Dauch (DCH) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Friday, February 13, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — David Charles Dauch
• Executive Vice President and Chief Financial Officer — Christopher John May
• Head of Investor Relations — David Lim

TAKEAWAYS

• Full-Year Sales -- $5,840,000,000, down from $6,120,000,000 attributable mainly to lower volume, mix, and the divestiture of the India commercial vehicle axle business, partially offset by favorable foreign exchange and metal markets.
• Fourth Quarter Sales -- $1,380,000,000, effectively flat compared to prior-year quarter, impacted negatively by volume/mix ($2,000,000), pricing ($6,000,000), and the India axle sale ($27,000,000), with a $38,000,000 offset from higher metal pass-throughs and FX.
• Adjusted EBITDA Margin -- 12.7% for the year, up 50 basis points from 2024's 12.2%; Q4 margin was 12.2%.
• Adjusted EBITDA -- $169,000,000 for Q4 and $743,200,000 for the full-year; up year over year despite lower sales driven by favorable mix and R&D performance.
• GAAP Net Loss -- $75,300,000 or $0.63 per share for the year, compared to $13,700,000 loss or $0.12 per share in 2024, with a full-year adjusted earnings per share of $0.53.
• Adjusted Free Cash Flow -- $70,100,000 in Q4 and $213,000,000 for the full year; prior-year figure was $230,000,000.
• Net Debt / LTM Adjusted EBITDA -- 2.5x at December 31, down from 2.8x a year earlier, with ending net debt of $1,800,000,000.
• Transformational Acquisition -- Completed the purchase of Dauch Group plc (including GKN Automotive and GKN Powder Metallurgy) on February 3, 2026, creating a global driveline and metal forming supplier with core participation in electric, hybrid, and traditional vehicle powertrains.
• Synergy Opportunity -- Identified $300,000,000 in cost synergies to be fully realized by year three, with $100,000,000+ expected by year one end and 60% of annualized synergy run-rate by year two.
• 2026 Outlook -- Targeting sales of $10,300,000,000 to $10,700,000,000, adjusted EBITDA of $1,300,000,000 to $1,400,000,000, and adjusted free cash flow of $235,000,000 to $325,000,000, incorporating both legacy AAM and Dauch partial-year results.
• 2026 Capital Expenditures -- Planned at 4.5%-5% of sales to support major customer launches, including new GM truck programs.
• 2026 Operational Cash Costs -- Expecting $110,000,000 to $150,000,000 for core operational restructuring, and $100,000,000 to $125,000,000 for synergy capture, primarily front-loaded.
• Equity Income from China JV -- Projected $65,000,000 to $75,000,000 (50% share) flowing through adjusted EBITDA, plus expectations for substantial dividends.
• SmartBar Supply Win -- Awarded supply of SmartBar product to Scout Motors, supplementing ongoing electric drive system deliveries and showcasing product breadth.
• Supplier Recognition -- Received Cherry Automotive’s Best Supplier Award of the Year for 2025 and multiple GM supplier quality excellence awards.
• Share Count for 2026 -- Modeling assumes approximately 243,000,000 fully diluted shares outstanding.
• Accounting Standards -- Emphasized differences between US GAAP (Dauch/AAM) and IFRS (Dauch legacy), with specific cautions against simply aggregating figures across standards due to JV equity treatment and pension accounting.
• Name Change -- Company rebranded from American Axle & Manufacturing Holdings Inc. to Dauch Corporation in January 2026.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Net interest expense increased from $37,300,000 to $50,800,000 year over year due to new debt for the Dauch acquisition, with costs held in escrow until closing in February 2026.
• GAAP net loss was $75,300,000 or $0.63 per share in 2025 compared to $13,700,000 or $0.12 per share in 2024.
• Restructuring and synergy integration cash outflows for 2026 are projected at $210,000,000 to $275,000,000, limiting cash available for other uses; management expects these costs to persist into 2027.
• Guidance notes anticipated headwinds from metal market shifts and foreign exchange, particularly due to Mexican peso strengthening.

