Dauch Corp Q3 FY2025 Earnings Call

Good morning. My name is Nick, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Third Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. David Lim.

Thank you, and good morning. I'd like to welcome everyone who is joining us on AAM's third quarter earnings call. Earlier this morning, we released our third quarter of 2025 earnings announcement. You can access that announcement on the Investor Relations page on our website, 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. Now to listen to a replay of this call, you can dial (877) 344-7529, replay access code 4346240. This replay will be available through November 14. As for upcoming investor conferences, we will be at the Barclays 16th Annual Global Automotive and Mobility Tech conference later this month. We will also attend the Bank of America Leveraged Finance Conference and the UBS Global Industrials & Transportation Conference in December. We look forward to seeing you there. Now before we begin, I would like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, please reference Slide 2 of our investor presentation or the press release that was issued today. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures as well as a reconciliation of the non-GAAP measures to GAAP financial information is available in the presentation. With that, let me turn things over to AAM's Chairman and CEO, David Dauch.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the third quarter of 2025. Joining me on the call today is Chris May, AAM's Executive Vice President and Chief Financial Officer. To begin, I'll review the highlights of our third quarter financial performance. Then I will touch on some commentary about AAM's recent business developments. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin. AAM's third quarter 2025 sales were $1.51 billion. AAM's adjusted earnings per share was $0.16 per share. Operating cash flow was $143.3 million and adjusted free cash flow was approximately $98.1 million. From a profitability perspective, AAM delivered strong year-over-year margin growth, driven by performance. AAM's adjusted EBITDA in the third quarter was $195 million or 12.9% of sales, a robust 130 basis point improvement versus last year on flat sales. This was led by our driveline business unit, which achieved adjusted EBITDA margins of 14.9%, the highest third quarter margin since 2020. The performance was supported by a focus on operational efficiency, continuous improvement, quality and managing factors under our control. On the metal forming side, we still have additional work to do to reach our full margin potential. Let's talk about the operating environment. In the near term, we are seeing onshoring opportunities within our metal forming group, and we continue to assess our footprint to optimize, to support our customers' needs as we're all dealing with the tariff environment. With the discontinuation of the EV tax credit in the U.S., changes to emission regulations and trade policies, OEMs are assessing their long-range product plans and the market, especially trying to determine electric vehicle natural demand. Currently, bidding activity leans more towards ICE than EV and an extended ICE tail is good for AAM as we can further leverage our installed asset base with our core products. We continue to believe that large truck and SUV demand appear to be very healthy, both sweet spots for AAM. With that said, we also have a strong foundational technology in electrification with our components, electric drive units and electric beam axles. Our portfolio will only strengthen and expand as we complete the Dowlais acquisition. As we have communicated earlier, our goal is to have a propulsion-agnostic product portfolio that adjusts with the market demands. Let me talk about some business updates on Slide 4. From a deal transaction standpoint, both shareholder approvals were completed in July. In October, we completed the permanent financing for the transaction by securing $850 million of senior secured notes, $1.25 billion of senior unsecured notes and $835 million of term loans. Additionally, we redeemed all of our 2027 senior notes and a portion of our 2028 senior notes with the financing mentioned. On the regulatory front, we continue to make great progress. The European Commission clearance decision was issued on October 1, meaning that the EU antitrust condition has been completely satisfied. We also recently cleared regulatory approval in Brazil this Thursday on November 6. The combination has now been cleared and the related conditions to the combination satisfied under the antitrust laws and 8 of the 10 required jurisdictions or antitrust filings were made, namely in the United States, India, the U.K., Korea, Taiwan, Turkey, the EU and most recently, Brazil. The clearances that remain outstanding under antitrust laws are Mexico and China. We expect Mexico to be cleared here in the fourth quarter of 2025. In China, the parties are actively engaged with the state administration for market regulation, otherwise known as SAMR, with respect to its review of the combination, and AAM remains highly confident on obtaining antitrust clearance in late 2025 or early 2026. Regarding the deal closing timing, we now expect the deal to close in the first quarter of next year as we communicated in our press release on October 27. As such, we are very excited to close on this transformational combination. From a product win perspective, AAM has won new and replacement programs as well as volume extensions in both business units. One win, in particular, is a meaningful volume uplift for a popular heavy-duty truck program. We supply critical transmission products for that platform. These wins in general support a broad spectrum of powertrains, signifying AAM's agnostic approach. Transitioning to our guidance. We've updated our 2025 guidance ranges on the strength of our results through the first three quarters of the year. AAM is now targeting sales in the range of $5.8 billion to $5.9 billion, adjusted EBITDA of approximately $710 million to $745 million and adjusted free cash flow of approximately $180 million to $210 million. Our guidance ranges are supported by an assumed North American production volume of approximately 15.1 million units and assumptions on certain platforms that we support. Chris will provide additional details on the assumptions underpinning our guidance. In summary, AAM continues to deliver solid performance while successfully navigating market volatility and policy uncertainties. We remain extremely focused on managing our business and driving efficiency regardless of the operating environment. Meanwhile, we continue to make excellent progress with regulatory bodies to close our combination with Dowlais. We are excited about the combination's potential and the long-term vision of the new company. This deal is truly transformational, benefiting our customers, suppliers, employees, and most importantly, our shareholders. Let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the third quarter financial details.

