Dana Incorporated (DAN) Q3 2026 Earnings Call Transcript

Operator: Good morning. And welcome to Dan Incorporated Third Quarter 26 Fiscal Webcast and Conference Call. My name is Fern, and I will be your conference facilitator. Please be advised that our meeting today, both the speakers' remarks, and Q and A session will be recorded for replay purposes. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as a guest. There will be a question and answer period after the speaker's remarks and we will take questions from the telephone only. To ensure that everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to 1 question at a time. If you would like to ask an additional question, please return to the queue. At this time, I would like to begin the presentation by turning the call over to Dan's senior Director of Investor Relations, and corporate communications Craig Barber. Please go ahead, mister Barber.

Craig Barber: Fernie. Good morning, and welcome to Dan Incorporated's earnings call for the third quarter of 26. Today's presentation includes forward looking statements about our expectations for Dan's future performance. Actual results could differ from what we discussed today. For more details about the factors that may affect future results, please refer to our disclaimer and safe harbor statements which can be found in our public filings and reports with the SEC. You will find this morning's press release and presentation posted on our investor website. As stated, today's call is being recorded and the supporting materials are the property of Dan Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. With us this morning are Dan's chief executive officer, Byron S. Foster and Timothy R. Kraus, executive vice president and chief financial officer.

