Dauch Aktie

Great. Thanks, everyone, for listening. My name is Rajat Gupta, member of the automotive equity research team at JPMorgan. Very pleased to have with us the team from Dauch Corporation, David Dauch, Chairman and CEO; and Chris May, Executive Vice President and CFO.

So maybe like just to quickly start, 6 months from the close, Dauch is a different company from American Axle. Most investors have followed for years, roughly twice the size, far less North America, far less General Motors weighted. For someone who's still like catching up on the story, could you give us a sense of what Dauch is today, what you most want them to understand about the earnings power of the combined business today and a few years out?

First of all, good morning, everyone. It's an honor and a pleasure for us to be here today and talk about the transformation taking place within the Dauch Corporation. We're certainly excited about the combination of the previous legacy AAM and the legacy Dowlais coming together to form the Dauch Corporation. The big thing for those that don't know -- didn't know the history is the legacy AAM or Dauch Corporation was approximately $6 billion in sales. With the acquisition of Dowlais, this year, we've guided the Street close to $11 billion, but for the full year, we'll be in that $11 billion to $12 billion range. So we've essentially doubled the size of the company.

At the same time, we wanted to make sure that we had a product portfolio that was agnostic to the market, whether it be ICE-related, hybrid related or EV related going forward. That's been achieved with respect to this. In addition to that, we want to introduce diversification into our business from a geographical standpoint. We were heavily concentrated in North America at 75% with legacy AAM. We're now approximately 60% with the combined business. General Motors was about 40%, 45% of our business. Today, they're approximately 25% to 30% of our business. So you can see the power of the diversification on the geographic, the customer and the product portfolio standpoint.

In addition to that, there's tremendous synergistic opportunity of bringing these 2 great companies together. We're in the process of realizing that. We've already realized $70 million on a run rate basis for this year against the goal of $100 million for this year. At the same time, we now have a more robust business model as a combined business that is going to bode well for us from a margin accretion and cash generation standpoint going forward as well.

Understood. Thanks for that overview. Just going back to the quarter, very strong guidance was raised. Big contribution from Dowlais than most like had in the numbers, at least ahead of our expectations. Could you recap some of the main drivers of the performance and shed some light maybe also on the onetime costs that might have run through the quarter, higher energy costs, the work stoppage at Three Rivers. Just help us like understand what drove the strength.

Yes. This is Chris. I'll take that as it relates to the quarter. Very pleased with our performance in the quarter. A couple of elements as we thought about the quarter. Sales came in stronger than our expectations, really on the back of several platforms. General Motors light-duty truck was very strong inside the quarter. We had some strong sales and revenue on the legacy Dowlais product that supported BMW and a few other customers also very strong. So pleased from a top line perspective.

From a performance perspective, I think what you saw happen inside that quarter is several fold. First and foremost, from a synergy perspective, we put $15 million on the P&L flow-through inside the quarter, so tracking towards the run rates that David just mentioned. So very pleased with that performance. You can see how that adds to the margin profile of the company. But both legacy businesses also performed quite strongly. Legacy American Axle and especially in its metal forming side of the business, continue to have improvements quarter after quarter. And then legacy Dowlais business that has been invested in over the past several years from a restructuring standpoint continue to have performance inside the quarter as well. So you put those together, it ends up with a pretty strong quarter overall for the company.

In terms of some maybe puts and takes inside the quarter, we started to feel a little bit of, I would call it, some energy-type inflation that we're experiencing on the macro, but not significant, but a little bit. That will obviously continue in the back half we also had, I would call, a one-timer associated with our Three Rivers facility UAW work stoppage, which cost us about $8 million inside the quarter, and we spiked that over on our year-over-year box. But big picture synergies and performance at both of the underlying businesses inside the quarter.

Yes. That makes sense. Just let's talk to the GM truck transition. The next-generation full-size truck, very important launch for you, customer downtime beginning in September. Could you help us think about the shape of the third and fourth quarters, just given the fourth quarter looks softer on production across GM, Stellantis and just across the industry more broadly. Could you talk about where you see room for content or margin uplift as the new architecture matures and whether early platform share capture is something we should start to see in your numbers?

Yes. Maybe I'll talk a little bit about maybe the cadence of the back half. We articulated on our earnings call last Friday. Inside of the third quarter, you have some, I would say, normal seasonality, in particular in Europe, which is generally a little weaker in August. But also, as you mentioned, as it related to the full-size truck with General Motors, will start to be impacted as we supply into their Mexico facility and sold out. That's one of our largest customer endpoints for that vehicle, and they're going to start to go down in early September for about a month.

So that will impact our production and of course, corresponding sales and profits associated with that. And then in the fourth quarter, you'll have typical seasonality generally wrapped around the holidays near the tail end of the year. So those would be the seasonal cadence items that I would call out as it relates to first half versus second half.

Got it. And I know you'll give us a lot more color at the Analyst Day on '27, but any early puts and takes on organic growth or growth over market we should think about for '27. Obviously, historically, GM was kind of like a proxy for us to model that. But given now a broader regional and a broader customer base, maybe a few things you would suggest that we keep in mind when you look at '27.

Yes. It's clearly -- we've not provided any '27 guidance, to be clear. But as you think about some of those puts and takes, obviously, macro volumes in our 2 primary regions of North America and Europe, obviously, we'll track very close to that. But you are coming into now General Motors launching these new trucks. Our experience has been -- that's generally very well received inside the marketplace. So we're very excited about that launch and the benefits that will yield in the next couple of years to come.

We'll continue to advance our synergy objectives from a profitability standpoint. Obviously, we would look to continue to advance our productivity initiatives at the core level of the company to offset any inflation that we experience. Those are probably some -- from a P&L standpoint, some of the higher-level puts and takes for '27, but still a little early to be into '27.

Got it. Fair enough. I mean you gave us like the $2 billion like quoting pipeline number, but we'll double-click on that in a second. But just related to that, you also pointed to reshoring inquiries picking up meaningfully as customers look at their North America footprint. Can you give us a sense of like how real that pipeline is looking like, whether it's showing up in actual awards yet and whether it helps absorb capacity that frees up as you consolidate some plants?

Yes, I'll take that one. We've got an increasing pipeline of onshoring opportunities, and yes, we have converted some of those already into booked business. So that's positive for us. Obviously, we're leveraging our installed capacity from a forging opportunity and from a powder metal opportunity are the initial wins that we're seeing at this point in time. But clearly, the Trump administration is driving a lot of onshoring into the U.S. as well that we think that we can capitalize as part of this $2 billion that we're quoting on right now also.

But overall, we feel good about where we're at. Clearly, some of these opportunities require customer validation or our own internal validation before they can be put into production, but we'll start realizing some of those benefits as early as '27, but most of them will be out a little bit further.

Got it. And then you gave us a little more insight around the $2 billion, the quoting activity and the mix having swung sharply towards ICE and hybrid. Can you shed some light on like where the demand is coming from? And obviously, some of the onshoring stuff, but any more details there? And then how the win rate on the Dowlais side compares to what you've seen historically?

Yes. I'll just start with the last question. The Dowlais win rates are similar to what the historical AAM win rate was, which was around 30%. When you look at the quoting opportunity, the $2 billion, a year, 18 months ago, there's probably 85% electrification, 15%, 20% in regards to ICE and hybrid, it's the opposite today. So a lot of emphasis on the ICE and hybrid, especially in platform replacements on the ICE and hybrid. We've secured a lot of replacement business already.

But at the same time, now there's next-generation products that are out there that we're actively quoting on. The makeup of what we're quoting on is pretty well distributed across the comprehensive portfolio that we have now from truck applications, all-wheel drive applications, the sideshaft, halfshaft, propshaft applications, and then their respective metal forming businesses. And it's broken down very similar to the geographic footprint that we really have today, about 60-plus percent in North America, 25% in Europe, the balance in Asia and South America.

Got it. And maybe just on sideshaft, obviously brings a leading global share position that travels across powertrains with more content per vehicle on just the battery electric platform than on combustion. Can you talk to us about how defensible that share is? And just whether the broader consolidation of supplier base towards the strongest players is helping you there in the sense of whether you see yourself more as a consolidator from here or just as a beneficiary of the flight to quality?

Yes. I'll talk more than just on the sideshaft side of things. I mean one of the reasons we did this deal of bringing 2 great companies together was the power and the performance they had in their business, the power and performance we had in our legacy AAM business. When you look at it, we're now a top 10 North American supplier, top 25 global supplier, but we're #1 in all the major markets that we serve. So you look at -- you bring up the sideshaft side of things. Legacy Dowlais has the largest market share, a little over 40% on the sideshaft side of the business. They bring depth, they bring breadth, they bring a global scale and reach. They bring tremendous innovation. That's all now part of us. No different than what legacy AAM was bringing on the axle side. So we'll continue to leverage that going forward.

Right now, the OEMs are predominantly looking for suppliers that have that size and the scale that can weather the uncertainty and the storms that are going on in the marketplace. That doesn't take away that they're still looking for cost. But our big thing is to make sure that we're offering a value proposition. And legacy Dowlais has been able to protect their market share, just like legacy AAM has been able to protect their market share, our market share on the axle side. Now it's a combined business, and we'll continue to work on that.

Now certainly, there's new entrants with the Chinese supply base as the Chinese are on the offense trying to grow their share globally around the world. We'll keep a watchful eye on that, but we'll also leverage the Chinese joint venture that Dowlais had, which is called SDS, very successful joint venture that gives us another competitive source and base not only for the China market, but even for the global market.

Understood. I just wanted to pause there for a second to see if any questions from the audience. None yet. So we'll move on just to the acquisition and just the integration and synergies. You obviously upsized -- you've been tracking ahead of plan. You're roughly at $70 million run rate after 5 months, which is ahead of the target. Could you shed some light on which buckets that number is coming from today? And which ones are the longer-dated pieces? And separately, where do cross-sell revenue synergies sit in that picture given they were never built into the original target?

Yes. So we're getting contributions from all those 3 main buckets that we had identified. Originally, we talked about SG&A as one bucket, purchasing as another bucket and then the operations is the third bucket, 30%, 50%, 20% was the distribution of the $300 million. The majority of what we're realizing right now is on the SG&A and the E side as far as the engineering efficiencies that are -- that's going very well. You would expect that as far as the elimination of corporate -- duplicative corporate costs just overall SG&A optimization and then obviously, the engineering efficiencies. But we are getting contributions on the purchasing side as well, especially on the indirect side and from a material and supply chain management side.

The in-sourcing will take a little bit longer just because of the validation that I mentioned to you and some of the plant product footprint work that we need to work on. And then the direct procurement and the operations will take the longest to realize. We'll start realizing more of that in the '27 and '28 calendar year periods of time. But we are realizing some today.

Got it. And vertical integration looks like one of the more interesting piece, you touched upon that slightly. Given you're one of the largest steel forges in the world, while Dowlais historically bought forging powder outside, could you walk us through like how much of that is capturable? What the customer approval process looks like as you move that work in-house and whether it's more about existing -- filling existing capacity or just requires incremental investment as well?

Yes. So legacy AAM was the largest steel forger in the -- automotive forger in the world. We did that by acquiring MPG back in the 2017 calendar year period of time. We really put #1 and #2 together in North America. Subsequent to that, in 2022, we bought Tekfor, which was the #3 supplier in Europe, and Metaldyne was the #2 or MPG was the #2 supplier. We really put #2 and #3 together in Europe. So again, we have a sizable capacity on the forging side of the business. Dowlais has a forging capacity to support in-house side shaft forge requirements. So they were still buying 75% to 80% of their forgings on the outside. So we'll look to in-source a lot of that work going forward.

The flip side on the powder metal side, we -- legacy AAM was already buying powder from legacy GKN Powder Metallurgy group. We have the opportunity to buy more from them on that, which is fantastic. Those are things that we can control ourselves internally. And on top of that, we've got the opportunity from a reshoring standpoint, as we mentioned earlier, and just leverage the buying power that we have from both the steel and from a powder standpoint and take advantage of the size and scale, which is part of the reason why we did the acquisition.

And maybe just sticking to like the margin side of things, just on the same theme, where are you with respect to automation and the opportunity in the plants? Can you give us like some sort of like a time line and how that benefits accrues to the P&L over time?

Yes. We've got a sizable piece of automation already put into our operations from a legacy AAM standpoint. Now there's still plenty of room to enhance our capabilities there. Dowlais also has a very strong capability when it comes to automation and robotics and a tremendous skill set within their operations. So we're in the process right now of forming a corporate group that will manage all of our automation and robotics activities within the company. We're identifying projects by plant, by business unit, by region. There will obviously be business cases associated with that. They tend to be very favorable, especially as labor costs are going up in the Western countries, especially, they'll pay for themselves overnight.

The other issue to take into consideration is labor is becoming very scarce on a global basis. At the same time, the skill sets associated with that labor are lower than what they've been in the past. So therefore, it behooves us all to really take the time to invest in the technology and the automation, which has gone through tremendous advancements in the last decade that I think we can all benefit from. And we're really pushing that hard just as another means of driving productivity and throughput and consistent performance in the operations.

Yes. So things like efficiency that David just mentioned, impacts of wage inflation, things like that are exactly what will help support margins going forward through automation as part of your question.

And then just following on the labor point, the new agreement locks in a step-up that takes wages from $22 to $30 an hour. Can you shed some light on how much of that you expect to absorb versus recovery from customers? You talked about automation and some of the offsets. Maybe help us like bridge how you address some of the headwinds there?

I mean clearly, our responsibility to manage our cost structure. And yes, we have an increase resulting from our Three Rivers labor negotiations. And what we'll do is we'll work to optimize the amount of people, as I said, the overhead walks in on 2 feet. So we'll work to optimize that through automation, robotics where we can. We'll look at plant and product loading opportunities as far as where we can load things in different locations that are maybe a little bit more cost competitive going forward. But we'll continue to drive efficiency and productivity within the existing plants. And clearly, as we look at our cost structure and we quote on business, we factor that cost structure into the equation with our customers.

Got it. Just checking if anyone in the audience -- any questions? None yet. On China, I think that seems like one of the more underappreciated pieces of the deal. And you took your outlook up, which is pretty rare from across the whole ecosystem to take up the outlook in the region. Can you give us a sense of how that business is positioned as domestic brands take share? How do you think about the durability of the profitability, just given the pricing environment in that region?

Yes. One of the things that we are most impressed with, with the acquisition, it was really that joint venture. It's a joint venture goes back well over 30 years. It's a very profitable joint venture within China. It started off as supporting more of the Western OEMs, but it's really migrated its way. We're probably about 60% of its customer base today are the local Chinese OEMs. But those local Chinese OEMs are also now building plants or shipping product abroad. So we're supporting both the domestic market within China, but also trying to support and identify those customers that are growing on a global basis.

And we've been fortunate to do that with SAIC and BYD and Great Wall and some of the other -- Geely and some of the other key names that you hear about all the time. We also have our own legacy AAM WFOE that's within China, where our skill sets will complement -- the businesses complement one another. So we do think there's expansion of the product portfolio that we can bring to the table. There's some cross-selling opportunities that we haven't even realized those benefits yet.

From an operational standpoint, what I'll say is that I was very favorably impressed with what I saw over there. I wasn't sure what I was going to see in a state-owned enterprise initially. But this was very sophisticated machines, adoption of AI technology, full design development testing capabilities existed within the joint venture. which bodes well for our cost structure, not only within China, but leveraging that as supporting our global enterprise as well.

Chris, I don't know if you want to speak on the financial side or...

Yes. I think, as you mentioned, very underappreciated and part of our story. And you can see it's contributing very positively to our EBITDA performance company. We took our guide up slightly as it relates to that region based on their performance. They do have some upcoming launches here in the back half of the year that will favorably benefit that as well. So I think we're in a really good spot as it relates to China.

And a big part of like the theme over the last few months, quarters has been this whole Chinese exports into Europe. And many of those domestic customers are now exporting heavily and ultimately likely to localize in Europe, Southeast Asia, Latin America. Could you walk us through whether your content travels with them? And whether serving these Chinese OEMs outside China could eventually matter as much of the business inside the country today?

Yes. I mean once you ship the product out our door to the customer, it's hard to track it all the time as to where it's going. But there's no doubt there's some of our products that's on Chinese vehicles that are being exported globally around the world, whether it's to Southeast Asia, to Europe or to Latin and South America, where the Chinese are going at this point in time. But at the same time, our job is just to make sure we're winning business with the Chinese OEMs, just like we're winning business with the Japanese OEMs and the Detroit Three for that matter. But we all got to be cognizant that the market in China was growing gangbusters. They were -- the Chinese OEMs are just trying to satisfy that initial demand inside of China.

Now with the policy changes, it's actually taken a dip for the first time in over a decade. But at the same time, as I mentioned earlier, they now surpassed China as the largest exporter last year in Europe and Southeast Asia and Latin South America, like I mentioned, are the target areas that they're going. And we just need to make sure that we can participate with them as they gain market share going forward. Flip side is they're taking that market share from somebody because the overall market isn't necessarily growing there. So we just got to make sure that we're protecting the business that we enjoy today or replacing it with the Chinese OEMs as they're gaining market share going forward.

Got it. Just one more check in. Maybe just going back to some of the revenue synergy opportunities. You've talked about Dowlais relationship with Toyota, VW. Where are you in the customer outreach and just like technical days with these new customers? When can we expect to see some awards starting to get announced right from the cross-sell?

Yes. Our initial focus with the customers was just, one, educating them in regards to combination businesses. At the same time, we wanted to identify where there were open issues, commercial issues, relationship issues, whatever they might be. We're still in the process of doing that, which is going very well because we want to close out any issues that were there. At the same time, we're in the process of explaining to them the comprehensiveness of our portfolio.

We will be going on the road later this year and a lot next year in regards to holding or hosting technology days at the various customers so they can see the vastness of our portfolio, the comprehensiveness of the portfolio that should lead to further cross-selling opportunities, depending on which product line we're talking about metal forming like powder metal or forging, those opportunities will be shorter as far as opportunity in the earlier years is what I really mean, where the driveline products will take 3 to 5 years based on the lead times associated with those types of products.

Got it. Got it. Makes sense. Maybe I think we should -- capital allocation and leverage is obviously a big topic for both equity and like debt investors. Could you walk us through the time line to your 2.5x threshold? How much of that comes -- it looks like majority of that is going to come from the synergies and earnings growth, but also there's a component of like just the onetime expenses starting to go away. Looking past the point where the acquisition is fully digested, just help us understand the path there and then how we should think about capital allocation?

I'll take that from a leverage perspective. We closed out the second quarter 2.6x. Obviously, very pleased to how we closed the second quarter, but quite frankly, very pleased to how we started the year upon closing the transaction a little better than I think we thought we would be at that point in time. And I think the reason you mentioned 2.5x, that's a critical marker for us. That's where we committed from a capital allocation perspective. In the near term, we'll focus primarily on debt paydown, which we've done in the second quarter. We have we done some additional in the third quarter. But once we cross that 2.5x threshold, we'll open up that capital allocation playbook to some more, I'll call, shareholder-friendly activity. So that's a critical milestone for us. Longer term, medium to longer term, we would love to have our leverage less than 2x. So we'll continue to prioritize debt paydown even after the 2.5x point as well.

But in terms of how do we get from here to sort of those goals, clearly, synergy performance, which will drive earnings growth will be an important part of that equation. But as you referenced a little bit in your question, continued strong cash flow performance and some of the, I'll call, onetimer cash items like acquisition costs to close, those will be behind us. Our restructuring costs will continue to -- we'll have some synergy implementation costs, obviously, heavy this year and next year. But holistically, cash flow will continue to strengthen over the next couple of years. So put those together, I think we're in a pretty good spot trying to hit those markers that we want to get to.

How should we think about restructuring in general? I mean I think we see this often like where restructuring is kind of like a perpetual like cost across many suppliers. I mean, is there sufficient line of sight just given all the dynamics around like onshoring and reshoring and then Chinese OEMs going to Europe, which might require some restructuring in Europe. I mean how visible is just the restructuring?

Yes. Let me just talk and then you can add to it, Chris, is Dowlais was doing a lot of restructuring before we acquired the business, started in the U.S. in regards to consolidating a lot of operations to Mexico. Most of that is done and behind us, and we're realizing the benefit of that at this point in time. There's still some launch opportunities that we're trying to improve to optimize that transition to Mexico. In Europe, they had a 3-year journey that they were on in '23, '24, '25. We're wrapping up some of the final parts of that right now.

So that's why you're starting to see those costs are coming down. We, legacy AAM, had some restructuring that we were doing in Europe. I do think there'll be continued restructuring in Europe for the whole industry, especially with the Chinese offensive that's going into there right now where they're gaining market share. There's too much capacity today in regards to OEM. There's probably too much capacity from a supplier standpoint. We think that we're in a very good position at this time. But if we need to do further, we'll obviously do what we need to do.

Most likely -- most importantly, what we want to do is get our capacity utilization and quite honestly, facility, machinery and people utilization to the desired levels that we historically run our business by. But I just think that you're going to also see further consolidation taking place in both the OEM ranks and the supplier ranks, and that will drive consolidation that way, but also drive some restructuring too. And we'll look for other restructuring to do it smartly where there's a business case and justification behind it that will only benefit from an efficiency and productivity and synergy standpoint.

Makes sense. You have a question from Jim.

2.5, 3 years from now, consolidation, you're a big part of it, right, with the M&A. And I'm thinking about that dynamic of where we're going to be in terms of where you want to be and then the competitive dynamics. You just -- as a follow-up to the question you just answered, you're rationalizing your utilization rate up. And so how does the competitive landscape look in 2, 3 years from your standpoint against that backdrop of Europe? And I'm curious of your opinion, are we going to see more new plants like Hungary for BYD? Or do you think there's just going to be a shifting of existing capacity to new players, like what we're seeing with Ford, Geely in Spain. How do you kind of see that landscape that have a very big impact on you because I assume you're going to be getting after that business that's going into Europe from the Chinese. Kind of 2 questions in there.

Yes. No, I'll start with the latter part of it. I definitely think it's going to be a combination where the Chinese are going to have some of their own greenfield approaches and Hungary is a big market for them to go to at this point in time. But they're also going to leverage some of the existing open capacity that exists within the Western OEMs today, just so they can do business in those countries and open up their market further and avoid some of the political things that may come in the future. Right now, the European governments haven't put a lot of restriction on the Chinese. So therefore, they can kind of dictate what they want to do and go where they want to go.

I do think there will be some sort of legislation or policy put in place over time. It's just a matter of does it get put in place fast enough so that the existing OEMs don't lose a lot of market share because of the cost competitiveness of the Chinese. And is it stringent enough where they require a certain amount of domestic made within that region or within those individual countries themselves. That's still to play out. We'll have to adjust to that, just like any other supplier would have to adjust to that. The best way for us to do is make sure we've got a competitive footprint, let's say, in Europe or any of the regions that we serve.

At the same time, leverage our global enterprise so that we can quote out of different areas to serve that region. In this case, we're talking Europe, whether it's out of China, whether it's out of India or whether it's out of Eastern Europe is what we would do. But the name of the game is utilization, right? If you don't have the utilization, you don't have volume covering those fixed costs, you're going to bleed. And that's what's happening with some of the OEMs there and some of the supply base. And that's why you're seeing the massive restructuring that's going on in Europe right now, where tens of thousands of jobs are being impacted. Hopefully, that addressed your question.

I just want to know -- I'm a bit curious about the transition to Mexico. I don't know if you could talk a bit more. And also how exposed do you think it's going to be with the USMCA possible changes?

Yes. Mexico has been a big source of revenue performance for our legacy AAM business. And obviously, Dowlais doubled down with their consolidation from a lot of their U.S. operations down to Mexico. So we have a big presence in Mexico and a very well-installed infrastructure that's there. You just don't pick up assembly plants and pick up component plants that are capital intensive overnight. But we do think that we're very well positioned there. Right now, we don't have clarity to where USMCA is going to go. They've telegraphed where they are in regards to the discussions. They telegraphed where they're going in regards to U.S. content that they would like to see higher content requirements.

The good news is over 90-plus percent of our parts are USMCA compliant today. It's just a matter of what changes in the future. So we're trying to proactively work on those things right now, anticipating that they're only going to be more demanding. Almost all of the steel that we use in Mexico is consumed. And then it's just how does it impact the OEM and their vehicles versus how does it impact the component supplier. So clearly, there's going to be an impact. It's a matter of how we can mitigate that and how we offset it, either within Mexico or with our U.S. footprint as well. And we already had a U.S. footprint from a legacy AAM standpoint. We picked up additional facilities from Dowlais. We'll work to optimize that. But part of what we're doing is waiting to see where USMCA goes before we make some final decisions on that plant and product loading.

Yes. Maybe just on the portfolio and like just adjacencies. Obviously, a lot of suppliers have found ways to leverage the technology in adjacent end markets. Curious like is there a real opportunity for you, where those capabilities travel more naturally, whether there's a live process or like a post-integration ambition in other markets?

Yes. I mean it's our job to look for growth, right? And right now, we're not seeing a lot of growth from a vehicle unit standpoint on a global basis. So we got to consolidate the industry and the core business that we're in, in order to realize some of that growth. And that's not only just us, it's true for all the auto suppliers that are out there. Technology makes a big difference in regards to what you're able to do that way. But clearly, we want to look at adjacent markets that make sense that leverage our core competencies and our capabilities. But our priority right now is the integration of Dowlais and the GKN subsidiaries, make sure that we're very effective there.

But at the same time, look at what we can do, as you said, leverage that installed capacity base. I mean, think about it, forgings can go into a lot of industries. Powder metal goes into a lot of industries. About 20% of our customer base today is outside of the automotive space on the powder side. There's more opportunity on the driveline side, especially when you're looking at the industrial markets, the commercial markets or the powersport type markets. So we'll look at that, but some of that takes capital to enter into, too, whether it's a greenfield approach or a strategic approach of some nature. But we'll look at aerospace, defense, some of the other critical industries that would merit and utilize some of the core competencies and capabilities we have.

Understood. Maybe one final question. Any early preview or peek into the analyst event, what we can expect to hear?

Well, I mean, we've shared our story early in regards to what we were trying to do with the acquisition, the combination. Again, it's 2 great companies that came together. I think it's one of the better deals that have taken place. It's like a hand-in-glove fit. Our job is really focused, especially the first 2 to 3 years on this integration. The integration is off to a wonderful start. At the same time, the Street is looking for shareholder appreciation. They're looking for growth. That growth is going to have to come by either consolidation, which means strategic activities or conquest -- organic conquest wins or it's got to come through those adjacent markets.

So we're looking at all those, spend a lot of time on that at this point in time, and then we'll discuss that on November 17 when we have our meeting. In addition to that, we'll telegraph and guide a more futuristic or look towards what our earnings and our size of revenue and all that we really want to be as a company on a go-forward basis. I mean everyone knows right now, we're in that $11 billion to $12 billion range on a consolidated basis. At the same time, we're evaluating our portfolio, what's core, what's noncore, can we accelerate our current plan, get that debt paid down, clean up the balance sheet, open up the shareholder from the activities that Chris mentioned earlier, while also trying to say how do we grow going forward.

A lot of things to cover, but exciting time for our organization. A lot of work to do, but nothing that's overwhelming and stuff that scares us at all. It just -- this is right in our wheelhouse about execution, right in our wheelhouse in regards to performance. We've demonstrated that we want to be a consolidator, and we'll continue to look and capitalize on that where it's appropriate.

Makes sense. It's a great way to end. So thanks, everyone, for listening.

Great. Thanks. Thank you.

Really appreciate it.

Good morning. My name is Rocco, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Dauch Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, Rocco, and good morning, everyone. I'd like to welcome everyone who is joining us on Dauch Corporation's Second Quarter Earnings Call. Now earlier this morning, we released our second quarter of 2026 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.dauch.com, and to the PR Newswire Services.

You can also find supplemental slides for this conference call on the Investor page of our website. A replay of this call will be available through August 14. Replay details are in today's press release.

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, you 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 Dow's financial results for the second quarter of 2026. Joining me on the call today is Chris May, our Executive Vice President and Chief Financial Officer.

The company's strong second quarter results highlight the continued positive acceleration for the new Dauch Corporation. We are focused on unlocking the full strategic potential of the transformational acquisition as we continue to successfully implement our integration plan to drive value creation and leverage our enhanced size and scale. So far, I'm very pleased with the robust start.

As for today's agenda, I'll review the highlights of our second quarter financial performance. Next, I'll touch on our synergy progress, some business updates, commentary about the industry and our guidance. I'll then turn the call over to Chris to cover the details of our financial results, after which we will field any questions that you may have. So let's begin with some of the details.

The company's second quarter of 2026 sales were approximately $3 billion, adjusted earnings per share was $0.32 and adjusted free cash flow was approximately $148 million. In the second quarter, North American production was flat year-over-year, Europe was down approximately 1% and global production was also flat. Our quarterly performance reflects continued strength across a number of important customer programs, including BMW's LG platform that underpins the brand's x5 and x7 models. Volvo's SPA crossover utility vehicle platform and GM's large truck program.

From a profitability perspective, our adjusted EBITDA in the second quarter was $390 million or 13.2% of sales, driven by mix, business performance, synergies and a solid Dowlais contribution. Chris will provide more details about our overall financial performance during his prepared remarks.

On Slide 4, I'd like to share an update on our synergy and value capture progress. We have now been operating for 5 months as a combined company, and we have already realized approximately $70 million of run rate savings to date. We remain on target to deliver more than $100 million in run rate savings by year-end. We have made excellent progress in eliminating duplicative corporate costs, optimizing SG&A and capturing global engineering efficiencies.

At the same time, we're advancing initiatives across procurement and operations, which naturally take longer to realize. While significant opportunities remain ahead, I'm proud of the strong progress our team continues to make. As we have previously communicated, we expect to deliver approximately $180 million in run rate savings by the end of year 2 and the full $300 million in run rate savings by the end of year 3.

Let me talk about some business updates, which you can see on Slide 5. We want to highlight that our company was named Ford Supplier of the Year Award recipient in the quality category for our outstanding performance dedication and collaboration during the 2025 fiscal year. The recognition reflects a collective effort across our organization to deliver excellence to our customers as they are in the center of everything that we do. We are incredibly proud to receive this award.

In addition, in the second quarter, we won numerous awards with major European, Asian and North American customers, supporting not only mainstream vehicle segments but also high-end sports cars and lifestyle offroad-capable vehicles. We are now seeing the strength and the comprehensiveness of our product portfolio.

Lastly, we continue to build a strong pipeline of future growth opportunities. Today, we are actively quoted on more than $2 billion of new and incremental business, including capacity uplifts on high-demand programs. Additionally, we are also working to secure next-generation platforms and program extensions. We remain disciplined in pursuing opportunities that align with our strategy and support our long-term profitable growth.

Now let's talk about the industry. There are two topics I wanted to discuss with you specifically. First, on the macro environment. In the second quarter, we experienced some incremental costs related to the elevated energy prices, but we did not see any noteworthy impact on our operations nor on our customer schedules. From a high level, we are also not experience -- we did not experience significant mix change, possibly pointing to consumer resiliency, especially here in the U.S. In general, overall production has been stable, and we continue to experience the strength of the North American truck segment.

Second, we are actively monitoring the USMCA trade discussions, and we'll react accordingly once discussions are finalized. We understand that the parties are moving into a period of annual review and are currently in active negotiations. This trade relationship is critical to the success of the auto industry and specifically to the North American region. As we have shared in the past, our strategy is to buy and build local in the regions that we serve and we have benefited from this approach, and we'll continue to do so.

Now let's talk about our updated full year guidance. We have lifted the low end of our guidance range to take into account our performance through the first half of this year. Additionally, we are managing meaningful launches in the second half of the year. The company now target sales of $10.6 billion to $10.8 billion, adjusted EBITDA range of approximately $1.36 billion to $1.425 billion, adjusted free cash flow of approximately $260 million to $325 million, and our guidance ranges are underpinned by the following production assumptions. North American production at 15.1 million units, Europe at 16.9 million units, China at 31.6 million units and global production at approximately 91.1 million units. As we have shared before, our outlook is based on not only industry production, but also on certain programs that we have meaningful content on.

We note that GM is transitioning to its next-generation full-size truck program. We expect the model changeover to begin during the second half of this year. The new truck is very exciting and an important product both for GM as well as for us, and we look forward to successfully supporting our largest customer.

Before transitioning to Chris, I want to share with the investment community that we will be hosting a Capital Markets Day on November 17 in New York City. We will provide additional details about the event in the coming months. So please mark your calendars.

In summary, we had an excellent second quarter. The integration of Dowlais continues to progress favorably, our synergy achievement is on track, and we're excited about our future and we're built to perform.

Now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the financial results and details. Thanks.

Thank you, David, and good morning, everyone. I will cover the financial details of our second 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 second quarter of 2026, our sales were $2.96 billion as compared to $1.54 billion in the second quarter of 2025. Slide 7 shows a walk of second quarter 2025 sales to second quarter 2026 sales. Overall, our sales were flat year-over-year and in line with changes in overall North American production levels. The divisiture of our India commercial vehicle axle business also had a $34 million sales impact in the quarter. This was offset by metal market pass-throughs and FX, which increased sales by approximately $35 million. About 1/3 of this amount was related to FX and was driven by the strengthening of the Brazilian real and the euro.

Dowlais contributed $1.45 billion in gross sales for the second quarter. Versus the second quarter of last year, volume mix and other was favorable by $42 million, driven by positive demand for our products that supply BMW and Volvo, which was partially offset by $31 million of lower sales due to the sale of certain businesses.

Now let's move on to adjusted EBITDA. For the second quarter of 2026, adjusted EBITDA was $389.6 million and adjusted EBITDA margin was 13.2% versus $202 million and 13.2% last year. You can see a year-over-year walk down of adjusted EBITDA on Slide 8.

In the quarter, adjusted EBITDA for legacy Dowlais was lower, primarily reflecting lower volume and mix, the divestiture of our India commercial vehicle axle business and approximately $8 million of EBITDA impact stemming from costs that we incurred during the UAW work stoppage at our Three Rivers, Michigan facility. These headwinds were partially offset by approximately $8 million of continued favorable performance, reflecting our focus on improving our legacy metal forming performance and managing overall costs.

Dowlais contributed approximately $180 million of adjusted EBITDA during the quarter were 12.4% of sales. EBITDA benefited from approximately $9 million of volume mix and other as well as $9 million of favorable operational performance. These benefits were partially offset by the sale of businesses that I discussed earlier in my sales commentary.

In the second quarter, we realized $15 million in synergy benefits as we eliminated duplicative corporate and SG&A costs and have begun realizing engineering and purchasing efficiencies. As David highlighted, we achieved a $70 million run rate as of today, and we expect this to continue to grow. We have a nice market basket of potential savings that we continue to drive to completion as we target the $100 million plus of run rate savings by year-end. Simply, we are making great progress on our synergy objectives.

Let's move on to interest and taxes. Net interest expense was $82.6 million in the second quarter of 2026 compared to $37.5 million in the second 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. 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 second quarter of 2026, we recorded an income tax expense of $16 million compared to $28 million in the second quarter of 2025. As we described last quarter, due to the acquisition-related activity this year, our tax rate and impacts remain 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 somewhat elevated due to the valuation allowances and partial interest deduction limitations in the U.S.

As for cash taxes, we continue to expect approximately $160 million to $170 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $1 million, a slight positive earnings per share in the second quarter of 2026 compared to $39.3 million or $0.32 per share in the second quarter of 2025.

Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.32 per share in the second quarter of 2026 compared to adjusted earnings per share of $0.34 for the second quarter of 2025.

Let's now move to cash flow and the balance sheet. Net cash provided by operating activities for the second quarter of 2026 was $107.5 million compared to net cash provided by operating activities of $91.9 million in the second quarter of 2025. Capital expenditures that have proceeds from the sale of property, plant and equipment in the second quarter of 2026 were $91.7 million.

Reflecting the impact of these activities, our adjusted free cash flow was $148.4 million in the second quarter of 2026 as compared to $48.7 million in the second quarter of 2025. From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and a net leverage ratio of 2.6x at June 30, 2026.

In the near term, we will continue to focus on reducing our outstanding debt and strengthening our balance sheet. During the second quarter, we voluntarily redeemed $125 million of our 6 7/8% notes due in 2028. Subsequent to the end of the quarter, in August, we voluntarily redeemed all of the remaining 6 7/8% notes due in 2028. This also resulted in a principal payment of $125 million. We now have no major debt maturities until 2029. We ended the quarter with total available liquidity of approximately $2.5 million, consisting of available cash and borrowing capacity on our global credit facilities.

Let's talk about our updated financial guidance on Slide 6. Our updated targets are as follows: For sales, we tightened our full year guidance range to $10.6 billion to $10.8 billion versus $10.3 billion to $10.8 billion previously, reflecting our solid performance through the first half of 2026 and our expectations for the remainder of the year. This sales target is based on current global production assumptions and certain assumptions for our key programs.

