Dauch Corporation (DCH) Earnings Call Transcript

Good morning, everyone. 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 Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the floor over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, and good morning. I'd like to welcome everyone who is joining us on Dauch Corporation's third quarter earnings call. Earlier this morning, we released our third quarter of 2026 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.ctlc.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. A replay of this call will be available through November 3. Replay details are in today's press release. In addition, I want to remind the investment community that we will be hosting a Capital Markets Day on November 17 in New York City. At the event, the leadership team will discuss what differentiates Dauch Corporation and share our vision -- the formal presentation will begin at 9 a.m. Eastern Time, and it will be webcasted. Please mark your calendars. 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 our Chairman and CEO, David Dauch.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss Dauch's financial reports for the third quarter of 2026. The -- joining me on the call today is Chris May, our Executive Vice President and Chief Financial Officer; and Senior Vice President, Nathan Nils, who will assume the role of CFO on December 1. So let's begin. Despite production volatility and rising input costs, we generated strong cash flow in the quarter, while supporting new program launches. At the same time, we are making excellent progress on our synergy realization. Nine months into the combination, it is increasingly clear that we have created a stronger company. We have greater scale, broader customer relationships, a more diversified geographic footprint and a significantly expanded product portfolio. These advantages are helping us navigate market volatility while positioning us to create substantial long-term value for stakeholders. As for today's agenda, I'll review highlights of our third quarter financial performance. Next, I'll touch on our synergy progress, some business updates and commentary about the industry and guide and provide guidance, which we announced last week. I will then turn the call over to Chris to cover the details of our financial results, after which we will take any questions that you all may have. Now for the details. The company's third quarter 2026 sales were approximately $2.9 billion, and adjusted earnings per share was $0.22 per share. And adjusted free cash flow was approximately $127 million. In the third quarter, global production declined approximately 2%, and North America production approximately 5% year-over-year. However, Europe increased approximately 1%. Against that backdrop, we did benefit from good performance on key GM crossover and Land Rover utility vehicle programs. That stated, we experienced lower Ram heavy-duty volumes, which declined approximately 15% year-over-year in the third quarter as well as the impact of major launch activity underway at GM for its large pickup truck program with planned downtime realized both in September and in early October. From a profitability perspective, our adjusted EBITDA in the third quarter was $358 million or 12.3% of sales, driven by performance and dollar contribution. Chris will provide more details about our overall financial performance during the prepared remarks. Next, on Slide 5, I'd like to share an update on our synergy and value capture progress. We have now been operating for nearly 3 full quarters as a combined company, and we have already realized $100 million of run rate synergies and savings to date. As such, we will clearly deliver our goal or more than $100 million of run rate synergies by year-end. We have an excellent -- we've made excellent progress in optimizing our SG&A and we've reduced duplicative corporate costs, and we continue to capture global engineering efficiencies. We continue to gain positive momentum on our operational synergies, while we are navigating purchasing opportunities in today's challenged macro environment. As communicated earlier, these 2 categories, by nature, will take more time to realize their full potential from a synergy standpoint. Turning to business development. Among the businesses that we won in the quarter, I want to particularly highlight 2 important wins that reflect the strength of our product technologies, but also more -- our more diverse customer base. We secured the next-generation business for prop shafts, side shafts electronic limited slip differentials on a premier European luxury SUV program that is expected to run deep into the 2030 period of time. Within next-generation business remains a core strategy, reflecting the strength of our customer relationships, the competitive value proposition and our proven execution. Beyond our incumbent positions, we will continue to aggressively pursue new and incremental conquest opportunities to drive profitable growth. In addition, we also secured SideChef content for an infantry squad vehicle program, demonstrating our technology portfolio extends well beyond traditional passenger vehicles. The SideChef product on this platform is a very unique product because it's engineered to provide power to the wheels under extreme drive angles and conditions. We are very proud to be on this program to deliver high-quality, highly engineered products that can support traditional automotive markets as well as adjacent markets. Now let's talk about the industry. In the third quarter, we began to experience additional inflationary pressures across the supply chain driven in part by significantly higher fuel prices versus last year. As you all know, energy is an important driver for our industry, both as an input costs but also consumer demand. Production volatility has increased across select customers and supply chain challenges are beginning to become more apparent, especially with some of the Tier 2 and Tier 3 suppliers. That stated, we can't control these factors and do not know when they will be, but we can control how we respond. We've managed to challenging environments before, and we'll continue to do so by flexing our variable cost structure driving productivity and optimizing our operations. In addition, we'll work to mitigate these inflationary costs. Shifting to our full year guidance, which we provided on October 30, and Here's the update. Sales now in the range of $10.8 billion to $10.875 billion. Adjusted EBITDA in the range of $1.35 billion to $1.375 billion and adjusted free cash flow of approximately $270 million to $310 million. In summary, we had a solid quarter and delivered strong operating cash flow -- the Dole integration is on track and making good progress. We are ahead of schedule in achieving our year 1 synergy target of greater than $100 million. While near-term industry headwinds exist, we are confident in our ability to navigate these challenges and even more confident in our long-term strength and cash generating power of our business. So now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the financial details. Chris?