SUMMARY

Dauch Corporation (NYSE:DCH) closed a transformational acquisition of Dauch Group plc and GKN subsidiaries, immediately expanding its scale and portfolio. Management targets $300,000,000 in cost synergies and is on pace for a greater than $100,000,000 annualized synergy run-rate within year one. The company projects significant sales and EBITDA growth for 2026, with integration efforts already underway and a dedicated office overseeing value capture. Capital expenditures will prioritize major automotive launches, including large-scale GM truck programs, and cash flow expectations accommodate both restructuring and integration costs. Company leadership stressed that equity income from its China joint venture will now contribute materially to adjusted EBITDA, complemented by dividends. Integration accounting will require adjustment, given the divergent US GAAP and IFRS reporting approaches and joint venture treatment.

• The closing of the Dauch/GKN transaction results in a combined company with a "comprehensive powertrain-agnostic product portfolio" and a more balanced global geographic revenue mix.
• Christopher John May highlighted that $600,000,000 of EBITDA contribution from the acquired Dauch businesses represents a full cost margin of approximately 12.1%.
• Management expects the majority of restructuring will conclude in 2026, but synergy integration spending will continue into at least 2027.
• Chairman Dauch stated, "we are highly confident we can deliver that $300,000,000. As we," and sees possible future upside depending on further operational reviews.
• Management reaffirmed a 25%-30% product contribution margin for the new consolidated entity—unchanged from prior levels.
• Segment reporting for the integrated business may be updated in future results, with driveline and metal forming as the current baseline segmentation.

INDUSTRY GLOSSARY

• Adjusted Free Cash Flow: Cash flow from operations less capital expenditures and certain adjustments such as proceeds from asset sales; excludes specific restructuring and acquisition-related costs unless otherwise stated.
• Contribution Margin: The percentage of revenue remaining after variable costs are deducted, indicating profit available to cover fixed costs and generate profits.
• SmartBar: An advanced electronically controlled, disconnecting stabilizer bar system for vehicles, referenced as a product win with Scout Motors in this call.

Full Conference Call Transcript

David Lim: Thank you, and good morning. I would like to welcome everyone who is joining us on Dauch Corporation’s quarter earnings call. Earlier this morning, we released our 2025 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.duke.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 upcoming investor conferences, we will be at the JPMorgan 2020 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 would 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 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 at 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 join together strength of two great companies into one robust global automotive supplier, and again, welcome to the Dauch and GKN team members.

On this call, we will discuss our financial results for the 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 will 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 will discuss the completion of our transformational Dauch 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. Let us begin.

We concluded 2025 on 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 $200,000,000 in adjusted free cash flow in 2025. Our 2025 fourth quarter sales were approximately $1,400,000,000. For the full year, sales were approximately $5,800,000,000. From a profitability perspective, adjusted EBITDA in the fourth quarter was $169,000,000 or 12.2% of sales. For the full year, adjusted EBITDA was $743,000,000 or 12.7% of sales, up from 12.2% last year. We experienced margin improvement in both our metal forming and our driveline business units as we remain focused on operational efficiency.

David Lim: Our adjusted earnings per share in the 2025 was $0.07 per share.

David Dauch: For the full year, adjusted earnings per share was $0.53 per share. Adjusted free cash flow was $70,000,000 in the quarter, and $213,000,000 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 managed factors under our control and remained focused on the fundamental pillars of our company, technology leadership, operational excellence, and quality. Now let us 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 SmartBar product to Scout Motors.

This is in addition to the front electric drive units and the electric rear beam axles that we announced last year. This is significant not only for our advanced technology capabilities, but also demonstrates that OEMs can come to us for a variety of products to enhance their vehicles’ drive characteristics. In addition, our Asia team received Cherry Automotive’s 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 exceed GM’s rigorous quality performance criteria.

Our focus is to operate at a high level and satisfy customer expectations, globally.

David Lim: As we manage our day-to-day business, we simultaneously complete a transformational and historical acquisition for our company. The acquisition of the Dauch Group plc and its subsidiaries GKN Automotive and GKN Powder Metallurgy. This transaction officially closed on 02/03/2026. This acquisition creates a leading global driveline and metal forming supplier and we now have significant size and scale, a comprehensive powertrain-agnostic product portfolio from BMAX will support North American global light trucks, side shafts 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 balanced our geographic presence across the globe anchored by our strong truck franchise here in North America, and a significant global presence inside Jeff’s. We have compelling industrial logic with an estimated $300,000,000 in synergies associated with the deal with an expected full run-rate achievement by the end of year three. And we expect high margins, earnings, and cash flow potential as a result of this 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. Approximately $300,000,000 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 realized by the end of year three.

