Good morning. My name is Betsy, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axel and Manufacturing 2nd Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers was marked, there will be a question and answer period. If you would like to ask a question during this time, simply press the star key, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star key, then the number 2. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lin, Head of Investor Relations. Please go ahead, Mr. Lin.

Thank you, and good morning, everyone. I'd like to welcome everyone who is joining us on AEM's second quarter earnings call. Now, earlier this morning, we released our second quarter of 2025 earnings announcement, and 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 the supplemental slides for this conference call on the investor page of our website as well. In addition, to listen to a replay of this call, you can dial 1-877-344-7529, replay access code 636-8162. this replay will be available through August 15th now before we begin I'd like to remind everyone that the matters discussed in 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. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures, as well as the reconciliation of the non-GAAP measures to GAAP financial information, is available in the presentation. With that, let me turn things over to AEM's Chairman and CEO, David Dauk.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AM's financial results for the second quarter of 2025. Joining me on the call today is Chris May, AM's Executive Vice President and Chief Financial Officer. To begin, I'll review the highlights of our second quarter financial performance. Then I will touch on some commentary about AM's recent business developments and discuss guidance. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin. AIM's second quarter 2025 sales were $1.54 billion. AIM's adjusted earnings per share was $0.21. Operating cash flow was $91.9 million, and adjusted free cash flow was approximately $49 million. From a profitability perspective, AIM posted year-over-year adjusted EBITDA margin growth in the second quarter, driven by productivity and cost controls. AM's adjusted EBITDA in the second quarter was $202 million, or 13.2% of sales, a 40 basis point improvement versus last year, even with lower sales, and a 60 basis point improvement sequentially. Let me talk about some fantastic updates driving our business on all fronts, which you can see on slide four of our investor deck. We are excited this year both AM and DALI shareholders voted for and in favor of the proposed transaction to create a leading global driveline and metal forming supplier with significant size and scale and with strong customer and geographic diversification. Great news. The complementary nature of the two businesses that anticipate to generate significant shareholder value, yielding an estimated $300 million of cost synergies and strong free cash flow potential. With the positive vote results, we have passed a significant process in our milestone. On the regulatory front, AM continues to make great progress. Approvals have been received from the U.S., Korea, India, Taiwan, Turkey, and the U.K., and the regulatory approval process in Brazil, China, Mexico, and the EU are making excellent progress. From a product win perspective, A announced in the quarter it has secured an agreement with Scout Motors to supply both front electric drive units and rear E-beam axles for the much-anticipated launch of the all-new electric Traveler SUV and Terra pickup truck. Both products can be configured with 100% battery electric or range-extended systems. We are honored to support the rebirth of the iconic Scout brand and play a significant role in these important vehicle launches with AM's award-winning electric drive technology. We anticipate start of production in 2027. This business award supports our selective and targeted electrification growth strategy. It also highlights the depth and breadth of our comprehensive product portfolio, including electric drive units and EV maxels. In addition, we have also closed on our divestiture of AM's India commercial axle business to Bharat Forge Limited on July 1st for approximately $65 million. The sale is a result of our focus to create a long-term value for our stakeholders through our portfolio valuation and management process. Even with all this exciting activity, we continue to manage our day-to-day businesses as evidenced by our second quarter results. Our focus is on operational excellence to control costs, enhance quality, and boost productivity. AM's goal is continuous improvement, and this was on full display in the quarter as our driveline unit experienced margin growth versus last year, and our metal forming group has now tallied five consecutive quarters of year-over-year margin expansion. In addition, as an overall industry volume of experience has declined in the quarter, a number of our key truck and SUV programs outperformed the industry, and we expect this to continue stemming from consumer preferences of these vehicle segments. It's also evident that ICE and ICE hybrid vehicles will have longevity due to American consumer preferences, coupled with recent changes in government policy and incentives. Although AM is prepared for electrification, a longer ice tail is good for AM as we can further leverage our installed fixed asset base and core products. Now let's shift and talk about one of the elements that we are actively managing, trade and tariffs. As we all experience, trade policies can pivot quickly. And with that said, I want to briefly touch on several points on how AM is well positioned to handle this volatility. As we've communicated before, AM's policy is to buy and build locals. Approximately 90% of the products that we produce in North America are already USMCA compliant, and we are working to increase that percentage on a go-forward basis. For our North American production needs, nearly all of our steel and aluminum buy is from U.S. sources. We do have some open capacity to relocate manufacturing to the U.S. if needed, and we continue to receive positive business inquiries in our U.S. metal foreign business unit. Additionally, we will continue to work closely with our customers to mitigate the majority of the incremental tariff costs and or pursue recoveries with them. Transitioning to our guidance, we updated our 2025 financial guidance ranges on the strength of our first half results and the resiliency of some of our key product segments. AM is now targeting $5.95 billion, adjusted EBITDA of approximately $695 to $745 million, and adjusted free cash flow of approximately $175 to $215 million. Our guidance ranges are supported by an assumed North American production volume of 14.6 to 15.1 million units. Chris will provide additional details on the assumptions underpinning our guidance. In summary, AEM had a strong first-half performance while successfully navigating market ends or needs and changes in trade policy. Additionally, we continue to make progress in cost control, driving margin performance. Concurrently, we continue to advance the DALE acquisition by achieving shareholder approvals and making progress on the regulatory matters. We still expect the deal to close in the fourth quarter of 2025. This deal will transform AM into a premier driveline and metal forming supplier with increased size and scale positioned to deliver shareholder value. And with that, let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the second quarter financial details.

