Dauch Corp. (DCH) Q3 2026 Earnings Report, Transcript and Summary

Good morning, everyone. My name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Dauch Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the floor over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, and good morning. I'd like to welcome everyone who is joining us on Dauch Corporation's third quarter earnings call. Earlier this morning, we released our third quarter of 2026 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.dauch.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. A replay of this call will be available through November 13. Replay details are in today's press release. In addition, I want to remind the investment community that we will be hosting a Capital Markets Day on November 17 in New York City. At the event, the leadership team will discuss what differentiates Dauch Corporation and share our vision. The formal presentation will begin at 9:00 a.m. Eastern Time, and it will be webcasted. Please mark your calendars. Now before we begin, I would 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 a reconciliation of the non-GAAP measures to GAAP financial information is available in the presentation. With that, let me turn things over to our Chairman and CEO, David Dauch.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss Dauch's financial reports for the third quarter of 2026. Joining me on the call today is Chris May, our Executive Vice President and Chief Financial Officer; and Senior Vice President, Nathan Iles, who will assume the role of CFO on December 1. So let's begin. Despite production volatility and rising input costs, we generated strong cash flow in the quarter while supporting new program launches. At the same time, we are making excellent progress on our synergy realization. 9 months into the combination, it is increasingly clear that we have created a stronger company. We have greater scale, broader customer relationships, a more diversified geographic footprint and a significantly expanded product portfolio. These advantages are helping us navigate market volatility while positioning us to create substantial long-term value for stakeholders. As for today's agenda, I'll review the highlights of our third quarter financial performance. Next, I'll touch on our synergy progress, some business updates and commentary about the industry and provide guidance, which we announced last week. I will then turn the call over to Chris to cover the details of our financial results, after which we will take any questions that you all may have. Now for the details. The company's third quarter 2026 sales were approximately $2.9 billion and adjusted earnings per share was $0.22 per share, and adjusted free cash flow was approximately $127 million. In the third quarter, global production declined approximately 2% and North America production declined approximately 5% year-over-year. However, Europe increased approximately 1%. Against that backdrop, we did benefit from good performance on key GM crossover and Land Rover utility vehicle programs. That stated, we experienced lower Ram Heavy Duty volumes, which declined approximately 15% year-over-year in the third quarter, as well as the impact of major launch activity underway at GM for its large pickup truck program with planned downtime realized both in September and in early October. From a profitability perspective, our adjusted EBITDA in the third quarter was $358 million or 12.3% of sales, driven by performance and Dowlais contribution. Chris will provide more details about our overall financial performance during the prepared remarks. Next, on Slide 5, I'd like to share an update on our synergy and value capture progress. We have now been operating for nearly 3 full quarters as a combined company, and we have already realized $100 million of run rate synergies and savings to date. As such, we will clearly deliver on our goal or more than $100 million of run rate synergies by year-end. We have made excellent progress in optimizing our SG&A, and we've reduced duplicative corporate costs, and we continue to capture global engineering efficiencies. We continue to gain positive momentum on our operational synergies while we are navigating purchasing opportunities in today's challenged macro environment. As communicated earlier, these 2 categories, by nature, will take more time to realize their full potential from a synergy standpoint. Turning to business development. Among the businesses that we won in the quarter, I want to particularly highlight 2 important wins that reflect the strength of our product technologies, but also more -- our more diverse customer base. We secured the next-generation business for propshafts, sideshafts and electronic limited slip differentials on a premier European luxury SUV program that is expected to run deep into the 2030 period of time. Within next-generation business remains a core strategy, reflecting the strength of our customer relationships, the competitive value proposition and our proven execution. Beyond our incumbent positions, we will continue to aggressively pursue new and incremental conquest opportunities to drive profitable growth. In addition, we also secured sideshaft content for an infantry squad vehicle program, demonstrating our technology portfolio extends well beyond traditional passenger vehicles. The sideshaft product on this platform is a very unique product because it's engineered to provide power to the wheels under extreme drive angles and conditions. We are very proud to be on this program to deliver high-quality, highly engineered products that can support traditional automotive markets as well as adjacent markets. Now let's talk about the industry. In the third quarter, we began to experience additional inflationary pressures across the supply chain, driven in part by significantly higher fuel prices versus last year. As you all know, energy is an important driver for our industry, both as an input cost, but also consumer demand. Production volatility has increased across select customers and supply chain challenges are beginning to become more apparent, especially with some of the Tier 2 and Tier 3 suppliers. That stated, we can't control these factors and do not know when they will abate, but we can control how we respond. We've managed through challenging environments before, and we'll continue to do so by flexing our variable cost structure, driving productivity and optimizing our operations. In addition, we'll work to mitigate these inflationary costs. Shifting to our full year guidance, which we provided on October 30. Here's the update. Sales now in the range of $10.8 billion to $10.875 billion, adjusted EBITDA in the range of $1.35 billion to $1.375 billion and adjusted free cash flow of approximately $270 million to $310 million. In summary, we had a solid quarter and delivered strong operating cash flow. The Dowlais integration is on track and making good progress. We are ahead of schedule in achieving our year 1 synergy target of greater than $100 million. While near-term industry headwinds exist, we are confident in our ability to navigate these challenges and even more confident in the long-term strength and cash-generating power of our business. So now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the financial details. Chris?

