American Axle & Manufacturing Holdings, Inc. (NYSE: AXL) — Q3 2022 Form 10-Q
Filing identity: The provided metadata says “Dauch Corp,” but the filing identifies American Axle & Manufacturing Holdings, Inc. as the registrant. Reporting period ended September 30, 2022; amounts below are in U.S. dollars.
Business context and reporting period
AAM is a global automotive supplier of Driveline and Metal Forming products. Its results are tied to vehicle production and concentrated among major automakers: GM accounted for approximately 40% of sales in the first nine months of 2022, Stellantis 18%, and Ford 11%. Tekfor Group was acquired effective June 1, 2022, with results included in Metal Forming.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,535.2 million | $1,213.1 million | $4,409.7 million | $3,921.5 million |
| Gross profit / margin | $177.4 million / 11.6% | $165.6 million / 13.7% | $537.7 million / 12.2% | $582.7 million / 14.9% |
| Operating income / margin | $62.3 million / 4.1% | $46.3 million / 3.8% | $190.3 million / 4.3% | $208.2 million / 5.3% |
| Net income (loss) | $26.5 million | $(2.4) million | $50.4 million | $52.2 million |
| Diluted EPS | $0.22 | $(0.02) | $0.42 | $0.44 |
| Segment Adjusted EBITDA | $198.4 million | $183.2 million | $589.6 million | $668.7 million |
Q3 sales rose 26.6%, reflecting Tekfor and higher production as supply constraints eased; management estimated the reduced impact of constraints added approximately $136 million to the year-over-year sales comparison. For the nine months, sales increased 12.4%, including $121 million from Tekfor and approximately $168 million from improved production volumes. Higher input and manufacturing costs weighed on margins; nine-month Segment Adjusted EBITDA declined despite higher sales.
Cash flow and liquidity: Nine-month operating cash flow was $300.4 million, down from $436.0 million; capital spending was $117.9 million. Investing activities used $197.4 million, including the Tekfor acquisition, and financing activities used $147.8 million. Cash was $472.3 million at September 30, versus $530.2 million at year-end 2021. Current assets were $2,055.5 million and current liabilities $1,214.3 million.
Debt: Total debt was $3,020.2 million (including $19.2 million current), compared with $3,137.9 million at December 31, 2021. Weighted-average borrowing rate was 5.8%. AAM reported over $1.4 billion of liquidity: approximately $472 million cash, $893.5 million available on its revolving facility and $64.7 million available under foreign facilities. Management reported no significant debt maturities before 2024.
Material changes and unusual items
- Tekfor was acquired for $94.4 million, funded with cash. It contributed approximately $121 million of sales and $10 million of net income from June 1 through September 30; that net income included a $13 million bargain-purchase gain and a $5 million inventory fair-value step-up expense. Purchase accounting remained preliminary.
- Q3 2022 net income included a $7.5 million tax benefit from releasing a foreign valuation allowance. Nine-month results also included a $24 million unrealized loss on REE Automotive equity securities and the $13 million Tekfor bargain-purchase gain.
- Nine-month operating cash flow was affected by working capital: accounts receivable increased substantially, with management attributing a comparative cash-flow impact of approximately $252 million to receivables timing.
- In March 2022, AAM amended its credit agreement, increased Term Loan A to $520 million, extended Term Loan A and revolving facility maturities to March 2027, and removed the senior secured net leverage covenant. It also redeemed $220 million of 6.25% notes due 2026 and prepaid $100 million on Term Loan B during the first nine months.
- The Malvern facility fire generated a $6.4 million net pretax benefit in nine-month 2022 results from estimated insurance recoveries, net of related costs. Insurance recovery receivable was $5.9 million at quarter-end.
Outlook, risks and contingencies
Management expected supply-chain disruption, semiconductor shortages, inflation in materials, utilities, freight and labor, and production volatility to continue through 2022; the ultimate impact was uncertain. It expected 2022 capital spending of 3%–3.5% of sales, interest expense of approximately $180 million, restructuring charges of $20–$30 million, and restructuring and acquisition-related operating cash payments of $30–$40 million. It also expected approximately $5 million of integration costs. The filing does not provide a specific revenue or earnings forecast.
AAM is contesting an IRS position concerning its 2015 tax return. The IRS asserted approximately $7 million for 2015; AAM said it expected to pay that amount plus interest in the first half of 2023 while continuing to challenge the assessment. If its position ultimately fails, AAM estimated potential additional tax expense, including interest, of approximately $275–$325 million for tax years 2015–2021; no amount was recorded. Other risks include customer concentration, supply and labor disruptions, input-cost inflation, foreign exchange and interest-rate exposure, and warranty, environmental and litigation matters. Management said other legal matters were not currently expected to have a material adverse effect. Disclosure controls were assessed as effective; Tekfor operations were excluded from the 2022 internal-control assessment as permitted.
Important facts for investors to verify
- Whether improving vehicle production volumes can offset continued cost inflation and restore gross margins.
- Whether operating cash flow improves as receivables and other working-capital balances normalize.
- Tekfor’s performance, integration costs, and final purchase-price allocation after measurement-period adjustments.
- Developments in the IRS dispute and potential exposure of $275–$325 million, including timing and interest.
- Liquidity, debt repayment capacity, and sensitivity to variable interest rates; management estimated a one-percentage-point rate increase would affect annualized pretax earnings and cash flow by approximately $7.9 million.
- Realization and timing of remaining Malvern fire insurance recoveries, and progress on the Emporium facility closure and restructuring plans.