Byron S. Foster: Byron, I will now turn the call over to you. Okay. Thanks, Craig. Good morning, everybody, and thanks for joining the call. I am excited to share progress on our third quarter results. If you look at the business, continues to perform well illustrated by solid third quarter results really driven by continued focus on productivity gains, supply chain efficiencies and commercial discipline. James in the quarter came in just over $2 billion which is an increase over Q3 of 25 of a 121 million. Our EBITDA was 218 million which is up 56 million versus the same period last year. And our margin is at 10.7%, which is a 220 basis point improvement over the same period last year. So really proud of the team for delivering solid results here in Q3. Our cost savings program is on track to deliver 325 million here at the end of Q4. You will remember when we launched the program in November 2024, our target was 200 million. We are going to come in at 325 here by the end of the quarter. So far year to date, the team has delivered 60 million against that target. Which brings us to 320 million program to date. So pretty much complete with that program. With 5 million left to deliver here at the end of the quarter. I think this is also a great demonstration of the cost discipline and efficiency focus that the company continues to maintain, and it is really what gives us the strong confidence that we will be able to deliver the synergy targets that we have put out there relative to the Eaton merger, which I will come to here in the following slides. Regarding share repurchases, we have increased our repurchases for 2026 to a target of 469 million. In the quarter, we bought back 6.6 million shares or $200 million worth of capital that we have returned to shareholders. Year to date, that brings us to $3.69 with a 100 million left to complete here in the calendar year. Program to date, we are just over $1 billion at $1.02 billion. Of our 2 billion authorization which we plan to complete in the first half of 29. Regarding share repurchases, post closing of the Eaton transaction, I know that will be a question for the folks on the call. We have yet to have a final decision on the post close direction of buybacks. So we will con. Continue to keep you informed as that situation evolves. And then finally, the Eden Mobility transaction is on track. And pre closing share repurchases as I mentioned earlier, have been increased. So if we go to page 5, turning to the Eaton Mobility transaction, Look. We continue to view this as a highly strategic combination of Dan and Eaton. As we have shared, the companies have very complementary product portfolios. Customers, and manufacturing footprints we really see this combination as a great opportunity to accelerate our Dan 30 plans that we have shared with you. As previously shared, the combination is structured as a split off and reverse Morris trust transaction. it is intended to be tax free for both the Dan and Eaton shareholders. And given the split off structure of the transaction, expect an orderly distribution of shares to both to Eaton shareholders that are interested in new Dan. Our target for synergies is $250 million of run rate within 24 months post close. The teams are working hard on the details around those plans, but as we shared in previous calls, feel really confident in the $2.50 and with each day of integration work that we are doing our confidence only increases that we will be able to deliver that type of value through the combination of these companies. In addition to the cost synergies, I have a slide to share a little bit of our thinking relative to sales synergies. But we are confident that the combination of these companies and the strong product fit and combined Salesforce is also going to deliver significant top line synergies for the comp. Combined companies. Through the transaction, we will maintain an attractive net leverage of 1.6x, which is inclusive of the additional 100 million in share buybacks. The transaction is on track to close around the end of the first quarter of 27. And all of our regulatory approvals have been achieved with only 1 outstanding, which we expect also to get close here shortly. If we go to the next page just to give you a visual of the timeline as I mentioned, here in Q3, we are pretty much through the regulatory approvals with only 1 remaining. Our focus throughout this timeline is obviously on continuing to execute the business, which the team again has demonstrated with a solid Q3 result. December 7th is when we expect our special shareholder meeting to take place. And then mid February, we will obviously bet be back in front of you with our Q4 and total fiscal year results for 2026. And we are targeting the transaction to close around the end of Q1 27. So very much still on track to deliver the combined companies here. If you go to the next page, again, I want to keep this framework in front of you in terms of how we are thinking about the value creation opportunity of Dana and Eaton coming together. So if you think about our Dan 2030 plan that we have shared with you and the 5 pillars, 3 of those around growth, 2 around efficiency and margin expansion. If we look at each of these pillars, we continue to see opportunities of the combined companies to accelerate the goals that we have in place, be it on traditional product growth through the expansion of the product line that Eaton brings to bear, Our aftermarket growth, I think we have shared with you that the combined Dan and Eaton will basically double our presence in the aftermarket, and we see ways to continue to grow that by leveraging the expanded product line. As well as the expanded sales force in the field to help us drive top line growth Or if you look at manufacturing, excellence, which is another example where we have shared with you on the Dan 2030 plan, our activities around automation as 1 example. And we see great opportunities to take that strategy more broadly across. Not only the Dan footprint, but the Eaton manufacturing footprint as well. Again, our sales target of 14 to 15 billion through the combination is where we are driving. If you go to the next page, page 8, just to give you a quick update on Dan 2030, our manufacturing excellence pillar in automation, specifically, as we look into 2027, we have 11 plants that are executing various automation And between those automation projects, and those could be robots, cobots, AMRs, etcetera. 2038 have been deployed, and we see another 56 of those opportunities being deployed within the calendar year. Delivering a run rate savings of $20 million. So if you if you just think about this activity within the scope of Dan, we very much see that the Eaton manufacturing sites are on the same journey, kinda at the same starting point. And so our ability to take the capability we are building here to deploy automation and the lessons learned and deploy it not only across the broader Dan footprint, but the Eaton footprint is a huge opportunity for us. So that is just 1 example of the synergy opportunity through the combination of Dan and Eaton. We are actively pursuing. If you go to page 9, just to talk a little bit about the growth opportunity and the top line synergies that we see. So beyond the cost synergies that we are focused on, we do see significant revenue synergies. And just to give you a bit of a flavor of what we are seeing from an aftermarket perspective as an example. We have worked hard to grow our big box retail relationships on the Dan side, and I think we have shared several examples of our ability to expand the Spicer branded products into those big box retailers. Well, now with those relationship established. Relationships established, our ability to take a broader product portfolio to those customers and bring the Eaton Mobility products to bear is a big opportunity for us. Likewise, if you look in Europe, we have a much larger European aftermarket presence on the Dan side. Again, we see the same opportunity to bring the Eaton Mobility products to those channels and geographies. If you look on the commercial vehicle and light vehicle side, taking advantage of Eaton's fleet sales force and leveraging that team to also bring to bear the Dan Driveline product is a big opportunity for us. And then on the light vehicle side, our ability to leverage the global OEM relationships that we have and, again, bring the Eaton Mobility product offerings to those customers we see as a big opportunity. So as we continue to work the cost synergy detailed plan, we are also building the plans around how best to capture the top line opportunities. That we see through this combination. And then lastly, if you go to page 10, I did wanna take an opportunity to give a brief update on the commercial vehicle market. Where we are encouraged that we continue to see robust demand in both the Class 5 through 7 and bus markets as well as class 8 And in both of those markets, we are seeing elevated demand and elevated backlogs really driven by a number of things that we are seeing in the market be it continued investment through infrastructure projects, or replacement demand, supporting growth on the class 8 side. So we are obviously reacting to this demand and capturing these opportunities and we really encourage that through, meeting this increased demand that we also have the opportunity for sustainable market share gains. As a result. So with that, I will turn it over to Timothy to take us deeper into the financial results.

