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…

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…

[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…

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.

Thank you all for joining today's call. You may now disconnect.