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Good morning, and welcome to Dana Incorporated's First Quarter 2024 Financial Webcast and Conference Call. My name is Regina, and I will be your conference facilitator. Please be advised that our meeting today, both the speakers' remarks and Q&A session will be recorded for replay purposes. [Operator Instructions] At this time, I would like to begin the presentation by turning the call over to Dana's Senior Director of Investor Relations and Corporate Communications, Craig Barber. Please go ahead, Mr. Barber.

Thank you, Regina, and good morning, everyone, on the call. Thanks for joining us today for our first quarter 2024 earnings call. You'll find this morning's press release and presentation are posted on our investor website. Today's call is being recorded, and the supporting materials are the property of Dana Incorporated. They may not be recorded, copied or rebroadcast without our consent. Allow me to remind you that today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested by our comments today. Additional information about the factors that could affect future results are summarized in our safe harbor statement on our public filings, including our reports with the SEC. On the call this morning are Jim Kamsickas, Chairman and Chief Executive Officer; and Timothy Kraus, Senior Vice President and Chief Financial Officer. Jim?

Good morning, and thank you for joining us today. Please turn with me to Page 4, where I will discuss the highlights from the first quarter of 2024. Starting on the left side, I'm pleased to report that Dana achieved strong sales in the first quarter of $2.7 billion, a $91 million increase over the prior year, driven by higher customer demand, the roll on of new business backlog, including traditional ICE, hybrid and EV programs plus market share gains. Adjusted EBITDA for the quarter was $223 million, up $19 million driven by the strength of Dana's core business and operating system execution which is driven by the contributions of every person and resource in the company to achieve efficiency improvements across all aspects of the organization. Next, free cash flow, which is normally a use in the first quarter due to seasonality, was a use of $172 million. Notably, this was a $118 million improvement over the prior year, which is reflective of multiple working capital improvements and lower capital expenditures. Moving to the upper right of the slide under the key highlights. Consistent with the past several quarters, company-wide efficiency improvements again drove strong profit growth. As stated on the page, Dana achieved a 39% conversion rate on traditional organic sales in the first quarter. This performance is well above our historical conversion for the first quarter and positions the company on a strong trajectory to achieve our full year targets. Achieving this level of progress is a result of very cohesive and talented Dana team systematically driving continuous improvement and synergies across all functions, geographical regions, products and end markets. Moving to the center right of the slide. Demand levels remain relatively stable across most of our end markets and the Dana team continues to methodically and consistently grow the business. Lastly, with efficiency improvements on track, mobility markets remaining relatively stable and stronger working capital performance, our financial outlook remains on target and has led us to raise our full year free cash flow outlook to $75 million at the midpoint of the range, a 50% increase over our prior guidance. Tim will walk you through this and all other financial details and updates later in the presentation. Please turn with me to Page 5 for the outlook on the business and environment for this year. As we stated, we anticipate Dana's overall business environment to continue improving due to: first, the further stabilization of the customer production schedules as their supply chains continue to normalize. Second, Dana's continued execution of cross-company efficiency actions and third, the continued launch of new and refreshed programs that are coming online, which drive profitable growth. Beginning on the left side of the slide, greater stability in customer production has resulted in lower production cost, improved productivity and greater efficiency across all areas of the enterprise. Moving to supply chain. Net commodities are still expected to be a headwind to sales and profit for the remainder of the year. Steel prices have declined from the peak and are projected to mostly flat compared with 2023. As input costs decline, we see reversal of commodity recoveries with customers driving the headwind. Dana has a number of refreshed conquest and new business rolling 2024 which is a contributor to driving profitable growth. This growth is well balanced across mobility markets includes market share gains in our commercial group which, of course, require short-term launch costs, but importantly, are partially offsetting lower industry volumes in that segment. Overall, we're experiencing lower launch costs in 2024 as the company has returned to a much more normalized number of new program launches this year compared with the unprecedented quantity and complexity of launches the team very successfully executed throughout 2023. Moving to the right of the page, let's take a look at our end market outlook, where we expect agriculture to be down compared with last year, and we're seeing some further softening in the market. Demand for construction and mining equipment should continue trending somewhat flat compared to last year. Those who are watching these end markets closely as orders can shift rapidly. We continue to see light vehicle full frame production normalize and volumes trending up by low single-digit percentages as customer demand remains stable for the key recently refreshed vehicle platforms and production. After several years of growth, we still anticipate the market for heavy vehicles to be lower compared to last year, although we are seeing a slight improvement in third-party production estimates. Moving to the bottom of the slide, the key takeaways that we are seeing across our industry show cost