Good day, everyone. This call is for analysts only. All participants are in listen-only mode to prevent any background noise. There will be a question and answer session after the speaker's opening remarks, and instructions will be given at that time. I will now turn the call over to Mr. Arturo Morales, GIS Treasury and Investor Relations Director. Please go ahead, sir.
Thank you. Good morning, everyone. We appreciate your participation in today's GIS third quarter 2026 earnings conference call. With me today are Mr. Knut Bentin, GIS CEO, who will provide a high-level overview of the business, our operating performance, and main strategic messages for the quarter. Mr. Saúl Castañeda, GIS CFO, who will discuss financial results and balance sheet priorities. We encourage you to follow along the on-screen presentation. Before we begin, please note that today's discussion may include forward-looking statements. Actual results may differ due to a number of factors. Please refer to the earnings release and supporting materials for further details, including the discussion of risk factors. Unless otherwise stated, figures are expressed in U.S. dollars. Comparisons are on a year-over-year basis, and sequential comparisons are identified where relevant.
If you did not receive the earnings release, it is available at the investor relations section of the company's website. I will now turn the call over to Mr. Knut Benthin, GIS CEO. Please go ahead.
Thank you, Arturo, and good morning, everyone. Thank you for joining us for our third quarter 2026 earnings conference call. Let me begin with the main developments of the quarter. Our performance this quarter reflects two different regional environments. In North America, Draxton's casting volume continued to grow, supported by commercial vehicles, large pickups, and new program launches. In Europe, the customary summer shutdowns reduced production activity compared with the second quarter, coupled with a challenging demand environment and higher electricity costs that weighed on the results. Despite these mixed conditions, consolidated revenue increased year-over-year, reported EBITDA went up at a double-digit rate, and EBITDA margin expanded on the back of the profitability of our casting lines.
Building on the momentum of earlier quarters, our commercial team secured new programs for over $154 million in estimated future sales as of September, with launches expected in the next 18- 24 months. Our focus is set on our plans to match or exceed the operating progress seen in our casting lines in these recent quarters while improving performance across all Draxton processes. We also remain selective in capital deployment, continuing strategic projects while postponing investments where it is possible, as we seek to enhance capacity utilization, maintain strict cost and fixed expenses controls, and protect cash generation. Thanks to these measures, we announced the second dividend installment to be paid in December, equivalent to $15 million. To put these developments in context, let me turn to the broader industry environments. The global mobility environment continued to vary by region and vehicle segment.
North American light vehicle production totaled nearly 4 million units in the third quarter, down 4% year-over-year, as automotive activity softened. Light vehicle sales reached 5 million units, down 2%, as high vehicle prices and financing costs weighed on demand. In contrast, commercial vehicle production surged 34% year-over-year against the low comparison base. The 2027 annual joint review of the USMCA remains a source of uncertainty heading into the year-end. In Europe, light vehicle production recorded a year-over-year decline of 1%, reflecting higher energy costs and capacity adjustments by certain OEMs as the region's manufacturers continue to face competitive pressures from Chinese imports. Meanwhile, light vehicle sales remained flat in the quarter and increased 2% year- to- date, with a better outlook for electric vehicles demand. In China, light vehicle sales declined 23%, reflecting weak domestic demand despite subsidies and promotional campaigns.
Production fell in a more moderate way by only 6% as exports provided a significant offset to domestic weakness. It is important to note that we remain vigilant of the European Union's proposed Industrial Accelerator Act, which would introduce European- origin equipment requirements for certain vehicle procurement and public support schemes. Even when the proposed act remains under legislative review, we are assessing how the eventual framework could influence customer sourcing and Draxton's strategy in the region. All in all, as these markets evolve, we plan to stay close to customers, pursue new programs, adapt our operations to the demand in each region, and evaluate potential opportunities from new sector policies as they develop. Turning now to Draxton's operational performance, North American casting volumes increased 7% year-over-year.
