Dauch (DCH) Q1 2026 Earnings Call Transcript

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DATE

Friday, May 8, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — David Lim
• Executive Vice President and Chief Financial Officer — Chris May

TAKEAWAYS

• Sales -- $2.38 billion, up from $1.41 billion, reflecting the impact of the Daule acquisition and related pro forma accounting changes.
• Adjusted EBITDA -- $308.5 million with a 13% margin, compared to $177.7 million and 12.6% in the prior period.
• Adjusted EPS -- $0.34, up from $0.22, reflecting integration benefits and operational mix gains.
• GAAP net loss -- $100 million loss, or $0.52 per share, versus $7.1 million net income ($0.06 per share) previously, primarily due to acquisition-related items.
• Adjusted free cash flow -- Seasonal use of $40.8 million versus a use of $3.9 million, due to working capital timing, restructuring, and acquisitions.
• Legacy versus full company sales -- Legacy sales were flat; pro forma combined sales increased slightly, with mix effects driven by strong light-duty truck and CUV platforms.
• Run-rate synergy savings -- $35 million already realized post-acquisition, targeting over $100 million by year-end, $180 million by year two, and $300 million by year three.
• Divestitures -- Completed $21 million sale of Dalles cylinder liner business and divested India commercial vehicle axle business for a $35 million sales impact.
• Contract wins and extensions -- Secured a Cherry JTOR SUV platform award in China extending beyond 2030, a $750 million lifetime truck business extension in Brazil, and multiple sideshaft wins with six global OEMs.
• Updated guidance -- Sales guidance increased to $10.3 billion to $10.8 billion; adjusted EBITDA now $1.3 billion to $1.425 billion; adjusted free cash flow $235 million to $325 million; all reflect revised production forecasts and current business mix.
• Interest expense -- $77.5 million, up from $37.3 million, driven by acquisition debt; weighted average interest rate stands at approximately 7%, with minimal maturities through 2029.
• Income taxes -- $20 million tax benefit from a $20 million valuation allowance release; underlying adjusted tax rate expected around 35% for the year.
• Cash and liquidity -- $2.6 billion available liquidity at quarter end from cash and global credit facilities.
• Net debt and leverage -- $4.1 billion net debt and net leverage ratio of 2.7x as of March 31, 2026.
• CapEx -- $102.7 million capital expenditure, aligned with a 4.5%-5% of sales planning range for launches.
• Customer production guidance -- North America: 15 million units; Europe: 16.7 million; China: 32.3 million; global auto output: 91.4 million units, consistent with assumptions supporting raised forecasts.
• Joint venture contribution -- SDS JV in China expected to contribute $65 million to $75 million adjusted EBITDA, included in company guidance.
• Commodity exposure -- 80%-90% of commodity costs are direct pass-throughs to customers; recent moderate increases in steel and aluminum are generally protected.
• Energy and fuel costs -- Second quarter faces a $5 million to $10 million incremental cost from macro-driven energy inflation; partial recovery expected via tariff timing.
• Portfolio strategy -- Ongoing review may lead to further non-core divestitures to enhance profitability, efficiency, and capital allocation.
• Seasonality -- Both legacy Dauch and Dali operate on highly similar production and seasonality schedules across North America, Europe, and major holidays.

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RISKS

• Management stated, "fuel prices could impact us through higher energy, logistic, and transportation expenses as well as certain petroleum-based input costs such as lubricants," highlighting exposure to ongoing macroeconomic and geopolitical volatility.
• Chris May noted, "we are experiencing some additional costs related to energy and we would expect some tariff recovery timing spread throughout the year," underlining uncertainty around inflation and cost recoveries.
• Executive commentary confirmed, "there are some cancellation costs, many of which have been dealt with and addressed, but there are still some open issues that are out there," referencing residual EV program settlement risks.

SUMMARY

Dauch Corporation (NYSE:DCH) delivered its first earnings post-acquisition, showing immediate sales and margin expansion from the Daule integration with $308.5 million adjusted EBITDA and clear early synergy capture. Strong mix and volume performance in North American light truck and CUV platforms, together with key Chinese and Brazilian contract wins, directly supported upward sales and adjusted EBITDA guidance revisions. Operational focus is on portfolio optimization, driving substantial non-core divestitures, robust free cash flow initiatives, and progressive deleveraging plans underpinned by realized and targeted synergies. Management acknowledged heightened energy and petroleum cost pressures tied to macro events, specifying second-quarter impacts and pass-through mechanics, with targeted mitigation. Customer feedback post-merger has been positive, and revenue diversification in China and emerging markets reflects success in both legacy and Dali JV platforms.

