Q3 2025 American Axle & Manufacturing Holdings Inc Earnings Call
Speaker #4: 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 and Manufacturing .
Speaker #4: Third 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 .
Speaker #4: If you would like to ask a question during this time , simply press the star key . Then the number one on your telephone keypad .
Speaker #4: If you would like to withdraw your question , please press the star key . Then the number two . As a reminder , today's call is being recorded .
Speaker #4: I would now like to turn the call over to Mr. David Lim , Head of Investor Relations . Please go ahead . Mr. Lim .
Speaker #5: Thank you and good morning . I'd like to welcome everyone who is joining us on AMS third quarter earnings call earlier this morning , we released our third quarter of 2025 earnings announcement .
Speaker #5: You can access that announcement on the Investor Relations page on our website . And through the PR Newswire services , you could also find supplemental slides for this conference call on the investor page of our website , as well .
Speaker #5: Now to listen to a replay of this call . You can dial 877344 7529 . Replay access code 4346240 . This replay will be available through November 14th .
Speaker #5: As for upcoming investor conferences, we will be at the Barclays 16th Annual Global Automotive and Mobility Tech Conference later this month. We'll also attend the Bank of America Leveraged Finance Conference and the UBS Global Industrials Transportation Conference in December.
Speaker #5: We look forward to seeing you there . Now , before we begin , I'd like to remind everyone that the matters discussed in this call may contain comments and forward looking statements that are subject to risks and uncertainties , which cannot be predicted or quantified , and which may cause future activities and results of operations to differ materially from those discussed .
Speaker #5: For additional information , please reference slide two 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 .
Speaker #5: 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 .
Speaker #5: With that , let me turn things over to chairman and CEO David Dauch . Thank you , David , and good morning , everyone .
Speaker #5: Thank you for joining us today to .
Speaker #6: Discuss financial results for the third quarter of 2025 . Joining me on the call today is Chris May . As Executive Vice president and chief Financial Officer .
Speaker #6: To begin , I'll review the highlights of our third quarter financial performance . Then I will touch on some commentary about Am's recent business developments .
Speaker #6: After Chris covers the details of our financial results , we will open up the call for any questions that you all may have .
Speaker #6: So let's begin . Am's third quarter of 2025 sales were 1.51 billion . Am'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 .
Speaker #6: From a profitability perspective , Am delivered strong year over year margin growth driven by performance Am's adjusted EBITDA in the third quarter was 195 million , or 12.9% of sales , a robust 130 basis point improvement versus last year .
Speaker #6: 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 .
Speaker #6: 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 .
Speaker #6: 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 .
Speaker #6: As we're all dealing with the tariff environment , with the discontinuation of the EV tax credit in the US , 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 .
Speaker #6: Currently , bidding activity leans more towards ice than EV , and an extended an extended ice tale is good for Am . As we can further leverage our installed asset base with our core products .
Speaker #6: We continue to believe that large truck and SUV demand appear to be very healthy . Both sweet spots for Am . With that said , we also have a strong foundational technology in electrification with our components electric drive units and electric beam axles .
Speaker #6: Our portfolio will only strengthen and expand as we complete the Dalai acquisition , as we have communicated earlier , our goal is to have a propulsion agnostic product portfolio that adjusts with the market demands .
Speaker #6: Let me talk about some business updates on slide four 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 .
Speaker #6: 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 .
Speaker #6: We continue to make great progress . The European Commission clearance decision was issued on October the 1st , meaning that the EU antitrust condition has been completely satisfied .
Speaker #6: We also recently cleared regulatory approval in Brazil . This Thursday on November the 6th , the combination has now been cleared and the related conditions to the combination satisfied .
Speaker #6: Under the antitrust laws , in eight of the ten required jurisdictions where antitrust filings were made , namely in the United States , India , the UK , Korea , Taiwan , Turkey , the EU and most recently , Brazil .
Speaker #6: 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 .
Speaker #6: 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 Am remains highly confident on obtaining antitrust clearance .
Speaker #6: 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 a press release on October 27th.
Speaker #6: As such, we are very excited to close on this transformational combination from a product win perspective. AM was one new and replacement programs, as well as volume extensions in both business units.
Speaker #6: One win in particular is a meaningful volume uplift for a popular heavy duty truck program . We supply critical transmission products for that platform .
Speaker #6: These wins, in general, support a broad spectrum of powertrains, signifying AMS's agnostic approach. Transitioning to our guidance, we have updated our 2025 guidance ranges on the strength of our results through the first three quarters of the year.