inflation moderating despite labor cost increasing globally. OEM production schedules continue to stabilize, which is driving overall improvements in production efficiency. Lastly, while the light vehicle market overall is certainly navigating a period of electric vehicle demand fluctuation for current EV programs, overall, Dana is only marginally impacted because, one, most of the recent EV volume pullback is on the passenger cars, which, of course, Dana largely does not participate as we are principally a light truck commercial vehicle and off-highway mobility supplier. Two, our product, processes and equipment design activities over the past several years positioned our e-mechanical, electrodynamic components and e-thermal assets to be quite flexible across vehicle types and mobility markets, thus enabling Dana to flex and optimize our human and equipment capital if production timing and/or volume changes occur. Three, the majority of our announced light vehicle EV programs do not launch for another few years, allowing Dana to adjust capital equipment spending, if appropriate. As you know, repositioning and transforming Dana was -- from a purely mechanical company to an energy source agnostic business was incredibly challenging, but strategically critical, especially when doing so simultaneously with the COVID crisis. However, today, we can clearly see that it was worth it that Dana cannot only flex and spread its resources across numerous vehicle architectures, but we have also increased our content per vehicle potential from 3 to 5x based on the vehicle configuration. What this means in the short term is that we expect EV sales to be approximately $1 billion this year, and we are already generating positive contribution margins and remain on target to achieve positive EBITDA margins next year. Let's turn to Slide 6, where I will share some exciting news regarding major industry award for Dana. We're very excited to share with you that Dana was awarded the ninth -- was awarded our ninth Automotive News PACE Award at the 29th Annual PACE ceremony held just last night in Detroit, Michigan. Dana once again took home our industry's most coveted technology and product innovation award for our electromechanical, infinitely variable transmission system, which is a multimode driveline system solution that incorporates the Dana Power split transmission with the integrated high-voltage motors and controller with proprietary software that manages the entire drivetrain. The system also includes smart lubrication and actuation driven by Dana's low-voltage motor and inverter. This first-of-a-kind solution differs from the traditional transmissions in that it can operate in and automatically shift between engine, engine only, hybrid and battery only modes. It provides many real-world benefits for vocational vehicles like lower fuel usage, noise and emissions, but offers the safety and the redundancy of a hybrid vehicle to ensure consistent power. This is of ultimate importance in an emergency vehicle. To achieve this, we work closely with our customer, in this case, Oshkosh to create the multimode power split solution. In addition to the vehicles already in service, Oshkosh recently presented their Pierce, Volterra truck together with our system at the Fire Department Instructors Conference, or FDIC, in Indianapolis earlier this month and it was received with great interest. More than 36,000 fire and rescue professionals representing 67 different countries attended the event. Oshkosh has also announced -- recently announced that Paris-Le Bourget Airport will be receiving units with our system, expanding the market into Europe. The exciting thing about Dana's EMIVT system is a whole system approach that can be replicated across numerous different product lines and mobility markets. And it's another example of Dana's ability to collaborate with our customers to meet their unique and specific needs regardless of powertrain configuration, illustrating why our complete in-house capability is a significant differentiator for Dana. Let's move to the next slide where I can talk about a variety of recognitions that illustrate Dana's ethical foundation, customer focus and technical expertise. As with most years, we'd like to provide you an update on industry and customer awards. We present this information because it's a significant interconnection and value creation that occurs by operating the company with the highest level of ethical standards, maintaining an intense commitment to customer satisfaction and ensuring that a company continuously innovates and provides differentiating product technology for customers. Dana will not operate our company any other way. I would like to take a few minutes to communicate some representative examples in each of these areas of importance in which Dana has been recognized over the past 12 months. First, in the area of ethics and integrity, Dana was again recognized as one of the world's most ethical companies by Ethisphere. We are one of only 136 companies spanning 20 countries and 44 industries to be recognized. We're also honored to be able -- to have been recognized by Newsweek as one of America's most responsible companies. Second, in the area of customer satisfaction, as you can see from the numerous customer logos on the page, we're honored to have received customer recognition across all mobility markets, geographical regions and from many of our OEM customers. But as a change up this year, we've also included recognition from non-OEM customers, such as Supplier of the Year Award from Idealease Inc., one of North America's premier, full-service commercial truck leasing, rental and maintenance companies. Additionally, we earned a supplier partnership award from FleetPride, Inc., which is America's largest independent distributor of aftermarket heavy-duty parts and services. We are also very fortunate that our customers recognize our commitment and for that reason, continue to select Dana as a preferred supplier partner. Third, in the area of technology and innovation, in addition to the PACE award I just announced, Dana was honored with the Heavy Duty Trucking Magazine's 2023 Top 20 Products Award for Spicer Electrified

