DAN - NYSE

Good morning and welcome. Dana Incorporated's Second 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.

Good morning. Thank you for joining us today for Dana's second quarter 2024 earnings call. Today's presentation includes forward-looking statements about our expectation for Dana's future performance. Actual results could differ from what we discuss here today. For more details about the factors that could affect future results, please refer to our safe harbor statement found in our public filings and our reports with the SEC. Before we proceed, I invite you to visit our investor website where you'll find this morning's press release and presentation. As a reminder, 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. On the call this morning, we have Jim Kamsickas, Dana’s Chairman and Chief Executive Officer, and Timothy Kraus, Senior Vice President and Chief Financial Officer. Now to get started, I'll turn the call over to Jim.

Good morning and thank you for joining us today. Please turn with me to page four, where I'll discuss the highlights for the second quarter of 2024. Starting on the left side, I'm pleased to report that Dana achieved sales of $2.7 billion in the second quarter, which is just about in line with the second quarter of last year. Adjusted EBITDA for the quarter was $244 million, up over last year, driven by the strength of Dana's core business and end-to-end execution by the global Dana team, who did an outstanding job implementing ongoing efficiency improvements across all aspects of the organization. Their collective efforts have helped to offset the margin impact of inflation and spending on development of EV products, as well as the slower than expected demand in EV and other markets we serve. Next free cash flow was a strong $104 million, down $30 million from this time last year, the difference only due to the timing of payments between the two periods. Moving to the upper right, on this slide under the key highlights, consistent with the past several quarters, company-wide efficiency improvements by the Dana team continue to drive incremental profit. As stated on the page, Dana achieved an extremely strong 73% conversion rate on traditional organic sales in the first half of the year. This performance is well above our historical conversion and positions the company on a trajectory to achieve our full year targets. Moving to the center right of the slide, we saw overall organic sales growth through the first half of the year as demand levels remain relatively stable across most of our end markets. As I mentioned, we are seeing some weakening demand in EV's as well as some in our traditional ICE products and programs, particularly in our off-highway end markets. Lastly, with ongoing efficiency improvements and our capital investment improvements, Dana's financial outlook remains on track for the rest of the year. While we're slightly adjusting our sales range, primarily due to the pullback in EV, we are maintaining our profit estimate while again raising our full free cash flow outlook this quarter to approximately $100 million at the midpoint of the range. This is a 33% increase over our prior guidance. Tim will walk you through this and other financial details and updates later in the presentation. Please turn with me to page five for the outlook on the business environment for this year. As we stated last quarter, Dana's overall business environment continues to improve compared to last year, driven by a few key factors which I will provide greater detail. Beginning on the left side of the slide, we continue to see improved company-wide efficiency supported by greater stability in customer production which has resulted in lower production cost, improved productivity and greater efficiency across all areas of the enterprise. Moving next to the supply chain, net commodity are still expected to be a headwind to sales and profit for the remaining of the year, though steel prices are projected to be mostly flat compared with 2023. As input costs have declined, we see a reversal of commodity recoveries with customers driving a sales and margin headwind. Lastly, on the left hand side of the page, end market demand is showing some pockets of weakness, but Dana continues to benefit from numerous refreshed conquests and new business that is rolling on this year, which is a contributor to our profitable growth. We also continue to benefit from market share gains in our commercial vehicle group that are partially offsetting the softening demand for commercial EV's. Moving to the right of the page, let's take a look at our end market outlook where we are seeing agriculture down compared to last year. Demand for construction and mining equipment should continue trending somewhat flat compared to 2023, though we remain cautious on this market and will continue to monitor demand levels. We also see light vehicle full frame truck production volumes remaining relatively stable for key recently refreshed vehicle platforms. However, dealer inventory levels have risen over the quarter. After several years of growth, we are seeing the market for heavy vehicles lower compared with last year, which is expected, and there may be a slight softening in production in the back half of the year. Moving to the bottom of the slide the key takeaways that we are witnessing across our industry show that cost inflation is somewhat moderating. Despite labor costs increasing globally. OEM production schedules continue to stabilize, which provides a stable operating environment to achieve production efficiency improvements. Lastly, the light vehicle market overall is navigating a period of demand fluctuation for current EV programs. As we move through the second quarter, we saw demand for commercial EV's temper due to the lower investments by fleets and operators as they work to integrate EV trucks into their vehicle portfolios. Given the continued investment in EV development by truck manufacturers and ongoing robust quoting activity for future models, we believe this is more of a balance in market demand. We anticipate these nascent technologies, such as fully integrated e-Axles and hybrid systems, will drive future