Good morning, and welcome to Dana Incorporated's Third Quarter Financial Webcast and Conference Call. My name is Lisa, and I will be your conference facilitator. Please be advised that your meeting today, both the speakers’ remarks and Q&A session will be recorded for replay purposes. [Operator Instructions] There will be a question-and-answer period after the speakers’ remarks and we will take questions from the telephone only. To ensure that everyone has an opportunity to participate in today's Q&A, we ask that the callers limit themselves to one question at a time. If you would like to ask an additional question, please return to the queue. At this time, I would like to begin the presentation by turning the call over to Dana’s Senior Director of Investor Relations and Strategic Planning, Craig Barber. Please go ahead Mr. Barber.

Thank you, Lisa, and good morning everyone. Thank you for joining us today for our third quarter 2022 earnings call. You will find this morning's press release and presentation are now 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 written 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 found in 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. It's my pleasure to turn the call over to Jim.

Good morning and thank you for joining us today. Moving to Slide 4 and our update for the third quarter, Dana had another quarter of strong sales totaling $2.5 billion, a $330 million increase over last year driven by continued robust customer demand in all of our end markets. While our strong customer requirements, Dana's new business backlog and cost recovers – recoveries fueled sales growth in the third quarter, Our input costs continue to increase due to the global inflation. Additionally, volatile customer demand schedule fluctuations continue to create a challenging environment across the entire mobility industry, pressuring profit margins. Where possible, we're taking actions across the company to mitigate the impact on our profitability, positioning us for strong rebound once the environment stabilizes. Moving to the left, lower left side of the page, adjusted EBITDA for the quarter was $192 million, down slightly from last year, but up $30 million sequentially. For this quarter, we again generate a strong free cash flow of $77 million, an increase of $247 million over the prior period driven by lower working capital requirements as we manage through the choppy demand environment. Lastly for our results adjusted earnings per share for the quarter were $0.24. Moving to the right side of the page, some of the key areas we will discuss today include an update on critical market drivers for our business. Next, we will share exciting information relative to Dana receiving our eighth Automotive News PACE Award this year. We are recognized for the complete integration of e-propulsion, e-power systems in electric vehicles, which is proven to be a critical and foundational capability in helping to drive further EV penetration across all of our end markets. Lastly, we are announcing that we have been sourced for the next generation of the…

Thank you, Jim. Please turn to Slide 10 for our third quarter results compared to last year. Sales were $2.54 billion that’s – that is $331 million higher than last year’s third quarter, driven by strong demand across all of our end markets and recovery of commodity and inflationary costs, partially offset by currency impacts. Adjusted EBITDA was $192 million, $18 million lower than the same period last year. Margin was 7.6% in the quarter, 190 basis points lower than last year. Margin compression was due to the benefit of higher sales being more than offset by inflationary costs, including labor, energy, transportation, and raw materials, as well as operational inefficiencies resulting from continued volatile demand patterns. Net income attributable to Dana was a loss of $88 million in this year’s third quarter compared to income of $48 million last year. The loss was entirely driven by a non-cash goodwill impairment charge in our Commercial Vehicle segment triggered by higher discount rates and the impact of sustained cost pressures from commodities, inflation, operating inefficiencies driven by industry supply disruptions. We generated $77 million in free cash flow in the third period – third quarter, compared with the use of $170 million in the third quarter of last year. The higher free cash flow was driven by improved working capital management. Please turn with me now to Slide 11 for a closer look at the drivers of the sales and profit change for the third quarter. The first driver is traditional organic sales growth of $263 million driven by higher demand in each of our segments and inflationary cost recoveries. Adjusted EBITDA on the increased organic sales was a loss of $19 million, a margin headwind on the 180 basis points. This loss was driven primarily by net cost inflation of…

Thank you. [Operator Instructions] We’ll take our first question from Noah Kaye with Oppenheimer.