Timothy R. Kraus: Thanks, Byron, and good morning. Turning to slide 12. We delivered strong third quarter results with sales increasing 121 million to approximately $2 billion The increase was driven by stronger commercial vehicle demand, backlog conversion and commercial and cost recovery actions. Adjusted EBITDA increased $56 million to $218 million and adjusted EBITDA margin expanded 22 basis points to 10.7%. The improvement reflects strong operational execution, including favorable mix, material cost savings, commercial and cost recovery actions, and the continued benefit of our structural cost initiatives. EBITDA increased $39 million to $92 million Net interest expense declined $28 million to $16 million reflecting the debt reduction action completed following the sale of our off highway. Business. Income tax expense was $64 million and included a $29 million charge related to the settlement of a foreign income tax audit partially offset by a $12 million benefit associated with post off highway sale restructuring actions. Loss from continuing operations was $10 million primarily reflecting the higher tax expense and a $24 million loss on the redemption of our $20.31 euro notes. Adjusted net income increased to $44 million from a loss of $5 million in the prior year period and diluted adjusted EPS increased to 41¢ compared with a loss of $0.04. Last year. Overall, the quarter reflects continued progress in strengthening the earnings profile of the business through higher sales, improved operating performance, a more efficient capital structure. Please turn to Slide 13 for the third quarter change in sales and adjusted EBITDA . Starting with sales, third quarter 26 sales were $2.04 billion up a $121 million from $1.92 billion in the prior year period. Volume mix contributed $87 million reflecting strong commercial vehicle demand favorable mix, and continued backlog conversion. Performance was neutral to sales, while tariff recoveries contributed $12 million. Foreign translation added $5 million in sales driven largely by the Brazilian real. And South African rand, partially offset by the Indian rupee. Commodity recoveries contributed an additional $17 million to our top line sales number. Turning to adjusted EBITDA . Volume and mix contributed $24 million of incremental profit, reflecting strong conversion on organic growth and commercial vehicle mix. Performance added $29 million driven by operational efficiencies, commercial initiatives and cost recovery actions, the. And the annualization of our cost recovery cost savings actions contributed another $6 million. Tariffs were a modest $3 million headwind due to the timing of recoveries, Currency and commodities were neutral to adjusted EBITDA in the quarter. Those items together, adjusted EBITDA increased $56 million $218 million representing a 10.7% margin and an improvement of 220 basis points compared with the third quarter of 25. Overall, the quarter demonstrates strong profit conversion on higher sales, with operating performance and commercial actions and cost savings driving meaningful margin expansion. Next, I will turn to Slide 14 to look at adjusted free cash flow for the third quarter. We generated $66 million the third quarter compared with $101 million in the prior year period. As a reminder, the 2025 comparison includes cash generated by both continuing and discontinued operations to align with the off highway sales transaction structure. The prior year period included a $113 million of adjusted EBITDA from discontinued operations. Adjusted EBITDA from continuing operations increased $56 million to $218 million reflecting the strong operational performance discussed on the prior slides. 1 time costs improved $12 million as we completed most of our cost reduction programs. Net interest improved by $18 million reflecting the timing of interest and lower average borrowing following the debt reduction actions completed after the off highway sale. James improved by $23 million primarily due to the to the loss of the off highway profit contribution as well as the timing of payment and jurisdictional mix. These benefits were more than offset by the absence of the prior year earnings from discontinued operations, a $20 million year over year use in cash from working capital, and $11 million of higher capital spending. Working capital was impacted by the timing of inventory reductions and customer recovery actions. While higher capital spending supported new programs and automation investments that Byron mentioned earlier. Overall, the third quarter demonstrates the improved earnings and lower cash interest burden of the continuing business. While the year over year comparison reflects the absence