Thank you, David, and good morning, everyone. I will cover the financial details of our third quarter 2026 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. In the third quarter of 2026, our sales were $2.91 billion as compared to $1.51 billion in the third quarter of 2025. Slide 8 shows a walk of third quarter 2025 sales to third quarter 2026 sales. For legacy Dauch, sales were up slightly year-over-year to $1.52 billion from $1.51 billion last year. Volume, mix and other was lower by approximately $15 million. However, this was more than offset by metal market pass-throughs and FX, which increased sales by approximately $33 million, driven primarily by increasing metal market pass-throughs. Dowlais contributed $1.41 billion in gross sales for the third quarter. Versus last year, volume, mix and other decreased sales by approximately $26 million. The sale of certain businesses decreased sales by approximately $35 million and metal markets and FX decreased sales by approximately $8 million. Overall, we experienced lower production on the Ram Heavy Duty program on both a year-over-year and sequential basis and also on certain other Stellantis crossover programs versus last year. These were partially offset by GM's full-size light-duty truck volumes and Land Rover programs that we support. Now let's move on to adjusted EBITDA. For the third quarter of 2026, adjusted EBITDA was $358.5 million and adjusted EBITDA margin was 12.3% versus $195.7 million and 13.0% last year. You can see a year-over-year walk down of adjusted EBITDA on Slide 9. In the quarter, adjusted EBITDA for legacy Dauch was $193 million versus $196 million last year. Volume mix and other decreased EBITDA by approximately $10 million. This was partially offset by approximately $8 million in net favorable performance. While we incurred increasing headwinds due to some challenged suppliers and the impacts of inflation, we did have year-over-year improvement in our Metal Forming segment as well as lower SG&A costs. Legacy Dowlais contributed approximately $140 million of adjusted EBITDA during the quarter. Versus the third quarter of last year, volume, mix and other increased EBITDA by approximately $3 million and performance and other increased EBITDA by approximately $4 million. This was more than offset by approximately $30 million from onetime commercial settlements that Dowlais recognized in 2025 and $5 million from the sale of certain businesses that I discussed earlier in my sales commentary and the impact of approximately $6 million from metals and FX. In the third quarter, we grew our realized synergy benefit momentum with a positive $25 million in savings as we continue to eliminate duplicative corporate and SG&A costs, realized engineering and indirect purchasing efficiencies. As David highlighted, we have already realized $100 million of run rate savings to date, and we will, therefore, achieve our goal of more than $100 million run rate savings by the end of the year. We have a great market basket of potential savings that we continue to drive to completion. So let's move on to interest and taxes. Net interest expense was $80.9 million in the third quarter of 2026 compared to $35.7 million in the third quarter of 2025. The year-over-year increase in interest expense primarily reflects the issuance of new and assumed debt in connection with the acquisition of Dowlais. The weighted average interest rate of our outstanding long-term debt was approximately 7.1% at the end of the quarter. As for taxes in the third quarter of 2026, we recorded an income tax expense of $13.9 million compared to a tax benefit of $10.9 million in the third quarter of 2025. As we described previously, due to the acquisition-related activity this year, our tax rate and resulting impact remains quite involved in 2026. We expect our adjusted effective tax rate to be approximately 25% to 30% this year. As you may recall, this is a somewhat elevated rate primarily due to the valuation allowances and partial interest deduction limitations in the U.S. As for cash taxes, we expect approximately $165 million to $175 million this year. Taking all these sales and cost drivers into account, our GAAP net loss was $45.3 million or $0.19 per share in the third quarter of 2026 compared to net income of $9.2 million or $0.07 per share in the third quarter of 2025. Adjusted earnings per share, which excludes the impact of items noted in our press release, was $0.22 per share in the third quarter of '26 compared to adjusted earnings per share of $0.30 for the third quarter of 2025. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the third quarter of 2026 was $150.1 million compared to net cash provided by operating activities of $143.3 million in the third quarter of 2025. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the third quarter of 2026 were $94.7 million. Reflecting the impact of these activities, our adjusted free cash flow was $126.7 million in the third quarter of 2026 as compared to $98.1 million in the third quarter of 2025. In the third quarter, we redeemed the remaining $125 million of our 2028 notes and prepaid a portion of our upcoming term loan amortization. We now have no significant debt maturities until 2029. From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and net leverage ratio of 2.6x at September 30, 2026. We ended the quarter with total available liquidity of approximately $2.4 billion, consisting of available cash and borrowing capacity on our global credit facilities. So now let's talk about our updated financial guidance on Slide 7. Our updated targets are as follows: for sales, we raised and tightened the range of our sales outlook to $10.8 billion to $10.875 billion versus $10.6 billion to $10.8 billion previously, reflecting the results through the first 9 months of 2026 and our expectations for the remainder of the year, including metal market pass-throughs and currencies. This sales target is based upon current global production assumptions and certain assumptions for our key programs, and we anticipate GM's full-size pickup truck and SUV production in the range of approximately 1.4 million units this year. From an EBITDA perspective, we anticipate a range of $1.35 billion to $1.375 billion versus $1.36 billion to $1.425 billion previously. The new range reflects several factors, including increasing inflationary pressures, particularly stemming from higher fuel and energy costs, which take time to mitigate or recover. With the challenged macro environment, we're experiencing a somewhat elevated Tier 2 and Tier 3 supplier stress level and lastly, pockets of some production volatility stemming from customer schedule adjustments. As a reminder, our adjusted EBITDA guidance also reflects our proportionate share of income from SDS, our joint venture in China with HASCO. We continue to expect our JV share to be in the range of $70 million to $80 million this year, unchanged from our previous guidance. We anticipate adjusted free cash flow to be in the range of $270 million to $310 million from $260 million to $325 million previously as we manage all elements of our cash flow pieces. And lastly, from a share count perspective, please continue to use approximately 245 million shares for the fourth quarter for modeling purposes. As for 2027, we would expect to provide our official outlook when we announce our fourth quarter earnings call next February. But let me provide some initial commentary on some puts and takes for the year. First, we expect to continue the positive synergy momentum and capture the next wave of benefits. Second, we are very excited about the next generation of truck products our customers are launching and will be in the market next year. And lastly, we do expect to continue to navigate through an inflationary environment, at least in the early part of 2027. It does take time to work through these cost headwinds, either in the form of productivity or commercial settlements. And in conclusion, the company delivered a solid operating cash flow in the third quarter, and we continue to benefit from supplying products across a broad and diversified customer base. As we are into the fourth quarter at this point in time, our priorities remain very clear: manage factors that we can control, execute our integration plan, deliver on our outlined synergy targets and prepare for 2027. 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 2. So at this time, please feel free to proceed with any questions you may have.