Good morning. Thanks for taking the questions. Nice to see a little bit of incremental benefit from pricing. I guess if you just look at the impacts of pricing actions that, that you’ve been able to get year-to-date just, how much of an impact to growth would price be as we think about 2023? Because there’s clearly some tailwind into next year from that.

Yes, thanks, Noah, this is Tim. So certainly going to be some growth into next year. As we anticipate some of the inflationary costs that we’ve seen this year. Won’t retract, think of labor. I think the other part that, that you have to think about in terms of pricing in the next year as some of our programs turnover and re-launch will be resetting economics within those programs, and those would be reflected in pricing as well.

All right, terrific. And then actually plays into my next question just around the timing of launches. Can you comment on timing any slippage in expected program dates and just your level of confidence in being able to stand up those launches smoothly at this point?

Hey, no, good morning. It’s Jim Kamsickas. Good question, and good question different than maybe other times in our perspective careers, because it is much more difficult to launch now than it historically would because of trying to get all the components for equipment and labor constraints that don’t allow equipment suppliers to get things done, whatever the case. But I can tell you at least from our line of site for our major launches, and I’m pretty sure you’re aware of them, such as we’re just coming up to launch curve right now and the new Range Rover Sport with Jaguar, we’re obviously in the early days of the Super Duty with Ford. We’re going to be headed into a cadence of the global Ranger around the world, which coming up right now is the South African portion of it, is challenging at times out there. Our customers are finding a way and we do not see any slippage at this point in time.

That’s excellent. One last one, we’ve got Bauma going on right now and it seems like virtually every OEM is coming out with a new battery electric or electrified product. So Jim, I don’t know if you’re there or if you’ve heard from your folks on the ground there. But what are you hearing about the rate of quoting activity and the adoption trends in off highway and can you comment a little bit on your positioning there?

Another really solid question, obviously, you understand all different markets have the different pull through, and I guess just to answer it for momentum for the broader audience is, Dana was – Dana took a strategy in 2016 to get in front of it because we knew there were going to be various pull through markets that were going to come first. And so when the bus market came, we were ready, then the last mile delivery came and we were ready. And then kind of the rest of the story, you all know the story, but the – we always knew given, considering the use case that the off highway markets would be more towards the end of that. But it’s really important when you think about the off highway. It’s such a consolidated phrase or word for a market, but it’s got eight markets, 10 markets on its own between construction, agriculture, underground mining, whatever it may be. So what we’re seeing is a very fast adoption of like the area work platforms and vehicles like you would see like in a Home Depot or a Lowe’s or something like that. And we feel very strong about that. You also see a much faster adoption. Some of you may have saw it in the Wall Street Journal if you – about a month ago, where you’re seeing a lot of the lawn mowing equipment is out there, because not only the emissions, but the noise factor of that. So we’re seeing quite a bit of success in that area. And by the way, proud of the team. Our team’s done a remarkable job because that wasn’t necessarily one of our core areas within our off highway group, but the team’s done a great job with the full proportion system there. So those are pulling through faster. We are in all sorts of dialogue with all of the customers from construction, underground mining is always participated and it’s just – it’s coming, it’s getting more aggressive in the electrification side. They’re all pulling. And I think what the punchline to the story is any curve that you’ve seen out there across electrification over the last five years is pulled forward. I would expect the same thing to happen in off highway.

That’s super helpful. And by the way, I think we’d all appreciate some quieter lawn mowing equipment in the community. So thanks and nice quarter.

Thank you.

Thanks.

We’ll take our next question from Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my question. Just to follow up on the decline in inflationary costs of the $20 million, you held guidance, so just broadly, what are sort of the buckets of offset that sort of offset that good news? Two I'm trying to do the math from what you've indicated before, it kind of implies not much of a headwind left for Q4, is that correct? And then just for those that overall 125 [ph], I mean, how should we think about that recovery into 2023? Do you expect to get all of this back eventually, or are some of it's just you're going to be stuck with?