of the divested off highway op. Operations. Now please turn to Slide 15, for our fully updated full year guidance. We are increasing our full year sales outlook while maintaining our earnings and adjusted cash flow expectation. We now expect sales of approximately $7.8 billion at the midpoint of the range, plus or minus $50 million This represents a $50 million increase at the midpoint and reflects stronger commercial vehicle demand and higher commodity recoveries. We are maintaining the midpoint of our adjusted EBITDA outlook at approximately $825 million and maintain the range to plus or minus $25 million due to some uncertainty on the cost inflation and timing of customer recovery. At the midpoint, this represents an adjusted EBITDA margin of approximately 10.6%. We continue to expect diluted adjusted earnings per share of approximately $2 plus or minus 25¢, Our adjusted free cash flow outlook remains approximately $325 million at the midpoint, plus or minus $50 million. We continue to expect the benefits of our off highway divestiture including lower interest and taxes, to substantially offset the loss of earnings from off-highway. Overall, the updated outlook reflects stronger sales, continued operating execution, and confidence in our ability to deliver our earnings and cash flow commitments for the full year. Please turn with me now to Slide 16 for the drivers of the full year change in sales and adjusted EBITDA . As I mentioned, we are now expecting approximately $7.8 billion in sales and $825 million of adjusted EBITDA at the midpoint of our 2026 ranges. Beginning with sales, we expect approximately $300 million of year over year growth from the $7.5 billion reported in 2025. Volume and mix are expected to contribute $75 million driven by backlog conversion commercial vehicle and aftermarket growth, as well as favorable mix. Performance is expected to contribute approximately $15 million to sales. Tariff recoveries are expected to add approximately $65 million while foreign currency translation and commodities are expected to contribute approximately 95 million and $50 million respectively. Turning to our adjusted EBITDA . Starting from $610 million in 2025, volume and mix are expected to contribute approximately $60 million reflecting higher margin backlog conversion and aftermarket growth. Performance is expected to contribute approximately $95 million driven by operating efficiencies, commercial actions, and execution of our cost reduction initiatives. Cost savings are expected to contribute approximately $65 million as the remaining actions are fully realized of our $325 million program. Tariffs are expected to be neutral to adjusted EBITDA as costs are substantially covered within the year. Currency expected to be approximately a $5 million tailwind, and commodities are expected to be approximately $10 million headwind primarily due to recovery on time. Timing of recoveries. At the end of this year, we expect adjusted EBITDA approximately $825 million representing a margin of approximately 10.6 million per. Or excuse me. 10.6%. And an improvement of roughly 250 basis points when compared with 2025. Overall, the outlook reflects favorable mix, strong operating execution and the continued benefit of our cost actions. I will now turn to slide 17 for our full year adjusted free cash flow outlook. We continue to expect approximately $325 million of free cash flow in 2026. Broadly consistent with the $331 million generated in 2025. As a reminder, 2025 adjusted free cash flow included cash generated from both continuing and discontinued operations. Following the sale of the off highway business, our 2026 outlook reflects the earnings and cash flows of only the continuing business. Adjusted EBITDA from continuing operations is expected to increase approximately $215 million to $825 million 1 time costs are expected to improve compared to last year by approximately $40 million as most of our cost reduction programs have been completed. Net interest is expected to improve by approximately $75 million reflecting the debt reduction actions completed following the Off Highway divestiture. James are expected to improve by approximately $60 million. And working capital and other items are expected to provide an approximately $50 million in year over year benefit. Capital spending is expected to increase approximately $45 million to about $300 million reflecting the timing of new business launches and the investment supporting operational improvements and automation. Overall, the outlook demonstrates the stronger earnings and cash flow generation profile of the continuing business. Supported by lower onetime costs, interest taxes, and improved working capital.

