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…

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…

[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...

Ladies and gentlemen, that does conclude today's call. Thank you all for joining. You may now disconnect.