For example, we now anticipate GM's full-size pickup truck and SUV production in the range of 1.35 million to 1.4 million units this year. From an EBITDA perspective, we anticipate a range of $1.36 billion to $1.425 billion versus $1.3 billion to $1.425 billion previously. We brought the low end of our range up to reflect the strength of our first half results, operational performance and continued integration execution.

We note included in our adjusted EBITDA is the proportionate share of income from our joint venture in China with HASCO, called SDS. We expect our JV share, which is already included in adjusted EBITDA guidance to be in the range of $70 million to $80 million versus $65 million to $75 million previously. We anticipate adjusted free cash flow in the range of $260 million to $325 million from $235 million to $325 million previously. While we do not provide quarterly guidance, we can offer some perspective on the cadence of the remainder of the year.

Relative to the first half, in part due to normal seasonality, North American vehicle production is expected to decline approximately 4% sequentially in the second half, while European production is expected to decline approximately 8%, which is often weighted towards the month of August. In addition, GM is scheduled to begin the phase launch of its next-generation full-size pickup trucks in the second half of this year. As is typical with major product transitions, we expect customer production downtime and related volume impacts during the launch period. Currently, we are expecting this temporary impact to our production for this program to begin in September.

Our CapEx assumption is unchanged at 4.5% to 5% of sales as we write the organization for important upcoming launches, including the GM large truck program that I just mentioned. From a share count perspective, please continue to use approximately 245 million shares for the remainder quarters of 2026 for modeling purposes.

So in conclusion, the company delivered solid first half results and we have benefited from supplying products to some of the strongest vehicle platforms in the industry, plus the strength of our diversified portfolio and a disciplined operating approach. Our operations delivered performance improvements in the areas of metal forming and in the areas that have received restructuring investments. As we move through the second half of the year, our priorities remain clear: continue executing our integration plan delivering our synergy commitments and strengthening the balance sheet. We believe these efforts will further enhance our financial profile and position us to deliver sustainable value creation.

As we progress into 2027, we are excited about the potential momentum we are gaining with new program launches such as GM's new full-size pickup, synergy growth and stronger net cash flow performance.

So 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. [Operator Instructions] So at this time, please feel free to proceed with any questions you may have. .

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[Operator Instructions] And today's first question comes from Tom Narayan with RBC.

On the free cash flow bridge for H2 '26, I'm seeing $56 million for cash restructuring in H2, based on my math, I think it was $76 million in H1. Good to see that coming down. I know we'll be getting more details in November. But any color on what we could expect to see in that in '27 on cash restructuring? I think it was mostly Dowlais legacy moving plants, things like that. Can we expect that to come down a lot next year?

Yes. Tom, this is Chris. I'll take that question. Yes, I would expect continued restructuring cash costs this year, as you indicated, and that was, of course, at the midpoint of our current guidance range for that. Those investments that we've been making are a continuation of some of the Dowlais restructuring that has begun over the last year or 2 as well as some, I would call, legacy Dow facilities inside of Europe as well. Those will substantially be complete this year as well. We would expect going into '27 that, that number will reduce meaningfully from its current run rate levels we have here today. We haven't provided a specific number for '27, but we do expect those to drop significantly.

Got it. And then for my second question, I don't know if this is apples-to-apples, but I see equity income of $28 million for H1. The China JV was raised to $75 million for the full year. Just taking that math, it could imply that China JV income is higher in H2 versus H1? I know we're hearing some caution from suppliers this earnings season in China in H2. Maybe I'm just doing the wrong math. But just curious what you're seeing from your China JV implications for H2.

Yes. No, great question. Just I would give you a couple of perspectives on that. Number one, keep in mind also you only have 5 months of that number included in the first half of the year because they were not included as part of our January results. And they are going through some, I would call, new program launches in the back half of 2026 for some programs that they have with some customers so they'll have a little bit of an uptick there. But big picture-wise, think of it you have 5 months versus 6 months.

And our next question today comes from Joe Spak at UBS.

This is on for Joe Spak. You're making good progress on the synergies target. Can you maybe help us better understand the buckets of the synergies you've achieved thus far? Are most of the synergies to date SG&A? Or have you started to achieve some of the synergies on the purchasing and operations front as well? Maybe given how fast you found upside to this year's target, would it be too early for us to expect an update on the potential upside to synergies targets, primarily the operational bucket at the Analyst Day in November?

So this is David Dauch. The three buckets that we had outlined before were SG&A, procurement and operations, 30% roughly in the SG&A, 50% of the procurement, 20% of the operations was the base that we are operating from. As I've had in my prepared comments, we're making great progress across the board, but especially in the SG&A and that's to be expected. It's the lower-hanging fruit earlier things that we can get after but we're making meaningful progress there, but we're also making progress on the procurement of the operations. So as we said, we're highly confident that we can deliver the $300 million over the 3-year period of time that we identified. We're confident we can deliver and hit the run rate of over $100 million this year. At the same time, we're obviously looking to see what we can do to potentially increase that in the future, but we're not commenting at this point in time.

Got it. Maybe as a follow-up, can you maybe just provide an update as to what is embedded in the guide for higher labor? Like how many more facilities do you have for UAW negotiations for this year? And if the remainder of those facilities that go up for renegotiations, signed similar contracts to what was signed at Three Rivers, like is that labor inflation embedded in the guide? Any update you can provide there would be helpful.

In terms of cost perspective, our best estimates of our current labor arrangements are already embedded in our guidance at this point in time.

And our next question today comes from Alex Perry at Bank of America.

Congrats on a strong quarter. I guess just first, you took the guidance up despite your sort of global production coming down a little bit. What are you seeing that sort of allowed you to do that? And any thoughts on the type of sort of growth versus market you may see next year sort of based on current schedules?

Yes, this is Chris. I'll take that. Clearly, when we reflected upon our guidance update for this call here today, the strength in the second quarter, we benefited from a very strong sales. We benefited from good operating performance. Those are one of the main drivers of our support an adjustment for our guidance going forward. Obviously, the second half, I talked about in some of my prepared remarks, we do have some reductions in overall production, primarily due to seasonality, but also, of course, for the exciting new GM pickup truck that's going to launch. .

And that actually correlates a little bit to your second part of your question, we think about next year, what's coming at us. Obviously, we do many parts of our business move with just overall production. But some of these new critical vehicle programs that are launching, such as GM's full-size truck generally, we see capture share, early stages of those new platforms when they're out in the market. So we're certainly very excited in watching that element very closely. The key new programs will be a driver for some of that growth.

Perfect. Really helpful. And then I know you had some initial thoughts on sort of USMCA in your prepared remarks, but I'd love to just hear about sort of the impact in the scenario analysis that you guys are thinking about internally as -- in regards to USMCA?

Yes. This is David, Alex. As I said in my prepared remarks, obviously, it's something that we're monitoring closely. We understand the status of where things are at this point in time. But until we get clarity, it's really hard to forecast what that impact will be on the overall business. I mean, our policy, as I said, is always to buy and build local. So we try to minimize the impact as much as we can. Clearly, with the USMCA set up, we'd have to rebalance or reshuffle some things between the U.S. and Mexico, if things go a different direction. But we've got the flexibility to do that and expanded flexibility, especially taking over some U.S. facilities from Dowlais as well as some Mexican facilities from Dowlais. So -- too early and too premature, I guess, really to comment on the cost implications. But at the same time, we will adjust our footprint and be flexible based on the regional footprint that we have in place.

And our next question today comes from James Mulholland with Deutsche Bank.

Maybe just to piggyback on Alex's question for this year's guide. Nice to see it was raised on the low end, but what would it take realistically for you to reach the high end? Do you need LVP to remain steady where it currently is? Or retooling to go a bit faster, maybe ramp heavy duty comes a little bit stronger in the back half? Just some thoughts about the drivers for the rest of the year, how you would get to that high level.

Yes. This is Chris. I'll take that. Look, there's obviously many moving pieces to the back half of the year or the full year, as you would know. But first and foremost, clearly, production is one of the top drivers of within some of those ranges, high or low end. So to the extent production is as strong as we expect or stronger for certain platforms that we would supply that would obviously push you towards the higher end. We do provide ranges, for example, on our JV equity income, our ranges on our synergy achievement those clearly, as you're within those ranges, if you're performing at the higher end of those drive you to the higher end of the range. .

Some of the things we look at in terms of puts and takes, overall, productivity is critical to our success as well. You have a lot of activity in the back half of the year associated with that. But you also have a little bit of, I would say, macro pressure on I'll use inflation for things like oil and freight costs. We're sort of counterbalancing some of that productivity to support and work towards mitigate some of those impacts. So those are some of the moving pieces we think about when we're inside of that range.

Great. And then I guess on the $2 billion of active quoting for new and incremental business, can you give us a sense of whether or not the breakdown of quoting there is for new platforms that you're already on or Conquest awards? And then are these products really being quoted more aligned with the legacy DAC business? Or is it more related to the acquired GKM businesses?

This is David. I mean the good news is this balance between the two companies, that being legacy AM and legacy Dowlais GKN. So that's good news. That's the comprehensive portfolio that we want to have in place, so that's critical there. In regards to the makeup, probably 85% of the business we're quoting today now is ICE and hybrid related, where several years ago, was flipped the other way with electrification. So it plays right in the sweet spot of our portfolio. So we're pleased with that. At the same time, the $2 billion that we identified is just new and incremental business. It includes a little bit of capacity uplifts on the existing platforms, but all the replacement or extension programs are outside of that.

And our next question today comes from Nathan Jones at Stifel.

I guess also the question on the energy and steel price or still cost increases that we've seen out there, some related to tariffs, some related to the wall. Is that something that impacted the second quarter for you just in terms of EBITDA generation, maybe it's delayed a little bit getting to inventory? And -- then can you talk about the customer recoveries that you get from that and the timing on those, please?

Sure. This is Chris. I'll take that. From an energy cost perspective, we had, I would say, a relatively minor impact in the second quarter, maybe the tune of a few million dollars. Right now, I would expect that to continue into the second half of the year based on current environment. You indicated sort of a second part of that question related to steel costs. We typically do not buy steel or those type of commodities on a spot purchase, so we're under long-term contracts. So in many cases, we see no variability in the short term for that. To the extent it's driving commodity costs that go into the components we buy, we generally pass those up to our customers mechanically and contractually. And those get passed up every 30, 60, 90 days depending on the customer. And that would be all various inputs that you would see into the products that we buy. But in terms of energy cost recoveries from the customers, those would be separate discussions and we do not have automatic pass-throughs for those, in most cases, some in Europe, but not overall generally not.

Fair enough. The new GM pickup truck, is there a difference in content for you guys on that platform versus the one that it's replacing?

Yes, it's relatively similar to the one we we're placing, generally same features. There's some little small plus and minuses as they have engineering changes on to support the characteristics of the vehicle. But big picture, you should think it's principally the same.

And our next question today comes from Rajat Gupta with JPMorgan.

Congrats on the strong execution. I just want to follow up on the $2 billion quoting activity comment. Obviously, pretty strong progress there. I'm curious, any progress you're seeing on just the cross-sell opportunities between legacy Dauch and Dowlais that you're starting to see. Just curious how those conversations might be going with customers? And -- should we expect to see any new awards in the near term or wait to hear more in November in our portfolio?

Yes. And that was one of the things we're very excited about as far as the cross-selling opportunity here. Again, Dowlais GKN had some very strong relationships with, obviously, the Europeans but especially the Asians. We are obviously very strong with the C3 year, but both companies had active relations with all the global OEMs. It's just a matter who had a stronger relationship. But collectively, we're much stronger across the global OEMs.

What we're doing is we're having strategic meetings and reviews with those OEMs so that they understand the comprehensiveness of our portfolio and then find to identify opportunities where we could help them, not only initially right now, but more importantly, mid and long term as they look at their long-range product plans going forward.

Part of it is just an educational process with the customers. But we are seeing an uptick in regards to the market basket and new and incremental opportunities. Because of the relationships that the combined business has, and we hope to convert on those as we go forward, and we'll announce it appropriately at the right time.

Got it. That's helpful. And just wanted to follow up on CapEx. Is the first half to second half uplift, I mean, pretty significant, like less than $200 million to greater than $300 million implied in the second half. Is that all tied to GM? I'm just curious like about the back -- just the second half weighted nature of that? Or is that just a conservative number out there?

Yes. Based on the midpoint of our guidance for that range, we are second half weighted in terms of CapEx. We do have program launches GM, of course, is one of them. Some of that has already been spent, but we'll continue to have some more investments associated with that program, but also getting ready for some launches into next year as well.

Look, we look to optimize our spend. Look to optimize timing associated with that to the best we can. We'll continue to push on that, but it is second half weighted at this point in time, driven primarily by launch activity.

And our next question today comes from Dan Levy at Barclays.

Wanted to first start with a question on metal forming. So best margin you've had in quite some time. Maybe you could just talk to what happened in metal forming that the margin recovered as much as it did. And then broadly, is the form of metal forming structurally where you need it to be? Or is there stuff that needs to be done within the portfolio to further clean it up?

Dan, this is Chris. I'll take the first half of that question, talk a little bit about the margin profile. And you can see it is actually over the last couple of quarters, legacy Dow and then transitioning to the combined company has been on a nice steady cadence of improvement. You really had two things happening here. Number one, with the combination with Dowlais brought in, of course, the powdered metal portion of Dowlais into our metal forming operations. They had a slightly higher margin. So you are getting some uplift associated with that when we combine that up. And of course, you pick up an extra month in the second quarter versus the first quarter associated with that. .

I think maybe more importantly and twice as exciting, certainly, as it relates to operational wise, we're seeing improvements that we've been discussing over the last well, quite frankly, 3 or 4 quarters in our core metal forming operations continue to take hold. We're not where we need to be yet, but we are seeing continued positive performance also giving uplift in that margin.

Yes. Dan, this is David. Again, thank you for acknowledging the margin improvement in the metal form. We've been working really hard both on the legacy AM as well as taking over the legacy GKN type business there. As you -- as part of your question, you talked about the structure and the optimization of the business. We clearly are looking to drive capacity utilization up to certain levels on a global basis. We've got opportunity there. One of the other big opportunities that we have is in-sourcing of product which is a positive because of what they do already on the powder side of the business, but what we also do, meaning legacy AM on the forging side of the business.

And then clearly, with all the tariff discussions that are ongoing right now, there's a tremendous inquiry from a lot of global OEMs as well as other tiered for reshoring or localization to the individual continents around the world. So -- we see tremendous upside opportunity here. At the same time, we'll look to optimize the portfolio appropriately where it makes business sense. But we do that with all of our business, and we always maintain optionality on that business going forward.

Okay. Second is sort of similar question, but on Dowlais. So you've now had it for 6 months. And so you've had a deeper look at the business. And presumably, you've now been through the facilities have a better sense of the resource usage and allocation. How much more work or what type of work needs to be done on optimization, rationalization, whether it's footprint, whether it's resources? How close is that to the business that you expected versus what further items need to be done that maybe are different from what you originally expected?

Yes. On the positive side of things, Dowlais was already actively involved on the auto side of the business with some major restructuring that they had done in the U.S. as well as ongoing in Europe and that you're seeing some of those restructuring costs coming through in the financial performance. And again, as we said, hopefully, in the lower end of that as we go forward here based on the hard work that was done before we acquired it, but the work that we continue to do -- to execute those plans. As Chris said, we have some of our own legacy AM plans that we're optimizing that's coming through that as well. Overall, their facilities are in decent shape. They need some upgrading to the legacy AM standards or Dauch standards. So we'll deal with that appropriately. Clearly, we're managing very closely installed capacity and capability on that capacity and evaluating the capability of the machines and the workforce and the availability of labor in the given areas.

Probably the biggest area of improvement that we still see is the implementation of the Dauch operating system. They will benefit greatly from that from a discipline from a structure standpoint. That will take some time to get implemented over the next couple of years, but also will result in productivity savings and synergy savings as we go forward. But overall, I mean, Dowlais had and has a very strong innovation background. They have a solid manufacturing background. They just need to be optimized from a capacity utilization, facility utilization and most importantly, the implementation of the operating system. So we see upside potential there.

That productivity could be incremental to the synergy targets that you've laid out?

Well, right now, I mean, it's kind of a mixed bag because we got the base onlay productivity commitments. We've got the legacy AM productivity commitments, and we got synergies on top of it. They all come out of the same productivity bucket. So -- but we're hopeful that we can see some upside in the future. But right now, we're not adjusting our commitment from a synergistic standpoint.

And our next question comes from Hamed Khorsand with BWS.

I just want to ask you if you're seeing this stable production from industry and also from your end, how are you able to manage the business to maximize contribution margin?

Well, first of all, as it relates to contribution margin, one of the best ways to support that. It's one of the first best ways to support that is a stable production environment. You may recall the industry over the last maybe 2 or 3 years ago that had unstable production schedules, unstable macro, there were semiconductor challenges, et cetera, caused us to be highly inefficient. So once the production environment stabilizes like we've been experiencing this year, for example, really allows you then to hone in on maximizing throughput, maximizing efficiency, maximizing productivity. And that is single most best environment we get asked for to maximize our contribution margin on the products that we build.

And are you able to do that now?

Yes. We're doing it right now. I mean, overall, production environment has been relatively stable, correct. The combined company has a relatively consistent variable profit or contribution margin anywhere between 25% to 35% depending on the product. And we've been able to maintain that on an ongoing basis here.

And our next question today comes from Vanessa Jeffriess at Jefferies.

Congratulations on the results. So you've made excellent progress on synergies, but I know you've spoken about the purchasing piece maybe being a little bit more difficult given the backdrop, which we're clearly seeing persist. So is there any risk the purchasing synergies get pushed out a bit more? Or do you have a buffer there either from SG&A or how conservative you've been on the targets? And then secondly, I know you've done plenty of travel this year. So maybe if you could give us an update on how you're thinking about consolidating the Dowlais footprint. And we definitely continue to see European names talk more and more about what they can move to Hungary. And obviously, Dowlais made a significant investment there. So maybe any thoughts on what you can consolidate there to improve profitability in Europe.

Okay. This is David. Again, that's what we said earlier, we're making tremendous progress in regards to synergies, I mean we're already delivering run rate synergy of $70 million for owning it for 2 quarters. We're on track to deliver the $100 million heavily weighted towards the SG&A. But like I said, pursing and operations are contributing to that. We fully expected that we would need the 3 years to achieve all of our purchasing objectives as well as our operational objectives, largely because of the market that we're in today, especially on the direct side, is going to take some time. So I'd see some of the direct being more back weighted, more '27, '28 type things, but we can offset some of that with stronger performance on some of the indirect and freight and logistics and in-sourcing opportunities as well as some of the SG&A things, as I already mentioned to you.

From an operational standpoint, yes, GKN had built a plant in Hungary and moved some work to Hungary. We're evaluating the footprint across Europe on a combined portfolio now. We're looking to optimize, as I said, facility equipment and people utilization. Certainly, Hungary will come into play as we evaluate that going forward here. But there was clearly an effort by to move from some of the Western countries to some of the eastern countries. We're just assessing what that is, while at the same time, balancing appropriate labor agreements that we have in place with the unions in those given areas.

It's not just limited to Europe, we're doing that globally around the world. Our job is to make sure we're driving full utilization of our resources, and that takes some time to get that done, but we're heavily focused on that right now. And we'll continue to be.

And our next question today comes from Itay Michaeli with TD Cowen.

Just want to go back to the $2 billion of quoting. Two questions there. One, any way to think about potential win rates there? I think in the past, we typically talked about kind of 30% for legacy Dow? And then as you kind of look at these opportunities, is that broadly consistent with just how you're thinking about CapEx intensity for the company going forward as these opportunities emerge?

Yes. I'd say -- Itay, this is David. From a win rate standpoint, you should continue to focus around that 30% level. Obviously, Dale has a leading market share position with respect to side shaft, so it might be a little bit higher with respect to that side of things. But the balance of things should be right around that 30% side.

And just on the CapEx side, we've guided 4.5% to 5.5% of sales, and we can manage our business within that, not only today, but also going forward into the future. I don't know, Chris, anything else you might want to add.

As it relates to capital intensity, as you know, Itay, bigger programs are clear bigger capital. But generally speaking, we price for those accordingly. We have business case hurdles that we need to meet to do that. And our goal, I think, as we've shared over the last couple of years is to try to maintain that CapEx at 5% or lower, even acknowledging some of these new business opportunities. That said, we'll look at each one as it comes our way and do the appropriate financial analytics on those cases. and go from there.

Terrific. Maybe a quick kind of housekeeping question. Any kind of high-level sense of just kind of regional revenue performance for the combined company in the quarter now that you have a little bit more diversification. Just kind of curious how the regional revenue performed?

Yes. I would say the regional revenue has performed very consistent with what you see at the macro level for each of the regions that we support. And primarily, as you know, the bulk of our business comes out of North America, about 60% and Europe of, call it, 25%. As I mentioned in my prepared remarks, overall, North America was down, I think, 10% inside the quarter versus the prior year. And we see very similar in terms of our regional performance there, same with Europe as well.

And our next question today comes from Jake Scholl with BNP.

Could you just give us an idea of what launch costs may some of the one-timers look like in the second half? Just if we can get to kind of just converge to a more normalized run rate to use this jumping off like '27?

Yes. Jake, this is Chris. I would say, while we do have a meaningful launch, especially with the General Motors light-duty pickup truck. We've been in a series of launches here last year, this year, I would expect into next year. I don't see at this point in time any period that has overweight launch costs versus the other. So while we're incurring them, we'll continue to incur them. We did last year. We will continue to incur them next year as we're launching a wide variety of programs. You may recall, we at least from outsized programs as legacy Dauch. We launched the RAM about 2 years ago. That was a big program. We had some heavy-duty truck activity here earlier this year. You have light-duty back half of this year. We have a whole host of other programs now with the Dowlais products that we have inside the company, which is great, a lot of activity from that perspective. So I would just think of it at this point in time relative I wouldn't spike one quarter out or one year out versus the other at this point in time.

That's helpful. And then you guys are generating strong cash flow this year. It looks like it stepped up pretty meaningfully next year. So -- how should we think about when you guys will be able to serve returning some of that to shareholders?

Yes. We've been very public about our capital allocation approach, especially as it relates to when we made the acquisition announcement earlier this year. Clearly, as you know, we took on some debt to do this acquisition, but maintain still a healthy leverage profile. But our objective was to continue to strengthen our balance sheet as we go forward. And our primary use of capital allocation in the near term would be to continue to reduce our debt until we're around 2.5x levered or lower. And then once we sort of cross that threshold on a stable basis, we will and look to open up the playbook to, I would say, additional capital allocation across the spectrum, including shareholder-friendly activity.

And our next question today comes from Doug Karson at Bank of America.

I guess two or three topics. So first, great job on taking out to 2028, if my math serves me right, you took out $250 million in May and August combined and then started in October. So $400 million of debt came out just in the last year or so, which is great. Have you had a chance to circle up with the agencies? I will, myself, but -- there's some kind of scale like negative outlook out there at S&P? And have the rating agencies kind of absorb the debt reduction yet?

Yes. Of course, obviously, they watch us very closely. As you know, we are in contact with them periodically to provide them updates that is one of their top items that they monitor, but also our cash flow performance as well as our ability to generate synergies on a go-forward basis is also critical to at least through their eyes how we continue to -- I'd say, move up the ratings change, if you will. So we continue to keep them well up to speed on our position and all the activities doing but meeting that commitment of paying down debt that we said we would do, and you see us doing it as a key piece of the success with that relationship and their view of us.

Yes. I'll reinforce that on my side. The Silverado share you're going to hit showrooms, I think, in December. I think Fort Wayne and Flint have already planned like a bunch of retooling already. How do you see the production cadence from GM? I guess, on target I'm looking at IHS production it's right in front of me right now, and it definitely wobbles a little bit kind of at the beginning of 2027. Are you prepared to kind of navigate the changes in production need from GM like you already set up for it?

Well, yes, of course, we're absolutely prepared to accommodate their schedules as well as supporting them through their launches. As I mentioned in my prepared remarks, we expect some of that downtime, especially in the light-duty side, to begin impacting us here in September, which were prepared and is part of our thought process here from that standpoint. Then they'll go into some rolling launches in the future years. And we'll, of course, support them as needed. No issue.

A great product. And then my final last one is the $2 billion of business you're trying to win. Do you have a sense of how much of that is like EV business versus ICE business? And it may not even matter, but I'm just kind of curious of like the next generation of what you're looking at in that $2 billion, if you just a share that?

Yes, Doug, this is David. It's really small over the last 18 months from what was 85% electrification to is now 85% ICE and hybrid with a smaller level of electrification. So -- it's right in the core sweet spot of both the legacy AM and the legacy Dowlais product portfolio. At the same time, we still continue to see some electrification opportunities, especially outside of North America. But this is right in our core wheelhouse and we expect to convert.

That's great. Last final comment for me. Thanks for sticking to your guns on getting the balance sheet right, and then share in the weld equity when you're stable and despite paying down $400 million of debt, I mean, your stock is up 18% today. So both sides could win. I think a strong balance sheet is going to be really helpful in the future. So that's it for me.

Thanks for your comments. Appreciate it.

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

David, I just want to follow up on something you were talking about earlier with the -- I guess, the USMCA, if there's -- I know there's talk about this 50% U.S. contenting and the stuff you guys could do now with some of the Dowlais assets in the U.S. Just trying to understand the scale of this and maybe this would never happen, but like if the RAM heavy duty were to be onshore, let's say, is that something like at that scale, you could potentially support? I don't know, is there a risk that they would in-source let's say, there? I mean, what is the scale of the on-shoring you guys would do? And would this be something that the OEMs would just compensate you guys for?

Yes. I was going to say, right now, it would all be speculation on everyone's behalf. Clearly, there's a lot of dialogue about increase in the U.S. content from the level that it's at today to what they want it to be in the future. The Trump administration clearly has put a lot of pressure not only on the Detroit 3, but also on the global OEMs to do more here in the U.S. and you're seeing the sizable level of investment that's being committed here into the U.S. market. Like I said, that bodes well for us in regards to new and incremental business opportunities for us. But to your question about potential moving work, let's say, from Mexico to the U.S., that's going to be on a case-by-case basis with customers. We'll have to discuss that with them on a case-by-case basis. Highly unlikely that you'll move something like the RAM in my opinion, the level of investment that's been sunk and where things are at, it doesn't mean that they couldn't build a certain capacity in the U.S. that they wanted to. But they've got a sizable investment as such GM and as other OEMs in Mexico. And those OEMs are going to want to leverage that installed capacity as much as they can. I mean it's billions of dollars to pick up and move in an assembly plant. So we just have to take this, like I said, on a case-by-case basis, run business cases and then share the impact with the customers, and then they'll have to make a bigger decision as to what they want to do to address the bigger issue between the OEMs and the government and the expectations that way.

And thanks, and 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.

Thank you. That does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

All right. Welcome back, everyone. Very pleased to kick off this next session with Chris May, CFO although they left the r of the officer part, so apologies for that, Dauch Corp. So Chris, anything you want to make some opening -- thanks for joining us. I think you want to make some opening comments, and we'll get into Q&A.

Yes. Thank you, Joe, and good morning, everybody. I certainly like to thank UBS and yourself, Joe, for hosting this event. It's been a great day so far, having some great conversations and look forward to talking more about Dauch Corporation and our business over the next half hour or so. Look, to start the year, we obviously closed on our transaction with the acquisition of Dowlais in early February.

We posted our first quarter results early May. Very pleased with how we started the quarter, nice operational quarter for us, good margins, in line with where we thought we would be from a cash flow perspective. And then from a leverage perspective, we really started our journey with this combined entity at 2.7x. So a little better than we thought previously from a leverage perspective at the start of the year. But the base business continues to also operate quite well.

We continue to announce awards. We've been expanding relationships with Chery in China. We've secured some additional extensions of our core product in Brazil, which continues to align with the themes of extensions and next-generation product really to lock in and secure our business for many, many years to come. But also on the side-shaft side, which is a new driveline product for us with the acquisition of Dowlais, we continue to win new business there, won over six new awards with various customers, which is playing out right to the theme we thought with that key product.

But as it relates to Dowlais, I know we'll probably have some questions there, but the integration off to a very good start. We provided some updates at our first quarter earnings call from a synergy perspective. We saw a positive flow-through in the quarter of $5 million, positive EBITDA performance. But maybe more importantly, from a run rate perspective, we provided insight to where we stood at our earnings call about a $35 million per year run rate at that point in time.

And as you know, our goals as we go forward is, by the end of year 1 to be at $100 million run rate by the end of year 2, about $180 million a year run rate. And then at the end of year 3, the full achievement of our $300 million of synergies. So we think we're in a really good spot as we sit here today. excited about what has to come and excited for the first quarter and excited here for the rest of the year.

So with that, I'll also remind everybody to take a look at all our forward-looking disclosures on our website before I turn it over to you, Joe, on the audience for any Q&A you may have.

Yes. Perfect. Thanks, Chris, for that. I guess just to start, we've prepared a lot of questions, but we saw some news, I guess, late Sunday and Monday about the actions of Three Rivers and like this is something that we've been monitoring, and I think we sort of talked about and the rhetoric from at least coming from the union and seemed pretty difficult and obviously, authorized the strike vote a couple of weeks ago, if not longer. So this is always a possibility. And I know it's a very sort of sensitive situation, but maybe you could just let us know like what you can say about the situation, where do we stand? And how should investors think about it?

Yes. Currently, our workforce at our Three Rivers facility is out on a work stoppage, but it's a very active negotiation at this point in time. So there's not a lot I can say. And of course, our goal, along with their goal is to reach a mutually beneficial agreement that both parties can be successful on a go-forward basis. But at this point in time, negotiations are very active. Not a lot we can say, in terms of, I would say, current status other than their ongoing at this point.

Can you give us a sense of -- I mean you know what products are made there, but can you give a sense of sort of output per week or anything else from -- that comes out of Three Rivers.

Just from a dimensionalize, our Three Rivers facility is our largest U.S. driveline facility. From a unionized workforce, it's about 1,000 people approximately. Our revenues there per week are around $20 million to $25 million per week of revenues and we supply the GM heavy-duty truck as well as their midsized truck and, to some degree, their full-size van out of that facility.

And you mentioned it's the largest facility, but you obviously have some other facilities as well. Is there any potential to sort of compensate and produce a little bit more at some of the other facilities if this remains down for an extended period of time.

Yes. At this point in time, that would be limited based on the product that it supplies into GM for their heavy-duty trucks.

Okay. And then maybe you could just remind us, like I think we're somewhat familiar with your footprint, your U.S. open from legacy American Axle, but you obviously took on a bunch of new plants from the Dowlais side as well. So I know plants and labor negotiations and union contracts are on a plan-by-plan basis. But what is sort of the time line or cadence look like for negotiations with some of those other facilities beyond Three Rivers?

Yes. We have a mix inside the U.S. from a unionized and nonunionized workforce. And as you mentioned, all of our agreements from a union plant perspective are sort of stand-alone plant contracts. And we have contracts that expire, I would say, almost every year at some point. facility of plants. And we've obviously been very successful working collaboratively with our partners there to reach agreements on those in the past, and we would expect to continue to do so in the future.

And you mentioned unionized and nonunionized, can you just give us a sense of the plants you inherited from Dowlais, what the mix looks like there?

Yes. Most of those are nonunionized.

Nonunionized. Okay. Okay. All right. Moving on to -- with that of the way, and I appreciate the commentary color there. I understand the importance of the question. I'm sure it's something you want to get behind you guys as well. aside, I guess, from the sort of work stoppage and we'll sort of see how things sort of play out there. Since you provided your outlook, we've seen some changes from some of the third-party forecasters look, those -- that's not the -- it's necessarily sort of ground truth there making estimates just like everyone else.

But I was curious to sort of see from your perspective and your customers, which again is a little bit different maybe than sort of broader industry, how you're sort of seeing production play out? Because I think you typically do have sort of at least that sort of a couple of months sort of visibility there. So what you're expecting or what you're seeing right now, maybe even into a little bit in the third quarter. And there's obviously some sort of concerns raised by S&P, I guess, in sort of production in the back half, it seems are sort of more macro caution than anything from my perspective, but I'd be curious to sort of see here what you're seeing and what the message is from your customers?

Sure. Yes. And most recently, S&P's updates, they had some, I would call, slight adjustments in the regions, in particular, Europe and North America that we supply into. But in terms of what we have been seeing at this point in time from a second quarter perspective, I would say, generally, volumes have been decent. They've been running pretty strong in many cases for some of our products.

As you know, we take a view on the GM full-size truck franchise. When we provide our guidance, we said 1.3 million to 1.4 million units. We don't see at this point in time, any reason to be making any adjustments associated with that. That truck continues to be in very strong demand, that product as well as some other products that we supply into the marketplace. But I think to your comments on maybe some of the macro as we think about the back half, obviously, we're watching this closely as S&P and yourself and as well as our investors, and we'll see how that plays out.

But if you look at May sales, it just came out, I think, yesterday. They were pretty decent, which, of course, will continue to -- if you have decent sales that will continue to support some level of decent production would be our thought process. But in the near term, right now, our schedules are okay. longer, deeper in the year, we'll have to see how that plays out. But right now, we're in a good spot.

I guess just going back to the production schedules, especially sort of think about second quarter and maybe even sort of tying it back to some of your comments about the strike. I mean, again, just sort of reporting what -- the Wall Street Journal said, I'm not sure where sort of grants really rise, but they said they sort of seemed to hint that GM had been sort of stockpiling maybe two weeks of inventory. So that would suggest maybe $40 million to $50 million based on your numbers. Do you think that's a fair assessment that maybe the first quarter came in a little bit better because there was sort of a little bit of cushion built just in case something happened.

Well, keep in mind that truck, in particular, on the heavy duty was down most of January. So they've been building strong to meet demand for that truck in terms of inventories that they may or may not have had we can't speak to that. There's always some level of inventory in the system, but there's clearly strong demand for that vehicle I would expect that to continue moving the work outage aside, our expectation is they'll continue to be robust demand for that platform.

Okay. I guess just turning to your outlook for the year then and assuming production is sort of more or less in line with what you were expecting when you last updated us, you had the pro forma Dowlais sales, I think we're plus 5% up in the first quarter. seems like the implied guide is that sales are down for sort of the full year. So maybe you could just help us understand some of the factors that sort of driving that decline in the back half?

Yes, certainly. In the first quarter, and I think you're referring to our year-over-year, so you did have a little bit of a dynamic on the Dowlais side as it relates to FX and the euro that was a little bit weaker first quarter last year, much stronger here first quarter in 2026 and then really it strengthened in the second quarter last year. So some of that year-over-year dynamic will sort of minimize. You have normal seasonality, of course, that plays out through the course of the year, and they had, quite frankly, a good first quarter from a sales perspective, which has a lot of production days in the first quarter.

But also some of the commercial arrangements that they were beneficiary of were really back half of the year, meaning back half of 25 weighted. So on a year-over-year basis, you'll see some differences associated with that. And we called out some of those in our pro forma amount upwards of $100 million in the back half of last year. So those pieces really sort of drive some of the nuances or dynamics that you're talking about. But other than that, they would fall within the production ranges of our macro guidance.

Right. And despite that, and I think you did lower technically the -- some of the industry volume assumptions. But you raised the high end of the guide on both sales and EBITDA. So maybe you can just sort of talk about some of the comfort level behind that? And is it -- is where you sort of fall in the range really just like a volume-dependent factor at this point? Or are there some stuff more under your control that you think can influence where you come in.

Yes, from a May guide to our initial guide for the year from volume, obviously, we remain firm on our view of the truck side from a volume. North America, we remained relatively straightforward, and it was down a little bit from the European marketplace. But as we think about the full year, maybe I think the spirit of your question is a little bit of what are some of the puts and takes, if you will, as we think about it.

Clearly, volume, and we talked about that a few minutes ago. We have to see how the back half plays out at this point in time. But also, we talked a little bit about the impact of the macro on our business from, I'll call it, inflation or cost increases associated with some of the increase in fuel oil, fuel surcharges, things of that nature. And we mentioned potential $5 million to $10 million inside the second quarter. If that continues deeper into the year, those type of costs.

Obviously, we've got to look to mitigate them and offset them. But in the very short term, you're going to incur some of those costs. So those -- that would be another sort of I'll call it a swing factor a little bit in terms of inside of the range of our guidance. Those are a couple of the macro pieces I would think about. Clearly, volume and a little bit of inflation pressure.

One of the things you mentioned on the call was seeing some maybe better economics on some of the new programs coming on. I was wondering if you could sort of talk a little bit about that and what's sort of driving those economics? Is it really just sort of a repricing of new contracts for the realities of the current labor environment versus other contracts that were sort of stuck with old lab requirements? Or is there something else involved?

