American Axle & Manufacturing Holdings Inc at Bank of America Automotive Summit Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Murphy - BofA Global Research - Analyst : Yes, we'll get we'll get into that. Driving great free cash flow, de-levering, so opportunity on that front. But even in quote-unquote, tough times, still delivering pretty good free cash flow to help de-lever. There's a lot of opportunity in that side. There's lots of opportunity to diversify, which you're working on. So we're going to get into all that today. So Chris and Matt, thanks for joining us. I guess maybe to kind of open up, right, talk about those trucks in the market broadly. You guys have given guidance, I think, probably in some ways like a lot of folks is a little bit conservative from a from a macro standpoint, at least in our opinion. I'm just curious, as you started this year, as far as the actual production we've seen as well as the schedules and releases that you're seeing for 13 weeks plus out or whatever you're seeing, how is the market shaping up relative to your expectations? And then maybe if you could specifically talk about the GM truck platform as well, that would be great.

Question: John Murphy - BofA Global Research - Analyst : You're welcome. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 3:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : When you think about what's going on the EV front, product delays, pushdowns on volume, and pushouts to the right -- and we'll see what all that ultimately transpires to you. But there's definitely a pushdown and pushout to the right on EV volumes. How does that impact your business maybe short term, midterm, in long term? And maybe in the short run, I mean, you've got a few small programs. Do you see sort of a step-up in some of the ICE volumes that you're seeing that kind of balances out some of that and some of that downward pressure, which may actually benefit vehicles that are not directly being electrified.

Question: John Murphy - BofA Global Research - Analyst : I mean -- and this is a little bit hypothetical getting into the next few years. So I mean, this is just your thoughts. I mean, if those programs are delayed or the volumes are lower than you'd expect, do you think that you have the product, and do you think the industry maybe at large will have sort of this upside in ICE vehicles or potentially even hybrids as a backfill?

Question: John Murphy - BofA Global Research - Analyst : One of the other big things in the past couple of years is commercial settlements and recoveries have been -- it's certainly not easier, but you seem a little bit more robust than they maybe have been historically, given that kind of volatility in some of the inflation we've seen on cost, particularly around raws and labor. As you look at this year, what is your expectation for that? Is that -- does that get less easy, if you will? And I'm not saying it was easy, but on a relative basis. And then also as you think about that in the context of price-downs and the netting of those two price-downs come back in sort of a 1% to 3% normal range, has that intensified maybe a little bit as well?

Question: John Murphy - BofA Global Research - Analyst : In the past couple of years, there's been a little bit of micro plant disruption, particularly around the metal forming business. I think last we checked, as you put on that red, yellow, and green light, it was, I think, in the yellow range. But that was the end of last year. As we think about that going through the course of this year, I think there's an expectation that at some point, it's going to turn green. As we think about that, when are we going to hit green? When is that going to -- the headwind going to -- given its operation to be worked out, what's the opportunity for upside there?

Question: John Murphy - BofA Global Research - Analyst : Got you. That's good to hear. On that note, the automation question comes up, a tremendous amount, when it comes to the industry, and in particular on the suppliers. We're talking about labor shortages and your potential to automate those actions and what those folks are doing. How technically possible is -- that might kick in on the technical side? But then also financially, as far as a return -- cost of return in capital deployment from your standpoint, is that actually really viable? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 3:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : Got it. Mid-teen EBITDA margins was -- for a while, it's where we kind of thought of you guys are a little bit short of at the moment. Is that something that, as the business develops and the mix changes over time, is not achievable? Or do you see that foresee that ultimately, maybe not this year, but like over time is a target where you guys can get back to.

Question: John Murphy - BofA Global Research - Analyst : Obviously, with your name, everybody thinks about axles and then they immediately go to GM trucks, but there's a lot more to the business, and it's probably going to be a lot more to it over time. As you think about sort of the strategy of where the company is going to go to, it definitely seems like there's a big push despite what people are thinking towards electrification and solutions for your customers on that front. I think some of the stuff you showed us at CES this last year and the year before, particularly around electric motors and some of the innovation there are the kind of things that people don't really sort of ascribe or associate with American Axle, but you're doing it. You do. It's really kind of an amazing thing.

Question: John Murphy - BofA Global Research - Analyst : So maybe you could talk about some of that stuff and some of the strategy of diversification over time? Customer geography and then technology.

Question: John Murphy - BofA Global Research - Analyst : A lot of fun to drive.

Question: John Murphy - BofA Global Research - Analyst : Also fun to drive. (Multiple speakers)

Question: John Murphy - BofA Global Research - Analyst : Chris, can you give the content a little bit that you've done in the past to help us -- the content of the EV, Axle EV products relative to ICE products?

