Dana Q4 2024 Earnings Report

Dana EPS Results

• Actual EPS: $0.25
• Consensus EPS: $0.10
• Beat/Miss: Beat by +$0.15
• One Year Ago EPS: N/A

Dana Revenue Results

• Actual Revenue: $2.34 billion
• Expected Revenue: $2.33 billion
• Beat/Miss: Beat by +$283.00 thousand
• YoY Revenue Growth: N/A

Dana Announcement Details

• Quarter: Q4 2024
• Date: 2/20/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 9:00AM ET

Dana (NYSE:DAN), together with its subsidiaries, provides power-conveyance and energy-management solutions for vehicles and machinery in North America, Europe, South America, and the Asia Pacific. The company operates through four segments: Light Vehicle Drive Systems, Commercial Vehicle Drive and Motion Systems, Off-Highway Drive and Motion Systems, and Power Technologies. It offers drive systems, including axles, driveshafts, transmission, and wheel and track drives; motion systems, such as winches, slew drives, and hub drives; and electrodynamic technologies comprised of motors, inverters, software and control systems, battery-management systems, and fuel cell plates. The company also provides sealing solutions, such as gaskets, seals, cam covers, and oil pan modules; thermal-management technologies, including transmission and engine oil cooling, battery and electronics cooling, charge air cooling, and thermal-acoustical protective shielding; and digital solutions that include active and passive system controls, as well as descriptive and predictive analytics. It serves vehicle manufacturers in the global light vehicle, medium/heavy vehicle, and off-highway markets, as well as the stationary industrial market. The company was formerly known as Dana Holding Corporation and changed its name to Dana Incorporated in August 2016. Dana Incorporated was founded in 1904 and is headquartered in Maumee, Ohio.

Dana Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to Dana Incorporated's Fourth Quarter and Full Year twenty twenty four 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 and A session, will be recorded for replay purposes. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as a guest. There will be a question and answer period after the speakers' remarks, and we will take questions from the telephone only.

[Operator]

At this time, I would like to begin the presentation by turning the call over to Dana's Senior Director of Investor Relations, Strategic Planning and Corporate Communications, Craig Barber. Please go ahead, Mr. Barber.

[Craig Barber, Senior Director - Investor Relations & Corporate Communications at Dana]

Good morning, everyone, and thanks for joining us today for Dana Incorporated twenty twenty four Q4 and full year earnings call. Today's presentation includes forward looking statements about our expectations for Dana's future performance. Actual results could differ from what we've discussed today. For more details about the factors that could affect our future results, please refer to our Safe Harbor statement found in our public filings and our reports with the SEC. You'll find this morning's press release and presentation on our investor website.

[Craig Barber, Senior Director - Investor Relations & Corporate Communications at Dana]

And as a reminder, today's call is being recorded and the supporting materials of the property of Dain Incorporated. They may not be recorded, copied or rebroadcast without a written consent. The call this morning is Bruce McDonald, Dana Chairman and Chief Executive Officer and Timothy Krause, Senior Vice President and Chief Financial Officer. Now I'd like to turn the call over to Bruce to get us started.

[Bruce McDonald, Chairman & CEO at Dana]

Thank you, Craig, and good morning, everybody. Probably a little bit less than normal for me on this call given we just spoke with the street here a month ago. But just on Slide four, just a high level perspective on our financials. For the full year, sales down about nearly $300,000,000 really reflecting softness, I would say, in a few key areas. One would be EV and some of our sales to the programs that we are currently in production on.

[Bruce McDonald, Chairman & CEO at Dana]

And then as the year progressed, we saw increasingly weak markets in off highway. In terms of our profitability, we benefited from strong operating performance with our sales with our sort of EBIT up EBITDA EEA up 40,000,000 on lower volumes and driving our operating margins up by 60 basis points. Again, just a little bit of color there, strong operation performance. We're starting to see the early benefits of some of our footprinting actions and plant consolidation. And really good to see here in the fourth quarter as we previously talked about, the benefits of our cost reduction our $300,000,000 cost reduction program flowing through in the quarter, $10,000,000 in Q4 here.