• Dauch Corporation updated the definition of adjusted EBITDA and adjusted EPS to reflect the expanded business, though these adjustments did not alter guidance ranges or historical comparability.
• Pro forma, the company achieved a 13% adjusted EBITDA margin, benefiting from synergy ramp-up and resultant cost reductions, with both legacy and acquired operations contributing.
• Interest expense rose to $77.5 million as new debt replaced Dali’s obligations, but management expects minimal maturities through 2029, and leverage is to move toward or below the 2.5x target with further synergy realization.
• The company’s China JV, SDS, continues to shift successfully toward domestic OEMs, contributing to stability and growth, while ongoing discussions with underrepresented customers such as Toyota and VSCW are expected to bolster global market reach.

INDUSTRY GLOSSARY

• PTU (Power Transfer Unit): A drivetrain device transferring power from a vehicle’s transmission to front and/or rear axles, used particularly in AWD and 4WD vehicles.
• RDM (Rear Drive Module): An assembly that combines the differential and final drive function, typically used in rear-wheel-drive components of AWD systems.
• SG&A (Selling, General, and Administrative Expenses): Overhead and indirect costs not directly tied to manufacturing, including corporate functions.
• WFOE (Wholly Foreign-Owned Enterprise): An enterprise in China that is 100% owned by foreign investors.
• Pass-through: A pricing mechanism allowing direct recovery of input cost changes (e.g., commodities) from customers, reducing exposure to market volatility.
• SDS (SAIC Dauch Sino-foreign Joint Venture): Dauch’s joint venture in China specializing in driveline and metal forming technologies, with material equity income.

Full Conference Call Transcript

Additional information, we strong marks the first time our results include the Daule acquisition. And I am 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 two great companies with size, scale, and compelling industrial logic position us for long-term success. In addition, we have had constructive discussions with our major 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 will review the highlights of our first quarter financial performance. Next, I will touch on some business updates, commentary on the industry and our synergy progress, as well as an update on our guidance. I will 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 basis, we are 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 appeared to be at their expected levels, and SUVs appear to be on the lighter side. The Ram heavy-duty continues to enjoy a year-over-year favorable comparison, which is positive. In addition, we saw 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 dollar 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. The quarter, the company received approximately $21 million in net proceeds from the completion of a sale of a Dalles cylinder liner business. We will continue to assess and optimize our current product portfolio to align with our core business, enhance our growth prospects, and our long-term profitability. We also want to highlight our recent award from Cherry JTOR to supply PTUs and RDMs on a derivative model that we already support. The start of production is scheduled for later this year and will run beyond the 2030 timeframe. 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 sideshow business wins including replacement and new business with six 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 would like to provide an update on our acquisition synergies and value capture. After approximately three 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 pre-work that was completed before the deal closed. Out of the gate, we mainly attacked overlapping corporate SG&A, and some procurement cost. 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 two, and a full $300 million in run-rate savings by the end of year three. Currently, geopolitical risks remain an overhang on our industry, especially the Iranian 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, fuel prices could impact us through higher energy, logistic, and transportation expenses as well as certain petroleum-based input costs such as lubricants. Clearly, we are closely monitoring these developments and we 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 will proactively make necessary adjustments to market fluctuations. Now let us 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 risks 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 derive our outlook, including forecasts 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 Dali 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 are 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, and good morning, everyone.

Chris May: 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 have 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 related intangible assets, certain financial instruments assumed from DALL E as part of the acquisition, and one-time purchase accounting items, all of which are non-cash and non-operational 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 Daulay acquisition.

So with that said, let us begin. In 2026, our sales were $2.38 billion compared to $1.41 billion in 2025. Slide 7 shows a walk of first quarter 2025 sales to first quarter 2026 sales. For legacy DAO, volume mix and other was lower by $9 million or relatively flat. While our primary North American market had overall lower volumes of 2%, 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 two-thirds of this related to FX and was primarily driven by the strengthening euro.