Thank you, David, and good morning, everyone. I will cover the financial details of our third quarter 2026 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. In the third quarter of 2026, our sales were $2.91 billion as compared to $1.51 billion in the third quarter of 2025. Slide 8 shows a walk of third quarter 2025 sales to third quarter 2026 sales. For legacy Dowlais, sales were up slightly year-over-year to $1.52 billion from [ $1.5 billion ] last year. Volume, mix and other was lower by approximately $15 million. However, this was more than offset by metal market pass-throughs and FX, which increased sales by approximately $33 million driven primarily by increasing metal market pass-throughs. Dowlais contributed $1.41 billion in gross sales for the third quarter versus last year, volume mix and other decreased sales by approximately $26 million -- the sale of certain businesses decreased sales by approximately $35 million and Metal Markets and FX decreased sales by approximately $8 million. Overall, we experienced lower production on the Ram heavy-duty program on both a year-over-year and sequential basis and also on certain other Stellantis crossover programs versus last year. These were partially offset by GM's full-size light-duty truck volumes and Land Rover programs that we support. Now let's move on to adjusted EBITDA. For the third quarter of 2026, adjusted EBITDA was $358.5 million, and adjusted EBITDA margin was 12.3% versus $195.7 million and 13.0% last year. You can see a year-over-year walk down of adjusted EBITDA on Slide 9. In the quarter, adjusted EBITDA for legacy Dowlais was $193 million versus $196 million last year. Volume mix and other decreased EBITDA by approximately $10 million. This was partially offset by approximately $8 million in net favorable performance. While we incurred increasing headwinds due to some balanced suppliers and the impacts of inflation, we did have year-over-year improvement in our metal forming segment as well as lower SG&A costs. Legacy Dowlais contributed approximately $140 million of adjusted EBITDA during the quarter versus the third quarter of last year, volume mix and other increased EBITDA by approximately $3 million and performance and other increased EBITDA by approximately $4 million. This was more than offset by approximately $30 million from onetime commercial settlements that Dowlais recognized in 2025 and and from the sale of certain businesses that I discussed earlier in my sales commentary and the impact of approximately $6 million for metals and FX. In the third quarter, -- we grew our realized synergy benefit momentum with a positive $25 million in savings as we continue to eliminate duplicative corporate and SG&A costs, realized engineering and indirect purchasing efficiencies. As David highlighted, we have already realized $100 million of run rate savings to date, and we will, therefore, achieve our goal of more than $100 million run rate savings by the end of the year. We have a market basket of potential savings that we continue to drive to completion. So let's move on to interest and taxes. Net interest expense was $80.9 million in the third quarter of 2026 compared to $35.7 million in the third quarter of 2025. The year-over-year increase in interest expense primarily reflects the issuance of new and assumed debt in connection with the acquisition of Dowlais. The weighted average interest rate of our outstanding long-term debt was approximately 7.1% at the end of the quarter. As for taxes in the third quarter of 2026, we recorded an income tax expense of $13.9 million compared to a tax benefit of $10.9 million in the third quarter of 2025. As we described previously, due to the acquisition-related activity this year, our tax rate and resulting impact remains quite involved in 2026. We expect our adjusted effective tax rate to be approximately 25% to 30% this year. As you may recall, this is a somewhat elevated rate primarily due to the valuation allowances and partial interest deduction limitations in the U.S. As for cash taxes, we expect approximately $165 million to $175 million this year. Taking all these sales and cost drivers into account, our GAAP net loss was $45.3 million or $0.19 per share in the third quarter of 2026 compared to net income of $9.2 million or $0.07 per share in the third quarter of 2025. Adjusted earnings per share, which excludes the impact of items noted in our press release, was $0.22 per share in the third quarter of '26, compared to adjusted earnings per share of $0.30 for the third quarter of 2025. Let's now move on to cash flow and the balance sheet. Net cash provided by operating activities for the third quarter of 2026 was $150.1 million compared to net cash provided by operating activities of $143.3 million the third quarter of 2025. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the third quarter of 2026 were $94.7 million. Reflecting the impact of these activities, our adjusted free cash flow was $126.7 million in the third quarter of 2026 as compared to $98.1 million in the third quarter of 2025. In the third quarter, we redeemed the remaining $125 million of our 2028 notes and prepaid a portion of our upcoming term loan amortization. We now have no significant debt maturities until 2029. From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and net leverage ratio of 2.6x at September 30, 2026. We ended the quarter with total available liquidity of approximately $2.4 billion, consisting of available cash and borrowing capacity on our global credit facilities. So now let's talk about our updated financial guidance on Slide 7. Our updated targets are as follows. For sales, we raised and tightened the range of our sales outlook to $10.8 billion to $1.875 billion versus $10.6 billion to $10.8 billion previously -- reflecting the results through the first 9 months of 2026 and our expectations for the remainder of the year, including metal market pass-throughs and currencies. This sales target is based upon current global production assumptions and certain assumptions for our key programs, and we anticipate GM's full-size pickup truck and SUV production in the range of approximately 1.4 million units this year. From an EBITDA perspective, we anticipate a range of $1.35 billion to $1.375 billion versus $1.36 billion and $1.425 billion previously. The new range reflects several factors, including increasing inflationary pressures, particularly stemming from higher fuel and energy costs, which take time to mitigate or recover -- with the challenging macro environment, we've experiencing a somewhat elevated Tier 2 and Tier 3 supplier stress levels and lastly, pockets of some production volatility stemming from customer schedule adjustments. As a reminder, our adjusted EBITDA guidance also reflects our proportionate share of income from SDS, our joint venture in China with HASCO. We continue to expect our JV share to be in the range of $70 million to $80 million this year, unchanged from our previous guidance. We anticipate adjusted free cash flow to be in the range of $270 million to $310 million from $260 million to $325 million previously as we manage all elements of our cash flow pieces. And lastly, from a share count perspective, please continue to use approximately 245 million shares for the fourth quarter for modeling purposes. As for 2027, we would expect to provide our official outlook when we announce our fourth quarter earnings call next February. Now let me provide some initial commentary on some puts and takes for the year. First, we expect to continue the positive synergy momentum and capture the next wave of benefits. Second, we are very excited about the next generation of truck products our customers are launching and will be in the market next year. And lastly, we do expect to continue to navigate through an inflationary environment, at least in the early part of 2027. It does take time to work through these cost headwinds either in the form of productivity or commercial settlements. And in conclusion, -- the company delivered a solid operating cash flow in the third quarter, and we continue to benefit from supplying products across a broad and diversified customer base. As we are into the fourth quarter at this point in time, our priorities remain very clear, manage factors that we can control, execute our integration plan, deliver on our outlined synergy targets and prepare for 2027. 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 2. So at this time, we feel free to proceed with any questions you may have.