Thank you, David, and good morning, everyone. I will cover the financial details of our second quarter 2025 results and our updated guidance 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 second quarter of 2025, AAM sales were $1.54 billion compared to $1.63 billion in the second quarter of 2024. Slide 7 shows a walk of second quarter 2024 sales to second quarter 2025 sales. Volume, mix, and other was lowered by approximately $102 million, primarily driven by lower overall volumes compared to a year ago. Metal market pass-throughs in FX increased sales by approximately $11 million. The majority of this is related to foreign exchange, particularly from the strengthening euro. Now, let's move on to profitability. Gross profit was $200.7 million in the second quarter of 2025 as compared to $217.3 million in the second quarter of 2024. For the second quarter of 2025, adjusted EBITDA was $202.2 million and adjusted EBITDA margin was 13.2% versus $208.4 million and 12.8% last year. You can see a year-over-year walkdown of adjusted EBITDA on slide 8. In the quarter, adjusted EBITDA was lower due to volume, mix, and other by $23 million versus the prior year, resulting in a decremental margin of approximately 23%. R&D was lower year-over-year by $8 million as we continue to optimize our engineering spend. And lastly, performance and other was favorable by $9 million. This year-over-year favorability was driven by adjusted even-to-margin improvements by both of AAM's business units. Drivelines' margin increased approximately 30 basis points to 13.8%, while metal-forming margins increased approximately 20 basis points to 8.9% from last year. AAM remains focused on productivity, efficiency, and cost optimization in all areas of our business, and our trends and results are demonstrating this. Let me now cover SG&A. SG&A expense, including R&D in the second quarter of 2025, was $100.8 million, or 6.6% of sales. This compares to $105.2 million, or 6.4% of sales, in the second quarter of 2024. AAM's R&D spending in the second quarter of 2025 was approximately $36 million. For the full year, we continue to anticipate R&D expense to be down on a year-over-year basis by approximately $20 million, resulting from current market requirements and continued focus on spend optimization. Let's move on to interest and taxes. Net interest expense was $37.5 million in the second quarter of 2025 compared to $41.8 million in the second quarter of 2024. Our lower interest expense was due to lower weighted average interest rates of our outstanding long-term debt and lower year-over-year debt balances. In the second quarter of 2025, we recorded income tax expense of $28.1 million compared to $17.2 million in the second quarter of 2024. For the full year of 2025, we expect our adjusted effective tax rate to be approximately 50%. This elevated book tax rate is due to valuation allowances on certain foreign jurisdictions and interest deduction limitations in the U.S. This book rate excludes the potential benefits from recent U.S. tax legislation. We are evaluating the full impact of this legislation, and we would expect to reflect any benefits in the third quarter. As for cash taxes, we expect approximately $70 to $75 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $39.3 million or $0.32 per share in the second quarter of 2025, compared to net income or $18.2 million or $0.15 per share in the second quarter of 2024. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.21 per share in the second quarter of 2025, compared to earnings per share of $0.19 for the second quarter of 2024. Thank you. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the second quarter of 2025 was $91.9 million, compared to $142.8 million in the second quarter of 2024. Capital expenditures netted the proceeds from the sale of property, plant, and equipment for the second quarter of 2025 were $52.9 million. Cash payments for restructuring and acquisition-related activity for the second quarter of 2025 were $9.7 million. Reflecting the impact of these activities, AAM's adjusted free cash flow was $48.7 million in the second quarter of 2025. From a debt leverage perspective, we ended the quarter with net debt of $2.0 billion and LTM adjusted EBITDA of $715 million, calculating a net leverage ratio of 2.8 times at June 30, 2025. We also maintained a strong cash position of nearly $600 million. dollars. AAM ended the quarter with total available liquidity of over $1.5 billion, consisting of available cash and borrowing capacity on our global credit facilities. Before we dive a little deeper into our updated guidance, let's touch on tariffs. As a quick reminder, the following is our potential direct tariff exposure profile. Both of the products we ship to our customers in North America are USMCA compliant. Almost all of our AAM steel and aluminum consumed in North America is from U.S.-based sources, so we are generally in a very good spot with these commodities. For our U.S. operations, we import from Mexico approximately $100 million on an annual basis, the majority of which is USMCA compliant. We import from Canada approximately $25 million on an annual basis, the majority of which is also USMCA compliant. We directly import very little from China into the U.S. and therefore have very minimal exposures here. And lastly, AEM's rest-of-the-world import exposures are approximately $100 million of annualized values, and we are working to mitigate these exposures, plus any additional exposures our supply base may have, while gaining clarity on final tariff agreements. Our intent is to mitigate a majority of incremental tariff costs, which include working with our OEM customers to receive recoveries. Given the nature of this process, the timing of recoveries can lag. As such, we incurred incremental tariff costs of approximately $10 million in the second quarter. We are assuming to receive offsets starting in the second half of the year. We anticipate the full year 2025 net impact to be approximately $10 to $15 million after mitigation and customer recoveries. With that background in place, let's talk about our guidance on slide 5. Our outlook has been adjusted from the previous targets which were provided on May 2nd. Our updated targets are as follows. For sales our new range is 5.75 to 5.95 billion versus 5.65 to 5.95 billion previously. This sales target is based on a North American production range of 14.6 to 15.1 million units and certain assumptions for our key programs. We continue to anticipate GM's full-size pickup and SUV production in the range of 1.3 to 1.4 million units. From an EBITDA perspective, the range is now $695 to $745 million versus $665 to $745 million previously. We now anticipate adjusted free cash flow in the range of $175 to $215 million. Our CapEx assumption is unchanged at approximately 5% of sales as we ready the organization for important upcoming launches, especially for one of our major truck programs. In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring-related cash payments for AAM as a standalone entity to continue to be in the range of $20 to $30 million for 2025 as we look to further optimize our business and further reduce fixed costs. We underscore that the guidance figures we are providing today are on an AAM standalone pre-combination basis and excludes any costs or expenses related to our announced DALA transaction. AAM delivered good first-half results, and although the second half includes some extended customer downtime, particularly in the third quarter, and a slight uptick in the second half launch costs in preparation for upcoming programs, We are excited about our fundamental underlying performance improvements carrying into 2026. Simply, we expect continued improvement in both of our business units, further fixed cost reductions to aligned capacity, and tightly controlled spending. In sum, these factors should benefit future periods. Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to David so we can start the Q&A.