Dowling contributed $983 million in gross sales for the first quarter; that figure reflects only February and March activity, as we closed the transaction on February 3. On a year-over-year basis, the Dolly portion of our business experienced the same trends as it related to sales. The details are noted on our slide. Now let us move on to adjusted EBITDA. For 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 adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA for legacy Dow 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 we have experienced in our business over the last several quarters. DALL E contributed approximately $122 million in adjusted EBITDA for the quarter. Similar to sales on a year-over-year basis, the Dowling 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 us move on to interest and taxes. Net interest expense was $77.5 million in 2026, compared to $37.3 million in 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 Dolly's acquired debt with the exception of $349 million of 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 distinguish 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 2026, we recorded an income tax benefit of $20 million compared to an expense of $14 million in 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 a somewhat elevated rate in 2026, 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 2026 compared to net income of $7.1 million or $0.06 per share in 2025.

Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.34 per share in 2026 compared to adjusted earnings per share of $0.22 in 2025. Let us now move on to cash flow and the balance sheet. Net cash used in operating activities for 2026 was $64.4 million compared to net cash provided by operating activities of $55.9 million in 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 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 2026 as compared to a use of $3.9 million in 2025. From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and a net leverage ratio of 2.7 times at 03/31/2026. In the near term, we continue to focus on reducing our outstanding debt and strengthening our balance sheet. But as you will recall, at a sustained 2.5 times 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 us 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 pickup 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 DALI results for a full year, 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 Hesco 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 some by 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 Dell and Dali, 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, 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 Lim: David? Operator, can you go ahead and start the Q&A please?

Operator: Absolutely. At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We will now open the call for questions. Our first question today comes from Joseph Spak at UBS. Please go ahead.

Joseph Spak: Thanks. Good morning, everyone. Maybe just a quick clarification, Chris, on some of the, I guess, definitional changes. One, to clarify, the definition of EBITDA to include minority interest when you gave EBITDA guidance last time, that was already in that assumption even if it was not maybe explicitly called out. And then two, with the definitional change, and I understand those are non-cash items that you are backing out, and I do not think they were in anyone's model. So I think it does not 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 are not forecasting further, you know, changes on those non-cash adjustments going forward?

Chris May: No. We are not forecasting any changes on those non-cash items going forward. If you look at some of these, Joe, you will find some of them relate to initial purchase price accounting such as our inventory item or our intangible asset amortizations, our joint venture or overall intangible asset amortization, and then a couple relate, 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 any influence on the change of our guidance.

Joseph Spak: Okay. And then equity income when you initially gave that $1.3 billion to $1.4 billion, that was already inclusive of that China JV equity income.

Chris May: Correct. That is correct.

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

David Lim: Yeah, Joe. First of all, I will say this is, we acquired some outstanding talent from Dallet GKN at various levels, from senior management leadership all the way down to the plant floor. I have been very pleased in regards to how our teams have assimilated together and are working together as we try to bring, as I said, two strong companies together with independent cultures, but we are trying to blend into one culture going forward, and that is going exceedingly well. I have been very pleased as I have gotten out with our senior leadership team to visit a number of the factories here.

There is a good engineering aptitude, strong manufacturing or operational aptitude there as well, and a focus on safety and quality, which is, as you know, critical and paramount historically to the Dauch Corporation. So that has 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 is material or extraordinary that we cannot deal with and address over a period of time. So I am pleased with that. I think we made great progress in regards to addressing the corporate costs right upfront.

So Chris led that workstream for us along with Roberto Fioroni on the GKN side. So that has gone well. SG&A, as I said, is going well, and we have made really good progress in regards to our run-rate for this year, and we will continue to grow that as we go forward. I would say with the economic conditions in the market right now, especially with the Iran war conflict, we are keeping a watchful eye on some of the purchasing activity. But at the same time, we have multiple years to address that. But I think there are some initial challenges here in the first year just because of what is taking place.

But do not 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 are still getting around to the 100-plus facilities that we took over. But we are very encouraged with the opportunities that exist there and are hopeful that there are incremental opportunities going forward. But hopefully, that addresses your question. Overall, I am very pleased with the acquisition, the integration planning that went into that integration, and also our first quarter start here.

Joseph Spak: Great. Thanks. I will pass it on.

David Lim: Yeah. Thank you.

Operator: Thank you. And, ladies and gentlemen, we do ask that you please limit yourself to two questions at a time. Our next question today comes from Analyst at BofA. Please go ahead.

