Good morning. My name is Alison and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing First Quarter 2019 Earnings Conference Call. All the lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Jason Parsons, Director of Investor Relations. Please go ahead, Mr. Parsons.

Thank you, Alison, and good morning. I would like to welcome everyone who is joining us on the AAM's first quarter earnings Call. Earlier this morning, we released our first quarter of 2019 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.aam.com, and through the PR Newswire services. You can also find supplemental slides of this conference call on the Investor page of our website as well. To listen to a replay of this call, you can dial 1-877-344-7529. Reservation number 10130211. This replay will be available beginning at 1:00 p.m. today through 11:59 p.m. Eastern Time, May 10. Before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties, which cannot be predicted or quantified, and which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also, during this call, we will refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures, as well a reconciliation of these non-GAAP measures to GAAP financial information is available on our website. Over the next couple of months, we expect to participate in the following conferences, the 2019 KeyBanc Capital Markets' Industrial, Automotive & Transportation Conference on May 30, Barclays' High Yield Bond and Syndicated Loan Conference on June 6 and the JP Morgan European Automotive Conference in June 11. In addition, we are always happy to host investors in any of our facilities. Please feel free to contact me to schedule visits. With that, let me turn things over to AAM's Chairman and CEO, David Dauch.

Thank you, Jason and good morning to everyone. Thank you for joining us today to discuss AAM's financial results for the first quarter of 2019. Joining me on the call today are Mike Simonte, AAM's President; and Chris May, AAM's Vice President and Chief Financial Officer. To begin my comments today, I'll review the highlights of our first quarter 2019 financial performance. Next, I'll comment on the performance and AAM's business units, the progress of our performance improvement plans and status on our critical launches. Lastly, I'll cover our 2019 financial outlook before turning things over to Chris. After Chris covers the details of our financial results, we will open up the call for any questions that you may have. Our first quarter financial performance reflects customer downtime due to program changeovers for our two largest programs and lower year-over-year light vehicle production volumes in our key markets of North America, Europe, and China. Our results also reflect the sequential performance improvements of our launch and operational efficiencies that we experienced in the second half of 2018. AAM sales for the first quarter of 2019 were $1.7 2 billion compared to $1.8 6 billion in the first quarter of 2018. The decrease in our revenues on the year-over-year basis reflect lower global production volumes, including the impact of customer downtime at the GM SUV and Ram heavy duty truck plants related to program changeovers. We were also impacted by slower than expected customer launch ramp curves for the Ram heavy duty program and certain transmission and engine component launches. The impact of these decreases were partially offset by the realization of our new business backlog. AAM's adjusted EBITDA in the first quarter of 2019 was $245 million or 14.3% of sales. This is compared to our $317 million in the…

Thank you, David and good morning everyone. I will cover the financial details of our first quarter of 2019 results with you today. I will also refer to the earnings slide deck as part of my prepared comments. Let's go ahead and get started with sales. In the first quarter of 2019 AAM sales were $1.7 2 billion compared to $1.8 6 billion in the first quarter of 2018. Slide 7, shows a walk down of first quarter of 2018 sales to first quarter of 2019 sales. The year-over-year decrease relates mainly to the impact of the transition to the next generation GM full-sized truck platform as well as lower production volumes related to customer downtime at General Motors SUV and FCA's Ram heavy duty pickup truck assembly plants as part of their model changeover process. Together, these two programs, representative reduction of $146 million in revenue on a year-over-year basis. Our new business backlog more than our normal attrition and other volume and mix factors for existing programs. The impact of our backlog, net of attrition is weighted towards the second half of 2019 with about 60% of it projected to be realized during that timeframe. Sales also decreased by $8 million for normal annual price downs and $12 billion for net metal market and foreign currency impacts. We expect that we'll see a similar decrease in year-over-year revenues in the second quarter when compared to 2018 but then we expect this trend to reverse as we get through the planned customer downtime in the first half of 2019 and in particular reach the one-year anniversary of the new GM pickup truck launch. Now let's move on to profitability. Gross profit was $222.2 million or 12.9% of sales in the first quarter of 2019. Adjusted EBITDA was $245 million…

Thank you, David and Chris. We will now turn it over to Q&A. Please limit all questions and no more than two.

The next question will come from Brian Johnson of Barclays, please go ahead.

Good morning. I want to talk a little bit about 2Q as 1Q was pretty much in line. There's just frankly a significant shortfall versus consensus estimates. Is there any way you could dimension how much of that is due to perhaps lower than either we or you anticipated production volumes on the two big HD platforms you're on ram and D1K direct X to -- versus the cost issue in E-drive versus other pressures like launch costs and so forth.

