibility. But we're but it's a partnership, we got to work together. Okay, but in the context of, you know, the CapEx the last few years, which has actually been held in really well, I guess it's too early to tell if there's going to be some sort of a CapEx bubble, if there's some catch Correct.
Speaker Change: At the same time, you know we're in a capital intensive business and we try not to have a lot of excess capacity sitting around trying to keep our assets utilized obviously with you know as I said, we will do it in close coordination with <unk>.
Speaker Change: Put into place, we would expect some recovery and sharing of that responsibility, but where but it's a partnership we got to work together.
Speaker Change: Okay.
Speaker Change: The context of a you know the Capex the last few years, which has actually been held in really well.
Speaker Change: I guess, it's too early to tell if there's going to be some sort of a capex bubble. If there's some catch up on that correct just maybe some context on how.
David Dauch: There's maybe some context on that. in that we'll rebalance some of the CapEx to minimize that impact as best we can or spread it out over multiple years to be able to accommodate what we need to do. But clearly the number one thing we need is just clarity from our customers in regards to their manufacturing footprint, and then we can plan our businesses appropriately. The other thing that we just need to understand, and we're getting more clarity, is that, you know, parts that are USMCA compliant, they're not a suspect to the tariffs, which, you know, gives us a lot of flexibility with the existing installed capacity that we have.
Speaker Change: Man that will rebalance some of the capex to minimize that impact as best we can or spread it out over multiple years.
Speaker Change: To be able to accommodate what we need to do but clearly the number one thing we need is just clarity from our customers in regards to their manufacturing footprint and then we can plan our business is appropriately. The other thing that we just need to understand and we're getting more clarity is the parts that are U S. MCA compliant, they're not they're not suspect to the terrorists, which you know.
Speaker Change: US a lot of flexibility with your existing installed capacity that we have.
Speaker Change: The next question is from John Murphy with Bank of America. Please go ahead.
John Murphy: The next question is from John Murphy with Bank of America. Please go ahead. Good morning, guys. Just wanted to follow up on that. Customs put a letter out yesterday basically indicated that USMCA compliant parts were not going to be tariffed for the foreseeable future. And that seems like that's kind of the letter where this is right now. Is that your understanding? And where is this 100 million rest of world import, you know, coming from? I'm assuming non China, but just trying to understand what the levels are. Yeah, that's our understanding, John, is that no tariffs for USMCA compliant parts.
Speaker Change: Good morning, guys, just David I, just wanted to follow up on that because customers put a letter out yesterday basically indicated that U S. MCA compliant parts, we're not going to be tariff for the foreseeable future and that seems like that's kind of the letter where they see US right now is that your understanding and whereas this 100 million rest of world.
Speaker Change: Port coming from I'm, assuming non China, but just trying to understand what the levels are there.
Speaker Change: Yeah, that's hard to understand any John is that no terrorists or U S. MCA compliant parts. That's why we're trying to make sure that we have over 90% of our product did U S. MCA compliant today, we're working to mitigate.
John Murphy: That's why we're trying to make sure that we have over about 90% of our product that's USMCA compliant today. We're working to mitigate the remaining balance. At the same time, the Trump administration hinted around about giving credit only for US content. So we're mapping our supply bases right now to make sure that we can understand what's USMCA compliant versus US content compliant. So that we can mitigate any future impact on a go forward basis. So yes, so we see it as positive news, based on what we heard the other day. But at the same time, we have to prepare ourselves because of the comments that were made earlier about only giving benefits on the US content, because there's still potential that that could be instituted.
Speaker Change: The roaming remaining imbalance at the same time, the Trump administration hinted around about giving credit only for U S content. So we're mapping our supply basis right now to make sure that we can understand what U S. MCA compliant versus U S content compliant.
Speaker Change: So that we can mitigate any future impact on a go forward basis. So yes. So we see it as positive news based on what we heard the other day, but at the same time, we have to prepare ourselves because of the comments that were made earlier about only giving benefits on the U S content.
Speaker Change: Because theres still a potential that that could be instituted.
John Murphy: But right now, we're focused on just the USMCA compliancy and making sure that we got all of our parts there, and work on substitutions where required, work on reshoring where required, or work with OEMs where we have some directed by components to deal with some of those matters.