adoption. Shifting gears on the next page as I often do, I'll share some current examples with you of how balanced products and systems approach is enabling Dana to win new traditional, hybrid and EV business across all of the markets we serve. Slide Six is a great visual representation that illustrates Dana's ability to deliver class leading solutions to a variety of applications for ICE, hybrid and electric vehicle manufacturers across all mobility markets. To compartmentalize this better, we've added three icons to the top of the page, one for ICE, one for hybrid, and one for EV. Beginning on the left of the page, we start with an ICE vehicle. We're excited to share that the all-new DAF ICE medium duty truck featuring Dana's front and rear axles is launching in Europe in the third quarter of this year. This is conquest business and will be one of our larger commercial vehicle programs in Europe. Our class leading Spicer axles are specifically designed for medium and heavy-duty markets. They provide a lightweight solution that helps to reduce installation and life cycle cost while improving fuel cost, reliability and vehicle maneuverability. Moving to the center of the page, we are providing you with an example of a new hybrid vehicle application. Dana will be supplying our Spicer Electric Torque-Hubs and on engine generators for use on hybrid boom lifts for multiple major off-highway OEMs. Today, Scissor Lifts and Booms offer true hybrid operation to increase operating flexibility. Hybrid models employ a combination of two different power sources, a small diesel engine with a generator and a battery drive. These units significantly increase rental flexibility and boost machine utilization by offering the same productive operation as a diesel rough terrain unit, with the added benefit of offering extended operating intervals indoors and under battery power. In addition, their cleaner and quieter performance creates new opportunities for use in work environments where noise and emissions must be restricted, such as some urban and residential spaces. The focus on cleaner, more efficient construction vehicles has become increasingly important for our customers, and our hybrid solutions portfolio is leading the way in accelerating decarbonization across the off-highway industry. Completing the third part of our balanced portfolio. On the far right of the page, we're excited to share a new pure electric vehicle that Dana will be supplying our Spicer eS9000r e-Axle for the Bollinger B4 light duty truck. The Bollinger B4 is an all new, all electric truck going into production this year. While this vehicle may look similar to a larger heavy-duty vehicle, this lighter duty truck has a gross vehicle weight rating of 15,500 pounds, which is comparable to a passenger van or a heavy duty pickup. This vehicle will be unique in that it will be designed to be custom configured by fleets to fit their exact duty cycle needs, making the transition to electric as seamless as possible with minimal downtime. Our eS9000r e-Axle is based on our proven Spicer rear drive axle platforms engineered for medium-duty truck and bus applications. We've engineered this ePropulsion solution with the exceptional flexibility so it can be incorporated into a wide spectrum of vehicles, reducing driveline complexity. In fact, we were the first to market with an original generation of the e-Axle classification in North America more than four years ago. These three examples showcase the breadth of Dana's highly efficient propulsion and energy management solutions that are being used across all mobility markets around the world. It's not a stretch to say that our products can be found in nearly every type of vehicle that moves from light and medium trucks and SUV's to commercial vehicles, agricultural machinery such as tractors, construction equipment, golf carts, and much more. Our full suite of ICE, hybrid and electric vehicle capabilities enables us to meet the propulsion needs of all of our customers, regardless of demand fluctuations in any particular market. Turn with me to slide seven, where I will update you regarding the drivers of our significant profit expansion so far this year. Beginning on the left side of the page Dana's end-to-end execution is a direct result of the efforts of our talented world class team of associates. As one Dana we are successfully driving sustained profit expansion despite flat year-over-year sales driven by currency impacts, lower commodity recoveries, as well as some pullback in demand for EV and other traditional markets we serve. Dana's core business priorities encompass sustained financial improvements and commercial effectiveness and growth, which are driven across the company through standardized processes and systems. Our operating priorities center on operational excellence and execution that is laser focused on cost reduction and disciplined asset management, which is achieved by leveraging cross company synergies through our global centers of excellence to ensure that we run the business as efficiently as possible. All of this is driving significant profit expansion as illustrated on the right side of the page. By way of example, as we finished up the first half of this year and you look back over the last few years, compare the first half of 2024 to 2022 and 2023. You can see adjusted EBITDA has increased by $135 million, or 41%. This was only made possible because of the outstanding execution and collaboration of our global team. And finally, it's important to note that it goes beyond the outstanding execution taking place across the company. What truly sets Dana apart is our ability to provide customers spanning all mobility markets with a balanced portfolio that is energy source agnostic. What I mean by that is, as we presented on the previous slide, we can deliver class leading solutions that support internal combustion, hybrid and EV manufacturers across all mobility markets. The result is our end-to-end business execution is successfully driving towards long term profit targets and a strong financial outlook. Thank you for your time today. Now I'd like to turn it over to Tim who will walk you through the financials.

