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

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

Question: John Murphy - BofA Global Research - Analyst : Okay, so I got a few questions left up still. So on tariffs, obviously there's a lot of direct and indirect stuff we can talk about. But the indirect one that I think a lot of people are concerned about is the potential for industry volumes to be down or potentially even hammered as a result of this, more from the automaker side, as opposed to what you guys may or may not be directly exposed to. You could just remind us sort of your playbook of, let's see, industry's down 10%, 20%, as much as 30%. I think it's more the draconian views of this stuff. How you guys have reacted to that in the past, how you react to it now, what may have changed, lessons learned, but really sort of that indirect, which could be a big one, macro impact.

Question: John Murphy - BofA Global Research - Analyst : Got it. So one of the questions is, like your major customer, GM, has truck capacity in Fort Wayne that might be expanded in Silao, which might be shrunk, if you will, as far as volumes. I don't know what you're hearing yet because it doesn't sound like anybody's made any decisions, but I mean, GM had a big jobs fair at Fort Wayne already. So it sounds like they might be on the track to hire folks there to try to expand in a soft way the capacity there. If somehow they expand that capacity in Fort Wayne without big bricks and mortar yet, this is them adding a third shift and more vehicles, what flexibility do you have to service that out of your existing facilities for Fort Wayne, or and/or would you have to ship from Silao? I think you're --

Question: John Murphy - BofA Global Research - Analyst : And our general understanding right now is that the automakers, particularly if they're the importer of record, are paying the tariff directly. Particularly in this case when you've made a commitment to them in Mexico and would be helping them out with incremental axles being shipped from Mexico to Fort Wayne, they're paying that. That would be on their dime at the moment. That's our understanding. Importer of record is them.

Question: John Murphy - BofA Global Research - Analyst : Got it. So I mean, so those incremental axles that'll be going to Fort Wayne from Mexico, they would be your docks in Mexico where you'd be shipped and you're on the hook for the tariff first blush, and then there's a negotiation -- then there's a discussion.

Question: John Murphy - BofA Global Research - Analyst : Got it. Okay. And David, you touched on this on the mix side, but I mean, given what we've seen with resiliency, particularly of GM trucks, through sort of the stresses that we've seen over the last 10 years in the industry, they've held in very well. Based on what you would understand right now outside of GM making a decision, and I highly doubt that GM's going to make a decision to take the trucks down, even in the face of tariffs, your view on mix for you specifically is a high level of resiliency relative to what would be happening in the macro environment.

Question: John Murphy - BofA Global Research - Analyst : $1.2 million and $1.3 million is not certain, but very, very highly likely.

Question: John Murphy - BofA Global Research - Analyst : Got it, okay. As you look at this, labor has been tight everywhere. And that's kind of one of the ironies of what's going on right now, this idea of trying to bring manufacturing jobs back to the US. It's hard to find people to do stuff. I mean, there's massive shortage of auto technicians in service-based dealerships. If you were to bring back, and GM were to bring back capacity to the US from Mexico, in this example, I mean, is there a lot of labor around and available? Or is it going to be very tight and end up being reasonably expensive to do that, even if you can find the people? I mean, that's one of the real challenges here. It's not like we have an unemployment rate that's very high and a lot of folks in manufacturing communities that are looking for jobs because a lot of people are employed. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 15, 2025 / 5:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Global Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : So as far as your operations, how much opportunity is there to automate? I mean, could you take 10%, 20% of labor out of the -- I mean, what's the roundhouse estimate on that?

Question: John Murphy - BofA Global Research - Analyst : So historically, we've looked at the business and it's been sort of a mid -- solid mid-teens, like 15% plus EBITDA margin. Before we get into Dowlais for a minute, because we're going to get into that, is there any reason that you could see with the current macro and maybe even some of these pressures from tariffs as to any reason that the business couldn't, once again, pre-Dowlais, we'll get into that in a second, that the business couldn't get back into that range over time?

Question: John Murphy - BofA Global Research - Analyst : So standard volume operating leverage -- metals, metal markets pass-through, metal forming, like basically MPGs --

Question: John Murphy - BofA Global Research - Analyst : So those are all -- yeah, I mean, it's getting better and cash flow isn't pretty good, so you haven't seen the same kind of impact. So that metal market -- the metal markets pass-through, you're not seeing in free cash flow, so the free cash flow is still pretty strong?