Speaker #6: Am is now targeting sales in the range of 5.8 to 5.9 billion . Adjusted EBITDA of approximately 710 to 745 million , and adjusted free cash flow of approximately 180 to 210 million .
Speaker #6: 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 .
Speaker #6: Chris will provide additional details on the assumptions underpinning our guidance . In summary , I continues to deliver solid performance while successfully navigating market volatility and policy uncertainties .
Speaker #6: We remain extremely focused on managing our business and driving efficiency regardless of the operating environment . Meanwhile , we continue to make excellent progress with the regulatory bodies to close our combination with Dowlais .
Speaker #6: 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 .
Speaker #6: Let me now turn the call over to our Executive Vice President and Chief Financial Officer , Chris May , for the third quarter .
Speaker #6: Financial details . Chris . Thank you , David , and good morning , everyone . I will cover the financial details of our third quarter 2020 results and our updated guidance with you today .
Speaker #6: 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 .
Speaker #6: Sales were $1.5 billion , flat versus the third quarter of 2020 . For slide seven shows a walk of third quarter 2020 for sales to third quarter 2025 sales volume mix and other was favorable by $8 million .
Speaker #6: Metal market Passthroughs 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 .
Speaker #6: 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 2020 .
Speaker #6: For 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 .
Speaker #6: You can see the year over year walk down of adjusted EBITDA on slide eight . In the quarter , adjusted EBITDA was higher due to volume mix and other by 9 million versus the prior year .
Speaker #6: 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 .
Speaker #6: 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 .
Speaker #6: 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 G&A expenses .
Speaker #6: Timing Am 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 .
Speaker #6: This compares to 94.6 million , or 6.3% of sales , in the third quarter of 2020 . For arms R&D spending in the third quarter of 2025 was approximately $37 million , down from approximately $40 million for the full year .
Speaker #6: We continue to anticipate R&D expense to be down on a year basis by nearly $20 million , driven by current market requirements , and continued focus on engineering efficiency .
Speaker #6: 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 2020 .
Speaker #6: For . The improvement was due to a lower weighted average interest rate of our outstanding long term debt and lower year over year debt balances .
Speaker #6: In the third quarter of 2025 . We recorded an income tax benefit of 10.9 million , compared to a benefit of year over 12.1 million in the third quarter of 2020 .
Speaker #6: For 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 .
Speaker #6: 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 to $75 million this year .
Speaker #6: Taking all of 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 2020 .
Speaker #6: For 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 2020 .
Speaker #6: For 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 2020 .
Speaker #6: For capital expenditures , net of proceeds from the sale of property , plant and equipment for the third quarter of 2025 were $64 million .
Speaker #6: Cash payments for restructuring and acquisition-related activities for the third quarter of 2025 were $18.6 million, reflecting the impact of these activities.
Speaker #6: As 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 .
Speaker #6: Calculating a net leverage ratio of 2.6 times at September 30th 1st or September 30th , 2025 . We also maintain a strong cash position of over $700 million .
Speaker #6: AEM ended the quarter with total available liquidity of approximately 1.7 billion , consisting of available cash and borrowing capacity on Am's global credit facilities .
Speaker #6: With that background in place , let's talk about our guidance on slide five . Our outlook has been updated from our previous targets , our updated targets are as follows .
Speaker #6: For sales , our new range is 5.8 to 5.9 billion versus 5.75 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 .
Speaker #6: We now anticipate GM's full size pickup truck and SUV production in the range of 1.35 to 1.39 million units . From an EBITDA perspective , AEM anticipates a range of 710 to $745 million versus 695 to $745 million previously .
Speaker #6: We now anticipate adjusted free cash flow in the range of 180 to $210 million . Our CapEx assumption is unchanged at approximately 5% of sales .
Speaker #6: As we ready the organization for important upcoming launches , especially for one of our major truck programs . In addition , while not included in our adjusted free cash flow figures , we estimate our restructuring related cash payments for AEM as a standalone entity to be approximately $20 million for 2025 .
Speaker #6: 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 .
Speaker #6: We anticipate AEM 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 .
Speaker #6: We underscore that the guidance figures that we are providing today are on an ARM standalone basis , free combination basis and excludes any costs or expenses related to our announced Dolly transaction .
Speaker #6: As it relates to the dollar 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 .
Speaker #6: As part of this positive financing activity , we are able to opportunistically refinance all of our existing 2027 senior notes and a portion of our 2028 Senior Notes .