Byron S. Foster: I will now turn the call back over to Byron for his closing remarks. Okay. Thanks, Timothy. So in summary, page 18, it is really about 2 pillars of where we are taking the company. So first is obviously focus on delivering our 2030 plan and making sure that we stay focused on executing for our customers. You can see in the quarter, the team delivered profitable growth and expanded margins We continue to execute at a high level operationally and deliver strong free cash flow while strengthening the balance sheet. Additionally, it is about bringing together 2 world class companies in Dan and Eaton Mobility. In creating a real market leading global powertrain systems provider. As highlighted today, our transaction is on track to close roughly around the end of Q1 27. And will be structured as a split off structure in the synergy plan is well on track to deliver the 250 million. So with that, we are happy to take questions from those on the call. Craig?

Operator: We will now begin the question and answer session. If you would like to ask a question, To withdraw your question, press 1 again. Please limit yourself to 1 question each time and return to the queue for any follow ups. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q and A roster. Your first question is from the line of Tom Narayan with RBC Capital Markets.

Thomas Ito: Hi. This is Thomas Ito on for Tom. Thanks for taking the question. The first 1 is so 1 of your D3 customers has been dealing with elevated inventory days in recent months, and we have seen some recent production forecast. Cuts for this customer by S and P Global. Is there any downside, potential downside risk to your light vehicle production on some of these key platforms? Or generally, how should we be thinking about that going into 2027?

Timothy R. Kraus: Yeah. Thanks for the question. So yes, I mean, we do see some softness on a couple of the light vehicle platforms in North America, but we are also seeing some strength in a number of other ones, including Super Duty as they continue to ramp their launch in Oakville and, and continued strength in Bronco. So, while there is there. You know, that. Some of what you would some of which is contributing to some of the mix changes. Yeah.

Byron S. Foster: I would just add to Timothy's point. As we highlighted in the deck, the commercial vehicle market also remained robust. So you kind of look at all that together, we see top 1 tailwinds. Thanks.

Thomas Ito: Very helpful. And then if I could do a quick follow-up Is there any guidance you can give us as to how we should be thinking about some potential incremental costs cost of less than 250 million but any additional cost post deal close? And I know you guys have the synergy implementation, buckets we should be thinking about, like potential restructuring or integration costs? Thanks.

Timothy R. Kraus: Yeah. I mean, we. We have called out that we will end up spending. So relative to the transaction itself, we will incur about $250 million for the cost. Some of those are currently being incurred and will continue to be incurred through the end of this year and into next. And then, cost to, obtain the synergies are somewhere in the 200 million range. Now when you look at our forecast or the view of the combined business, we have included both of those amounts, in, our 2027 view. And so we also think that the. From a net perspective next year, we do see that the synergies will contribute about $75 million. But we do have that 200 million coming in over the 24 month period post closing. Thanks. I will turn it over.

Operator: The next question is from the line of Rajat Gupta with JPMorgan. Your line is now open. Please go ahead.

Analyst: Great. Thanks for taking the question. Just wanted to get a little better granularity on the maintained full year EBITDA guide. I am curious how much are you able to quantify, you know, how much was the inflation or just overall commodity freight inflation, you know, hurting the third quarter number and how much have you dialed in, you know, for the fourth quarter relative to your original expectation? You know, any clarification on that would be helpful. I have a quick follow-up.

Timothy R. Kraus: Yeah. I mean, we are. You know, commodities are not the largest driver. it is it is general other inflation. So think of energy and freight are probably 2 of the larger ones. Now some of that is also included in some of the commodity indexes that we have. But, generally, what we are seeing is significant uptick. And we saw that in the in the third quarter. You know, most of our agreements with our customers, you know, while they provide for recovery on actual commodities relative to the index, They do not have general cost, or inflationary, recovery mechanisms. So we are in working, you know, to get recovery which usually involves, you know, price increases or at least temporary price increases. In order to get those recoveries. You know, I would say, you know, we are maintaining our view that the midpoint of the range should be, at $8.25. We obviously have a path to get there, but, you know, there is a lot of work that the team's doing to continue to execute to, 1, offset those costs and to be able to get recoveries of some of those costs from the customers. Sometimes the timing on those recoveries is delayed much like we have in a commodity business, but, you know, the team is laser focused on making sure that we are able to address those cost pressures as they come. Understood. that is helpful. And just to follow-up on the 27 comments you know, understand, you know, you know, the revenue backdrop is still, you know, somewhat uncertain. I mean, you clearly have the commercial vehicle recovery you know, that is intact. You know, based on what you are seeing right now, and we understand, you know, some of the synergies that you have guided to. But just on the core Dan business, any early read into how we should think about just margin expansion for the core business. You know, are you able to size that at all based on what you are seeing or what you are expecting from a revenue outlook? Perspective. Thanks. Yeah. So, you know, obviously, we think that commercial vehicle. If you look at page 10, you can see kind of our view on the at least North America, which for us is our largest market from a commercial vehicle perspective. it is in terms of where we see the market. it is a. The slide's the same as what we showed in March during our Capital Markets Dan. So there is a marked improvement in our view of what the bulk of the class 5 to 7 as well as the North American class 8 production volume looks like over the next you know, 2, 3 years. And so some of that will be obviously in 2027 and contribute to, to sales growth. Look. We still have a target that, the combined company will be able to get to 15% margins by 2030. And, you know, next year's growth is a. Is part of that. Yeah.