Thank you, David, and good morning, everyone. I will cover the financial details of our third quarter 2025 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales. In the third quarter of 2025, AAM sales were $1.5 billion, flat versus the third quarter of 2024. Slide 7 shows a walk of third quarter 2024 sales to third quarter 2025 sales. Volume mix and other was favorable by $8 million. Metal market pass-throughs and FX translation increased sales by approximately $25 million. And these gains were offset by $30 million of lower sales due to the successful sale of our commercial vehicle axle business in India that took place earlier in the year. Now let's move on to profitability. Gross profit was $189 million in the third quarter of 2025 as compared to $171 million in the third quarter of 2024. For the third quarter of 2025, adjusted EBITDA was $194.7 million, and adjusted EBITDA margin was 12.9% versus $174.4 million and 11.6% last year. You can see the year-over-year walk down of adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA was higher due to volume, mix and other by $9 million versus the prior year. This unusual contribution margin rate this quarter was driven by mix. Sales of certain higher-margin programs increased while sales of lower-margin programs declined. Ram heavy-duty production, which is a significant program for us increased year-over-year. R&D was lower by $3 million versus last year as we continue to optimize our engineering spend. And lastly, performance and other was favorable by $16 million. The year-over-year favorability was driven by a combination of factors, including operational performance and other productivity, partially offset by tariffs and SG&A expense timing. AAM remains focused on productivity, efficiency and cost optimization in all areas of our business. Let me now cover SG&A. SG&A expense, including R&D, in the third quarter of 2025 was $98.8 million or 6.6% of sales. This compares to $94.6 million or 6.3% of sales in the third quarter of 2024. AAM's R&D spending in the third quarter of 2025 was approximately $37 million, down from approximately $40 million. For the full year, we continue to anticipate R&D expense to be down on a year-over-year basis by nearly $20 million, driven by current market requirements and continued focus on engineering efficiency. Let's move now on to interest and taxes. Net interest expense was $35.7 million in the third quarter of 2025 compared to $38.1 million in the third quarter of 2024. The improvement was due to a lower weighted-average interest rate of our outstanding long-term debt and lower year-over-year debt balances. In the third quarter of 2025, we recorded an income tax benefit of $10.9 million compared to a benefit of $12.1 million in the third quarter of 2024. The third quarter of 2025 includes a discrete benefit of $22 million related to the impact of the accounting for the one big beautiful bill. For the fourth quarter of 2025, we expect an adjusted tax rate of approximately 10% to 15%. As for cash taxes, we expect approximately $60 million to $75 million this year. Taking all these sales and cost drivers into account, our GAAP net income was $9.2 million or $0.07 per share in the third quarter of 2025 compared to net income of $10 million or $0.08 per share in the third quarter of 2024. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.16 per share in the third quarter of 2025 compared to $0.20 per share for the third quarter of 2024. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the third quarter of 2025 was $143 million, compared to $144 million in the third quarter of 2024. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the third quarter of 2025 were $64 million. Cash payments for restructuring and acquisition-related activity for the third quarter of 2025 were $18.6 million. Reflecting the impact of these activities, AAM's adjusted free cash flow was $98 million in the third quarter of 2025. From a debt leverage perspective, we ended the quarter with net debt of $1.9 billion and LTM adjusted EBITDA of $735 million, calculating a net leverage ratio of 2.6x at September 31 — through September 30, 2025. We also maintained a strong cash position of over $700 million. AAM ended the quarter with total available liquidity of approximately $1.7 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. With that background in place, let's talk about our guidance on Slide 5. Our outlook has been updated from our previous targets. Our updated targets are as follows: for sales, our new range is $5.8 billion to $5.9 billion versus $5.75 billion to $5.95 billion previously. This new sales target is based upon a North America production assumption of approximately 15.1 million units and certain assumptions for our key programs. We now anticipate GM's full-size pickup truck and SUV production in the range of 1.35 million to 1.39 million units. From an EBITDA perspective, AAM anticipates a range of $710 million to $745 million versus $695 million to $745 million previously. We now anticipate adjusted free cash flow in the range of $180 million to $210 million. Our CapEx assumption is unchanged at approximately 5% of sales as we ready the organization for important upcoming launches especially for one of our new truck programs. In addition, while not included in our adjusted free cash flow figures, we estimate our restructuring-related cash payments for AAM as a stand-alone entity to be approximately $20 million for 2025 as we look to further optimize our business and further reduce fixed costs. With the updated guidance in mind, let me provide some additional color on the fourth quarter operating environment that we see. From a production standpoint, we expect normal seasonality plus some additional production volatility. We anticipate AAM's project expense to be overweight in the fourth quarter as we prepare for some significant upcoming launches that I mentioned previously. We continue to be excited about the new Ram heavy-duty launch cycle that has gained momentum throughout the course of the year and we will continue to manage other costs such as R&D. We underscore that the guidance figures that we are providing today are on an AAM stand-alone basis, pre-combination basis and excludes any costs or expenses related to our announced Dowlais transaction. As it relates to the Dowlais acquisition, as David mentioned earlier, we completed the permanent financing for the transaction. This includes a nice balance of term loans, secured notes and unsecured notes. As part of this positive financing activity, we're able to opportunistically refinance all of our existing 2027 senior notes and a portion of our 2028 senior notes. As a result, we extended the weighted-average maturity of AAM senior debt to well over 6 years. The revised debt maturity profile provides AAM with flexibility, and we will have no significant maturities until 2028. This is very good news from multiple perspectives as we ready for the closing on the Dowlais acquisition. And for 2026, we expect to provide formal guidance early next year. However, let me give you some of our thoughts as we head into next year. While the industry faces various challenges, we remain excited about our product and markets. We anticipate large SUV and pickup truck markets to remain healthy. As you know, our primary driveline truck platforms are the GM T1XX and the Ram heavy-duty platforms. We also have very good content on the Ford Super Duty. We believe ICE and ICE hybrid powertrains will continue to have meaningful longevity and consumer demand. Tariff and world trade dynamics should create opportunities for global suppliers with strong capabilities and scale such as AAM and also a soon-to-be much larger AAM with the completion of the Dowlais acquisition. And lastly, we will continue to focus on our core cost efficiencies and aggressively drive towards realizing our $300 million synergy goal. So in conclusion, AAM delivered good results through the first three quarters of the year and has successfully navigated both production and tariff volatility. Fundamentally, we will continue to manage factors under our control and course correct through market, supply chain and policy changes that we may face. Furthermore, our aim is for continuous improvement and operational excellence, and they should manifest in future results. Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to David, so we can start the Q&A. David?

Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your questions to no more than two. So at this time, please feel free to proceed with any questions you may have.

Your first question comes from Joe Spak with UBS.

Chris, maybe just a first quick one, some housekeeping, I guess. Could you just remind us sort of what's in the bucket or what was driving it, like the $9 million volume mix other in EBITDA on $8 million sales? What just stands out a little bit what's going on in those buckets?

Yes, yes. That's a great question. With the, of course, with the low change in revenue, obviously you get a little bit of dynamics in a percentage ratio here. But we experienced in the quarter was a continued, I would say, year-over-year strong performance on the Ram platform. So we saw elevated sales from our full-size truck franchise from that standpoint. We had some clients in some of our other business, I think some passenger car and crossover vehicle and component business. So that mix sort of caused the dynamic of sort of a ratio of some higher-margin business coming in, in terms of versus prior year. And then some lower margin business sort of low to give that sort of odd ratio between volume mix and other from a contribution margin mix to the revenue that you see. You do have some tariff recoveries flowing through that line as well that kind of accentuates that issue a little bit, but that's principally what's going on. All normal activities, it's just an odd mix.

Okay, David, for the second question and from a broader perspective, can you provide an update on your discussions with customers regarding reshoring efforts and investments in the U.S.? What kind of conversations have you had with your customers about these opportunities? Additionally, are you starting to approach these customers about the potential benefits from the Dowlais acquisition, or is that not yet a part of those discussions?

Let me begin with the last question first, Joe. We cannot engage in discussions with customers about Dowlais directly, as this would be considered premature collaboration. Therefore, we are focused on what AAM can offer today rather than discussing potential future capabilities of Dowlais. However, once Dowlais becomes part of the AAM family, it will clearly enhance our opportunities. As I mentioned earlier, and Chris also noted, we are noticing a lot of potential from various customers at both the OEM and tier levels in our metal forming business, particularly in localization efforts within forgings, castings, and powdered metal parts. This is driving an increase in our sales opportunities, but there is nothing to announce at this time as we are actively working with multiple customers. Regarding our plant locations, our policy is to buy and build locally in the markets we serve, which has significantly reduced our tariff exposure. We are closely monitoring the USMCA negotiations, expecting a higher U.S. content requirement in the future. We have discussed our customers’ intentions with them, understanding the need for proximity due to the large products we ship. Once they finalize their decisions, we will adjust our footprints accordingly in alignment with their plans. So, yes, conversations are ongoing, but we cannot make any announcements at this moment as it largely depends on when customers finalize their plant loading plans.

And your next question today will come from Tom Narayan with RBC.

The first question is about the regulatory antitrust clearing. I'm wondering if you are confident in China by late 2025 or early 2026. Was that expected or surprising? Is there a specific risk associated with that situation that could lead to divestitures, or is this just part of the regular process? I have a follow-up question as well.

Yes, Tom, this is David. We're highly confident in regards to we'll get all the jurisdictions approved. We clearly anticipated that Brazil, Mexico, and China would be the long poles in the tent. Brazil, as I mentioned, we got verbal acknowledgment earlier in the month but we got final formal approval just yesterday. We expect Mexico here yet this month. In China, we're in discussions with them. But I don't expect us to have to do anything from a large remedy standpoint in that area. We're just going through the normal discussions in their inquiries and questions. Just like we've done with other countries, their process is just taking a little bit longer. We did anticipate that geopolitical issues could potentially impact this. But quite honestly, it hasn't. At this point in time, and we hope that it doesn't. But we're getting a full operation from SAMR at this time.

Okay, I understand. For my follow-up, regarding the production levels you're expecting for North America 15.1, it seems like there's an indication of a significant drop in Q4. I'm wondering if this reflects some cautiousness on your part? Additionally, there appear to be some positive signs regarding resolution, especially concerning Xperia. Although that's based on market data, I'm curious if this indicates conservatism or if there's something specific influencing your outlook.

Tom, this is Chris. Of course, we anchor this a little bit around, as you mentioned, a market number. But at this point in the year too, we are also really kind of calibrating and locking into our specific customer schedules. And as you may be aware, we've experienced a little bit of downtime in the fourth quarter early in the quarter, meaning October, early part of that. We had one of our customer assembly plants at Wentzville down, that impacted some of our production. We've seen a little bit of extra holiday downtime; we anticipate near the end of the year. And also, as you mentioned, the other issues in terms of supply chain. We've had a little bit around the edges in terms of some volatility there. But we're trying to calibrate into what we see in the current market environment and that's sort of our best estimate right now at the time.

And your next question today will come from Itay Michaeli with TD Cowen.

Just going back to the onshoring opportunity. As you think about that opportunity as well as your recent business wins and ICE extensions. I'm curious how you're thinking, at least at a high level of the kind of growth over market potential over the next two years or so.

What I would say, Itay, this is David. I think we have a strong opportunity to benefit from our metal forming segment. Regarding the onshoring activity we discussed earlier, once we pull Dowlais together, we believe there are in-sourcing opportunities since they purchase a significant amount of their forging and some powder metal externally. We see potential there as well. I don’t have a specific figure in mind about our growth in relation to the market, but I believe we can keep pace with the market trends. We do have some products transitioning away from older transmission-related items, so we’ll need to compensate for that to demonstrate incremental growth in line with the market. Overall, I think we should be able to maintain our position relative to the market.