Yes certainly Brian, this is Chris. You know, versus consensus obviously, you can see the main delta from an EBITDA perspective relates to buying in terms of revenues from that category. Obviously, the -- some of the ram curves that we talked about previously, a little slower than anticipated. a little weaker on some of our broader base of products from our metal form group as well as in some of our China all-wheel drive take rates. I would qualify those as the majority of the impact in terms of revenue changes. The gentle motor's heavy duty truck program was certainly has been long planned and not new.

And then, the…

The delta between that -- contribution margin of course, you have a little bit associated with the E-drive item that you mentioned.

And secondly, is -- we kind of go through other launches are you pretty much finished with the major ones by this summer or are there risks in either large volumes or planned volumes or launch costs when we get out into 2H?

We've got over 50 launches this year of which 70% of those launch on the first half of the year. So we're extremely busy right now with most of the big launches being here in the first half of the year. However, we do have some larger launches in the second half of the year as well. so but we do expect a lot of our launch related costs of project expenses to be coming down the second half your compared to the way it occurred the first half.

And then final question; as you've gone through the metal dine facilities, we've kind of highlighted your progress in fixing some of the things and dry and the 3 business units in those 2 plants but is there anything else you find covered that's required remedial action to bring a plant or program up to actual standards?

Nothing out of the ordinary. So we've already highlighted the 2 plants that would become issues to us back to the third quarter of 2018 that the employer to making meaningful progress on improving that facility and then the Twinsburg facility has stabilized. We don't see anything beyond those 2 additional facilities.

Have you gone through the -- have you sat down with plant management and gone through the upcoming launch programs; the staffing, the machinery they have in place, their supply chains to get comfortable that they're prepared.

If we've got very extensive reviews to pass the management at each of the facilities and we're also re-review on our supplier's status capability.

The next question will come from Armintas Sinkevicius from Morgan Stanley. Please go ahead.

Just trying to bridge a couple things here; the $190 million of free cash flow burn in the first quarter that implies $550 million roughly in the remaining 3 quarters to get to $350 million. You know can you walk me through what you know gets us there, you know because if I look at the adjusted EBITDA the guide implies, you know $955 million for the rest of the year CapEx $390. You know cash interest maybe $200. So I get to -- you know $350 million before I even take into account cash taxes. So you know that it just be helpful to get to the bridge to the free cash flow there.

Look your common sketch about halfway there. If you take sort of the main drivers EBITDA, CapEx, interest in taxes based on our -- you know previously stated guidance associated with those topics. You know over $300 million of cash flow in those areas. The other element is especially critical to understand really is too and it relates to working capital. We consume just on our receivables alone over two hundred million dollars of working capital in the first quarter. That typically flips in the fourth quarter so for example in the fourth quarter of last year you saw hold over $300 million benefit associated with just the receivables. So the working capital element will flip as the course of the year concludes and the other element of working capital that will also Reaches to our goals is inventory reductions .last year we grew our inventories well above our year-end 2017 levels. Because we were preparing for launches and getting ready to sequence those through the course of the year. You know we increase those you know $50- $60- $70 million. Our objective of course is to reduce inventories in a meaningful way throughout the course this year that would be the other leg of that achievement.

Okay, that's helpful.

Together that it gets you pretty close to where you need to be.

And then, adjusted EBITDA were down calling $5 million versus the guide you put out in the first quarter. So you know appreciate the ram coming in slower and some of the issues with the casting supplier for the E-Drive but that's down %5 million though the full your guide, you know moving to the low end is down $25 million. so you know is that just -- you know those factors carrying into the rest of the year or you know anything else there that bridges us you know from the down $5 million in the first quarter -- the down$25 million for the year.

If you think about the midpoint of our consensus runs our guidance was previously $7.35 million of revenue, $1.225 million of EBITDA and now we have now guided you to the low end of our ranges previously. So we're more than half of that would be certainly the contribution margin associated with the revenue drop. The E-Drive will get a piece of that. some of these slower launches you know in terms of the came out of the first quarter second quarter a little slower .you get a little bit of capacity utilization and efficiency on that a little bit and to be Frank, FX and metal market moved a little bit as well. I mean, you put those because we get you near the low end of the range.

Okay, apologies. I'm going to break Jason's rule here for just one more question. At the free cash flow guide, the 15 for the three year guide, does that still remain intact then?

Yes, it was four year, it was 2017 to 2021.

The next question will come from James Picariello of KeyBanc Capital Markets. Please go ahead.