No, I think broadly speaking, that commentary was associated with, in particular, like product extensions where we have seen where we can then leverage and install capacity base that would minimize investment to support maybe another 2-, 3-year run of product where you can see some better economics with that. whether it comes to pricing, whether it's new products or even extensions, we have certain hurdle rates that we look to maintain and we'll continue to drive towards the optimal output or outcome, if you will, of those financial hurdle rates. And it does vary by product by product to the extent where we have a nice position from either extensions or a good product set, we think that our customers value greatly. We'll work with them to get the best pricing we can.

How much of a headwind has pricing contracts, if you go back to, let's say, '2022, '23 that are sort of still in the business now that where labor was at a significantly different level than it is now. And so you can't really sort of -- it's tougher to sort of go back and sort of recover that or is now as you're sort of quoting business, you're able to sort of quote the business for like the new realities of the labor. Like it seems like as those new programs come off and some of those other ones roll off. It seems like there should be almost a natural margin.

Like a true-up of inflation, if you will. Look, if you -- to your point, we saw that real spike in inflation back in the '22, '23 time frame. And we did reach agreement with our customers to be compensated for some of that.

Labor too though.

Well, it will be a mix of broad inflationary, not labor specific, but utilities and things like that, we're very significant back in that time frame. So some of that started to become built in. But to the extent you can reprice for current economics on a go-forward basis, it's always beneficial.

Yes, right.

As you know, we secure our programs, especially on our big driveline programs for 6, 8 years depending on the program length and to the extent you have an opportunity to reset pricing on a go-forward basis when those contracts come up, it is helpful.

You mentioned $35 million synergy run rate in May. I think that's probably a little bit ahead of schedule for what you're thinking. Is that mostly been in -- when you originally gave the $300 million synergy target you gave a number of buckets, I think SG&A, procurement and manufacturing, like is it sort of mostly been the SG&A part thus far? And sort of how should we think about the phasing of the buckets of the synergies, where they come in? Like what's the low-hanging fruit? What's going to be tougher to get.

Yes. No, great question. As we think about the three buckets you got them spot on, it was SG&A was about 30% of our $300 million, half was purchasing. And there's a little bit of sub buckets we'll talk about that sit inside of each of these and then operations was the 20% of the last piece. So if you think coming right out of the chute, obviously, I'll call it, you refer to the low-hanging fruit, some duplicate public company costs, some SG&A.

Obviously, these are the ones we can get at very quickly, attack them right out of the chute, which is what we did, and we were pleased with that performance. We've started to see a little bit of purchasing start to receive some benefits inside of that $35 million as well, but that's also one that will play out over the next many months, and especially into early next year because a lot of contracts would reset, for example, on Jan 1 versus midyear breaking contracts with suppliers, et cetera, to gain some favorability. But yes, so I guess, maybe initially, out of the chute heavy SG&A public company costs, but as I think about phasing, we'll continue down additional SG&A opportunities that are in front of us that will also include things such as engineering costs duplicate offices, which we're starting to close and rationalize. So those are key for our success.

And then heavy in the purchasing realm and purchasing comes in really three areas for us, true out negotiation -- out negotiating with the supply base for economies of scale, you bring a bigger buy. Obviously, they're interested in that work. You can achieve savings that way. But also vertical integration, which was a key piece of our thesis for this acquisition from twofold.

Number one, we and our smaller powder metal business than legacy American Axle, we bought powder from Dowlais as well as others. We can in-source now more to ourselves. At the same time, as the largest steel forger in the world, meaning legacy American Axle, legacy Dowlais bought a lot of steel forgings many, not from us. So planning that piece of vertical integration strength and then obviously, margin capture to us accretes for those synergies. So that's a key piece of the purchasing piece and then ....

Help to mention, like how much powder by metal did old axle buy?

Yes. I mean the business itself, I mean, it was a couple of hundred million dollar top line business for us, of which this would be a portion, obviously, from a call it, half or less in terms of your cost of sales. So we bought some from them and some from, I'll call other competitors. So -- and then, of course, the benefit of the company is the margin capture on those -- and same with the forging side as it relates to the Dowlais business.

And then logistics. So we have a significantly expanded scope of logistics, so negotiating with carriers and things like that to get optimal buys. That's another key piece of the purchasing. And those are all underway. They take a little time to negotiate. Then the third piece is the operational side, which we estimate around 20% of the $300 million. And that really comes in twofold. It's true, I will call operational efficiency improvements and you obtain that through identifying and taking two good operating systems, merging them together, taking the best of the best and then spreading that across your fleet of plants.

So we're deep in that process now, assessing both operating systems, going through locations, determining what's the best of the best. And obviously, then you have to sort of recalibrate and reroll out that to the different facilities where then you'll gain true operational improvement, better quality, lower scrap operational or OEE improvements in your factories that will drive real dollars. And then the last piece of that is footprint rationalization, some opportunities there. That will be the longest tail of the of these savings.

I mean building off that, I remember when you announced the deal and you're sort of still in sort of the unofficial phase, but you were sort of talking about the deal and an official meeting it hadn't closed, right? And you were sort of talking about the synergies. One of the things you had mentioned was that you weren't able to because you didn't own it necessarily really get into some of the facilities and really sort of evaluate and you thought that as you were able to do that, maybe you maybe had to sort of make some haircut it or conservative assumptions in terms of what you could do in the plant.

Now that you've owned it, I'm curious like where you are in the process of sort of going through that analysis. And are you finding that your assumptions were reasonable? Or is it possible that there might even be more opportunity as you sort of move through these plants for savings?

Yes. As it relates to the process, we're very active conducting operating reviews at all our locations. Our operating teams have been working very well together on both sides and bringing together what they're starting to view as the again, the best of the best in terms of an operating system and starting to lay the planting to roll that type of activity out across the facilities. And I would say our excitement in this area continues to be very high. This is a core strength of legacy American Axle.

In terms of our operating system, they have some great elements inside of their operating system, which will benefit the fleet of legacy American Axle plants, but very active, very -- still continue to be very excited about this area of opportunity for us at this point in time. But again, this takes a little bit of time to assess, plan it out, roll it out, train and then start to see those benefits come in. But I would say very active and very excited about this area.

What about -- historically, you've sort of given a new business award, some commentary I'm curious here on two fronts. One, like what can you sort of say about the backlog or book of business you've inherited from Dowlais, what does that look like? And two, are we sort of seeing any additional sort of potential synergies from being able to sort of come out with a more complete broader sort of portfolio for your customers. That might take a little bit of time. But obviously, you're starting to have these discussions with your customers. So how -- what can you say that?

Sure. And maybe I'll start in reverse. So in terms of the customer element, this is again, one of the I would say, elements when we looked at this transaction, super excited about it. As you know, we're very much historically very much overweight to GM, a little bit less or so to Stellantis and Ford, but principally, the big three made up 75%, 80% of our company's revenues. And when we looked at the Dowlais book of business, very diverse, many great global customers, Toyota, Volkswagen several in China through their joint venture as well as many others. And we have begun I would say, the outreach, if you will, to having dialogue with these customers.

We're looking to set up technical days to share with them not only what they haven't historically familiar with on the Dowlais side, but now some of the product that we can provide to them as part of the legacy American Axle side of the business. And this is a process. It's like planting a seat and watering and it will grow and the to expand those relationships and then awards will start to come will be the thought process from there. We've built none of this into our planning or our synergy numbers, but certainly really excited to get into some marquee names and expand those relationships going forward. We see this as a real opportunity for us. But again, those are a little bit longer term to play out.

I know we've got a long time between now and next January or February. But if we are able to sort of fast forward and we're sitting in early '27, you're giving your '27 outlook, should we expect that a new business update is something you'll look to sort of engage with and provide commentary to the Street.

We've not provided the last couple of years really principally due to the dollar acquisition. But certainly, we've heard this request, and we're taking a look at some things we can disclose on a go-forward basis.

Okay. And is there still a plan to sort of have some sort of event that sort of goes over the strategy for the combined entity?

Like a Capital Markets day?

Yes.

Yes, we are currently assessing and planning one of that hopefully near the -- before the end of the year. Your thought process.

So that could also be maybe a good opportunity to talk about the combined opportunity. You mentioned the leverage from the deal and sort of the start you're talking about it. I think you have a plan to sort of reduce that leverage over time, clearly. Maybe just sort of go over how you sort of see the timeline playing out to get to get to targeted levels. And then what -- historically, I think you've sort of maybe target, I think, I recall is 2 to 2.5x on a sort of a stand-alone American Axle 2x, right? Is that still sort of the right sort of level you're sort of targeting? Or have your has your thinking on sort of leverage change here going forward?

Yes. I would say our thinking on leverage has changed a little bit early with the acquisition of Dowlais and I mean by -- what I mean by that is sort of previously, you heard us in prior years talk about, look, we want to get to 2x or below before we start to think about other capital allocation alternatives. With the acquisition of Dowlais, with the bigger balance sheet, with the robustness and our view on the opportunity that sits before us on our synergy potential what we think now, as I mentioned, we started the year at 2.7x a little better than I thought in terms of where we would be.

As the year plays out, look, we'll have cash flow generation, but we had to fund. Obviously, the acquisition closes and the synergy implication costs. So we'll be probably still in the same ZIP code of that leverage through the course of '26 and then you'll start to see some real traction here in '27. But back on the leverage point, we articulated through our acquisition that once we get to 2.5x levered, we intend to open up that capital allocation playbook. So a little higher leverage than you heard us talk about historically because of the size and strength of our balance sheet and a little bit more robustness from our business model.

So first key, I would say, marker, if you will, from a leverage perspective as we get to 2.5x, open up the allocation playbook, i.e. shareholder-friendly type activity. I would expect we're still focused on reducing and strengthening the balance sheet after the 2.5x. We would love to be in a position to get 2x or below more of a medium-term target, if you will, on a go-forward basis. But with a little more balance in our capital allocation.

Is that mainly through higher EBITDA levels? Or are you also thinking about sort of gross debt reduction?

Both. Both. The cash flow will support debt paydown or gross debt reduction and then EBITDA growth really on the back of the synergies.

Okay. I guess within that and within sort of like the free cash potential of the company, like I know we've done the math, and we've had many conversations between us and this about how if you look through, you could be looking $450 million, maybe sort of $500 million of more sort of normalized free cash flow once we get through all this noise, I think one of the points that investors always sort of point to and quite frankly, give a little bit of pushback is restructuring, which I know is higher this year. And I think you think a more normalized level is below this.

But then there's concern out there that you are more European-centric now than you were before and then maybe that requires a certain elevated level of restructuring in Europe may be higher than you're assuming. So maybe -- I know it's a long-winded sort of intro here, but maybe you could sort of talk a little bit about your level of comfort with the European footprint, the size of it. What actions are sort of currently planned and sort of how you monitor as to sort of whether there will be more action needed. Because that is one of the levers there, right, towards getting to that.

Clearly, in the current year, you can see the spend is relatively elevated. Look, if you think historically, legacy Dowlais has a bigger European footprint in legacy American Axle, and they have been spending a significant amount of restructuring dollars to really optimize that footprint, move out of high-cost countries into lower-cost countries to really put us again, this -- as we went through some of our diligence to set us on a better footing going forward, and we thought we would be able to capture that upside in future years because that spending has been done. We still believe that to be true.

My point here is A lot of that restructuring has been done, and it's getting concluded generally speaking here this year. I would expect our overall restructuring to step down meaningfully in '27, maybe by half or so. And then from a legacy American Axle side, we've made some, I would say, minor -- relatively minor in comparison to maybe some of the legacy Dowlais adjustments inside of our European footprint. We did close the facility into last year. That's part of the restructuring cash here this year. again, all holistically as part of I expect to step down into '27.

But big picture, I would expect some level of restructuring as part of the normal course of our business. I mean driving productivity, creates opportunities to restructure to continue to optimize, to continue to be cost competitive. But our goal is not to have elevated levels of restructuring forever, right? Our goal is to reduce that to the extent we can and still maintain a good operating footprint that's competitive with the marketplace that we're in. But our goal is to reduce that amount significantly.

Two more big topics I want to sort of touch on. One is, I think if we look out over the past probably a month or so really, there's been a lot more focus on what is an automotive supplier with the key competency, right? And I think one way you could sort of view this is, right, you've got deep knowledge about certain products and how to manage those supply chains, how to industrialize, how to manufacture the sort of high quality. And some of those skills might be needed in additional end markets.

Now I think as we've seen sort of a lot of non-auto interest in some of the other names. Now I think people will think of Dauch and sort of say, well, you don't just high-level glance, you don't sort of really fit this bill. But I mean, I guess as you sort of look at your portfolio and even more importantly, not your portfolio, but your core competencies do you see opportunities to sort of diversify the business into other end markets?

Yes. I mean the core competencies of our company play very well to many different industries. And I mean, you have the basics, right, of engineering manufacturing assembly, machining, things of these forging, these are all core competencies that apply to many different industries. But even taking a step back of some of the core competencies of our operating system, quality management program management, global capabilities. These things are just above just the core of the machining and the factory floor, right, that can allow us to replicate and support other type of industry opportunities.

We do supply in a much lesser degree. Other elements inside of our business, like on the industrial side, for example, our powdered metal business, about 20% of that revenue is two of the industrial side of the business anywhere from washing machine components to mixers and things like that, that you might find in your kitchen. They have a very unique use to it, a different customer base. But obviously, our products and capabilities to support that industry sits inside of our metal business today or metal forming operation. So -- but the core competencies of the company applied to many different industries, aerospace, industrial, things of that type of nature.

And like internally, maybe you could just sort of shed some light on like how you Think about this as a management team? Do you have sort of like a incubation type of process where you say, hey, like we're very good at doing x company y needs this thing, let's sort of show them our capabilities. And so I mean, maybe you could just sort of shed a little bit of light of how that process sort of works in terms of seeking out and scoping those new opportunities.

We think about exactly that. It starts with what are our core competencies that we do today, where what are adjacencies to our business meaning outside of the auto business or even other elements inside of auto. But outside of auto, I think it's a little bit of a spirit of your question here. And where can those competencies and product sets and knowledge apply to. And we do various evaluations. We have discussions and debates internally inside the company on where we can maybe expand some of those skill sets into other areas of the business.

Obviously, right now in the current state, we're very focused on integrating the Dowlais acquisition. But I think this is clearly an area that we'll gain more and more attention inside our company going forward.

Yes. And I guess like just like putting a bunch of different sort of scattered pieces together here, right? Like you have increased your U.S. footprint with Dowlais, like maybe there's a chance for some plant consolidation. I think you alluded to that earlier, which then gives you a decision on what to do with that plant. But then if we think about other big picture thematics where there's like this onshoring theme, like is there -- does that open up an opportunity for you to fill some of that capacity that might free up with some of these other additional opportunities. So how do you think about that?

Yes, absolutely. And we're actually -- and we're seeing, of course, that's in our auto business today, but we're absolutely seeing a lot of activity last year and discussion points after a lot of the tariff activity of potential onshoring, in particular, leveraging our metal forming business. What we're starting to see now this year in calendar year '26 is PO and awards or that type of business as people are looking to onshore maybe some of these type of components that over the last decade or two, they have pushed to global sourcing strategy. So they can clearly see now the benefits both economically as well as logistics side of our North America footprint, and we're set up very well to do that.

A good segue into sort of the last big picture question topic I wanted to sort of touch on here, which is USMCA and the renegotiations and know late last week, we saw some news that the government might be pushing for 50% U.S. content. Maybe you could sort of just remind us sort of how -- well, again, we don't know where things are going to land to be clear. But like how you sort of -- I think there's been an effort underway by you and other suppliers are ready to sort of try to source more and get U.S. content higher because I think it was -- even if we didn't know the 50%, I think it was quite clear that there was going to be some sort of U.S. requirements coming. So where do you stand? What efforts are underway? And how far do you think you could sort of push this?

Yes. I mean, look, USMCA, as you know, is extremely critical to the auto industry. And we have maybe a few more months before this is finalized, and we'll see where it goes. I'm sure it will be an interesting journey between here and the end negotiation. And obviously, we're watching it very closely. But our core company philosophy always has been to sort of build and buy in the region that we produce and support our customers. And that, first and foremost, I think, has served us well from some of this either tariff activity or some of the risks associated with trade or changes in trade arrangements.

But that said, recognizing the push holistically from the current administration to bring more onshore into the United States. I think it's also a very nice setup for our footprint in the U.S. We clearly, as -- as a lot of this activity changed the course of last year really allowed us to think about the Dowlais acquisition, expanding a little bit of more capabilities, both from a driveline and metal forming side inside of the United States with additional facilities.

So I think that positions us really well to navigate what changes may come as part of USMCA. But that said, we've been focused on making sure and evaluating U.S. sources for our own supply. For example, almost all of our steel that we buy it goes into our primary driveline products is U.S. sourced steel even steel we send down to Mexico in our Mexico facility is all U.S. Steel and it comes back as U.S. content and steel.

So we've been very conscious of this, understanding sort of a little bit where this is positioned, but I think as a company, both from our manufacturing footprint as well as our sourcing strategies has us set up really well to navigate what's coming at us and also benefit from it as people look to bring in more product into the U.S.

What are the pain points for you right now in terms of sort of U.S. content? I'm assuming there are some there some elements you just sort of can't get from the U.S. right now.

Things of -- we don't have a lot of it, to be frank, but things like in the electronics space, a lot of that comes out of the Asia market. Most suppliers have brought in from China or others in that region that's probably the #1 piece. But in terms of some of the core stuff that we do, a lot of that's all within either our control of the source or build internally inside the U.S.

Okay. Maybe just here in the final minutes, I want to close on electrification. So I vividly remember being at a conference with you in like 2018, and we had speakers there about sort of electric legal penetration and you're like, it's coming, but it's definitely not going to happen that fast. And look, I think you were probably more right than wrong on that view.

But I think even you and David and the team sort of acknowledge that there is sort of a longer-term shift where eventually at least certain vehicles will sort of move more to electrification. I think you've gained a little bit more sort of capabilities in there with Dowlais. But it hasn't sort of, I think, really gotten a lot of focus. So I know I'm not giving you a lot of time with two minutes left. But maybe you could sort of talk a little bit about some of the competencies you've gained from Dowlais, what they do, I think, specifically in China, I believe, is where they're stronger and is some of that leverageable to customers in other regions.

Yes. No, absolutely. So I mean, first of all, our view on electrification is it's a very good technology. It's here, and it's growing. It's just growing at different paces in different markets. Our home primary home market of North America, obviously, with the recent last couple of years has slowed down dramatically. In particular, as it relates to our truck segment. Again, our view on that really hasn't changed. We believe that will be the last segment to electrify maybe decades and who knows. Europe continues to grow. And China, as you know, has grown significantly in that space and has been very well adopted by end consumers in that market.

So we're very well aware of the different regional elements that drive volumes for electrification, and we want to make sure we're in a position to support that. So how have we done that? We historically on the legacy American Axle have made investments into our driveline systems to support that, both from drive units. And as you know, we're in Mercedes and or Jaguar and others and also into our e-beam axles, which has seen a lot of traction in the China marketplace actually as it relates to electrification. Legacy Dowlais has done very similar in terms of their investments historically into electric drive units. They're in several platforms -- but combined now, we have a very nice bookshelf technology, if you will, that are in either active products or can be easily quoted in passenger cars, crossover vehicles or truck segments that require beam axles.

So I think we're in a really good spot from that standpoint. From a component standpoint, obviously, these are things that we make very similar in ICE hybrid and electrification, very similar. So both companies combined have these skill sets, and we are in these type of products today. But even as we thought about the Dowlais acquisition, one of the key, I think, features of that product was the side-shaft business. As you know, they are the global leader in side-shaft, 40% market share.

Now we -- our 40% market share, it's completely agnostic. You need a side-shaft on a ICE vehicle. You need a side-shaft in a hybrid vehicle and you need a side-shaft -- actually you need more of them on average in an electric vehicle. So as we thought about our product portfolio, we thought about from drive units, good thought from electrification and the investments that we've made combined. Now we're in a good spot, components as well as side-shafts.

Hopefully, I didn't rush you, had 2 minutes here. I tried to move it quick -- but the China marketplace is growing for us, and we are leveraging that joint venture, which is about roughly about $1.5 billion of sales, has done a really nice job inside China, and this will obviously allow us to advance in the electrification space as well.

Great way to close. Chris, thanks again for the conversation. Really enjoyed it.

Thanks, Joe. Appreciate it. Thank you.

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

Thanks, Rocco. Thank you, and good morning, everyone. I'd like to welcome everyone who is joining us on Dauch Corporation's first quarter earnings call. Now earlier this morning, we released our first 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 May 15. 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.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss Dow's financial results for the first quarter of 2026. Joining me on the call today is Chris May, Executive Vice President and Chief Financial Officer. This quarter marks the first time our results include the Dowlais acquisition. And I'm very pleased with the performance as we begin to capture integration synergies and leverage our combined operational strengths.

The acquisition has met our expectations with the product portfolio with customers and very importantly, the strong personnel that came with the acquisition. The transaction brings together 2 great companies with size, scale and compelling industrial logic positioning us for long-term success. In addition, we have had constructive discussions with our major customers about the acquisition and feedback continues to be very positive as they appreciate our focus on quality, technology leadership, operational excellence, launch readiness as well as continuity of supply.

We are excited about the strong value and long-term strategic benefits of this transformational transaction. As for today's agenda, I'll review the highlights of our first quarter financial performance. Next, I'll touch on some business updates commentary on the industry and our synergy progress as well as an update on our guidance. I'll then turn the call over to Chris to cover the details of our financial results, after which we will open up the call for any questions that you all may have.

So let's begin with some of the details. The company's first quarter 2026 sales were $2.4 billion and adjusted earnings per share was $0.34. And adjusted free cash flow was a use of $41 million. First quarter North American production was down approximately 2%. Europe was down approximately 1% and global production was down approximately 3%. However, our legacy sales were flat on the quarter, but on a pro forma combined sales, we were up slightly. Specifically, we experienced a mix effect on GM's heavy-duty large truck production which was down early in the quarter as they prepare for the next model year launch.

Whereas GM's light-duty trucks were strong. In general, days supply of inventory with GM large trucks appear to be at their expected levels and SUVs appeared to be on the lighter side. The Ram heavy duty continues to enjoy a year-over-year favorable comparisons, which is positive. In addition, we saw a nice strength in both BMW and Volkswagen CUV platforms here in North America. From a profitability perspective, our adjusted EBITDA in the first quarter was $309 million or 13% of sales. Our results were supported by a favorable mix on a number of key platforms, and a solid Dowlais contribution.

As always, our continued focus on operational efficiency contributed to our margin performance during the quarter. So 2026 is off to a good start. Chris will provide more details about our overall financial performance during his prepared remarks. Let me now talk about some business updates, which you can see on Slide 4 of our presentation deck. In the quarter, the company received approximately $21 million in net proceeds from the completion of a sale of the Dowlais cylinder line of business. We will continue to assess and optimize our current product portfolio to align with our core business and enhance our growth prospects and our long-term profitability.

We also want to highlight our recent award from Cherry/Jetour to supply PTUs and RDMs at a derivative model that we already support. The start of production is scheduled for later this year and will run beyond the 2030 time frame. We continue to see positive momentum on this platform as the SUV product is resonating very well with Chinese consumers. In addition, we have been awarded a business extension for a major truck platform in Brazil with a lifetime revenue of over $750 million, which is scheduled to launch later this decade.

Additionally, we received contract extension awards with multiple customers. And as OEMs evaluate their respective long-range product plans, business extensions have become a theme in the industry. We also earned numerous side-shaft business wins, including replacement and new business with 6 different global OEMs. Furthermore, our metal forming business unit continues to realize wins across multiple product families from our forging to our powder metallurgy in part due to benefits from both onshoring and reshoring efforts to the U.S. Our strategy to become a leading global driveline and metal forming supplier is unfolding as expected.

Next, on Slide 5, I'd like to provide an update on our acquisition synergies and value capture. After approximately 3 months into operating as a combined company, we have already realized $35 million of run rate savings to date, representing excellent progress. We are benefiting from the prework that was completed before the deal closed. Out of the gate, we mainly attacked overlapping corporate, SG&A and some procurement costs. While there is much work ahead of us, we have a strong team in place and are encouraged by our momentum and the progress to date to achieve our year-end target run rate savings of greater than $100 million.

And as we have previously communicated, we expect to deliver $180 million in run rate savings by the end of year 2 and a full $300 million of run rate savings by the end of year 3. Now let's talk about the industry. Currently, global geopolitical risk remain an overhang of our industry, especially the Iran conflict, which is driving elevated oil, energy and gas prices. However, in the first quarter, we did not see a significant impact on our operations or customer schedules. That stated, over the long term, elevated fuel prices could impact us to higher energy, logistics and transportation expenses as well as certain petroleum-based input costs such as lubricants.

Clearly, we are closely monitoring these developments and will look to mitigate any impact over time. In the near term, our customer schedules remain stable and consumers appear to be resilient. As always, we will remain focused on the matters that we can control, and we'll proactively make necessary adjustments to market fluctuations. Now let's talk about our full year guidance. We have revised our outlook by raising our sales and adjusted EBITDA, reflecting a combination of factors, including our strong first quarter performance while balancing the macro risk that I just mentioned. The company is now targeting sales of $10.3 billion to $10.8 billion, adjusted EBITDA range of approximately $1.3 billion to $1.425 billion, and adjusted free cash flow of approximately $235 million to $325 million. Our guidance ranges are underpinned by the following production assumptions.

North America production at 15 million units, Europe at approximately 16.7 million units, China at 32.3 million units and overall global production at 91.4 million units. As you know, we use multiple data sources to drive our outlook, including forecast for certain programs that are significant to our performance. We also note GM is transitioning to its next-generation full-size truck program and appears to be bullish on overall volumes as demonstrated by the planned opening of their Lake Orion assembly plant. In summary, we had a good first quarter. The integration of Dowlais is off to a strong start. Our synergy achievement is on track. We raised our guidance, although we are monitoring geopolitical and macro trends, and we're excited about our future, and we are built to perform.

Now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the first quarter financial details. Chris?

Thank you, David, and good morning, everyone. I will cover the financial details of our first 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. But before I begin the financial discussion, I wanted to provide a few housekeeping items for you all. We've included several reference items in the appendix of our earnings deck. First, we included the full year 2025 and LTM first quarter 2026 pro forma financial metrics for our newly combined company. We have also provided some supplemental walks and data points related to that information.

Also, we have updated our definition of adjusted EBITDA and adjusted earnings per share to better reflect our new company's operating performance and geographically diverse business. These changes were also based on feedback from various stakeholders. The definitions include updates to adjust for the amortization of acquisition-related intangible assets; certain financial instruments assumed from Dowlais as part of the acquisition and onetime purchase accounting items, all of which are noncash and nonoperational in nature. In the appendix, we provided a comparison to our prior disclosures for comparability purposes. As it relates to adjusted EBITDA, there is almost no change to prior amounts. None of these updates have an impact on our guidance or previous planning for our Dowlais acquisition.

So with that said, let's begin. In the first quarter of 2026, our sales were $2.38 billion compared to $1.41 billion in the first quarter of 2025. Slide 7 shows a walk of first quarter 2025 sales to first quarter 2026 sales. For Legacy Dauch, volume mix and other was lower by $9 million or relatively flat. While our primary North American market had overall lower volumes of 2%, our full-size truck products were higher and offset most declines in other vehicle types.

The divestiture of our India commercial vehicle axle business had a $35 million impact in the quarter and metal market pass-throughs and FX increased sales by approximately $44 million. About 2/3 of this related to FX and was primarily driven by the strengthening euro. Dowlais contributed $983 million in gross sales for the first quarter, and that figure reflects only February and March activity as we closed the transaction on February 3. On a year-over-year basis, the Dowlais portion of our business experienced the same trends as it relates to sales. The details are noted on our slide.

Now let's move on to adjusted EBITDA. For the first quarter of 2026, adjusted EBITDA was $308.5 million, and adjusted EBITDA margin was 13% versus $177.7 million and 12.6% last year. You can see the year-over-year walk down of adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA for legacy Dauch was higher due to favorable mix on volume, continued performance and net favorable metal markets and FX. We continue to be excited by our positive performance trends that we've experienced in our business over the last several quarters.

Dowlais contributed approximately $122 million in the adjusted EBITDA for the quarter. Similar to sales on a year-over-year basis, the Dowlais portion of our business experienced the same trends as it relates to adjusted EBITDA, and those details are also noted on our slide. In the first quarter, we realized $5 million in synergy benefits as David highlighted, we achieved a $35 million run rate as of today, and we expect this to continue to grow. We have a nice market basket of potential savings that we continue to drive to completion and have a visible path to the targeted $100 million plus of run rate synergy savings by year-end. Most importantly, our synergy realization journey has only just begun. Let's move on to interest and taxes.

Net interest expense was $77.5 million in the first quarter of 2026 compared to $37.3 million in the first quarter of 2025. The increase in interest expense year-over-year primarily reflects the issuance of new and assumed debt in connection with the combination. The weighted average interest rate of our outstanding long-term debt was approximately 7% at the end of the quarter. We have now replaced all of Dowlais' acquired debt with the exception of $349 million of the U.S. private placement notes. These remaining notes have a good maturity profile with the furthest maturity in 2036 and fit into our overall capital structure quite nicely. With these notes remaining in place, we have begun to redeem and extinguish a portion of our 2028 senior notes in the second quarter.

This action will provide additional runway with minimal debt maturities now through 2029. As for taxes, in the first quarter of 2026, we recorded an income tax benefit of $20 million compared to an expense of $14 million in the first quarter of 2025. This includes a benefit for a valuation allowance release of approximately $20 million in a non-U.S. jurisdiction. Due to all the acquisition-related activity this year, our taxes and impacts are quite involved in 2026. However, once you remove all that activity, we expect our adjusted effective tax rate to be approximately 35%. This is somewhat elevated rate in '26 is due to valuation allowances and partial interest deduction limitations in the U.S.

As for cash taxes, we expect approximately $160 million to $170 million this year. Taking all these sales and cost drivers into account, our GAAP net loss was $100 million or a loss of $0.52 per share in the first quarter of 2026 compared to a net income of $7.1 million or $0.06 per share in the first quarter of 2025. Earnings per share, which excludes the impact of items noted in our earnings press release, was $0.34 per share in the first quarter '26 compared to earnings per share of $0.22 in the first quarter of 2025. Let's now move on to cash flow and the balance sheet.

Net cash used in operating activities for the first quarter of 2026 was $64.4 million compared to net cash provided by operating activities of $55.9 million in the first quarter of 2025 driven by working capital timing and cash payments for restructuring and acquisitions. Capital expenditures, net of the proceeds from the sale of property, plant and equipment for the first quarter of 2026 were $102.7 million. Reflecting the impact of these activities, our adjusted free cash flow was a seasonal use of $40.8 million in the first quarter of 2026 as compared to a use of $3.9 million in the first quarter of 2025.

From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and a net leverage ratio of 2.7x at March 31, 2026. In the near term, we continue to focus on reducing our outstanding debt and strengthening our balance sheet. But as you will recall, as sustained 2.5x or below net leverage mark, we will consider additional capital allocation avenues, including returning capital to shareholders. We ended the quarter with total available liquidity of approximately $2.6 billion, consisting of available cash and borrowing capacity on our global credit facilities.

Now let's talk about our updated financial guidance on Slide 6. Our updated targets are as follows: for sales, our new range is $10.3 billion to $10.5 billion versus $10.3 billion to $10.7 billion previously. This new sales target is based upon current global production assumptions and also certain assumptions for our key programs, for example, we continue to anticipate GM's full-size truck and pick up and SUV production in the range of 1.3 million to 1.4 million units this year. From an EBITDA perspective, we anticipate a range of $1.3 billion to $1.425 billion versus $1.3 billion to $1.4 billion previously.

However, if we included the Dowlais results for a full year, or in other words, pro forma, as if we owned them since January 1 of this year, our range would be approaching the $1.4 billion to $1.5 billion range. Included in our adjusted EBITDA is the proportionate share of income from our joint venture in China with HASCO called SDS. We expect our JV share, which is already included in adjusted EBITDA to be in the range of $65 million to $75 million this year, and this is unchanged from our previous guidance. Overall, we increased the top end of our range but maintained our low end. Our new range was driven by our solid first quarter performance and potential for continued good truck production.

However, our overall guidance is mitigated by a potential increase in costs, in particular related to fuel and energy prices that we are starting to experience driven by macro world events and whose path through the rest of the year is still uncertain. We continue to anticipate adjusted free cash flow in the range of $235 million to $325 million. And while we do not provide quarterly guidance, here are some thoughts around the second quarter. Our schedules appear okay. with no major changes at this point. However, we are experiencing some additional costs related to energy, and we would expect some tariff recovery timing spread throughout the year, similar to our experiences last year.

Our CapEx assumption is unchanged at 4.5% to 5% of sales as we ready the organization for important upcoming launches, especially for one of our major truck programs. And lastly, for our quarters going forward, we would expect a fully diluted share count of approximately 245 million shares. We remain focused on a strong integration between legacy Dauch and Dowlais, realizing synergies, strengthening the balance sheet and navigating geopolitical and industry uncertainty.

As we progress further into 2026, 2027 comes into view and the very exciting potential ahead of us. We are building around the benefits of our synergy activity, focusing on delivering cash performance opportunities by not only converting on our profitability, but also reducing acquisition costs, reducing restructuring costs, driving interest lower and optimizing working capital. Thank you for your time and participation on the call today. I am going to stop here and turn the call back over to David, so we can start the Q&A. David?

Operator, can you go ahead and start the Q&A, please?

Absolutely. [Operator Instructions] And our first question today comes from Joe Spak at UBS.

Maybe just a quick clarification, Chris, on some of the, I guess, definitional changes. I wanted to clarify, like the definition of EBITDA to include minority interest when you gave EBITDA guidance last time, that was already in that assumption, even if it wasn't maybe especially called out?

And then two, with the just definitional change, and I understand those are noncash items that you're backing out, and I don't think they were in anyone's model. So I think it doesn't really matter for comparability this quarter. But just to be clear, is that change the reason why the high end of the range went up? And is it really all that -- like you're not forecasting further changes on those noncash adjustments going forward?

No, we are not forecasting any changes on those noncash items going forward. Obviously, if you look at some of these, Joe, you'll find some of them relate to initial purchase price accounting, such as our inventory item or our intangible asset amortization with our joint venture or overall intangible asset amortization. And then a couple related, I would say, more on technical accounting matters for FX and mark-to-market on some acquired debt and derivatives.

None have anything to do with the operations of the company, and none had no influence on the change of our guidance.

Okay. And then in equity income, when you gave -- you initially gave that $1.3 billion to $1.4 billion, that was already inclusive of that China JV equity income?

Correct. That's correct.

Okay. Okay. And then David, maybe just great to hear you're off to a good start on the synergies. Now that you've actually owned this business here for at least a couple of months, I was wondering if you could sort of give us just a little bit more color on sort of what's going well what's maybe going a little bit faster or where you see some additional challenges. And as you sort of dive deeper in a level of comfort you have with those targets? And maybe even if there's -- if you're starting to sort of search for additional levers to pull here on the cost side.

Yes, Joe. First of all, I'll say this is we acquired some outstanding talent from Dowlais GKN at various levels from senior management leadership all the way down to the plant floor. I've been very pleased in regards to how our teams have assimilated together and are working together as we try to bring as I said, 2 strong companies together with independent cultures, but we're trying to blend into one culture going forward and that's going exceedingly well.

I've been very pleased, as I've gotten out with our senior leadership team to visit a number of the factories here. There's a good engineering aptitude strong manufacturing or operational aptitude there as well and a focus on safety and quality, which is, as you know, are critical and paramount historically to the Dauch Corporation. So that's been positive. There have been some areas where maybe some capital investment or some other things made have been neglected a little bit at some of the facilities when it comes to just general stores and just facility maintenance and all, but nothing that's material or extraordinary that we can't deal with and address over a period of time. So I'm pleased with that.

I think we made great progress in regards to addressing the corporate costs right upfront. So Chris led that work stream for us along with Roberto Fioroni on the GKN side. So that's gone well. SG&A, as I said, is going well, and we've made really good progress in regards to our run rate for this year, and we'll continue to grow that as we go forward. I'd say, with the economic conditions in the marketplace right now, especially with the Iran war conflict, we're keeping a watchful eye on some of the purchasing activity.

But at the same time, we got multiple years to address that, but I think there's some initial challenges here in the first year just because of what's taking place. But don't read too deep into that because I still think that we can confidently deliver that number. And then from an operational performance standpoint, again, we're still getting around to the 100-plus facilities that we took over -- but we're very encouraged with the opportunities that exist there and are hopeful that there's incremental opportunities going forward. But hopefully, that addresses your question. But overall, I'm very pleased with the acquisition, the integration, the planning that went into that integration, but also to our first quarter start here.

[Operator Instructions] Our next question today comes from Alex Perry at BOA.

Congrats on a strong quarter. So I just wanted to walk through the guide a little bit more, particularly on top line. And so you took the sales guide up a bit. You actually took like the global production forecast down. Can you sort of walk through what allowed you to do that or are you actually seeing better-than-expected production on some of your key platforms even though the global production environment maybe is a bit softer?

