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Text: 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 for this conference call on the Investor page of our website as well.
For additional information, we ask that you refer to our filings with the Securities and Exchange Commission.
Information regarding these non-GAAP measures, as well as a reconciliation of these non-GAAP measures to GAAP financial information is available on our website.
With that, let me turn things over to AAM's Chairman and CEO, David Dauch.
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 fourth quarter and full year 2020 financial performance.
Next, I'll cover some highlights from 2020, including some updates on the technology and innovation front.
And lastly, I'll review our 2021 financial outlook and our three-year new business backlog 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.
AAM delivered solid operating financial results and cash flow performance in the fourth quarter and full year of 2020, as global production continue to recover, resulting in a strong EBITDA conversion.
AAM's fourth quarter 2020 sales were $1.44 billion compared to $1.43 billion in the fourth quarter of 2019.
Recall, last year, we were impacted by the GM work stoppage and we sold our US casting business.
For the full year 2020, AAM's sales were $4.7 billion.
During the year, we experienced slower sales coming from a decline in global production due to the COVID-19 and the sale of our US casting business.
From a profitability perspective, AAM's adjusted EBITDA in the fourth quarter of 2020 was $261.5 million or 18.2% of sales, a fourth quarter record for AAM.
AAM concluded a strong second half of 2020 with a solid fourth quarter financial performance, which I'm very, very pleased about.
For the full year 2020, AAM's adjusted EBITDA was $720 million or 15.3% of sales.
For the full year, we were impacted by COVID-19 production shutdowns and lower volumes.
However, we also managed through a difficult operating environment, delivering strong EBITDA margins in the second half, as production rebounded and our cost structure initiatives took hold.
AAM's adjusted earnings per share in the fourth quarter of 2020 was $0.51 per share.
And for the full year 2020, AAM's adjusted earnings per share was $0.14 per share.
AAM continued to deliver strong free cash flow performance in 2020.
AAM's adjusted free cash flow in the fourth quarter 2020 was $173 million.
And for the full year 2020, AAM's adjusted free cash flow was $311 million.
This is a fantastic result, considering the challenges that we faced during the year.
We also reduced our gross debt by nearly $200 million in 2020, paying down approximately $100 million just in the fourth quarter alone.
Furthermore, we are committed to reducing our debt and strengthening our balance sheet in 2021.
Chris will provide additional information regarding the details of our financial results in just a few minutes.
Let me wrap up 2020 with a look back on some of the key highlights, which you can see highlighted on Slide 4 of our slide deck.
The automotive industry faced significant challenges, but AAM worked through it with the dedication of our associates.
Operationally, we completed 17 program launches.
We received 13 customer quality awards and multiple Supplier of the Year awards from customers such as General Motors and Hyundai.
We flexed our cost structure in quick response to pandemic and generated robust EBITDA results throughout the year.
And generating significant free cash flow has strengthened our financial profile through gross debt paydowns.
From a technology perspective, we have benefited from a growing and expanding relationship with Inovance Automotive, a leading provider of automotive power electronics and powertrain systems in China.
Back in the second quarter of 2020, we won our first eDrive award with them for a new Chinese OEM.
Already this year, we announced three additional OEM programs with Inovance.
Our alliance with them has created significant value for us by enhancing customer relationships within the swiftly growing Chinese electrification Market.
In addition, and even more exciting, we've recently signed a technology agreement with Inovance to accelerate the development and delivery of scalable next-generation three-in-one integrated electric drive systems, which integrates the inverter, the electric motor and the gearbox.
By leveraging the partner's complementary expertise in electric propulsion technology, this collaboration will seek to enhance the power density, efficiency and cost-effectiveness of the electric driveline technology offered in the global electrification market.
Our cooperation with Inovance Automotive will add an exciting new offering to AAM's fast growing portfolio of scalable three-in-one electric drive systems and accelerate our ability to bring new cost-competitive technologies to the market.
We are excited to join forces with such a highly accomplished and innovative provider of power electronics technology.
At AAM, our goal is to be at the forefront of electrification technology.
We're also working together with REE Automotive, a leader in electric platform technology.
The company's core innovation includes integrating traditional vehicle components into the wheel, allowing for a flat and modular platform.
We have a small financial investment in REE, and we look forward to further opportunities to drive value from this partnership, utilizing our technology leadership and our operational excellence.