David?

Thank you, Chris and David. we have reserved some time to take questions I would ask that you please limit your questions to no more than two so at this time please feel free to proceed with any questions you may have at this time I would like to remind everyone in order to ask questions please press star and the number one on your telephone keypad we will pause for just a moment to compile the Q&A roster your first question today comes from Joe back with UVN please go ahead thanks good morning everyone um just maybe if we could just sort of get um um you know i know you should

provide some of the the overarching um points for your guidance maybe just some thoughts on uh t1 production levels for the year um maybe even cadence in the back half given we've seen some of the downtime announcements that's allowed but then if you look at s p also looks like some some pretty low levels in the fourth quarter which you know maybe there's some upside to that so just I'm just wondering how you're thinking about that for the back half of the year.

Yeah, no, great question, Joe. Obviously, you know that's a key platform for our business. As I mentioned in the prepared remarks, our range that we assume for the year is 1.3 or 1.4 million units. You know, you will face, in terms of just cadence through the year, obviously the first half of the year was pretty strong. Almost about half of that was built at the high end, meaning closer to 700,000 in the first half of the year. The second half, obviously, would fall normal cadences associated with seasonality and production days, Q3 versus Q4. And then lastly, as you mentioned, or maybe second to last, we did experience a little bit of some extra downtime pretty much already almost behind us here in the third quarter related to Salau. But that said, you know, we are, as a franchise, quite bullish on that platform. If you think about the range we provided in the context of that, you know, The HD platform continues to run very strong. The SUV platform continues to run very strong. You even see the light-duty truck inventories only in the 60-day range at this point in time. So we continue to be bullish on that, but the cadence would follow probably more of the seasonality in terms of the second half. You can pick your macro number that you want to use for that and a little bit of downtime related to the third quarter. Hopefully that helps and provides some context for you.

Yeah, thanks for that. And then there's a second question, just sticking on GM, but want to tie in some other elements here with, you know, the longer tail for ICE and sort of their announcement to onshore some, especially T1 capacity to the U.S. how you're thinking about that for Axel, it seems like the incremental SUV production is almost unabashedly a positive, but wanted to get your, your, your point of view on that and, and, and whether even there's, you know, once the Dalai deal closed, whether there's even an opportunity for some additional content from that onshoring.

Yeah, John, this is David. You know, you obviously Chris and you just talked about the UNXX volumes, you know, GM's announced product plans to shift some of their production around, you to the U.S. operations. Clearly, we've got the flexibility and the capacity to be able to support that. We'll have to make some adjustments to our global operations to do that, but we're working with General Motors with respect to what needs to be done in that area there. So we're encouraged and pleased with that. I mean, obviously, our policy is to buy and build local, and our parts tend to be a little bit larger, so therefore we need to be closer in proximity to the assembly plants. And if GM's shifting that production, which they are, then we need to make the necessary adjustments in concert with them, and we'll do that. With respect to DALE, assuming that everything closes in the fourth quarter, which is on track to do, it's just going to give us even more flexibility in the U.S. or even globally to support all customers, not just GM, but all customers. And we do expect that there will be some content gains for us on the T1XX based on Dalai's position on those programs. Thanks.

Our next question comes from Tom Narayan with RBC. Please go ahead.

Hey, thanks for taking the questions. I remember you guys mentioning that there was some extra plant due diligence at Dalai that you still had yet to do and that that potentially could create some upside to the synergy total that you have. Just curious, I know you guys got the deal approval from the Dalai side. Congrats on that. Just curious where we were on that extra plant due diligence and then have a follow-up.

Yes, Todd, this is David. You know, good question. Now that we've got the shareholder approval from both sides, we're now able to spend more time with DALA, get more information that we need in order to do the proper assessment on the manufacturing portion of the Synergy side, starting to get into more of their plants, which will give us an opportunity to have a better assessment of what that true opportunity is. We still feel that there's some upside potential there. We can't quantify that at this point in time. At the same time, on the purchasing side of things, you know, clearly we're dealing with a challenge in an uncertain market with the tariffs and the policy changes, so we'll continue to manage that appropriately, but still feel confident about what we can do in the synergy area there based on what we've communicated already. But still ongoing, I guess, is the best way to answer it, but we're hopeful that there'll be incremental upside still on the operations side.

And my follow-up on the tariff side, just quick housekeeping, the $10 million in Q2, and then the total is $10 to $15 for the full year after mitigation recovery. Just curious where that is coming from specifically. Is that that rest-of-the-world piece? And then on tariffs in general, are you hearing, maybe too early, but reshoring potentially, now we have the EU-Korea-Japan deals done. And, like, have those OEMs talked at all about that with you guys? Yeah, thanks.