Importantly, we anticipate exceeding $100,000,000 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 us 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 15,000,000 units, Europe at approximately 17,000,000 units, China at approximately 33,000,000 units, and global production at approximately 93,000,000 units. Slide 7 illustrates the company’s 2026 financial outlook. Our outlook takes into consideration a partial year contribution from Dauch. And recall, we just closed the transaction on February 3. We are targeting sales of $10,300,000,000 to $10,700,000,000, adjusted EBITDA of approximately $1,300,000,000 to $1,400,000,000, and adjusted free cash flow in the range of $235,000,000 to $325,000,000.

In the longer term, our priorities are to realize strong synergies from our Dauch acquisition in combination, generate solid adjusted free cash flow, strengthen our balance sheet, advance our agnostic product portfolio, position the Dauch Corporation for sustained profitable growth, and return capital to our shareholders. In addition, to mark this 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 is not just my family name. It is 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 strength and shared entrepreneurial spirit of both AAM and GKN, while signaling our commitment to performance with staying power. 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 my father built AAM on. These remain the brand foundation of who we are today, and, as our brand platform states, our company is built to perform.

I am proud of the team, what we have 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?

Operator: Okay. Thank you, David, and good morning, everyone.

Chris May: 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 us go ahead and begin with sales. In the 2025, our sales were $1,380,000,000, which were flat compared to the 2024. Slide 8 shows a walk of fourth quarter 2024 sales to fourth quarter 2025 sales. Volume, mix, and other lowered sales by $2,000,000, pricing was $6,000,000, and the sale of the commercial vehicle axle business in India, which occurred in mid-2025, lowered sales by $27,000,000 in the quarter.

Metal market pass-throughs and FX increased net sales by approximately $38,000,000 as both were higher year over year. For the full year of 2025, our sales were $5,840,000,000 as compared to $6,120,000,000 for the full year of 2024. The primary drivers of the decrease were volume and mix, and the sale of our India commercial vehicle axle business, partially offset by favorable FX and metal markets. Now let us move on to profitability. Profit was $140,900,000 in the 2025 as compared to $154,300,000 in the 2024. Adjusted EBITDA was $169,000,000 in the 2025 versus $160,800,000 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 $5,000,000 due to mix effect. R&D expense continued to be favorable and was slightly lower year over year. And performance was $8,000,000 favorable. For the full year of 2025, our adjusted EBITDA was $743,200,000 and adjusted EBITDA margin was 12.7% of sales. For the full year, this was a 50 basis point margin improvement from 2024. Let us move on to interest and taxes. Net interest expense was $50,800,000 in the 2025, compared to $37,300,000 in the 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 Dauch, which was held in escrow until the closing in February 2026. In the 2025, we recorded an income tax benefit of $10,000,000 compared to an expense of $6,800,000 in the 2024. Taking all these sales and cost drivers into account, our GAAP net loss was $75,300,000 or $0.63 per share in the 2025 compared to a net loss of $13,700,000 or $0.12 per share in the 2024.

Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.07 per share in the 2025 compared to a loss of $0.60 per share for the 2024. For the full year of 2025, our adjusted earnings per share was $0.53 versus $0.51 per share in 2024. Let us now move to cash flow and the balance sheet. Net cash provided by operating activities for the 2025 was $120,500,000 compared to $151,200,000 in the 2024. Capital expenditures, net of proceeds from the sale of property, plant, and equipment, for the 2025 were $66,000,000. For the full year, we finished at $250,900,000 or 4.3% of sales.

Cash payments for restructuring for the 2025 were $2,800,000 and cash payments related to our Dauch acquisition were $25,900,000. Reflecting the impact of these activities, we generated adjusted free cash flow of $70,100,000 in the 2025. For the full year of 2025, we generated adjusted free cash flow of $213,000,000 compared to $230,000,000 in 2024. From a debt leverage perspective, we ended the year with net debt of $1,800,000,000 and LTM adjusted EBITDA of $743,000,000, calculating a net leverage ratio of 2.5 times at December 31. This is down from 2.8 times a year ago on 12/31/2024, driven by our cash flow generation and proceeds we received from asset sales.

During the quarter, we completed our financing for our acquisition of Dauch 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 allowed us to support the Dauch 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 Dauch Corporation, previously AAM, and only a partial year contribution for Dauch. We did not close the transaction until February. In addition to the regional production assumptions that are in our press release and deck, assume GM’s large pickup and SUV production in the 1.3 to 1.4 million unit range.

