Dauch Q3 2026 Earnings Call Transcript

Dauch (NYSE:DCH) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Dauch Corporation reported third quarter 2026 sales of approximately $2.9 billion, with an adjusted earnings per share of $0.22 and adjusted free cash flow of approximately $127 million.

The company achieved $100 million in run-rate synergies and savings, surpassing their year-end goal, with significant progress in optimizing SG&A and reducing duplicative costs.

Dauch Corporation updated its full-year sales guidance to $10.8 to $10.875 billion and adjusted EBITDA guidance to $1.35 to $1.375 billion, factoring in inflationary pressures and production volatility.

The company secured significant new business, including a next-generation European luxury SUV program and an infantry squad vehicle program, demonstrating the strength of their product technologies.

Operational challenges included rising input costs and supply chain issues, but management expressed confidence in navigating these through cost structure adjustments and productivity improvements.

Full Transcript

Jamie (Operator)

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. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, 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 one on your telephone keypads.

If you would like to withdraw your question, press the star key and then the number two. 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.

David Lim (Head of Investor Relations)

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 2026 earnings announcement. You can access this announcement on the investor relations page of our website, www.delc.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 13th.

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 17th 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 webcast. Please mark your calendars. 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 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.

David C Dauch (Chief Executive Officer)

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 1st. 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. Nine 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, 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 American 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 Dauch contribution.

Chris will provide more details about our overall financial performance during the prepared remarks. Next, on slide five, I’d like to share an update on our synergy and value-capture progress. We have now been operating for nearly three 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 of more than $100 million of run-rate synergies by year-end. We have made excellent progress in optimizing our SG&A, 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 two 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 two important wins that reflect the strength of our product technologies but also our more diverse customer base. We secured the next-generation business for prop shafts, side shafts, 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 side-shaft content for an infantry squad vehicle program, demonstrating our technology portfolio extends well beyond traditional passenger vehicles. The side-shaft 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 will 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 30th, here’s the update: sales now in the range of $10.8 to $10.875 billion, adjusted EBITDA in the range of $1.35 to $1.375 billion, and adjusted free cash flow of approximately $270 to $310 million.

In summary, we had a solid quarter and delivered strong operating cash flow. The Dauch integration is on track and making good progress. We are ahead of schedule in achieving our year-one 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.

Christopher May (Chief Financial Officer)

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 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, Dauch 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 Dauch 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 one-time commercial settlements that Dauch recognized in 2025 and $5 million from the sale of certain businesses that I discussed earlier in my sales 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, and realize 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 Dauch. 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 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 3Q26 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 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 2.6 times. 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 to $10.875 billion versus $10.6 to $10.8 billion previously, reflecting the results through the first nine 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 to $1.375 billion versus $1.36 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’ve been 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 to $310 million, from $260 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. In conclusion, the company delivered 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.

Jamie (Operator)

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 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 a question, please press star and then the number one on your telephone keypads. We’ll pause for just a moment to compile the Q&A roster. Our first question today comes from Tom Narayan from RBC. Please go ahead with your question.

Tom Narayan (Analyst at RBC Capital Markets)

Hi, David, Chris. Thanks for taking the question. So if I look at the Q4 implied downshift from Q3, I understand the three factors you called out — the higher fuel, energy, the HD truck issue, GM changeover — but it is a sizable downshift, 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 you could pass through these headwinds to the OEMs?

Christopher May (Chief Financial Officer)

Yeah, 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 four or five less production days than we do in Q3. So volume and mix is a key piece of the Q3 and 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 place — or putting in actions — to mitigate some of these ourselves from our own 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.

Tom Narayan (Analyst at RBC Capital Markets)

Got it. For my follow-up, it’s probably for Chris, too, on the ’26 guidance change versus the prior guideline. 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 those remaining pieces that offset 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.

Christopher May (Chief Financial Officer)

Yeah, I wouldn’t put them as sizzle. 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 non-operational cash flow elements. Some timing associated with that, but also final billings that came in with our acquisition.

Yep, thanks.

Jamie (Operator)

Our next question comes from Joseph Spak from UBS. Please go ahead with your question.

Joseph Spak (Analyst at UBS)

Thanks. Good morning, everyone. Chris, just want to offer my congratulations. I really enjoyed all our talks over the years. And Nathan, welcome. Look forward to working with you.

Christopher May (Chief Financial Officer)

Thanks, Joe.

Joseph Spak (Analyst at UBS)

Maybe just to follow up on that, I just wanted to—like within EBITDA, you know, the 50 million lower, but then, you know, that’s sort of more at a, I guess, like an operational level. It was mitigated 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 exchange?