Thank you, Jim, and good morning. Please turn with me now to slide nine for a review of our second quarter and Year-to-date results for 2024. Beginning with the second quarter, sales were $2.74 billion higher, or, I'm sorry, just $2.74 billion, slightly below last year's due to currency translation and lower commodity recoveries offsetting higher demand and backlog. Year-to-date, sales were $5.47 billion, an increase of $81 million. Adjusted EBITDA was $244 million in the second quarter for a profit margin of 8.9%, a 10 basis points improvement. Year-to-date, adjusted EBITDA was $467 million. That is $20 million higher than the previous year for a profit margin of 8.5%, 20 basis points better than last year. Profit improvement this year is primarily due to better efficiencies across the company, aided by more stable customer order patterns. Net income attributable Dana was $16 million for the second quarter, about $14 million lower than last year, primarily due to restructuring actions. Full year net income was $19 million compared to net income of $58 million last year. The difference is primarily due to the planned divestiture of our non-core hydraulics business from within our off-highway segment that we discussed last quarter. This business is classified as held for sale and a $29 million loss was recognized in the first quarter to adjust the carrying value of the net assets to fair value less estimated selling costs. This transaction also triggered $7 million tax valuation allowance in Europe and finally operating cash flow was $215 million for the quarter and $113 million for the full year. Operating cash flow was $27 million higher this year than the year prior in the year-to-date period for 2023. Please turn with me now to slide ten for the driver of the sales and profit change for the second quarter of 2024. Beginning on the left, traditional organic sales were $19 million higher, driven by increased demand for newly refreshed vehicle programs. Market share gains in commercial vehicle partly offset by lower demand in off-highway end markets. Adjusted EBITDA on organic sales was $40 million. This very strong incremental margin was due to our improved cost efficiencies across the entire company, which generated 150 basis point margin improvement. EV organic sales growth was $11 million, driven primarily by an increase in sales of battery cooling and hybrid vehicle products, offset by lower demand in our commercial vehicle and off-highway segments. Adjusted EBITDA was $19 million lower and 80 basis point margin headwind. Continued engineering investment for EV programs drove the lower profit, offsetting the positive contribution from higher sales. Foreign currency translation decreased sales by $22 million, primarily driven by the lower value of the Euro and the Brazilian Real compared to the US Dollar. Profit was lower by $3 million with no margin impact. Finally, due to falling commodity prices, commodity cost recovery in the second quarter was $16 million lower than last year. The profit benefit of the lower commodity prices was offset by the timing of cost mechanisms within the commodity recovery agreements with our customers, resulting in a profit being lower by $17 million, a 60 basis point decrement to margin. Next, I'll turn to slide eleven for the details of our first quarter free cash flow. Free cash flow was $104 million in the second quarter, which was $30 million lower than last year's second quarter. Lower net interest due to timing of interest payments mostly offset higher taxes driven by payment timing and regional mix. Working capital requirements were $38 million higher than last year, primarily due to the timing of various payments. Finally, capital spending to support new business backlog was $11 million lower than last year, driven by a more normalized launch