This growth follows the execution of our commercial initiatives, higher demand for commercial vehicle components, and ramp-up of casting lines at San Luis Potosí. At plant level, commercial vehicle platforms supported higher volumes in Saltillo, while Irapuato benefited from the recovery in demand for our American heavy-duty pickups and new programs. This combination of customer platforms and program launches helped San Luis and Irapuato plants to deliver a resilient performance in a relatively soft industry environment. Our exposure to pickups and SUVs also helped the North American casting business to outperform the declining regional light vehicle industry, alongside the contribution from growing commercial vehicle demand. Nevertheless, machining volume decreased 5% year-over-year, reflecting a change in our customers' platform mix.
In Europe and Asia, casting volumes increased 4% year-over-year on the back of our diversification strategy, while machining volume decreased 16% due to platform mix changes and operating adjustments at certain customers. It is important to note that in Europe, scheduled summer shutdowns and plant maintenance activities in August weighed on production compared with the previous quarter. Despite these challenges, Draxton's casting business continued to outperform the overall regional industry, showing its resilient competitive position. Turning to Draxton's financial performance, third quarter revenue reached $249 million, up 9% from $229 million recorded in the same quarter last year. Most of this growth stemmed from North America, where higher casting volumes and a positive component mix lifted the regional revenue to $149 million, up 15%, despite a smaller contribution from input cost pass-through.
In Europe and Asia, revenue reached $100 million, up 1% in dollar terms and 4% in euro terms as electricity price adjustments were reflected in contracts and sales, and summer shutdowns weighed on production activity. EBITDA reached $28 million, up 27% from the reported $22 million in the same quarter last year. As you probably remember, in Q3 2025, we shared a pro forma EBITDA of $25 million, excluding $3 million in extraordinary severance expenses. Even with this figure, EBITDA comparisons would be up 12%. In North America, volume growth and FX hedges helped cushion the effect of a stronger Mexican peso. While in Europe, higher electricity costs and lower production during summer shutdowns weighed on results, coupled with an increase on energy costs that will be gradually indexed into price formulas to our customers.
All in all, this operating balance was translated into an EBITDA margin of 11% compared with the 10% posted in the same quarter last year. With these dynamics in hand, we remain committed to improve plant performance, capacity utilization, and machining processes alongside a profitable product mix. Moving on to CINSA. CINSA's third quarter revenue totaled $18 million, down 10% from the $20 million recorded in the same quarter last year. The weaker domestic consumption continued weighing on sales. These softer dynamics led to an EBITDA loss of $1 million, compared with a positive EBITDA of $1 million last year, although lower fixed expenses partially offsets the decline. We seek to realign CINSA, focusing on revenue management and a leaner cost base to enhance both its market position and profitability.
At GISEderlan, our non-consolidated joint venture, third quarter revenue was $18 million, in line with the same quarter last year, with profitability starting to improve as we continue to standardize processes and improve operating KPIs. Across the group, we face different business conditions that shape the way we allocate capital and set priorities. In this sense, commercial progress in North America reflects promising opportunities for growth, while Europe requires continued attention to adapt to market trends. Under this context, we are following a continuous alignment of investments to those projects that support business priorities in each region. Now, Saúl will explain the consolidated financial performance and our capital and debt position.
Thank you, Knut, and good morning, everyone. Consolidated revenue reached $267 million, up 7% from the $249 million posted in the same quarter last year, and close to the level of second quarter 2026, even with the summer shutdowns in Europe. Despite the third quarter being a seasonally slower period in Europe, consolidated EBITDA increased 17% year-over-year to $27 million, from $23 million in third quarter of 2025, with EBITDA margin expanding to 10% from 9%. This improvement was achieved despite absorbing a $4 million unfavorable impact from energy cost recovery lag in Europe and foreign exchange headwinds from the strengthening of the Mexican peso against the U.S. dollar. Last year's reported EBITDA included $3 million of non-recurring severance expenses. When excluding this figure, the comparison base increased from $23 million to $26 million, putting this quarter's growth at approximately 4%.