[Operator Instructions] Our first question today comes from Tom Narayan from RBC.

So if I look at the Q4 implied downshift from Q3, I understand the 3 factors you called out, the higher fuel, energy, the HD truck issue, GM changeover. But it is a sizable downshift, I think like $50 million, and it does incorporate higher sequential synergy capture. I guess how should we think about these incremental headwinds bleeding into 2027? And how confident are you could pass through these headwinds to the OEMs?

Yes, Tom, this is Chris. I think you absolutely identified the key items between Q3 and Q4. Clearly, maybe we'll level set there. From a production standpoint, as you know, in Q4, we have generally 4 or 5 less production days than we do in Q3. So a volume and mix is a key piece of the Q3 to Q4 transition. I would expect some continued uplift in our synergy performance, but also some of these impacts, I think, that you're referring to in terms of inflationary pressures driven by energy costs, et cetera, I would expect probably an impact in the range versus Q3 of around $10 million. In the current macro environment, some of these pressures would probably continue into the early part of next year. And at that point in time and currently now, we are putting in places or putting in actions to mitigate some of these ourselves from, I'll call it, self-help program to mitigate this inflation, but also we'll be in discussion with our customers in terms of forms of compensation. But as you know, we've gone through this before in the past. These things take time to play out.

Got it. For my follow-up, it's probably for Chris too. On the '26 guidance change versus the prior guide, so adjusted free cash flow is essentially unchanged. I think CapEx is cut by $50 million. I understand the $30 million cut on adjusted EBITDA guidance, and you've explained that already. But what accounts for that -- those remaining pieces that offsets the full $50 million CapEx cut? I assume it's like working cap, interest, taxes. Anything important there to highlight? It seems like maybe those are some sizable changes as well.

Yes, I wouldn't put them as sizable. Our cash taxes are up slightly as we completed some final audit settlements, not significant, but a little piece of that. And then you have working capital timing with the shift in the top line sales, obviously, that moves around your receivables from a collection standpoint. It's working capital timing would be the remaining difference. But you hit the main ones. We've been very focused on optimizing our spend with CapEx with a larger enterprise, also leveraging a broader asset base. You point out the change in EBITDA at the midpoint, obviously, would impact cash flow. And then we've been working on our, I'll call it, our nonoperational cash flow elements, some timing associated with that, but also the final billings that came in with our acquisition.

Good to see the CapEx cut and looking forward to the Investor Day.

Our next question comes from Joseph Spak from UBS.

I just want to offer my congratulations. I really enjoyed all our talks over the years. And Nathan, welcome. Look forward to working with you. Maybe just to follow up on that. I just wanted to -- like within EBITDA, the $50 million lower, but then that's sort of more at, I guess, like an operational level. It was mitigated, I guess, somewhat by that mark-to-market. Can you just remind us what that is? And is that also one of the discrepancies in cash flow? Because that's not -- right, like that's not cash, right? That's just sort of an accounting measure. Is that the other factor for the free cash flow change?

