Good morning. My name is Rocco, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, and good morning. I would like to welcome everyone who is joining us on AAM's fourth quarter earnings call. Earlier this morning, we released our fourth quarter of 2024 earnings announcement. You can see this announcement on the Investor Relations page of our website, www.aam.com, and through the PR Newswire Services. You can also find supplemental slides for this conference call on the Investor page of our website as well. To listen to a replay of this call, you can dial 1877-344-7529, replay access code 2688905. This replay will be available through February 21st. Before we begin, I'd like to remind everyone that the matters discussed on 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 related to this earnings deck -- earnings announcement. Also, during the 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. Today's call is not intended and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy securities of AAM or Dowlais in any jurisdiction where such offers or solicitations are not permitted by law. The 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 the proxy solicitation is contained in AAM's case, in AAM's annual proxy materials filed with the SEC, and in Dowlais' case, in Dowlais' equivalent filings and announcements made in accordance with applicable UK law. 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 AAM's financial results for the fourth quarter and full year of calendar year 2024. Joining me on the call today are Chris May, AAM's Executive Vice President and Chief Financial Officer. To begin my comments today, I'll review the highlights of our fourth quarter and full year 2024 financial performance. Next, I'll cover our 2025 financial outlook. And after Chris covers the details of our financial results, I'll provide some concluding remarks about our exciting Dowlais combination and then open it up for questions that you all may have. So, let's begin. AAM closed the year out strong by continuing to make good operational progress in generating solid adjusted free cash flow in the quarter. AAM's fourth quarter of 2024 sales were $1.4 billion, and for the full year, AAM sales were approximately $6.1 billion. From a profitability perspective, AAM's adjusted EBITDA in the fourth quarter was $161 million or 11.6% of sales. For the full year, AAM's adjusted EBITDA was $749 million, or 12.2% of sales. AAM's adjusted earnings per share in the fourth quarter of 2024 was a loss of $0.06 per share. For the full year, adjusted EPS was a positive $0.51 per share. Adjusted free cash flow was $79 million in the quarter and $230 million for the full year in 2024. For 2024, AAM delivered on the financial targets that we had outlined at the beginning of the year. We came in at the high end of our original adjusted EBITDA range and exceeded the midpoint of our adjusted free cash flow target. These were achieved while the industry experienced production revisions throughout the year. It was a solid performance by AAM as we managed the factors that are under…

Thank you, David, and good morning, everyone. I will cover the financial details of our fourth quarter and full year '24 results and our 2025 outlook with you today. I will also refer to the earnings slide deck as part of my prepared comments. So, let's go ahead and begin with sales. In the fourth quarter of 2024, AAM sales were $1.38 billion compared to $1.46 billion in the fourth quarter of 2023. Slide 8 shows a walk of fourth quarter 2023 sales to fourth quarter 2024 sales. Volume, mix, and other lowered sales by $61 million as North American production declined by approximately 3% and we were impacted by the timing of launches of new next-generation products. Pricing was $5 million in the fourth quarter and metal market pass-throughs and FX lowered net sales by approximately $16 million as both were lower year-over-year. For the full year of 2024, AAM sales were $6.12 billion as compared to $6.08 billion for the full year of 2023. The primary drivers of the increase were volume and mix, partially offset by lower metal market pass-throughs and FX. Now let's move on to profitability. Gross profit was $154.3 million in the fourth quarter of 2024 as compared to $154.9 million in the fourth quarter of 2023. Adjusted EBITDA was $160.8 million in the fourth quarter of 2024 versus $169.5 million last year. You can see the year-over-year walkdown of adjusted EBITDA on Slide 9. In the quarter, the decline in volume mix and other impacted adjusted EBITDA by $20 million in the fourth quarter versus the prior year. R&D was slightly lower year-over-year and performance was $10 million favorable. For the full year of 2024, AAM's adjusted EBITDA was $749.2 million and adjusted EBITDA margin was 12.2% of sales. For the full year,…