Question: John Murphy - BofA Global Research - Analyst : The old adage, it's tough to pay your bills with a percentage, but with that free cash flow, you can pay your bills. You got to be careful about percentages. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 15, 2025 / 5:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Global Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : Okay. Getting to insourcing versus outsourcing, GM insourced some of the actual business, but there is some potential for outsourcing coming from other automakers. And then there's this whole question of what is going on with the Chinese OEMs, and I'll call it GKN, but Dowlais on the half-shaft side has a potential real opportunity to help drive further penetration with Chinese manufacturers. So can you maybe just talk about generally your product set, how much opportunity there is on future outsourcing, not just from the incumbents, well, from the incumbents, but the incumbents that we know, and then the Chinese manufacturers, and what risk there is of insourcing? Because it seems like insourcing risk is fairly low at this point, and probably done, at least my opinion? I'd love to hear yours. And then on the outsourcing side, there is potentially a lot of opportunity still in front of you.

Question: John Murphy - BofA Global Research - Analyst : And you just mentioned some penetration with Daimler on the AMG line. What is the opportunity with the Germans? I mean, if they're trusting you on AMG, I got to imagine, that's their holy grail.

Question: John Murphy - BofA Global Research - Analyst : Okay. Well, I promise we're going to get to Dowlais. But on backlog, given everything that's going on right now, or even maybe before, sort of the last couple of weeks before we've gotten to the kerfuffle, to put it politely, the backlog and bidding on programs, I mean, how has that been progressing? Not necessarily maybe exact numbers, maybe if you give us exact numbers, but as far as the activity, I mean, has there been slowdown, pickup, as normal?

Question: John Murphy - BofA Global Research - Analyst : So in the past couple of days, we heard something that I thought was a bit counterintuitive. Certainly the way that I think, which maybe not be saying much, but the idea that the program extensions might not necessarily be a great sort of gravy train for suppliers or might not be a positive, actually might be somewhat of a negative. And the rationale was that, traditionally, you would set up tooling and other sort of fixed costs so that they would last for the extent -- the life of the program. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 15, 2025 / 5:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Global Automotive Summit So if you get year five, six, seven, and it's being extended one, two, or three years on you, but all of a sudden you have another layer of investment on retooling or refurbishment and other investment -- capital-intensive investments to try to keep it going for those couple of years that might not have the greatest returns. What would you say to sort of the program extension? I would have always thought that it would actually be good. I mean, you guys can retool anything, right? I mean --

Question: John Murphy - BofA Global Research - Analyst : Okay, all right. So I mean, I'd be crazy for other reasons. Okay, so let's get into the Dowlais. Can we simply just run across deal rationale? I mean, I think you guys have talked about this. And then also, as you look at this business, you said it's in great shape, but it does seem like it's not throwing off a ton of free cash flow at the moment. What are the opportunities to get, I mean, obviously the $300 million synergies might help you there, but just basic deal rationale and then what you can do to get that free cash flow up to service debt.

Question: John Murphy - BofA Global Research - Analyst : Okay. So to be clear, if you guys are doing -- I mean, run rate, roundhouse numbers, $200 million to $250 million free cash flow of your own, that gets you your 2.8 turns levered at the moment on a standalone basis. So as we think about sort of the new entity, or Dowlais, before we put you guys together, they're not generating a lot of free cash flow, but you think that that is got upside on an organic basis before synergies of being turned around in the next couple of years as they're rejiggering their footprint, and then you layer on the $300 million. So I mean, it sounds like they're a company that could get to a couple hundred million dollars free cash flow. I don't know the exact numbers because we haven't modeled that separately on their own, plus you have the $300 million in synergies. The $300 million of synergies are not double counting what they may do on their own. This is a pure deal synergy of you guys going together. So the reality is, as we're looking at this, and this is news to me -- I'll be -- to be fair, the $200 million to $250 million is yours, $300 million synergies -- we're going to get into that in a second -- plus potentially a couple hundred million dollars on of their turnaround. So all of a sudden, you're saying $500 million to $550 million in free cash flow, that's kind of synergies plus what you're doing. But then there's potentially the layer on of what they have going on in their own turnaround plan -- or rationalization plan, it's not a turnaround plan.