Byron S. Foster: I think. Mean, if you think about the levers in our Dana 2030 plan, be it aftermarket expansion, manufacturing efficiency. So all those drivers are obviously still in front of us and a key focus for the team, and we expect to see another step improvement in margin performance as we go into 2027.

Timothy R. Kraus: Yeah. I would agree. Right? We should be we should be you know, higher obviously than where we are at today at the 10.6. Yeah.

Analyst: Understood. Okay. Great. I will get back in queue. Thanks for the color. Thanks.

Operator: Thank you. Your next question is from the line of James Mulholland. With Deutsche Bank.

James Mulholland: Great. Thanks for taking my questions, guys. On the buyback, it is nice to see another $100 million guidance for fourth quarter of this. So rough math, that gets you to about 1.1 billion of the $2 billion outlined through 2030. Was wondering if you could give us some sense of perhaps what work, I guess, has to be done to ensure that you can stay tax free RMT structure, and also then restart the repurchase? Like, what do you have to see to do that? And I guess, if you cannot feasibly do it, could you remind us, are there other options for shareholder returns? You can do special and regular dividends. And I guess, would you look to be lever first or can you do both of those concurrently?

Timothy R. Kraus: Yeah. So, in terms of the buyback post sale, so, you know, we are working with Eaton to get a plan that would allow us to do that. So we continue to work. They are they are constructive discussions, but at the end of the day, you know, the decision is really. You know, they need to be comfortable, with it. So I think, we will continue to update the, all of you and the market in as to where we stand, with those discussions. But they continue to be on. Ongoing. In terms of, you know, post transaction, you know, the we can do we will maintain our, obviously, our regular dividend. We can do special dividends. And then to the extent we are not able to restart those buybacks for those 24 months, we would use the cash to then, delever. Now if you go back, we. We have said, look. We would given the differential with the Eaton Mobility cash flows, We do believe we. You know, regardless of the. Of when we can do the buyback, we will complete those buybacks in 2029, and we would plan then, you know, be able to do. You know, restart and do a substantial amount to finish off the 2 billion in 2029. If we were not able to restart after closing.

James Mulholland: that is helpful. Thank you, guys. And I guess as a quick follow-up, as we think about the Eaton synergies, could you give us some sense of the breakdown of what that anticipated $250 million looks like? Now know, you have the 75 million next year. So is that gonna be mostly duplicate SG and A functions, the lower hanging fruit, and then maybe I do not know, 50% of the remaining is manufacturing and purchase purchasing, and then the rest is engineering? Or is there a better way to think about it?

Byron S. Foster: No. I think that is a good way to think about it. Right? So there is going to be some let's say, early opportunities lower hanging fruit, call it. So think about duplicative corporate structure that just will not come over our ability to do integration on the IT side, Purchasing is a big lever for us. So some opportunities there in the near term. Then some of the things that take a bit longer, think about manufacturing footprint, consolidations, consolidation of engineering sites, etcetera.

Timothy R. Kraus: So we see a significant step in 2027. Again, we are targeting roughly 75 million. And then in 2028, kind of getting at the rest of the opportunity. If you if you if you go back, I think we laid this out last quarter, in the deck, and you can we did not find numbers, but you kind of have the Harvey balls. You can see the major buckets and then kind of how we are thinking about 2027 versus 28 expected timing.

Byron S. Foster: Yeah. Great. Thank you, guys.

Timothy R. Kraus: Yep.

Operator: Your next question is from the line of Joe Spak with UBS. Your line is now open. Please go ahead.

Joseph Spak: Thanks. Good morning, everyone. So Just a couple for me and maybe a follow-up going back to you know, the fact that, you know, I understand the work that needs to be done to sort of get comfortable for the repurchase. Like, just from a procedural and timing perspective, is this something we are sort of likely to hear about this go, no go decision with the close, or is this something you think that can happen, you know, in advance of closing the transaction?