Yeah, Tom, this is Cruz. I'll take the first part of your question as it relates to the $10 million. It comes from the majority of that is through rest-of-world scenarios in terms of how it finds their way into our U.S. operations. That would be correct. Obviously, we're primarily USMCA compliant for our Mexico and Canadian imports. So it's primarily rest-of-world.

And then, Tom, this is David. In regards to the second part of your question, we are receiving several inquiries from many of the global OEMs that are looking to localize production capability or component capability to the U.S. to address the tariff issues that are out there. That's positive for us in regard, especially for our metal-forming business unit, but we're seeing it from the Europeans and all the Asians as well with respect to those inquiries. So it's, you know, still early, but we're working that process right now, and hopefully we can conquest new business going forward. Great. Thank you. Thank you.

The next question comes from Itay McKellie with TD Cowan. Please go ahead.

Great. Thanks. Good morning, everybody. Just a bigger picture question. I'm curious what you think, you know, some of the changes in emissions regulations at the federal level and other levels could mean for American Axel over the next couple of years, both in terms of mix and just keep program volume. I'm curious if you've had discussions yet on that with some of your customers.

So, Etai, this is David. You know, obviously, as I said in my prepared remarks, you know, first of all, the consumer is showing what their preference is for ICE and ICE hybrid-type vehicles, but there's still a need for electrification. It's just that electrification demand is slowing down than what the prognosticators were saying. There's still significant progress being made on ICE vehicles and ICE and hybrid as it relates to fuel economy performance. As you all know, there was a significant bill associated with trying to convert things to electrification. So it's going to benefit not only the OEMs as far as less capital investment, but will also benefit the supply base, including American Axle, in regards to using our installed fixed capacity and leverage of our core components and our products that we have today. I still believe in electrification. I've always said that I think it's going to be adopted or accepted in the U.S. market slower than it is in China or globally around the world, and that's really starting to play out and pan out the way we thought and the way we've planned our business. But at the same time, we have to be agnostic to the market from a propulsion standpoint, and that's what we're doing is preparing ourselves where we have an extensive portfolio of ice, hybrid, and electrification, and the Dowley acquisition will just complement that and give us a more comprehensive portfolio there. But customer-wise, I mean, they're evaluating everything, you know, as far as continuing to push ICE, looking at hybrids, because there is an increased demand for hybrids, and electrification. There's still a desire for electrification. Obviously, we wouldn't have gone after Scout if we didn't think that there was a true market for that. But we're very encouraged with where we're seeing balance now in regards to the approach towards multiple propulsion systems.

That's very helpful. Thank you, David. And as a quick follow-up, I think, Chris, you mentioned some launch costs second half of the year to support programs in 2026. Anybody can roughly quantify what those launch costs, how would you think about them?

Yeah, I would think about them at around $5 to $10 million in the back half of the year versus, let's say, versus what we experienced in the first half. And it aligns with sort of our capital timing that we've been talking about.

That's very helpful.

The next question comes from James Piccarello with C&P. Please go ahead.

This is Jake on for James. So I just wanted to spend a second talking about the steel and aluminum tariffs. Could you discuss just first if there's any direct impact on your business? And then can you remind us what portion of your steel exposure is covered by contractual recoveries?

Yeah, this is Chris. In terms of steel and aluminum, primarily all of our steel and aluminum that we procure or consume inside the United States, we're procured from U.S. sources, so we are largely exempt from any tariff exposures associated with that. There are some small tool steel type elements, but very minor that we would incur from that perspective. So I think we're in a really good spot as it relates to our primary production consumption of steel and aluminum and the second part of your question was what so the primary element of recovery is you know all the commodity pass-throughs in terms of the input costs to our steel is passed along to our customers by contract either every 30 days or 90 days depending on the customer so we're primarily covered call it 80 to 90 percent in terms of those cost increases or decreases we would pass through as well and those markets It's surprisingly have been relatively stable the last quarter.

Thank you. And then, obviously, this Scout Award is a pretty significant validation of, you know, of your BVN capability. Are you able to share whether you guys are also able to leverage your proprietary eDrive in the program or whether it's, you know, leveraging more off-the-shelf parts?