Yes, that does not impact our adjusted EBITDA. It is noncash in nature. You would not see that impact our cash flow statement or cash from operations at all for that adjustment. Those were the nondesignated dollar derivatives that we had to put on our balance sheet during the acquisition. These will burn out relatively quickly.

So that's not something that continues -- like that's not something that continues into future years. That's just something you inherited and you don't expect to continue to use or do?

Correct. They'll start to go away as they lapse, correct.

Okay. And Chris, I know you mentioned no significant debt maturities until '29. And maybe I don't know if this is for Nathan or David or Chris, but like I can't say I followed Standard Motors closely, but it does look like there was a concerted effort there to delever post an acquisition they made. And so it seems like there's some similarities there between what they went through and what you're going through now in the wake of the Dowlais deal even if it wasn't sort of, I guess, higher leverage overall. But I guess, should we read into what you did there, Nathan, in terms of a template of what Dauch would like to do over the coming years?

Yes. Joe, this is David. Let me speak first. We have been very consistent as a company over the years in regards to what our objectives are in regards to our targets for net debt to EBITDA or the leverage target. I mean, clearly, we want to work our way under 2x. I'm proud that we've been able to get it to the 2.6x. At the same time, we're very focused on paying down the debt, which we've consistently been doing quarter-to-quarter. So we'll continue to do that. Obviously, the strength of our business is going to be generating free cash flow to service that debt on a go-forward basis. At the same time, as always, we'll be opportunistic to refinance select debt at the appropriate time. But what I've always been proud of Chris and the team and even Mike Simonte before then is they've always kept a financial runway in front of us. So we never had an overhang from a maturity standpoint there. And I think dealing with Nathan here, obviously, he's just getting on board, up to speed. There are some similarities in regards to what was done at Standard Motor Products. But at the same time, he's going to have to adjust slightly to just the way we've approached things here within the Dauch Corporation. But I think we're all aligned on our task. We understand the mission, and we're committed all the way up to the Board of Directors to address this leverage situation. And that was part of the reason we wanted to do this larger strategic combination or acquisition with Dowlais to accelerate that cash generation opportunity through the synergies that we're realizing and then ultimately service this debt a lot quicker. So hopefully, that addresses your question.

Our next question comes from James Mulholland from Deutsche Bank.

Synergies continue to be recognized faster than what the original outlay had been. Is there anything specific that's enabling you to reach them at that speed? Or should, I guess, we simply view it as a faster realization? Are you finding maybe extra areas that weren't necessarily in your original guidance, and so you're just being able to take them out now? And could that then pretend to maybe raising what you can do over the longer term?

This is David Dauch again. What I would say is this is, I mean, we committed to $300 million at the time that we announced the strategic combination of the 2 businesses. We also expressed at that time the mix of what that $300 million would be with SG&A and engineering being approximately 30% of that, purchasing being 50% and the operations being 20%. At the time, we also identified that we were limited in regards to the ability to visit their plants. So we're not able to see the full potential of some of the operational items. What I would say is we have been very aggressive in regards to going after SG&A cost as well as engineering efficiencies. So -- and obviously, that's the low-hanging fruit that we can get after the quickest. So we're clearly ahead of schedule with respect to that. Purchasing, it's a difficult market to navigate in right now. So we're trying to manage our way through that, but still making meaningful progress in that area. And then we're making some substantial progress also on the operations side. So we're really excited the fact that we've already met our year 1 target after 3 quarters together as a combined entity. We think there's more opportunity here and hold tight for future discussions.

Great. That's helpful. And I guess as my follow-up, as we think about your European footprint that came over from Dowlais, we know that some significant OEMs have been clear that capacity cuts are on the horizon and in some cases, fairly significant capacity cuts. So Dowlais just went through its own large restructuring there. I guess, do you have any early thoughts on what more might be needed in terms of that midterm environment? Or is it at this point that you're fairly comfortable with where the footprint is and whether or not it can be flexed up and down based on whatever production environment it's in?

Yes. This is David again. What I would say is this is legacy AAM did not have as much of a footprint in Europe as obviously legacy Dowlais or GKN did. Legacy Dowlais had done a lot of restructuring, as you acknowledged and was on the downside of that restructuring effort there. There are still efforts that were in their base plan as well as other efforts that are included in our synergistic plan. So that was all identified as part of the process of going through diligence and the combination of the 2 businesses. The one thing that we're watching very closely is the penetration of the Chinese and their aggressive approach to Europe and the incremental restructuring or the challenges it's creating, especially for the legacy OEMs in Europe. And obviously, we'll have to respond accordingly based on where we're at. The good news is that -- we do supply several of those Chinese OEMs that are gaining market share. So at the same time, we'll just have to balance that out in regards to what we think our capacity utilization and our facility footprint needs to be on a go-forward basis. So to answer your question, I think directionally, we're where we need to be right now. However, there is some restructuring that is planned as part of this combination, but we'll continue to monitor the market. And if other changes are required, then we'll make those adjustments no different than we would in any other market around the world to optimize the business appropriately and adjust it to the market demand.