Yes, this is Chris. I'll take that. Yes. So we took the top end a little bit. We saw inside the first quarter, obviously, some strength on the light-duty truck, full-size truck here in North America and some other platforms that we supply a lot of side shafts into. So a nice positive start to the year from a volume perspective. Our overall macro assumption versus our last guidance on North America, relatively flat Europe down just a tick. But I would say, holistically, some beneficial mix was played into our thought process at the higher end of that range as well as a little bit of benefit from FX translation as well. The euro has strengthened a little bit as well as some other currencies. But primarily, just a nice benefit of the mix that we've seen at the higher end of the range.

Perfect. Really helpful. And then I just wanted to walk through, you called out additional energy costs. Could you maybe walk us through exactly what you're seeing there?

And then just on the overall commodity exposure there. Is there anything that we should be paying attention to? It doesn't seem as of right now, like a significant impact for the year, but just remind us on some of the commodity exposure.

Yes. So I'll start with the commodity question, then we can talk a little bit about what we're seeing in the macro from, I'll call it, near-term inflation pressure related to macro events. But from a commodity perspective, you may recall, many of our commodity-based costs. We have direct pass-throughs to our customers for which we retain passthrough about 90% -- 80% to 90% of those costs. Key commodities that we would track in that bucket would things such as aluminum, scrap steel, nickel, moly and a whole host of other variety of products.

I would say they surprisingly have been relatively stable. We've seen some small upticks in those, I would say, over the last month. But again, those are pass-through and generally protected. But they do go up, you carry a little bit of a residual, negative when they go down to get a little bit of a residual benefit. But those are the primary from a commodity standpoint. And then in terms of some of the macro inflation primarily due to the Iran conflict, we have seen some elevated energy prices. We have seen some elevated fuel prices. Those translate into things such as fuel surcharges for logistics, et cetera.

And I would say, inside of the second quarter, we'd be pacing towards, I call it, $5 million to $10 million impact associated with that. We'll see how this plays out for the balance of the year, still quite uncertain at this point in time, as you know.

And our next question today comes from Tom Narayan with RBC.

Chris, this one is for you. On -- first of all, on Slide 15, thank you for whoever put this together. I know it's like a lot of work went into this. So on that Slide 15, if I just take the LTM EBITDA, $1,573 million, and I do all the adjustments to the onetime commercial settlements, business that were sold, take out the Q1 synergies, January Dowlais contribution. And then I compare it to your guide for '26 to take out the synergy. It looks like there's a slight downshift implied by the guidance at the midpoint at least. So I'm just wondering if there is a downshift in '26 versus '25 contemplated? Or perhaps the guidance may be a tad conservative or maybe I'm just splitting hairs.

No, I think you -- in terms of the amount, it sounds like the analysis that you have done pretty quickly here this morning. Taking a look at this data is pretty close to anchor in terms of you have to remove the Dowlais January. We do have to remove the commercial items. So it's also impact revenues and profit when you take out the commercial settlement items as well as the businesses that were sold. But if you tend -- you sort of kind of adjust for those items, you would then find you would need to gross it up, obviously, for our synergy capture opportunity here inside of our guide.

We've said $50 million to $75 million, so midpoint $62 million. But holistically, if you think in this LTM period, to our, call it, '26 year at the macro, our volumes are down almost 2%, right? North America was down almost 2%. Europe was down 2%. Now this gets into like mix and different things we'll experience each quarter. But that's the main driver of that. That would translate at a 25% to 30% contribution margin in terms of that variance. That's our main driver. And then if you peel that out, you'll find we actually have positive performance embedded inside of that.

Got it. Yes, that...

And then taking it to the midpoint of course. So.

Yes, yes. Yes. I mean it's barely -- it's a slight down, shift. It's not much. And then second one, this has been a hot topic with this past earnings season is Chinese domestic OEM customer or capture in order books. Just wondering if there's -- I know you have the what you've disclosed so far from last quarter, et cetera. But just would love to hear, especially on the Dowlais side, how you're doing in terms of acquisition on the Chinese domestics?

Yes, Tom, this is David. As you know, Dowlais GKN enjoyed a very strong relationship with HASCO, and they have a JV called SDS, which is now ours. That business does a tremendous job with both the domestic as well as Western OEMs, but it's really shifted a lot of its business to the domestic Chinese OEMs. So they've been able to not only protect their business but grow their business. And as that volume increases both in China within that company as well as their export initiatives into Europe and Southeast Asia and Latin and South America.

They're positioned and poised to benefit from that. We're already starting to see some of that. At the same time, we had our own, meaning historical Dauch had our own WOFE in China that had done a similar thing as we picked up a lot of domestic Chinese business. So we referenced again today the expanded relationship with Cherry/Jetour in regards to an incremental derivative program off of something we're already supporting. So again, we continue to see plenty of opportunities with the Chinese OEMs. And we're winning our fair share of business with them as they expand their capability on a global scale.

And our next question today comes from James Mulholland, at Deutsche Bank.

Yes. Sorry about that, talking to myself on mute. If we look at the walks for the quarter, it seems like Dowlais was a pretty material contributor to strong profitability even more so than I would say legacy Dauch if my reading is right. So is there something in there and it's mix of programs that help drive that results, performance and other was pretty strong as well. So any color that you can provide there would be great.

Yes, if we look at the year-over-year walk, you can see the sales in walk on 7 and 8. Legacy Dauch performance was 12.9% margins, and the legacy Dauch extrapolate 12.4% margin. So I'd say both side of the equation contributed quite equally with a little bit larger on the Dauch side. And then your margins tick up with some of the synergy flow through. So our view is both businesses performed, had positive performance in the quarter on a year-over-year basis. Both had a nice mix in terms of -- from a revenue perspective and obviously, the contribution from the synergy piece helped the overall company.

Great. That's helpful. And then looking out at the rest of the year, it looks like GM has added another shift for its T1 heavy-duty, I think, later this year, starting at the Flint Assembly it's setting up for the new model. Does the new guy anticipate some benefits from that? Or would that be incremental on top of what you may already have in there?

Yes. So our guidance as it relates to the full-size truck program for GM is 1.3 million to 1.4 million units. Any planned announcements are schedule adjustments that they have articulated that we -- have been provided to us have been included inside of that guidance range already.

And our next question today comes from Itay Michaeli with TD Cowen.

Congrats on the quarter. Just I was hoping just to kind of follow up on a prior question, if we could just do a little bit of a walk from the kind of Q1 margin of like 13.3% pro forma to kind of what's implied the rest of the year. It sounds like there's some incremental commodity freight baked in there. But also some acceleration in synergies. I'm just hoping you could kind of go through some of the puts and takes there.

Yes. I think your put and take is moving into the second quarter? Or are we thinking about the full year at, which was your...

Yes. The full year, kind of what's implied from the Q2 to Q4 margin based on the latest guidance.

Yes. I mean some of the puts and takes as we think about it from here, obviously, we will transition in the rest of the year, call it, a full month of Dowlais results, right? That would come in at sort of their blended rate of -- at a full cost basis at 12%, 12.5% range. So that will start to weather itself in. I would expect to have synergy step up through the course of the year as we transition and continue to put in the bag, continued success on our synergy transition to get to that $50 million to $75 million run rate by the end of the year.

As I mentioned in one of the previous questions, we do see a little bit of drag as it relates to inflation, in particular in the second quarter on fuel and some of those type of related costs. We'll see how those play out for the rest of the year, I would say that's plus or minus for Q3 and Q4, depending on how macro events unfold. And then we have some core performance inside of our company as well. As we transition to the year, we've seen nice traction on our metal form side of the business from a margin perspective. Some of the challenges that we've articulated in the legacy Dauch plants over the last couple of years, we're seeing some positive trends from that perspective as well.

So those are some of the pieces I think, on a go-forward basis. And then you have a tariff plus or minus as we go through your timing of when we bill or collect, et cetera. And that can change quarter-to-quarter.

Great. That's helpful. And then just as a follow-up, I know it's still early since the closing of the deal. But any observations from customer conversation, sourcing opportunities and kind of how those have gone in the last few months?

Itay, this is David. Great question. We've had nothing but cooperation success in positive communication from the customer. They obviously historically know our performance from a historical Dauch standpoint. Same time, Dowlais GKN had good performance as well. We're maintaining that good performance. That was a priority to us is to protect continuity of supply and the quality and product integrity going into our customers. They're actually pleased in the fact that we'll have more size and scale to help weather the challenges that exist in the marketplace today.

Clearly, there's a lot of distressed suppliers that are in the marketplace that have been since COVID. And I think that's only going to ramp up as we go forward. So the communication and the feedback from the customers has been very positive. And obviously, we're going to look to continue to maintain those strong relationships that we have and look to try to expand from a cross-selling capability to those loyal and valued customers.

And our next question today comes from Jake Scholl at BNP.

So pro forma net leverage finished at about 2.65x. And just based on my math on the guidance, it sounds like you'll finish to around 2.20x or so. So how should we think about the time line to get to the targeted 2.5x?

Yes. I understand your math. Yes. So we'll probably be somewhat level or so through the course of this year based on our guide. But if you think about some of the points we've articulated previously as it relates to our leverage, really one of the main drivers of delevering the company of course, will be our operational performance through the achievement of our synergies. And as we transition into next year and we take in the next leg going from the $100 million run rate up to $180 million run rate, obviously, that will drive both profitability and cash flow.

So sort of taken down the net debt, if you will, and also driving EBITDA up through that transition period, we'll then start to see some traction taking down our leverage even further from where we end the year. That's kind of a time line of how I would think about it.

All right. And then as we think about the next generation of GM's full-size truck platform -- can you share if we should -- if you guys expect to have the same participation rate as you do on the Q1 and have there been any shifts in GM's in-sourcing mix, especially between light duty and heavy duty.

Yes, this is David. With respect to the model changes that are taking place in the next-generation product with General Motors, I mean, obviously, we've secured that business. We're in the process of getting ready to launch that business on a staggered cadence based on GM's program timing. Obviously, there's interest of engineering changes as they've addressed some horsepower torque and other requirements for the business that we factored into our business. So that will impact favorably some of the content per vehicle and the overall margin performance.

But we've secured everything that we've had and as they look to the next generation beyond that, which will be out in that mid-20 30 period of time. Our expectation would be to secure our replacement business and continue to try to demonstrate the GM that we are a valued and strategic partner to them.

Got it. So for the next-generation program, you have, you'll be on at least as many of the vehicles as you are on the current generation?

Absolutely.

And our next question today comes from Nathan Jones at Stifel Financial.

This is on Andres Loret de Mola on for Nathan Jones. Maybe discuss the rationale at the beginning of the presentation, you just got the rationale for a Dowlais subsidiary. You mentioned that you sold. Does this optimize the portfolio? Maybe just trying to get a better picture of your priorities in terms of the overall portfolio.

Yes. This was something that we evaluated as part of the overall product assessments and what we continue to assess our product portfolio, and we do that consistently throughout the year. But this was something that stood out to us that wasn't really a core program to us. And we had an interested buyer. And ultimately, we came to the appropriate commercial agreement on that to be able to sell that asset.

As Chris covered earlier, we also divested of our commercial vehicle business, which is a legacy Dauch business. So again, things have changed. Now that we've been able to acquire Dowlais, our portfolio is different. We're assessing what's core and what's non-core to our business today. Those assets or businesses that we deem to be non-core. Obviously, we'll try to sell it for the appropriate value.

But at the same time, we're not going to give anything away. What we want to do is make sure we can pay our portfolio down to the critical products that show growth and also show profitability. And it's just strengthened the overall company and provide for that robust business model that we've communicated to you all. So it was just a small step in regards to just assessing the portfolio.

I'm sure there'll be others that will evaluate and anything that we do there, obviously, will continue to help us in regards to accelerating paying down our debt and strengthen our leverage situation.

Appreciate the context. Also, just a quick, something you mentioned earlier. I know you mentioned the direct pass-through 80%, 90% of the cost. Can you maybe talk about the lag between -- the lag to recover, make recoveries?

Yes, it can be anywhere from a month to a quarter depending on the customer. So 30 to 90 days.

Our next question today comes from Dan Levy at Barclays.

Wanted to just go back on the commodity question here. And you talked about you have sort of a basket of commodities that you're getting direct pass-throughs on. Just can you give us a sense of today, pro forma organization now, how inflation dynamics maybe differ versus the prior AAM? And to what extent do you have increased cost that maybe now has to be recovered outside of payment pass-through mechanisms. To what extent should we be thinking differently about things like energy costs, et cetera?

Yes. Dan, this is Chris. I'll take that. For our, I'll call it, more pure commodity type costs, you've heard us articulate for many years, bringing in the Dowlais side into the business in total, you will find our view, I would say, is very similar. Many of the same type of commodity inputs that we have. So not really a lot of change from that perspective, either types of commodities or call it pass-through mechanisms. But things such as when you sort of get outside of those core type of commodities like steel and scrap and nickel and aluminum and things that we talked about, like energy and stuff like that.

I would say both sides also, those aren't typically automatic pass-throughs. You have to have some discussion with the customers and both sides the legacy businesses had the same type of dynamics from that perspective.

Okay. Great. And then second question is on you've outlined the cost synergies here. You talked about potential as well for revenue synergies. Just on the customer front, and I know you addressed sort of a while ago, sort of the initial discussions with customers. But some of the customers where you've been underrepresented up until now, the Toyota, VW type customers. Just what's the dialogue has been with some of these customers? And how much more there is opportunity to expand that relationship now that you have inroads into some of these different customers?

Great question. What I would say is this, I mean, our first conversation with the customers is just to inform them of the combination to inform them of the capability and also to make sure that we're protecting continuity of supply and not disrupting them and as I said in my previous comments, that's gone very favorably. Many of the European and the Asian OEMs, although historical Dauch can have a relationship with them. We will benefit greatly from the strength that Dowlais GKN has shared for decades with many of those customers.

So it's still early in regards to the discussion phase, but our customers clearly want to better understand our full complements and capabilities. there'll be technology days that we'll share with each of these customers on a go-forward basis. But they clearly can see the benefits of an expanded portfolio and they clearly see the performance capability that we collectively bring to the table. And just the general dialogue without getting specific has been positive in regards to potential consideration for cross-selling type opportunities and new business growth opportunities. I'll leave it at that.

And our next question today comes from Vanessa Jefferiess at Jefferies.

Congrats on the results. Just to build on what's gone well and what hasn't, I mean you've owned the Dowlais powder metallurgy business for a couple of months now, it'd be really interesting to hear your thoughts on the kind of different strategic and diversification initiatives that it's been feeling over the last few years. And if that's the direction you'll continue with and kind of the auto and non-auto side.

And then secondly, I just wanted to ask about the kind of EV commercial cancellation settlement payments. Is there any more of those to go over the next couple of months, just given the hit the Dowlais powertrain business took over the last couple of years?

Yes, this is David. I'll take this question, Chris, you can chime in as you feel fit. Clearly, historical Dauch was in the powder metal business and clearly so was Dowlais GKN by putting the 2 together, we have a very strong industry-leading powder metal capability that is also vertically integrated now with the supply of raw powder. As you know, under Melrose, this business was really -- and even down Dowlais was up under strategic review.

We clearly see this in our wheelhouse in regards to our metal forming business. We think there's opportunity to enhance its performance on a go-forward basis, and we're working on those initiatives right now. Like any piece of business, we'll always keep optionality in our business, but we consider that a critical part of our thesis -- strategic thesis is we want to be this global leading driveline and metal forming supplier. There's a great strategic fit of our powder metal business with their powder metal business. Although there is some rationalization that needs to be done, especially on footprint in North America. And we'll do that appropriately and time it appropriately and make sure that we're not incurring too much cost that way.

But we also see tremendous growth opportunities with it. It just hadn't received a lot of investment over the years from his previous owner. So we're encouraged and excited. We have a really good leadership team that's running the powder metal group and then we're introducing some of the AAM operating systems into that business that we also think will bode favorably from a margin and cash generation performance over time.

On the EV front, as we talked before, I mean, EV, there's different strategies, different approaches globally around the world. We continue to see significant opportunities in regards to Asia, especially China. And we're mainly doing a lot of that to the JV that we have there. We'll continue to monitor Europe and see what happens there with regulatory and policy change as we're seeing some of that take place right now, but we do expect extra growth there. In North America, you see here what's happened with the regulatory and policy change, where EV penetration was under 5% the last month from a high of 10% or 11% earlier now that all the incentives are gone.

So we'll continue to make appropriate and balanced and selective investments in EV, but at the same time, there's some cancellation costs, many of which have been dealt with and addressed, but there's still some open issues that are out there with customers that we need to bring resolution to wrap up the commitments that they made to us and we made, but unfortunately, the market didn't materialize.

So those are ongoing commercial dialogue with us and our customers, but we hope to bring those to resolution this year and get that behind us completely. So Chris, I don't know if there's anything you want to add?

Yes. On the resolution for any of those EV matters, as you know, if you look at the results historically, Dowlais had a very strong year last year and kind of closing out a lot of their issues. We had a few small issues that we closed out last year, Dowlais closed. I think one of their last remnant ones from their side of the house in January of this year, which are not in our reported results. But going forward, as David mentioned, there's a few yet to wrap up, but I would say nothing of significance at this point in time.

And by the way, I appreciate that you broke out the payments in the presentation, just given some of your peers haven't.

And our next question today comes from Federico Marin with Wolfe Research.

Just a quick question on the -- actually you raised the guidance at the high end. But -- and I think you mentioned that part of that -- the reason was because the mix is better. But I was wondering why didn't you increase the guidance, the high end for the free cash flow? I would have assumed that as incremental business would have helped cash flow as well.

Yes. Great question, Federico. So if you think we also raised the top end of our sales as well. So obviously, when you do that, you could have -- you'll have some working capital used to finance a little bit at the higher end of the sales, that would be the primary driver for pulling the cash flow as is.

And in terms of cadence for your operating results, how should we think about it going through the year? And is there any change from the historical seasonality of American Axle?

Yes. From a seasonality perspective, I would say our entire business, combined both legacy American Axle and legacy Dowlais, we operate in the same identical seasonal pattern with our customers, whether they're in Europe, late in August. in North America, July and around the holiday time in December, which is also common in Europe for seasonality, almost identical production days per quarter, almost identical as seasonality perspective is how I would think about it. And as you think about the year, clearly, some of the key points we talked about and some in my prepared remarks, a little inflation pressure in Q2 for macro events. But our synergy will build through the year, right?

So that will come on in Q3 and Q4 to get that exit run rate. Those would have some of the, I would say, operational elements from a revenue perspective, we got a lot of questions today about the GM's full-size truck. We had some downtime in January for heavy duty. As you know, one of their larger endpoints, large facilities, Silao. They will go through their next-generation change, that will impact, call it, mid I'll call it, mid-second half of the year as they finalize when they're going to take that facility down for a little. That is a primary endpoint for us as one of our customers' as well.

Ladies and gentlemen, our final question today comes from Doug Karson at BofA.

I want to ask a little bit about kind of like EPA changes. We met with a big OEM this week and they were pretty happy with some of the EPA changes that perhaps are relaxing limitations to a gate cylinder, your gasoline engines, and they thought maybe you could perhaps help their mix for heavier pickup trucks and SUVs. Is that something that you're seeing in your kind of production forecasts that, that mix is happening elsewhere in North America? Just trying to get a little smarter on that because it could be a big benefit to some of the OEMs price points.

Yes. I mean anything that the government is doing to relax, regulatory and policy is clearly a benefit to the OEMs, especially the domestic OEMs and then certainly a benefit to us as well. As we said before, as ICE is extended out and even hybridization, that's clearly a strong benefit to us, as a company. And we've got installed capacity and product portfolio that's already solidly in place.

As we alluded, our financial performance, it was impacted favorably in regards to the truck platform on the light-duty GM, very strong, Ram heavy-duty, very strong, GM down in the first quarter as they're transitioning, but we expect to be very strong throughout the year. So we're clearly seeing the benefits of that. We're starting to see also some of the long-range product plan adjustments for the customers as some of those EPA adjustments and regulatory adjustments have been reduced. There's no doubt about it.

That's good. Good for the sector.

Thanks, Doug, and we want to 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.

Thank you, sir. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Thank you so much for Join us. I wanted to really thank the Dauch team for being such a good partner from my 20 years at Bank of America. You've been involved from the debt and equity side, always with the investor focus. With us from Dauch, we're joined David Dauch, the Chairman and Chief Executive Officer; and Chris May, Executive Vice President and CFO, and they're joined by an extraordinary IR team, led by David Lim and Joe Pudlik, which I'm not sure if we've met yet, but I'm looking forward to talking in the future. The Dauch Corporation is kind of special to my heart because in 1998, when I first started, it was the very first plant that I visited was an American Axle plant. And I'm really thinking like, wow, this plant is so clean and auto industry is so great.

And then I visited about 10 other plants after that, and I realized like that plant was different, the first one I saw, how organized it was. So I recommend anyone starting in the auto industry to take a look at one of the Dauch plants, and they're pretty special. So with that, I want to thank them again and thank the audience for being here. And why don't we turn it over to Alex to kick up the first question.

Yes. Thanks, Doug, and thanks to the Dauch team for being here with us today. So I actually wanted to start off with a few housekeeping questions actually, and then we'll take it up for a few levels. But -- could you maybe just talk about your free cash flow for this year and what may change for 2027 and beyond. And maybe as a part of that sort of discuss the restructuring cost for this year, when should we see the benefits? I think it's been a key topic for the investment community. So I just wanted to lead with that before we start going into more strategy.

I'll take the -- this is Chris. I'll take that as a crack. Look, our guidance for the year from an adjusted cash flow perspective is $235 million to $325 million. Of course, that's before any restructuring and synergy implementation costs. So still on a consistent way on how we disclose our cash flow, continued strong delivery expected here from our operations. However, inside of 2026, we have a few things going on. Number one, we have to close the transaction as it relates to Dowlais which we did in early February. We paid the cash associated with that here in the first quarter. Some of that will also be in the second quarter. But that will go away after 2026.

The next piece that we have is our restructuring costs. So you really have 2 elements associated with that. First, we have the completion of our Dowlais restructuring, which is about 2/3 of that. They've gone through, I would say, a journey over the last couple of years restructuring their U.S. operations moving to Mexico, Germany operations to Hungary, and some other elements inside of Europe. So they've been on a significant campaign, as I mentioned, for about 3 years. This is really the final leg of that restructuring.

So we will see a sizable step down as we go from '26 into calendar year '27 with those restructuring costs. I would expect less than half of what we experienced here in '26. So excited to put that in the rearview mirror and behind us. And of course, associated with that is the ongoing then P&L benefit from that restructuring. We also on the legacy American Axle side of the house, we announced at the end of '25 a closure of an operation in Germany that will also complete in 2026. So that's part of that core restructuring element. So again, holistically our restructuring costs will go down by about half into '27. So a very positive momentum for the elimination of the acquisition costs, sizeable down of the restructuring costs.

And then the last piece is really our synergy implementation costs. So this is really now stepping into that journey for the combined acquisition of Dowlais, where we expect to have $300 million of annual run rate savings over the next couple, 3 years building into that, what we had said is we will spend or invest about $1 of investment to get $1 of annual run rate synergies. So in total, $300 million I would expect that front-loaded sort of more towards year 1 and 2. You see our guidance here for '26. Similar number will be in '27, and then that will sizably set down in '28.

So our company is set up really well positioned for core operational cash flow. Think of our adjusted cash flow numbers. And then some of these, I would call them, some are one-off for the close, but even the restructuring and the synergy implementation costs will continue to fade away and really drive us into strong cash flow momentum into '27 and then again into '28 as, number one, your synergies are continuing their final leg up of performance and all those costs associated with implementing them are stepping down. So hopefully, that sort of next couple of years. So we're pretty excited about it.

And then I guess, last housekeeping question, and then Doug will take us into some of the more strategic questions. But maybe just bridge for us the Dowlais adjusted EBITDA to your guidance. So the 2025 adjusted EBITDA to your guidance, could you maybe just walk us through sort of the bridge there?

From Dowlais perspective?

Yes. Yes.

As you just sort of to maybe level set everyone is listening. So Dowlais reports in IFRS. They also have different adjustments when they compute their adjusted EBITDA number. So really, if you take the Dowlais numbers that they would publish for 2025, and those are still in the process of being finalizing now, but very similar to some of their, I would say, guidance that they gave in the January time frame just before the close of the transaction. You would have to take from that number, you have to subtract out a little over $100 million associated with U.S. GAAP to IFRS adjustments. That's really driven by lease accounting differences, pension accounting differences and some R&D accounting differences. Again, all consistent with what we expected as part of the transaction.

Also part of that, how they account for their unconsolidated joint venture, now our unconsolidated joint venture in China being the largest. It's about $1.5 billion operation. They do gross that up for EBITDA. It's not consolidated on their books. It will not be consolidated in our books. You had to unwind that as well. So that's about -- in total, the 2 between the IFRS and the joint venture accounting adjustments, about $100 million, again, consistent with all our planning for the transaction. Another key element, they've been very successful over the course of the year 2025 in reaching resolution with commercial settlements, especially on their E side of the business, where volumes did materialize, et cetera.

So you have some onetime commercial settlements flowing through their '25 results of about $75 million. So you have to subtract that piece out when you step from calendar year '25 into calendar year '26. And then lastly, as you know, at the macro level, volumes are down a little bit. And right near the end of '25 they sold some small pieces of their operations. So if you put those pieces together, gets you right on top of where our guidance was for the year. Hopefully, that steps -- but thank you for asking those questions.

So from a bigger picture standpoint, I mean, I love the Dowlais transaction because as a creditor, bondholder, credit investor, you kind of double the size of the company and kept the balance sheet leverage about neutral. But there's a lot of opportunity expanding the business in Europe, gives you a lot of diversity. If you could just kind of hit some of the higher points of what made you think about that transaction? How long were you looking at it? And what really could drive some of the growth for the entire company?

Yes. Let me take that. We actually tried to buy GKN Automotive back in 2018 and then again in 2022. We saw them as an outstanding partner to expand our business to create a more robust business model. It would help us from a diversification standpoint in regards to the product side, the geographic side and the customer side of things, reducing our dependence on our largest customer, General Motors, from 40-plus percent down to approximately 25% to 27%. That was all positive. In light of the age of which propulsion system is going to survive in the future, we also thought that we wanted to have a more agnostic product portfolio, half shafts, which they're the market leader in that product or side shafts as they call them, that was a great addition to our portfolio. It's the only driveline product we historically at AAM had not made or didn't make.

In addition to that, there's tremendous synergistic opportunities, which we talked on earlier in regards to $300 million, and we've broken down that appropriately between SG&A, about 30%, 50% in purchasing and the remaining amount in the operational side of things. There's a very talented team there of all the acquisitions we've done in our 30-plus years as a company. One of the more talented resources that we're picking up, which will not only help us on day-to-day leadership but also on our succession progression planning going forward.

But to your point, we got a much stronger robust business model. Obviously, they're headquartered in London. They've got a strong German engineering presence as well that's received very favorably in the marketplace, much like us, they're a strong engineering and manufacturing company. I do see opportunities for improvement from an operating system standpoint in each of their facilities as I've been around to many of them already and have more to get to. But that's all part of what we factored into the bigger plan and the synergies that are there.

They've got very strong relationships with the European OEMs, not that we don't, but they have a stronger, a more lasting relationship there. And I would even say on the Asian side, where we have strong relationships, they have even stronger. So I think there's tremendous cross-selling opportunities with the European and the Asian customers. We're historically founded in the U.S., and our Detroit 3 is our primary customer base, so we can obviously help them in that respect also. So we feel real good about what we've done here. Like I said, it gives us the size and scale of the robust business model, the diversification, not to mention the high margin potential with the synergies as well as the cash generation, which will allow us to service that balance sheet on a go-forward basis.

So I think a big part of the Dowlais transaction. You talked a lot about synergies. So I think $300 million of synergies, the majority realized by the end of year 3. I know you've broken it out in the past, but can you maybe expand a bit more on what goes into the $300 million of synergies? And provide an update on how the integration is progressing so far?

Yes. Let me start, Chris, then you can add to it. So as I mentioned, we've publicly announced the $300 million of synergies. I just covered what the breakdown was, 30% will be in the SG&A side, so a minimum of $90 million there, 50% in the purchasing or procurement side, so $150 million there. The balance remaining 20% or $60 million on the operational side. We feel very good about our ability to meet that $300 million number. Again, that number was established before we were able to get in to see a lot of their operations. So we're not changing that number at this point in time, but we think there may be some upside in the future. We'll have to figure out what that is and when that is. Obviously, on the purchasing side, and the buckets may move around a little bit from what we originally guided. But we're very confident that we can deliver that $300 million.

But what we publicly initially stated is that we'll achieve a run rate of 60% by the end of year 2 and 100% by the end of year 3. And then in our recent earnings call, we identified that we expect over $100 million run rate here in year 1. So that all bodes well for us in regards to we feel very confident about the plans, the market baskets that are filling up. And ultimately, we hope to overachieve that on a go-forward basis. When you go back and look at what we did with MPG, we originally established MPG a roughly 3% of sales, and we delivered well over 5% and essentially stopped counting at that point in time because it just became normal business. We know how to manage synergies. We know how to deliver the bottom line results, and we expect to do the same thing here with this acquisition. I don't know, you already touched on the cost of implementation.

Yes. We talked about the cost, but also if you look at some of the buckets that David just articulated, really plays to the strengths of our company. And what do I mean by that? So in the SG&A portion, it's not just traditional SG&A and public company costs, but it's optimizing our product engineering spend, which we've been on a journey the past couple of years to do .Dowlais has done something similar. Now combined, we can really leverage that scale inside of that spend. But also on the purchasing side, it's not just the scale for purchasing buying power, but it's also leveraging our vertical integration strength as a company.

We have -- we're founded effectively on a vertical integration policy and approach. But now you bring in this. We're the largest automotive steel forger in the world. Obviously, Dowlais buys a lot of or historically has bought a lot of forging -- steel forgings on the outside. We had a small powder metal business inside of our operations. We bought powder from Dowlais. So now we vertically integrate that and even more of that powder buy. So it really leverages some of our key strengths as a company, not to mention the operational side that David just mentioned. So we're pretty excited about this opportunity that sits before us.

Maybe -- I think you mentioned this earlier, but I'd love to expand upon it a bit more. Can you maybe talk to us about how much customer diversification and even platform diversification was a key part of this acquisition. Obviously, you had the pretty heavy GM concentration. I think you're the GM T1XX is a large part of the business. Obviously, that may downsize here with this acquisition. But maybe walk us through -- I think this takes up your Toyota mix a bit. So maybe talk to us about customer diversification and even platform diversification?

Yes. I mean our top 5 customers, I mean, General Motors, when we started the business, we had 2 customers, GM at 98.5%, Ford at 1.5%. After the MPG acquisition, GM, as I said, was around 40%. Chrysler was our -- Stellantis was our next largest customer around 13% to 14%, and then Ford was slightly behind that. With that -- with the latest acquisition, GM comes down to that 25%, 27% range. Stellantis is still a large customer for Dowlais as well. So they'll stay around that 13%.

Toyota is a big customer there, so they come up the ladder. Ford is a big customer as well. So they'll be in the top and the Volkswagen will round up the top 5. But now we've got thousands of customers when you factor in hundreds of customers in our steel forging business and thousands of customers in the powder metal business. So we've really grown substantially from a customer base standpoint. But again, our primary customers are the top 20 global OEMs around the world is what they are.

Chris, I don't know if you want to talk to the platform.

Yes. From a platform perspective, look, legacy American Axle, top 2 platforms in our company were the T1XX platform and the RAM heavy-duty platform. They are still our top 2 from a dollar perspective platforms in the combined company. We actually gained content on the T1 as we bring in side shafts from Dowlais as well as some other powdered components. So it's a critically important platform for us. We think it's one of the best platforms in the world to be on as a supplier. So that's very strong. But we also add platforms with Stellantis on some of their crossover vehicles. We had platforms with BMW through the Dowlais acquisition and then some of the names like David mentioned on the Toyota side as well. So we're pretty excited about this expansion as it relates to the platform and the content we provide.

Yes. And the other thing, it's not only just Toyota, I mean, they're touching base with almost all the Japanese OEMs. And where we're doing 50-50 in China between Western OEMs and Chinese OEMs, they've shifted that more towards 60% approaching 70%. So that's a positive, especially as the Chinese OEMs are gaining market share globally around the world.

Maybe I'll lead us into some China question. So Dowlais 65%, 70% of their business is domestic China.

Yes, through the joint venture, yes.

That's a great number. You've been in the business a long, long time. We're looking at China. It's been a $30-plus million market. How is the company positioned to support that growth or if they were to bring more product to Europe, more product to South America and potentially maybe even in the U.S. one day.

Yes. That joint venture is a jewel in this whole acquisition. They've done a tremendous job establishing that joint venture with HASCO. The joint venture name is called [ STS ]. As Chris said, it's about $1.5 billion in sales. It started with Western OEMs and grew into domestic OEMs, where there's more of a balance there now, but weighted more towards the domestics, like I said, that's all been positive. It's a profitable joint venture. So that's an important thing. I can't say that about all suppliers in China or even all the OEMs in China.

But I think the government is starting to step up to some of the pricing issues that were going out or the price wars that were taking place there is what it was. But for us, they're well established with a multitude of OEMs there. So are we -- together, we have a wider band of Chinese OEMs that we're working with. There's an installed capacity of about 65 million to 70-plus million units in China, but their market, as you said, is a little over 30 million units, okay? They just last year became the #1 exporter surpassing the Japanese. So they have a planned export vehicles. It's just a matter of which countries are going to allow or accept those vehicles into their areas.

Clearly, Europe is a target for them. They're being very aggressive with respect to Europe, but they're also being very aggressive in regards to Southeast Asia and also Latin and South America. And here recently, they just cut a deal with Canada. We'll see what happens in regards to the U.S. I mean, Trump is supposed to go over and meet with [indiscernible] in the future. We'll see what happens in that respect. But Trump's whole thing has always been about just building jobs or building vehicles and product in America and putting Americans to work and protecting our GDP and all that as well. And I'm not here to talk politics at all because everyone varies in that respect.

But the bigger thing is the fact that the Chinese market is plateauing right now at that 30 million units. So if they want to show growth, they've got to go outside of China to realize that growth. And at the same time, their market is uniquely different compared to the rest of the world, 55-plus percent of their business today is electric or hybrid type applications. Where you go to Europe, it's 15% to 20% is that electric or hybrid. And in the U.S. we peaked around 10% to 12%. We're sitting at 5% today. And we've had a lot of regulatory and policy changes, not only here in the U.S. but also in Europe, that is really slowing down what people thought the adoption rate was going to be.

And personally myself and our company, we never totally believed in the 50% attainment of electric vehicles by 2030. We were very selective about our investments, we are very selective about what OEMs and what products we developed and what platforms we went after. You don't see us writing off a lot of issues. I mean the market spoke to the consumer spoke when ultimately said that, hey, we can't afford these vehicles. That's the biggest issue with electrification. At the same time, we don't have the infrastructure in place to do it either. And now we've got $70 billion of assets that have been written off in the last 12 to 18 months. And there's more to come from some of the other OEMs that are out there.

So that was a big miscalculation. But ultimately, you learned a long time ago that the market is the boss and the market is the consumer and the consumer is going to vote with what they can afford. And most people can't afford more than a $25,000 to $40,000 car, the average electrification vehicles around $55,000. Today, the average for a vehicle is around $47,000. Before COVID, that number was below -- around $30,000. So that's how much increase has taken place in regards to transactional prices.

I think that's a good lead into the next question, which is sort of this repivot back to ICE platforms. I think on the surface, it would feel like it's maybe a really good thing for you guys, given sort of your platform concentration and your key customer segments. Just maybe talk to us about that and how you're sort of balancing product development and capital investment across powertrains?

Yes. I mean it's a fantastic thing for us. We already have an installed infrastructure, right, is what we have. But I also don't want people to mislead in regards to my comments. And we're big believers in electrification of the technology. We just didn't believe in the adoption rate that was being that forecasted by the prognostic. And it's going to vary, like I said, between Asia or China that's at 55%, Europe in that 15% to 20% and the U.S. and that 5% to 10% when it's all said and done, growing maybe to 20% over time.

But the opportunity here is right now, we're really working on a lot of contract extension, securing our business out into that 2030, 2035 plus period of time. That bodes well for us for a strong cash generation. At the same time, it minimizes some of the CapEx we have to put into place because it's already in place. Now we do have some major platforms like the T1-2 with General Motors that we're launching this year over multiple years because it's a phased approach. It does have some CapEx requirements to support the incremental technology that's being built into those vehicles on a go-forward basis.