As for financial guidance, we are targeting a sales range of $10,300,000,000 to $10,700,000,000 for 2026, which provided a breakout on the walk of the Dauch contribution to sales for a full year plus the portion applicable to the prior period to the closing date. From an EBITDA perspective, we are expecting adjusted EBITDA in the range of $1,300,000,000 to $1,400,000,000. Let me provide some color on the key elements of our year-over-year EBITDA walk that is on page 11. This chart walks Dauch Corporation’s standalone year-over-year variances and then adds the portion related to the Dauch acquisition. As it relates to the standalone variances, expect EBITDA to be impacted by volume and mix at normal contribution margin rates.

R&D optimization should continue and drive approximately $10,000,000 to $20,000,000 annual savings. We anticipate continued cost reductions and operational productivity efficiency gains, and you can see year-over-year performance improvements as a net favorable $40,000,000 to $50,000,000 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 Dauch to contribute approximately $600,000,000 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 $50,000,000 to $75,000,000 in adjusted EBITDA in 2026. This equates to a run rate of greater than $100,000,000 by the end of year one, as momentum builds throughout the year.

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 $235,000,000 to $325,000,000 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-related cash outposts in the range of $110,000,000 to $150,000,000, as the former Dauch 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 $100,000,000 to $125,000,000 for 2026. Taking a step back, when you read through all of the details, you will 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. We do not provide quarterly guidance. We do want to provide some perspectives 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 Dauch 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 Dauch financial data. However, I just want to remind you that we are on different accounting standards. Dauch is IFRS and Dauch is US 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 one. Please see our previously published proxy materials for additional insights. We expect approximately 243,000,000 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 $40,000,000 to $50,000,000, primarily related to legacy Dauch plans. At this time, use approximately a 30% tax rate for book and cash taxes and assume $150,000,000 to $170,000,000 for 2026.

Given the size of this transaction and the fact we just closed less than two weeks ago, there will be significant effects from purchase accounting, transaction costs, and other activity in the 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 am going to stop here and we are happy to take your questions. David? Thank you, David and Chris. We have reserved some time

David Lim: 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: And at this time, we will begin the question-and-answer session. If you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our first question today comes from Joseph Robert Spak from UBS. Please go ahead with your question.

Joseph Robert Spak: Thanks. Good morning, everyone.

Chris May: Maybe just to start, if you sort of help us

Joseph Robert Spak: at a high level of what you sort of see going on at the

Chris May: individual businesses? Because, you know, for a year for the old American Axle,

Joseph Robert Spak: looks like it is down 2% minus maybe 1% of that is the

Chris May: sales are down 1%. So what are some of the assumptions there?

Joseph Robert Spak: And then for Dauch, you know, I know you are sort of saying about $5,400,000,000 full year, then you do not have the one month. But it looks like there is not really, you know, some growth going on there either. So, maybe you could sort of just tell

Chris May: about what happened in that business

Joseph Robert Spak: in the ’25 where we did not see the financials yet and then what the outlook is even beyond this year.

Chris May: Thanks. Yeah. Good morning, Joe. This is Chris. And at this point in time, Dauch is 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 are seeing from a sales for both companies, generally, I would say, very similar, meaning our core assumptions, as you know from a North America perspective, are down slightly from 15,300,000 units to fifteen twenty six. That is our guidance that we have shared with you. Relatively flat in the European market. From our T1 truck production for legacy Dauch Corporation, you see down slightly year over year.

And then you have sort of a net backlog and attrition that is relatively, I would say, flat within the year. So that sort of transitions our sales 25% to 26% on a relatively flat basis.

Operator: Okay.

Joseph Robert Spak: Maybe one follow-up on that, if you could give us

Chris May: the GMT1 assumption you are looking for ’26? And then the second question is really a clarification because I thought I heard you say

Joseph Robert Spak: you know, even after the restructuring and this integration cost, you are generating real free cash,

Operator: But

Chris May: I mean, I am thinking you are excluding those from your free cash flow. So I am a little confused because it looks like there is a cash use ex those payments.

Joseph Robert Spak: And then I guess just on those payments as well, is this really just a ’26 issue? Do we think

Chris May: like, are there still restructuring and synergy integration costs beyond this year?

Joseph Robert Spak: Thanks.

Operator: Yes. Let me, I will work through each of those pieces.