[Operator Instructions] Our first question today comes from Tom Narayan from RBC.

David, Chris. So if I look at the Q4 implied downshift from Q3, I understand the 3 factors you called out, the higher fuel, energy HD truck issue, GM changeover. But it is a sizable downshift, I think like $50 million, and it does incorporate higher sequential synergy capture. I guess how should we think about these incremental headwinds bleeding into 2027? And how confident are you, you can pass through these headwinds to the OEMs? .

Yes, Tom, this is Chris. I think you absolutely identified the key items between Q3 and Q4. Clearly, maybe we'll level set there. From a production standpoint, as you know, in Q4, we have generally 4 or 5 less production days than we do in Q3. So the volume and mix is a key piece of the Q3 to Q4 transition I would expect some continued uplift in our synergy performance, but also some of these impacts, I think, that you're referring to in terms of inflationary pressures and driven by energy costs, et cetera, I would expect probably an impact in the range versus Q3 of around $10 million. In the macro environment, some of these pressures would probably continue into the early part of next year. And at that point in time and currently now, we are putting in places or putting in actions to mitigate some of these ourselves from, I'll call it, self-help program to mitigate this inflation but also we'll be in discussion with our customers in terms of forms of compensation. But as you know, we've gone through this before in the past. These things take time to play out.