Thank you, Jim, and good morning. Please turn to Slide 9 for a review of our first quarter results. Sales were $2.7 billion, $91 million higher than last year, driven by strong end market demand for renewed vehicle programs and market share gains in commercial vehicle. Adjusted EBITDA was $223 million for a profit margin of 8.2%, $19 million and 50 basis points better than the previous year, primarily due to improved efficiencies, aided by more stable customer order patterns and cost improvements across the entire company. Net income attributable to Dana was $3 million in the first quarter of 2024 compared with $28 million last year. The difference is entirely due to the previously announced divestiture of our noncore hydraulics business from within our off-Highway segment. This business is classified as held for sale and a $29 million loss was recognized to adjust the carrying value of net assets to fair value less estimated cost to sell. This transaction also triggered a $7 million tax valuation allowance in Europe. On Slide 9, you will see the $29 million above EBIT, and the $7 million is on the income tax line. The combined impact of the transaction was a loss of $0.25 per share. The sale is expected to close during the second quarter of 2024. And finally, Operating cash flow was a use as normally the case in the first quarter of $102 million. This was an improvement of $68 million over the first quarter of last year due to lower working capital requirements. Please turn with me now to Slide 10 for the drivers of the sales and profit change. Beginning on the left, traditional and organic sales were $75 million higher, driven by increased demand for newly refreshed vehicle programs and market share gains in our Commercial Vehicle segment, partially offset by lower demand in agriculture end market of our off-highway segment. Incremental adjusted EBITDA on organic sales growth was $29 million, this strong conversion was due primarily to our improved cost efficiencies across the entire company and yielded approximately 90 basis points benefit to margin. EV organic sales growth was $23 million driven by increased sales of battery cooling products. Adjusted EBITDA was $4 million lower or a 20 basis points margin headwind. Higher engineering and related program investment for EV platforms drove the lower profit, offsetting the positive contribution margin of the higher sales. Foreign currency translation had minimal impact as it increased sales by $3 million and lowered profit by $1 million with no margin impact. Finally, due to falling commodity prices, commodity cost recovery in the first quarter was $10 million lower than last year. The profit benefit of lower commodity prices was offset by the timing of cost mechanisms within the commodity recovery agreements with our customers resulting in profit being lower by $5 million for a 20 basis point decrement to margin. I will now turn to Slide 11 for the details of the first quarter free cash flow. Free cash flow was a use of $172 million in the first quarter which is $118 million better than the first quarter of 2023. Higher profit of $19 million, partially offset by the increase in net interest compared to the first quarter of last year due to higher rates and the timing of interest payments driven by last year's refinancing actions. Cash flow from working capital requirements were $82 million improved from last year as we remain focused on working capital efficiency, especially inventory and receivables management. Finally, capital spending to support new business backlog was $50 million lower than last year, driven by a more normalized launch cadence this quarter. Please turn with me now to Slide 12 for an updated guidance for 2024. We are affirming our sales and profit outlook for this year, and we are increasing our expectations for free cash flow. We expect 2024 sales