Timothy R. Kraus: I mean, obviously, we continue to work with them. So, you know, timing is fluid. So, I mean, it could be in at any, you know, any time really as we kind of work through it with them.

Joseph Spak: Okay. Second question. The. Like, I look at the implied fourth quarter, just for the full year guidance and the change in what you did versus prior and, obviously, what you have done year to date. It looks like you are still expecting about $15 million of volume mix to sales in the fourth quarter, but then nothing to EBITDA . Is there something going on in the fourth quarter that is sort of driving that or why would that be?

Timothy R. Kraus: Yeah. I mean, I think there is there is a number of different things. Obviously, the fourth quarter's got a different production schedule as well as, you know, how we are thinking about what cost pressures we are gonna have and how we are thinking about the timing on some of that. Those recoveries. there is nothing specific, I think, you know, in the quarter other than, you know, how we are seeing the plant floor efficiency savings coming through the last bit of our of our 25 coming through, and then just where we see them the mix and then the conversion on that Okay.

Joseph Spak: And then last 1, maybe just housekeeping. But last quarter, you mentioned there was, like, a $20 million labor charge. I am assuming you are netting that against the performance bucket in your.

Timothy R. Kraus: Yeah. it is it is sitting in. It is it correct. it is in performance. that is where it is. Yeah.

Joseph Spak: Okay. And did that actually happen in the third quarter?

Timothy R. Kraus: Yes. It did. It was about 20 million. Okay.

Joseph Spak: Okay. Thank you. Mhmm. Yeah.

Operator: Your next question is from the line of James Picariello with BNP Paribas. Your line is now open. Please go ahead.

James Picariello: Hi. Good morning, everybody. Yeah. Just following up on the union contract. With the new contract in place, is there any sizing of additional run rate labor inflation? That you will now be incurring?

Timothy R. Kraus: Yeah. I mean, we do. We will have higher labor rates in the plants. Now in reality, what most of that is really getting our plants competitive in many of the jurisdictions. And currently, you know, that is that is built into how we are looking out and what we are seeing, 2027. So we anticipated needing to do that. We knew we needed to do it from a market competitiveness perspective. And we, we have plans and. To be able to you know, offset that those inflationary pressures that come along with it.

James Picariello: Got it. And then just my quick follow on. Dan's aftermarket sales as of last year stood at 900 million I believe the guide for this year was for this revenue to trend flat. Just curious what is the trend there? How are things how's the aftermarket revenue trending thus far this year?

Timothy R. Kraus: So it is it is up. it is a bit of a mix. So, you know, North America has been very, very strong. We have talked about a couple of wins with some of the big box retailers which is really, you know, new opportunities that are driving it. We have seen more headwinds than we would have we were planning for largely in Europe, Middle East, and Asia, largely in The Middle East, due to the issues around the Strait Of Hormuz and some of the other conflicts there. it is just tougher to see, you know, people buying those parts. So it is a bit of a mixed bag, but generally up. For the year.

Operator: Thank you. Your final question is from the line of Dan Levy with Barclays. Your line is now open. Please go ahead.

Dan Levy: Hi. Thank you for squeezing me in. If we could just go back to the question about the commodities because it looks like within your bridge this year, that is what is sort of holding back the EBITDA from being a touch higher. See, the performance number is down. And I know you are talking about sort of general inflation, energy freight. So maybe you could just talk about if we could disaggregate this year, what the gross numbers are on that inflation, what you are assuming on recoveries. And then just based on calendarization of where we are today, if we just run this forward into 2027, what that gross inflation is what you will need to offset? And maybe just as a tack on to that, when Eaton comes in, you know, how that commodity or bomb exposure shift, if at all, and, you know, is it indexed versus commercial recoveries? Maybe you could just talk about those Sorry. I know a few different questions there.

Timothy R. Kraus: Yeah. So I will take the last ones for it. So they are they are they largely have very, like, very similar contracts to us relative to both. Light vehicle and commercial vehicle. So we do not see any substantial change or difference in terms of how they go about getting you know, commodity recoveries, versus what we have. They have generally a lot of the same customers, as we do. And so they are they are largely, the same. So that we do not anticipate working, all that differently.