[Bruce McDonald, Chairman & CEO at Dana]

And as I mentioned last month, about $100,000,000 of the $300,000,000 is actioned and you could think about in the bag. And lastly, in terms of free cash flow, big improvement getting from a slightly negative position in 2023 to $70,000,000 in 2024. We're pleased with the improvement, but it's nowhere near where it needs to be. And the guidance that we're going to share with you later on. We have free cash flow more than tripling in 2025.

[Bruce McDonald, Chairman & CEO at Dana]

Turning to Slide five. Again, this is sort of a lift from the deck a month ago. Focusing on Tim and I and the team were very heavily focused on completing the off highway divestiture. I really don't have any new information to report versus a month ago. It's a robust process with strong interest, and we continue to believe that we can execute the legal agreements and announce a transaction somewhere early Q2 with a closing by the end of our fiscal twenty twenty five.

[Bruce McDonald, Chairman & CEO at Dana]

In terms of EV and our approach to the marketplace, that's been fully implemented and communicated. That's been critical for us. I think it derisks some of the capital that we've committed in the future. And the fact that we're taking a much more measured approach is really reduces our the CapEx intensity of our business on a go forward basis. A little bit more information here in terms of Power Technologies consolidation.

[Bruce McDonald, Chairman & CEO at Dana]

We're well underway in terms of completing that initiative. It's been kind of fully rolled out. But that savings is worth somewhere in the $15,000,000 to $20,000,000 level. That's kind of the run rate we hope to get from that initiative. And under Byron Foster's leadership, I feel good about that.

[Bruce McDonald, Chairman & CEO at Dana]

In terms of financial commitments, we're fully committed to getting new Dana margins up to the 8.1 to 8.6 here in 2025 and pushing towards double digit in 2026, really benefiting from strong continued operational performance and, and of course, the benefits of the $300,000,000 cost reduction that will be fully in our base in 2026. In terms of use of proceeds, again, committed to a strong balance sheet. The discussions that we're having with our board would suggest we're targeting a net leverage of about one times through the cycle. That does not mean we'll be at one times when we on day one. We'll probably be lower than that, but we want to have a conservative balance sheet so that we're strong throughout the cycle.

[Bruce McDonald, Chairman & CEO at Dana]

Lastly for me on Page six, just a few comments on our markets and our backlog for this year. I guess I'd categorize our outlook in terms of light vehicle, it's flattish year over year. That seems to be generally consistent with what other suppliers and OEs are talking about right now. And that's sort of been reflected in the releases that we've seen so far. In terms of commercial vehicle, a little bit of softness in the market.

[Bruce McDonald, Chairman & CEO at Dana]

We do anticipate to see, off sorry, commercial vehicle stabilize here towards the end of this year and look forward to starting to see the beneficial impacts of pre buys associated with the 2026 emissions legislation changes. In terms of Off Highway, similar type weakness in the market. I guess I would say, I haven't seen our numbers for January and early view on February. It's actually the market's actually doing a little bit better than we had talked about a month ago. So I'm not going to call it a turnaround yet, but it seems to be holding up a little bit better than we had feared.

[Bruce McDonald, Chairman & CEO at Dana]

Tim is going to get into our quarterly phasing later on, but one thing I would point out is we are going to have difficult comps here in Q1 and to a lesser extent in Q2. In light vehicle, obviously, last year, we benefited from volume pickup associated with the strikes in North America. And then we've got tough year over year comps in both off highway and CV. In terms of our backlog, six fifty million dollars you can see how that flows by year. Obviously, it's a little it's down about $300,000,000 from our backlog the year before.