North American operations were a key contributor to the quarter's improved profitability, supported by higher sales volume, more efficient electricity consumption, and continued improvements in key operating indicators. These factors strengthened operational performance and contributed meaningfully to consolidated EBITDA growth. Capital expenditure totaled $34 million during the year, remaining below our earlier estimates. In line with our selective approach, we have maintained strong discipline in capital expenditures, prioritizing essential investments to ensure operational continuity and strengthen the long-term sustainability of our operations. Turning to debt, quarter-end interest-bearing liabilities, including leases, totaled $308 million, down from $318 million at the end of the second quarter 2026. From a seasonal perspective, the third quarter is traditionally the most challenging period for GIS in terms of cash flow. Nevertheless, strong operating cash generation has provided sufficient liquidity to fund working capital requirements, support capital expenditures, and continue reducing debt.
Importantly, the company has not incurred any additional debt over the past 18 months, underscoring its commitment to financial discipline, deleveraging, and maintaining a solid balance sheet. Net debt totaled $267 million, equivalent to 2.2x net leverage ratio, below the 2.4x reported in third quarter 2025. The key takeaway is that even in a challenging operating environment, GIS remains focused on generating cash, investing with discipline, and reducing debt. As announced yesterday, this has put us in a position to make the second dividend payment approved for the year amounting to $15 million. We believe this reflects the resilience of our business and reinforces our commitment to financial discipline, a stronger balance sheet, and sustainable value creation for our shareholders. Knut, I will now turn the call back to you for closing remarks.
Thank you, Saúl. As we approach year-end, our priorities remain in place and aligned with the business conditions already discussed. In North America, our priority geared towards programs oriented to casting and machining growth. This means matching new businesses with the capacity and execution required to serve customers consistently. In Europe, our attention stands on operating performance before a challenging market, seeking to monitor customer activity, electricity costs, and timing of contractual adjustments while assessing the effects of new policies framework. Consequentially, in the long run, we clearly pursue expanding our commercial vehicle platform and scaling up automation. Across all markets, our commercial teams continue to build on new program awards to support future volumes over the next 18 - 24 months and convert all these new opportunities into better margins.
Capital discipline remains central to these efforts, alongside careful working capital management and keen operating performance, highlighting our endeavors to endure productive processes at GISEderlan and strengthen CINSA's commercial response to weaker domestic demand. Summing up, with the market outlook that remains uneven, our strategic initiatives geared to adapt operations to the conditions of each region, paying paramount attention to margins, profitability, and cash generation. To conclude, I want to thank all our teams for their hard work and dedication this quarter and our investors and analysts for your interest in GIS. Operator, please open the line for questions.
Thank you. We will now begin the question and answer session. To ask a question, please use the Raise Hand function in Zoom. When your name is called, please turn on your microphone.
Our first question come from Carlos Alcaraz from Apalache Research. Please, sir, go ahead.
Good morning and congratulations on the quarter. I have two questions. First, other revenue totals $4 million for the quarter. What does this line item includes, and should we expect it to repeat? My second question is regarding cash flow. Accounts receivable increased to $156 million since December. What accounts for the increase in accounts receivable, and when do you expect it to return to normal?
Yeah. I take the first question, Carlos. The $4 million extraordinary basically is $2 million and $2 million. It is $2 million coming out of the electricity lag in Europe. What this means is that the prices on the cost side adjust faster than on the sales side. We have agreements with our customers that the prices are being adjusted, but these agreements have a certain lag, which can vary from one to three months. On those customers where the lag is longer than three months, as the prices are climbing very steeply, we have this effect. It is now going to flatten somewhat in Q4, but as long as the electricity prices in Europe continue to raise, this topic is going to persist. As we can now see developments, we really foresee that that situation is not going to be corrected in 2026.
It will take us into 2027 to see then the reverse effect, that then hopefully the prices on the cost side go down faster than the ones on the sales side, so that eventually this recovery is going to take place. It is only a matter of time.