Sure. Colin, this is Tim. On your first one regarding sort of the decline in the buckets. So gross cost, we don't see having declined much. It's really on the recovery side. The offset that that we're seeing there is still within the – from an operating and also from a volume and mix perspective as we move into the fourth quarter as well as a little bit more headwind on the decapitalization within the inventory. So it's a mix of all of that that's offsetting that that $20 million pickup on the net inflationary costs. And then on your question regarding inflation into next year. So obviously as inflation continues into next year, we'll continue to work and there should be recoveries in 2023 related to those inflationary costs. So I think most of the customers we're not – we're not seeing it built in necessarily to base peace price. It depends on the end market but obviously from a commercial recovery perspective, we'll continue to go after those and recover them. We do think that the gross inflation will probably be smaller next year than it is – than it was this year. And I'm sorry, what was your last one – your last question?

The Q4 impact is there much left because I thought the 125 [ph], I feel like we've almost seen 120 [ph]so far. I'm not...

Yes. If you did the math, there's about $30 million to $35 million of headwind in the fourth quarter on a quarter-over-quarter basis from inflation.

Okay. Okay. And just lastly, I don't know years ago you were looking at GHN they announced the spin of their auto division. I guess just sort of makes you want to ask, I mean, do you – is that an asset that you would still be interested in and or is it that you sort of find the technology and scale that you need outside of that at this point? Any sort of color or thoughts there?

Yes, I'll take that one to, just real quick. We, I would say you're going to expect the next comment, we're not going to, we would never comment in any potential acquisition or merger or anything like that, ever period. So there's the public service announcement of the day, right? But separately – says we, one thing I take great pride and what this team has done over the years. There was a latency of almost two decades before Dana had done an acquisition prior to 2017 or something to that effect. And we built the team out to make sure that we were very open to considerations and looking at opportunities. And obviously we went on a fast horse and acquired the 12 electrification assets post the considerations, which you can't. So the long and short to that is that, we pivoted and we pivoted hard into making sure that we accumulated the skill sets and portfolio across the electrification, electrodynamics spectrum. Putting all those together, the team integrating those is to one, you can't tell the difference inside of Dana anymore for propshaft supplier, transmission supplier, axle supplier or motor and inverter and to full system supplier. So we've filled out the portfolio the way we needed to. That was a big part of what we were considering there. Would that be helpful in terms of being ready for electrification? I don't think there's anybody on the planet that would say, Dana is not ready for electrification based on what we're doing now. So we went about it a different way. So like I said, everybody's always open to everything, but and we have the capability to do anything, but we are very proud of the portfolio we put together in this capabilities that we put together by doing up the roll up of all of the other assets since then.

Got it. All right. Thanks for taking my questions.

Okay. With that, I'm actually going to jump in and just do a brief close and that and not a lot today other than to say that, the team really did an excellent job in the corner. It's rocky roads out there for sure. There's, two's appraise. We all know it's like playing Whac-a-Mole when you talk about container shortages and energy increases and customer sporadic builds and all the other things associated with it. But if you're cohesive and you're running your company as a system, you're going to be able to navigate through it and you're going to be able to position yourself to be very strong for the future. And that exactly what this team has done and continues to do. And the other thing is just to reiterate that, as much as all of the success we're having in electrification is going to come from certainly having the product portfolio and the capabilities, at the end of the day, no customer is going to source you for that alone. They're going to only source you if you're creating value across the board, across the board in operational excellence, which of course is quality delivery and other, and sourcing you for having a global footprint, sourcing you for having a trustworthy relationship. Trust source you for multiple things. So on behalf of the entire team, we continue to do a good job of balancing by winning foundational internal combustion engine wins as you witness today with the Jeep Wrangler, but also plenty of great opportunity that we continue to execute on the electrification side. So, thank you for your time and attendance today. We'll look forward to providing you an update I think in early February. Thank you everybody.

And that concludes today's presentation. Thank you for your participation. You may now disconnect.