[Bruce McDonald, Chairman & CEO at Dana]

That really reflects, I would say, largely lower volumes on the EV programs that we have in our backlog. But nonetheless, we've got strong growth in each of the next three years. And I guess I'd just remind folks that 80% type plus of our backlog tends to be in new Dana as opposed to off highway. So with that, Tim, I'll turn it over to you to sort of deep dive the financials.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Thanks, Bruce, and good morning to everyone. Please turn to Slide eight for a review of our fourth quarter and full year results for 2024. Beginning on the left column with fourth quarter sales were $2340000000.00.159000000 dollars below last year due to lower vehicle production and currency impacts. For the full year, sales were $10,280,000,000 down $271,000,000 driven again by end market weakness. Adjusted EBITDA was $186,000,000 in the fourth quarter for a profit margin of 8%.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

That is 170 basis point improvement over last year's fourth quarter. Full year adjusted EBITDA was $885,000,000 40 million dollars higher than the previous year for a profit margin of 8.6%, sixty basis points better than last year. The profit improvement is primarily due to cost saving actions and better efficiencies throughout the organization. Net loss attributable to Dana was $80,000,000 for the fourth quarter, dollars '40 '1 million lower than last year, primarily driven by $31,000,000 higher restructuring charges this year to implement our long term cost savings plan and divestiture expenses. Full year net loss was $57,000,000 compared to net income of $38,000,000 last year.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

The primary difference of $51,000,000 in higher restructuring charges and the $26,000,000 loss recorded for the planned divestiture of our non core hydraulics business that was announced earlier this year. The transaction did not occur in the third quarter as expected and was no longer classified as held for sale. However, this loss was recognized to adjust the carrying value of the net assets to fair value remains due to account adjusted EPS for the quarter was $0.25 per share compared to a loss of $0.08 last year. For the full year, adjusted EPS was $0.94 per share, $0.1 better than the prior year. And finally, free cash flow was $149,000,000 for the quarter, $70,000,000 for the full year, a $13,000,000 improvement for the quarter and $95,000,000 improvement for the year.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Please turn with me now to Slide nine for the drivers of the sales and profit change for the fourth quarter of twenty twenty four. Beginning on the left, organic sales were $135,000,000 lower, driven by lower OEM production of heavy vehicles. Adjusted EBITDA on organic sales was $33,000,000 higher. This strong incremental margin was due to improved cost efficiencies across the entire company and generated 175 basis points improvement in margin. As we detailed in our business update call in January, we are showing the impact of our cost saving programs in our profit walks.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

For the fourth quarter of twenty twenty four, cost savings added $10,000,000 in profit through the various actions we took since we began the program in the fourth quarter. Foreign currency translation decreased sales by 15,000,000 primarily driven by lower value of the euro and real compared to the U. S. Dollar. Profit was lower by $1,000,000 with no impact to margin.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Finally, due to falling commodity prices, commodity cost recovery in the fourth quarter was $8,000,000 lower than last year. The profit benefit of the lower commodity prices was offset by the timing cost mechanisms within the commodity recovery agreements with our customers, resulting in profit being lower by $12,000,000 a 45 basis points decrement to margin. Next, I will turn to Slide 10 for the drivers of the sales and profit change for the full year 2024. For the full year, organic sales were $164,000,000 lower driven by lower end market demand in the second half of the year. Adjusted EBITDA on organic sales was $76,000,000 higher.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

This strong incremental margin again was due to improved cost efficiencies across the organization resulting in 90 basis points improvement in margin. The cost saving program which began in the fourth quarter added the same $10,000,000 to adjusted EBITDA as was shown in the previous page for fourth quarter. Foreign currency translation lowered sales by $49,000,000 and profit by $6,000,000 with no impact to margin. Just as the fourth quarter just as in the fourth quarter, the benefit of the lower commodity prices was offset by timing cost mechanisms with our customer agreements. Commodity cost recovery was $53,000,000 lower than last year and profit was lowered by $40,000,000 a 40 basis point impact to margin.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Please turn with you now to Slide 11 for the details of the full year free cash flow. Free cash flow for 2024 totaled $70,000,000 90 5 million dollars higher than last year. Higher adjusted EBITDA was partially offset by higher one time costs related to cost saving actions and the sale of the off highway business as well as higher net interest due to the timing of interest payments and higher taxes driven by payment timing and regional mix of income. Working capital use was $17,000,000 lower than last year. The use was due to the timing of payables and other working capital.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Finally, capital spending was $121,000,000 lower driven by a normalized launch cadence and lower investment for EV programs. Please turn to Slide 12 for a review of our 2025 guidance. Our 2025 full year guidance remains unchanged from our business update call in January. As a reminder, our guidance includes the off highway business for the full year and does not include any impact from unidentified tariffs. We are expecting sales for this year of about $9,750,000,000 at the midpoint of our range.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