Question: John Murphy - BofA Global Research - Analyst : Okay. Now, don't get mad when I want to ask this question. Now, MPG stubbed your toe a little bit on the synergies. I mean, that went -- that was a --

Question: John Murphy - BofA Global Research - Analyst : So that was offset by a lack of correct capital investment before you took over MPG?

Question: John Murphy - BofA Global Research - Analyst : Okay. So now, we're looking at the $300 million of synergies coming out of the Dowlais combination. You've talked about upside. You said something about the auditors kind of discounting it by 75% or certain areas.

Question: John Murphy - BofA Global Research - Analyst : So it sounds like the -- that $300 million could have very -- once again, you said there could be upside, but we'll see. You'll see as you go through this, but that's the heavily audited, known actions with some discounting from auditors that you think you -- I mean, that it's --

Question: John Murphy - BofA Global Research - Analyst : So basically, we're looking at something that could be -- that your $250 million free cash flow, their $200 million to $250 million free cash flow, call that $500 million, plus $300 million, that's $800 million, plus some upside to that, all of a sudden, we could be looking at $900 million to $1 billion.

Question: John Murphy - BofA Global Research - Analyst : That's incredibly helpful. But you have any deal on that? I want to maybe just talk a little bit about the balance sheet. So most transactions in auto parts are levering. This does not -- is not levering. Because you're -- the target company had leveraged, I think maybe 1.5 turns or so. So if you could just kind of shape, how do you think the balance sheet would look post transaction?

Question: John Murphy - BofA Global Research - Analyst : But just explain what you mean by more balance? Like what other capital allocation efforts?

Question: John Murphy - BofA Global Research - Analyst : That's great. Okay. I mean, this is a weird question to ask right now, because that means that things are still on the come, but given the potential, incredibly strong free cash flow and where your equity market cap sits, I mean, I got to imagine it at some point, if the market doesn't start recognizing, and maybe folks like me don't start recognizing what's going on, so you can throw stones in this direction if you need to, but that you would consider an LBO, I mean, given that kind of cash generation versus the market cap, I mean, it starts to get a little wacky.

Question: John Murphy - BofA Global Research - Analyst : Okay. It just seems like at some point, I mean, even on a standalone basis, things are getting a little out of hand. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 15, 2025 / 5:20PM, AXL.N - American Axle & Manufacturing Holdings Inc at Bank of America Global Automotive Summit

Question: John Murphy - BofA Global Research - Analyst : No. I mean, Doug's always got big pockets on that side of the fence, so it could be helpful. I don't know if anybody's got any -- we can take one last question in the audience. I don't know if there's any, but we got one right over here, and I think that's probably what we're going to have time for. Unidentified Participant Yeah, thanks for the presentation. It was very helpful. You guys mentioned that you guys have a tried and proven playbook for managing down pretty severe volumes. To what extent does Dowlais have that in terms of the restructuring that they're in the midst of completing? I think you said by year-end, they should be done with that operation restructuring.

Question: John Murphy - BofA Global Research - Analyst : Maybe if I could sneak one last one in. When you think about the cost structure, the big delta between Mexico and the US would be mostly labor costs. I mean, there's some utility costs and some other stuff that would be a little bit higher. Labor costs are sub-10% of op costs at the moment?

Question: John Murphy - BofA Global Research - Analyst : Yeah.

Question: John Murphy - BofA Global Research - Analyst : Okay. So ballpark 10%?

Question: John Murphy - BofA Global Research - Analyst : Well, so I guess the question is, is the labor cost 2x in the US versus Mexico? Is it 3x in US versus Mexico?

Question: John Murphy - BofA Global Research - Analyst : Got you, okay. So I mean, if you had to make the switch, you'd be 10%-ish underwater on that.

Question: John Murphy - BofA Global Research - Analyst : Yeah, exactly. Without making any changes, and then you start passing it through if you need to, that would be cheaper than a 25% tariff, right? So I mean, of course, probably the tariff's probably not counted.

Question: John Murphy - BofA Global Research - Analyst : And then you're working with your customer on pricing as well on the economy, because obviously that's a --

Question: John Murphy - BofA Global Research - Analyst : And then you have to game plan out or game theory out what's actually going to stick or not stick in the capital investment as we go forward.

Question: John Murphy - BofA Global Research - Analyst : And shareholders too.

Question: John Murphy - BofA Global Research - Analyst : All right, Dave and Chris, thank you so much for the time. We really appreciate the support and partnership.