Christopher May (Chief Financial Officer)

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

Joseph Spak (Analyst at UBS)

So 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.

Christopher May (Chief Financial Officer)

Correct. They’ll start to go away as they lapse. Correct.

Joseph Spak (Analyst at UBS)

Okay. And Chris, I know you mentioned no significant debt maturities until ’29. And maybe, you know, I don’t know if this is for Nathan or David or Chris, but I can’t say I followed Standard Motor Products 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 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? Thanks.

David C Dauch (Chief Executive Officer)

Yeah, 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 two times. You know, probably we’ve been able to get it to the 2.6 times. 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, you know, 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 Simone 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 Dalay: 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.

Joseph Spak (Analyst at UBS)

Yep. No, I appreciate it. Thank you.

David C Dauch (Chief Executive Officer)

Yeah, thanks, Joe. Thanks, Joe.

Jamie (Operator)

Our next question comes from James Mulholland from Deutsche Bank. Please go ahead with your question.

James Mulholland (Analyst at Deutsche Bank)

Great. Thanks for taking my questions, guys. 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 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 portend to maybe raising what you can do over the longer term?

David C Dauch (Chief Executive Officer)

This is David Dauch again. What I would say is this is, I mean, we committed to 300 at the time that we announced the strategic combination of the two businesses. We also expressed at that time the mix of what that 300 would be, with SG&A and engineering being approximately 30% of that, purchasing being 50%, and operations being 20%. At the time, we also identified that we were limited in regards to the ability to visit their plants, so we were 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 costs as well as engineering efficiencies. So we’re, you know—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, you know, 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-one target after three quarters together as a combined entity. We think there’s more opportunity here, and hold tight for future discussions.

James Mulholland (Analyst at Deutsche Bank)

Great, that’s helpful. Thank you. And I guess as my follow-up, as we think about your European footprint that came over from Dalay, we know that some significant OEMs have been clear that capacity cuts are on the horizon, in some cases fairly significant capacity cuts. So Dalay 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?

David C Dauch (Chief Executive Officer)

Yeah, this is David again. What I would say is this is, you know, legacy AAM did not have as much of a footprint in Europe as obviously legacy Dali or GKN did. Legacy Dowley 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 two 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’s 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.

James Mulholland (Analyst at Deutsche Bank)

Appreciate that. Thanks, David.

Jamie (Operator)

Our next question comes from Dan Levy from Barclays. Please go ahead with your question.

Dan Levy (Analyst at Barclays)

Hi, good morning. Thanks for taking the questions. And Chris and Nathan, congratulations to both of you. 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.

Christopher May (Chief Financial Officer)

Yeah, 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, you know, 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.

Dan Levy (Analyst at Barclays)

Okay, great, thank you. 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 you—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.

David C Dauch (Chief Executive Officer)

This is David, I guess I’ll start and then Chris, I’ll ask if you want to add anything in. I’ll start on the China side of things. Clearly Legacy AM 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 Dali, 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 AM, they were supporting both global OEMs and the local Chinese OEMs. Their share has grown over the years with the China OEMs. So, you know, there is pressure in the local China market right now as far as it being down. You know, the demand internally within China is around 24 million units, but they’re exporting close to 10 million units on top of that.

So, you know, 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’ve got to be cost competitive and, you know, 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 Dali 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. 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, our business is all about facility utilization, capacity utilization and manpower utilization. And so we’ll just, you know, 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.

Chris, I don’t know if you want to add anything more or not.

Christopher May (Chief Financial Officer)

Dan, what 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.

Dan Levy (Analyst at Barclays)

Great, thank you.

Jamie (Operator)

Our next question comes from Rajat Gupta from JPMorgan. Please go ahead with your question.

Yashvi Salon (Analyst at JPMorgan)

Hey, this is Yashvi Salon. Thanks for taking my question. I wanted to ask about the new military vehicle side shaft award you guys have highlighted. Could you help us understand what this award means for Dauch’s potential expansion into defense and other non-traditional end markets and just the broader opportunity to leverage your existing technologies and potential for additional business wins in these segments?

David C Dauch (Chief Executive Officer)

Yeah. Thank you. This is David. As I said in my prepared remarks, we’re very excited about that opportunity that presents itself. It further demonstrates our technological advantages from a product portfolio standpoint and the capabilities that go with a military-type product. You know, our combined companies of Legacy AM and Legacy GKN or Dali both were supplying some military products already. So this is some incremental opportunities to that. But clearly our business 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.