Can you talk about you know which row of castings noble margin improvement to that 10% level? I know you mentioned you know pricing and an operating efficiencies but just curious what you know your expectations are for the remainder of the year and how well you expecting that pricing to stick. If I assume some volume recovery within the segment-- the back half you know feeling on pricing with some decent operating leverage. Could we see profitability return to you know 2Q of last year at that 11%t mark? Just curious.

Clearly the biggest thing for us in regards to improvements in the casting business was addressing the manpower shortage issue that we were dealing with as we indicated we would address the majority almost all the facilities with the exception of one. Once we get that, that helped us stabilize our operation, drove efficiency in our business as well as scrapping prudence. So a lot of it was the operational but again, driven back to having the appropriate manpower available and the appropriate operating patterns put in place to find that facility efficiently. I think, clearly as you commented, we did benefit from the other price adjustments that were put into place on the additional on the commercial side of the business. Those prices will stick and that was to address some of the inflationary costs and higher costs being incurred on the manpower side of things. And you know so we're happy to get it back to double digit performance and we expect to improve that as the year progresses.

Can you talk about you know what you're baking in at a high level for ram volumes in the back half. Obviously looks like you know large fines are a little slower than you had originally anticipated. You just wondering when you know you think that -- you know that that program might hit your run rate volumes and you know would you consider that program to be the primary driver of your guide down. Thanks.

That was certainly a piece of the guide down in terms of the lower end of the revenue range. There were some other elements associated with some of our revenues in China and elsewhere. But as it relates to run rate volumes on ram, we're expecting them to work through here the second quarter to get up the full rate pretty quickly. I mean it's product and demand. And that's consistent with what they articulated in their public commentary as well.

The next question will come from Joseph Spak of RBC Capital Markets.

As I just want to dive a little bit more into sort of this the second half you know inflection in EBITDA and maybe we can sort of focus on the performance improvements. I think previously, you indicated that that was going to sort of help by, I think $35 million for the year. It was obviously down $10 million this quarter you're still having some issues on E-Drive and what not. is it -- should we think about that year over year Performance headwind similar in the second quarter to the first quarter and then you have like a $60 million year over year benefit in the back half?

Yes, I would -- couple of different perspectives Joe. This is Chris. from a second quarter, when we start to compare second quarter 2019 to the second quarter 2018, you know that gap will probably remain very similar on an absolute basis but keep in mind, second quarter of 2018 was an extremely strong quarter so the extent we're maintaining the same delta from that previous high performing quarter it means we're improving our trends. You want to think about how we're going to get in develop and deliver that second half of 2019. You know based on the midpoint of our second quarter guidance, right that'll get us just under $3.5 billion of revenue for the first half of 2019 with a little over $520 million of EBITDA. If you analyze that, it gets you about $7 billion Company. We'll bring in over $300 million on a run rate basis of additional sales. Some of this on our higher contribution margin as these full size truck plants are up and running very strong in the second half. But that will deliver sizeable contribution margin to the company. We have our synergy benefits continuing to step up through the year, our business unit consolidation benefits will continue to step up here quarter over quarter. As well as then the items that you were talking about you know in a sizeable meaningful fashion as these abnormal project expense modulated activities dissipate on a series through the second quarter, as well as the normal project expense was first half waited to get all these other launch programs up and running. and then of course you're in a more stable operation second half of the year, you're running straight, you're running strong, you're delivering normal core productivity efficiency.

I guess since you brought up synergies and the reorganization savings. If I give a look at slide 8, I know you Buck in those 2 together at $10 million. is-- can it -- can you guys a break out there and the only reason I ask is because I think you said you know the business you consolidations me like $10 million to $20 million for the year. So I was maybe you know sort of you know straight line out across the or maybe that's inaccurate. but if that's true then that means you know the MPG synergies were only 6 and I think that would sort of put the -- you know the -- below the run rate that you were sort of targeting for back by this quarter. So maybe -- I know long question here but maybe just sort of give us all the color and like if it's possible to still sort of break out the original MPG savings versus sort of the New York savings like where are you on that run rate synergy level.

No, good question. First to be very clear, we are absolutely on track and deliver the run rate savings for MPG acquisition. In terms of that year over year 10 number, a very small amount, I think about like $1 million or so relates to the BU consolidation. It took place in the first quarter, there was significant other element of the actions that took place very tail-end of the first quarter, early part of the second quarter and that will step up.

The next question will come from Ryan Brinkman of JP Morgan.

First question on just margin trajectory, it's been talked about some but you -- previously your guidance implied a strong improvement in the back half relative to the front. What -- well I think 1Q was better in your take in the VR modestly down. It does seem because of the softer 2Q guide that now this sequential ramp to achieve the full year rate is even steeper .so I -- can talk some more about the reasons that are giving you the confidence in that ramp. how much is just the glide path from the sequential improvements you've already made an execution from 1Q to 2Q and cycling path of bowling shortfall issues in 2Q? I think this would be a lot easier for investors have confidence and versus you know, how much of the ramp is due to your needing to continue to execute on further performance improvement initiative or find -- even find other sources of state and you know that haven't been entirely identified yet.