Speaker #6: As a result , we extended the weighted average maturity of AEM senior debt to well over six years . The revised debt Maturity Profile provides AEM with flexibility , and we will have no significant maturities until 2028 .
Speaker #6: This is very good news for multiple perspectives as we ready for the closing of the dollar acquisition . As for 2026 , we expect to provide formal guidance early next year .
Speaker #6: 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 .
Speaker #6: We anticipate large SUV and pickup truck markets to remain healthy . As you know , our primary driveline truck platforms are the GMT ones and the Ram heavy duty platforms .
Speaker #6: 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.
Speaker #6: 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 .
Speaker #6: With the completion of the daily acquisition . And lastly , we will continue to focus on our core cost efficiencies and aggressively drive towards realizing our $300 million synergy goal .
Speaker #6: So in conclusion Am delivered good results through the first three quarters of the year and has successfully navigated both production and tariff volatility .
Speaker #6: Fundamentally , we will continue to manage factors under our control and course correct through market supply chain and policy changes that we may face .
Speaker #6: Furthermore , our aim is for continuous improvement and operational excellence , and these should manifest in future results . Thank you for your time and participation on the call .
Speaker #6: Today I'm going to stop here and turn the call back over to David so we can start the Q&A . David .
Speaker #5: 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 .
Speaker #5: So at this time , please feel free to proceed with any questions you may have .
Speaker #4: At this time . I would like to remind everyone in order to ask a question , please press star . Then the number one on your telephone keypad .
Speaker #4: We'll pause , just for a moment to compile the Q&A roster . Your first question comes from Joe Spak with UBS . Please go ahead .
Speaker #7: Hi . Thanks . Good morning everyone . Chris , maybe just a first quick one . Some housekeeping , I guess if you could just remind us sort of what's in the bucket or what was driving it like the , the 9 million volume other and EBITDA on 8 million in sales .
Speaker #7: What just stands out a little bit . What's going on in that in those buckets ?
Speaker #6: Yeah , yeah , that's a great , great question . You know with the of course with the low change in revenue , obviously you get a little bit of dynamics in a percentage ratio here .
Speaker #6: But what we experienced in the quarter was the continued , I would say year over year strong performance on the ramp platform . So we saw elevated sales from our full size truck franchise .
Speaker #6: From that standpoint , we had some declines in some of our other business think some passenger car and crossover vehicle and component business , so that mix sort of caused that dynamic of sort of a ratio of some higher margin business coming in in terms of versus prior year and then some lower margin business sort of lower to give that sort of odd ratio between volume mix and other from a contribution margin mix to the to the revenue that you see , you do have some tariff recoveries flowing through that line as well .
Speaker #6: That kind of accentuates that issue a little bit . But that's principally what's going on .
Speaker #7: Okay .
Speaker #6: All normal activities , just just an odd mix .
Speaker #7: Okay , David , just the second question . In bigger picture , I was wondering if you could just sort of update us on your conversations with customers .
Speaker #7: And in terms of sort of where that in reshoring activities and other sort of investments in the US and what type of conversations you've had with some of your members there .
Speaker #7: And , and opportunities . And I guess , are you also , you able to start to go to those customers with some of the , you know , potential benefits from the acquisition or is that is that not yet feasible or part of those conversations ?
Speaker #7: Thanks .
Speaker #6: Yeah . Let me start with the last question . First , Joe , is we're not able to have any discussions with customers regarding Dolly directly because it would be considered gun jumping .
Speaker #6: As far as the two of us working together . So we're very distinct in regards only talking about what Am can do today versus what Dolly might be able to do in the future .
Speaker #6: So but that will enhance our opportunity . Clearly , once that becomes part of the Am family , as I indicated in my comments and Chris did , as well , is that we are seeing a lot of opportunities from various customers , both the OEM level and the tier level on our metal forming business for localization , especially in a for jeans and castings and powdered metal parts .
Speaker #6: So that's increasing some of our sales opportunities and nothing to announce at this time . But we're working actively with multiple customers right now regarding plant footprints .
Speaker #6: You know , our policy is always to try to buy and build local and the local markets that we serve . That's mitigated a lot of tariff exposure to us .
Speaker #6: We're clearly watching the Usmca negotiations , anticipating that there'll be a higher US content requirement in the future . We have had conversations with various customers about what their intentions are , knowing that we ship big products .