Yashvi Salon (Analyst at JPMorgan)

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

David C Dauch (Chief Executive Officer)

Yeah, we’re still quoting approximately that $2 billion. That ebbs and flows. We have been successful in conquest. Typically our hit rate’s around a 25 to 30% hit rate. So we’re tracking very favorably in regards to—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 earnings calls.

Now, we’re not publicizing anything on our backlog of new business, but we continue to favorably grow that going forward. Thank you. Thank you.

Jamie (Operator)

Our next question comes from Hamad Khorsan from BWS Financial. Please go ahead with your question.

Hamad Khorsan (Analyst at BWS Financial)

Hi, good morning. Just talking about the competitive environment, are you seeing any push-outs in any of the product designs that you’ve been working on with any of the OEMs?

David C Dauch (Chief Executive Officer)

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 in announcement. So that’s been positive. But yes, we are seeing some of these programs be extended out, especially based on the fact that, you know, they were all headed down a 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 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 two 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.

Okay, thank you. Thank you.

Jamie (Operator)

Our next question comes from Alex Perry from Bank of America. Please go ahead with your question.

Alex Perry (Analyst at Bank of America)

Hi, thanks for taking our questions here. 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? Thanks.

David C Dauch (Chief Executive Officer)

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 50% 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 the diesel market, which, you know, 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, you know, we see the opposite where we see more investment going into the heavy duty platform.

Christopher May (Chief Financial Officer)

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.

Alex Perry (Analyst at Bank of America)

That’s really helpful, thank you. And then I guess my follow up was, I think in the prepared remarks you talked about, you know, some operational issues with some tier one, tier two 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? Thank you.

Christopher May (Chief Financial Officer)

Yeah, 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, etc. 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 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 cost 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 tamp down. But clearly the macro environment does influence this dynamic over time.

Alex Perry (Analyst at Bank of America)

That’s really helpful. Best of luck going forward.

Christopher May (Chief Financial Officer)

Thank you.

Jamie (Operator)

Our next question comes from Andrew Peracco from Morgan Stanley. Please go ahead with your question.

Andrew Peracco (Analyst at Morgan Stanley)

Great. Thanks for taking the question this morning. Maybe just to follow up and ask specifically about the GM truck changeover and just curious 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?

Thank you.

David C Dauch (Chief Executive Officer)

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 say 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.

Christopher May (Chief Financial Officer)

And Andrew, you had a secondary part of that question as it relates to 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.

Andrew Peracco (Analyst at Morgan Stanley)

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 insight, 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.

Christopher May (Chief Financial Officer)

Yeah, 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 input such as scrap, nickel, moly, things of these 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 costs where we go out and negotiate a base price of steel 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 roll 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.

Andrew Peracco (Analyst at Morgan Stanley)

All right, thanks so much and looking forward to seeing you guys in a few weeks.

Jamie (Operator)

Our next question comes from Jake Scholl from BMP. Please go ahead with your question.

Jake Scholl (Analyst at BMP)

Hey guys, thanks for taking the question. As we think about EBITDA in the next year, should we use 2H26 as a jumping-off point plus inflation recoveries and 100 million or so in synergies? Or are there some other major puts and takes we should be factoring in?

Christopher May (Chief Financial Officer)

Yeah, I would. You know, 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 use 4/4 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 also asked about the steel markets—we’re watching very closely—and of course, you know, 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’d think about for next year at this point in time.

Jake Scholl (Analyst at BMP)

Thanks, that’s very helpful. I wanted to follow up on something you said in response to, I think it was James’ question. You mentioned, you know, 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? Thank you.

David C Dauch (Chief Executive Officer)

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

Jake Scholl (Analyst at BMP)

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

David C Dauch (Chief Executive Officer)

Okay, yes, sorry, I misunderstood when you asked the question. So, yeah, no, we, as I said, were limited in regards to going into the plants before we could 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 there for the 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, you know, we can see some potential upside.

Jake Scholl (Analyst at BMP)

Thank you.

Jamie (Operator)

Our next question comes from Douglas Carson from Bank of America. Please go ahead with your question.

Douglas Carson (Analyst at Bank of America)

Hey guys, thanks for letting the credit guy on. I appreciate it. I want to look at, like, big picture, longer-term 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, 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.

David C Dauch (Chief Executive Officer)

Yeah, 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 AM and legacy Dali 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 comprehensiveness of our portfolio. At the same time, they can see the responsiveness to some of the issues that we’ve identified as bringing the two 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.

Douglas Carson (Analyst at Bank of America)

That’s great. That’s good color. Thank you. 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 w