Our next question comes from Dan Levy from Barclays.

Chris and Nathan, congratulations to both of you. I wanted to start with the question on the inflationary pressures. And maybe you could just refresh us back to the inflation that we saw in the 2022 time frame. How you dealt with that back then in terms of -- I'm pretty sure you ended up sort of getting fully recovered on all those. But what was the split between OEM recoveries or customer recoveries versus your own productivity measures? And now that we're arguably later in the cycle, what do you sense is the receptivity of your customers to help support? And maybe you could just unpack some of the productivity measures that you have on your end that if you don't get the customer recoveries that you can do it on your end to be EBITDA neutral after all this?

Yes, Dan, this is Chris. I'll certainly take the first part of that question. If you go back to the inflationary environment that you're referring to in the past, would have been in the 2022 calendar time period based on really the invasion of Ukraine triggered a lot of inflation in that period of time, and it manifested its way through several elements of our cost structure. Through the course of the year, meaning the full year of 2022, we put in various things to mitigate, optimize some of our spend through where we saw those different pockets of inflation. But we also, as you know, did have dialogue with our customers that took ultimately the better part of the year to reach conclusion with, which was fairly standard inside the industry at that point in time. So if you think back to some of my prepared remarks I mentioned today, our expectation is a very similar path. We are doing things to help mitigate some of the inflationary impact where you've seen, obviously, a lot of inflation sort of stem from petroleum-based products such as coolants, diesel fuel surcharges on logistics, entering into various metals such as tooling, et cetera. So things that we can do to either optimize freight routes to minimize fuel costs associated with that, look at different ways or different alternatives for coolants that we can use in our factories. These are the type of productivity initiatives that we would like to do on our own. But as you know, this is a very macro event and would be in some discussions with customers, but would take time to play out. Very similar pattern probably from what we saw back in '22.

Okay. Great. Second is just a follow-up to, I think, one of the prior questions around your Europe exposure. And I'll just maybe broaden it to China and Europe. So it looks like your China equity income, that's still intact and you generally feel like your Europe footprint is where it needs to be. We've seen from some of the other suppliers that there's been some underperformance within Europe. I realize this is all very customer-specific. But maybe you could just give us an early read on these newer regions where you're operating now where you maybe haven't had as much of a footprint for in terms of China and Europe that those are still holding intact? And what levers you have in the event that the customer mix moves against you to keep those earnings streams intact?

This is David. I guess I'll start, and then, Chris, I'll ask if you want to add anything in. I'll start in the China side of things. Clearly, legacy AAM had a very strong presence there with our wholly owned foreign enterprise. Our business was both with the global OEMs as well as the local China OEMs. That business with the local China OEMs has grown over the years. So that's been a positive for us. So we're doing very well supporting those programs in China today. With the acquisition of Dowlais, we picked up the joint venture, which is a 35-plus-year-old joint venture that's been very successful over there and profitable. Like legacy AAM, they were supporting both global OEMs and the local Chinese OEMs. Their share has grown over the years with the China OEMs. So there is pressure in the local China market right now as far as it being down. The demand internally within China is around 24 million units, but they're exporting close to 10 million units on top of that. So -- or as part of that, I should say. So that's an important thing to note. So our volumes have been able to stay fairly steady and strong there. I mean, obviously, we're going to continue to demonstrate the size and the scale of our company, the portfolio. When it's all said and done, you got to be cost competitive. And so we'll bring the technology and the cost competitive base, and we're where we need to be in China and quite honestly, across Southeast Asia. In Europe, as I said earlier in the earlier question, I think we're positioned right now. There's still some remaining things that are being done as part of the original, base Dowlais plans that we inherited. But as we said, some of those costs would be coming down. As those pressures continue to mount based on China commanding more market share, I mean, we've got to win our fair share of that China business, while at the same time, if we have to do other optimization, we'll do that. But that's no different than like I said, we would do in any other market in the business. Our business, especially a capital-intensive program or business is all about facility utilization, capacity utilization and manpower utilization. And so we'll just -- as we've always had, we've got downside playbooks -- we'll adjust the businesses to those downside playbooks and flex our cost structure appropriately. But we feel very confident about where we are in regards to protecting the value streams and the profit pools of China. Obviously, we're watching closely what's going on in Europe, but we're delivering in Europe at this point in time. And we'll make adjustments around the world as required on a go-forward basis. But Chris, I don't know if you want to add anything more.

No. I think, Dan, I'll tell you, David summed it up pretty well. But if you go back to the very, very basics, it's having that technology in the markets, and we are growing that technology of electrification, which is the key, obviously, growth engine in China through our joint venture as well as our wholly owned with our driveline systems. And then you need to be cost competitive, which will allow you to succeed in both regions.

Our next question comes from Rajat Gupta from JPMorgan.

This is Yash Beswala on for Rajat Gupta. I wanted to ask about the new military vehicle sideshaft award you guys have highlighted. Could you help us understand what this award means for Dauch's potential expansion into like defense and other nontraditional end markets and just the broader opportunity to leverage your existing technologies and potential for additional business wins in these segments?