But we still think our CapEx will be in that, Chris, 4.5% to 5% range of sales for this year. And then historically, at times, we've been up in the 8% and 10% when we did the MPG acquisition because we were both very capital intensive, and it has happened to be at a certain time. Those investments have been made. And we always said that we wanted to be in that 4% to 6% range, and we're comfortable that we can deliver that on a go-forward basis. And then we talked on the engineering side of things. Again, we put a lot of money into development and electrification portfolio. We're going to continue to invest in that. But with the acquisition of Dowlais, GKN, it helps us minimize some of those costs going forward, that otherwise, we would have spent historically from an AAM standpoint where now we can -- on a combined portfolio basis, we filled a lot of those gaps then there's still a little bit of work to do to have that bookshelf technology. So when the market responds, then we can respond effectively with the market appropriately is really what it can be down to. But I don't know if you had anything else you want to add?

Yes. No. You've seen that in our R&D spend each of the last 2 years, we have reduced that spend to align with this macro condition that you just described. But I think walk away as you think about the extension of ICE or continuation of these programs or into their next-generation programs will allow us to have a lower capital intensity than would have seen us over the last 10 years prior when they were going through all different models and changeovers and things like that. So I think this really bodes well for us from a cash flow perspective over the next couple of years, no question and then even longer potentially past that.

Maybe you could ask a question. We had a few speakers prior kind of as we anticipate June, July, USMCA discussions. If you could just help us think about -- I mean, how you're thinking about it internally, how it could impact your business and you've got like material assets in various parts of North America.

Yes. And personally, I'd like to see USMCA stay together stay together. That's how we've all planned our business over the last several decades. So I think it's important that we try to protect that as best as we possibly can. Clearly, the Trump administration is going to use their leverage appropriately against the trading partners of both Canada and Mexico. I think there's probably a stronger relationship with Mexico than there is Canada today, just openly speaking.

We don't have a lot of exposure to Canada from our own manufacturing standpoint. We do have critical suppliers there in Canada. But at the same time, we've talked to them about localization strategies if we need to move in that direction. We've got a big complex with thousands of people, and we've added to that now with the Dowlais acquisition in Mexico. Our job is to keep those facilities utilized and generating the proper returns and financial performance. But the customer is the boss too. And if they decide they want certain plant loading, our products tend to be a little bit larger in size. So we want to put them in closer proximity to the OEMs. But you just don't pick up $1 billion plants and move them -- it cost years to do that and hundreds of millions of dollars to do that. And it's very costly to shut down a plant, probably more costly than it is to launch a plant.

So it's one thing to say that I draw it on paper. It's another thing to go execute it, right? But clearly, the Trump administration is putting a lot of pressure on OEMs to make investments in the U.S. You're seeing a lot of new and incremental investments and in some cases, at the expense of both Mexico and Canada because you watch those jobs in the U.S. And therefore, the OEMs have to do what they need to do once we get clarity on the OEM strategy then we can finalize our independent strategies. And those will all be individual business cases that we'll review with our customer base and then make the right decision for both parties is what we'll do. So -- but like I said, we really would like to see USMCA stay together. There may be some adjustments to that, but I think it's in the best interest of our industry that it does that and our trading partners for that matter.

So now that the Dowlais acquisition is closed and integration is underway, what does Dauch's acquisition pipeline sort of look like from here? Are you evaluating smaller tuck-in acquisitions? Are you focused primarily on integration and balance sheet strengthening. Can you just maybe talk to us about capital allocation priorities and how the recent acquisition fits into that?

Yes. Let me touch first, and then Chris, I'll have you cover some of the capital allocation is. We just finished the closure on February 3. So we're 6 weeks into acquiring a $6 billion company. So I'll focus the next 2 years is really on integrating this company and realizing the value and the synergies that we talked about and that cash generation, that's critical. We wouldn't be fair to you and wouldn't be fair to ourselves and our governance that we didn't deliver on what we said we're going to do. So our priority is clearly on that.

Now with that being said, I will say this, historically, we always went back and looked at twice a year, our product portfolio and said, what's core and what's noncore. We'll do that same thing and are doing that same thing with Dowlais GKN. There will be some assets that we potentially may want to divest in the future. That's a source of cash for us to bring that in. And then Chris and I will -- and the Board will determine what do we do with that cash. But obviously, a priority to us is to get our balance sheet and our debt level strengthened.

Historically, AAM, we finished last year at leverage-wise at 2.5x with the deal closing, like I said, it will be around 2.9x to 3x call it approximately 3x. Our goal is to get down to 2.5x before we start looking at shareholder-friendly activity, I think stock buybacks or think dividends, something we haven't done since the 2009 period of time. At the same time, our longer-term leverage goal is to be under 2, but we're comfortable being in the level that we are today, but with a solid game plan to deliver the synergies, generate the cash. And we think there's just tremendous cash generation opportunity in this business, not only -- not so much in 2026, but still healthy but much stronger as we go out in the outer years.

So leverage kind of popping up to about 2.9% and then the target is around 2.5% and then after you get 2.5% can have a more balanced approach...

Yes. Because typically, our capital allocation has been on organic growth and debt paydown and a little bit of tuck-in strategic things. But we never really went down the path of the shareholder-friendly activities. And that's where now we can have more balance and we can look at what's the best return on those and how do we optimize that for the best interest of the shareholder and the company.

And we wanted to put out some milestone points to hit with 2.5x lower than 2x and below.

But that's one of the nice things about this acquisition is it gives us that more robust business model that we can carry a little bit more leverage and then open up the capital allocation strategy even more.

Makes sense. So I wanted to ask one on OEM vertical integration, if you see that as a risk or not? Are there risks to the Tier 1 suppliers in terms of vertical integration? And how is the company really sort of truly differentiating your value proposition?

Yes. What I would say to that is there was more of a risk if electrification was going to take off at the rate that was being discussed. Even today, the OEMs buy a lot of ICE and hybrid business on the outside, from companies like us and Dana and others that are out there. Even with electrification, they would do some of that, but they would also make some of it in-house. So it's just a matter of what that balance is going to be. But now that we have some investments on ICE and hybrid why would the OEMs make that vertical integration that when they could put that money to better U.S. elsewhere.

And right now, we're not hearing that chatter or that talk about in-sourcing. Quite the opposite is what can you do to help us. What they're more worried about is the health of the supply base and then they have too many smaller suppliers that are disrupting their continuity of supply, and they want to work with more of the robust Tier 1 suppliers to strengthen that continuity of supply so they can run their operations efficiently and generate cash as much as they can.

Maybe we could you talk a little bit about the -- jump around a bit, but some of the R&D and some of the kind of -- as we kind of migrate a little bit away from EV, there's still a lot of R&D and opportunity in the ICE platform to bring new product to market more efficient, lighter weight, stronger. Can you just maybe tell us about some of the new initiatives you have on like future products?

Yes. I mean there's obviously going to be a big push on efficiency. I don't care what technology, whether it's ICE, hybrid or electrification, it's about efficiency. There's going to be a lot of push on light weighting, so there's going to be more use of nonferrous versus ferrous type materials or hollow type applications that were in the past more solid bar things along those lines. Clearly, we're going to look at from an engineering standpoint, we're going to continue to work with Dowlais in regards to the industry leader, like I said, in side shafts and on prop shafts, and what we want to do is continue to work with them on those same initiatives so that we can stay on the cutting edge, much like we are historically from a [ BMAX ] or from an all-wheel drive system standpoint.

So those are the bigger areas that we're going to concentrate our stuff. Not to mention, we'll be working on in-sourcing opportunities. We'll be working on a lot of reshoring opportunities from the supply base. That all requires engineering time and validation and involvement. And in a lot of cases, even some customer involvement. So that's where we're going to shift some of our engineering resources because that will lead then to greater synergy opportunities and paying ourselves versus paying the supply base in some cases, too. But I don't know, Chris, anything?

In addition to supporting the customer initiatives is they're looking to distinguish their vehicles when they get into things like [indiscernible] what technologies do we have that can allow that vehicle to perform at a level they can market to their end customers. So there's a lot of investments going on even in the traditional space, as David mentioned. And of course, there are continued investments on the electrification because that segment also...

Don't forget, we announced the award of the Scout front Axles. And we announced earlier this year. We also won the disconnecting sway bar or smart bar, as we call it, in the industry. So we're going to continue to make the necessary investments in electrification. There'll be select products that we develop. We'll target certain customers and certain platforms that we think will be successful because everyone has grandiose plans about what those volumes are going to be and then volumes don't materialize and then you're stuck holding the capital, which is why a lot of companies are writing off a lot of assets right now. And then we've been very disciplined, like I said, in regards to the process that we go through to select who those partners will be and what technology will go after and what those financial hurdles need to be.

Perfect. I'll ask one last one and then we'll open it up to the audience. Can you just remind us sort of the cadence of the year. So I think you noted meaningful downtime in January at key customers and you expected 1Q to be a bit softer, and you only had the partial contribution from Dowlais. So maybe just walk us through sort of the cadence of the year and how we should think about that?

I mean, broadly speaking, I mean, in a normal year, we would have typical seasonality inside of our year, right, fourth quarter usually has less production days. This year, as you mentioned in our earnings call, we did talk about -- there was some heavy downtime to start the year from some of the truck plants at our customers that was predominantly done in January, so they're back up and running, so that's a good spot. I would expect also tariffs have reset in terms of negotiations with our customers, as you see across the supply base. So usually, we have a little lag on tariff recovery between tariff incurrence and recovery. So you'll have, again, probably a little heavier tariff cost in the first quarter. It's collected through the balance of the year, and we still expect to sort of be slightly -- just a slight cost associated with tariffs for the full year like we experienced last year, but there is a timing lag.

And then our seasonal cash outflow would expect in the first quarter, that's a working capital build coming off at year-end. It's seasonal for us, seasonal for Dowlais so that would continue. But then for the rest of the year, obviously, you would pick up some tariff recoveries, as I mentioned. And then really, it will be cadenced around normal seasonality for production, a little downtime in early July. And again, generally, at the end of the year, December time frame, you see some. But at this point in time, I wouldn't call it any other seasonality that we would face that would wait one quarter over the other versus the items we mentioned for the first quarter.

We'll open up to the audience to see if we have anything out there?

Question over here left.

I wanted to know how the revenue synergies are coming along relative to your forecast and elaborate on how we can quantify the upside to some of those figures.

Yes, we did not build in any revenue synergies into our overall synergy number. Although as I mentioned earlier, we think there are cross-selling opportunities that would exist. So anything that we're able to realize and achieve will be upside potential.

I wanted to just double check on that vertical integration, make versus buy. And if we think about post acquisition versus I'll just take last year, '25, how has that changed now in terms of maybe fixed cost versus variable cost, your incrementals on $1 of revenue or maybe some of you can define it, how much you actually purchase from outside versus you want to use to sell it yourself, buy more from our own internal operations, potentially a nice enhancement to your margins but maybe a little bit trade-off in terms of fixed cost.

Yes. As Chris said, I mean, from a powder standpoint, we're already buying from GKN on the powder side. So now we're one company. So we can now -- but we're also buying from their competitors as well. Now we can buy more. That's just an internal management decision and go through the proper product validation with our customer base to make sure we can do that. So that's a no-brainer in regards to the things that we need to do in that respect.

Staying on the powder side, GKN Auto and GKN Powder Metal were really run as 2 separate companies. When you really look at this, we're really integrating 3 companies into 1, not 2, okay, is what it comes down to. GKN Auto was even buying from their GKN powdered metal business. When I walked the factories, I saw all their competitive products in there, but I didn't see their GKN powder metal. So that's another thing that we'll go back and look at it. Let's source work to ourselves first, before we go to the outside, but we'll balance that appropriately based on capital needs and other types of things.

On the forging side of things, we're the largest steel forger in the world based on our acquisition of MPG back in 2017. And because we got a strong capacity, and we added to that with MPG. They buy, as Chris said, probably 25% of their -- they make 25% of their forgings internally and buy probably 75% on the outside. We have open capacity, that's a no-brainer. That's just a profit that will drop right to the bottom line.

Now if we need to make proper investments or certain investments that we'll just run the business cases, on the make versus buy and just decide what's the right time to do that based on what the business needs for the company. But we'd be crazy not to take advantage of that full vertical integration. But the other part of that was there's a hidden cost to is continuity of supply, right? We're not at risk. If we're just looking at ourselves in that case, and we're very comfortable that we know how to operate and run our factories where we can't say that all the time about our supply base. And so that's a hidden cost that we can avoid that ultimately will not disrupt our operations and allow us to be more efficient in our current factories is what it will be. Go ahead.

As I say, I would not expect to increase our fixed cost very much through the in-sourcing opportunities some tooling, things of that nature David...

You have the capacity in place.

Yes, we have the capacity in place. So you would really capture that variable margin that would come in from the supply base into us, that's how we would think about it. All fixed cost, but not much.

There'll be a select areas that we'll have to invest because you got to understand, when you make a side shafters, the main products are [indiscernible] tripods, outer races and inner races. And they've got the capacity in place for some of that, but not all of that. So therefore, they'll have to make some investment, but the volume that they're producing are using will justify itself in a very short period of time.

You put out some [Audio Gap] post this deal. explain...

We haven't yet. But historically, we've always tried to run our operations in that 85% to 90% utilized. If you're not running at that level, you're not making the type of money you should. So we're going back and looking, and we also had some presses in storage too, from a forging standpoint that could be installed that we are already owned is just the cost of installing them, which is a lesser cost. Yes. Good question.

Perfect. Paul, I think that is all the time we have. So I really want to thank the Dauch team for a really great conversation, and thank you all for attending. So thanks again.

Thank you very much.

Appreciate it.

Good morning. 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 Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's event 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 fourth quarter earnings call. Earlier this morning, we released our fourth quarter of 2025 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. To listen to the replay of this call, you can dial (855) 669-9658 replay access code (577-1070). This replay will be available through February 20.

As for the upcoming investor conferences, we'll be at the JPMorgan 2026 Global Leverage Finance Conference on March 3, and we will also attend the Bank of America 2026 Global Automotive Summit on March 17. We look forward to seeing you there.

Now before we begin, I'd like to remind everyone that the matters discussed in this call today 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 for our first earnings call as the new Dauch Corporation. As a newly combined company, we warmly welcome our new [ Dauch ] associates to the team. Together, the future is even brighter as we joined together the strength of two great companies into one robust global automotive supplier and again, welcome to the [ Dalla ] and [ GKN ] team members.

On this call, we will discuss our financial results for the fourth quarter of 2025, our full year of 2025 and our guidance for 2026. Joining me on the call today is Chris May, our Executive Vice President and Chief Financial Officer. To begin my comments today, I'll review the highlights of our fourth quarter and full year 2025 financial performance.

Next, I will also cover a number of our achievements in 2025 then I'll discuss the completion of our transformational Dowlais acquisition and the benefits that these two companies bring together. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin.

We concluded 2025 at a positive note with good momentum. We delivered strong fourth quarter and full year adjusted EBITDA margin growth, reflecting solid performance as we made positive operational progress throughout the year, generating over $200 million in adjusted free cash flow in 2025. Our 2025 fourth quarter sales were approximately $1.4 billion. For the full year, sales were approximately $5.8 billion. From a profitability perspective, adjusted EBITDA in the fourth quarter was $169 million, or 12.2% of sales.

For the full year, adjusted EBITDA was $743 million or 12.7% of sales, up from 12.2% last year. We experienced margin improvement in both our metal [ form ] and our driveline business units as we remain focused on operational efficiency. Our adjusted earnings per share in the fourth quarter of 2025 was $0.07 per share. For the full year, adjusted earnings per share was $0.53 per share. Adjusted free cash flow was $70 million in the quarter and $213 million for the full year in 2025.

For 2025, we delivered on the financial targets that were outlined last February, while navigating a very volatile macro environment. It was a solid performance by our team as we manage factors under our control and remain focused on the fundamental pillars of our company, technology leadership, operational excellence and quality.

Now let's talk about some exciting business news, and please refer to Slide 4 in our investor deck. We are very happy to announce that we will supply our innovative smart bar product to [ Scout ] Motors. This is in addition to the front electric drive units and the electric [ rear ] axes that we announced last year. These wins [ significant ] not only our advanced technology capabilities but also demonstrate that OEMs can come to us for a variety of products to enhance their vehicles drive characteristics.

In addition, our Asia team received [ cherries ], Cherry Automotive, Best Supplier Award of the Year for 2025. This is a very prestigious award as it recognizes suppliers for outstanding quality and reliable delivery. We are very honored to receive this recognition from [ Cherry ].

Finally, we earned several GM Supplier Quality Excellence Awards as we continue to meet or see GM's rigorous quality performance criteria. Our focus is to operate at a high level to satisfy customer expectations globally. As we manage our day-to-day business, we simultaneously completed a transformational and historical acquisition for our company. The acquisition of the Dowlais Group plc and its subsidiaries, GKN Automotive and GKN Powder Metallurgy. This transaction officially closed on February 3 of this year 2026.

This acquisition creates a leading global driveline and metal forming supplier and we now have significant size and scale, comprehensive powertrain agnostic product portfolio from [ BAX ] supporting North America and global light trucks, size [ chefs ] on substantially all global automotive product segments, electric drives for future growth and metal forming components serving the automotive and industrial markets. These products can support electric, hybrid and [ ice ] powertrains.

We diversified our customer base and balance our geographic presence across the globe, anchored by our strong truck franchise here in North America and a significant global presence inside [ Jeff ]. We have compelling industrial logic with an estimated $300 million in synergies associated with the deal with an expected full run rate achievement by the end of year 3. And we expect high margins, earnings and cash flow potential as a result of the strategic combination.

From a business perspective, our strategy has been consistent. We continue to strive to improve and optimize our operations, drive profitability and free cash flow generation and manage factors under our control. With the acquisition, our focus is achieving efficient integration delivering the full value capture potential of the transaction and achieving our financial and operational targets.

Synergy realization is a core priority. We established a dedicated integration office early led by senior leaders from both legacy organizations to drive accountability and execution. The teams are filling market basket of ideals and making fantastic progress across numerous cost-saving verticals. The approximately $300 million of identified synergy opportunities span SG&A, purchasing and operations. We expect to achieve a 60% annual run rate by the end of the second full year with the majority of the realized by the end of the year 3. Importantly, we anticipate exceeding the $100 million in run rate savings by the end of the first year, positioning us well to drive value.

Before I hand the call over to Chris, let's talk about our 2026 financial outlook. 2026 will be no less interesting than 2025. In our view, trade policy discussions will continue as USMCA becomes finalized later in the year. And once finalized, OEMs can then fine-tune their respective product planning and plant loading decisions. We want to clearly underscore that it is very important and very difficult to speculate the outcome of these discussions. Hence, we will manage our business accordingly.

As such, from an end market perspective, we assume 2026 North American production at approximately 15 million units, Europe at approximately 17 million units, China at approximately 33 million units, and global production at approximately 93 million units.

Slide 7 illustrates the company's 2026 financial outlook. Our outlook takes into consideration a partial year contribution from Dowlais. And recall, we just closed a transaction on February 3 of this year. We are targeting sales of $10.3 billion to $10.7 billion, adjusted EBITDA of approximately $1.3 billion to $1.4 billion and adjusted free cash flow in the range of $235 million to $325 million.

In the longer term, our priorities are to realize strong synergies from our Dowlais acquisition in combination, generate solid adjusted free cash flow, strengthen our balance sheet, advance our agnostic product portfolio, position the [ Dowlais ] Corporation for sustained profitable growth and return of capital to our shareholders.

In addition to [ Mark's ] transformational moment for our company and its shareholders, we recently announced we changed our name from American [ Axle ] Manufacturing Holdings, Inc. to the Dauch Corporation or Dauch. The name isn't just by family name, it's a brand that stands for clarity, confidence and a commitment to performance with a legacy of leadership that has helped shape engineering and manufacturing. It represents a responsibility to our stakeholders, a dedication to operational excellence and a willingness to take bold steps as we strive to exceed today's standards and capitalize on tomorrow's potential.

Our new brand [ honors ] the strengthen shared entrepreneurial spirit of both [ AM ] and GKN while signaling our commitment to performance with [ StainPower ]. Under the unified brand, we are a premier driveline and metal forming supplier serving the global automotive industry, built on the same foundational pillars of technology leadership, operational excellence and quality that may [ further ] build [ AAM ]. These remain a brand foundation of who we are today as our brand platform states, our company is built to perform. I'm proud of the team, what we've accomplished and looking forward to a positive and productive 2026.

That concludes my formal remarks. Let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May. Chris?

Okay. Thank you, David, and good morning, everyone. I will cover the financial details of our fourth quarter and full year 2025 results and our 2026 outlook with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales.

In the fourth quarter of 2025, our sales were $1.38 billion, which were flat compared to the fourth quarter of 2024. Slide 8 shows a walk of fourth quarter 2024 sales to fourth quarter 2025 sales. Volume mix and other lowered sales by $2 million. Pricing was $6 million and the sale of the commercial vehicle [ axle ] business in India, which occurred in mid-2025 lowered sales by $27 million in the quarter.

Metal market pass-throughs and FX increased net sales by approximately $38 million as both were higher year-over-year. For the full year of 2025, our sales were $5.84 billion as compared to $6.12 billion for the full year of 2024. The primary drivers of the [ Q3 ] were volume and mix and the sale of our India commercial vehicle [ axle ] business, partially offset by favorable FX and metal markets.

Now let's move on to profitability. Gross profit was $140.9 million in the fourth quarter of 2025 as compared to $154.3 million in the fourth quarter of 2024. Adjusted EBITDA was $169 million in the fourth quarter of 2025 versus $160.8 million last year. You can see a year-over-year walk down of adjusted EBITDA on Slide 9. Although sales volume and mix declined in the quarter, we realized a positive adjusted EBITDA of approximately $5 million due to mix effect.

R&D expense continued to be favorable and was slightly lower year-over-year and performance was $8 million favorable. For the full year of 2025, our adjusted EBITDA was $743.2 million, and adjusted EBITDA margin was 12.7% of sales. For the full year, this was a 50 basis point margin improvement from 2024.

Let's move on to interest and taxes. Net interest expense was $50.8 million in the fourth quarter of 2025 compared to $37.3 million in the fourth quarter of 2024. The increase in interest expense in 2025 as compared to 2024 was primarily due to the issuance of new debt in connection to the acquisition of Dowlais, which was held in escrow until the closing in February of 2026. In the fourth quarter of 2025, we recorded an income tax benefit of $10 million compared to an expense of $6.8 million in the fourth quarter of 2024.

Taking all these sales and cost drivers into account, our GAAP net loss was $75.3 million or $0.63 per share in the fourth quarter of '25 compared to a net loss of $13.7 million or $0.12 per share in the fourth quarter of 2024. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.07 per share in the fourth quarter of 2025 compared to a loss of $0.06 per share for the fourth quarter of 2024. For the full year of 2025, our adjusted earnings per share was $0.53 versus $0.51 per share in 2024.

Let's now move to cash flow and the balance sheet. Net cash provided by operating activities for the fourth quarter of '25 was $120.5 million compared to $151.2 million in the fourth quarter of 2024. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the fourth quarter of 2025 were $66 million. For the full year, we finished at $250.9 million or 4.3% of sales.

Cash payments for restructuring for the fourth quarter of 2025 were $2.8 million and cash payments related to our Dowlais acquisition were $25.9 million. Reflecting the impact of these activities, we generated adjusted free cash flow of $70.1 million in the fourth quarter of 2025. For the full year of 2025, we generated adjusted free cash flow of $213 million compared to $230 million in 2024.

From a debt leverage perspective, we ended the year with net debt of $1.8 billion and LTM adjusted EBITDA of $743 million, calculating a net leverage ratio of 2.5x at December 31. This is down from 2.8x a year ago on December 31, 2024, driven by our cash flow generation and proceeds we received from asset sales. During the quarter, we completed our financing for our acquisition of Dowlais and funds were still held in escrow at December 31, pending the closing of the transaction. You can see the results of the financing activity on our balance sheet. Our strong cash generation and successful financing activity in 2025 allow us to support the Dowlais acquisition closing as planned.

Before we move to the Q&A portion of the call, let me provide some thoughts on our 2026 financial outlook. This year will be exciting as we bring two iconic automotive suppliers together. In our earnings slide deck, we have included walks from our 2025 actual results to our 2026 financial targets, and you can find those starting on Slide 10.

We note that the 2026 figures represent a full year of [ Dell ] Corporation, previously AAM and only a partial year contribution for Dowlais as we did not close the transaction until February. In addition to the regional production assumptions that are in our press release and deck, we assume GM's large pickup and SUV production in the 1.3 million to 1.4 million unit range. As for financial guidance, we are targeting sales range of $10.3 billion to $10.7 billion for 2026.

We have provided a breakout on the walk of the Dowlais contribution to sales for a full year, less the portion applicable to the prior period to the closing date. From an EBITDA perspective, we are expecting adjusted EBITDA in the range of $1.3 billion to $1.4 billion.

Let me provide some color on the key elements of our year-over-year EBITDA walk that is on Page 11. This chart walks [ Dot ] Corporation's stand-alone year-over-year variances and then adds a portion related to the Dowlais acquisition. As it relates to the stand-alone variances, we expect EBITDA to be impacted by volume and mix at normal contribution margin rates. R&D optimization should continue and drive approximately $10 million to $20 million in annual savings.

We anticipate continued cost reductions, operational productivity and efficiency gains, and you can see year-over-year performance improvements as a net favorable $40 million to $50 million on our walk. We currently expect a headwind for metal market and FX, in particular, due to the strengthening of the Mexican peso. We then expect Dowlais to contribute approximately $600 million for the year, which represents a full cost margin of approximately 12.1%. And very importantly, synergy P&L flow-through is forecasted to contribute -- for our full year guidance, at the midpoint, this performance drives a third consecutive year of margin improvement. As for adjusted free cash flow, we are targeting approximately $235 million to $325 million in 2026.

At this point, the main driver of this range is primarily to align within the EBITDA range. However, as you know, there are many puts and takes that drive cash flow. Our assumption for CapEx is 4.5% to 5% of sales to support multiple upcoming launches, including for our large [ GM ] truck programs. We expect core operational restructuring weighted cash outflows to be in the range of $110 million to $150 million as the former Dowlais restructuring initiatives are in their final year of completion and for the closure of select former AAM facilities.

Lastly, we expect cash costs associated with synergy capture to be in the range of $100 million to $125 million for 2026. Taking a step back, when you read through all of the details, you'll see an expectation of margin growth and even after absorbing restructuring and synergy costs, real positive cash flow available for debt repayment from our operations in the first year of this transformational transaction.

While we do not provide quarterly guidance, we do want to provide some perspective on timing in 2026. As it relates to the revenue cadence for the year, due to meaningful January downtime at key customers and only a partial quarter for Dowlais sales contributions, we anticipate the first quarter to be our weakest quarter. In addition, we expect normal seasonal cash outflow in the quarter.

Let me provide you with some key housekeeping items for modeling purposes. I know many have been reviewing and analyzing published Dowlais financial data. However, I just want to remind you that we are on different accounting standards. Dowlais is IFRS and [ Altis ] U.S. GAAP, and each company has different adjustment definitions. And you cannot simply add the two figures together as the differences are significant and have been part of our planning since day 1. Please see our previously published proxy materials for additional insights.

We expect approximately 243 million fully diluted shares outstanding for 2026. We expect normal variable contribution margin on product sales for the new company in the 25% to 30% range, essentially the same as prior. We expect annual cash pension contributions of approximately $40 million to $50 million primarily related to legacy Dowlais plants. At this time, use approximately 30% tax rate for book purposes and cash taxes assume $150 million to $170 million for 2026. Given the size of this transaction and the fact we just closed less than 2 weeks ago, there will be significant effects from purchase accounting, transaction costs and other activity in the first quarter of 2026. We look forward to sharing all this related information with you at our first quarter earnings call.

All that said, we are very pleased with how we finished 2025, and we are already starting to see the benefits of our newly sized and named company in 2026. With synergy value capture gaining momentum and the depth of our talent and products, the opportunity is right before us to attain strong financial results as we integrate together. This puts us on the road to deliver best-in-class financial metrics with a more balanced future capital allocation profile. It is a very exciting time at Dauch Corporation.

Thank you for your time and participation on the call today. I'm going to stop here and we are happy to take your questions. David?

Have reserved some time to take questions. I would ask that you please limit your questions to no more than two. So at this time, please feel free to proceed with any questions you may have. Operator?

[Operator Instructions] Our first question today comes from Joe Spak from UBS.

Maybe just to start, if you could sort of help us at a high level of what you sort of see going on at the two individual businesses because for the old American Axle, it looks like you're down 2%, minus in what -- maybe 1% of that's the sales or down 1%. So I wonder if some of the assumptions there. And then for Dowlais, I know you're sort of saying about $5.4 billion full year, then you don't have the 1 month. But it looks like there's not really some growth going on there either. So maybe you could just talk about what happened in that business in the back half of '25, where we didn't see the financials yet and then what the outlook is even beyond this year?

Yes. Joe, this is Chris. And at this point in time, Dowlais has still not completed or published their full year 2025 results. So we will not be able to comment on their full year results. However, in terms of what we're seeing from a sales perspective for both companies, generally, I would say, are very similar.

Meaning our core assumptions, as you know, from a North America perspective, are down slightly from 15.3 million units to [ 1 ]5 in 2026. That's our guidance that we have shared with you relatively flat in the European market and from our [ T1 ] truck production for legacy Dauch Corporation, you can see down slightly year-over-year. And then you have sort of a net backlog in attrition that's relatively, I would say, flat within the year. So that's sort of transitions our sales from 25% to 26% on a relatively flat basis.

Okay. Maybe one follow-up on that. If you could give us the GMT1 assumption you're looking for, for '26. And then the second question is really a clarification, because I thought I heard you say even after the restructuring and the integration costs, like you're generating real free cash. But, I mean, I think you're excluding those from your free cash flows. So I'm a little confused because it looks like there's a cash use ex those -- ex those payments. And then I guess just on those payments as well, is this really just a '26 issue? Do we think like are there still restructuring and synergy integration costs beyond this year?

Yes. Let me -- I'll work through each of those pieces. Our T1 assumption for calendar year '26 at this point in time is 1.3 million to 1.4 million units. And as you know, both companies do supply into that vehicle.

And Joe, as you think about the cash flow question, I guess maybe, it's probably easiest to look at maybe our supplemental decks that reconciled to our GAAP numbers in the tables of our press release or our earnings deck. You can see really subtotal the [ airline ] generating [ true ] free cash flow for the company. Subtract that out, obviously, restructuring costs and synergy integration costs.

Synergy integration costs, yes, I would expect to continue into 2027. And as we've always stated the -- [ from ] those perspectives, we expect to spend a total of $300 million to implement our synergies front weighted to the first 2 years. From a core restructuring cost, I would expect that to drop significantly Dowlais in the -- or the legacy Dowlais businesses in the final [ throes ] of their significant restructuring that they've been going on in the past couple of years. And as a stand-alone Dauch corporation, we are closing a couple of facilities that should be done here in 2026.

Okay. But just like when you include those payments like you are burning cash this year, right?

I expect from operations to be net-net after those payments, we will generate cash flow. So for example, [ are ] just disputing the high end for a moment. We have $325 million of adjusted free cash flow. At the high end of our synergy integration cost, $125 million at the high end of our restructuring costs, $150 million, which would generate $50 million of cash flow for the company in 2026. The available for debt repayment and other capital allocations. I expect our core operations to generate cash flow. After restructuring and synergy costs.

Sorry, then what's this -- what sort get [ down ]. So what's the cash payments for acquisition cost that's in that?

So think of that as all the closing costs for the transactions that were completed on [ Feb ] 3. So that was funded through financing that was funded through our cash build last year. That's really the closing of the transaction, all the fees, et cetera, associated with it. Really nothing to do with the core operations of the company.

Our next question comes from Tom Narayan from RBC.

This is [ Thomas ] to on for Tom. For those $300 million in synergies from the Dowlais combination, I think you've given a rough estimate that about 50% are from purchasing, 30% from SG&A, and 20% from operating efficiencies. My [ question ], do you think there's any room for upside there, particularly in the operating efficiencies category after you've been able to see the Dowlais plants now that the deal is closed?

Yes. [ Thomas ], this is David Dauch. The answer to that is yes. I mean, obviously, we're committed to the $300 million that we identified [ earlier ] as we have publicly communicated multiple times that had to go through a third-party audit before it could be published. And so we're highly confident we can deliver that $300 million.

As we've said all along, we think the synergy realization will be front-loaded towards the SG&A side of things and some of the initial purchasing initiatives. On the back side will be more of the balance of the purchasing, as well as the operational side. We are also limited in getting into the plants when we did the $300 million initially. We've not had the opportunity to get to the plants, and we see some opportunity to enhance potentially that number. But at the same time, we need to get to all the plants and do the full review before we can make any adjustments to where we are.

But again, highly confident we'll deliver the $300 million, and we'll see if we can increase that on a go-forward basis, but we'll do that on a quarterly basis as we announce our financials and get more knowledge and familiarity with their business.

Okay. Got you. And as a quick follow-up, it looks like your 2026 adjusted EBITDA estimate for the combined entity is pretty consistent with the guidance we gave back in June of 2025. Even though Dowlais has released its 2025 preliminary results, [ exceed ] its third quarter guidance. I guess, in addition to what you have on Slide 9, can you give a little more color on what potentially drove estimates lower than what you might have expected? Is it like -- if it's a function of those IFRS adjustments? Would you be able to quantify the impact of that?

Yes, certainly. In terms of what we're providing here today, by the way, is very consistent with our thought process all along. There's nothing new here, what we're sharing with you today, generally speaking.

But in terms of the IFRS adjustments, there are meaningful differences between what Dowlais reports and what Dowlais [ specially ] reports on their adjusted numbers. So for example, in their revenue numbers, they include adjusted equity share of their joint venture, which is 50-50, which is unconsolidated. Those sales are grossed up for almost [ $0.75 ] billion. That would be a sizable difference between the two. So you can't add our sales together if you're using their adjusted sales.

And from an EBITDA perspective, that would include things such as how they treat the joint venture. You have pension differences. You have lease differences, you have R&D differences. The delta can be upwards of $100 million difference. Again, all part of our planning and all the figures that we shared with you previously. But the differences are meaningful.

Our next question comes from James Picariello from BNP.

This is Jake on for James. I just want to [ follow ] up on Joe's question on free cash. So at the [ adjusted ] -- at the midpoint of your adjusted free cash [ sides ] out acquisition costs. Cash flow is up about $70 million versus stand-alone [ Axle ] in 2025. So how do we get from here to the target $600 million?

Yes, certainly. In terms of where -- I think your question and your [ spirit ] is how do we go forward past '26 in terms of driving our cash flow well, it will come in a variety of different buckets. But if you take our midpoint of $280 million, for example, you have yet another $250 million plus of synergies that will come into play over the next couple of years just to get to our $300 million from where we are [ having ] EBITDA flow-through here in 2026. That would be one.

Two, your interest expense will continue to decline post [ 202 ]6, remember and that would be cash interest. You're taking your heaviest load of that, of course, in year 1. And as you know, we're fully set up from our financing standpoint from that perspective. You see CapEx, we've articulated through the process. We would expect CapEx somewhere between overall the combined companies going forward, roughly between 4% and 5%.

We're a little bit at the top half of that range in '26. As you know, we're launching the next generation of the [ GM ] full-size trucks. Dowlais has a few programs as well that they're launching. But again, that would moderate a little bit. And then once you get into some, I would say, opportunities to evaluate income taxes over time, that's clearly not something that can happen in year 1, potentially some opportunities there.

And I would say we would expect to see working capital optimization as we go forward as well as we bring these two companies together and streamline all those processes over the next year or 2. I mean, that's a main driver of this piece. And then obviously, from a [ just ] a true cash flow piece, your restructuring steps down significantly, as I mentioned earlier, into '27 and beyond.

That's very helpful. And then how are you guys accounting for Dowlais equity income in your P&L?

That will be reported as equity income inside of our P&L. It's included in our adjusted EBITDA number. It will be in the range of $65 million to $75 million. And that's for our 50% share.

We will move on to Edison Yu from Deutsche Bank.

This is Winnie on for Edison. I just wanted to quantitatively, I was wondering if you can help us frame sort of the Dowlais business directionally on apples-to-apples basis after adjusting [ footaccounting ] differences in terms of your outlook for 2026 and how that sort of compares to 2025, just on the underlying core operations? And then my second question is sort of similar to that first question, but specifically on the China JV business. Can you maybe help us sort of understand your expectations for that market and then the relative performance there from the [ JV ].

Yes, [ Weill ] take the first graphic -- in terms of, again, '25 to '26, as you know, as I mentioned, Dowlais has not published their '25 figures. But big picture-wise, we operate in very similar markets and seeing similar demands from a volume perspective. And also in terms of their restructuring, they've had even heavier restructuring investments they made in the calendar year '25, that's stepping down a little bit here this year. We'll start to see some of those benefits transition into our P&L here in '26 and clearly more meaningful into 2027 on the, [ I will ] call it, core operations of the company.