to be approximately $10.9 billion at the midpoint of our guidance range, an increase of $345 million over 2023. Adjusted EBITDA is expected to be about $925 million at the midpoint of our guidance range, which is up $80 million from last year. Profit margin is expected to be approximately 8.2% to 8.7%, a 50 basis point improvement at the midpoint of that range. Building on the strong first quarter results, we now expect free cash flow to be approximately $75 million at the midpoint of the revised range which is a $25 million increase over our prior outlook and a $100 million increase compared to last year. The increased outlook is driven by improved working capital efficiency. Our GAAP EPS guidance remains unchanged at $0.60 per share. Note that our full year guidance already included the impact of the pending divestiture. Please turn with me now to Slide 13, where I'll highlight the drivers of the full year expected sales and profit changes from last year. Before we begin, you will note that we have added a divestiture item to the full year walk to detail the business that is held for sale and would have previously been shown under traditional organic. As I mentioned previously, the transaction was included in our original guidance in February, so there is no change to our total sales for profit outlook. Beginning with organic growth for 2024, we now expect about $270 million in additional sales from traditional products through new business, moderate market growth and market share gains. Adjusted EBITDA increase on traditional organic sales growth is expected to be approximately $140 million. The higher profit margin increase of about 110 basis points is a continuation of the improved efficiency and cost-saving actions that we began last year. The anticipated increase in the stability and predictability in our customer order patterns and our more efficient operations are allowing us to convert our higher traditional organic sales at better than typical contribution margins. We expect about $240 million of incremental EV product sales this year for a total anticipated EV sales of about $1 billion. The EV business contributes positive profit. However, we expect the change in EV adjusted EBITDA to be a headwind of about $20 million this year due to the continued investment in engineering and associated costs for new EV programs. Our divestiture is expected to close in the second quarter and were lower sales by $55 million and profit by $5 million. Foreign currency translation on sales is expected to be a headwind of approximately $50 million with a profit impact of about $5 million, slightly more modest than previously expected. Finally, our commodity outlook is expected to be a headwind to sales of about $60 million due to lower recoveries driven by falling steel and other commodity prices. We expect a $30 million profit headwind due to the true-up in pricing governed by our 2-way commodity recovery mechanisms with our customers. Lastly, please turn with me to Slide 14 for our outlook on free cash flow for 2024. We anticipate full year 2024 free cash flow to now be about $75 million at the midpoint of the guidance range. We expect about an $80 million from increased profit on higher sales. Net interest will be about a $35 million headwind due to higher interest rates and payment timing due to the refinancing that occurred in 2023. Working capital is now expected to be lower use of about $50 million which is the driver of our $25 million improvement over our prior guidance and $35 million better than last year. In capital spending to support our sales growth and technology is expected to be about $450 million this year, which is $50 million lower than last year as we flex spending to match customer program timing. Thank you for joining us today. I will now turn the call back over to Regina, and we'll take questions.