Got it. For my follow-up, it's probably for Chris, too. On the 26% guidance change versus the prior guide, -- so adjusted free cash flow is essentially unchanged. I think CapEx cut by $50 million. I understand the $30 million cut on adjusted EBITDA guidance and you've explained that already. But what accounts for that -- those remaining pieces that offsets the full $50 million CapEx cut? I assume it's like working cap, interest, taxes, anything important there to highlight, it seems like maybe those are some sizable changes as well.

Yes. I wouldn't want to size our cash taxes are up slightly as we completed some final audit settlements, not significant, but a little piece of that. And then you have working capital timing with the shift in the top line sales, obviously, that moves around your receivables from a collection standpoint. It's working capital timing would be the remaining difference. But you hit the main ones. We've been very focused on optimizing our spend with CapEx with a larger enterprise also leveraging a broader asset base. You point out the change in EBITDA at the midpoint, obviously, would impact cash flow. And then we've been working on our -- I'll call it, our nonoperational cash flow elements, some timing associated with that, but also the final billings that came in with our acquisition.

Our next question comes from Joseph Spak from UBS.

Chris, I just want to offer my congratulations really enjoyed all our talks over the years, and Nathan, looking forward to working with you. Maybe just to follow up on that. I just wanted to -- like within EBITDA, the $50 million lower, but then that's sort of more at a, I guess, like an operational level, it was mitigated somewhat by that mark-to-market. Can you just remind us what that is? And is that also 1 of the discrepancies in cash flow because that's not right? Like that's not cash, right? That's just sort of an accounting measure. Is that the other factor for the free cash flow change?

Yes, that does not impact our adjusted EBITDA. It is noncash in nature. You would not see that impact our cash flow statement or cash from our operations at all for that adjustment. Those are the nondesignated dollar derivatives that we had to put on our balance sheet during the acquisition. These will burn out relatively quickly.

So that's not something that continues -- like that's not something that continues into future years such as something you inherited, and you don't expect to continue to use or do.

Correct. They'll start to go away as they lapse correct.

Okay. And Chris, I know you mentioned no significant debt maturities until 2019. And maybe I don't know if this is for Nathan or David or Chris. But look, I can't say I followed standard motors closely, but it does look like there was a concerted effort there to delever post an acquisition they made. And so it seems like there's some similarities there between what they went through and what you're going through now in the wake of the LA deal even if it wasn't sort of, I guess, higher leverage overall. But I guess, should we read into what you did there, Nathan, in terms of a template of what Dauch would like to do over the coming years.

Joe, this is David. Let me speak first. We have been very consistent as a company over the years in regards to what our objectives are in regards to our targets for net debt to EBITDA or the leverage target. I mean, clearly, we want to work our way under 2x. I'm probably that we've been able to get it to the 2.6x, at the same time, we're very focused on paying down the debt, which we've consistently been doing quarter-to-quarter. So we'll continue to do that. Obviously, the strength of our business is going to be generating free cash flow to service that debt on a go-forward basis. At the same time, as always, we'll be opportunistic to refinance select debt at the appropriate time. But I've always been proud of Chris and the team and even Mike Simone before that is they've always kept a financial runway in front of us. We never had an overhang from a maturity standpoint there. And I think dealing with Nathan here, obviously, he's just getting on board up to speed. There are some similarities in regards to what was done standard motor products. But at the same time, he's going to have to adjust slightly to just the way we've approached things here within the Dell Corporation. But I think we're all aligned in our task. We understand the mission and we're committed all the way up to the Board of Directors to address this leverage situation. And that was part of the reason we wanted to do this larger strategic combination or acquisition with Dowlais to accelerate that cash generation opportunity to the synergies that we're realizing, and then ultimately service is dead a lot quicker. So hopefully, that addresses your question.

Our next question comes from James Mulholland from Deutsche Bank.

Synergies continue to be recognized faster than what the original outlay had been. Is there anything specific that's enabling you to reach them at that speed. Should I guess we simply view it as a faster realization -- are you finding maybe extra areas that weren't necessarily in your original guidance, and so you're just being able to pick them out now. And could that then pretend to maybe raising what you can do over the longer term?