Thank you, Knut. Thank you, Carlos, for your questions. I will address the second one. As I previously mentioned, every year we face these challenging seasonal working capital requirements during the third quarter. We have this in our forecasts, but fortunately, each year at the beginning of the fourth quarter, this trends to normalize. We are expecting to normalize these, as I mentioned, working capital requirements, seasonally adjusted. We will be in a normalized phase in this precise fourth quarter, Carlos. That is our expectation.
Since your question was more to the accounts receivables, obviously what we are doing here, we have a comparison against the year-end. By the year-end, we have a typical slow month of December, so we reduce our sales in the second half of the month significantly, that makes the base accounts receivables look somewhat artificially low. This is going to happen again by the end of this year. This is just in the nature of the business that we then see the temporary shutdowns of the activities of our customers, they basically then stop by the middle of the month to take any parts.
Yeah. Thank you for bringing that, Knut. I didn't get it, but as you mentioned, at year-end, we are with this low activity, Carlos. We see each year this low accounts receivable account. But in another perspective, if you measure accounts receivable days, that will be a better measure of our position in accounts receivable. They are pre-aligned, probably two or three days above the end of the year, but we are very aligned. It's a better comparison when you measure through accounts receivable days.
Okay. Very clear. Thank you very much, Knut, Saúl, and congratulations again.
Yeah. Thank you.
Thank you.
Our next question comes from Isaac Gonzalez from GBM. Please, sir, go ahead.
Hello, everyone. Just one quick question. We saw casting volumes continue to outperform in the industry while machining volumes remain under pressure, particularly in Europe and Asia. How should we think about the recovery on machining business heading into 2027? Is the weakness mainly temporary or driven by customers' production adjustments, or should we expect a more structural shift in the business mix towards casting?
Yeah. Obviously, we have one difference here between, let's say, the foundry and the machining activities. The foundry activities are extremely flexible, and we can easily change products from one line or relatively easily change products from one line to another. With the machining, we have more dedicated investments. So machines are really dedicated to certain programs, and there we depend more on the performance of those programs. What we are now really working at is to flexibilize our installations and to allow the machines to also take additional components and therefore assure a better load of these CNC centers.
Thank you. Very clear.
Thank you, Isaac.
As a final reminder, if you want to make a question, please use the function raise your hand in your Zoom tool. The next question comes from Iñigo Alvarez from GBM. Please, sir, go ahead.
Yes. Hello, good morning. I have two questions. The first one would be, what has driven your sustained outperformance versus the industry this year, and how much market share have you gained? The second question I will have is, what is the current capacity utilization at the San Luis Potosí plant, and how should it evolve in 2027? Thank you.
Yeah. Maybe I take these two questions. The outperformance really. Well, I am now in the company for a little more than a year, but what I can see is that we have a very strong technical development, really on both sides of the Atlantic, in Europe and Spain and here in Mexico. We have an outstanding collaboration with them. The level of interaction between these development activities and then the performance improvements in the plants mean to operate the plants in, let us say, parameters of excellence allows then for these constant improvements in the performance. It is a slow but steady process and going into the right direction. That is obviously very encouraging. Coming to San Luis Potosí. San Luis Potosí is now in the ramp-up phase of programs in North America, which is the GMT T1XX.
That is going to be, for the moment, really the last big step in terms of capacity utilization in San Luis Potosí. With that then also, San Luis Potosí reaches a little bit above 90%, which is the target that we operate the plants with. All in all, we are at a very high level of capacity utilization in North America. In Europe, the situation is somewhat different. We have more capacity, available capacity in Europe, and there, obviously, our expectations are now that we see eventually with the Industrial Accelerator Act, a shift in the decisions that customers take to again give more preference to European suppliers instead of Asian or Chinese suppliers.
Thank you. Very clear.
No further questions in the queue. I would like to turn the call to the management for the close of this conference.
Thank you. This quarter illustrates both the progress we're making and the work that remains. Our North American casting operations are delivering growth and stronger operating performance. While we continue addressing cost recovery, machining execution, and regional market pressures, we remain focused on converting our awarded programs into profitable revenue, maintaining capital discipline, and strengthening cash generation and returns over time.
Thank you. With this, we conclude our conference. You may disconnect.