Yes. Thank you. This is David. As I said in my prepared remarks, we're very excited about that opportunity that presented itself. It further demonstrates our technological advantages from a product portfolio standpoint and the capabilities that go with a military type product. Our combined companies of legacy AAM and legacy GKN or Dowlais, both were supplying some military products already. So this is some incremental opportunities to that. But it clearly -- our business is now as a combined business clearly sets itself up to leverage our core competencies and capabilities in some adjacent markets and aerospace and defense would be one of those markets. So it's a small win, but an important win, but at the same time, demonstrates the capability there, and we'll continue to explore what other opportunities might exist there for us in the future.

Helpful. And just as a follow-up, could you also help us like provide an update on the $2 billion of like new and incremental business opportunities you guys had highlighted last quarter, including how much has converted into awards? And how is that pipeline progressing on that front? And how should we think about some of those awards translating into revenue growth in '27 and beyond?

Yes. And we're still quoting approximately that $2 billion that ebbs and flows. We have been successful in conquesting typically our hit rate is around a 25% to 30% hit rate. So we're tracking very favorably in regards to [Audio Gap] It's across the board in regards to -- we're doing very well on the powdered metal side of things in the forging or the overall Metal Form side of the business. And we've got some good strategic wins on the Driveline side, as we've highlighted in a couple of earnings calls now. We don't -- we're not publicizing anything on our backlog of new business, but we continue to favorably grow that going forward.

Our next question comes from Hamed Khorsand from BWS Financial.

Just talking about the competitive environment. Are you seeing any pushouts in any of the product designs that you've been working on with any of the OEMs?

What I will say is the OEMs are clearly working on product extensions on their current business today. So that's been one of our core objectives in addition to the new and incremental business that we're going after is to secure the replacement programs that we're already on because that's the solid base that we operate from today and the cash that's generated to support the overall business. We've been very successful in securing a lot of that next-generation business, the majority, quite honestly. We've got some additional wins that we just won here and announced. So that's been positive. But yes, we are seeing some of these programs be extended out, especially based on the fact that they were all headed down the path of electrification, and they didn't have necessarily all the product portfolio in place. But you're also now seeing reinvestment in ICE and a lot of new investment into hybrid applications. The good news for us is our product portfolio spans that ICE and hybrid. There's a little bit of modification on some of the hybrid. And you also know that we've continued to develop on a selective basis, the proper electrification capabilities to support growth in the various markets around the world. So we think one of the big advantages of bringing the 2 companies together was the expanded product portfolio that we have and also the agnostic positioning that we put our company in with the portfolio that we have to offer to the marketplace. So we feel like we're in a very good spot to adjust to the market demand regardless of the propulsion system.

Our next question comes from Alex Perry from Bank of America.

I just wanted to ask, is there sort of any line of sight from pressure from some of the heavy-duty platforms easing? How much of that is sort of expected to continue here into the fourth quarter and into next year? And what are some of the offsets?

What I would say to that question there is in regards to quite the opposite in most of the cases. We've seen the heavy truck production schedules increasing. We've seen uplift capacity programs across many of them. We're obviously experiencing the downside of some of the Ram activity today with 15% year-over-year in regards to performance from a quarter standpoint. I think that's limited specifically more towards Stellantis at this time. But obviously, we're continuing to watch that. Obviously, the acceleration of energy prices and fuel prices hasn't helped in some of that, especially if you look towards more of the diesel market, which the Ram has a heavy penetration of some of that. But I would say quite the opposite. I think there's a market there for heavy duty. It tends to be resilient even during tough times because people need these types of vehicles for their livelihood. And so I think we see the opposite where we see more investment going into the heavy-duty platforms.

Alex, this is Chris. There is no practical substitute for these vehicles if you need them. And generally, these aren't recreational type vehicles. So we expect this market to generally remain strong over time.

That's really helpful. And then I guess my follow-up was, I think in the prepared remarks, you talked about some operational issues with some Tier 1, Tier 2 suppliers. Is there any line of sight in terms of those easing? And what's sort of driving that? And does that sort of leak into 2027? Or when do you expect improvement there?

Yes. This is Chris. I'll start with the first part of that. One of the earlier questions was talking about how inflationary pressures that we face, and I talked about the impact of fuel prices and coolant costs, et cetera. Our supply base is experiencing the exact same phenomenon. And those that I would say maybe were a little more fragile to begin with, these pressures just amplify the struggles that they have, which then can become challenged. We saw clearly an onset of some of these costs in the macro environment in the back half of the second quarter, but you can digest these for a period of time as they've really extended now into the third quarter and early in the fourth quarter, these pressures, you're starting to see some of the challenges now on the Tier 2 and Tier 3 side. So our third quarter had probably about $10 million of costs associated with this for a few select suppliers. I think we have most of those under control now and working with them, that should start to tamper down. But clearly, the macro environment does influence this dynamic over time.

Our next question comes from Andrew Percoco from Morgan Stanley.