cadence this year and the timing of investment for future EV programs. Please turn with me now to slide twelve for our upgraded guidance for 2024. We continue to expect all of our financial guidance measures to be improved compared to last year. However, there are a few updates to our outlook. First, we are trimming our sales outlook for this year due to the lower end of our previous range to about $7 billion or $10.7 billion at the midpoint of the updated range, primarily due to slower growth in demand for electric vehicles. Second, we are maintaining our profit guidance of $925 million at the midpoint of the range. This is about $80 million higher than last year. Our implied profit margin has increased by 10 basis points at the midpoint of the 8.3% to 8.8% range. This revised margin is a 60 basis points improvement over last year. Third, we are again this quarter increasing our guidance for full year free cash flow by $25 million to $100 million for the full year, or $125 million higher than last year. Our GAAP earnings per share guidance remains unchanged at $0.60 per share and finally, we are reinstating our guidance for diluted adjusted EPS to provide a comparable measure to prior periods, primarily due to the strategic actions this year. We expect diluted adjusted EPS to be in the range of $0.80 to $1.30 or $1.05 at the midpoint. Note that with this measure we are adjusting only one-time items and amortization of intangible assets in line with our adjusted EBITDA measure. Please turn with me now to slide 13 where I will highlight the drivers of the full year expected sales and profit changes compared to last year. Beginning with organic growth for 2024, we now expect about $230 million in additional sales from traditional products through new business, moderate market growth and market share gains. This is slightly lower than our previous outlook due to continued weakness in our heavy vehicle markets. Adjusted EBITDA increase on traditional organic sales expected to be approximately $145 million. The higher profit and margin increase of about 120 basis points is a continuation of the company wide efficiencies and cost savings actions. As I mentioned, we are lowering our incremental sales expectation for EV products this year due to the industry wide slowdown in demand, we now expect about $65 million in incremental EV sales. The EV business continues to contribute positive profit and we have reduced our engineering and other expenses and are maintaining our expected EV adjusted EBITDA to be about $20 million headwind. The divestiture is expected to close in the second half of this year and were lower sales by $40 million with no profit impact. Foreign currency translation on sales is expected to be slightly more modest headwind of approximately $45 million with a profit impact of $5 million. Finally, our commodity outlook is expected to be a headwind to sales of about $65 million due to lower recoveries driven by falling steel and other commodity prices. We expect a $40 million profit headwind due to the true up of pricing governed by our two-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 free cash flow to now be about $100 million at the midpoint of the guidance range. This is a $25 million improvement over a prior outlook given driven by lower capital spending. We expect about $80 million of higher free cash flow from increased profits on higher sales. Net interest will be about $35 million higher due to higher interest rates and payment timing due to the refinancing that occurred in 2023. Working capital is expected to be a use of about $50 million or $35 million better than last year. And capital spending to support our sales growth and technology is expected to be about $425 million this year, which is $75 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 your questions.