This is David Dauch again. What I would say is this, I mean, we committed to $300 million at the time that we announced the strategic combination of the 2 businesses. We also expressed at that time, the mix of what that $300 million would be with SG&A and engineering being approximately 30% of that purchasing being 50% and the operations being 20%. At the time, we also identified that we were limited in regards to the ability to visit their plants. So we're not able to see the full potential of some of the operational items -- what I would say is we have been very aggressive in regards to going after SG&A costs as well as engineering efficiencies. So -- and obviously, that's the low-hanging fruit that we can get after the quickest. So we're clearly ahead of schedule with respect to that. Purchasing, it's a difficult market to navigate in right now. So we're trying to manage our way through that, but still making meaningful progress in that area. And then we're making some substantial progress also on the operations side. So we're really excited the fact that we've already met our year 1 target after 3 quarters together as a combined entity. We think there's more opportunity here in whole tight for future discussions.

And I guess as my follow-up, as we think about your European footprint that came over from Dowlais, we know that some significant OEMs have been clear that capacity cuts are are on the horizon and in some cases, fairly significant capacity cuts. So Dowlais just went through its own large restructuring there. I guess -- do you have any early thoughts on what more might be needed in terms of that midterm environment? Or is it at this point that you're fairly comfortable with where the footprint is and whether or not it can be flexed up and down based on whatever production environment is in.

Yes. This is David again. What I would say is this is Legacy AM did not have as much of a footprint in Europe is obviously legacy Dowlais -- did Legacy Dowlais a lot of restrocking as you acknowledged and was on the downside of that restructuring effort there. There are still efforts that were in their base plan as well as other efforts that are included in our synergistic plan. So that was all identified as part of the process of going through due diligence and the combination of 2 businesses. The 1 thing that we're watching very closely is the penetration of the Chinese and their aggressive approach to Europe -- and the incremental restructuring or the challenges that's creating, especially for the legacy OEMs in Europe. And obviously, we'll have to respond accordingly based on where we're at. The good news is that -- we do supply several of those Chinese OEMs that are gaining market share. So at the same time, we'll just have to balance that out in regards to what we think our capacity utilization and our facility footprint needs to be on a go-forward basis. So to answer your question, I think directionally, where we need to be right now. However, there is some restructuring that is planned as part of this combination, but we'll continue to monitor the market. And if other changes are required, and we'll make those adjustments no different than we would in any other market around the world to optimize the business appropriately and adjusted to the market demand. .

Our next question comes from Dan Levy from Barclays.

Chris and Nathan congratulations to both of you. I wanted to start with the question on the inflationary pressures. And maybe you could just refresh us back to the inflation that we saw in the 2022 time frame, how you dealt with that back then in terms of -- I'm pretty sure you ended up sort of getting fully recovered on all those, but what was the split between OEM recoveries or customer recoveries versus your own productivity measures. And now that we're arguably later in the cycle, what do you sense is the receptivity of your customers to help support? And maybe you could just unpack some of the productivity measures that you have on your end that if you don't get the customer recoveries that you can do it on your end to be EBITDA-neutral after all this.

Yes, Dan, this is Chris. I'll certainly take the first part of that question. If you go back to the inflationary environment that you're referring to in the past would have been in the 2022 calendar time period based on really the invasion of Ukraine trigger, a lot of inflation in that period of time, and it manifests its way through several elements of our cost structure. Through the course of the year, meaning the full year of 2022, we put in various things to mitigate optimize some of our spend through where we saw those different pockets of inflation, but we also, as you know, did have dialogue with our customers that took ultimately, the better part of the year to reach conclusion with, which was fairly standard inside the industry at that point in time. So if you think back to some of my prepared remarks, I mentioned today, our expectation is a very similar path. We are doing things to help mitigate some of the inflationary impact, where you've seen obviously a lot of inflation sort of stem from petroleum-based products such as coolants diesel fuel surcharges on logistics entering into various metals such as tooling, et cetera. So things that we can do to either optimize freight routes to minimize fuel costs associated with that, look at different ways or different alternatives for coolants that we can use in our factories. These are the type of productivity initiatives that we would like to do on our own. But as you know, this is a very macro event and would be in some discussions with customers but would take time to play out. Very similar pattern probably from what we saw back in '22.

Okay. Great. Second is just a follow-up to, I think, 1 of the prior questions around your exposition. I'll just maybe broaden it to China and Europe. So it looks like your China equity income, that's still intact and you generally feel like your Europe footprint is where it needs to be. We've seen from some of the other suppliers that there's been some underperformance within Europe, I realize this is all very customer specific. But maybe you could just give us an early read on the newer regions where you're operating now where you maybe haven't had as much of a footprint floor in terms of China and Europe that those are still holding in intact. And what levers you have in the event that the customer mix moves against you to keep those earnings streams intact?