[Operator Instructions]. Our first question will come from the line of Colin Langan with Wells Fargo.

Can you just quickly clarify the $0.25 drag from divestitures and earnings, that was actually contemplated in the original guidance of $0.60 or...

Colin, this is Tim. It was -- we didn't call it out specifically because we hadn't announced and if you remember the timing was a little wonky in the first quarter, we ended up announcing it the following day. It was in the Q we filed late in the day. But we didn't want to muddy the waters in the first quarter, but we did include it in the -- in both the walk, but as I mentioned, it was in the traditional organic column, and it was included in the EPS guide that we gave.

Got it. So when I think of this year's numbers, and I know you're not giving adjusted, I mean, this is very onetime in nature to the non-repeat your guidance for the year more like [ $0.85... ]

Correct. Absolutely.

Just to make sure I'm clear. Okay. Just as a follow-up. The off-Highway margins held up very good. And if I look at the walk, organic sales were down $46 million, but the organic EBITDA impact was positive $6 million. What's really driving that way? How is the lower sales. How sustainable is this? And how should we think about it trending through the year considering it seems like most of those end markets are going to be flat to slightly down for the rest of the year?

Yes. So it's 2 drivers. One is mix. So we're losing more ag sales and gaining in others. And so that mix ag is typically our lowest margin sector within that segment. And the other is really the teams did a great job on flexing costs and taking costs out of the plants and out of the BU to adjust to the lower sales environment.

Your next question comes from the line of Noah Kaye with Oppenheimer.

This is Lydia on for Noah. First, could you discuss the moving parts around the traditional core outlook versus prior guidance? It looks like stronger organic sales but slightly lower incrementals. Could you just give us some color on the drivers?

Yes. So some of it is that we pulled out the divestiture out of it. And then the rest is really just the driving difference in mix that's coming through that line.

Got it. And then I guess for my follow-up, could you discuss overall demand trends for the EV programs you're on and how you're expecting commercial EV sales to ramp through the balance of the year?

Sure. So obviously, we're continuing to watch this. They're pretty much in line with where we had them, which is why you're not seeing a large change in our outlook. Obviously, there's some softness in EV demand, and we're seeing that across the end markets. But again, we had some of this baked into our plan. So right now, we're on track for the year.

Your next question will come from the line of James Picariello with BNP Paribas.

Just want to ask on the Commercial Vehicle segment, what your expectation or what your visibility is into the remainder of the year, specifically around North America truck production. And what the influence of your ramping EV volumes you might have on the profitability for that segment?

Sure. So CV North American volumes, so our Class 5 to Class 7, we're seeing [ 245 to 255 ] for the year and on the heavy-duty side on the Class 8, [ 300 to 310 ]. So still pretty healthy overall. And then in terms of EV, so we continue to see sales, obviously, in that segment, down a little bit as customers react to sort of the changing landscape and customer demand patterns. But we're adjusting to it and continue to deliver the products that our customers need and to deliver what they need for their customers.

Got it. And then just on light vehicle. What's your view on the handful of key programs that Dana is on in terms of the build schedules for this year and how inventory levels at dealers are trending for those key programs? Just your high-level color on the Light Vehicle segment.

James, this is Jim. I don't have a lot to add that you probably don't already know given some of the OEM announcements over the last week or so. But from a high-level standpoint. Remember that most of our programs, I had mentioned in my prepared remarks, most of our driveline stuff is going to be more in the out years for -- because basically, the full frame comes later. But as it relates to our programs, what [ Mary ] came out with last week in terms of -- I would argue pretty bullish on how things are going over there. We see that coming through, as you know, with supplier of the OTM battery cooling, so on and so forth. I think volumes take another program such as the Ford Lightning pretty consistent with what they've been communicating at Ford. So I would say right down the middle of a fair way to use it golf analogy to what you've seen or heard coming from the OEMs.

Just how about on the ICE side for light vehicle?

Again, real -- I would say stable -- I wish I had a better word for you, but it's really just stable. We've seen -- I think we've all seen there's different we use, obviously, the days on hand calculations like many people do, and there's been some ebbs and flows on that. But from our production outlook as it relates to material leases coming in, so on and so forth, we see a pretty stable outlook.

The next question comes from the line of Joseph Spak with UBS.

I just want to make sure, back to Colin's question, what I understand for the moving pieces versus sort of just how you book to things, I guess, prior. So before the divestiture was in the guidance, but it wasn't breaking out. So then if we just look at sales now, if we sort of add divestors back into traditional organic, you get to [ 2.15 versus 2.40 ] prior. So organic is lower in the rest of the business. But then the -- you do the same thing on EBITDA, the conversion is actually higher. So I guess I just want to understand the conversion that's performance or some segment mix related factors that are driving that.

Joe, it's Tim. It's both. So obviously, there's some mix in there. The easiest one to think about is ag, right, with ag being further down, right? We're picking it up. And then it is between segments as well. But yes, there's also performance in there as we continue to drive the efficiencies and performance across the company.

Okay. And the lower organic is what you mentioned earlier about some of the softening in ag?

Yes, that's a big chunk of it.

Okay. And sorry, just to clarify, that you're assuming this is a second quarter closing. So that $55 million top line impact is a back half number effectively?

Correct. Yes, it's a back half.