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

Oh, great. Thanks for taking my questions. When I look at the lower sales guidance, it's $200 million at the midpoint. Almost all of it $175 million I think is from EV's. One, what are you seeing on EV's? But two, the recent S&P forecasts had some pretty big cuts in the second half of the year to some of your larger customers, was that already baked into your outlook? Why? Kind of expected a little bit of a hit from some of those reductions. Why hasn't that impacted you?

Hey Colin, this is Tim. Yeah, so we had already been expecting some of that slowdown in the back half of the year and had already built that in to our original forecast. So that's already in there and then there is some mix change in there as well.

And on the EV side, I mean, is this program getting pushed into next year? I mean, any color there?

Yeah. So I think we're seeing lower volumes across much of it. Obviously, a lot of it coming out of the CV space a little bit elsewhere. But we do think that some of that will start to return. But in the EV space, it's not really program specific as much as it is customer specific. So, as we see that the customers start to rebalance, to demand, I think we'll see some of that flatten out.

Got it. If I look at the implied first half to second half, based on the midpoint of your new guidance, it implies higher margins on, it looks like lower sales first half to second half. What kind of gets the margins that usually work that way? What gets margins higher in the second half, even if sales aren't up?

Yeah. So, if you just look at the high, we're down about $250 million, half to half, and only losing about $10 million of that in EBITDA. That would normally convert, if you just think about it, at something around 50, that 40 difference, 20 of it is really around the EV. So, you'll see that if you look at the difference in EV. So, we are flexing a lot of those costs from first half to second half on the EV, the balance is really additional improvement on the cost structure and the efficiencies across the company. So, and if you think about, you know, think about our last year's second half, we showed, you know, our ability to really drive efficiencies when we lost those sales and had, you know, something around $50 million in the back half of last year that were really efficiency improvements. So, we feel good about being able to deliver. I'll continue to be able to deliver our commitment on the $925 million, even despite the lower sales.

Got it. Thanks for the call.

Our next question comes from the line of Tom Narayan with RBC. Please go ahead.

Hi. Yeah, thanks for taking the questions. You know, one last week, there were two, two OEMs, Stellantis and Ford, with pretty elevated dealer inventory levels. One of them, Stellantis, actually called out explicitly how they're going to cut, like, 100,000 units of production, I think, in H2 alone. I know you just mentioned that you had already been incorporating a lot of this in your guidance, but it seems like a moving target. Just as early, as recently as last week, I was just curious like, it seems like OEM customers, I know both of them are customers of yours, are using production cuts as a way to deal with this inventory situation, to what extent are you concerned about this? Not just in H2 '24, but perhaps even prospectively into 2025.

Yeah. So I'm not going to give any color on '25 as it's still quite a ways away, when we look at the back half of the year, we had some of this in there as I mentioned before, we also have mix, obviously between segments and even between programs. And then obviously we're very light truck focused and usually, and obviously very program focused on the vehicle side. So, we think where we have the forecast now is in line with what we're hearing from the customers. But obviously, as they continue to adjust, we'll make those changes as needed.

Okay. And then if I just squeeze in one, your prepared comments that you mentioned share gains in commercial vehicle offsetting market declines. Just curious as to maybe where this is happening, the share gains in particular? Thanks.

Good morning. Thanks for the question. Thanks for attending. This is Jim. There's no long-winded answer to it. It's across the world. It's global. We're just continuing to execute cost, quality, delivery, you name it. And fortunately, we're appreciated that our customers are recognizing and supporting us.

Okay, thank you.

Our next question comes from the line at Dan Levy with Barclays. Please go ahead.

Hi. Good morning. Thanks for taking the questions. I want to start with a question on light vehicle. I think this is like the best margin that you put up in something like the last three years. And obviously we see a pretty good EBITDA on, on sort of modest revenue increase. So maybe you can just give us a sense of the underlying dynamics in the LVD margins. How much of this is just inflation unwind, and then maybe you can give us a flavor for just what the trajectory is? This was once an 11% 12% percent EBITDA margin business, I recognize. Maybe it doesn't go back up to that level, given some of the inflation dynamics, but maybe you can give us a sense of sort of where this business is going forward, because it still seems like even with these production adjustments, the core volumes on these platforms is still quite robust super duty, just added capacity. So maybe you can give us a sense of the trajectory there, please?

Yeah. So obviously we're pleased with where we're at in terms of the trajectory to move the light vehicle margins back to where they really need to be. I think obviously the customer running better helps with efficiency, but also, you know, the drive within the organization, on across the board efficiency. So, whether it be direct material cost, conversion costs within the plants or really just the general cost structure from a fixed perspective in the business is really getting reflected, but that those plants continue to run better and better, you know, day in and day out, and we see that continuing. You mentioned inflation. Inflation is still with us, albeit it slowed down, so we left less to have to offset or try to go get from the customer. So that's certainly a benefit versus what we had over the last few years. On your last question. Yeah. We need to get these margins and are working to get these margins back closer to where they are. Will they be back there? We'll have to continue to push. But certainly, our view is this business can be and will be a double-digit profit generator and be able to return, have the acceptable returns for the capital we've invested.

Just on the inflation, is there, can you contextualize how much, maybe low hanging fruit is there that can still come out of the system, or how much of the sort of production inefficiencies which drag the margins in the past, how much more improvement you could see on that front?