Analyst: Hi. Thanks for taking my questions here, and congrats on a strong quarter. I just wanted to walk through the guide a little bit more, particularly on top line. You took the sales guide up a bit. You actually took the global production forecast down. Can you walk through what allowed you to do that? 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? Thanks.

Chris May: Yes. Good morning, Alex. This is Chris. I will take that. Yes, 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 sideshafts into. So a nice positive start to the year from a volume perspective. Our overall macro assumption versus our last guidance on North America is 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 some mix that we have seen at the higher end of the range.

Analyst: 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 are seeing there? And then just on the overall commodity exposure, is there anything that we should be paying attention to? It does not seem, as of right now, like a significant impact for the year, but just remind us on some of the commodity exposure. Thanks.

Chris May: Yes. I will start with the commodity question, then we can talk a little bit about what we are seeing in the macro from near-term inflation pressure related to macro events. 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 pass-through on about 80% to 90% of those costs. Key commodities that we would track in that bucket would be for things such as aluminum, scrap steel, nickel, moly, and a whole host of other products. I would say they surprisingly have been relatively stable. We have seen some small upticks in those over the last month. But again, they are pass-through and generally protected.

When they go up, you carry a little bit of a residual negative; when they go down, you get a little bit of a residual benefit. 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, etc. I would say inside of the second quarter, we would be pacing towards, call it, $5 million to $10 million impact associated with that. We will see how this plays out for the balance of the year.

Still quite uncertain at this point in time, as you know.

Analyst: Perfect. That is incredibly helpful. Best of luck going forward.

Operator: Thank you. And our next question today comes from Tom Narayan with RBC. Please go ahead.

Tom Narayan: Chris, this one is for you. First of all, on Slide 15, thank you for whoever put this together. I know a lot of work went into this. On that Slide 15, if I just take the LTM EBITDA $1.573 billion, and I do all the adjustments, the one-time commercial settlement, businesses that were sold, take out the Q1 synergies, January dollar contribution, and then I compare it to your guide for 2026, take out the synergy, it looks like there is a slight downshift implied by the guidance at the midpoint at least.

So I am just wondering if there is a downshift in 2026 versus 2025 contemplated or perhaps the guidance may be a tad conservative, or maybe I am just splitting hairs?

Chris May: No, I think in terms of the analysis that you have done pretty quickly here this morning, taking a look at this data is pretty close to accurate. You have to remove the dollar January. We do have to remove the commercial items. Those also impact revenues and profit when you take out the commercial settlement items as well as the businesses that were sold. But if you sort of kind of adjust for those items, you would then find you would need to grow, set up obviously for our synergy capture opportunity here inside our guide, we said $50 million to $75 million, so midpoint $62 million.

But holistically, if you think in this LTM period to our 2026 year, at the macro, our volumes are down almost 2%. North America is down almost 2%. Europe is down 2%. Now this gets into mix and different things we will experience each quarter, but that is a main driver of that. That would translate at 25% to 30% contribution margin in terms of that variance. That is your main driver. And then if you peel that out, you will find we actually have positive performance embedded inside of that.

Tom Narayan: Got it. And that is taking it to the midpoint, of course. Yeah. I mean, it is barely, it is just a slight downshift. It is not much. But then, second one, you know, this has been a hot topic with this past earnings season, is Chinese domestic OEM customer capture and order books. Just wondering if there is, I know you have what you have disclosed so far from last quarter, etc. But would love to hear, especially in the Dalles side, how you are doing in terms of acquisition on Chinese domestic? Thanks.

David Lim: Tom, this is David. As you know, Dollar GKN enjoyed a very strong relationship with Hess 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 has really shifted a lot of its business to the domestic Chinese OEMs. So they have been able to not only protect their business, but grow their business. And that volume increases both in China, within that company as well as their export initiatives into Europe and Southeast Asia and Latin South America. They are positioned and poised to benefit from that. We are already starting to see some of that.

At the same time, historical Dauch had our own WFOE 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 J Tour in regards to an incremental derivative program off of something we are already supporting. So again, we continue to see plenty of opportunities with the Chinese OEMs. And we are winning our fair share of business with them as they expand their capability on a global scale.

Tom Narayan: Got it. Thanks a lot. I will turn it over.

David Lim: Yes. Thank you.

Operator: And our next question today comes from Analyst at Deutsche Bank. Please go ahead.