That is about $500,000,000 lower than last year, driven by lower end market demand and the delay in some EV programs as well as currency translation impacts. Adjusted EBITDA is expected to be $975,000,000 at the midpoint of the tighter ranges. This is approximately $90,000,000 higher than 2024 and apply the profit margin of 10%, a 140 basis points increase over 2024. Full year free cash flow is expected to be $225,000,000 at midpoint of the range for the year. This is approximately $155,000,000 higher than last year.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Our adjusted EPS guidance is expected to be $165 per share at the midpoint of the range. Please turn with you now to Slide 13, where I will highlight the drivers of the full year expected sales and profit changes compared to 2024. We are expecting about $285,000,000 of lower organic sales for 2025, driven by lower demand in all end markets, partially offset by new business. Adjusted EBITDA change on organic sales growth is expected to be approximately $40,000,000 for a decremental margin of just 14%. This is due to the continued manufacturing and purchasing efficiency improvements in the organization.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Cost saving actions are expected to total $175,000,000 this year, increasing margin by 180 basis points. Foreign currency translation on sales is expected to be a headwind of approximately $195,000,000 with a profit impact of about $25,000,000 Finally, our commodity outlook is expected to be a headwind to sales of about $30,000,000 due to lower recoveries driven by falling steel and other commodity prices. We expect a $20,000,000 profit headwind due to the true up in pricing governed by our two way commodity recovery mechanisms with our customers. Please turn with me now to Slide 14 for our outlook on free cash flow for 2025. We anticipate full year 2025 free cash flow to be about $225,000,000 at the midpoint of the guidance range.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

We expect about $90,000,000 of higher free cash flow from increased adjusted EBITDA. One time costs will be about $20,000,000 higher as we invest in our cost savings program and work to finalize the off highway divestiture. Working capital requirements will be about $40,000,000 lower and capital spending is expected to be about $325,000,000 this year, which is $55,000,000 lower than last year. Lastly, please turn with me to Slide 15 for an outlook of our quarterly phasing. Page 15 shows our sales by quarter for 2024 and our expected sales for 2025.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

There are a few market drivers in 2024 that disrupted our normal quarterly cadence beginning in the first quarter where light vehicle production increased dramatically coming off the twenty twenty three UAW strike in North America. This year, we are seeing a slowdown in production as vehicle inventories remain high for a number of our programs. The back half of the year will see improved demand as we see inventories normalize and off highway markets return to growth. In the near term, the impact to Q1 will be about $500,000,000 in lower sales than last year due to lower end market demand. We will see between $35,000,000 and $40,000,000 in cost saving improvements in Q1 and are expecting about 8% adjusted EBITDA margins for the quarter.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Thank you for joining us this morning and I will now turn the call back over to Regina to start the Q and A session.

[Operator]

We'll take our first question from the line of Tom Narayan with RBC Capital Markets. Please go ahead.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Hi, thanks for taking the question. I'll try to keep it to one. I just have a quick follow-up, if that's okay. So the robust process and strong interest, and I know a lot of this is covered on the January 2025 call. It just it would appear that signing in Q2, that's only like two months away.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

So I guess is this timeline based on just a prediction of interest or is it something farther along specific interest from one or two bidders? And then I just have a quick follow-up.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes, Tom. So as we mentioned, we have a very robust process with a number of interested parties. I'm not going to get into the specific numbers, but we are well along in the process and we expect to be able to sign a transaction here in the early in the second quarter.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Okay. If it's okay to follow-up, so on the 2025 guidance, you have the market for light vehicle flat. We have heard from some other suppliers noting kind of a down mid single digits. Is this specific to your light vehicle OEM exposure or perhaps your graphics? And then on the backlog that you guys have, the $150,000,000 is that could you split that out on across the segments just so we can just understand how that works with off highway?