Yeah, no, I think there's, I don't want to get into specifics of how we run the plants, but certainly we think there's additional amounts in both of those to be able to go get. And look, the idea of taking costs out of the plants, that's part of the DNA. And we're really just flexing that muscle that we have now that we've got better production schedule. And that's what you're seeing flow through.

Great. Thank you. As a follow up, Jim, I'm wondering if you could just give us an update on the EV strategy. And I know this is a question that's come up on past calls, but this is such a fluid environment, and we're seeing automakers continuing to change plans, modify launch schedules, obviously on the light vehicle side, but even on the commercial side as well, it seems like there's some shifts there. So maybe you can just give us a sense of how, if at all, the strategy on EV is being modified or is it still continuing to stay the path, continuing to maintain the investment?

Dan, thanks for the question. That's a lot to unpack, but I'll do my best. I think we're all challenged with it, right, in terms of figuring that out, not the strategy so much about what's going on, but I guess to get some momentum around the answer would be, everyone is, I would say, pushing out and reducing down in some form or fashion on EV for all the reasons we know, infrastructure to whatever it might be. As it relates to us the best thing I could do for you is to paint a visual. We've created a very unique strategy at Dana. From the very beginning. We've been very rigid with it. And that is you take the example of the Bollinger wind that we announced today, and you look at the components that are in there. You have a rigid eBeam Axle, you have a motor, you have an inverter, you have the software, you have the controls within that. You have the thermal management that supports it from our power technologies business, so on and so forth. That all of that, at a minimum, on a human capital level, fungible at a maximum. Many times, the capital assets themselves in the plants is fungible across business units, etcetera, etcetera. And so, for us, our strategy doesn't need to change because that product, those products, I should say, can go up and down the river, I like to call it in the off-highway, commercial vehicle, the light vehicle at different diameters, at different torque, at different things. So, we don't have to change our strategy because one market, or whatever the case may be, may have more delay, more pullback, whatever it might be. So, we're positioned. If it was different, if this pull back and change what happened four years ago, three years ago, I mean, you'd have to think about an abrupt change. But there's, I can't see a world, personally speaking, I can't see a world that customers that start with light vehicles, take an example that their people are going to, consumers are going to go into dealerships and not expect to have the optionality around buying an EV, a hybrid or an internal combustion engine for any time in the near future. The same thing goes for commercial vehicle. If you think about the most important, probably the most important end market relative to total cost of ownership, if you're an OEM, I'm not here to speak on behalf of them. They speak to me. I'm kind of relaying it. You don't give people the optionality and a total cost of ownership depending on the vehicle choice, things, good things happen or bad things happen to good people. So, you're always going to have those type of scenarios. We're just using our capital, both human and equipment capital, to support all of our customers. We'll get a good return on it. Capital is blind. It doesn't matter if it's EV capital, if it's ICE capital or hybrid. You just deploy the capital, you make a return on investment, your company grows, you continue to, you continue to expand margin. I hope that's not too much of an answer, but that's how we're thinking about it.

Great. Thank you.

Our next question comes from the line of Joe Spak with UBS. Please go ahead.

Thanks. Good morning, everyone. I want to get back to the guidance and maybe think about it a little bit differently. If we look at the sales level on traditional organic, you did bring that down a little bit for the year. And I know you spoke to some tougher end markets, but if you look, it still assumes over $135 million of positive in the second half, which is 60% of that total gain you're looking for. And we know some of those end markets are tougher and some of the key platforms look to be maybe down half, over half. So, can you just help us understand what's really driving that and maybe even some indication by segment if possible?

Yeah, I think. Don't forget our second half last year, especially in light vehicle, was significantly impacted by the UAW strike. So, we're going to get that volume back, you know, and we can talk about sort of where the customers are on production plans, but, you know, our largest programs were all impacted significantly by that strike. And that's back. We also had some launches last year that in the back half that that should be at better run rates. So those are obviously all helping. We also have, you know, parts of the business that, that are outside of North America from a mix perspective that continue to support the ICE sales growth. And then of course we've got some headwinds starting to peek through on the off-highway side, but that's generally why we still are able to see that growth from a nice perspective in the back half of the year.