Analyst: Yes, sorry about that, talking to myself on mute. Good morning. So thanks for taking my questions. If we look at the walks for the quarter, it seems like Gallo was a pretty material contributor to strong profitability, even more so than I would say legacy DAO, if my reading is right. So is there something in there in its mix of programs that helped drive that result? Performance and other was pretty strong as well. Any color that you can provide there would be great. Thank you.

Chris May: Yes. If you look at the year-over-year walks, you can see the sales and walks in Slides 7 and 8. The legacy Dow performance was 12.9% margins and the legacy Dowling extrapolate was 12.4% margin. So I would say both sides of the equation contributed quite equally with a little bit larger on the downside. And then your margin took up with some of the synergy flow-through. So our view is both businesses performed at 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 helped the overall company.

Analyst: Great. Helpful. Thank you. 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. Even though it is setting up for the new model. Does the new guide anticipate some benefits from that? Or would that be incremental on top of what you might already have in there?

Chris May: 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 or schedule adjustments that they have articulated and that have been provided to us have been included inside of that guidance range already.

Analyst: Okay. Thank you very much, guys.

Operator: Thank you. And our next question today comes from Itay Michaeli with TD Cowen. Please go ahead.

Itay Michaeli: Great. Thanks. Good morning, everybody, and congrats on the quarter. I was hoping, just to follow up on prior questions, if we could just do a little bit of a bridge from the kind of Q1 margin of like 13.3% pro forma to what is implied the rest of the year? It sounds like there is some incremental commodity freight baked in there, but also some acceleration in synergies. I am hoping you could go through some of the puts and takes for the full year, kind of what is implied from the Q2 to Q4 margin based on latest guidance?

Chris May: Yes. Some of the puts and takes as we think about it from here: obviously, we will transition in the rest of the year to a full month of DALE results, right, that would come in at their blended rate of, at a full cost basis, at the 12% to 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 it 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 on 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 related costs. We will see how those play out for the rest of the year. I would say that is plus or minus for Q3 and Q4 depending on how macro events unfold. And then we had some core performance inside of our company as well. As we transition through the year, we have seen nice traction on our metal form side of the business from a margin perspective.

Some of the challenges that we have articulated in the legacy plants over the last couple of years, we are seeing some positive trends from that perspective as well. So those are some of the pieces as I think on a go-forward basis. And then you have tariff plus or minus as we go through the year, timing of when we bill or collect, etc., and that can change from quarter to quarter.

Itay Michaeli: Great. That is helpful. Thanks, Chris. Then just as a follow-up, I know it is still early since the closing of the deal, but any observations from sourcing opportunities and how those have gone in the last few months?

David Lim: Itay, this is David. Great question. We have had nothing but cooperation and success in positive communication from the customer. They obviously historically know our performance from a historical DAUQ standpoint. At the same time, DALL E GKN had good performance as well. We are maintaining that good performance. That was a priority to us: to protect continuity of supply and the quality and product integrity going into our customers. They are actually pleased in the fact that we will have more size and scale to help weather the challenges that exist in the marketplace today. Clearly, there are a lot of distressed suppliers in the marketplace and have been since COVID.

And I think that is only going to amp up as we go forward. So the communication and the feedback from the customers has been very positive. And obviously, we are 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.

Itay Michaeli: Terrific. That is all very helpful. Thank you.

David Lim: Yes. Thanks, Itay.

Operator: Thank you. And our next question today comes from Analyst at BNP. Please go ahead.

Analyst: Hey, guys. So pro forma net leverage finished at about 2.65x. And just based on my math and the guide, it sounds like it will finish the year around 2.28 or so. So how should we think about the timeline to get to the targeted 2.5? Thank you.

Chris May: Yes. I understand your math. Yes. We will 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 have 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 from the $100 million run-rate up to the $180 million run-rate, obviously we will drive both profitability and cash flow.

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

Analyst: And then as we think about the next generation of GM's full-size truck platform, can you share if you guys expect to have the same participation rate as you do on the T1? And have there been any shifts in GM's insourcing mix, especially between light-duty and heavy-duty? Thank you.

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

We have secured everything that we have had, and as they look to the next generation beyond that, which will be out in that mid-2030 period of time, our expectation would be to secure our replacement business and continue to try to demonstrate to GM that we are a valued and strategic partner to them.