Chris May: Our T1 assumption for calendar year 2026 at this point in time is 1,300,000 to 1,400,000 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 is probably easiest to look at maybe our supplemental deck that reconciles to our GAAP numbers in the tables of our release or our earnings deck. You can see really subtotal there, line 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 have always stated, from those perspectives, we expect to spend a total of $300,000,000 to implement our synergies, front weighted to the first two years. From a core restructuring cost, I would expect that to drop significantly, as Dauch is in the, or the legacy Dauch business is in the final throes of their significant restructuring that they have been going on in past couple of years. And as a standalone 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, just using the high end for a moment. We have $325,000,000 of adjusted free cash flow. At the high end of our synergy integration costs, $125,000,000. At the high end of our restructuring costs, $150,000,000, which would generate $50,000,000 of cash flow for the company in 2026, available for debt repayment and other capital allocations. I expect our core operations to generate cash flow after restructuring and synergy costs. Sorry then. Then what is this, what the, sorry to get bogged down. So what is the cash payments for acquisition cost that is in that?

So think of that as all the closing costs for the transactions that were completed on February 3. So that was funded through financing, that was funded through our cash build last year. That is really the closing of the transaction. All the fees, etcetera, associated with that. Really nothing to do with the core operations of the company.

David Lim: Sure.

Chris May: Thanks.

Operator: Our next question comes from Tom Narayan from RBC. Please go ahead with your question. Hi. This is Thomas Scholl on for Tom. Thanks for taking the question. For those $300,000,000 in synergies from the Dauch combination, I think you have given a rough estimate that 50% are from purchasing, 30% from 20% from operating efficiencies. My question is, do you think there is any room for upside there, particularly in the operating efficiencies category, after you have been able to see the Dauch plants now that the deal is closed.

David Dauch: Yes. Tom, this is David Dauch. The answer to that is yes. I mean, obviously, we are committed to the $300,000,000 that we identified earlier, as we had publicly communicated multiple times that had to go through a third-party audit before it could be published. And so we are highly confident we can deliver that $300,000,000. As we have 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 backside will be more of the balance of the purchasing

Chris May: as well as the operational side.

David Dauch: We were also limited in getting into the plants when we did the $300,000,000 initially. We have now had the opportunity to get to the plants, and we see some

Chris May: 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,

David Dauch: highly confident we will deliver the $300,000,000, and we will see if we can increase that on a go-forward basis, but we will do that on a quarterly basis as we announce our financials and get more knowledge and familiarity with their business.

Operator: Okay. Got you. And as a quick follow-up, looks like your 2026 adjusted EBITDA estimate for the combined entity pretty consistent with the guidance you gave back in June 2025. Even though Dauch has released its 2025 preliminary results that exceed its third quarter guidance. I guess in addition to what you have on Slide 9, give a little more color on what potentially drove estimates lower than what you might have expected?

Chris May: Is it, like, if it is a function of those IFRS adjustments,

Operator: would you be able to quantify the impact of that? Thanks.

Chris May: Yes, certainly. In terms of what we are providing here today, by the way, very consistent with our thought process all along. There is nothing new here, what we are sharing with you today, generally speaking. But in terms of the IFRS adjustments, they are meaningful differences between what Dauch reports and what Dauch especially reports on their adjusted numbers. So, for example, in their revenue numbers, they include

Christopher John May: adjusted

Chris May: equity share of their joint venture, it is fifty-fifty, which is unconsolidated. Those sales are grossed up for almost $750,000,000, would be a sizable difference between the two. So you cannot add our sales together if you are 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 $100,000,000 difference. Again, all part of our planning, all the figures that we shared with you previously. But the differences are meaningful.

Operator: Okay. Great. Thank you. Yep. Thank you. Our next question comes from James Picariello from BNP. Please go ahead with your question.

Chris May: Hey, guys. This is Jake on for James. Just want to follow up on, I just want to follow up on Joe’s question on free cash.

David Lim: So at the adjusted, at the midpoint of your adjusted free cash guide, which rubs out acquisition costs, cash flow is about $70,000,000, versus standalone Axle in 2025. So how do we get from here to the previous, you know, to the targeted $600,000,000? Thank you.

Christopher John May: Yes, certainly.