Thanks, Chris. And before we go into the Q&A session, I wanted to discuss our transformational combination with Dowlais that we announced on January 29. This compelling strategic combination brings together two complementary global Tier 1 suppliers to create a leading global driveline and metal-forming company in the world. Simply, AAM plus Dowlais creates a more balanced and more resilient company with revenues on a non-adjusted combined basis of approximately $12 billion, combined adjusted EBITDA margin, including $300 million of run-rate synergies of approximately 14%, and we anticipate day-one net leverage after the impact of the transaction financing of approximately 2.5 times including synergies. Following the close of the transaction, we expect strong earnings accretion in the first full year. Upon closing, AAM will become a top 10 North American and top 25 global supplier. From a diversification standpoint, the combined business benefits greatly from a more balanced customer mix and geographic presence. We anticipate our GM concentricity to reduce to 25% post-close from approximately 40% today. As to our geographic presence, our North American dependence reduces to 54% from 73% today, while our European and Asian exposure grows. This improved geographic balance allows us to better serve our customers where their operations are located which positions us to grow the business that we already have and importantly, gain new customers. In summary, this strategic combination provides a more robust business model positioned to deliver higher earnings and cash flow Dowlais is a market-leading high-technology engineering group, which is comprised of two operating business units, GKN Automotive and GKN Powder Metallurgy. GKN Automotive is a leader in the development and production of sideshafts, prop shafts, all-wheel drive systems, e-erive systems, and e-power train components. GKN Powder Metallurgy is a global leader of high-performance and precision powder metal products for the…

Thank you. So, operator, can you start with the question-and-answer session, please?

Absolutely. [Operator Instructions] Today's first question comes from John Murphy at Bank of America. Please go ahead.

Good morning, guys. I just have a couple here. David, when you were mentioning -- or Chris, maybe when you're going through the walk on the outlook, you mentioned mix and volume. I'm just curious if you could talk about sort of that in the context of GM trucks and then also the Ram HD, and what your expectations are on those two specific programs for mix?

Yeah. So, the underpinning at the macro-level, John, 15.1 million North American units overall. From the T1 perspective or the GM full-size truck, I should say, think about the range of our revenue mix anywhere from 1.3 million units to 1.4 million units for the full year. And then, some of our other top platforms, like for example, the upcoming Ram HD platform, as you know, has been transitioning model years at the end of last year, beginning of this year. Big picture, we would see that relatively flattish year-over-year, because there was declines in the fourth quarter. We expect lower volumes in the first quarter, but then picking back up the production run rates in the second quarter and beyond.

Just maybe in the T1, is there something going on with mix in that platform where you think it might be less rich, maybe less 4x4s, or has that mix relatively flat?

It's relatively flat. We continue -- from that perspective, we continue to see strong robust demand on the HD, the heavy-duty side in terms of, let's call it, platform mix inside of that, and obviously, strong mix on the SUV. But from a four-wheel drive perspective, relatively flat.

Got it. And then just a follow-up on Dowlais. The R&D, it's down $20 million and the CapEx is down $50 million in your outlook for 2025. Is that -- is there kind of a -- is that organic, or is there some kind of precursor of understanding that you might be able to use some of the capital at Dowlais, particularly on the capacity side and some of the R&D from some of their products to overlay and save even before you get to the close? Or is this really stuff that you're doing purely on an organic basis?

Yeah, this is purely organic, John. This -- the guidance is our standalone company guidance perspective.

Got it. And then just lastly, Dowlais, you mentioned the customer reception was pretty good -- or actually very good, I should say. But can you talk about the customer reception outside of the D3 and the incumbent European companies? I mean, has there been any commentary from the Asian brands or the Chinese brands that might lead you to believe that you might have a real revenue synergy above and beyond what you're talking about so far?

Yes, John, this is David. Again, on Detroit 3, everything was very positive in regards to the initial discussions we had with them. Outside of the Detroit 3, to your question, again, people are excited about two complementary businesses coming together, the product portfolio becomes more expansive. Therefore, we'll be able to cross-sell and have greater opportunities with different customers around the world. They like the stability and the technology and the innovation that both companies bring to the table. So that's important. At the same time, remember, Dowlais has a very important joint venture in China. There's obviously a relationship that we want to maintain and continue there and grow that and there'll be meetings that will be upcoming with respect to the leadership of that joint venture and the ultimate customers. But it's been overall positively received in Europe, in Asia, and here in North America. So, we're very happy with the initial feedback from the customers.

That's great. Thank you very much, guys.

Thank you.

Thanks, John.

Thank you. And our next question today comes from James Picariello with BNP. Please go ahead.

Hey, guys. This is Jake on for James. So, I think we all appreciate the level of detail you've given us on some of these cost synergies and how that flows through to pro forma free cash flow, but can you just talk a little bit about maybe any top-line synergies you see, especially given the kind of complementary nature of the portfolios? Thank you.