In addition to these exciting partnerships, we continue to make great progress in innovation -- in innovative electric driveline solutions.
As we mentioned earlier, we were awarded not only the Automotive News PACE Award for electric drive technology in the Jaguar I-Pace, but also a second award for our outstanding collaboration with JLR.
These awards further validate not only our technology, but also our commitment to our customers.
In addition, we have several important electrification launches in 2021, including our high-performance eDrive unit for a premium European OEM that we can't wait to tell you more about, as well as multiple electric powertrain component launches, including one for electric pickup trucks and also one for a commercial truck.
We are excited about our prospects in electrification as the industry has begun to pivot in that direction.
AAM is ready to support our customers with cutting-edge electrification products, and we look forward to keeping you up to date with our new developments.
On a separate note and ICE-related, we are also pleased to share that we have secured the next-generation Ram heavy-duty pickup truck business with Stellantis into the next decade.
Stellantis has been a great partner to AAM over the years, and we look forward to extending our mutually beneficial relationship.
This award, coupled with the current business that we enjoy today with Stellantis, exceeds several [Phonetic] billion dollars in sales and is a key foundational program for AAM.
This program, along with other customer next-generation program awards, will support solid cash flow performance for many years to come for AAM.
These are all key developments as we leverage our strong core business to support our electrification technologies as we work to bring the future faster.
I'm also very proud to share that AAM was named on Newsweek's List of America's Most Responsible Companies and to the annual Forbes list of the World's Best Employers for 2020.
We look forward to sustaining this positive momentum in 2021 to support our sustainability priority topics and diversity, equity and inclusion initiatives.
AAM expects our gross new business backlog, covering the three-year period of 2021 through 2023, to be approximately $600 million.
We expect the launch cadence of this backlog to be $200 million in 2021, $150 million in 2022, and $250 million in 2023.
And this also factors in the impact of updated customer launch timing and the latest customer volume expectations that we've received from our customers.
You can also see the breakdown of our backlog on Slide 7.
About 70% of this new business backlog relates to global light trucks, including crossover vehicles, and another 15% relates to hybrid electric powertrains.
Nearly half of this will be realized outside of North America, continuing our trend of diversifying geographically on an organic basis.
I'd like to turn to AAM's 2021 financial outlook, which can be seen on Slide 8, and is as follows.
AAM is targeting full year sales between $5.3 billion and $5.5 billion in 2021.
AAM is targeting adjusted EBITDA of approximately $850 million to $925 million in 2021.
And AAM is targeting adjusted free cash flow in 2021 of approximately $300 million to $400 million, which contemplates capital spending of approximately 4.5% of sales.
While launch activity decreases in 2021, there are still some key new programs we will be focused on during the year, including launching a number of our new electrified products that I mentioned to you earlier.
From an end market perspective, we see production at approximately 15.5 million to 16 million units for our primary North American market.
As it relates to our specific North American programs, we continue to expect favorable mix weighted toward pickup trucks, SUVs and crossover vehicles.
Light trucks made up 74% of the production in North America in 2020, and we see no signs of that changing or slowing down in 2021.
Clearly, 2020 was an unprecedented year, laid with numerous challenges and obstacles.
However, I am extremely proud of the AAM team in managing through these speed bumps and instituting protocols to keep our associates safe and healthy, while effectively supporting our customers throughout the year.
As we turn our focus on 2021 and beyond, our core business is solidly intact and well protected for years to come, yielding significant free cash flow generation, which will allow us to strengthen our balance sheet and invest in advanced propulsion technologies to drive profitable growth.
Needless to say, I'm very, very excited about the about the future for AAM.
I will cover the financial details of our fourth quarter and full year 2020 results with you today.
I will also refer to the earnings slide deck as part of my prepared comments.
So, let's go ahead and get started with sales.
In the fourth quarter of 2020, AAM sales were $1.44 billion, compared to $1.43 billion in the fourth quarter of 2019.
Slide 11 shows a walk down of fourth quarter 2019 sales to fourth quarter 2020 sales.
First, we stepped cut down our fourth quarter 2019 sales by $119 million to reflect the sale of the US casting business unit that was completed in December of 2019.
Next, we add back the impact of the GM work stoppage from the fourth quarter of last year.