Analyst: So for the next-generation program, you will be on at least as much of the vehicles as you are on the current generation.

David Lim: Absolutely.

Operator: Thank you. And our next question today comes from Analyst at Financial. Please go ahead.

Analyst: Good morning. This is Anastra Etemola on for Nathan Jones. Thanks for taking my questions. Maybe discuss the rationale—in the beginning of the presentation, you gave the rationale for a DAPLay subsidiary you mentioned that you sold. How does this optimize the portfolio? Maybe just trying to get a better picture of your priorities in terms of the overall portfolio.

David Lim: Yes. This was something that we evaluated as part of overall product assessments and 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 was not really a core program to us.

Chris May: And we had an interested buyer and we came to the appropriate commercial agreement on that to be able to sell that asset.

David Lim: As Chris covered earlier, we also divested our commercial vehicle business, which was a legacy Dauch business. So again, things have changed now that we have been able to acquire Dallet. Our [inaudible] is different. We are assessing what is core and what is non-core to our business today. Those assets or businesses that we deem to be non-core, obviously we will try to sell for the appropriate value. But at the same time, we are not going to give anything away.

What we want to do is make sure we can pare our portfolio down to the critical products that show growth and also show profitability, and just strengthen the overall company and provide for that robust business model that we have communicated to you all. So it was just a small step in regards to assessing the portfolio. I am sure there will be others that we will evaluate and anything that we do there obviously will continue to help us in regards to accelerating paying down our debt and strengthening our leverage situation.

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

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

Analyst: Perfect. Thank you. Appreciate that.

Operator: Thank you. Our next question today comes from Dan Levy at Barclays. Please go ahead.

Dan Levy: Hi, good morning. Thanks for taking the questions. I wanted to go back on the commodity question. You talked about you have a basket of commodities that you are getting direct pass-throughs on. Can you give us a sense of today, pro forma organization now, how inflation dynamics may differ versus the prior AAM? And to what extent do you have increased costs that maybe now have to be recovered outside of formal pass-through mechanisms? To what extent should we be thinking differently about things like energy cost, etc.?

Chris May: Yes, Dan, this is Chris. I will take that. For our more pure commodity-type costs, you have heard us articulate for many years. Bringing in the dollar side into the business in total, you will find our view, I would say, 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 pass-through mechanisms. But things such as when you sort of get outside of those core types 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 are typically not automatic pass-throughs.

You have to have some discussion with the customers and both sides of the legacy businesses had the same type of dynamics from that perspective.

Dan Levy: Okay, great. And then, second question is on—you have laid out the cost synergies here. You talked about potential as well for revenue synergies on the customer front, and I know you addressed a while ago the initial discussions with customers. But some of the customers where you have been underrepresented up until now, the Toyota, VSCW-type customers, just what 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.

David Lim: Great question. What I would say is this. Our first conversations with the customers is just to inform them of the combination, to inform them of the capability, and also to make sure that we are protecting continuity of supply and not disrupting them. And as I said in my previous comments, that has gone very favorably. Many of the European and the Asian OEMs, although historical Dauch had a relationship with them, we will benefit greatly from the strength that Dowel and GKN has shared for decades with many of those customers. So it is still early in regards to the discussion phase, but our customers clearly want to better understand our full complement and capabilities.

There will be technology days that we will 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 will leave it at that.

Dan Levy: Great. Thank you.

Chris May: Thank you.

Operator: Thank you. And our next question today comes from Analyst at Jefferies. Please go ahead.

Analyst: Hi, hello. Thank you for taking my question and congrats on the results. Just to build on what is going well and what has not. You have owned the Dialysate Cardimatology business a couple months now. It would be really interesting to hear your thoughts on the different strategic and diversification initiatives that it has been pursuing over the last few years. If that is the direction you will continue with on the auto and non-auto side. And then secondly, just wanted to ask about the EV commercial cancellation settlement payments. Are there any more of those to go over the next couple of months just given the hit that Dalla's e-powertrain business took over the last couple of years?

Thank you.

David Lim: Yeah, this is David. I will take these questions and Chris, you can chime in as you feel fit. Clearly, historical Dauch was in the powdered metal business. And clearly so was Dowling GKN. By putting the two together, we have a very strong industry-leading powdered metal capability that is also vertically integrated now with the supplier of raw powder. As you know, under Melrose, this business was really—even Dounlay was up under strategic review. We clearly see this as our wheelhouse in regards to our metal forming business. We think there is opportunity to enhance its performance on a go-forward basis. And we are working on those initiatives right now.