Speaker Change: But right now we're focused on just the U S MCA compliance and making sure that we got all of our parts there and work on substitution where required work on reassuring where required or work with Oems, where we have some directed by components to deal with some of those matters.
Christopher May: John, this is Chris. Second part of your question, I think, related to the 100 million rest of the world exposures, so think countries like India, Korea, and some others to a lesser extent, but that would not include China. We have very, very little exposure at all to China. Okay, hopefully that letter from customs yesterday holds because that means that you're in very good shape and don't need to do much, if anything at all here in North America. One other, yeah, I mean, it seems like it's going to hold and you're fine, you don't have to move anything.
Speaker Change: And John This is Chris the second part of your question I think related to 800 million rest of world exposure, So countries like India Korea, and some others to a lesser extent, but that would not include China, we have very very little exposure at all to China.
Speaker Change: Got it okay, hopefully that letter from customers yesterday holds because that means you're in very good shape, you don't need to really do much if anything at all here in North America.
Speaker Change: One other one other yeah I mean, it seems like it's getting a hold in your fine you don't have to move anything.
Speaker Change: On on carbon Evs I mean, this is just not being discussed, but it's almost as consequential.
John Murphy: On carb and EVs, I mean, this is just not being discussed, but it's almost as consequential to the business at large, or maybe even more consequential, you know, depending on where you sit in the value chain. But, you know, this, you know, this cancellation of carb and a significant slowdown in EVs, you know, I'm just curious what you think that means to your business sort of mid and long term. And, you know, what it means as far as maybe pulling back on R&D and other capital commitments that are not having, you know, been met.
Speaker Change: <unk> to the business at large or maybe even more consequential for depending on where you sit in the value chain, but.
Speaker Change: This cancellation of carb and a significant slowdown in evs.
Speaker Change: I'm just curious what you think that means to your business or of mid and long term and you know what it means as far as maybe pulling back on R&D.
Speaker Change: And other capital commitments that are not having.
Speaker Change: Much pay off if at all particularly in North America.
Speaker Change: What does that what do you think that means and how do you. How do you kind of think about that year in your youre planning going forward.
David Dauch: Yes, this is John, this is David. I'll make some comments first, then open up to Chris. But, you know, clearly, you know, if we see ICE and hybrid activity continuing longer, I mean, that's a good thing for us, because we already have installed assets and have more volume going across those assets. So that's a big positive for us. It'll help us generate even more cash flow to be able to support what we need to do to fill out and complete our EV portfolio. Clearly, part of the acquisition at Dahle that's important to us is expanding our EV capability and developing a more agnostic product portfolio.
David: So John this is David I'll make some comments first and then open it up to Chris but yes.
David: Clearly, if we see ice and hybrid activity continuing longer I mean, thats a good thing for us because we already have installed assets and have more volume going across those assets. So that's a big positive for us.
David: It will help us generate even more cash flow to be able to support what we need to do to fill out and complete our EV portfolio.
David: Clearly part of the acquisition of Dolly that's important to us is expanding our <unk> capability.
David: But in a more agnostic product portfolio.
David Dauch: We have trimmed down some of our ER&D expenses year over year, based on the fact that we have a lot of our electrification strategy put into place, but we do have some more to do. So there's still work that's there. You know, with that being said, we've been very selective about what electrification programs we'll go after, and with which customers and on which It'll be at a much slower ramp in North America than what people were projecting or predicting.
David: We have trimmed down some of our E E R&D expenses year over year.
David: Based on the fact that we have a lot of our electrification strategy put into place, but we do have some more to do so theres still work that's there.
David: With that being said, we've been very selective about what electrification programs will go after and with which customers and which platforms and we're also trying to protect ourselves with respect to the appropriate terms and conditions because of the volatility that exists on the acceptance rates by consumers, especially here in North America.
David: Electrification is here, it's only going to grow it's just not going to grow at the rate that the prognosticators are forecasting earlier the consumer has spoken.
David: A lot longer and ice and hybrid are gonna be here for decades, while E. V is going to gain market share on a go forward basis it'll be at a much slower ramp in North America than what people were projecting or predicting.