This is David. I guess I'll start, and then Chris, I'll ask if you want to add anything in. I'll start on the China side of things. Clearly, Legacy AM had a very strong presence there with our wholly owned foreign enterprise. Our business was both with the global OEMs as well as the local China that business with the local China OEMs has grown over the years. So that's been a positive for us. So we're doing very well supporting those programs in China today. With the acquisition of Dowlais, we picked up the joint venture, which is a 35-plus year old joint venture that's been very successful over there and profitable. here like legacy AM, they were supporting both global OEMs and the local Chinese OEMs. Their share has grown over the years with the China -- so there is pressure in the local China market right now as far as it being down the demand internally within China is around 24 million units, but they're exporting close to 10 million units on top of that. So -- or as part of it, I should say. So that's an important seem to note. So our volumes have been able to stay fairly steady and strong there. I mean, obviously, we're going to continue to demonstrate that the size and the scale of our company, the portfolio, when it's all said and done, you got to be cost competitive. And so we'll bring the technology and the cost competitive base, and we're where we need to be in China and quite honestly, across Southeast Asia. In Europe, as I said earlier on the earlier question, I think we're positioned right now. There's still some remaining things that are being done as part of the original base Dowlais plants -- that we inherited. But as we said, some of those costs would be coming down. As those pressures continue to mount based on China commanding more market share, I mean we've got to win our fair share of that China business while at the same time, if we have to do other optimization, we'll do that. But that's no different than like I said, we would do in any other market in the business. Our business, especially a capital-intensive program or business -- it's all about facility utilization, capacity utilization, a manpower utilization. And so we'll just -- as we've always had, we've got downside playbooks, we'll adjust the businesses, those downside playbooks and flex our cost structure appropriately. But we feel very confident about where we are in regards to protecting the value streams and the profit pools of China. Obviously, we're watching closely what's going on in Europe, but we're delivering in Europe at this point in time and we'll make adjustments around the world as required on a go-forward basis. Chris, I don't know if you want to add anything more to that.

Dan, I'll tell you, David summed it up pretty well. But if you go back to the very, very basic, it's having that technology in the markets and growing the technology of electrification, which is the key, obviously, growth engine in China through our debenture as well as our wholly owned with our driveline systems. And then you need to be cost competitive, which will allow to succeed in both regions.

Our next question comes from Rajat Gupta from JPMorgan.

Yashi on for Rajat Gupta. I wanted to ask about the new military vehicle side shaft award you guys have highlighted. Could you help us understand what this award means for Dauch potential expansion into like defense and other nontraditional end markets? And just the broader opportunity to leverage our existing technologies and potential for additional business wins in these segments?

Yes. Thank you. This is David. As I said in my prepared remarks, we're very excited about that opportunity that presents itself. It further demonstrates our technological advantages from a product portfolio standpoint -- and the capabilities that go with a military type product. Our combined company is a legacy AAM had legacy GKN or Dowlais, both were supplying some military products already. So this is some incremental opportunities to that. But clearly, our business is now as a combined business, clearly sets itself up to leverage our core competencies and capabilities in some adjacent markets and aerospace and defense would be 1 of those markets. So it's a small win, but an important win, but at the same time, demonstrates the capability there, and we'll continue to explore what other opportunities might exist there for us in the future.

And just as a follow-up, could you also help us like provide an update on the $2 billion of like new and incremental business opportunities you guys have highlighted last quarter, including how much has converted into awards? And how is that pipeline progressing on that front? And how should we think about some of those awards translating into revenue growth in '27 and beyond?

Yes. We're still quoting approximately $2 billion at ebbs and flows. We have been successful in conquesting typically our hit rates around a 25% to 30% hit rate. So we're tracking very favorably in regards to -- it's across the board in regards to -- we're doing very well on the powdered metal side of things in the 4G or the overall metal farm side of the business. And we've got some good strategic wins on the driveline side as we've highlighted in a couple of earnings calls now -- we don't -- we're not publicized anything on our backlog in new business, but we continue to favorably grow that going forward.

Our next question comes from Hamed Khorsand from BWS Financial.

Just talking about the competitive environment. Are you seeing any pushouts in any of the product designs that you've been working on with any of the OEMs.