Well, as I just mentioned, I mean, you're bringing together two very complementary businesses whose product portfolios support and are complementary and expansive to one another. So, there's going to be cross-selling opportunities. We think with multiple customers globally around the world, we definitely see opportunity for revenue growth that way. We also recognize and understand that they're innovative and technology-leading-based company. We've done similar things. We both have positioned ourselves very well on the electrification front when the markets take off there and obviously, that's going to vary by region of the world where China is already leading and active. Europe is moving along because of CO2 requirements changing, meaning getting tougher. And then, in North America, we know that it's slowing down a little bit here under the Trump administration. But regardless of the administration, we're putting ourselves in a position that we have a product -- a powertrain-agnostic product portfolio that can support the consumer requirements and the market requirements on a go-forward basis. And we see tremendous opportunity and flexibility and optionality with our portfolio, especially as we bring these two dynamic and positive companies together.

Thanks, David. And could you guys also just kind of help me with the free cash flow bridge? So, at the midpoint, your EBITDA is down about $30 million, CapEx up about $50 million, and you've managed to hold free cash flow more or less flat year-over-year. So, is there any working capital benefit that's driving that? And should we think about some sort of potential unwind in 2026, or is this number that could potentially continue to move higher once we get through the kind of next-generation GM full-sized launch? Thank you.

Yeah. Jake, this is Chris. I'll take that. You can see our free cash flow bridge on Page 13 of our earnings deck. Another contributor to favorable cash flow is we do expect some favorability as it relates to lower interest expense as we've been paying down our debt. But from a working capital perspective, that's going to be a key driver for us here in 2025. From an inventory perspective, we see still continued opportunity there. From a turns basis, we've been relatively flat year-over-year, which means we have opportunity to continue to reduce that down to levels we ran pre-COVID as things are stabilizing across the industry. In addition, from a payables and receivables or let's call it the traditional type of working capital elements, we see some additional opportunity inside those sets as well. So, we're excited to get at that working capital and I would not really envision any unwind of inventory or others as we clear through '25 on these structural changes for working capital.

Very helpful. Thanks, Chris.

Okay. Thank you.

And our next question today comes from Edison Yu with Deutsche Bank. Please go ahead.

Hey. Thank you for taking our questions, and good morning. First, I want to ask on...

Good morning.

Great. I wanted to ask on the transaction and maybe more of a strategic or higher-level point-of-view. It seems that we've seen a lot of suppliers kind of go the opposite way where they're getting smaller, [Technical Difficulty] kind of the approach of getting bigger and expanding. So, I'm curious, you look down whatever three, four, five years, what do you think the supplier landscape looks like? Is it going to kind of be more your direction that more people are going to consolidate, or do you think that actually this other kind of counter-trends that's been happening over the last couple of years actually is the way it goes?

So, Edison, this is David Dauch. I've been saying for years that I feel that the automotive market needs to consolidate both at the OEM level as well as -- and especially at the supplier level. I'm still true to my convictions that way and my beliefs and our thought process. Our team feels very strongly about that. That's why we've done a lot of the acquisitions that we've done. The biggest one we did was MPG back in 2017, but now this is even bigger here with Dowlais here in 2025. We think the markets are very uncertain, very dynamic, and you need size and scale to be able to weather the storm and be in a position that you can balance the requirements that are out there. And there's new challenges every day that the market brings or countries or regions bring. And we need to be in a position to leverage those global resources, those expansive resources that we have. But most importantly, when it's all said and done, we've got to bring solutions to our customers that meet their needs and ultimately meet the market needs, meaning the consumer in what they want. And we think bringing together two complementary companies with an expansive product portfolio that's very complementary to one another with very little overlap, we're doing just what the market and what our customers need. And we're very pleased with the strength that they have with their leadership team combined with our leadership team, we'll blend that together. We'll have a leading and proven management team that has tremendous experience, and we'll be able to manage that effectively going forward. Yes, there are some people that are taking actions to reduce their concentricity in different regions or actually not of certain businesses. What we're trying to do is make sure that we have a powertrain-agnostic portfolio that can meet the requirements, no matter what the market conditions are on a global basis. And we're still true to that. At the same time, we recognize that each region requires a different strategy. But holistically, there's a way that we can balance that out and be efficient from an operation standpoint and from a product development and from a cash management standpoint going forward. So, long answer to your question, but the short answer to it is, we feel very strongly that the markets will continue to consolidate going forward. That's the whole premise of our strategic rationale and industrial logic. Not only do we feel that way, the Dowlais Board and management team feel that way as well, and others that I've talked to in the industry also feel that way.