From the JV side of the house, obviously, this is a significant JV size. Revenues are nearly $1.5 billion. It's all exclusive inside of the China market, you would watch that performance to continue to be strong and steady. It would mirror a little bit to the macro movements of the China market. So if you track volumes from that perspective, that is helpful in terms of how you think about our joint venture. And as you know, I shared with you what our equity portion is flowing through our EBITDA, but I would also expect a sizable dividend associated with that.

Got it. If I may just squeeze in just for like [ molting ] purposes. How are you still planning to report your segments [ going ] forward? Is it going to be sort of all integrated? Are you -- we're thinking about like a different way of extending the business?

I didn't hear the first part of the question. Can you repeat that, please?

Yes. In terms of the segments, are you going to report on a [ go-forward ]

[ Yes ]. We'll update you at the first quarter on our segment reporting. But currently, as you know, today, we're driveline and metal farming I expect you'll see something similar, but we got to finalize that piece. We'll share that with you in the [ first ] quarter.

And our next question comes from Itay Michaeli from TD Cowen.

I just want to go back to the cash restructuring of $110 million to $150 million this year. I'm curious if you can dimension the savings from that particular line item. Is that already reflected or a large part of it reflected this year? Or is there sort of another incremental payback for that we should think about for next year?

Yes, Itay, this is Chris. So this is -- again, over 2/3 of this relates to, I would say, the -- the ongoing campaign of restructuring that Dowlais has seen in several other factories moving from high-cost countries to lower-cost countries. This is the final piece of that.

You've seen some flow-through and benefits most likely in '25. You'll see some in '26. But again, concluding here in '26, you should see a good benefit in '27 associated with that. In terms of the other 1/3, which is the American Axle side, where we are closing a couple of facilities that we started last year and we'll conclude here this year, you'd start to see that really benefit us here in the year following [ meaning ] '27.

Terrific. And then just a quick follow-up. Are you able to share any kind of like pro forma debt, net debt, like post the closing of the transaction?

Yes. Look, I would say, obviously, we're still completing some of the final pieces of the [ close ] since it was only 10 days ago, but we would expect sort of roughly in the ballpark range of about $4.2 billion at sort of day closing, if you will. That's again [ it's ] very consistent with what we planned on in our cash flow generation and financing activity supported that. So.

And ladies and gentlemen, at this time, we'll be closing our question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Great. Thank you all who participated on this call, and we appreciate your interest in Dauch. We certainly look forward to talking with you in the future. Thank you.

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

All right. Thanks, everyone. We're going to get started with our next session. Very pleased to have with us next American Axle & Manufacturing. I have Chris May, CFO; and Shannon Curry, Treasurer from American Axle.

Chris, then you get some just brief opening comments I want to make and then we'll get into Q&A. We'll also be taking questions from the audience. [Operator Instructions]. But thanks for joining us, and take it away to, Chris.

Great. Thank you, Joe, and good morning to everybody. First of all, thank you, Joe, for hosting this event also to UBS. This is always a great event to come to and talk with our investors and share our story. It's always very exciting for us to do that. Before I begin, I would also remind everybody to take a look at our forward-looking statements that we have out on our website for the matters that we're going to talk about here today. But just from a perspective of some opening remarks, we closed our third quarter and reported our results about a month ago. Certainly pleased with how we are performing on a year-to-date basis.

Strong quarter for cash flow, nearly $100 million of adjusted free cash flow inside of the third quarter, but also we continue to perform multiple quarters now in a row where we have year-over-year positive favorable performance as a company. So really placing us well into conclude out through 2025, but also setting us up really nicely in our view for 2026. I know another topic we'll probably dive deep into here today is our acquisition of Dowlais and that continues to progress very well. We did get our shareholder approval in July. We've now completed our permanent financing with Shannon and team here in the October time frame. And in our earnings call, we said we've received 8 of our 10 approvals from the respective jurisdictions. I am pleased to announce we have received our ninth that would be from the country of Mexico.

So now we're really down to waiting for final approval in the China marketplace so we can conclude and close this transaction. So we are tracking to close the transaction here in the first quarter. Certainly excited to get that size and scale to continue to leverage those synergies and create a lot of value creation for our shareholders and our other stakeholders inside the company. At the macro, for our business as well as for Dowlais business as well. The ICE for longer continues to be a theme that we see that's exciting for the foundational elements of our business that will carry our performance and cash flow for a very long time to go and we'll continue to focus on our operational core productivity of both companies in addition to those synergies. So really setting us up, hopefully, for a great 2026 and beyond.

So with that, Joe, maybe that's sort of some positioning where we sit today and maybe turn it over to you for some Q&A.

Sure. Thanks. Maybe what -- you sort of talked a little bit about your guidance for the year. We've got about 3 weeks left in the year. How are -- how would you sort of say things are trending? And I guess specifically, like you gave some ranges on the GM full-size truck program, which is obviously a very important program for you. We saw the S&P update. There were some positive revisions now. Again, maybe some of that was timing because I think there was also a positive revision to the third quarter as well, in which I know we've sort of talked about post earnings that you thought maybe their cadence as above.

But overall, they still did raise the number I think they're probably a little bit closer to what you were expecting now, but how are you sort of seeing that trending through this quarter?

sP1 Yes. We provided our guidance early in November. We talked about a North America production environment of around 15.1 million units. That continues to be sort of our line to say to that. We did get a range of the T1 truck production of 1.3 1.39 million. We have seen volatility inside the quarter for some of our platforms, some of which we talked about in terms of -- at our earnings call, we saw some early downtime in the quarter at [ Janesville ] for GM facilities. We have seen some extended downtime planned around the Christmas holiday. I think, generally speaking, that's in line with what we talked about on our earnings call.

And of course, one of our other large customers for some of their volumes as they've gone through some of their local supply challenges with some of the aluminum side. We've seen some softness in a few of our schedules for Ford around the edges. So we see them clearly trying to build out the Super Duty platform, which we are a large supplier for from a component standpoint. So Volatility is still inside the fourth quarter, but generally aligned with our commentary at our earnings call. Those updates from S&P Global really factoring into any of our thinking at the moment.

Okay. And then as you begin to sort of some of your planning for next year, any high level of commentary on what you see from a U.S. market perspective or maybe some of the internal American Axle goals, again, on a stand-alone basis from a cost side. And then obviously, I know you'll have the integration to deal with.

From a production standpoint, is your...?

Well, one from how you're planning for production and then related any sort of cost initiatives that internal.

Yes. And at this point, it's a little premature to give any guidance or ranges for '26. So -- but in terms of how we're thinking about '26 and some of the elements we're stepping into, from a macro market perspective, as you know, S&P as the North America market is down slightly and the European markets, I would say, call it, relatively flat. So that's sort of our current planning scenario that we're evaluating and taking a look at. From a truck production standpoint, we are, I would say, very bullish on our trucks, whether it be the General Motors trucks, the Ram trucks and even the Ford trucks going into next year.

Now GM, I think from our view, we'll start to their next-generation platforms. And you've heard some of our commentary as it relates to our fourth quarter performance that we're starting to make some investments from a capital and project expense standpoint.

When does that go through when will that be done?

From our standpoint?

Yes.

That will continue probably the fourth quarter of this year and into a little bit, call it, first quarter so and then they'll transition. So I would expect probably some volatility from their plants as they do some conversions in the next year. But big picture, I would still expect the T1 platform to be a strong perform platform next year. From the RAM perspective, they went through this phenomenon a year ago. So they had softer production in Q4 of last year and Q1 of this year and now they've been running very strong and steady. Our view on those heavy-duty platforms, again, ramp would be strong and steady next year. We see no reason why that wouldn't continue to be the case. And same with some of the Ford programs that we support as well as production.

Yes. I don't want to get to the cost side. But I think it's a good time to interject this. So you mentioned the ICE stronger for longer sort of thesis and we agree with that. I'm curious to sort of get your view, though, on not just ICE but, let's say, pickup trucks, work trucks in general. With the more relaxed regulatory environment with automakers not having to sort of manage their overall mix and inflated vehicles with a potential CapEx cycle and sort of the need for infrastructure build. Do you see a world -- maybe it doesn't play out in '26, but if we think out over the next 2, 3 years, where the pickup market overall just trends higher than what we've seen in the past couple of years.

Yes, I don't know if it trends higher, but it clearly, in our view, continues to remain strong and robust. And we have an interesting -- our pickup programs we support both light duty on the GM side, and then we really have a great line of sight into the heavy-duty side, so call it greater series for GM, Stellantis and for Ram and for Ford on the component side. And our view is those markets to the items that you just talked about will remain very strong for the foreseeable -- that's our expectation. Now if you get into a boom where there's a lot of capital investment going on and housing continues to grow or it takes off in some regard or construction. Obviously, that drives demand for those 2,500 and Greater Series. That's what they support. So that would continue to either keep a floor on strong production or maybe pick a like pickup. But our view over the past many years is those are strong and stable platforms. because they have a need in the marketplace. And there's no substitute for frankly.

And you mentioned in your opening remarks, the good recent sort of performance that you guys have had Again, how are you sort of thinking about that into '26?

Yes. So some of the maybe cost puts and takes as we think about '26 going forward. I think from a couple of different perspectives. From an operational perspective, if you look at our driveline business unit has performed strong and steady, and that environment allows that business unit to generate productivity that offsets price downs or inflation. I would expect that recipe to sort of continue on our driveline side. I'll be with, call it, a little bit of puts and takes for the GM conversion to the next-gen truck. On our metal form operation side, look, we've been trying to trend it back to double-digit margins. It got close here in the first half of the year, quite frankly, the third quarter wasn't a particularly strong quarter for that group.

So I think we still have some work to do in terms of operational efficiency of a few of our locations, but also some continued capacity optimization as it relates to our metal form group. So we've -- we've taken some actions through our restructuring costs for American Axle this year as a stand-alone to close some facilities. I would expect that to continue into next year to some degree. So to continue to bring some cost improvements in the metal form side, which would translate to margin improvement for that book of business.

That's on a stand-alone basis, and I know you're limited in what you can sort of say now on a combined basis, but when this deal does close, will that provide additional opportunities to maybe restructure even sort of stand-alone American Axle facilities? Or is some of that thinking and calculus already go into the decisions you've already done?

Well, I mean, as the items I just referred to were...

Needed to be done irrespectively.

It needed to be done irrespectively. But if you think about the ones we're combined, part of our synergy opportunity is plant optimization. So I would expect that we would further optimize our plant footprint as part of the acquisition over the next couple of years together. So we'll be able to leverage both companies today footprint and optimize that through some restructuring. And that's already included in our synergy estimates and costs.

Okay. We have seen some price movements in the metal markets of late. I'm curious if you could just sort of give us an update there, what you're seeing, how that would play into '26 and remind us sort of how that works its way through your financials?

Sure. I mean at the macro, how it works through our financials, generally speaking, for index-related cost changes, we pass, call it, 80% to 90% of those costs up or down to our customer either every month or every quarter, it depends on the customers. So we're generally insulated from that. There can be some timing lags. But what we have seen some of the main, I would call it, input costs to our business that factors into is scrap steel, which is the key ingredient to make bar steel that we buy. And that's actually been relatively, it's come down over the last, call it, 12 months and has sort of run flat the aluminum that we purchased has been remarkably flat over the last 12 months as well.

We've seen some other copper and things like that starting to increase. But again, we're protected with our pass-through mechanisms. But right now, I would say big picture over the back half of the year. It's been relatively flat. And we don't really make predictions going forward on that as we are predicted.

Yes. You mentioned the metal forming EBITDA margins, and I think those were I think you said double digits, you want to get back to, they were, I think, mid-teens back in the day. So what -- just what is the plan? What needs to happen to sort of get back to those levels?

Yes, it's a couple -- I would say, this year, I think year-to-date, they're about 8% all in for the 3 quarters. And there's a couple of factors driving that. I mean when you compare back to the high-teen element, of course, that was a while back, the cost structure from a metals pass-through perspective has changed quite a bit, and that has caused a meaningful change margin profile because you pass on those costs at cost. So it actually deteriorates margin, but it protects the company and protect the business unit.

And that's a change from when you were doing high teens or...

Yes, I think we've added a lot since then in terms of some of the...

Structurally, they're just...

There's a piece that's structural, but that's not the whole story. There's truly operational improvements that we need to do inside of this business unit. And as I mentioned a few moments ago, we've made progress, but we still have work to do. And how are we going to accomplish that? Look, a lot of this is inside the 4 walls and a few of our select facilities, quite frankly, struggling a little bit with capacity optimization as well as efficiencies inside those plants. So we have teams dedicated to working through those. Like I said, we've made some progress this year. I would expect that to continue. But in addition, through some footprint optimization, I would also to squeeze out some fixed costs. And that's also another piece of that story that will get us into those double-digit margins, which should play out over the next 6, 12, 18 months inside of that business.

If you go back, I don't really think so much this year, but definitely last year, labor was a little bit of an issue as well in turnover. And how has that sort of played out across your different sort of facilities and businesses? And is there a little bit more stability there as -- and how do you sort of view that going forward?

Yes. No, that was a significant challenge for our business and many businesses in many industries just a couple of years ago. We put a lot of structural changes in place, in some cases, compensation changes. We try to introduce automation where we could in quick order to sort of take some relief off of the need for manpower. So I would say for the most part, we've now reached a stabilization in terms of -- at our facilities. We do have some challenges from time to time. But it's nowhere near like we experienced about 2 years ago. So that issue, I don't want to say it's passed. It's something we have to manage every day. I think every company has to manage that every day. But I think the major pain points that are sort of passed through a lot of the things that we have done. And I would expect to continue more into the automation side.

So I was just going to say, I mean, as you sort of reevaluate things here and obviously, sort of automation technology has progressed as well. Is there an opportunity to do more. Because it does seem -- I don't want to say you're sort of underinvested in that in the past, maybe it wasn't sort of the right time to do, but it seems like there's more opportunity to do that going forward? And how does that play in, I guess, to sort of go-forward CapEx plan?

Yes. Well, it would be included in our estimates of CapEx today in terms of at least what we think from an investment standpoint for automation. But I would say our -- our factories have a fair amount of automation into them, but this is a very, I would call, hot topic inside of our company with our engineering teams and our MAs to look how we can advance because it solves a lot of different issues. Number one is some of the labor pain points that we talked about, but it also -- it can improve efficiency inside of our factories and create better capacity utilization of our equipment. So they're looking through a lot of opportunities to do. We've done some quick hits in a lot of our factories, but we're also trying to lay even a longer game plan on how we can increase the automation in our factories going forward. So this is a key topic for us to continue to into and install in.

So would you say you're still in the earlier earnings of that, like long term -- like not to say in 2 years, it's going to be sort of all automated, but there's a long path here for...

Well, it's clearly a path. I don't know, I would say a long path. Again, our view is we do have a lot of automation in our facilities. But I think in terms of some of the advancements from an IT perspective, from just pure automation continues to evolve very rapidly, and we are evaluating some of these sort of and techniques. But those would be probably a little longer path. But I would say it's kind of short to midterm, you'll see continued investment inside of the automation in our factories.

And what about on the Dowlais side that you're inheriting? Are there -- where would you say sort of they stand on that front? And are there any practices or techniques they use that you could sort of scale across your stand-alone facility?

Yes, it's certainly a little bit, I think, early days to address some conclusions there. We -- if you've heard us make some remarks that we really haven't had a lot of opportunities to get into the factors since our shareholder vote path back in July, that has opened up. So our teams have been able to spend some time in their factories. And I think we're excited about some of the opportunities they would present. But look, they're a very capable company. They have a lot of automation factories. And I think combined, we'll have even new ideas to advance our operating systems and automation is a key piece of that.

Right. So we danced around the sort of topic of the acquisition a little bit, but let's sort of dive into that a little bit now. Well, first, with the approvals and closing. So it sounds like you're just waiting on China now and you expressed confidence that the deal can sort of close in the first quarter. Like is that -- like once you do get approval, are you able to close? Or is there still some sort of timing that needs to happen between those -- that process.

Yes. So we've been in active dialogue with our teams and regulators in China. We're not concerned about any of the topics. It's just, I'll call it, a process, and it takes some time, and that continues to work through. And then once that's concluded, we have to set -- it's -- I would call it -- I want to call it mechanical, but there's a court date you have to set in the U.K. to get sort of final approval, which is generally relatively automatic and then you close it's not really viewed as a meaningful hurdle to get past. You just sort of at the schedule and go through that process. So once we get approval from China, I think we're accelerating the process to get ready to close.

Okay. You mentioned the synergies. I think you sort of talked about $300 million. There's a number of different buckets. And maybe you could sort of just quickly go through those buckets. And now that you have at least have had a little bit more sort of access to some of those manufacturing facilities. If you could like let us know any update there? Is this sort of just leave you sort of more comfortable with the opportunity you sort of laid out? Or are you sort of beginning to sort of find elements of potential upside there?

Okay. You know, this is an exciting topic. And just to kind of frame as you mentioned, $300 million really falling into three main categories, and we'll talk about each of these, but 30% of that is, call it, in the public company, SG&A, engineering type, call it, redundancies that we can control. About half of our synergy estimates is through the purchasing and procurement arm, and we'll dive into that in a moment because it's not just direct purchasing. We have a lot of vertical integration opportunities here for us, which I think is unique for these two companies combined, which is one of the things we really liked about it. And then the last bucket, 20% was valued for operational improvement. So that would be a common operating system as well as some plant capacity optimization over the footprint validation.

But before we get into the details of that, the teams, I would tell you, have been working very diligently now over the last -- really since the June time frame, and we continue to gain momentum and speed. We have an IMO office setup really focused on the value capture for this the broader teams anywhere from 80 to 100 combined between the two companies are meeting multiple times a month now to really get us in a position so hitting day 1 from a just a pure close perspective, a pure system perspective, but also from the value capture on the synergies, getting out of the chute as quick as we can. But if you think about some of these $300 million of synergies, clearly, that first bucket of SG&A and public company costs, very common duplication we'll get at relatively quickly. The R&D spend, both companies have a sizable R&D spend. Both of us are investing into electrification and similar type of elements.

This brings a great opportunity from a synergy perspective to come together and optimize engineering spend, part of that almost size and scale theme of being able to spend better to get an outcome for even greater products going forward. On the purchasing side, look, the size and scale will drive pure, I would call negotiation with the supply base to get lower prices. But I think unique to the combination of these two companies is today, Dowlais, for example, purchases a lot of steel forgings on the outside. We are the largest steel forger in the world on the American Axle side. They don't buy a lot from us today. The ability to integrate and vertically integrate many of these components. There's some real capture of margin, if you will, as part of that. The same on the powdered side. So we are in the powdered metal business. We buy raw powder, some from them, which they manufacture and some from other suppliers, we can obviously vertically integrate that piece into ourselves as well. So it's not just a negotiation with the supply base. There's a real true vertical integration element to the combination of these two businesses.

How much of that bucket purchasing, how much would you say the vertical integration is?

So the purchasing bucket is half of the $300 million. It's probably in the, call it, 20% range.

20% of the 50% or 20% overall?

20% to 50%. A rough number in terms of some of that opportunity. And that will obviously -- we have to do -- you have to in-source part and you need to get customer approval for some of these. So you have to kind of work through some of that pieces. And then the last bucket, which we're most interested in from an excitement standpoint, of the optimization of the factories because now we've been able to go through some of these factories and you're seeing how this can play out with a common operating system, a best of the best, the AAM operating system, the Dowlais operating system and how we can drive improvements in their factories and our factories as well. When you commonize some of these elements.

So we think potentially this is an area where I think we overperformed when the MPG acquisition we did back in 2017. And our view is, look, this is an exciting area for us. This is the sweet spot of American Axle. What we love to do is the operational side. So that...

And is that also the area that probably takes the longest out of all the buckets you just mentioned to sort of start to see the benefits?

Yes, absolutely. The first bucket of SG&A and that pretty quick within one, you get most of that. The purchasing side. There is some cadence of timing when you're renegotiating with suppliers, maybe new prices started on Jan 1 or something to that effect. This one, the operating system, look, you can get at quickly, but you have to install it across a fleet of facilities, which will take time. And then, of course, the plant or footprint optimization, that's probably the longest because you have to really fill out a detailed plan to do this. In some cases, you may need customer approval to do some of these movements. That would be the longest tail in this piece. But also could have the biggest bang for the buck.

On the vertical integration portion, like you mentioned, powder metal would you be able to sort that exclusively internally? Or do you still need to go to...

There's different chemistries of raw powder that you buy. So we would have to obviously want to balance some of that and make sure that they do all the chemistries that we would require. But we believe there's a significant portion that we would be able to work through.

And vice versa on the casting.

The Forging Steel. Yes, absolutely. Same concept.

Yes. Okay. I guess the other part of investment that we could sort of see as sort of -- that you might need to make? And again, sort of going back to sort of the stand-alone business is some of your customers and you sort of alluded to a little earlier, like not only is GM changing over to sort of a new platform, but they're also increasing capacity. Ford likewise, is ramping up in Canada for some of the super do. So how do you sort of evaluate your footprint and be able to sort of supply those additional factors.

Yes. No, it's a great question. Clearly, we work closely with our customers on these topics, starting maybe in reverse, you talked about forward expanding inside of well, Canada in terms of the Super Duty platform. In our last earnings call, we had a little announcement that we won some heavy-duty truck business. We can't name who that customer is aligning with some of the expansion of supply components into that vehicle very exciting for us. And as you know, sort of what we were talking about earlier, the demand for those heavy done products. But clearly align the capacity, winning new business and expansion to support them.

The key is just obviously being cost competitive, which we are and then working with them to supply their needs. On the larger driveline systems, our customers source us well in advance of when they're going to launch. They have -- these are long programs, they take delivery at our docs, so they generally direct traffic to where they want these products built and source from and we'll just work with our customers to support their needs throughout the North America region.

And does that require additional lines or your facilities? Or is it just more over time? Like how do you fulfill the additional demand?

Yes. So they set up the -- and this is true for all customers, right? They put us on contract for certain capacity requirements, and we go through, I'll call it, a quotation and commercial process with them to put in place what they need. In some cases, you may be able to just cover that capacity requirement through like a 6-day or over time when they need it or flex, if you will, flex time. In some cases, they want permanent capacity in place for the need of their particular product. It depends -- it's product specific. And you work with the customers and reach a commercial arrangement with them on that. But they will tell us which they would prefer generally speaking.

Okay. So going back to the vision of the combined sort of pro forma company, right, you put together two strong EBITDA performing businesses, you could layer on over time, another $300 million in it sounds like there might be some capital that needs to be spent, maybe some restructuring as well once you sort of under but it stands to sort of follow that the result in free cash flow this combined ratio can also be quite strong going forward. I know it's sort of a leverage neutral sort of transaction.

You talked about China and completing the sort of permanent financing. How do we think about the uses of that cash for the combined company going forward? Because I think before this deal, there was sort of, I think, a path to your sort of trying to sort of take leverage down. I guess it's still probably the plan, but maybe sort of just talk about what you see as the use of that cash flow. And to the extent you can sort of talk about the cash flow dynamics of the pro forma company.

Yes, certainly. Well, first and foremost, our objective from a balance sheet perspective is to continue to reduce the leverage ratio of the company. both standalone American Axle and I think we've made great progress on that. but also as a combined entity, that is our objective. And we'll talk about some of the cash flow dynamics in a moment. However, from a pure capital allocation perspective, what we have articulated that is after close, we'll fund organic growth, we'll fund our R&D. But our primary use of the cash flow that's generated from the business will be to reduce our outstanding indebtedness until we're about 2.5x levered. And once we get to 2.5x levered, the thought process there would be we would have a more balanced capital allocation playbook.

What does that mean? We'll continue to pay down debt, but we'll also then focus some of that cash flow generation on to, I'll call it, shareholder-friendly activities, whether it's a dividend or buyback that would yet to be determined. But more balanced where you've seen us now over the last really since 2017, be almost exclusive on debt pay down, we'll transition that once we cross the 2.5x threshold. I would expect from that standpoint going forward, we would still want to reduce our outstanding leverage to get down below 2x. With that balance of capital allocation, close to 2.5x. From a cash flow perspective, look, our objective is 5% of sales or greater adjusted free cash flow performance of the company. I see over the next couple of years, how does this play out? Clearly, after close in 2026, we'll have a few things to fund. We'll have to fund the -- again, the organic growth in R&D of the business. But we'll also have to fund or make an investment in the amounts required to capture these synergies.

So we've estimated, as we've talked about, $300 million of annual run rate synergies, our expectation is we will have to fund about cost to achieve those synergies, whether it's plant relocation or severance costs and a few other type of pieces that would fall into that area. Both companies will continue to have, I would say, their base business, some level of restructuring activity going on, like we do today and Dowlais has been spending a fair amount of cash over the last couple of years doing that, but I would expect their amounts on a stand-alone basis. come down, and they publicly talked about they're reaching the end of some of their core restructuring inside of their business. So that would be positive for us as well.

Will you back out some of that restructuring from your adjusted free cash flow number?

Yes, our adjusted free cash flow is before restructuring. So you would have to then take the restructuring after that. But true cash flow generated by the company.

Understood. But then like -- let's sort of think about before some of these additional initiatives to sort of get at the synergies that sort of stand-alone ongoing restructuring just talking about should be at similar levels to what we've seen historically for American Axle.

Yes, it would come down. We're finishing up some items in Europe for us in terms of some plants. But I would expect both companies to come down to sort of some -- I don't use more nominal, but some lower rate sort of what you've seen us historically.

And then -- then we need to add in $300 million to sort of get to the end.

And I would expect the $300 million sort of spread out between '26 to '28, probably a little more front-loaded in terms of that activity because you need to make those investments to get those exit rates synergy savings, but that's how I would expect that to play out.

Right. It's really though $300 million for a smaller number because you don't need to spend capital for some of the SG&A, for instance, you talked about ...

Well we do severance costs and things like that. It's not capital.

Exactly.

But severance costs and things of that nature would be included to achieve some of those synergies.

Right. So we still seem that like the payback on that $300 million for the synergies that do require sort of capital spending is, what, probably 2 to 3 years or so? Is that a fair?

Because you'll exit out for this period of time with a much different fixed cost element structure that you would receive part of your $300 million.

Okay. I don't know if there's anything in the audience. But again, if you want to ask a question, please use the QR code, and I'll see -- I'll keep on looking over at this IPad to see if anything pops up. If not, I guess the other side of this acquisition is you're going to be a much larger company, right, more critical mass. And I think you also want to be -- but you still want to sort of focus on your core competencies. I think they're on stand-alone American Axle, there were some businesses which I think you were -- you have gotten out of some. I don't know whether that process was done in sort of the full evaluation of whether it will sort of be continued businesses that you sort of choose to walk away from or not. How do you think about it from the Dowlais side? I mean, again, I know it's early days, but are there potential divestitures that can also be sort of cash flow sources, if you will.

Yes. No, a great question. And this is something we've been evaluating inside of our own standalone American Axle now the last couple of years, and you saw us take some action here -- we exited a joint venture in China, monetize that for about $30 million. And then we decided to -- I won't say exclusively, but clearly double down in just being a light vehicle manufacturer, exited our commercial Vehicle Axle operations India and monetize it for about $65 million. So all in, brought in about $100 million into the company this year for some of these assets. What I would tell you is we continue to look at our product portfolio once Dali comes a part of the family when we close in the first part of -- first quarter of next year, kind of looking at it across the entire board.

Now how do we think about that product portfolio longer term? What do we want as a part of our kind of go-forward basis for the next 5 to 10 years and absolutely open to thinking about are there pieces in here that may or may not make sense for us. And if we conclude they don't, we're obviously we would have a disposition process for those. And at this point, right, when we close, we're all -- it's all part of one and we'll go through a valuation process.

And obviously, it's a meaningful acquisition of a large size, and we'll take some integration efforts. But do you still think there is the potential for smaller tuck-ins to sort of round out the portfolio? Or do you think you have and are comfortable with what you need once the steel quote.

I think small tuck-ins and things of that nature. And there's nothing quite -- I mean, we're heavily -- we are focused on the acquisition -- so just to be clear. But if you look over the last 3 to 5 years as a stand-alone American Axle, we had some small tuck-in time to time to round out either maybe it was a supply chain challenge, we thought we could better manage inside the company or want to expand into certain products that's like we did with Tekfor. Look, I think that's always a part of the dialogue. But right now, our focus is solely on the acquisition closure of Dowlais acquisition.

You mentioned that both you and Dowlais or have been investing in R&D and sort of electrification. And look, that's a relatively small part of your business. And you are also, let's say, overexposed to sort of the North American market. So I guess, at least for your sort of stand-alone business, and then we can sort of talk about maybe what Dowlais might do. But you mentioned right off the bat, right? It's ICE stronger for longer. And I think that's mostly a North American comment for the most part. But -- and for some of your other products, maybe in some -- in the other markets for some of the vehicles you provide, I would agree.

But does that then change how you sort of think about R&D or sort of is there -- or how you sort of go to your customers and sort of talking about what you could do for them? Are you requiring for them to fund more the developments upfront? Or because otherwise, you could sort of just continually sort of get caught in the cycle where you're spending and then you don't get the returns on that investment because the volumes.

Yes. And I think the industry has gone through that cycle here over the last couple of years. I think our approach over the last couple of years from American Axle stand-alone will continue in that same, I'll call it, philosophy going forward. I think we've been very selective and what we have decided to work on and pursue from an electrification standpoint, which I think has allowed us to be quite measured in terms of the R&D spend to support that. Now we dialed our R&D spend back. This year alone, we've reduced our R&D spend by nearly $20 million. That is a direct beneficiary of the changing landscape for EV in particular, in North America. But being sort of measured and thoughtful about where we make these investment dollars and where these may transition to in terms of growth opportunities is really top of our mind.

I think we have, I would say -- rigid is probably maybe a little too strong of a word, but we have key financial metrics, key risk management metrics we think about when we're pursuing new business. EV is a part of that and ICE is a part of that, and we try to treat these the same. But we do see growth pools for our electrification business, we're experiencing in China today, some of our e-Beam axles. And clearly, we're experiencing it on our component side of our business to support the volumes that are in the marketplace today. Now those require far less R&D dollars than a big driveline. So we're able to sort of, I think, kind of play the middle road here in terms of growing in some key areas with limited investment and then in terms of components, but also making select R&D dollar investments in some of our drivers to support the marketplace. But once we combine with Dowlais, now you have twice the talent, you have twice the product set, you have a lot of capability in house to support the electrified market.

And I think we can rationalize costs as well and still be offer a competitive product to what our customers need. So I think that sort of generally answered your question but we've been very measured in this and have not really gone all in, if you will. And I think that theme will continue. But our investments here. We just won this -- we announced the award with Scout, right? That's a great award for us. It's our electric axles. It's on a range extender vehicle. So we'll continue to perform, we believe, in that space on a selective basis.

Yes. Maybe a final question. I mentioned in the present last question, your sort of -- the vast majority of our business right now is North America. Dowlais obviously diversifies you geographically and a lot more into Europe. One of the investor concerns about Europe is that there just needs to be the automakers in Europe need to undergo sort of their own rightsizing because they're facing competition from right now, some China imports, but eventually sort of China localization. How would you sort of categorize your assessment of Dowlais footprint to be able to sort of handle that effect if that sort of trend continues? Have they been proactive with some of that? Or is that an additional source of potential restructuring that might need to take place?

Yes. I would say over the last couple of years, they've been quite proactive in addressing this in some of our comments earlier, they've made significant investments in restructuring dollars to really rightsize their European footprint to some degree, also their U.S. footprint as well, moving it from the higher cost to lower-cost countries, but they've taken a lot of action inside open marketplace to support that. I would say in addition, and maybe at the other end of this, they have a significant joint venture in China which is really how they participate in the China market. The 50% interest in this entity that sells the full suite of products the Dowlais or GKN manufacturers, and they've been growing their book of business there. It's almost 50% now with local China OEMs. So that will allow you to enter into that value chain through China. So we think between that element as well as the restructuring activity that they've done already inside of Europe, we should benefit from both of those sort of actions and activities going forward.

And competitively, that JV in China, as you sort of look out on the horizon you think can remain a player there? Or is there going to be more intense local competition?

Well, it's an intense competition in the China market last to begin with, but absolutely can be a player. We're very excited about it. We participate at American Axle stand-alone. It's about 5% of our revenues with sort of a niche product line there. But we have some unique products that we can work with the joint venture on going to market together. So we're very excited about participating in the China market through this approach.

Great. Well, with that, I think we're out of time. So Chris and Shan, thanks for joining us today.

Thanks, Joe. Appreciate it. Thank you, everybody.

So I'm Doug Karson. Thank you for coming to the conference. We couldn't do a great conference without great investors or -- we certainly need great management teams as well. This year, we have about 1,000 investors and 250 management teams. When I started 20 years ago at BofA, I think this conference was 1/3 the size. So we're really proud of the event, and we're grateful to have you guys here. One of the best partners, I think we have at the conference is American Axle. Chris, I think you've come almost every year since I've been here. And we really appreciate you Shannon Curry, the VP and Treasurer. Chris, of course, is the CFO. American Axle was one of the first companies I covered 20 years ago, and I remember it because I went to see one of the facilities there.

And it was like the cleanest, best operating facility that I think -- I didn't even know what I was seeing when I saw it because I thought they're all like that. Then over the years, I went to a lot of other facilities and like, wow, that American Axle facility is very different. So I encourage anyone to go reach out to American Axle and try to take a look at the facility if you could, it's a really special thing to see. American Axle is going through a really big transition with a great merger. We'll talk about that a little bit. And I think without further ado, we'll let Chris take over with a couple of slides.

Awesome. Great. Well, good morning, everybody. Thank you, Doug, for those introductions. And anyone, of course, as Doug mentioned, you're welcome to join us at one of our facilities, just reach out to myself or our Investor Relations team. Happy to host here to see that. But -- and also thank you to Bank of America for having this event. It's always a great event each year. Before we begin, I would remind you to take a look at our forward-looking statement and disclosures for the topics we're going to cover here today. I know many of you know who American Axle is, some of you may be new. So for your benefit, I will share with you, we are a $6 billion global Tier 1 automotive supplier. Our primary market or about 3/4 of our revenue are generated out of North America. And our main customer mix, you can see on this slide sort of in the pie in the middle, supports the big 3 here in the U.S. with General Motors, Stellantis and Ford.

We run as a business 2 operating segments, our Driveline business unit and our Metal Forming business unit. And when you think of American Axle, you most likely are thinking about our driveline business unit. This is the group and the unit that builds our axles and our driveline systems for light trucks and for all-wheel drive systems on crossover vehicles. It's also our primary business unit that supports our electrification hub as it relates to drive units, drive axles and drive motors. On our metal forming side, on the right, it's about $2 billion of our $6 billion of revenue. We are the largest automotive forger in the world. We make many different products, support many different customers with primary manufacturing inside of North America and inside of Europe. Earlier in the month of November, I will transition now and talk a little bit about some of our financial performance and some business updates. We did release our third quarter earnings results. It was a good quarter for the company. Adjusted EBITDA margins of 12.9%, generated nearly $100 million of adjusted free cash flow.

So a good solid quarter for the company. If you want to find out more information, more details on that, I would refer you back to our Investor Relations page on our website. You can see the transcript and all our other presentation materials associated with the quarter. But big picture, through the course of 2025, we continue to deliver a really strong year, good margins and most importantly, as you look at each of our quarters, continued year-over-year operating performance as a company. So we're very pleased with those results. Also during our earnings release, we frequently provide some business updates. In the last quarter, we had a couple I thought were really interesting. Number one, on the right-hand side, some continued business wins. As you know, this is a challenged environment for the auto supply base as many of the OEMs are sort of stretching out some of their existing programs, repivoting on electrification, but we continue to win, especially on our component side, supporting ICE, hybrid and EV vehicles.

And you can see here also our metal forming group won some -- support some heavy-duty truck applications, which are very key to our core business franchise for product that will run for a very long time. So continue to advance the core of the business in light of everything else going on around us from a macro perspective. And then on the left, as Doug sort of referred to earlier, we are in the process of closing on our acquisition of Dowlais. So both shareholders -- sets of shareholders made -- improved this transaction in July. In October, we've completed our permanent financing for that. We'll share a little bit of information at the end of the presentation on that. But thank you for those that participated in that. And at our earnings call, we said our combination has been cleared under our antitrust laws in 8 out of 10 jurisdictions with the thought that Mexico would be cleared here and China by the end of the year or early next year.

I'm pleased to report Mexico has now cleared this. So we are 9 out of 10 done, and we're just kind of working down the last leg here with the China approval. And we still anticipate closure here in the early part of 2026. All right. So with that said, I think that's a good leadoff point. So let's talk a little bit about now this transformation combination with Dowlais. So maybe the first question I'll answer for those of you that don't know who Dowlais is. They are a leading driveline supplier. And I think you'll recognize some of the verbiage I'm using here very similar to what I shared with you about American Axle. They're about $5 billion to $6 billion in annual revenues. They're a leading driveline supplier with a heavy focus on sideshafts, also commonly referred to as half shafts, but they command almost 40% market share. This is a very key piece from a driveline perspective. American Axle does not make this product here today.