Great. Maybe just to follow up and ask specifically about the GM truck changeover. And just curious like how the ramp process has gone? Is the launch cost cadence coming in line with your expectations? Obviously, you talked about how there's some inflationary headwinds in the business. But just curious as it relates to that program specifically, is everything still on track with your expectations for 2026? And then as we kind of look ahead to 2027, has there been any kind of major change in your expectations as it relates to either volume or pricing or just the margin contribution of that for next year?

Andrew, this is David. Everything is on track and on schedule based on what was communicated to us and the supply base from General Motors regarding this program. So they are doing exactly what they were saying they're going to do. We did experience some downtime, as I said in my prepared remarks, in September and October to prepare for a staggered launch going forward across the different vehicle product lines. But to answer your question, they are certainly on track for '26 and '27, and we're locked and loaded ourselves.

And Andrew, you had a secondary part of that question as it relates to margin. The margin and pricing as it transitions from current gen to next gen, our content per vehicle, our margin profile very similar from product to product.

Okay. Super helpful. And then I think last quarter, you guys mentioned how a lot of your kind of steel buy or metal buy is not really on spot. It's on long-term contracts. So can you maybe just provide a little bit of color in terms of how we should think about how much of that rolls off as we go into the early part of 2027 and what the potential impact could be on the cost side of the equation on margins? And I know you have recovery of that, but maybe just remind us in terms of how that flows through and how we should expect that to potentially impact the outlook for next year?

Yes. If you think about our input costs for metal-based product, you should think about them from two perspectives. First, we do have a sizable pass-through element that's generally under contract with most of our customers. The products that we buy, for example, steel has a lot of inputs such as scrap, nickel, moly, things of this nature that are traded on commodity exchanges. As they price up and down, our suppliers pass those costs on to us either up or down. We then in turn pass that on to our customer either up or down, generally with a little bit of a small timing lag and about, call it, a 10% to 20% delta between the change. The other piece I would refer to is our base cost where we go out and negotiate a base price of steel, that or other commodities. Those are clearly ours to manage and our responsibility. As you know, steel markets themselves, you've seen the indices, you've seen hot-rolled markets. They have been getting a little, I would say, tougher in the current environment from a base price perspective. We're still under our current contracts. Those will renew for many of our suppliers next year. We're keeping a close eye on it. We've got some work to do to close these out, but this is clearly an area that has our attention, and we're working through.

Our next question comes from Jake Scholl from BNP.

As we think about EBITDA into next year, should we use the second half of '26 as a jumping off point plus some inflation recoveries and $100 million or so in synergies? Or are there some other kind of major puts and takes we should be factoring in?

Yes. I would -- Jake, my general rule of thumb with that is, especially in our industry that has very unique elements quarter-to-quarter-to-quarter, whether it's production days or different cadences, a longer period of time like you use 4 quarters or an LTM sort of roll forward is generally probably a way to think about it versus just trying to extrapolate one particular quarter due to the complexities of that. You could clearly do both, but I would recommend you use a little longer period of time. But as we think about going into 2027, I think the puts and takes in your mind is what you're thinking about, how do we contextualize what '27 may bring. Clearly, we're very focused on our synergy attainment and delivering that result. We have these new truck launches that are coming online. So hopefully, the market will be well received from those. That would be our expectation and our continued focus on baseline productivity second half or full year into 2027. On the take side, obviously, we're watching very closely the inflationary environment and the timing for us to either mitigate or get recovery on that. If the environment stays exactly the same as now, you'll obviously have a little bit of this inflation in the first quarter as you work through the course of timing to get mitigation or recovery. The previous person just asked about the steel markets. We're watching very closely. And of course, we're watching the Mexican peso very closely. That's a big dynamic on us, which has been very volatile this year, but hopefully, that plays out okay. Those are just some of the high-level puts and takes I think about for next year at this point in time.

That's very helpful. And I wanted to follow up on something you said in response to, I think it was James' question, you mentioned seeing some of these kind of plant level opportunities where you didn't have a chance to kind of dig in before the deal closed. So can you give us an idea of what that might look like? And then when you may be in a position to give us a little bit more detail?

Yes. Can you be a little bit more clear on your question? Are you just talking about the footprint?

And just kind of more specifically, some of the kind of nitty-gritty plant level operational synergies you see...

Okay. Yes. Sorry, I misunderstood when you asked the question. So yes, no, we -- as I said, we are limited in regards to going into the plants before we can make our announcement in regards to the synergy target. We clearly see opportunities to strengthen their manufacturing plant floor operations based on putting in our operating systems that are very disciplined, very structured and a lot of daily accountability. There's opportunities in regards to scrap management, OEE and productivity performance. But the nice thing is there's a strong manufacturing foundation and engineering base to work with. There's good technology as far as the types of equipment that are in their facilities. It's just we think there's an opportunity to improve the output, throughput capacity utilization and ultimate performance in the plants. So as you know, we're known for our operational excellence. We're very focused on that. That will take a little bit of time, as I said, by nature to realize that, but we're highly confident in our ability to make those things happen. And therefore, we can see some potential upside.