Appreciate the insights. Follow-up on the Dowlais side. For those of us maybe not as close, you've had quite a bit of time to do work. The Chinese business -- the China business on there is actually quite strong, I think maybe to many people's surprise. Can you maybe from your perspective maybe describe why that is given just the level of competition there? I think, we're kind of from the U.S. perspective under impression that the local suppliers would be doing much better. So, curious as to why maybe you think they're actually holding up quite well -- doing quite well there.

Well, I mean, I think you have to recognize, first and foremost that the two joint venture partners. That being HASCO and that being GKN, and the management teams and the strategy that they put together for that JV. That JV is 35 years old. There's been a lot of experience there. They're tailored and designed China for China as far as support the local market. They've got an effective product portfolio heavily weighted towards half shaft but also supporting all-wheel drive and electrification and e-powertrain components for that market, which is what's in demand. They've got a competitive cost structure and a supportive management team that is growing both with the domestic Chinese manufacturers or OEMs, as well as with the international or Western OEMs that are doing business in China. So, credit to those two organizations. We had nothing to do with that. However, what we want to do is make sure that we not only maintain the relationship but build on that relationship, especially as our product portfolio expands as a combined business, and then we'll look to bring other operational excellence and support to that joint venture going forward. But don't mess with something that as you said, is performing very well. So, we just got to meet that management team that's over there and that new partner going forward. And appropriate meetings will take place first and foremost between Dowlais and their existing partner and then we'll follow up with the appropriate meetings with myself and others to meet their leadership team and position ourselves and talk about what the future holds.

Great. Thank you very much.

Yeah.

Thank you. And our next question comes from Doug Carson of Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks for hosting the call.

Good morning, Doug.

I'm kind of excited about the scale getting bigger in my career, I think reading agencies kind of like you bigger -- your auto suppliers, which help give you some mass relative to either market pressures, and you're actually merging with a company that had lower leverage than AAM. And the combined entity, I think out-of-the-gate, I think you said to be about 2.5 turns of leverage. I think you made some comments that maybe going forward, you'll be able to harvest some of the cash flow to get back to equity rather than delevering that we've seen in the last few years. So, one might just kind of explore that a little bit. And then separately, I know the agency has kind of commented, but do you think longer-term, you could safely get your combined entity more into the mid-double B range rather than mid-single B range for ratings given the scale almost double?

Yeah, Doug, a few questions in there. This is Chris. I'll take a crack at a few of those. First of all, we agree with your enthusiasm about the size and the scale. But as it relates to delevering, if you listen to some of our comments, we talk about, at 2.5 times, we would open up to some additional capital allocation priorities. But before that happens, we will continue to reduce and strengthen our balance sheet down into the 2.5 times. So, we'll continue to prioritize the organic growth. We'll continue to prioritize debt repayment and drive a stronger and stronger balance sheet through that process. So, I think that's a key point to keep in mind. And then, we would have a balanced portfolio or balanced capital allocation going forward, which would still include an element of debt reduction as well. It wouldn't be solely overweight to one versus the other. But longer-term, obviously driving higher ratings is critical to cost of capital. But so we're focused on the elements of those, whether the agencies re-rate us or not, that's up to them, but we're focused on strengthening the balance sheet, reducing our leverage, the size and scale, free cash flow to debt ratios, things of that nature, elements of our business that are good for the business will ultimately drive to a stronger company and hopefully will reflect in the ratings over-time.

That's helpful. And then maybe as a quick follow up, there's obviously lots of headlines around tariffs and steel prices and I know that you've got some pretty good pass-through capabilities in steel. Can you just kind of refresh us on how you're looking at some of those commodity risks out there in the market broadly?

Yeah, Doug, this is David. I'll take the first shot at it and Chris can comment on that. I think you know and others know and we've been very forthright that our long-standing policy has been to buy and build local in the regions that we support and that we serve and that's proved very effective to us in mitigating tariff risks that we're experiencing in the past, but also potentially experience here in the future. We'll obviously look to mitigate any other impact that may happen once they get announced in regards to what's going on between the U.S. with Canada and Mexico, and we'll see where that goes in March. With respect to steel and the aluminum side right now, we have very minimal exposure as our US steel and our aluminum is sourced here locally. So, we feel very good about where we are that way. We just got to understand what the details are going to be with respect to the tariff strategy or policies between the U.S., Mexico, and Canada as well as any other countries that may be involved longer term. But overall, like I said, our strategy is to buy and build local, and that benefits us when you have tariff issues or trade war issues that are taking place. So, Chris, any other comments at all?