Then we account for the unfavorable impact of COVID-19 on our fourth quarter of 2020 sales, which we estimate to be approximately $40 million.
At this point, our estimated sales impact from COVID is only for our India and Brazil locations, which have not recovered to pre-COVID levels for us.
On a year-over-year basis, we are also impacted by GM's exit of its Thailand operations by approximately $10 million.
And the transition from a rear beam axle to a new lightweight and highly efficient independent rear drive axle for GM's new full-size SUV impacted sales by about $35 million in the quarter.
We will have one more quarter of the year-over-year impact for this transition in the first quarter of 2021.
Other volume and mix was positive by $38 million, mainly driven by strong light truck mix in North America.
Pricing came in at $19 million on year-over-year impact.
And metal market pass-throughs and foreign currency accounted for increase in sales of about $7 million year-over-year.
For the full year of 2020, AAM sales were $4.71 billion as compared to $6.53 billion in the full year of 2019.
The impact of COVID-19 and the sale of the US casting business was the primary drivers of this year-over-year decrease.
Now, let's move on to profitability.
Gross profit was $236.5 million or 16.4% of sales in the fourth quarter of 2020 compared to $183.4 million or 12.8% of sales in the fourth quarter of 2019.
Adjusted EBITDA was $261.5 million in the fourth quarter of 2020 or 18.2% of sales.
This compares to $193.5 million in the fourth quarter of 2019 or 13.5% of sales.
As David mentioned, this was AAM's best fourth quarter adjusted EBITDA margin in our company's history.
You can see a year-over-year walk down of adjusted EBITDA on Slide 12.
We benefited from higher sales and from our strong cost reduction actions we implemented this year.
For the full year of 2020, AAM's adjusted EBITDA was $720 million and adjusted EBITDA margin was 15.3% of sales.
Let me now cover SG&A.
SG&A expense, including R&D, in the fourth quarter of 2020 was $83 million or 5.8% of sales.
This compares to $90 million in the fourth quarter of 2019 or 6.3% of sales.
AAM's R&D spending in the fourth quarter of 2020 was $31.1 million compared to $39.8 million in the fourth quarter of 2019.
For the year, SG&A expense was down about $50 million, due mainly to our cost reduction actions, both temporary and structural.
As we head into 2021, we will continue to focus on controlling our SG&A costs.
Equally important, we will further our investment in key technologies and innovations with an emphasis on electrification, including shifting resources from traditional product support to new technology development in a cost-effective manner.
Let's move on to interest and taxes.
Net interest expense was $52.3 million in the fourth quarter of 2020 compared to $53.4 million in the fourth quarter of 2019.
We expect this favorable trend to continue in 2021, as we benefit from continued debt reduction.
In the fourth quarter of 2020, we recorded income tax expense of $13.9 million compared to a benefit of $11.5 million in the fourth quarter of 2019.
As we head into 2021, we expect our effective tax rate to be approximately 20%.
Taking all of these sales and cost drivers into account, our GAAP net income was $36 million or $0.30 per share in the fourth quarter of 2020 compared to a loss of $454.4 million or a loss of $4.04 per share in the fourth quarter of 2019.
Adjusted earnings per share for the fourth quarter of 2020 was $0.51 per share versus $0.13 per share in the fourth quarter of 2019.
Let's now move to cash flow and the balance sheet.
Net cash provided by operating activities in the fourth quarter of 2020 was $208 million.
Capital expenditures, net of proceeds from the sale of property, plant and equipment, for the fourth quarter was $69 million.
Cash payments for restructuring and acquisition-related activity in the fourth quarter of 2020 were $33.6 million.
Reflecting the impact of this activity, AAM generated adjusted free cash flow of $172.7 million in the fourth quarter of 2020.
For the full year of 2020, AAM generated adjusted free cash flow of $311.4 million compared to $207.8 million in the full year 2019.
AAM was able to offset the impact of lower EBITDA through lower capital expenditures, lower tax payments and working capital benefits, including leveraging the AAM Operating System to reduce inventory levels.
From a debt leverage perspective, we ended the year with net debt of $2.9 billion and [Indecipherable] adjusted EBITDA of $720 million, calculating a net leverage ratio of 4 times at December 31.
In the fourth quarter of 2020, we prepaid over $100 million of our term loans.