Yes. And I would say, Itay, this is Chris. In addition to some of that with these extensions that we're seeing, obviously, some conversion into hybrid creates some opportunity for us. And you may recall from our last earnings call, we announced a great award with Scout. So these are examples where our next-gen technologies into electrification will also drive some of that uplift in terms of growth over market opportunities for us.

Terrific. That's very helpful. And as my follow-up, just on the kind of Q4 outlook, do you have any kind of bias within the EBITDA range? And maybe just talk about the different factors from here through year-end that may cause you to come in at the lower or maybe higher end of that range?

Yes. Regarding that range, it primarily hinges on our total revenue for the quarter, with our contribution margin generally between 25% and 35%. This is a key factor as I consider our EBITDA range for the fourth quarter. As I noted earlier, we are facing significant project expenses as we prepare for next-generation product launches, which coincide with expected capital spending in the fourth quarter. There is also some timing movement related to that. Additionally, production volatility has had some impact, but we are also concentrating on optimizing costs related to engineering and improving productivity in various facilities. These elements are the main factors that could influence our results, but the largest consideration right now is volume.

The next question will come from James Picariello with BNP.

This is Jake on for James. You saw a pretty healthy step-up in driveline margins this quarter. Could you just share if there were any one-timers in there? Or is this a number you guys think you can do going forward?

Yes. Look, each quarter obviously has a unique story, whether it's mix of volume of products, but on the driveline side, if you look consistently now over the last 4 to 6 quarters has been very strong and stable in its ability to generate margins on its product mix. As we talked a little bit about Ram earlier on a year-over-year basis continues to be very strong for us. That's obviously one of our full-size truck franchise products that we supply. And then quite frankly, they’ve been doing a nice job of managing their cost environment. So each quarter is a little bit different in terms of its margin, but holistically, the trend is for them to continue to perform very strong.

And then you guys have pretty significant exposure on these heavy-duty pickup trucks. So can you talk about the impact you're seeing from the expansion of the 232 tariffs to the medium and heavy-duty truck space? Have you seen any kind of shifts from your patterns or you're potentially having easier time in discussions about recoveries?

Yes, Mike. That's a great question. We certainly have significant exposure with those platforms for all three North American OEMs. As you know, there is strong demand for this product, which is manufactured in various locations throughout North America. Currently, we have not observed any negative impacts related to that. Our customers are managing production effectively in terms of capacity and meeting their market demands. Overall, we are not seeing any significant effects at this time.

And your next question today will come from Edison Yu with Deutsche Bank.

This is Winnie on for Edison. So I guess I want to go back to the quarter for a little bit, especially the performance in other markets category, which is very strong. I just wanted to see if you can break that down, the composition of it? And then what's sustainable, what's not on a go-forward basis?

Winnie, this is Chris. I'll take that one. If you look at our performance bucket on our year-over-year walks, about two-thirds of that performance is associated with our driveline business unit, sort of in response to the question that was just answered previously. And I would expect them to continue to have very strong normal operating performance. The remainder of this bucket was a net of a few things. We've seen some positive momentum in our, I would call it, material costs as a company. It was offset slightly by tariffs, a couple of million dollar net negative impact inside the quarter related to tariffs and then some timing of our SG&A expense also offset some of that gain. But structurally, again, I would expect the driveline to continue to perform very well. And metal form, I would expect to improve over the next couple of quarters as it relates to performance.

That's very helpful. Looking ahead to 2026, you mentioned that the mix in your quarter significantly contributed to the strong incrementals you've been experiencing. Can you help us think about how that might carry forward to 2026 as we consider volume and mix for next year? Additionally, regarding profit costs, what are some of the favorable and unfavorable factors at a high level? That would be great.

Yes. As it relates to our contribution margin on our product mix, we've been pretty consistent. We see it flow through almost every quarter. Our range would be, 25% to 35% is our margin. So use that midpoint of 30%. It does depend a little bit on the mix of products, but that's pretty constant. I would expect that to continue in that range going forward. Look, as we think into 2026, we're going to be very focused on optimizing our cost structure, keeping our product engineering spend in line with market trends. But really, we're going to start to pivot here in addition to our core productivity but pivot towards the acquisition with Dowlais and the synergy realization and really sort of growing our margin and cash flow opportunity from that perspective.