First and foremost, we're making mean full improvements on all the operational challenges that we incur before and we explain that to you through the, you know the bubble chart that we put together on a slide 4 here. We expected to have some of these operational challenges behind us you know by the end of the second quarter. The only issue that we're carrying and you know deep in the second quarter is this whole E-Drive capping issue and that's not a huge issue but it's an issue that we just want to be transparent with the investment community there. Clearly, yes we're very busy and very focused on the launches with over 70% of our launches being in the first half of the year. We've got to get the big programs, the big cash generators for us. That being the GM full size truck programs and the ramp programs fully launched in that rate and dialed back in the way they were running you know prior to the changeovers that were taking place. Once we get through this big heavy launch the first half year get the Major programs dial back in, put these operational improvement issues behind us. That is just a matter we should be able to perform at a very high level which is what our expectations have been all along and we continue to reinforce that here today. Chris, I don't know if you want to comment on that?

Yes, in terms of just run rate conversion from first half to second half Ryan, you know take 60% plus of that margin and hence it will come through the higher volume a contribution margin that drops 40% on improvement but again that improvement is in the context of our synergies, our BU consolidation, the elimination of all these performance items that we talked about as well as the stepped down for project expense. Normal project expense so that will enhance margins well.

And then, just maybe lastly on the 2Q revenue, you know can you talk a little bit more about like which are the programs that are generated last revenue in 2Q. could you maybe parse it out between, like how much of the lower volume is simply because of a left underlying demand for these vehicles which I'm guessing has lost the case because you're so concentrated on you know crossover step up STV's that that are verses you know how much is you know simply relating to a different cadence or pace of customer launches which would indicate more of a timing issue. We have heard that from several other suppliers this quarter, they haven't always said which programs are leading with these timing differences that explores the mention a couple of times. I don't think that's material for you but I -- maybe just a little bit more color on what's pressuring the revenue in 2Q in the transients or lack thereof of that pressure.

First and foremost, for being impacted bayside passenger car behinds coming down on a global basis. Second, we're being impacted by penetration races but especially in Asia coming down and some of are all drive platforms. third, we're being impacted in regards to a slower ramp of the ram heavy duty program than what was planned and expected but our customers addressing those issues and expect to happen them addressed in the very near term and then you know the last issue is that there's a couple other programs our engine and transmission related at the launch process slid out a little bit. That's really what's driving the varying that degradation in the second quarter and why we feel so strongly about the second half of the year. Chris if there's anything else you want to add.

First, Ryan what you're pointing out is the degradation of consensus. Our revenues quarter over quarter are increasing. You know based on a lot of programs we support as well.

And your last question come from John Murphy, Bank of America Merrill Lynch. Please go ahead.

I apologize for that problem earlier. I just want to add a couple of really quick follow ups here. David, you said that 70% of your launches will be done by the end of June but I think Chris you said 60% of backlog log rolls on in the second half. Is that correct is one Just an actual account of execution on programs in the in the second lead the revenue benefit coming through in the second half. Is that correct?

Yes, that's correct. Absolutely fair way to put it.

Okay, that's-- so that has a big impact on the way this year the key to this year what will run, which you kind of alluded to obviously. Second, if we look at the casting business, obviously there's some you know a little bit an issue there, but as you look at the opportunity in casting the whole industry is short of capacity still it is there a greater opportunity for you may be in the near term to win to take over business or really grow that business maybe faster?

We clearly have some open capacity within our operations, within our casting business units. Clearly, we'll be opportunistic based on customer opportunities, the biggest thing that we've really been focused on John is just stabilizing the business that we do have and we feel like we made some very meaningful progress here the last couple of quarters, and we expect to only get stronger as the year progresses.

And then lastly, like the speaker said, the ram launches kind of -- you know slipping a little bit more than any HD, a little bit more than expected. do you have a line of sight on exactly what's going on there or is this more just communication from Chris saying that they they've got a handle on this issue. I understand how confident you are that this slip we rectified in the second quarter.

Clearly, FCA has by their own issues that they're so plant they also have some other supplier issues but I feel very strongly that they'll get the issues resolved in the very near term.

Okay, great. Thank you very much guys.

Thank you, John. Thank you all for your interest in American Axle. That will conclude today's call.

The conference has now concluded, and we thank you for attending today's presentation. You may now disconnect.