We were pleased to utilize the free cash flow generating power of AAM to strengthen the balance sheet by reducing our debt and lowering our future interest payments.
We expect to continue this trend in 2021.
AAM ended 2020 with total available liquidity of $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities.
We continue to maintain a strong liquidity position and debt maturity profile.
Before we move to the Q&A, let me close out my comments with some thoughts on our 2021 financial outlook.
In our earnings slide deck, we've included walks from 2020 actual results to our 2021 financial targets.
You can see those starting on Slide 14.
As for sales, we are targeting a range of $5.3 billion to $5.5 billion for 2021.
This sales target is based upon a North American production of 15.5 million to 16 million units, a new business backlog of $200 million and attrition of approximately $100 million.
We have begun to experience some limited downtime in the first quarter due to supply constraints attributable to the semiconductor chip shortage.
We have contemplated what we know today in our guidance, and our target range allows for some variability.
From an EBITDA perspective, we are expecting adjusted EBITDA in the range of $850 million to $925 million.
At the midpoint, this performance would represent EBITDA margin growth of over 100 basis points versus last year.
As you can see on the walk-down on Page 15, we expect volume and mix to positively contribute as well as continued productivity benefits.
As we stated previously, some of our 2020 cost initiatives were temporary in nature, but our focus has been to replace those with more structural savings.
We also expect approximately $40 million in pricing and $15 million in higher R&D spending, as we continue to invest in electric propulsion.
From an adjusted free cash flow perspective, we are targeting approximately $300 million to $400 million in 2021, and the year-over-year walk is very simple.
The main factors driving our cash flow change is higher EBITDA, a return to more normalized income tax payments and a higher working capital associated with revenue growth.
And while on a dollar basis, capex is slightly higher than 2020, we are targeting capex as a percent of sales of approximately 4.5%.
You can clearly see AAM's ability to deliver free cash flow on full display, not only in 2020 actual results but ahead for 2021.
The strong free cash flow number for 2021 is a reflection of the benefits we are realizing from our restructuring and cost reduction actions.
We are experiencing year-over-year margin growth and continued cost optimization, capex as a percent of sales at the lowest levels in AAM's history, and inventory optimization delivering significant cash flow benefits.
We expect to use this free cash flow as well as our enhanced EBITDA to fund our R&D and new product expansion, and at the same time, reduce leverage this year by a full turn or more.
Our resilience in restructuring activities in 2020 is fueling our 2021 performance, and we are very excited to continue to strengthen our financial profile and focus on the growing of the business.
That said, we are well positioned for 2021 and beyond.
We have and will continue to optimize our business to generate meaningful cash flow and invest in our future product development.
This position is driving growth opportunities in electrification and other areas of our business.
You can see this in the third year of our backlog and it is the strongest heading into the mid-decade timeframe.
We are being awarded next generation of key products that will position our businesses to drive cash flow for many years to come.
In the near and mid-term, we see customers adding production facilities for products we support.
This is allowing us to leverage our light truck franchise to contribute to strong cash flow generation capabilities and thus invest and grow our electrification product portfolio.
And lastly, our cost optimization is focused on driving future margin growth opportunities.
So, couple all that with our flexible operations, variable cost structure and ample liquidity and solid debt maturity profile, and you have a good framework for long-term success.
As for now, we expect 2021 to be about operational excellence, margin expansion, free cash flow generation and propulsion innovation.
We are looking forward to a great year for AAM.

user
q4 adjusted earnings per share $0.51.
q4 diluted earnings per share $0.30.
qtrly sales of $1.44 billion.
q4 sales $1.44 billion versus refinitiv ibes estimate of $1.36 billion.
aam is targeting sales in range of $5.3 - $5.5 billion for full year 2021.
expects launch cadence of 3-year backlog to be about $200 million in 2021, $150 million in 2022 and $250 million in 2023.
aam is targeting adjusted ebitda in range of $850 - $925 million for full year 2021.
aam is targeting adjusted free cash flow in range $300 - $400 million for full year 2021.
sees 2021 north american light vehicle production in range of 15.5 - 16 million units.
sees 2021 european light vehicle production of approximately 19 million units.
gross new, incremental business backlog launching from 2021 - 2023 estimated at about $600 million in future annual sales.

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