And the next question will come from Nathan Jones with Stifel.

Just one follow-up on your mix equation in the third quarter and how to think about that going forward? Obviously, you can have some different impacts during any given quarter. But is that something more structural in the mix where these more profitable programs that you are on should structurally grow faster than some of these less profitable programs that may be rolling off and we should continue to see not necessarily from one quarter to the next, but a more structural improvement in that mix?

I would expect, as I mentioned, Nathan, our standard contribution margin is around 25% to 35%. Our North America trucks generally are towards the higher end of that range. Passenger cars are a little bit towards the lower end and crossover vehicles are sort of in the middle. I do not see that fundamentally changing going forward.

Yes. This is David Dauch. We're clearly looking and acting on restructuring efforts with some activity that we've got ongoing in Europe right now. We're executing that plan. We hope to have that completed into next year. So that would be positive. The other part is addressing just some utilization matters and throughput matters within a couple of our existing plants that have struggled a little bit. One, first on labor availability and just technical skill sets. So we're addressing those matters. We're highly confident that we can get the margins back up into a double-digit type category. I don't know historically, if we can get them to those levels next year, but we'll continue to work in that direction. But obviously, we've had some challenges there that have been lingering on a little bit longer than we would like, but we're very focused on what we need to do to fix those matters going forward here. So I'll leave it at that.

The next question will come from Doug Karson with Bank of America.

I want to focus on the balance sheet just for a moment. So it looks like net leverage is in good shape at 2.6x. I just wanted to kind of double click on the Dowlais acquisition and being kind of conservatively set. Am I right in saying that pro forma net leverage is about flat following the acquisition?

Yes. When we announced the transaction earlier in the year, our leverage we closed last year was around 2.8x. First quarter, we were around 2.9x. And we said at that point in time, we would expect the leverage of the company once at close to be somewhat around neutral to that time spot and location. We still expect that to be true based upon what we stated earlier in the year. What you are seeing going on this year inside of AAM stand-alone is we had several initiatives to monetize some of our assets, exiting our joint venture in China, our sale of India commercial vehicle and pool cash towards that close. And this is tracking exactly along the line of the plan we anticipated and able to make that statement earlier in the year that we expect to be around leverage neutral at close from our numbers that we had when we made the announcement. So we're still expecting that to be true.

That's great. that update. If I could just look at maybe at the long-term leverage framework. So since the Metaldyne acquisition, I remember in maybe 2016, lowering leverage and focus on the balance sheet was pretty much a priority for almost 10 years. How do you kind of look at the future framework for leverage now that the company's revenue is almost going to be double and you've got, I guess, more diversity? Just kind of curious of where leverage is going to go over the intermediate term?

In the short term, our main focus will continue to be reducing the company’s debt. We plan to allocate our cash generation primarily towards paying down debt, as we committed when we announced the transaction with Dowlais earlier this year. I expect this focus to remain in the near term as we transition towards the medium term. Following that announcement, we indicated that once we exceed the 2.5x net leverage threshold, we would adopt a more balanced approach to capital allocation. While reducing debt remains our priority, we are open to considering other actions from a shareholder perspective. However, in the near term and into the medium and longer term, our top priority will be to continue paying down debt.

Your last question is a follow-up from Tom Narayan with RBC.

Just a quick one on the press release you guys issued on October 27 that discusses some of the management folks you guys invited from the Dowlais side. Just curious how you see that playing out? Is it like kind of a plug-and-play where those folks continue to lead their respective kind of organizations? Yes, just again a high level after seeing that press release, curious how you think about integrating executives from Dowlais.

Yes. Tom, this is David. Clearly, we are hopeful that Roberto Fioroni would join the executive team. Initial indications, we're headed down that path. At the same time, he made a personal and family decision. We have and will respect those decisions. At the same time, we'll make the necessary adjustments from a management team standpoint. Roberto's current capacity is the CFO at Dowlais. Chris is clearly the CFO at American Axle. So we'll continue with Chris in the capacity where we are. And then we'll make some slight adjustments in regards to other things that we are planning. So again, we're disappointed that Roberto can't join us. But at the same time, we've got an outstanding executive team today, and we'll continue to lead the organization going forward, and we're going to work collectively together to blend the teams at all the different levels, including the Board of Directors so that we can pick the best athletes and have the best talent to support the strategic combination of the two companies.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.