David Dauch: I'm just sorry, just to sneak one follow-up in there, it's fair to say that ICE program extensions are net positive for American Axel, because there's some debate on that. Absolutely. I'm not sure what the debate is, but I think that's a very clear yes. I agree. I agree with you. We have a very strong installed capital base, we'll be able to leverage for a very long time, which will generate a lot of cash and profitability off of that. Your core operations are focusing on productivity on existing products. I mean, there's nothing but I agree.
David: Sorry, just to sneak one follow up in there it's fair to say that ice program extensions are net positive.
David: American axle because theres some debate on that.
David: Absolutely.
David: Okay.
David: I think they have.
David: Very clear.
David: I agree I agree with you we have a very strong installed capital base would be able to leverage for a very long times, which will generate a lot of cash and profitability off of that your core operations are focusing on productivity on existing products I mean, theres nothing but good.
John Murphy: All right. Thank you very much, guys. Yeah. Thanks, Ryan.
Speaker Change: Great Alright, Thank you very much guys, yes, thanks Ryan.
Douglas Karson: See you. Thank you, gentlemen.
Speaker Change: Thank you gentlemen, your last question comes from Doug Karson with Bank of America. Please go ahead.
Douglas Karson: Your last question comes from Doug Karson with Bank of America. Please go ahead. Hey, guys, thanks so much for sneaking me in here at the end.
Doug Karson: Hey, guys. Thanks, so much for sneaking me in here at the end.
Speaker Change: It wouldn't be a fun day without talking about the balance sheet for a moment.
Douglas Karson: It wouldn't be a fun day without talking about the balance sheet for a moment. With the completion of this transaction, which looks like it's a green light. Transcripts provided by Transcription Outsourcing, LLC. The OEMs are contemplating bringing back Potential Assembly Plans or various production. How hard do you think that's going to really be? I know it's hard. make a comment on that. In my career, that's been a really slow process. And I'm just kind of wondering, like, how you think about it when you're, like, at the water.
Doug Karson:
Speaker Change: With the completion of this transaction, which looks like its a green light can you just reiterate how you want to structure the balance sheet as far as leverage and then have more open ended question. Considering you guys have been in the industry for for my entire career.
Doug Karson: The Oems are contemplating bringing back.
Doug Karson: Potential assembly plants or various production.
Doug Karson:
Doug Karson: How hard do you think that's going to really be I know, it's hard to it.
Doug Karson: Make a comment on that but I.
Doug Karson: I mean in my career, that's been really slow process to move plants around.
Doug Karson: And I'm just kind of wondering like how you think about it when you look at the water cooler like sharing ideas.
David Dauch: This is David.
David: But this is David let me, let me start with the second question first and then Chris can cover the other question.
David Dauch: Let me start with the second question first, and then Chris can cover the other question. We just talked earlier in regards to some of the OEMs evaluating what needs to be done. Listen, that's not an easy task, all right? It's been decades to build up the infrastructure and the facility and the footprint that OEMs have, and for that matter, suppliers as well. And it's billions of dollars to try to build a brand-new assembly plant, and it takes time to do that as well. So it's not like these jobs can move immediately. Some jobs can move based on line rate increases or if there's open capacity at an existing facility.
Speaker Change: We just talked earlier in regards to some of the Oems evaluating what needs to be done.
Speaker Change: Listen that's not an easy task right, it's been decades to build up the infrastructure in the facility.
Speaker Change: And the footprint that Oems have and for that matter of suppliers as well and it's billions of dollars to try to build a brand New Assembly plant.
Speaker Change: It takes time to do that as well so it's not like these jobs can move immediately some jobs can move based on line rate increases or if there is open capacity out of an existing facility, but two plants are just sitting there waiting they'd have to be retooled or built in.
David Dauch: But plants aren't just sitting there except waiting. They'd have to be retooled or built in their entirety for that. So this will take years to do. But at the same time, I think what the Trump administration is looking for is jobs to come back to the U.S., commitments made by OEMs, and he's obviously having discussions with each of the OEMs. You've seen the amount of commitments that have been made both from the Detroit 3 as well as the international OEMs. A lot of investment has already been announced and jobs to be created. It's just a matter of the timing to ultimately complete those initiatives that are taking place.
In their entirety, you'll for that so this will take years to do but at the same time I think with the Trump administration is looking for is jobs. They come back to the U S commitments made by Oems and he's obviously, having discussions with each of the Oems you've seen the amount of commitments that have been made both of them.