So this is really the last of the large driveline components that we would bring in-house through this combination. And what's most interesting about this, this is propulsion agnostic. You need these products on ICE vehicles. You need these products on EV vehicles and hybrid vehicles. And then on the right-hand side, they also have a large powder metal business, one of the largest powder metal operations in the world. They do both sintered as well as manufacture the powder. So very complementary to the AAM book of business. and we're really excited about this transaction. So the next question will be, why? Why did you do this? Well, on this slide, these are the primary pillars of our thought process and our rationale for this transaction. And on some following slides, I will cover some additional details on each of these topics. But big picture, this creates a company with greater size and scale, and that's very important inside of the auto space. It's important for engineering resources.

It's important for global resources to support OEMs around the world, gives you depth and breadth, and we'll talk a little bit more about that in a few slides. It also will enhance our customer and geographic concentration to bring us more diversification. And of course, with a strong eye on a very compelling $300 million of synergy opportunity, we look to take that synergy opportunity, those other elements I shared with you and transform that into really a strong financial performing global Tier 1 automotive supplier. So let's take a look at what I mean here on some upcoming slides. So first, here's sort of the headline numbers. When we combine up, we'll be approximately $12 billion in revenue, so effectively doubling the size of the company. Strong synergy opportunity, as I mentioned, and approximately 14% plus margin opportunity once those synergies start to deliver. So heading towards mid-teen margins up from where you see both us and Dowlais performing today.

So financially, extremely compelling for us as a company. As I talk about size and scale, which is very important inside of the space, so on the screen, you can see this is really the North America supply base. We're sort of the 2 red in the middle, meaning us and Dowlais today, just at about $6 billion each. When we double up, we're at $12 billion. So we're sort of in that upper quartile of size and scale inside of the space and one of the largest driveline suppliers inside of the automotive space as well. So global support, powerful engineering depth and skills and talent will all come along with this size and scale opportunity for us, which will allow us to continue to advance through the upcoming years and decades inside of our customer base. So let's talk on the next couple of slides, we'll talk a little bit about the diversification of our business. First up here is our customer diversification. On the far left side, this is our diversification today is American Axle.

As I mentioned, supporting the big 3, GM is 42% of our revenues with Stellantis and Ford at 13% each. If you look at Dowlais in the middle, a much more diverse book of business, obviously, supporting many of those same customers. But when we're combined, our General Motors business, which is a great business for us, we have a great relationship with them. But as a percent of the total, we go from 42% down to 27%, and we have a more diverse customer base really around the globe. And this really brings us some exciting opportunities and new nameplates for us to work with over time, names such as Toyota, which we do not generally supply much to today. Renault, Nissan, VW, things of this nature will be great additions into our customer book as we go forward. And we look forward to expanding those relationships. From a diversification standpoint, on the left-hand side, sort of what we mentioned earlier, about 3/4 North America-based. When we combine with Dowlais, we'll be just over 57% combined North America.

Europe will go from about 15% to 23%. So this will bring a little more diversity from a geographic perspective. But even all that said, we'll still be one of the largest North America exposed suppliers inside of the Tier 1 space. So that's key for us. It's key for our core platforms, and that strength will continue going forward. All right. So let's talk a little bit now about synergies. So as I mentioned in some of the previous pages, we have line of sight to $300 million of annual synergies. This combination is going to bring us great potential. It's really categorized into 3 buckets: SG&A synergies, purchasing synergies and operation synergies. And you can see on the right hand, each of those sort of their respective share in terms of their contribution to the $300 million. But when I think about the SG&A synergies, I would fall -- these would fall sort of into, I would call customary type of synergies, duplicate public company costs, the rationale of SG&A, streamlining of our engineering or R&D spend as combined companies should drive some of this performance.

When I look in the purchasing side, which is about half of our synergy potential, clearly, that size and scale will give us leveraging or buying power with our supply base, which we will look to optimize, but also that relates to freight and logistics as well. But there's other -- another key piece in here, I would say, is a little bit unique to this transaction, which was one of, I think, sort of the hidden gems. As a stand-alone American Axle, we've been, since really our founding, very focused on the strength and the benefits of vertical integration with our metal forming operation. As we bring in Dowlais, they purchased a significant amount of steel forgings on the outside. We're the largest automotive steel forger in the world. You can see the vertical integration opportunities that sit there. We also have a very small powdered metal operations inside of our company for which we buy powder, steel powder from many suppliers. Dowlais manufactures and sells steel powder. So another vertical integration opportunity inside of the set that would be unique only to this combination.

So that should drive some synergy opportunities. And then lastly, from an operations perspective, we think both companies have strong operating systems. Our view is we're going to take the best of the best, which will extract some efficiencies, gains through our entire fleet of plants. In addition, we'll have some, I would say, opportunity to rationalize a little bit of our global footprint. So put that together, we see a good line of sight to $300 million. We're excited to get at this. We've been working very closely together in terms of integration office and teams and filling pools of ideas and getting ready to go and launch as soon as we close. All right. So let's talk a little bit about that debt side, and I know this is probably a slide favorite for this group here. We just completed under Shannon's leadership, our permanent financing for the transaction. So this is our current maturity profile once the combination closes -- weighted average duration of this was greater than 6 years. So this is in place. We're locked and ready to go. You can see no real significant maturities until '28.

I would argue no significant maturities really until '29. So we're excited about that. And thank you again to anyone in this room or listening online that helps support this transaction. We appreciate it. We're in a great spot and ready to rock and roll once we close on this transaction early next year. All right. So where does this all lead us to? Well, it all leads us to a strong, capable global Tier 1 automotive supplier with great financial metrics. We're looking to have best-in-class operational statistics, best-in-class technology and best-in-class financial performance. And if you look on the screen here, this is sort of a chart that kind of brings all these together sort of greater than $10 billion of revenue, greater than 5% of adjusted free cash flow opportunity, greater than 14% EBITDA margin. It's a small ZIP code that people that can live inside of that combination of those 3, and we look to be one of those as we advance on this transaction. So with that, those are some of our opening remarks. Hopefully, it gives you a little color of where we sit today, a little color on the transaction.

So maybe Doug, I'll turn it back over to you or anyone in the audience has some questions, and we'll go from there.

Chris, great overview. So thank you for that. When you guys look at the acquisition, doubling the size of the company, ambitious, but I think great diversity as we kind of go into like bigger is better, right, for the auto suppliers in my view. And you're able to do it like leverage neutral. So tell us a little bit about the balance sheet. If I look back to like 2016 when you bought Metaldyne, leverage kind of did go up in that transaction took a while to come down, but this was a leverage-neutral transaction, which was important I think maybe talk a little bit about what the goals are for the balance sheet kind of over the next year or 2 out.

Yes, sure. As we stepped into this transaction, that was one of the mantras from our Board as well as the management team. Look, we did not want to take on significant leverage to do this transaction. We believe the health of the balance sheet is critically important. And we believe we are able to complete this as a leverage-neutral transaction, as you indicated. If you look at our history, as you mentioned, back to MPG, we focused on once we were combined, while we did take leverage to that transaction, our focus was to continue to strengthen our balance sheet over the following years and to pay down our debt. I would tell you, we met that obligation. We have paid down debt every single year since then in 2017 to the tune of over $1.6 billion. So as we think going forward, while we look to close around approximately leverage neutral, our goal isn't to stay in that in that ZIP code.

Our goal is to continue to strengthen our balance sheet, continue to pay down outstanding debt. I would say we have sort of 2 kind of beacon goals. We will drive from a capital allocation perspective, I would say, almost exclusively once we fund our organic growth and our R&D, that cash flow will be used to continue to pay down debt until we're clear of 2.5x leverage. That's a net debt leverage statistic. And then once we cross the 2.5 threshold, I would tell you, we're looking to maybe bring out a little more balance to our capital allocation playbook. We will continue to pay down debt, continue to strengthen our balance sheet. We'd love to be below 2x after that. But we'll also, once we cross the 2.5x, look to potentially evaluate some opportunities on the shareholder side as well. So that's sort of where we sit here today, but strengthening that balance sheet is critical to any of these scenarios I just described.

Very helpful. Maybe we could talk about I guess the diversity in the customer base. So when I started covering American Axle, I think maybe 95% of the business was GM...

I think it was said 98%, I think, when we started.

Yes. I think I began covering you at 99% and maybe you spun off from GM maybe at 94%, kind of remembering.

I kind of didn't catch that slide, but I think maybe GM was 27% possibly now.

Yes, once we're combined, yes.

Right. Okay. So if we talk me about -- geographically also, so when I always think of American Axle, I think very much of a North America business, but Dowlais is very much a European business. Maybe you could share with us a little bit what you've learned about their footprint and how the global scale could impact your business?

Yes. Clearly, from a scale perspective, maybe taking your question a little bit reverse, is critical to us. Our customers are asking us to support global programs. That's how you can win new business. That scale gives us depth and engineering talent. You think about the industry pivoting towards electrification, which requires not only financial resources, but installed infrastructure resources, but also talent resources. And that combined scale, that combined size will allow us to advance in all of those respective areas to not only support our book of business today, but to pivot and grow with the electrification trends or hybrid trends inside of the industry. And as you mentioned, from a diversification standpoint, we are clearly overweight North America, which has been fantastic with the programs we support as a stand-alone American Axle inside of North America are fantastic.

As you know, our light truck franchise accounts for almost half of our revenue. But bringing on Dowlais brings us some really nice diversification from a driveline perspective, meaning bringing on those sideshaft products, which support many different platforms, are agnostic to the market, whether it's hybrid, ICE or EV, they all need them. They actually grow share in an EV world in terms of that. But also that geographic presence. They have a much larger footprint inside of Europe. They also have a very nice footprint inside of North America. This also allows us to support our customers there, and they have a large joint venture in China. So they're a 50-50 interest, and that's how they play in the China market. So we think that's a nice risk-balanced way to support China. That's a China for China approach.

So you build in China for China?

Correct.

That's correct.

So we've adopted that as a stand-alone American Axle. Dowlais does as well. So I think that's a nice combination, bringing that together with a common philosophy, looking to grow China OEM as part of our customer base. Their joint venture is now half of their book of business is local OEMs in China. So that diversification they bring from a geographic perspective, China, North America and Europe really supports the customer base and product base. I think one other advantage as you think about this and if you think about the macro that's going on inside the world today with tariffs and all sorts of other uncertainties, having that flexibility of different facilities in different regions will also, I think, be very beneficial to us. We've been very much build and buy in the region that you support your customers, they have as well, but now we have more capabilities in each of these regions, which I think will allow us to double down in that philosophy, which will be beneficial to us.

Before the whole tariff craziness, you -- happened, in most of my career, people would look at your steel costs and how much pass-through you had. I think you're able to pass through maybe 90%...

Yes, 80% to 90%...

80%, 90%. So how do we think about the tariff environment? You got USMCA tariff kind of no issue there, right? We are seeing tariffs in different parts of the world not impact auto companies as much as we feared. So maybe just give us a little kind of update on where you see the tariff landscape, how it could affect American Axle or Dowlais?

Yes, certainly. And I would say American Axle and Dowlais in very similar positions as it relates to this. Tariffs, obviously, it's a big deal. It's something we're actively working on almost every day. But it really starts with the company's -- both companies' core philosophies of build and buy in the region that you support. So that mitigation from tariffs is really the first step. And I think our ability historically to do that has been very positive, same for theirs. But really, since tariff -- I think you said tariff craziness started about it earlier this year, we doubled down on mitigation efforts, working with our supply base or our own operations to mitigate where we can, also working with our customers. And then that residual amount that was left over, we've been working with our customers to receive compensation to offset these tariffs. So that's really been our primary sort of, I would say, short-term objective.

Clearly, our customers here in North America as well as in Europe and elsewhere are focused on how going forward can we mitigate these tariff costs. and we're working closely with them to support whatever endeavors they need to do to mitigate some of this. This is, again, where that geographic diversity and that strong footprint that we will have combined is going to give us an opportunity to help our customers from that regard. So it will also help ourselves. But that's sort of mitigations first and then, of course, looking to receive compensation from the customers to offset some of these tariff costs.

Perfect. Great answer. Thank you. I thought maybe we'd open up any questions from the audience. If anyone had any questions on the Dowlais transaction or leverage or tariffs. If we have questions, I'll keep it moving.

Okay. We'll just keep it moving then. I'd say 5, 6 years ago, the EV excitement really was blossoming. And there is a worry about companies who are focused on ICE being left behind. Kind of ironically, that's turned upside down now. The companies that were too heavily invested in EV have been pulling back and maybe there's more of a balance now. If you could maybe go over 2 things, please. One, how is Dowlais and American Axle positioned for, we think probably an inevitable move to EV, but it could be 10, 20 years out. And what part of your EV axles have been impacted by some of the contraction in production?

Yes, certainly. I'll start there. But combined, let's say, talking about going forward, clearly, you say blossom, I think that's probably an understatement a few years ago. It was a very -- at a hype cycle. I think we took a very measured approach to our view on electrification. We looked at the core products that we support, which, as I mentioned, American Axle stand-alone is the light truck segment inside of North America, which represents about half of our book of business. Our view was those would be some of the longest to electrify. We also recognized we would see growth in our all-wheel drive segments that we support as well as passenger cars. So we made investments into our R&D to design drive units as well as components to supply to OEMs that are building some of these units in-house. And through that process, I think we've developed some really advanced technologies. We've launched electrification programs with JLR, with AMG.

We recently had an announcement earlier this year, our axles, our e-Beam axles for our trucks will be featured on Scout, which was a really great award for us earlier. And that brand is going to launch here in a year or 2 inside of North America. So I think we took a measured approach. Our components that supply ICE also, in many regards, also supply into the drive units on EV world. And the technology advancements we had from our EV space allowed us to, I think, as I mentioned, on a measured pace, invest into EV drive units to allow us to grow that business. We've done the same inside of China. So we've launched a beam axle, an electric beam axle in China, which now I think we have 3 or 4 different customers on the take rate. So we're sort of growing that. One of the attractive things, as I mentioned earlier in some of my prepared remarks as it relates to Dowlais, we looked at their product segments. They also were investing in advancing on some of the all-wheel drive systems from an E perspective and have won many different awards from that perspective.

So great technologies there. That's one of the benefits of this combination, bringing together these technologies, not only we can optimize our spend here, but we also have deeper technology. But also their sideshaft business, as I mentioned, as part of their driveline their automotive business unit, 40% global share. It's completely agnostic to the market. You need a sideshaft on an ICE, you need a sideshaft on a hybrid, you need a sideshaft on an EV. And as you enter into the EV space, you actually have more all-wheel drive content on an EV versus an ICE world, so you need more sideshafts. So we actually see that as a growth segment on their core products in an EV world. So we're focused on e-beams and drive units from American Axle Driveline perspective, which we're seeing growth, and we're very focused on their all-wheel drive system as well as their sideshaft business in an EV world. So that's how we're sort of from a technology standpoint, product standpoint, looking to kind of grow the business.

I think the second part of your question is now that the hype cycle has kind of come down, were we impacted? The answer is yes, especially on the component side has come down significantly here this year. But we weren't overly weighted into that space. Our -- as a stand-alone American Axle -- our EV book of business is low single-digit percentage. So we did see some impact associated with that. We've seen customers either cancel programs, scope down programs or delay programs. We've experienced that, and I believe Dowlais has experienced the same.

So low single digit as a mix. And so they're a little bit ahead on a low single-digit number...

Yes, our component business, some of the OEMs, you noticed their vehicle production is down in those categories, we would trail accordingly.

Makes sense.

Maybe you could talk a little bit about like the commercial vehicle exposure you have. People think very much of light trucks and SUVs. But if you could maybe talk to us a little bit about some of the larger vehicles you service.

Yes. So from a commercial vehicle standpoint, I would say a few years back, it was closing in on maybe 5% of our company's revenues. We decided as a management team and with our Board to focus and increase our focus on the light-duty segment. So we have decided to sort of exit out of some of our commercial vehicle applications. Most recently, we did sell our commercial vehicle operation -- axle operations in India. We received proceeds this year of about $65 million. We had some commercial vehicle operations inside of Europe, which we sort of have wound those down over the last couple of years. So I would tell you, it's -- we do sell some small components into that space. But by and large, we are light-duty applications inside of American Axle today, not a lot of exposure on the commercial vehicle side.

If we can talk a little bit about the production. We all follow IHS production. I think your assumptions in North America, if I'm remembering, were 15.1 million which I think is a pretty conservative number. How have you seen inventory and production cadences with all the supply chain issues that have kind of come and gone and how do you feel about, a, your optimization of the plants under the 15.1 million production? And do you see any upside or downside to those numbers?

Yes. So the 15.1 million was our most recent that we announced in November for the full calendar year of 2025. So it looks like -- it still looks like it's tracking towards that ZIP code. Of course, at this point in the year, we're following customer schedules versus really some of these more higher level S&P IHS estimates. But look, in terms of what we've experienced so far inside of the fourth quarter, there has been, as you just mentioned, some supply issues with some of the OEMs. As you know, Ford has had some very public issues with some of their supply base of fire at one of their locations. But we started the quarter off. We experienced some downtime at General Motors Wentzville facility. It produces their van and midsized truck.

They had a supplier challenge that had them down for about 3 weeks. We've seen a little bit of extended downtime around the Christmas holiday and then the Ford volumes have been a little bit, I would say, some puts and takes across their platforms as they are looking to clearly manage through their supplier issues from that perspective. So fourth quarter has sort of been in that kind of macro kind of view as what we've experienced. And into next year, I think it's a little too early to call where we're at. We're not giving any guidance here today. But look, we're looking and very confident in our truck franchise on the full-size trucks with General Motors, which will be going through a product refresh here over the next couple of years.

And of course, as you know, the Ram heavy-duty just launched into their new model year earlier this year and last year, and that continues to be rather robust. So there's a couple of macro points on the volumes that we're experiencing as a stand-alone American Axle.

And thank you for having Slide 12, which just kind of called out to me. So prior to Dowlais, you have not really had business materially with Toyota, for example. How have your like initial conversations been with Toyota, VW Group, Renault, Nissan, kind of new business for you?

Yes. No. Well, it's certainly early days, and we are limited on what we can do, obviously, going to our new potential customers with the combined book until after we close. But I'll tell you, the sales team back in Detroit, very excited. The sales teams in Europe and Asia, very excited to really get introductions into some of these teams, sort of gain them -- they have very good exposure into Dowlais, very happy with their product. Now they can get a little better sense of other things and other capabilities we have around the -- and I think it's going to be really exciting. That takes time to play out, right, to build these relationships, but we're really excited about it. I think that's one of -- again, one of the hidden gems of this transaction is putting on nameplates that we really have had no experience with in the past or very limited experience.

I think that's a great idea. Well, I think that we run out of time. Thank you so much to American Axle for spending time with us here and also throughout the day. Thanks for being here, Chris, I really appreciate -- great presentation. Thank you so much.

Okay. Great. We're live. Thank you so much as we continue day 1 of the Barclays Global Autos and Mobility Conference. I'm Dan Levy. I lead U.S. autos research coverage and very pleased to have with us American Axle Manufacturing, mainstay at this conference, leading driveline supplier in the U.S. and now expanding globally quite dramatically with some transformative M&A.

So very pleased to have with us David Dauch, the company's CEO and Chairman; as well as Chris May, CFO. So we're going to do a series of fireside chat style questions. And then we'll go into any audience Q&A.

But I think first, David, you have some opening remarks.

Yes. Just to make a couple of brief remarks. First and foremost, good afternoon, everyone. It's an honor and a pleasure for Chris and I to be with you here today. We're having a very good year this year as a company.

So we're very pleased with the performance that we've had year-to-date. We just came off a very strong quarter in the third quarter. And we also had the opportunity to upgrade our guidance as it relates to the midpoint of our guidance, where we're expecting our sales for the full year now to be between $5.8 billion and $5.9 billion, our EBITDA to be in the $710 million to $745 million and our adjusted free cash flow in the $180 million to $210 million range. So again, very pleased with how the company is performing right now.

Clearly, a lot of activity, a lot of excitement going on within our company with respect to the transformational deal that we announced in January with the acquisition of the Dowlais Group or GKN Automotive and GKN Powder Metal. Our teams are working exceedingly well in regards to the integration and preparing ourselves for day 1. And we're also making meaningful progress in regards to working towards the close.

I think all of you have now seen that we got shareholder approval in the July period of time. We got all of our financing put into place in the September, October period of time. We've got 8 of the 10 jurisdictions from a regulatory approval standpoint in place. The latest one that just happened was Brazil. The only 2 holdouts right now are Mexico and China, but things are moving and progressing favorably with both of those countries at this time. We're expecting Mexico here in the fourth quarter, and China will either be in the fourth quarter or the first quarter of next year.

And based on China being the long pole in the tent, we now expect the closing to take place in the first quarter of next year versus the fourth quarter of this year, which is what we guided -- the Street to a press release back on October 27. But overall, we're super excited with the performance of the business today.

The interaction with the Dowlais team. There's a very talented team there. There's a lot of chemistry there. There's tremendous synergistic opportunity with our business. As we said, we're going to add size and scale. We're going to generate $300 million or plus in regards to synergy opportunities, a more expanded product portfolio that's more agnostic to the marketplace, ICE, hybrid as well as electrification.

In addition to that, we'll get stronger diversity with our customers, with our geographic footprint and that product portfolio, and we'll be positioned to generate some very strong margins and cash flow performance, which is going to allow us to be able to service the debt load that we'll have as an organization, and we can talk to you more in regards to what our goals and objectives are on the debt as well as our capital allocation.

Again, honor and a pleasure to be with you all here today and just excited to take on your questions. But most importantly for us, we're excited to wrap up this year and get this deal done early next year and start working together and integrating this business and taking it to a whole another level. So thank you.

Okay. Great. Let's just kick off first. One of the questions we've been asking all the suppliers is there's been a number of supply disruptions out there between Nexperia, Ford, Novelis, JLR. I think your exposure on these is relatively limited, but maybe you could just give us a sense in the fourth quarter, how that might be weighing on the results?

Yes. Maybe, Dan, this is Chris. I'll start with that. Those -- as you have mentioned, we don't have broad exposure to those issues. We do ship a little to JLR. We do ship some to Ford. Our predominant exposure to Ford is on the Super Duty as well as their small compact SUV.

But broadly speaking, I would tell you, it's some pressure on production, but we've not experienced a lot in terms of downtime or impact associated with that. So -- they've been protecting some of the key platforms we support such as the Ford Super Duty, which has been great. But I would expect just a little bit of impact from that, but at this point, not a lot.

And from the Nexperia issue trickling into nothing...

Nothing of consequence in the fourth quarter at this point.

Yes. On the Nexperia. side of things, and we've obviously been in close collaboration with our customers. We've built inventory to protect for continuity of supply. We're looking to see what else we need to do to continue to expand maybe that inventory coverage that we have to protect that continuity of supply, but we're also looking at alternatives, anticipating that things will get worse before they get better.

Okay. So carrying that out as we're looking into next year and as we're shaping -- let's just start with the broader macro environment. I think we've seen a North America environment that's been fairly resilient, healthy volumes. Some question on SAAR, whether there's been pull forward or not, but mix has been healthy. What are you looking at next year from a macro perspective as sort of the broad setup? And I know on some of the key platforms, both are roughly flattish, T1XX and RAM HD. How are you looking at sort of the macro setup for yourselves next year?

Yes. Just -- when you look at things globally, I mean, we're expecting that 88 million, 90 million units on a global basis. China clearly makes up about 29 million to 30 million of those units. They're going to continue to build in China. They're getting to a point that they're actually starting to plateau in China as far as the demand itself. So they're looking to export product globally around the world.

Clearly, they're targeting Europe. They're targeting Latin and South America are the main areas that they're focusing on right now. So there's some concerns about what's going on in those markets and do the traditional OEMs in those markets, the Western OEMs, can they protect their market share? Or do they lose it to some of the C OEMs on a go-forward basis.

Clearly, Europe has gone from 22-million-unit market to roughly a 17-million-unit market. We still think it's going to hover down in that range, but again, with more intense competition coming in there. So that's something that we're keeping a watchful eye on, especially as we're going to increase some of our exposure to Europe. But then in North America, we see a pretty steady market in regards to North America, especially for the platforms that we're on, that being the truck and the crossover vehicle and SUV type platforms that we have.

So Chris, I don't know if you want to add to that.

Yes. No, I mean, it's obviously a little early to make a call for '26. We look at a lot of the same data points that you and others look at. The GM truck franchise has been strong for us here this year. It will be strong next year, though they will begin to go through some conversions to their next gen. RAM, we experienced that conversion about 12 months ago, and it's been running very strong, meaning the heavy-duty RAM have been running very strong for us here in the balance of the back half of this year. We would expect that strength to continue into next year as well.

Okay. We just had S&P come up here and a very interesting slide on the impact of what's been happening with EVs, where EVs have all been heavily delayed. We're talking about delays all the way up to 36 months, including some cancellations. And then you look at -- there's a slide on ICE extensions and the number of ICE extensions you've seen have been quite significant. So knowing that the backlog was primarily a North American backlog, but global. And we've seen some changes in the product cadence. Is there a potential for a backlog air pocket? This is, I think, a question for all suppliers.

It applies to everyone for certain. There is definitely an air pocket going through the auto space right now as customers are resetting it. So I really believe the whole automotive industry is resetting itself right now because everyone was pushing towards the adoption of electrification at these accelerated rates, which quite honest, we never totally believed in.

Now they're having to fall back. The market has spoken and said, listen, we want ICE and we want hybrid vehicles. Most importantly, we want affordable vehicles, okay, is the big thing that's there. So customers are having to reassess their long-range product plans right now. They're having to fall back on their existing engines and transmissions because they weren't really working on advanced or new ones because they were focused on electrification. So where electrification was forecasted to be 50% in the U.S. by 2030, now they're forecasting somewhere in the range of 20%. We even think that might be a stretch going forward, especially when you look at trucks and SUVs and the big users or the big product that's being produced here.

We're a big believer in electrification, always have been. We just don't believe in the adoption rate that the prognosticators or the forecasters were projecting or predicting. Now in China, absolutely believe in it. That market is 55% electric and hybrid today. It's only going to grow going forward. Europe is going to be behind them, significantly behind them, but ahead of the U.S. and the U.S. is going to lag considerably, especially with all the policy changes that have taken place under the Trump administration with the $7,500 credit going away, regulatory changes taking place, EV tax credits and all that being adjusted as well.

So we truly believe that ICE and hybrid are here for a long time. And when I say that I mean decades, not just years. The ICE or EV will continue to grow in the U.S. It's just not going to grow at the accelerated rate that everyone was projecting. And that's where a lot of companies have overextended themselves. OEMs as well as Tier 1s. You don't see American Axle going through a lot of restructuring because we are very selective about what business we went after.

We also announced earlier this year that we won the Scout award, both the front axle and the rear axle. It was the largest electrification program being sourced this year, and we were the winners of that. So we're very proud of that. All we want to do is demonstrate our capability and our [indiscernible]. We're going to continue to make investments in electrification. We have been making investments in electrification since 2010. The market wasn't ready. But now the market and the strategy has to be different between China, Europe and North America completely.

So -- but we feel very good about where we are from an overall product portfolio standpoint with the Dowlais acquisition, we will actually strengthen our electrification capability, a more well-rounded capability, especially in the EDU or Electric Drive Unit area. On the beam axles, they're not in the beam axles. So we're leaving that initiative ourselves. But as I said, that's pushed out based on what the market penetration will be.

Okay. How are you looking at the opportunity as -- so you talked about some air pocket...

Yes.

The reshoring opportunity. How much in terms of incremental capacity coming to the U.S.? And we know, obviously, GM is expanding its capacity on the large truck side and adding capacity in Oryon and whatnot. How much of an opportunity is that for you?

Well, I think a few things. First and foremost, to the earlier question you were talking about, every OEM is reaching out to their supply base, but no different in our case than asking for extensions on their existing programs. That's a positive for us. Longer ICE, longer hybrid, great for American Axle. And for the most part, runs across the existing installed infrastructure that we have with the exception where we have engineering changes to address customer desire specific designs.

On the reshoring activity to the U.S., that's a big benefit and a big opportunity for us, especially on the metal forming side. The driveline side will take a little bit longer to put into place, much more capital intensity there. We're not just sitting on a lot of idle capacity. We've always tried to have a policy of buy and build local in the local markets that we serve, that serves us well, especially with the tariff issues that are going on today. For a company our size, we're not paying the amount of tariffs that you would expect. But at the same time, we're working with our customers to mitigate those tariffs that exist out there today.

More importantly, we're seeing tremendous opportunities on our forging side of our business because a lot of companies, Tier 1s as well as the OEMs are looking to onshore that work or reshore that work back to the U.S. to mitigate those tariffs going forward. We're the largest steel forger in the world, and we think we can not only benefit on that activity, but also benefit from the Dowlais acquisition where they buy a lot of their forgements as well. And then on the in-sourcing side, we buy a lot of powder from Dowlais today, but we can buy more powder from Dowlais in the future as part of the synergies of the bigger deal.

So -- and I don't know if you've disclosed before, GM, you historically had roughly 2/3 or 3/4 something thereabout of that T1 volume. Is there a sense with the incremental capacity coming online, can you maintain that mix?

Absolutely. Absolutely. We're in concert with General Motors in regards to what we need to do. All we're working on with General Motors right now is as they're addressing their plant loading needs to address what their commitments are to the U.S. government; we're reevaluating what our manufacturing strategy will be to be in close proximity to them.

Okay. Let's also understand the margin side because you've had really good performance, really good tailwinds on the net performance side in your EBITDA bridge. Can you just talk about what's going on there and maybe how sustainable that is?

Yes. We've shown, I would say, year-over-year positive performance now over the last almost 8 quarters. So it's been a great trend for the company. But I would say what's driving that, if you think -- if you break it down into our 2 segments, our Driveline segment and our Metal Form segment, what you've experienced, first of all, at a macro level, right, if you go back a couple of years, there was a lot of, I would call it, extreme volatility in the marketplace with production schedules, et cetera, which that does not allow you to operate in the best environment.

So that has sort of stabilized some, still volatile, but that stability has allowed, in particular, our driveline business unit to continue now to perform very strong, very steady, very focused on productivity, offsetting inflation. So they've been able to gain in terms of margin over that period of time.

The metal form operation has been, I would say, a margin recovery story. And now we've seen now over the last, call it, 3 to 6 quarters, continuous improvement in their margins and the focus has been inside their 4 walls on operational efficiency. Probably didn't have the strongest third quarter here this year, but we still project that to continue to improve into next year.

So we got some -- hopefully, some margin upside and lift from our metal form operation. But I would say the macro, a little more -- or I should say, a little less volatile has allowed us to focus on productivity and a self-help story on metal form. So are they continue to be resilient margin performance? I would say, yes.

And that driveline, which in 3Q, that was like your best result in 4 years?

Yes, they had a great quarter.

What happened?

Yes. Well, some favorable mix. RAM continues to run very strong. As I mentioned, they came out of a model changeover earlier in the year. Star's aligned on strong performance for the quarter. But you really have to be careful. You got to look at the sort of the trailing 4 quarters always when we look at these margin performance because each quarter has a little bit of its own story. But again, Star's lined up really nice from a performance, strong mix product that they supply into from a driveline perspective, especially inside of North America, allowed them to have a great quarter.

And metal forming, you used to be at a mid-teens margin, and you're now running at 8-ish percent. Is there a path to getting back to that mid-teens level?

Yes. I mean that's certainly our objective. We sort of, I would say, bottomed out maybe back half of the third quarter, back half of 2023, I should say, a lot of self-help, a lot of efficiency improvements. We struggled with some labor challenges back then. We've been putting in remedies and fixes and working on each of these issues. Our goal is absolutely get back into double-digit margin performance. That's where we're driving them towards in our planning process and our actions. And yes, we believe we have a pathway back.

Okay. I want to go back to an earlier point on the EV environment and how that's factored into your backlog. And I know we've seen a very, I'd say, balanced effort from AAM as far as focusing on Core ICE, but at the same time, expanding the EV portfolio and you won Scout and there have been some other wins as well along the way. North America, I think we can all agree, is probably much more muted. But what is the presence right now in Europe and China where that EV uptake is still on track?

Yes. Remember, we started our electrification business in Europe, supplying [indiscernible] with JLR on the I-PACE program, and then we expanded that into Mercedes with the AMG and the 6 or 7 different variants that we're doing for them. So that's where that business originated from.

We then took that technology over to China. We're doing a lot of work in China today for both domestics as well as Western OEMs. Over there, that volume only continues to grow. Our penetration continues to shift more towards the China OEMs, which is a good thing because they're realizing the growth within China, but then also outside of China. So we can follow them and they can help lead us in some of the other global markets.

And then here in the U.S., like we said, we properly positioned ourselves to benefit from electrification going forward with various customers, and we won multiple different awards in the component state, the subassembly state and even in the full system state as evident by the Scout. It's just a matter of what the customer long-range product plans are going to be going forward.

What we're going to continue to do is we were working towards putting a bookshelf technology together so that the -- whenever the -- whatever the market wanted, we would have available to us, whether it's ICE product, we already have 100% complete. Hybrid product, essentially 100% complete, but we're rereviewing that. And then in EV, we are short to some of the products. That's where we'll continue some of our development.

The acquisition of Dowlais allows us to close that gap a little bit quicker. There's still some work that needs to be done in regards to some beam axles, but we'll do a lot of that with the Scout development. And then we'll continue to work on an inverter and motor capability, but we'll be picking up some extended capability on that with the Dowlais acquisition. So again, we're just trying to be agnostic to the market when it comes to the propulsion system, let the market be the boss and we provide the products required by the market.

How do we look at the resource allocation at AAM given this change? Meaning I think your R&D had been -- had ticked up because you were putting out more spend, application engineering for these programs. That's obviously down. How do we think about the R&D profile going forward and sort of the broader resource allocation?

Well, I'll start first, and I'll add to it.

Yes, absolutely. So obviously, with the macro trend as we stepped into this year, meaning 2025, we sort of reevaluated our spend in that area to sort of mirror what the market was trending towards. And as we -- we are trending very close to about $40 million a quarter of R&D spend over the last couple of years. This year, we stepped in now. We made some reductions, kind of recalibrated where our spend is to optimize that area of our business. We're down to about $35 million a quarter.

So $20 million year-over-year savings as it relates to R&D spend. I would expect that evaluation to continue as we go into the future, meaning into '26 into '27 to continue to mirror some of the market trends and really kind of squeeze out some cost opportunities in that area.

Yes. And as I said earlier, there's an air pocket going through the industry right now as well. Just in regards to there isn't new programs that are being actively quoted. Most of what we're working on right now is extensions to existing business. So we're going to reassess all of our SG&A requirements, including the product engineering side as to what we need to do. And then also remember, when we bring Dowlais, and they'll bring a certain level of capability as well. So we'll assess both organizations from a synergistic standpoint to see what we can do to try to beat the synergy target number that we originally put forward.

And if we tie into David's previous comment about that bookshelf technology for electrification, that investment has been made. It's on the shelf. We spent it previously. So I think we're in a really good spot.

Yes.

How do you think about fixed cost in this environment, be it capacity that you've devoted to your EV product? Is it fungible with ICE? And then for programs where clearly the volumes haven't materialized, how much runway is there on commercial discussions to recoup some of that incurred cost?

No. I mean, listen, if you don't have the right capacity utilization, you're going to hemorrhage, especially in a capital-intensive business like ours and a heavy fixed cost business. And volume is the critical part of that. Now we try to design our systems to be as flexible as possible that can run different technologies across them. So to your point, it's fungible from a capacity allocation standpoint.

But there are certain pieces of equipment that are more dedicated towards electrification applications, think like in ICE in a hybrid, you're working more with hybrid gears, where in an EV environment, you're working more with helical gears, okay? Two different technologies, two different heat-treating applications. We got to make sure that utilization is being properly utilized based on the volume.

So as we're quoting business, we're putting volume protection clauses in our quotes today to make sure that no matter what the volumes are, we're getting the returns on those investments. At the same time, we are having commercial discussions and we're getting resolution with those customers in regards to where we put a certain amount of capacity in place that didn't materialize.

Now we were very disciplined and selective about what investments we put in and how we put it in on a staggered basis to minimize that exposure, which now is left in that commercial discussion, but it's still an issue that's on the table, but we are bringing resolution to those matters.

Yes. And it's not just an EV ICE -- sorry, Dan. So it's everything across the business. Go back to your previous question, you said how will -- can metal forming get back into double-digit margins? Yes, we absolutely said we can. But part of that story is also optimizing that fixed cost element of that side of our business. We've been closing some factories. We've been optimizing our capacity from that standpoint as well on our traditional ICE and hybrid book of business. So it's across the whole business, not just the ICE, EV situation.