No, we clearly leveraged our IP and our own capability. At the same time, we work closely with the scout team and the VW group in regards to what they were looking for for the specific vehicles that we were developing products for. But this is a testament to the comprehensive portfolio that we have. We've been positioned for electrification for quite some time. At the same time, we're going to continue to make investments in electrification, but on a balanced basis. We just want to make sure we have a comprehensive proposal that gives us the vertical integration capability that can satisfy customer needs, whether it's component subassembly or the full complete systems. And in this case, we're winning complete systems with respect to both eBeam and EDUs. So very big win for us. validation of our technology and capability at the same time sends the message to the marketplace that we do have the ability to satisfy ICE, hybrid, and electrification.

Thank you.

The next question comes from Edison Yu with Deutsche Bank. Please go ahead.

Hey, good morning. Thanks for taking our questions. I wanted to ask about Europe. Obviously, with the acquisition, you're going to be much more deeper and have much higher, much more business there. What's the latest thinking, I guess, on, you know, just the market, getting more into that market and also kind of the regulatory backdrop of that?

Yeah, this is David. You know, listen, we're very excited about the acquisition of Dow A. The strategic combination is very powerful. As we indicated, it's going to give us more balance from a customer diversification and geographic diversification. You know, we're heavily concentrated in North America as a standalone, meaning AEM. We'll get more balance with the Dow-Lay combination, but Europe becomes approximately 30-plus percent of our overall business. We recognize that market is challenged right now. It's down from, you know, where it typically runs in the, you know, 20, 22 million units. It's down running 17, 18 million units. We recognize some of the restructuring going on there, but Dolly is very well positioned with their customers there from a product standpoint. At the same time, as you're aware, Dolly has been going on the automotive side of their business, both in North America as well as in Europe. They are close to completing that, so we're actually getting a hold of this business at the appropriate time. What we're going to be able to do is bring a more comprehensive and expansive portfolio to those markets. which will allow us to hopefully cross-sell capabilities with customers there. At the same time, we'll continue to look at our portfolio and our manufacturing locations as well as theirs, and if there's further optimization that we can do to get better utilization of the factories and drive more synergies, then we'll pursue that as well. But we're very excited about how they're positioned themselves in Europe and how we're positioned in Europe, knowing that we're still doing some restructuring ourselves there based on the Tech4 acquisition. But overall, I think we'll be very well positioned to satisfy the European market on a go-forward.

Understood, understood. Then just, I guess, a logistical housekeeping question on the deal. I think the shareholder vote happened a bit sooner, maybe a couple months sooner than you may have thought. Is that fair, or was the timing actually on track, the shareholder votes?

No, the timing was on track. So we had our shareholder approval on July 15th. They had theirs on July 22nd. We were able to do a number of shareholder meetings, both in the U.S. as well as in Europe, to support those votes. And, obviously, they came back unanimously in favor of the deal of both shareholders, which was a strong message in itself. So it supports our thesis of strategically bringing these businesses together to deal with uncertainty in the marketplace, which only continues to become a larger issue. And I think we'll be stronger when it's all said and done when we come together. So very excited about the combination. But everything was on track. Thank you.

The next question comes from Federico Morendi with Bank of America. Please go ahead.

Hi, good morning, guys. I have a question on the free cash flow generation in the SEC half of the year. So if I look at the EBITDA, it's largely flat, first half versus second half, but there is a meaningful step up in free cash flow. What is driving that?

Yeah, Federico, this is Chris. Yeah, in terms of our free cash flow profile, you know, very customary for us through the course of our four quarters each year, we would have a – it's primarily focused on the working capital element of our business. Generally speaking, we have a large outflow in the first quarter. We have a large inflow in the fourth quarter, and that principally relates to the timing of our sales, how you're ramping down sales through the fourth quarter into the Christmas holidays. The opposite is happening in the first quarter where you're ramping up from those to generally what's typically a stronger margin. So you would have a stronger fourth quarter working capital element. Think of receivables primarily. The other element inside of that is, you know, we continue to anticipate some strength in our working capital cash conversion as it relates to inventory in the back half versus the first half. So that will also drive some cash flow for us. The rest of the elements, CapEx, a little bit heavier weighted in the second half. Obviously, your profitability flow through as well will be very similar each of these periods. But it's principally that working capital piece that I mentioned.