Speaker #6: We like to be in closer proximity to our customers . So once they can make their final decisions , then we'll make appropriate footprint adjustments in concert and in alignment and in agreement with those customers on a go forward basis .
Speaker #6: So I'd say yes , there's ongoing discussions taking place . Nothing that we can announce at this time . It's going to be largely dependent on when the customers finalize their plant .
Speaker #6: Loading plans .
Speaker #4: And your next question today will come from Tom Narayan with RBC . Please go ahead .
Speaker #8: Hey , thanks for taking the question . My first one is just on the the regulatory antitrust clearing . Just seeing if , I mean , you guys are confident China late 25 or early 26 .
Speaker #8: Just curious if that was like a surprise at all or was that always contemplated . Is is there any is there a specific risk there or is there is there like a overlap there ?
Speaker #8: Is that what's causing that where it might might lead to divestitures or something just or is it just kind of just , you know , of course , regular course of action .
Speaker #8: And I have a follow-up.
Speaker #6: Yeah . Tom , this is David . No , 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 .
Speaker #6: Brazil , as I mentioned , we got verbal acknowledgment earlier in the month , but we got final formal approval just yesterday . We expect Mexico here .
Speaker #6: Yet this month . And 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 .
Speaker #6: We're just going through the normal discussions and their inquiries and questions , just like we've done with other countries . There processes just taking a little bit longer .
Speaker #6: 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.
Speaker #6: But we're getting full cooperation from Samr at this time .
Speaker #8: Okay . Got it . And then my follow up just on the on the the kind of production that you guys are assuming for North America .
Speaker #8: 15 one it does it does feel like it implies a kind of a downshift in Q4 . You know , pretty significant one .
Speaker #8: Just curious maybe , is that is that baking in some conservatism , maybe in Experia seems to be there's some positive indications there on resolution .
Speaker #8: There . I know that that's that's a market number . But just curious if if that's just conservatism or something specific , you're seeing .
Speaker #6: Yeah . Tom , this is Chris . Of course we anchor this a little bit around , as you mentioned , a market number .
Speaker #6: But at this point in the year two , we're also really kind of calibrating and locking in to our specific customer schedules . And as you may be aware , we've experienced a little bit of downtime in the fourth quarter .
Speaker #6: Early in the quarter, meaning the early part of October, we had one of our customer assembly plants at Wentzville down, which impacted some of our production.
Speaker #6: 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 .
Speaker #6: And that's sort of our best estimate right now . At the time .
Speaker #8: Got it . Thanks .
Speaker #6: Yep .
Speaker #4: And your next question today will come from it Macaulay with TD Cowen . Please go ahead .
Speaker #9: Great . Thank you . Good morning everyone . Just going back . Just going back to the 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 company's kind of growth over market potential over the next few years or so ?
Speaker #6: Well , I what I would say this is , David , you know , I think we have an opportunity to to benefit strongly on our metal forming side of the business .
Speaker #6: You know , with respect to the Onshoring activity that's that we mentioned earlier , once we're able to pull daily together , we also think there's insourcing opportunities because they buy a lot of their their forging and some of their powder metal on the outside .
Speaker #6: So we and casting . So we think there's some opportunity there . You know I don't have off the top of my head , you know , our position in regards to this growth over market .
Speaker #6: But I think we can keep up with the market with respect to what's going on . You know , we do have some products that will be transitioning off , some older transmission related products .
Speaker #6: So clearly we're going to have to offset that in order to show incremental growth aligned with with the marketplace . But but I would say overall we should be able to , you know , hopefully hold on to where the market's at .
Speaker #6: Yeah . And I would say 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 .
Speaker #6: And you may recall from our 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 .
Speaker #9: Terrific . That's very helpful . And as my follow up , just on the 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 ?
Speaker #6: Yeah , in terms of that range , you know , obviously , the first and foremost it does it pins , it pins around our absolute revenue for the quarter .
Speaker #6: And you know our contribution margin generally somewhere between 25 to 35% range . So that that is the key probably the primary factor is I think about our Ebit range inside of the fourth quarter .
Speaker #6: As I mentioned in my prepared remarks , we do have some I would say heavy load of project expenses . We're getting ready for some next gen product launches also aligned with some of our heavier capital spend that we're anticipating here in the fourth quarter .
Speaker #6: But you do get a little timing movement associated with that . As I mentioned , also , some of our product production volatility caused a little bit , but we're also focused on some cost optimization side on our engineering spend as well as some productivity improvements in some of our facilities .