Our next question comes from Douglas Karson from Bank of America.

I want to look at like big picture, like longer-term like opportunities to cross-sell. You've got this big business in Europe now, which has a great platform. And I'm wondering if like the recent win that you had on the new vehicle, was that a kind of function of cross-selling? And maybe what opportunities like longer term, do you think the combination of this great global footprint now could provide? And then I have a quick kind of more bookkeeping follow-up.

Yes, Doug, this is David. I'll take the cross-selling side of things before you ask your bookkeeping one. We definitely see cross-selling opportunities across multiple customers, especially those that have the big global reach. We're already starting to realize some of that benefit based on just hosting technology days, demonstrating to them the comprehensiveness of our product portfolio. We've had independent relationships between legacy AAM and legacy Dowlais or GKN with the customers. Now we're presenting on a combined basis. We'll do more technology days and rollouts in the first half and probably throughout the year in 2027. But we're clearly capturing their attention in regards to the comprehensiveness of our portfolio. At the same time, they can see the responsiveness to some of the issues that have -- that we've identified as bringing the 2 companies together, and that's being received very favorably. So I think what we'll do is just continue to leverage those relationships. We'll clearly highlight our comprehensive portfolio. At the same time, I think they've known us for our value proposition over the years, and we'll continue to enhance that to make it a win-win for both the customer and ourselves.

I know you guys have been in the industry a long time, and this tariff situation that kind of came upon us a year or so ago, kind of created a lot of uncertainty in the auto industry. And now with this change in the Democratic kind of blue sweep, we'll call it. If we look a couple of years out, do you think there's any kind of upside as your gut reaction to what took place to kind of soften some of the tariff cost that could be impacting the auto supplier universe in general? I know it's kind of a political question and it's kind of a couple of years out. But just what is your thought being an industry leader in this space?

Yes. So Doug, I'll start and then I'll ask Chris to chime in. But this tariff situation, I clearly understand the need and the approach that our current administration is taking today to drive investment into our country and drive manufacturing back to our country, especially in regards to critical areas. I don't think it's sustainable for a lot of the supply base long term. People are going to have to take actions to mitigate it, which many people are already doing today. As you know, our policy has always been to try to buy and build local in the markets that we serve to mitigate any exposure from a tariff standpoint or geopolitical standpoint. That's benefited us, although we still have exposure on the tariff side of things, especially now that we've acquired Dowlais, GKN, they've had a little bit more exposure. And so we're working plans to localize product where we can and leverage the global footprint that we have. But ultimately, I think it's got to come under control, and it's got to subside at some time. Otherwise, we're going to continue to operate at very high prices and costs that have to be passed on to the OEMs and ultimately possibly to the consumer and the consumer can only handle so much. So like I said, I clearly understand the strategy and why it's there today. At the same time, my gut says that it will subside over time. But in the meantime, we've all -- like we have been doing, have to continue to take aggressive actions to mitigate it ourselves for the period of time while getting recovery where appropriate. Chris, I don't know if you have anything to add.

Our policy of the buy and build local has really protected us in many cases. But even to that effect, we are still impacted around $20 million to $25 million from a bottom line perspective in calendar year 2026. So that's clearly a potential upside for us should this change. But we're focused on managing what we can control and working through this environment. It makes a little more challenging for long-term investing when that's pivoting, but we're also very focused on USMCA in particular. That's very important to our company as well as the industry.

And our final question is a follow-up from Tom Narayan from RBC.

David, one thing Stellantis has mentioned is the potential to reshore their HD truck to the U.S. from Mexico. I guess given the midterm results, it's probably less likely that this happens. But in the event this happens, do you guys -- could you guys keep the business by leveraging the U.S. facilities? I assume this is something you deal with all the time and have been forever. But yes, just how would you deal with something like that?

Yes. So Tom, great question. As you know, it's not easy to just pick up assembly plants and/or large component plants that are capital intensive, but it is feasible. It's just costly and takes time to do such a thing. Clearly, we've had multiple discussions with all of our OEM customers, including Stellantis. We've identified -- we've answered questions that they've had. But at this time, there's no decision that's been made regarding an action of such at this point in time. But if they were to go down that path, especially now that we have the combined business of Dowlais and legacy AAM to form out, we do have a flexible manufacturing footprint and capacity. We would just have to make appropriate adjustments to tailor for the products involved and deal with the costs that would be involved in such a transfer. But we do have the ability to flex if we need to do that.

Got it. And Chris, I'll let you close it out. And maybe this is for the Investor Day, but cash restructuring, this is a hot topic. It went up a little in the '26 guide. We talked about all the headwinds in Europe and all of that. You said in the past this should meaningfully go down in '27. Can we just confirm that, that that's definitely coming down?

Our goal is to continue to reduce our near-term restructuring costs, yes.

And with that, ladies and gentlemen, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to David Lim for closing comments.

Yes. We thank all of you who have participated on this call and appreciate your interest in Dauch. We certainly look forward to talking with you in the future. Thank you.

And with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.