Got it. Thank you. And on a more long-term perspective on free cash flow, I mean, it's all positive that you're getting quotes from customers around the world that they may relocate to the US and GM is potentially moving some production into the US. But I would assume that you guys have to put more capital in the business. And I was wondering, how should we think about cash flow generation in the future post-build closure and the deleveraging portion of the story?

Yeah, I'll think that sort of the capital piece of this, if you think about it, if you look at some of our recent materials that we have published, especially in relation to our combination with Dolly. And the cash flow generation potential of the company is significant. But it also brings us a greater capacity and scale that allows us to pivot with some of our customers' moves inside of whatever they decide to put their production, whether it's in Europe or in the U.S., will have a greater footprint to leverage, which would require then less capital intensity for some of those changes as well. But we still continue to see a very strong free cash flow generating capability of a standalone American Axel, and we would expect to have that in even greater scale when we combine with DALE, even accommodating some of the elements that you just described.

Thank you.

The last question today comes from Doug Carson with Bank of America. Please go ahead.

Hi, guys. Thanks for sneaking me in here. Nice work this quarter. I don't want to get ahead of myself, but we definitely have bondholders on the call here. And maybe just help refresh us of how you envision the balance sheet with this acquisition. Obviously, it close to doubles the size of the company, which is a positive typically for credit investors. But maybe just kind of touch again on the balance sheet and maybe perhaps what type of capital investment you may need and how it would affect your cash flow to kind of get this business where you want it in the next few years.

Yeah, I guess we'll start in reverse in terms of the cash flow. I guess I would tie in a little bit to the commentary of the previous question. You know, we would expect to continue to have very strong cash flow as it relates for the combined entity. And if you look at some of our materials on a pro forma basis, based on our 23 and 24 historical performance, we're running near approximately 5% of revenue. So with the synergies involved in that number as well, and it's a pretty powerful combined group to generate from a cash flow perspective. But, look, we'll go to market here to take out our final financing link here to continue to strengthen our balance sheet and finance the transaction. I think you know we will bring on some additional debt to do so, but our goal is to deleverage quickly, especially in terms of the first couple steps. Our primary goal will be to strengthen the balance sheet as we come out of the combined combination using that cash flow. And then after we get towards our target of two-and-a-half times of our intermediate step, We'll then expand our capital allocation a little bit broader, but our focus will continue to be to strengthen that balance sheet and continue to grind down that leverage ratio on the back of our strong EBITDA performance and our cash flow generation.

That's helpful. And have you guys come out with a range of where leverage would go kind of post-closure? I think your leverage has been, you know, coming down over the last few years, you know, following the story. And I guess I just wanted to make sure I wasn't missing where leverage is expected to be after the close. I think your net debt right now is $2 billion, and net leverage ratio is 2.8. So I was wondering if we have a sense of kind of just a rough framework of where it would be upon a post-close.

Yeah, when we announced the transaction earlier in the year, you know, we were just under 3, sort of that 2.8, 2.9 time, depending on the quarter. And, you know, we were driving towards trying to be approximately leverage neutral at close. Obviously, our guidance of both companies has moved around a little bit here this year, but that is still what we're striving for. And that would be at close on an actual basis.

David, you know, as a standalone company, we've said that we wanted to try to work. With Dowlay, we're going to continue to work towards two times. But we also said that because we're going to have a larger company and more robust business model, that when we got to that approximately two-and-a-half times or less, then we would essentially reevaluate our cap, including shareholder-friendly activities. So that would be the only kind of real change to the current strategy that AEM has. But we're going to continue to focus on paying down debt. We're going to generate a lot of cash from the combined business with the synergies, which is going to open up the opportunity for us to have more opportunities on the capital allocation side.

All right. This is summing up. I got it straight, and thank you for that. So net leverage coming out of the close of the transaction about where we are now, and then grinding that down as a priority to run two-and-a-half, and then going forward once at two-and-a-half, given the company will be larger than redeploying capital perhaps elsewhere. All right. Thank you, guys. I appreciate it.

Thank you, Doug. Thank you, Doug. And that concludes the question-and-answer session of the call. We thank all of you who have participated on this call and appreciate your interest in AEM. We certainly look forward to talking with you in the future.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.