Yeah. And you referred to some of the pass-through mechanisms. If this activity brings more volatility to the input costs, not tariff-related, but that are driving the commodity costs that go into our product, as you know, we pass around 80%-plus up and down to the customer by contract on this. So, we are insulated and protected from some of that site, not tariffs, but the market inputs that impact our purchases through our supply base. So that's a nice protection mechanism for the company.

Yeah, that is good. Well, thanks, guys. That's it from me.

Yeah. Thanks, Doug. Appreciate it.

Thank you. And gentlemen, your last question today comes from Dan Levy with Barclays. Please go ahead.

Hi. Josh on for Dan today. Thanks for taking my question. I had a question on just backlog and bidding dynamics. I know you've said in the past couple of quarters that there's a bit of air pocket while the OEMs consider the EV plans and I saw today that there is an extension on the Ford program, which I guess would not be included in the backlog. Just wanted to see how exactly things are going with bidding and if you're seeing a greater ICE extension interest right now?

Yeah. So -- this is David, and I'll let Chris talk from there. As we've said all along with the OEMs reevaluating their product portfolios right now, it is creating a bit of an air pocket in regards to some of the sourcing here in the initial years, meaning, let's say, over the next three years. But at the same time, we've been very forthright in regards to where our backlog has been over the last three years and there's not a meaningful change there for '25, slightly lower just based on some of the retiming and revolumes of some of the programs that the customers put forward. I think the most important thing for us and the big swing that we're seeing right now is we're still actively quoting about $1.5 billion of new and incremental opportunities. And again, our backlog is only new and incremental. We don't count any replacement business in that. But on that new and incremental business that we're quoting, in the past couple of years, that was heavily weighted towards electrification, like 75%, 80%. Today, that has swung the other way, where we still have some electrification in it, but it's more heavily weighted towards ICE and hybrid applications going forward. So, what we're very excited about is the fact that, one, we've got our next-generation business essentially and substantially secured, which I covered in my earlier remarks; two, we're actively quoting on $1.5 billion of new and incremental business. And it's right in our wheelhouse of our ICE and hybrid business today; but at the same time, three, we have -- already have an existing portfolio and that portfolio will expand with Dowlais that better positions us with the powertrain agnostic portfolio to quote on more electrification requirements as they evolve based on the different markets globally around the world. And then, we'll also be able to leverage the global footprint of the two organizations to better position ourselves from a cost-effectiveness standpoint so that we improve our hit rate of trying to win that new business going forward. But overall, we feel good about the market basket of opportunities. There is an air pocket going through the industry, not only for AAM, but many suppliers. But most importantly, a lot of the programs are being extended, which is a positive because that allows us to continue to drive operational efficiency and financial performance, which we delivered in '24 and we were positioned to deliver as a standalone company in '25. And obviously we've conveyed what we think the synergies are and the incremental opportunities when we bring Dowlais and American Axle together.

As a quick follow-up on that, of the R&D decline year-over-year, would you say a lot of that is within EV spending given the slowdown? And assuming there's an uptick in hybrid over the next couple of years, would that require any incremental spending beyond your current ICE and EV portfolio, or is that kind of already included in what you already have?

Yeah, I would say -- hey, Josh, this is Chris. The R&D decline is to align really with current market requirements and demands of our customers. Part of our elevated spend over the past year or two has to -- has been to build out our e-drive portfolio, which we now have in place and has gained a lot of traction in China and other markets as well. So that's sort of done and behind us. So, we can now start to reap the cost benefits of sort of repositioning with the current market dynamics and harvest those savings this year and we would expect going forward. The nice thing about the hybrid applications for us in many cases uses the exact same product as our ICE vehicle products. So, there's not a lot of R&D associated with that. So that's a perfect alignment of some of that powertrain applications between ICE and a hybrid perspective. Josh?

Thank you. Thank you [indiscernible]. That was our last question and we thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future.

Thank you. This concludes today's conference call. You may now disconnect your lines and have a wonderful day.