Earnings Call Transcript - DCH Q4 2025

Operator, Operator

Good morning. My name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Dauch Corporation fourth quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. As a reminder, today’s event is being recorded. I would now like to turn the floor over to David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

David Lim, Head of Investor Relations

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 the non-GAAP measures to GAAP financial information is available in the presentation.

David Dauch, Chairman and CEO

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 the strength of two great companies into one robust global automotive supplier. On this call, we will discuss our financial results for the fourth quarter and 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. 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 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. 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, Head of Investor Relations

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 closed on 02/03/2026. This acquisition creates a leading global driveline and metal forming supplier and provides us with significant size and scale, a comprehensive product portfolio, and enhanced capabilities for future growth. 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. We expect high margins, earnings, and cash flow potential as a result of this strategic combination.

David Dauch, Chairman and CEO

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. 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. 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. We want to underscore that it is very difficult to speculate the outcome of these discussions. 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. Our 2026 outlook targets 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, and return capital to our shareholders. Our new brand honors the strength and shared entrepreneurial spirit of both AAM and GKN, while signaling our commitment to performance with staying power. I am proud of the team, what we have accomplished, and I look 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?

Chris May, Executive Vice President and CFO

I will cover the financial details of our fourth quarter and full year 2025 results and our 2026 outlook with you today. In the 2025, our sales were $1,380,000,000, which were flat compared to 2024. 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. Profit was $140,900,000 in 2025 as compared to $154,300,000 in 2024. Adjusted EBITDA was $169,000,000 in 2025 versus $160,800,000 last year. 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. Net interest expense was $50,800,000 in 2025, compared to $37,300,000 in 2024. The increase in interest expense in 2025 was primarily due to the issuance of new debt in connection to the acquisition of Dauch. Our GAAP net loss was $75,300,000 or $0.63 per share in 2025 compared to a net loss of $13,700,000 or $0.12 per share in 2024. Adjusted earnings per share was $0.07 per share in 2025 compared to a loss of $0.60 per share for 2024. For the full year of 2025, our adjusted earnings per share was $0.53 versus $0.51 per share in 2024. Net cash provided by operating activities for 2025 was $120,500,000 compared to $151,200,000 in 2024. Capital expenditures for 2025 were $66,000,000. For the full year, we finished at $250,900,000 or 4.3% of sales. Cash payments for restructuring in 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 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. In our earnings slide deck, we have included walks from our 2025 actual results to our 2026 financial targets. We are targeting a sales range of $10,300,000,000 to $10,700,000,000 for 2026. 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. In terms of the standalone variances, expect EBITDA to be impacted by volume and mix at normal contribution margin rates. R&D optimization should continue and drive savings. We currently expect a headwind for metal market and FX. We then expect Dauch to contribute approximately $600,000,000 for the year, contributing positively to our EBITDA. 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. However, many factors drive cash flow.

David Lim, Head of Investor Relations

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.

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.

Joseph Robert Spak, Analyst

Thanks. Good morning, everyone.

Chris May, Executive Vice President and CFO

Good morning, Joe. At this point in time, Dauch is still not completed or published their full year 2025 results. Dauch's results will be available later. Generally, I would say our core assumptions are down slightly from 15,300,000 units to 15,200,000 units.

Joseph Robert Spak, Analyst

Maybe one follow-up on that. Can you clarify how cash flow will look after these costs?

Chris May, Executive Vice President and CFO

I understand your question regarding cash flow. At the high end, we have $325,000,000 of adjusted free cash flow. After accounting for integration costs, we expect to generate positive cash flow from operations.

Tom Narayan, Analyst

Thanks for taking the question. I want to follow up on the $300,000,000 in synergies from the Dauch combination. Do you think there is any room for upside in operating efficiencies?

David Dauch, Chairman and CEO

Yes, we are committed to the $300,000,000 that we identified earlier. We believe there are opportunities to enhance that number.

Chris May, Executive Vice President and CFO

In terms of the IFRS adjustments, they are meaningful differences. We have not shared the differences publicly yet, but they are significant.

James Picariello, Analyst

Just want to follow up on Joe’s question on free cash.

Chris May, Executive Vice President and CFO

In terms of the future of cash flow, we see several key drivers boosting our cash flow performance in 2026 and beyond, including potential synergy realization and optimized working capital.

David Lim, Head of Investor Relations

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

Operator, Operator

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