Okay. Let's pivot to the Dowlais deal. Big picture. Last really large deal you did was Metaldyne in 2017.

2017.

Yes, '17.

What are some of the lessons learned from that transaction? And how has that shaped the contours of the Dowlais deal?

Yes. I guess, first and foremost, I'll start with the synergy side of things and the MPG deal, we targeted 3% of sales, roughly $90 million to $100 million. We delivered over 5% of sales from a synergy standpoint. So the playbook that we utilize, we're utilizing much of that to lay out -- to lay out the original plan from a synergy standpoint with Dowlais or GKN that has now been audited by an outside third party that gives us a strong confidence level that we can achieve the $300 million that we've committed to that way.

At the same time, we learned some lessons in regards to double checking their base business plan, meaning as we're going into Dowlais, we're reviewing their base business plan. When we took over MPG, they had certain programs that they committed in the plan that didn't materialize. We're also reviewing and double-checking certain quotes and also capacity against -- installed capacity against schedules. Those are some areas that we were caught short based on just the planning and some of the diligence of the MPG side of things. So we're factoring all that in.

The other side, as I mentioned to you earlier, there's a tremendous talent level also that we're picking up on the GKN side, much stronger than what we got from the MPG side of the business. And the teams are working very well together in regards to all of our day 1 readiness, day 100 and even full year 1 and full year 2 from a planning perspective standpoint. So we feel very good about where we are.

I mean, obviously, we got a little extra time because of the slight delay in regards to getting the regulatory approvals. But we'll be ready for day 1, and we're really leveraging and leaning on the lessons that we learned from our previous acquisitions, whether it be Metaldyne in 2017, but we've done 8 or 10 other ones in that period of time as well, much smaller, but this will be the largest acquisition that we as a company have done, meaning the Dowlais acquisition.

Can you talk about the path of unlocking your synergies? So you guided $300 million purchasing, SG&A, ops, 60% by the end of year 2, full run rate by year 3.

Yes.

What are the things you need to achieve to unlock those synergies? What's lower-hanging fruit? What's tougher?

Yes. The lower-hanging fruit is more of the SG&A and the engineering side. It just -- it's going to come down to the organization design, how do we optimize that design, be efficient, address the air pocket going through the industry today. At the same time, make sure we have the right resources and the right capabilities to support not only what the needs are today, but also looking ahead to what the future requirements are going to be.

But we think there's an opportunity to beat the SG&A target as well as the engineering target that we put forward. There's purchasing benefits that we'll realize. Some will be low-hanging fruit, like you say, well, just leverage our economy of the scales that are out there. Other things will take a little bit of time to get through.

One of the big benefits that we're seeing is in-sourcing opportunities, both in the metal forming side, really on the both the steel forging side as well as on the powder side. So that's a positive. And we think that we can quickly get after office consolidation based on the offices that we have and offices that they have.

The heavy lifting, which will take the most amount of time, year 2, year 3 will just be the manufacturing improvements. And Chris already indicated, we're going to look at and already are identifying plants that we can consolidate to drive up that fixed cost utilization and drive up the overall capacity utilization. And then the other part will just be we need to put our operating systems in. They have some good operating systems. Together, we have very strong operating systems.

We got to put the unified operating system into place and then hold the teams accountable to drive that manufacturing performance at the plant level that will generate greater margins, greater cash flow for the overall business. So we feel very good about where we are on the synergy planning, our ability to hit the $300 million, our ability to hit what we committed to in the 60%, like you mentioned in year 2, 100% by year 3. If anything, we're trying to raise that number and [indiscernible] what we're trying to do.

And the opportunity for revenue synergies?

We did not build any of that into our synergy calculation, so that's upside potential. We didn't build that in, one, because it takes time, especially in driveline products, you're not going to get slotted for a program probably out for 3 to 4 years, where on the metal form side, we did build some of that in based on an in-sourcing opportunity, but we think that opportunity is greater than maybe what we originally thought it would be.

Okay. Maybe just one more on this. You're expanding -- you're going from a North America-centric business to one that is more globally diversified with a more significant European footprint. We know that Europe LVP was once 22 million units and today is running at 17 million units, and that's before we even talk about the whole question of what's happening with Chinese coming into Europe, Chinese OEMs coming into Europe, taking share and potentially further changing that picture. What makes you comfortable taking on this European footprint?

Yes. I'll just talk geographically around the world first. I mean, American Axle stand-alone is 73% concentrated in North America. With the Dowlais acquisition, that goes down to 57%. In Europe, like you said, today, we're about 15%. That will go up to 22%, 23%, and then in Asia is essentially -- in the Rest of the World is the balance of that. The big Asia jump is really through the joint venture that they have is what it is. And that's a very strong joint venture that has much stronger and much -- more capable than I originally thought it was going to be. So we'll look to say how do we get synergies in China between our wholly owned business versus the joint venture business that exists there today.

But back to your question on Europe, we're going to go from that 15% to roughly that 22%, 23%. As I mentioned earlier, we'll still be lower than any other Tier 1 in that market. But that market has gone and will continue to go, not just next year, but the next several years through restructuring. And that restructuring is going to be a challenge for everyone that's there. What I like is the fact that most of the Dowlais restructuring was concentrated in Europe and the U.S. the last several years. So we're actually going to hit it when a lot of their restructuring in Europe is done. The initial restructuring is done.

Now as we come together as 2 companies, we're also going to look is there are ways that we can further optimize that and get ahead of things, knowing that the pressure that's out there at this point in time. And clearly, Dowlais was spending a lot of money, and it was impacting their cash flow reporting. We're going to hit this market -- this deal is going to close at the right time where most of that's behind us when we can enjoy that free cash flow ride.

Okay.

So I don't know if there's anything else...

[indiscernible] spot on.

So what's the plan?

Let's wrap up with some questions on balance sheet cash flow at that point. So leverage. So you're targeting net leverage at close to be neutral just under 3x net debt to EBITDA. Target over time, you said is 2.5 and eventually to get to 2. So what's the path to getting there? Is it just synergies, EBITDA expansion?

Yes, I think it's a combination of, [indiscernible], synergies, which will drive your EBITDA expansion, but those synergies as well as the base business will also drive cash flow.

So you'll really sort of attack it from 2 angles. Number one, as you generate that cash flow, you'll continue to pay down debt. And as you grow your EBITDA through synergies and company performance, you'll lift -- hopefully, the plan where you lift your total EBITDA. So therefore, your leverage continues to come down.

And you say a target of 2.5x, I would say that's sort of a point number one, and that's really to focus our leverage reduction through 2.5x, meaning almost exclusive use of our free cash flow to do that. But once we get to 2.5x, I would expect us to continue to reduce the leverage of the business, but also then open the playbook for capital allocation to more shareholder type activities once we cross that threshold.

But still, as Dave mentioned, driving towards 2x or below would be an ultimate goal for us, not just to stop at 2.5x. So strengthening the balance sheet, but it's going to come through EBITDA growth, which synergies will be a main driver and that free cash flow generation.

But we'll have a much more robust business model with the combination of the 2 companies that we can rebalance the whole capital allocation across organic growth, debt paydown, strategic growth and then shareholder-friendly activities, stock buybacks or debt reduce.

And how does the CapEx profile should -- you've actually been really good on CapEx. CapEx relative to historical levels have been low.

Yes, the last, call it, 3 or 4 years at American Axle stand-alone, some of the lowest capital that we spent in the last 20 years as a percent of sales. This year, we're about 5% as we're going through some of the cycles of the next-gen trucks that are launching. Dowlais has spent in sort of the 4% to 5% range. I would say as a combined company in the near term, we're in that 4% to 5% range. But our goal, and we've articulated this as a stand-alone is try to stay at that 5% of sales or below. And I think we can accomplish that in the near term for sure.

And the free cash flow because I think we see the adjusted numbers, but there can frequently be a lot of onetime expenses, restructuring, et cetera. So how should we look at the actual free cash flow in the early part post deal?

Yes. I think immediately post deal -- so the language we speak about is adjusted free cash flow, I think, is what you're referring to, which is excluding restructuring charges.

I would say in first year of 2026; Dowlais will complete their restructuring element that David referred to. We have a little bit of restructuring that we talked about in our fixed cost elements. But then you'll have sort of the, call it, the one-timers to launch and get your synergies up and running.

So we had said that we would expect to spend, call it, approximately $300 million or $1 per dollar of synergy savings to get those costs up and running into your P&L. That will be front weighted towards, I'll call it, year 1 and year 2 of the transactions post close. But the thought process is we're generating positive free cash flow in all these scenarios.

Questions? Okay. Why don't we just go back to EV. And maybe you can give us a sense of how the emphasis on EV perhaps changes with alkali if at all?

Well, I mean, it's naturally got to change just because the market isn't there, the demand and the pull isn't there. But at the same time, as I said, I mean, they've made a lot of investments in electrification. Back in the day, there was only really 2 companies that were competing in the early days for the electrification business with us. So Dowlais with us and GKN.

Then all of a sudden, everyone started to believe this prognosticator that the volumes are going to spike up. And then everyone that was doing inverters and motors try to get into the driveline space. Everyone in the driveline space was trying to get into the inverter and motor space because we're trying to protect content per vehicle and also manage the margins, okay?

As I said, this is going to allow us to put a bookshelf product on the shelf quicker based on -- we already had certain things developed and certain things in the pipeline to be developed. They've already done some of that development, and we've already done some of what they were going to put. So that's why I think the engineering dollars can come down.

There's still e-Beam work that will need to be done to make it all bookshelf. And then there's clearly a certain amount of work that needs to be done to deliver the Scout program, both the front and the rear axle there and then other components. And then we also have really focused heavily on the component side and the subassembly side, so things like differential sides, think gearboxes themselves, as the OEMs are trying to figure out what their strategy is going to do.

All we want to do is be a full-stop shop for them that we can give you the full entire system or we can give you the individual components that you need, and we're going to balance that with the proper R&D investments and the proper capacity installation to make sure we can get the right return. So we actually think that we've really strengthened our position and put ourselves in a position from being a product-agnostic standpoint in a much better light.

And maybe just to wrap, your China exposure pro forma is going to be -- it sounds like it's going to be sub 20% roughly.

Yes.

Can you just talk about your pro forma mix of domestic versus multinational OEMs? And as you're getting on more of that domestic mix, is that in line with margins? Or is it dilutive? Because I think that's a question.

Yes. The margins are in line. So we started with a heavy emphasis on the Western OEMs are the ones that originally brought us there. But we've converted a lot of our business going forward to the Chinese OEMs. And when you look at the joint venture because I said I just visited them this summer, they did the same thing. So they probably have 60-plus percent, maybe 70% of their business today has already shifted over to the China OEMs. And both our stand-alone wholly owned facilities as well as their joint venture are profitable. And that's not true for all suppliers in China.

Okay. Great. We'll leave it there. Great, David, Chris, thank you so much.

Okay. Great.

Thank you.

I really appreciate it. Thank you.

Yes. Appreciate it. Thank you.

Good morning. My name is Nick, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Delim, Head of Investor Relations. Please go ahead, Mr. David Lim.

Thank you, and good morning. I'd like to welcome everyone who is joining us on AAM's third quarter earnings call. Earlier this morning, we released our third quarter of 2025 earnings announcement. You can access that announcement on the Investor Relations page on our website, www.aam.com, and through the PR Newswire services.

You could also find supplemental slides for this conference call on the Investor page of our website as well. Now to listen to a replay of this call, you can dial (877) 344-7529, replay access code 434-6240. This replay will be available through November 14.

As for upcoming investor conferences, we will be at the Barclays 16th Annual Global Automotive and Mobility Tech conference later this month. We will also attend Bank of America Leverage Finance Conference and the UBS Global Industrials Transportation Conference in December. We look forward to seeing you there.

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 AAM's Chairman and CEO, David Dauch.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the third quarter of 2025. Joining me on the call today is Chris May, AAM's Execute Vice President and Chief Financial Officer.

To begin, I'll review the highlights of our third quarter financial performance. Then I will touch on some commentary about AAM's recent business developments. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have.

So let's begin. AAM's third quarter 2025 sales were $151 billion. AAM's adjusted earnings per share was $0.16 per share. Operating cash flow was $143.3 million and adjusted free cash flow was approximately $98.1 million. From a profitability perspective, AAM delivered strong year-over-year margin growth, driven by performance. AAM's adjusted EBITDA in the third quarter was $195 million or 12.9% of sales. a robust 130 basis point improvement versus last year on flat sales. This was led by our driveline business unit, which achieved adjusted EBITDA margins of 14.9%, the highest third quarter margin since 2020. The performance was supported by a focus on operational efficiency, continuous improvement, quality and managing factors under our control.

On the metal forming side, we still have additional work to do to reach our full margin potential. Let's talk about the operating environment. In the near term, we are seeing onshoring opportunities within our metal forming group, and we continue to assess our footprint to optimize to support our customers' needs as we're all dealing with the tariff environment. With the discontinuation of the EV tax credit in the U.S., changes to emission regulations and trade policies, OEMs are assessing their long-range product plans and the market, especially trying to determine electric vehicle natural demand. Currently, bidding activity leans more towards ICE than EV and an extended ICE tail is good for AAM as we can further leverage our installed asset base with our core products. We continue to believe that large truck and SUV demand appear to be very healthy both sweet spots for AAM. With that said, we also have a strong foundational technology in electrification with our components, electric drive units and electric beam axles. Our portfolio will only strengthen and expand as we complete the Daimler acquisition. As we have communicated earlier, our goal is to have a propulsion ag product portfolio that adjusts with the market demands.

Let me talk about some business updates on Slide 4. From a deal transaction standpoint, both shareholder approvals were completed in July. In October, we completed the permanent financing for the transaction, by securing $850 million of senior secured notes, $1.2 billion of senior unsecured notes and $835 million of term loans. Additionally, we redeemed all of our 2027 senior notes and a portion of our 2028 senior notes with the financing mentioned. On the regulatory front, we continue to make great progress. The European Commission Clearance decision was issued on October 1, meaning that the EU antitrust condition has been completely satisfied. We also recently cleared regulatory approval in Brazil this Thursday, November 6. The combination now been cleared and the related conditions to the combination satisfied under the Antitrust laws and 8 of the 10 required jurisdictions or Antitrust filings were made, namely in the United States, India, the U.K., Korea, Taiwan, Turkey, the EU and most recently, Brazil. The clearances that remain outstanding under Antitrust laws are Mexico and China. We expect Mexico to be clear here in the fourth quarter of 2025. In China, the parties are actively engaged with the state administration for market regulation otherwise known as [ SAMR ] with respect to its review of the combination, and AAM remains highly confident on obtaining antitrust clearance in late 2025 or early 2026.

Regarding the deal closing timing, we now expect the deal to close in the first quarter of next year as we communicated in our press release on October 27. As such, we are very excited to close on this transformational combination. From a product win perspective, AAM has won new and replacement programs as well as volume extensions in both business units. One win in particular is a meaningful volume uplift for a popular heavy-duty truck program. We supply critical transmission products for that platform. These wins in general support a broad spectrum of powertrains, signifying AAM's agnostic approach. Transitioning to our guidance. We have updated our 2025 guidance ranges on the strength of our results through the first 3 quarters of the year. AAM is now targeting sales in the range of $5.8 billion to $5.9 billion, adjusted EBITDA of approximately $710 million to $745 million and adjusted free cash flow of approximately $180 million to $210 million. Our guidance ranges are supported by an assumed North American production volume of approximately 15.1 million units and assumptions on certain platforms that we support. Chris will provide additional details on the assumptions underpinning our guidance.

In summary, AAM continues to deliver solid performance while successfully navigating market volatility and policy uncertainties. We remain extremely focused on managing our business and driving efficiency regardless of the operating environment. Meanwhile, we continue to make excellent progress with the regulatory bodies to close our combination with Dowlais. We are excited about the combination's potential and the long-term vision of the new company. This deal is truly transformational, benefiting our customers, suppliers, employees and most importantly, our shareholders.

Let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the third quarter financial details. Chris?

Thank you, David, and good morning, everyone. I will cover the financial details of our third quarter 2025 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales.

In the third quarter of 2025, AAM sales were $1.5 billion, flat versus the third quarter of 2024. Slide 7 shows a walk of third quarter 2024 sales to third quarter 2025 sales. Volume mix and other was favorable by $8 million, metal market pass-throughs and FX translation increased sales by approximately $25 million. And these gains were offset by $30 million of lower sales due to the successful sale of our commercial vehicle axle business in India that took place earlier in the year.

Now let's move on to profitability. Gross profit was $189 million in the third quarter of 2025 as compared to $171 million in the third quarter of 2024. For the third quarter of 2025, adjusted EBITDA was $194.7 million, and adjusted EBITDA margin was 12.9% versus $174.4 million and 11.6% last year. You can see the year-over-year walk down of adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA was higher due to volume, mix and other by $9 million versus the prior year. This unusual contribution margin rate this quarter was driven by mix. Sales of certain higher-margin programs increased while sales of lower-margin programs declined. Ram heavy-duty production, which is a significant program for us increased year-over-year.

R&D was lower by $3 million versus last year as we continue to optimize our engineering spend. And lastly, Performance and Other was favorable by $16 million. The year-over-year favorability was driven by a combination of factors, including operational performance and other productivity, partially offset by tariffs and SG&A expense timing. AAM remains focused on productivity, efficiency and cost optimization in all areas of our business.

Let me now cover SG&A. SG&A expense, including R&D, in the third quarter of 2025 was $98.8 million or 6.6% of sales. This compares to $94.6 million or 6.3% of sales in the third quarter of 2024 AAM R&D spending in the third quarter of 2025 was approximately $37 million, down from approximately $40 million. For the full year, we continue to anticipate R&D expense to be down on a year-over-year basis by nearly $20 million, driven by current market requirements and continued focus on engineering efficiency.

Let's move now on to interest and taxes. Net interest expense was $35.7 million in the third quarter of 2025 compared to $38.1 million in the third quarter of 2024. The improvement was due to a lower weighted-average interest rate of our outstanding long-term debt and lower year-over-year debt balances. In the third quarter of 2025, we recorded income tax benefit of $10.9 million compared to a benefit of $12.1 million in the third quarter of 2024. The third quarter of 2025 includes a discrete benefit of $22 million related to the impact of the accounting for the 1 big beautiful bill. For the fourth quarter of 2025, we expect an adjusted tax rate of approximately 10% to 15%. As for cash taxes, we expect approximately $60 million to $75 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $9.2 million or $0.07 per share in the third quarter of 2025 compared to net income of $10 million or $0.08 per share in the third quarter of 2024.

Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.16 per share in the third quarter of 2025 compared to $0.20 per share for the third quarter of 2024.

Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the third quarter of 2025 was $143 million compared to $144 million in the third quarter of 2024. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the third quarter in '25 were $64 million. Cash payments for restructuring and acquisition-related activity for the third quarter of 2025 were $18.6 million. Reflecting the impact of these activities, AAM's adjusted free cash flow was $98 million in the third quarter of 2025. From a net leverage perspective, we ended the quarter with net debt of $1.9 billion and LTM adjusted EBITDA of $735 million, calculating a net leverage ratio of 2.6x at September 30, 2025. We also maintained a strong cash position of over $700 million. AAM ended the quarter with total available liquidity of approximately $1.7 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities.

With that background in place, let's talk about our guidance on Slide 5. Our outlook has been updated from our previous targets. Our updated targets are as follows: for sales, our new range is $5.8 billion to $5.9 billion versus $5.75 billion to $5.95 billion previously. This new sales target is based upon a North America production assumption of approximately 15.1 million units and certain assumptions for our key programs. We now anticipate GM's full-size pickup truck and SUV production in the range of 1.35 million to 1.39 million units. From an EBITDA perspective, AAM anticipates a range of $710 million to $745 million versus $695 million to $745 million previously. We now anticipate adjusted free cash flow in the range of $180 million to $210 million. Our CapEx assumption is unchanged at approximately 5% of sales as we [ ready ] the organization for important upcoming launches especially for 1 of our new truck programs. In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring-related cash payments for AAM as a stand-alone entity to be approximately $20 million for 2025 as we look to further optimize our business and further reduce fixed costs.

With the updated guidance in mind, let me provide some additional color on the fourth quarter operating environment that we see. From a production standpoint, we expect normal seasonality plus some additional production volatility. We anticipate AAM's project expense to be overweight in the fourth quarter as we prepare for some significant upcoming launches that I mentioned previously. We continue to be excited about the new RAM heavy-duty watch cycle that has gained momentum throughout the course of the year, and we will continue to manage other costs such as R&D. We underscore that the guidance figures that we are providing today are on an AAM stand-alone basis, pre-combination basis and excludes any costs or expenses related to our announced [indiscernible] transaction. As it relates to the [indiscernible] acquisition, as David mentioned earlier, we completed the permanent financing for the transaction. This includes a nice balance of term loans, secured notes and unsecured notes. As part of this positive financing activity, we were able to opportunistically refinance all of our existing 2027 senior notes and a portion of our 2028 senior notes. As a result, we extended the weighted-average maturity of AAM senior debt to well over 6 years. The revised debt maturity profile provides AAM with flexibility, and we will have no significant maturities until 2028. This is very good news from multiple perspectives as we ready for the closing of the Dowlais acquisition.

As for 2026, we expect to provide formal guidance early next year. However, let me give you some of our thoughts as we head into next year. While the industry faces various challenges, we remain excited about our product and markets. We anticipate large SUV and pickup truck markets to remain healthy. As you know, our primary driveline truck platforms are the GM T1XX and the RAM heavy-duty platforms. We also have very good content on the Ford Super Duty. We believe ICE and ICE hybrid powertrains will continue to have meaningful longevity and consumer demand. Tariff and world trade dynamics should create opportunities for global suppliers with strong capabilities and scale, such as AAM and also a soon to be much larger AAM with the completion of the Dowlais acquisition. And lastly, we will continue to focus on our core cost efficiencies and aggressively drive towards realizing our [ $100 million ] synergy goal.

So in conclusion, AM delivered good results through the first 3 quarters of the year and has successfully navigated both production and tariff volatility. Fundamentally, we will continue to manage factors under our control and course correct through market supply chain and policy changes that we may face. Furthermore, our aim is for continuous improvement and operational excellence, and they should manifest in future results. 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] Your first question comes from Joe Spak with UBS.

Chris, maybe just a first quick one, some housekeeping, I guess. Could you just remind us sort of what's in the bucket or what was driving it, like the $9 million volume mix other and EBITDA on $8 million sales. What just stands out a little bit what's going on in those buckets?

Yes, yes. That's a great question. With the -- of course, with the low change in revenue, obviously, you get a little bit of dynamics in a percentage ratio here. But we experienced in the quarter was a continued, I would say, year-over-year strong performance on the RAM platform. So we saw elevated sales from our full-size truck franchise from that standpoint. We had some clients in some of our other business, I think some passenger car and crossover view and component business. So that mix sort of caused dynamic of sort of a ratio of some higher-margin business coming in, in terms of versus prior year and then some lower margin business sort of lower to give that sort of odd ratio between volume mix and other from a contribution margin mix to the revenue that you see. You do have some tariff recoveries flowing through that line as well that kind of accentuates that issue a little bit, but that's principally what's going on [indiscernible] It's just a nod mix.

Okay. David, just the second question and bigger picture. I was wondering if you could just sort of update us on your conversations with customers in terms of sort of where in reshoring activities and other sort of investments in the U.S. and what type of conversations you've had with some of your [indiscernible] there and opportunities. And I guess, are you also able to start to go to those customers with some of the potential benefits from the Dowlais acquisition? Or is that not yet feasible or part of those conversations?

Yes. Let me start with the last question first, Joe, is we're not able to have any discussions with customers regarding Dowlais directly because it will be considered gun jumping as far as the 2 of us working together. So we're very distinct in regards of only talking about what AAM can do today versus what Dowlais might be able to do in the future. So -- but that will enhance our opportunity clearly, once that becomes part of the AAM family. As I indicated in my comments, and Chris did as well is that we are seeing a lot of opportunities from various customers, both the OEM level and the tier level on our metal forming business for localization, especially forgings and castings and powdered metal parts. So that's increasing some of our sales opportunities and nothing to announce at this time, but we're working actively with multiple customers right now. Regarding plant footprints, you know our policy is always to try to buy and build local in the local markets that we serve. That's mitigated a lot of tariff exposure to us. We're clearly watching the USMCA negotiations anticipating that there'll be a higher U.S. content requirement in the future. We have had conversations with various customers about what their intentions are, knowing that we ship big products, we like to be in closer proximity to our customers. So once they can make their final decisions, then we'll make appropriate footprint adjustments in concert and in alignment and in agreement with those customers on a go-forward basis. So I'd say, yes, there's ongoing discussions taking place. Nothing that we can announce at this time it's going to be largely dependent on when the customers finalize their [ loading ] plans.

And your next question today will come from Tom Narayan with RBC.

The first 1 is just on the the regulatory antitrust clearing. Just seeing if -- I mean you guys are confident China late '25 or early '26. Just curious if that was like a surprise at all? Or was that always contemplated. Is there any -- is there a specific risk there? Or is there like a over there? Is that what's causing that where that might lead to divestitures or something, just -- or is it just kind of just of course, regular course of action? And then I have a follow-up.

Yes, Tom, this is David. We're highly confident in regards to we'll get all the jurisdictions approved. We clearly anticipated that Brazil, Mexico and China would be the long poles in the tent. Brazil, as I mentioned, we got verbal acknowledgment earlier in the month, but we got final formal approval just yesterday. We expect Mexico here yet this month. In China, we're in discussions with them. But I don't expect us to have to do anything from a remedy standpoint in that area. We're just going through the normal discussions and there are inquiries and questions. Just like we've done with other countries, their process is just taking a little bit longer. We did anticipate that geopolitical issues could potentially impact this. But quite honestly, it hasn't at this point in time, and we hope that it doesn't. But we're getting a full operation from [indiscernible] at this time.

Okay. Got it. And then my follow-up, just on the kind of production that you guys are assuming for North America 15.1. It does it does feel like it implies kind of a downshift in Q4, a pretty significant one. Just curious, maybe, is that baking in some conservatism? Maybe in [ Experia ] seems to be there's some positive indications there on resolution there. I know that that's a market number, but just curious if that's just conservatism or something specific you're seeing?

Tom, this is Chris. Of course, we anchor this a little bit around, as you mentioned, a market number. But at this point in the year too, we are also really kind of calibrating and locking into our specific customer schedules. And as you may be aware, we've experienced a little bit of downtime in the fourth quarter early in the quarter, meaning October, early part of that. We had 1 of our customer assembly plants at Wensville, down that impacted some of our production. We've seen a little bit of extra holiday downtime, we anticipate near the end of the year. And also, as you mentioned, the other issues in terms of supply chain. We've had a little bit around the edges in terms of some volatility there. But we're trying to calibrate into what we see in the current market environment, and that's sort of our best estimate right now at the time.

And your next question today will come from Itay Michaeli with TD Cowen.

Just going back to the onshoring opportunity. As you think about that opportunity as well as your recent business wins and ICE extensions. I'm curious how you're thinking, at least at a high level of the kind of growth over market potential over the next 2 years or so.

What I would say, Itay, this is David. I think we have an opportunity to benefit strongly in our metal forming side of the business. With respect to the onshoring activity that we mentioned earlier, once we're able to pull Dowlais together, we also think there's in-sourcing opportunities because they buy a lot of their forging and some of their powder metal on the outside. So in casting. So we think there's some opportunity there. I don't have off the top of my head, our position in regards to this growth over market, but I think we can keep up with the market with respect to what's going on. We do have some products that will be transitioning off some older transmission-related products. So clearly, we're going to have to offset that in order to show incremental growth aligned with the marketplace. But I would say, overall, we should be able to hopefully hold on to where the market is at.

Yes. And I would say, Itay, this is Chris. In addition to with these extensions that we're seeing, obviously, some conversion into hybrid creates some opportunity for us. And you may recall from our last earnings call, we announced a great award with [ Scout ]. So these are examples where our next-gen technologies into electrification will also drive some of that uplift in terms of growth over market opportunities for us.

That's very helpful. And as my follow-up, just on the kind of Q4 outlook, do you have any kind of bias within the EBITDA range. And maybe just talk about the different factors from here through year-end that may cause you to come in at the lower or maybe higher end of that range?

Yes. In terms of that range, obviously, the first and foremost, it does, it pins around our absolute revenue for the quarter, and our contribution margin generally somewhere between 25% to 35% range. So that is the key -- the primary [indiscernible] I think, about our EBITDA range inside of the fourth quarter. As I mentioned in my prepared remarks, we do have some, I would say, heavy load of project expenses, we're getting ready for some next-gen product launches also aligned with some of our heavier capital spend that we're anticipating here in the fourth quarter. But you do get a little timing movement associated with that. As I mentioned also, some of our production volatility caused a little bit, but we're also focused on some cost optimization side on our engineering spend as well as some productivity improvements in several of our facilities. So kind of the key factors that had plus or minus to it, but the largest piece is volume at the moment.

The next Question will come from James Picariello with BNP.

This is Jake on for James. You saw a pretty healthy step-up -- you saw a pretty healthy step-up in Driveline margins this quarter. Could you just share the [indiscernible] numbers in there? Or is this a number you guys think you can do going forward?

Yes. Look, each quarter obviously has a unique story, whether it's mix of volume of products, but we -- on the driveline side, if you look consistently now over the last 4 to 6 quarters has been very strong and stable in its ability to generate margins on its product mix. As we talked a little bit about RAM earlier on a year-over-year basis continues to be very strong for us. That's obviously 1 of our full-size truck franchise products that we supply. And quite frankly, they doing a nice job of managing their cost environment. So each quarter is a little bit different in terms of its margin, but holistically, the trend is for them to continue to perform very strongly.

SP1 And then you guys have pretty significant exposure on these heavy-duty heavier duty pickup trucks. So can you talk about the impact you're seeing from the expansion of the 232 tariffs to the medium and heavy duty truck space? Have you seen any kind of shifts in patterns or you're potentially having easier time in discussions of recoveries?

Yes, Mike. Great question. Yes. No, we obviously have a lot of exposure on that -- those platforms for all 3 of the North American OEMs. And as you know, that's a very strong demand product and built all throughout North America in different locations. Right now, at the moment, no, we've not seen any negative impact associated with that. Our customers to build those very well in terms of capacity, in terms of meeting their end market demand as well. But currently, we're not seeing any significant impact associated with that.

And your next question today will come from Edison Yu with Deutsche Bank.

This is Xin Yu on for Edison. So I guess I want to go back to the quarter for a little bit, especially the performance and other category, which is very strong. I just wanted to see if you can break that down the composition of it? And then what's sustainable, what's not on a go-forward basis?

Wendy, this is Chris. I'll take that one. If you look at our performance bucket on our year-over-year walks, about 2/3 of that performance is associated with our driveline business unit sort of in response to the question that was just answered previously. And I would expect them to continue to have very strong normal operating performance. The remainder of this bucket was a net of a few things. We've seen some positive momentum in our, I would call it, material costs as a company. It was offset slightly by tariffs, a couple of million dollar net negative impact inside the quarter related to tariffs and then some timing of our SG&A expense also offset some of that gain. But strong volumes. Again, I would expect the driveline to continue to perform very well. In the metal form, I would expect to improve over the next couple of quarters as it relates to performance.

That's very helpful. And then maybe just looking ahead to 2026. You've mentioned that mix in your quarter was a strong contribution to the strong incrementals that you guys have been seeing. Can you help us maybe think about how that could potentially roll forward to 2026? As we look at volume and mix heading into next year? And then maybe on the profit cost side, what are some of the good guys or bad guys, that guys. High level color, would be great.

Yes. As it relates to our contribution margin on our product mix, we've been pretty consistent. We see it flow through almost every quarter. Our range would be 25% to 35% is our margin. So use that midpoint of 30%. It does depend a little bit on mix of products, but that's pretty constant. I would expect that to continue in that range going forward. Look, as we think into 2026 we're going to be very focused on optimizing our cost structure, keeping our product engineering spend in line with market trends. But really, we're going to start to pivot here in addition to our core productivity but pivot towards the acquisition with Dowlais and the synergy realization and really sort of growing our margin and cash flow opportunity from that perspective. .

And the next question will come from Nathan Jones with Stifel.

Just 1 follow-up on equation in the third quarter and how to think about that going forward? Obviously, you can have some different impacts during any given quarter. But is that something more structural in the mix where these more profitable programs that you are on should structurally grow faster than some of these less profitable programs that it may be holding off, and we should continue to see not necessarily from 1 quarter to the next, but a more structural improvement in that mix?

I would expect, as I mentioned, Nathan, our standard contribution margin is around 25% to 35% [indiscernible] towards the higher end of that range. Passenger cars are a little bit towards the lower end and crossover vehicles are sort of in the middle. I do not see that fundamentally changing going forward.

Okay. Maybe a question on the metals business. Maybe you could just talk about the restructuring actions that you have taken in that, what's left to do and the levers that you're currently pulling in the revenue to pull in the future to get the margins back to a more acceptable level in that business?

Yes. This is David Dauch. We're clearly looking and acting on restructuring efforts with some activity that we've got ongoing in Europe right now. We're executing that plan. We hope to have that completed into next year, that would be positive. The other part is addressing just some utilization matters and throughput matters within a couple of our existing plants that have struggled a little bit One, first on labor availability and just technical skill sets. So we're addressing those matters. We're highly confident that we can get the margins back up into a double-digit type category. I don't know historically, if we can get them to those levels next year, but we'll continue to work in that direction. But obviously, we've had some challenges there that have been lingering on a little bit longer than we would like. but we're very focused on what we need to do to fix those matters going forward here. So I'll leave it at that.

The next question will come from Doug Karson with Bank of America.

I want to focus on the balance sheet just for a moment. So it looks like net leverage is in good shape [indiscernible]. I just wanted to kind of double click on the Dowlais acquisition and being kind of conservatively set. Am I right in saying that pro forma net leverage is about flat following the acquisition?

Yes, we Nate, this is Chris. When we announced the transaction earlier in the year, our leverage we closed last year was around 2.8% in the first quarter, we were around 2.9%. And we said at that point in time, we would expect the leverage of the company once at close to be somewhat around neutral to that time spot location. We still expect that to be true based upon what we stated earlier in the year. What you are seeing going on this year inside of AAM stand-alone as we had several initiatives to monetize some of our assets, exiting our joint venture in China, our sale of India commercial vehicle and pool cash towards that close. And this is tracking exactly along the line of the plan we anticipated and able to make that statement earlier in the year that we expect to be around leverage neutral at close from our numbers that we had when we unwind the announcement. And so we're still expecting that to be true.

That's great. that update. If I could just look at maybe at the long-term leverage framework. So since the Medellin acquisition, I remember in maybe 2016, lowering leverage, focus on the balance sheet was pretty much a priority for almost 10 years. How do you kind of look at the future framework for leverage that the company's revenue is almost going to be double, and you've got, I guess, that's more diversity. Just kind of curious of where leverage is going to go over the intermediate term?

Yes. In the -- well, first of all, in the short term, our priority will continue to be to delever the company. We will deploy as an -- on an overweight perspective, our cash generation to paying down debt. That is our anticipation. That was our commitment when we announced the transaction with Dowlais earlier in the year. And I would expect that in the near term and transitioning towards the medium term. Through that announcement earlier in the year, we did indicate once we cross the 2.5x net leverage threshold, we would have I would call it a little more balanced capital allocation playbook. We'll continue to focus on paying down debt. We'll continue to focus on reducing the leverage of the company. That is a priority for us, but we would open up our playbook to maybe consider some other actions from a shareholder perspective. But reducing the leverage, continuing to pay down debt. in the near term will be our top priority, and we'll continue to be a priority in the medium and longer term.

Your last question is a follow-up from Tom Narayan with RBC.

Just a quick 1 on the press release you guys issued October 27. It discusses some of the some of the management folks you guys invited from the Dallas side. Just curious how you see that playing out? Is it like kind of a plug-and-play where those folks continue to lead their respective kind of organizations. Yes, just again a high level after seeing that press release, curious how you think about integrating executives from [ Deli ].

Yes. Tom, this is David. Clearly, we are hopeful that [ Roberto Fioroni ] would join the executive team. Initial indications, we're headed down that path. At the same time, he made a personal and family decision. We have and will respect those decisions. At the same time, we'll make the necessary adjustments from a management team standpoint. Roberto's current capacity is the CFO at Dowlais. Chris is clearly the CFO at American Axle. So we'll continue with Chris and the capacity where we are. And then we'll make some slight adjustments in regards to other things that we are planning. So again, we're disappointed that Roberto can't join us. But at the same time, we've got an outstanding executive team today, and we'll continue to lead the organization going forward, and we're going to work collectively together to blend the teams at all the different levels, including the Board of Directors so that we can pick the best athletes and have the best talent to support the strategic combination of the 2 companies.

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

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