Speaker #6: So those are kind of the key factors that have plus or minus to it . But the largest piece is volume at the moment .
Speaker #9: Terrific . That's very helpful . Thank you .
Speaker #10: Yep .
Speaker #4: The next question will come from James Picariello with BNP . Please go ahead .
Speaker #11: Hey guys . This is Jake on for James . I saw a pretty healthy step up . You saw pretty healthy . Step up , step up in driveline margins this quarter .
Speaker #11: 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?
Speaker #6: Yeah . Look , each each quarter obviously has a unique story . Whether it's mix of volume and products . But we on the driveline side , if you look consistently now over the last 4 to 6 quarters , has been very strong and stable .
Speaker #6: And its ability to generate margins on its product mix , you know , as we talked a little bit about Ram earlier on , a year over year basis continues to be very strong for us .
Speaker #6: That's obviously one of our full size truck franchise products that we supply . And then , quite frankly , they're doing a nice job managing their cost environment .
Speaker #6: So , you know , 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 .
Speaker #11: Thank you . And then you guys have pretty significant exposure on these , you know , heavy duty , heavier duty pickup trucks .
Speaker #11: 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 ?
Speaker #11: Have you seen any shifts from your patterns or , you know , you potentially have an easier time in discussions about recoveries ? Thank you .
Speaker #6: Yeah , great question . Yeah . No , we obviously have a lot of exposure on that . Those platforms for all three of the North American OEMs .
Speaker #6: And as you know , that's a very strong demand product . And built all throughout North America in different locations . But right now , at the moment , no , we've not seen any negative impact associated with that .
Speaker #6: Our customers continue to build those . It very well in terms of capacity , in terms of meeting their end market demand as well .
Speaker #6: But currently we're not seeing any significant impact associated with that .
Speaker #4: And your next question today will come from Edison . You with Deutsche Bank . Please go ahead .
Speaker #2: Hi . Thank you . This is John for Edison . So I guess I wanted to go back to the quarter for a little bit , especially the performance and other buckets category , which is very strong .
Speaker #2: Just wanted to see if you can break that down . The compositions of it . And then what sustainable . What's not on a go forward basis .
Speaker #2: Thank you .
Speaker #6: Yeah . Good morning 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 .
Speaker #6: 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 .
Speaker #6: As a company . It was offset slightly by tariffs . A couple of million dollar net negative impact inside the quarter as it relates to tariffs .
Speaker #6: And then some timing of our G&A expenses also offset some of that gain . But structurally , again , I would expect the driveline to continue to perform very well .
Speaker #6: And metal form I would expect to improve over the next couple of quarters as it relates to performance .
Speaker #2: That's very helpful . And then maybe just looking ahead to 2026 , you've mentioned that makes in the quarter with a strong contribution to the strong incrementals that you guys have been seeing , can you help us ?
Speaker #2: Maybe think about how that could potentially roll forward to 2026 as we look at , you know , volume and mix heading into next year and then maybe on the profit cost side , what are some of the good guys or bad guys that you guys .
Speaker #2: High level color ? That'd be great .
Speaker #6: Yeah . As it relates to our contribution margin on our product mix , you know , we've been pretty consistent . We see it flow through almost every quarter .
Speaker #6: Our range would be 25 to 35% as our margin . So use that midpoint of 30% . It does depend a little bit on mix of product , but that's pretty consistent .
Speaker #6: I would expect that to continue in that range . Going forward . But look , as we think into 2026 , you know , we're going to be very focused on optimizing our cost structure , keeping our product engineering spend in line with market trends .
Speaker #6: But really we're going to start to pivot here, in addition to our core productivity pivot towards the acquisition with Dolly, and the synergy realization, and really sort of growing our margin and cash flow opportunity from that perspective.
Speaker #4: And the next question will come from Nathan Jones with Stiefel . Please go ahead .
Speaker #12: Good morning everyone . Good morning . I guess just one , one follow up on the mix equation in the third quarter and how to think about that going forward .
Speaker #12: 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 are maybe rolling off , and we should continue to see not necessarily from one quarter to the next , but a more structural improvement in that mix .
Speaker #6: 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 .
Speaker #6: You know, 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.
Speaker #12: Okay , maybe a question on the metals business . Maybe you can just talk about the restructuring actions that you've have taken in that what's left to do and the levers that you're currently pulling and the levers you need to pull in the future to get the margins back to more acceptable level in that business .
Speaker #12: Thanks .