Question: John Murphy - BofA Global Research - Analyst : [Captures more] of the propulsion system, right?

Question: John Murphy - BofA Global Research - Analyst : Got it. Of that $2,500, how much is axle -- pure axle content and how much of that can actually be passed through in that 2,500?

Question: John Murphy - BofA Global Research - Analyst : Buying parts and components from (Multiple speakers)

Question: John Murphy - BofA Global Research - Analyst : Meaning axle, you internally are able to do that entire system, soup to nuts?

Question: John Murphy - BofA Global Research - Analyst : Not the inverters, but the motors you guys are showing some of your own technology, that's very good.

Question: John Murphy - BofA Global Research - Analyst : Yes, that's very competitive if not class leading in some ways.

Question: John Murphy - BofA Global Research - Analyst : So when you think about that, though, I mean, in that process -- I mean what we're hearing from the automakers is an increasing level of willingness to outsource the whole design and engineering of specific modules, if you will. When you're doing something like that, can they -- or are you starting to hear sort of the sounds of, hey, listen, we've got a lot to go on to do the rest of the vehicle. This e-axle, you guys have shown competency here. You just take care of this, delivery it. Let's figure out the specs that we need, and you sub-source anything you need to, in-source whatever you want to. But you guys are tasked with the performance specs, liability, everything else we need, then go?

Question: John Murphy - BofA Global Research - Analyst : Got it. And there's been concern as you move more towards EVs. There's one large EV manufacturer, which you may have some content on, that is more vertically integrated than the incumbents, which means that in a lot of cases, people think it puts suppliers at risk. I mean, this is kind of the opposite, the mirror image of the question we just asked. What kind of risk is there? And is this sort of similar what's going on with the powertrain, where right now, we're -- they're sub-sourcing or they're sourcing parts of it and integrate it themselves. Is that what people are talking about with vertical integration? Or is there a real risk that some of the parts that you guys are bringing to the table will get vertically integrate inside of the automaker and pulled away from you as we go through this EV transition?

Question: John Murphy - BofA Global Research - Analyst : I think you just read my question sheet because you kind of lead right into the next question. (Multiple speakers) This leads into it. I mean, obviously, you're leading axle and drivetrain supplier to GM. Ford is planning to have a lot going on. A lot of that product is in-sourced or in some cases at other suppliers. What opportunity is there in, I would call, old school or more core technology on axles and drivetrain with other North American truck operators? And it may include getting into the cap allocation discussion, which we're going to try to save for the end, of maybe making acquisitions of assets. But this is the kind of stuff that's right down your fairway. You're better at it than they are, at least my opinion. So I mean, it would be the kind of thing that would be great for the industry and them. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 3:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : Hats off to you guys or I'll award you guys for the business.

Question: John Murphy - BofA Global Research - Analyst : But also on the sort of more traditional side on the ICE, will there ever be an opportunity for you guys to gain some share with those manufacturing? Once again, we're talking about massive capital and human capital -- draws in these companies to get to whatever the future may ultimately be. I mean, passing this off and awarding it to a very capable supplier that can once again probably do it better than they are. It seems like it might be an opportunity.

Question: John Murphy - BofA Global Research - Analyst : I've got a few more questions left, but are there any in the in the audience? Okay. As we think about cap allocation, let's maybe start with CapEx and R&D dollars. I would assume relative to the size of the company at the top line, those may be coming down over the coming years. Maybe you could just talk about that in 2024 and whatever you can talk about in the years out? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 3:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : Just on that R&D, the $35 million to $40 million per quarter, and obviously, there can be ebbs and flows through quarters on that, as we get out '25 and '26, do you think on a dollar basis that's a good run rate relative to the size of the business? Or is that in absolute terms a number that could come down?

Question: John Murphy - BofA Global Research - Analyst : In absolute dollars? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 3:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : Okay, that's helpful. I want to take the opportunity to talk about the balance sheet a little bit. We've got bondholders here. You guys are pretty good steward of the bonds. If you look to pay down debt, it's always been a priority to keep the balance sheet in stable condition. How does that fit into the future plans to invest in potentially new technology, return to shareholders, and just really some kind of color on the free cash flow and how that kind of fits in?

Question: John Murphy - BofA Global Research - Analyst : Thank you. Maybe lastly, I mean, I know you guys don't have a buyback program in place you're going to go after. But I also sort of imagine that some people think your stock is reasonably inexpensive internally. What do you think the disconnect is in the market and what people don't have buys on your stock or folks who don't own the stock really should be focused on what they might be missing?

Question: John Murphy - BofA Global Research - Analyst : Great, and with that, we think we're running low on time. We appreciate the time and you guys coming into all these meetings. As always, thanks for taking the time.