Byron S. Foster: I think, you know, if you if you think through the, the inflationary pressures.

Timothy R. Kraus: So know, we always have to have to overcome through purchasing savings, operational efficiency, cost takeout, VAVE, those are sort of part of just the normal operating procedures for anybody that is in the mobility space in order to offset inflation because we do not have recovery mechanisms, or contractual recovery mechanisms. Our customers. Now we are seeing pretty quick and movements in things like energy and freight. And so those were going in and having conversations about, hey. Like, there is just no way to recover this at point given where we are at in the cycle. But, you know, in terms of the size of the inflationary number, you know, it is an. it is a 9 digit number. it is a big number that we are. We continue to have to deal with and overcome.

Byron S. Foster: Now next year, we are still developing the plan, but, you know, I think you know, our view is that, you know, the world's not getting any easier to operate in. But, again, know, this is this is how we run the business. This is what we do every day, and, we know, what we have to get done, and we are gonna go after that. And be able to offset that and continue to grow the margins in the business.

Timothy R. Kraus: And the know, I know you said it is v a v e versus. You know, I. Just going back to your customers, like, like, the rough split on how you offset that.

Byron S. Foster: At this point, you said, VAVE sounds like it is it is a little more tapped out or Yeah.

Timothy R. Kraus: I mean, I think, you know, a big chunk is just operational conversion cost improvement in the plant. Right? that is that is a very large portion of it. Same thing with purchasing. I am. I do not wanna get into the specific But that is why that is why the you know, if you go back to our Dan 30 plan, levers like automation are so critical.

Byron S. Foster: And while we why we are accelerating our efforts there and our investments to. You know, we constantly have to create new ways, new opportunities, to get cost out of the business to deal with the inflationary pressures that Timothy mentioned as well as you know, drive performance in the overall company. So Yeah.

Timothy R. Kraus: And do not forget our customers also are expecting. You know, we have contractual price downs that we also have to have to address the customer. So that. that is part of the headwinds that we have on a know, just a daily basis within the within the business. Right.

Dan Levy: Okay. As a follow-up, thank you, This disclosure here on revenue synergies, I think this is some new commentary, although I am sure this is always somewhat part of the plan. So maybe you can help us unpack within these, you know, what is lower hanging fruit versus what is more difficult and the potential timing here? Know on 1 hand, it looks like sort of this aftermarket leveraging your distribution capabilities versus on the other side, OEs where maybe it is just having a more expansive offering and playing for customers looking for more bundled products from you. So Yeah. Maybe you could just talk about low hanging versus tougher and timing. Thank you.

Byron S. Foster: Yeah. So I guess I would start with think about, you know, 1 of the strategies we have to drive growth in our CV business is to expand our field sales force team to be out in front of the fleets, in front of the dealers, you know, pitching the Dan value proposition. Well, building that field Salesforce and that team takes time. With Eaton, you know, that capacity, if you will, is in place. So we are able to kind of accelerate that growth opportunity. You mentioned aftermarket as an example. So our team is just done a fantastic job of creating new positions for Dan with the big box. Retailers as an example. So now that team that is calling on, you know, the AutoZones of the world, the Advance Auto, the NAPAs, now has an expanded product portfolio that they can bring to those customers and continue to, you know, create new value opportunities. For our customers. So you know, we. Everywhere. And then light vehicle, I would be my. Maybe my last example where we are in. Kind of at the top of the house relative to the powertrain engineering and purchasing teams you know, working on the data side, we now can kind of bring that same kind of access and visibility to the Eaton team and bring, again, an expanded product portfolio and create new value proposition for the customer. So you know, the more we kind of-- the closer we get to the business and to the teams there, revenue synergies are real and quantifiable, and we are excited about that on top of the center the cost synergies that we have highlighted in previous calls. Great. Thank you. Yeah.

Timothy R. Kraus: Thank you.

Byron S. Foster: Okay. Well, look. Thank you guys for all the questions and your continued interest in Dan. I just wanna close by thanking our customers for their continued trust and confidence that they place in Dan, and I wanna thank our global team for continuing to, stay focused on our employees and our customers and delivering value to our shareholders. Thanks, and have a great rest of the day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.