Okay. And then I guess similarly, just on the, on the margin side or the cost side, I guess the 73% conversion on traditional growth in the first half, the guidance does imply that steps down to something in the mid-fifties in the back half, but obviously still really strong. But I'm just wondering, and I know you talked about prudent investments, capital efficiency, but is there more that can be done, do you think, within the organization, as we think beyond the back half, how should we, do we return to more normal contribution margins? I guess, beyond some of the comps that are impacting the figures this year?

Hey, Joe, good morning. This is Jim. Let me dive into that one a little bit, try to get through a question. Can more be done? Absolutely more can be done. Manufacturing, if you're worth your salt, is all about sustain and improve, sustain and improve, build processes and systems that give you a platform to build off of. And that's what we've been doing here. We've taken kind of the long view to build just an incredible company. So, first of all, on what's, kind of what's within your controls, we fully expect to continue to improve on all of the drivers that we refer to as across company efficiencies. In addition, to remind you in the overall profitability of the business too, this the business, you know it as well as I do relative to fixed contracts and especially light vehicle. But all, all suppliers got hit with fixed contracts that you have to deal with, et cetera, et cetera. As those continue to build out, we are still in many, many cases supplier of choice and we're going to continue to reap the benefit of getting new roll-on programs. In terms of the trajectory. That's the way you think? That's the way I think about it. It's just sustain and improve both on new growth, profitable growth, utilize the existing capital you have. We don't have to go build out a platform electrification capital like we would have had to over the years. Not to say there's not some, but it's more of an ambient capital level like the companies ran for decades. And we just continue to gain margin off of that moving forward and more importantly, cash flow.

Okay, maybe one quick one just can, can you confirm that you'd be able to support super duty production in Ontario?

We will always support production for our customers, for sure. And the answer is yes.

Okay, thank you.

Our next question comes from the line of James Picariello with BNP Paribas. Please go ahead.

Hey guys, this is Jake on for James. First, I was hoping you give us an update on the Hydro Quebec TM foreput. Just some color on the timing and impact and what the cash payment to Hydro Quebec could be? Thank you.

Sure. This is Tim. How you doing, Jake? Sure. I mean, obviously we're in the process today. The contract, the shareholders agreement has a specific process that we're working through. In terms of timing, I think certainly it'll continue to take some time. We'll update as we know more, but certainly it's going to be late this year or early next. In terms of our view, we've had the disclosure out there for some time. In terms of what we believe our view of the value the put is, and that's currently in there, it's somewhere in the neighborhood of 200, which is what we currently have it on the books for. And we haven't changed that view since we started down this process, although we are early in the process with Hydro Quebec.

Great thanks, Tim. And then could you guys just give us an outlook on the off-highway market? Ag especially appears to be materially turning over to the negative. So what's your assumption there? Thank you.

Yeah. So, correct. We still see Ag being down, obviously farm incomes down. You can see you've heard the, the news coming out of John Deere, which is one of our larger customers, especially in Ag. So, yeah, we continue to monitor that. Obviously, we don't play in every Ag market, so they're all reacting a bit differently. But our current view, which is a down Ag market, is built into the rest of your forecast.

Thank you.

Okay, just some concluding comments. This is Jim, again. First of all, as I always like to do, thank you very much for your time and attendance today and privilege of your time. Not a lot to conclude, I thought the questions kind of surrounded it well today, but I would just say personalizing it a little bit. This is my over 35 years in the business, almost 18 as a CEO. One thing that has never changed that is there's no to win, there are no shortcut shortcuts for mobility suppliers. You have to execute on cost, quality, delivery, technology and innovation, operational excellence and customer satisfaction never changes, right? No one would have imagined the destruction that would have occurred, that occurred coming out of the COVID years and hyperinflation. And it's just a clock. You can't speed up in terms of getting the company back to where it was. As you can see, obviously through a 73% conversion on incremental sales, or the methodical incremental sales on various platforms, across end markets, across, across propulsion systems, companies running at extremely high level and continuing to prove every day. In the long haul, the markets will definitely support the small caps. They're going to, the money's going to come back our direction because we're just going to continue from that for the rest of supply base. Thanks again for your time and attention. Talk to you later.