Speaker Change: Detroit, three as well as the international Oems a lot of investment has already been announced.
Speaker Change: And jobs to be created it's just a matter of the timing to ultimately complete those initiatives that are taking place. So I think the intent that Trump has to bring work back to the U S is working it's just it's going to be costly and it's gonna be timely in order to be able to you'll get that done and it did like I said it just doesn't.
David Dauch: So I think the intent that Trump has to bring work back to the U.S. is working. It's going to be costly and it's going to be timely in order to be able to get that done. And like I said, it just doesn't happen overnight. Obviously, we've got a global footprint in infrastructure. We leverage that to try to buy and build local for the local markets. And as Chris said, what we're making in Mexico is for the most part consumed in Mexico or a large part of it. Same thing here in the U.S.
Speaker Change: It happened overnight.
Chris May: Obviously, we've got a global footprint and infrastructure, we leverage that to try to buy and build local for the local markets and as Chris said, what we're making in Mexico is for the most part consumed in Mexico or a large part of it.
Speaker Change: Same thing here in the U S but.
Speaker Change: But we'll balance that based on what the needs are and what the requirements are of the administration and our customers.
Chris May: Yeah, Doug this is Chris.
Christopher May: Yeah, Doug, this is Chris. Let's dial back over, flip back to your first part of your question on the balance sheet as it relates to the larger transaction with Dahlia. You know, we're in great shape from that perspective. The bridge has been syndicated. We have now amended and adjusted our core revolvers, a standalone company for AAM, but also it's positioned very well now for the transaction to put us plenty of capacity where we need there from $1.5 billion in terms of revolver capacity. But we're very focused also on having a nice maturity table at close.
Speaker Change: Let's dial back over back to your first part of your question on the balance sheet as it relates to the larger transaction with dollar.
Speaker Change: We're in great shape from that perspective, the branch has been syndicated we have now amended and adjusted our core revolver as a standalone company for AAM, but also its positioned very well now for the transaction to put us plenty of capacity, where we need there from a $1 5 billion in terms of revolver capacity, but.
Speaker Change: But we're very focused also on having a nice maturity table that close I think we will accomplish that once we go to market and you're near the end of the year when when we close the transaction and then we're heavily focused as you know on leverage so today as Standalone American axle. We closed March at two nine times our goal at least at close of the transaction are for with dollar would be.
Christopher May: I think we'll accomplish that once we go to market near the end of the year when we close the transaction. And then we're heavily focused, as you know, on leverage. So today, a standalone American Axle, we closed March at 2.9 times. Our goal, at least at close of the transaction with Dahlia, would be to be approximately leverage neutral to that. And as we go forward, our primary source of our cash flow, obviously, is from our operations and the strong synergy opportunity that we'll see. That cash flow, in turn, will then de-lever the company with the objective, an initial step, if you will, to 2.5 times.
Speaker Change: Approximately leveraged neutral to that.
Speaker Change: And as we go forward our primary source of our cash flow, obviously from our operations and the strong synergy opportunity that we will see that cash flow in turn will then delever. The company with the objective of initial step if you will to two five times at that point, we will continue to Delever. The company. Further however, we will also open up the capital allocation.
Douglas Karson: At that point, we'll continue to de-lever the company further. However, we'll also open up the capital allocation playbook at that level to, I'll call it, other shareholder type activity. But de-leveraging and strengthening the balance sheet is a top priority for us today as a standalone company. It'll be a top priority for us as a combined company Thanks. And it seems that with the additional new business that the de-levering could potentially even be accelerated from the prior plan. It sounds like that. And if that's true, that'd be great. Yep. Agreed.
Speaker Change: Playbook at that level to I'll call. It other shareholder type activity, but deleveraging and strengthening the balance sheet is a top priority for us today as a standalone company it will be a top priority for us as a combined company together.
Speaker Change: And it seems that with the additional new business that delevering could potentially even be accelerated from there.
Speaker Change: Prior plan it sounds like that and if that's true that would be great.
Speaker Change: Yep.
Speaker Change: Great. Thanks, guys alright, thank you.
Douglas Karson: Thank you Doug, and we thank all of you who have participated on this call and we look forward to talking with you soon in the future. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Thank you Doug and we thank all of you have participated on this call and we look forward to talking with you soon in the future. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.