Chris May: Terms of where do 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. If you take our midpoint at $2.80 example, you have yet another $250,000,000 plus of synergies that will come into play over the next couple of years, to get to our $300,000,000 from where we are heading EBITDA flow-through here in 2026. That would be one. Two, your interest expense will continue to decline post 2026. Remember, and that should be cash interest. Taking your heaviest load of that, of course, in year one.

And as you know, we are fully set up from our financing standpoint from that perspective. See CapEx, we have articulated through the process, we would expect CapEx somewhere between overall the combined companies going forward, roughly between 4–5%. A little bit at the top half of that range in 2026. As you know, we are launching the next generation of the GM full-size trucks. Dauch has a few programs as well that they are launching. But, again, that would moderate a little bit. And then once you get into some, I would say,

Christopher John May: opportunities

Chris May: to evaluate income taxes over time, that is clearly not something that can happen in year one. Potentially some opportunities there. And I would say we would expect to see working capital optimization as we go forward as we bring these two companies together and streamline all those over the next year or two. I mean, that is a main driver of this piece. And then, obviously, from just a true cash flow piece, your restructuring steps down significantly, as I said earlier, into ’27 and beyond.

David Lim: Thank you. That is very helpful. And then how are you guys accounting

Operator: for Dauch’s equity income in your P&L? Thank you. So that will be reported as equity income.

Chris May: Inside of our P&L. It is included in our adjusted EBITDA number. It will be in the range of $65,000,000 to $75,000,000. And that is for our 50% share.

Operator: And if that, yeah. If that answers your question, we will move on to Edison Yu from Deutsche Bank. Please go ahead with your question.

Federico Merendi: This is Linya on for Edison. Hi. I just wanted to, hi. Quantitatively, I was wondering if you can help us frame sort of the Dauch business directionally on an apples-to-apples basis after adjusting for the accounting differences in terms of, you know, your outlook for 2026 and how that sort of compares to 2025? Just, you know, 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?

Chris May: Yes. Winnie, I will take the first crack at, in terms of, again, ’25 to ’26, as you know, as I mentioned, Dauch has not published ’25 figures. But big picture-wise, we operate in very similar markets and are seeing similar demands from a volume perspective. And also in terms of their restructuring, they have had even heavier restructuring investments they made in the calendar year 2025. That is stepping down a little bit here this year. We will start to see some of those benefits transition into our P&L in ’twenty six and clearly more meaningful into 2027 on the call. Core operations of the company.

From the JV side of the house, obviously, this is a significant JV size. Revenues are nearly $1,500,000,000. It is almost exclusive inside of the China market. You would watch that performance 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.

Federico Merendi: Got it. Thank you. If I may just squeeze in, just for, like, you know, modeling purposes, how are you still planning to report your statements going forward? Is it going to be sort of all integrated, or are you thinking about, like, a different way of segmenting the business?

Chris May: Winnie, I am sorry. I did not hear the first part of the question. Can you repeat that, please?

Federico Merendi: Yes, in terms of the segments that you are going to report on a go-forward basis.

Chris May: It all segments? Yes, we will update you at the first quarter on our segment reporting. But currently, as you know, today we are driveline and metal forming. I expect you will see something similar, but we have to finalize that piece. We will share that with you in the first quarter.

Federico Merendi: Great. Thank you.

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

Chris May: Great, thanks. Good morning, everybody.

David Lim: Good morning. Just want to go back to cash restructuring of $110,000,000 to $150,000,000 this year. I am 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?

Chris May: Yes. Yigal, this is Chris. So this is, again, over two thirds of this relates to, I would say, the ongoing campaign of restructuring that Dauch has seen. Several of their factories moving from high-cost countries to lower-cost countries is the final piece of that. You have seen some flow-through in benefits, most likely in ’25. You will 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 third, which is the American Axle side where we are closing a couple facilities that we started last year and will conclude here this year, you would start to see that really benefit here in the year following, meaning ’27. Terrific. Thank you, Chris. Then just as a quick follow-up,

David Lim: are you able to share any kind of, like, pro forma debt, net debt, like, post the closing of transaction?

Chris May: Yes. Look, I would say, obviously, we are still completing some of the final pieces of the close since it was only ten ago, but we would expect sort of roughly in the ballpark range of about $4,200,000,000 at sort of day of closing, if you will. That is, again, very consistent with what we planned on, and our cash flow generation and financing activity supported that. So

David Lim: Great. Perfect. That is all very helpful. Thank you.

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

David Lim: Great. Thank you to 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.

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.