Speaker #6: Yeah . This is David Dauch . We're clearly looking at acting on , restructuring efforts with some activity that we've got ongoing in Europe right now .
Speaker #6: We're executing that plan . We we hope to have that completed in the next year . So that would be positive . You know , the other part is , is addressing just some utilization matters and throughput matters within a couple of our existing plants that have struggled a little bit .
Speaker #6: 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 .
Speaker #6: I don't know historically if we can get them to those levels next year , but but we'll continue to work in that direction .
Speaker #6: But you know, 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.
Speaker #6: Here . So I'll leave it at that .
Speaker #4: The next question will come from Doug Karson with Bank of America . Please go ahead .
Speaker #13: Great . Thanks , guys . Good morning .
Speaker #10: Morning .
Speaker #13: I want to focus on the balance sheet just for a moment. So it looks like net leverage is in good shape at 2.6.
Speaker #13: I just wanted to kind of double-click on the Dalai acquisition. And it being kind of conservatively set, am I right in saying that pro forma net leverage is about flat following the acquisition?
Speaker #6: Yeah . We when we announced the this is when we announced the transaction earlier in the year , our leverage we closed last year was around 2.8 .
Speaker #6: First quarter we were around 2.9 . And we said at that point in time we would expect the leverage of the company . Once at close , to be somewhere around neutral to that time spot and location .
Speaker #6: 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 standalone had several initiatives to monetize some of our assets, meaning exiting our joint venture in China, our sale of the India commercial vehicle, and pooling cash towards that close.
Speaker #6: And this is tracking exactly along the line of the plan . We anticipated enabled 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 .
Speaker #6: So we're still expecting that to be true .
Speaker #13: That's great . Thanks for that . That update , if I could just look at maybe at the long term leverage framework . So since the Meadow Land acquisition , I remember and maybe 2016 , you know , lowering leverage focused on the balance sheet was pretty much a priority for for almost ten years .
Speaker #13: How do you kind of look at the future framework for , for leverage now that the company's revenue is almost going to be double and you've got , I guess , more diversity , this kind of curious of where leverage is going to go over the intermediate term .
Speaker #6: Yeah . In the . Well , first of all , in the short term , our priority will continue to be to deliver the company .
Speaker #6: We will deploy as on an overweight perspective , our cash flow generation to paying down debt . That is our anticipation . That was our commitment when we announced the transaction with Dolly earlier in the year .
Speaker #6: And I would expect that in the near term and transitioning towards the medium term through that announcement earlier in the year , you know , we did indicate once we crossed the two and a half times net leverage threshold , we would have I would call it a little more balanced capital allocation playbook .
Speaker #6: We'll continue to focus on paying down debt . We'll continue to focus on reducing the leverage of the company . That is a priority for us .
Speaker #6: But we would open up our playbook to maybe consider some other actions from a shareholder perspective . But reducing the leverage , continuing to pay down debt in the near term will be our top priority , and we'll continue to be a priority in the medium and longer term .
Speaker #13: Great . Thanks so much for that . That's that's it from us .
Speaker #6: Thanks .
Speaker #10: Doug .
Speaker #4: Thank you . Gentlemen . Your last question is a follow up from Tom Narayan with RBC . Please go ahead .
Speaker #8: Hey , thanks for bringing back in . Just a quick one on the press release . You guys issued October 27th , that discusses some of the some of the management folks .
Speaker #8: You guys invited from the Dowlais side . Just curious how 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 ?
Speaker #8: Yeah , just a high level . After seeing that press release , curious how you think about integrating executives from Delhi ? Thanks .
Speaker #6: Yeah , Tom , this is David . You know , clearly we are hopeful that Roberto Fioroni would join the executive team . Initial indications were headed down that path at the same time , you know , he made a personal and family decision .
Speaker #6: We want to convey that we have, and will, respect those decisions. At the same time, we'll make the necessary adjustments from a management team standpoint. Roberto, in your current capacity as the CFO at Dowlais.
Speaker #6: Chris is clearly the CFO at American Axle , so we'll continue with Chris and the capacity , you know , where we are and then we'll make some slight adjustments in regards to other things that we were planning .
Speaker #6: 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 to lead the organization going forward .
Speaker #6: 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 .
Speaker #8: Got it . Thanks a lot .
Speaker #6: Yeah . Thank you .
Speaker #10: Tom .
Speaker #5: Thank you, Tom. We also thank all of you who have participated in this call and appreciate your interest in AMM. We certainly look forward to talking with you in the future.
Speaker #5: Thank you .