Like any piece of business, we will always keep optionality in our business. But we consider that a critical part of our thesis, strategic thesis, as we want to be this global leading driveline and metal forming supplier. There is 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 will do that appropriately and time it appropriately, make sure that we are not incurring too much cost that way. But we also see tremendous growth opportunities with it. It just had not received a lot of investment over the years from its previous owner.

So we are encouraged and excited. We have a really good leadership team that is running the powdered metal group. And we are introducing some of the AM operating systems into that business, which we also think will bode favorably from a margin and cash generation performance over time. On the EV front, as we talked before, EV—there are different strategies, different approaches globally around the world. We continue to see significant opportunities in Asia, especially China. We are mainly doing a lot of that through the JV that we have there.

We will continue to monitor Europe and see what happens there with regulatory and policy change, as we are seeing some of that take place right now, but we do expect extra growth there. In North America, you see here what has happened with the regulatory and policy change where EV penetration was under 5% last month from a high of, you know, 10% or 11% earlier now that all the incentives are gone. So we will continue to be appropriate and balanced and selective in EV.

But at the same time, there are some cancellation costs, many of which have been dealt with and addressed, but there are 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 did not materialize. So those are ongoing commercial dialogues with us and our customers, but we hope to bring those to resolution this year and get that behind us completely. So Chris, I do not know if there is anything you want to add.

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

Analyst: Thank you. And, by the way, I appreciate that you broke out the payment in the presentation, just given some of your peers have not. So thanks.

Chris May: Thank you.

Operator: Thank you. And our next question today comes from Analyst at Wolfe Research. Please go ahead.

Analyst: Good morning, guys. Good morning. Just a quick question on the guidance. You raised the guidance at the high end. And I think you mentioned that part of the reason was because mix is better. But I was wondering why you did not increase the guidance, the high end for the free cash flow? I would have assumed that incremental business would have helped cash flow as well.

Chris May: Yes, great question, Federico. If you think, we also raised the top end of our sales as well. So obviously, if you do that, you will have some working capital to finance a little bit of the higher end of the sales. That would be your primary driver for holding the cash flow as is.

Analyst: Got it. Thank you. 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?

Chris May: Yes. From a seasonality perspective, I would say our entire business combined, both legacy American Axle and legacy Dolly, we operate the same identical seasonal pattern with our customers, whether they are in Europe in late August, in North America in July, and around the holiday time in December, which is also common in Europe. Very good seasonality, almost identical production days per quarter, almost identical on a 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 in my prepared remarks: a little inflation pressure in Q2 from 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 be some of the operational elements. From a revenue perspective, we got a lot of questions today about the GM full-size truck. We had some downtime in January for heavy-duty. As you know, one of their larger endpoints, a large facility, Silao, they will go through their next-generation change that will impact, call it, mid-second half of the year as they finalize when they are going to take that facility down for a little bit. That is a primary endpoint for us as one of our customers as well.

Operator: Thank you, guys. And gentlemen, our final question today comes from Analyst at BofA. Please go ahead.

Analyst: Hey, guys. Thanks for slipping me in. I want to ask a little bit about the 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 some limitations to agate cylinder new gasoline engines, and they thought maybe it could perhaps help their mix for heavier pickup trucks and SUVs. Is that something that you are seeing in your production forecasts—that mix is happening elsewhere in North America? Trying to get a little smarter on that because it could be a big benefit to the OEMs' price points.

David Lim: Yes. 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 has extended out and even hybridization, that is clearly a strong benefit to us as a company. And we have got an installed capacity and product portfolio that is already solidly in place. As we alluded, our financial performance was impacted favorably in regards to the truck platform. On the light-duty GM, very strong. Ram heavy-duty, very strong. GM was down in the first quarter as they are transitioning, but we expect to be very strong throughout the year.

So we are clearly seeing the benefits of that. We are starting to see also some of the long-range product plan adjustments with the customers as some of those EPA adjustments and regulatory adjustments have been reduced. There is no doubt about it.

Analyst: That is good. It is good for the sector. Alright. Thanks so much. That is it for me.

David Lim: Yes. Thanks, Doug. 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.

Operator: 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.

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