Okay. Just on Power Technologies, in the quarter, I think revenue and EBITDA both look a little bit stronger than we thought. It looks like in your walk, it was EV-driven. So is -- and I think as you're -- maybe were just alluding to, that's, I think, the one area where you do have some light vehicle EV exposure. So can you just talk about how you expect that to progress through the year?

Sure. So you're talking about on the investment side or just on the current production side?

Well, I guess just the EV business within Power Tech, both on a revenue and EBITDA basis.

Yes. So we see it continuing to be stable to up. Ours is -- our biggest program is the [ bed 3 ]. So the encouraging remarks from GM, they had a good fourth -- first quarter around EV and battery production. So that's obviously reflected when you look at the Power Tech walk on EV. We continue to see better than last year, so up on -- in terms of volume, and we think that will convert through on the bottom line.

And just because you're providing to the pack, and obviously, they've had some challenges on that pack. And I guess, really, a lot of automakers have. Is that a longer lead time shipment and revenue for you versus like if we're looking at production of EV vehicles or how should -- especially sort of relative to maybe some other products in that business?

Really good question. This is Jim. This is Jim. That's a really good question. No, the lead times aren't any longer. I would call it as is very much precision stamping and precision fluid management and fluid engineering that side of it, but it doesn't extend the lead time. It's a very good question. It's not tied to the battery like we're all associated with. So to further Tim's point, though, in that construct, the way we've designed engineered the product and, therefore, also established our processes and equipment they're quite flexible for not just the battery cooling that we tend to talk about and call such of this, but also our electronics cooling. So just for the full audience to consider there's more to that business. You're mentioning electrification, so I'll talk about that. But if you think about all of the electrification cooling that's required with IGBTs and other things associated with inverters, so on and so forth. So we're flexing the capital. And like Tim said, and I think we've put into the numbers, we feel like it's relatively stable from an outlook this year.

Our final question will come from the line of Dan Levy with Barclays.

Trevor Young on for Dan today. First, I guess I wanted to ask just a little bit more clarity on what you mean here with the -- and what's going on with the true-ups around commodities. I guess just conceptually, it's a little confusing to me that the lower steel prices are leading to a bigger commodities tailwind. I get that it would reduce recoveries, but just in general, is it the contracts that you're in that are holding your steel prices higher than spot rates would imply? Or is there anything else going on there that I'm missing?

Yes. So there's 2 things you got to remember when you think about how the commodity mechanisms work. Typically, we're only covered for 75%. So on the way up, we tend to get hit on the way down, we tend to recover some of that. And then there's a lag in that. So as we see commodity prices come down, we tend to have -- tend to be 3 to 6 months difference between when we have to give that back to the customers. So you're seeing a combination of the 2, which is why we're having higher givebacks right now on the top line, but you're not seeing all of that flow through on the bottom line. So it's a combination of just the timing of it and then the fact that we're only giving back 75% of those lower commodity costs.

Okay. All right. That's helpful. And Tim, as a follow-up, your CapEx guide for $450 million on the year assumes a $50 million year-over-year decline it looks like you fully realized this in 1Q. So I guess I was curious why we shouldn't expect the CapEx spend declines in 1Q that you noted to be related to lower launch costs, why we shouldn't expect that to continue throughout the year or at least to some extent?

Yes. I mean -- so it's obviously a lot of it is timing both on what we spent last year relative to the programs. But also how the program timing and payment schedule versus this year. I wouldn't read too much into the full [ $50 million ] being already realized because there's a lot of timing elements in there from quarter-to-quarter. So we're still comfortable with the $450 million for the full year.

Okay. [indiscernible] Go ahead and wrap it up. So I'll wrap it up very briefly today. And first of all, as I always do, thank you very much for your time and attendance and [ acuity ] of your time. I would say that to use a sports analogy, it's a fourth quarter game. We just got through the first quarter. I think the collective team of Dana did an excellent job getting off to a fast start or at least a good start, and that doesn't happen by accident. It happens by having really strong business and operating systems that you allow your systems to run your business and then you go execute, and as you heard me recently, and many other times, say, it's all about company-wide efficiencies, continued benefits from customers running more stable schedules, having differentiating technology and a focus on your customer and continues to execute on that, and that leads to the...