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Thanks.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. So on your first, the light vehicle our light vehicle view is really related to our programs, not to the overall market. You got to remember, one, we really only play in full frame truck. And even within full frame truck, we have a disproportionate number of amount of our sales in a number of key programs with Ford and Stellantis in particularly. And on the backlog question, the vast majority of the predominant of that is not off or is LV and PT.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

So it's still the majority of that is in the light vehicle driveline parts of the business.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Got it. Thanks. I'll turn it over.

[Operator]

Our next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Great. Thanks for taking my questions. Just a basic question here, but what is going on with the taxes and guidance? It seems like EPS is moving a lot more than the EBITDA guide. Is there a change in the valuation allowances that we should be thinking about?

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Why it seems like I assume that's the big driver why EPS is jumping a lot more?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. I mean, Colin, this is Tim. So yes, I mean, because we have the valuation allowance up in The U. S, you don't get a normalized rate, right, as mix changes. If a lot more of income comes into The U.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

S, it ends up being taxed essentially at a zero rate because of the evaluation allowance. So until we kind of get through this and through this period and on the other side of the off highway sale, we're going to continue to see a fair amount of volatility around the rate. And it's also a bit more difficult to sort of predict and just due to the mix of income, especially from year to year or quarter to quarter.

[Bruce McDonald, Chairman & CEO at Dana]

Yes. And I guess this Colin is following up on that. I guess after we get through the other side of selling off highway deleveraging our balance sheet and we get the benefit of the $300,000,000 that we're road mapping, we'll be back to sort of like a normal company in terms of a tax rate.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes, I would agree. I mean, we would anticipate we obviously won't know till we get there. But given the changes in interest expense as well as the cost saving program, we would anticipate that we could probably be able to relieve the valuation allowance at some point after that.

[Bruce McDonald, Chairman & CEO at Dana]

And start talking about EPS being more normal flowing.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Correct.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

So this would be a sign though that your U. S. Operations have went from unprofitable and are turning profitable and those profits no longer have a tax on that?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. That's correct. And obviously, a big chunk of our cost saving program is predominantly or disproportionately in North America and specifically in The U. S. So that should help as well.

[Bruce McDonald, Chairman & CEO at Dana]

Yes. So you think about why it's high now. It's like we have losses in The U. S. That are not tax benefited.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Correct.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Yes. Okay.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

And then just

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

to follow-up on the prior question about customer mix, because S and P has like the super duty down double digits. Are you assuming a similar assumption there? Because that is a pretty big platform for you guys, if I'm right. And then so if that's the case, what is offsetting that to keep it only flat?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. So I mean, the way we're way our our forecast is built is based on the the mix of models that we're seeing. And so even within Super Duty, there's a pretty big difference between the mix. And so even though overall Super Duty could be down, you know, you know, single digits or even double digits depending on that mix. It will have a different impact to us.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

We do most of the Super Duty but not all. So some of it's still done in house, especially the low end two fifty's that are generally gasoline powered. They're really glorified F-one hundred and fifty's with a few extra

[Bruce McDonald, Chairman & CEO at Dana]

Yes. And it's also somewhat offset Super Duty by the fact that we don't we're not expecting the inventory correction on of the Jeep products to occur in a second shift coming on. I think it's for Gladiator.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Got it. Okay. All right.

[Colin Langan, Automotive & Mobility Analyst at Wells Fargo]

Thanks for taking my questions.

[Operator]

Our next question comes from the line of Edison Yu with Deutsche Bank. Please go ahead.

[Edison Yu, Analyst at Deutsche Bank]

Hey, good morning. Thanks for taking our questions. Just wanted to come back to commercial vehicle. It seemed the quarter was a bit weak. And I mean, just taking more high level about it, when can we start seeing that kind of turnaround?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. Edison, good to talk with you. Hey, this is Tim. So, couple of things in the quarter for CD. I think that your last question, you should start seeing that in the first quarter.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

There was a couple of one time items that really impacted fourth quarter. So we did end up taking having to take some adjustments for EV bad debt and inventory in the quarter given where that business has gone. And then we did have an inventory or a warranty item that we ended up recording as well. So and don't forget, there's going to be significant cost savings coming through in CV as part of the $300,000,000 program.

[Edison Yu, Analyst at Deutsche Bank]

Got it. And just a quick follow-up. Got you. Just a quick follow-up on the contrasting that light vehicle was quite strong. Is that a good kind of jumping off point for 2025?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. I think we're going to continue to see strong improvement really across all the markets for all of our end markets as we go in. But yes, we do expect there to be continued growth in both core profit and the margin in light vehicle as we sort of see production stabilize and we start seeing the benefits of the cost savings flow through.

[Bruce McDonald, Chairman & CEO at Dana]

Yes. And maybe just add though, we do tend to see a bit of lumpiness though in timing of custom recovery. We incur costs in some quarters and get sort of catch up recoveries in different quarters. So that business is always sort of lumpy and things like that.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes, some of that. But yes,

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

I mean if you think about

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

the first quarter, sales are we would anticipate sales being down quarter over quarter given how strong first quarter twenty twenty four was coming off of the strike. So even despite that, I still believe that we'll have a strong margin that we can turn in on first quarter given the work we're doing on the cost side of the business.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Got it. Thank you.

[Operator]

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

[Jake Scholl, Equity Research Associate at BNP Paribas]

Hey guys, this is Jake on for James.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Hey, Jake.

[Jake Scholl, Equity Research Associate at BNP Paribas]

As we think about let's think about the discussions with Hydro Quebec around their TM4 put option. Can you just provide any clarity on the timing or the magnitude of the potential payment you're expecting?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. So I don't want to get into anything specific, but we continue to work through that with Hydro Quebec. But I'm pretty confident we'll be able to get something done here this year at some point.

[Jake Scholl, Equity Research Associate at BNP Paribas]

All right. Thank you. And then just one piece of housekeeping. When do

[Jake Scholl, Equity Research Associate at BNP Paribas]

you guys expect to actually implement the resegmentation with PowerTech getting folded into light vehicle and commercial vehicle? Thank you.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. We'll be doing that during here in Q1. So when we report first quarter, you'll see PowerTech having been folded into LVCV.

[Jake Scholl, Equity Research Associate at BNP Paribas]

All right. Thanks guys.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Anytime.

[Operator]

Our next question comes from the line of Ryan Brinkman with JPMorgan. Please go ahead.

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Hi. Thank you. Thanks for taking my questions. I note that consistent with every other supplier this quarter, your guidance excludes the impact of obviously typical to predict tariffs. I'm curious though what early scenario planning you may be doing around tariffs on Canada and Mexico in particular, Mexico especially and what your exposure there might be, how you're thinking about the ability to either mitigate or pass potential tariff costs along to customers?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

So I think the we're obviously looking at the impacts across the business. It's hard to predict as we said what they ultimately will be or really what the impacts will be. What I can tell you is that we have put all of our customers formally on notice that we intend to pass every dollar of any tariff impacts through to them. And that's our position and we're not planning to waiver from it.

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Good to hear. Thank you. And then regarding the $175,000,000 of targeted cost saves in 2025, of course, a very impressive amount. How much of this end of the $55,000,000 of lower CapEx, how much would you say relates to the change ED strategy or maybe less of other future revenue opportunities versus more simply drifting and greater efficiency on your part?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. I mean, there's a sizable piece of the 175 that's related to EV. I don't want to get into all the specifics, but there is a large portion of the total 300 related to the change in our EV strategy that's flowing through. So you would have expected that. I think the when you think about the $175,000,000 as Bruce mentioned, we've already actioned $100,000,000 of that number.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

And if you look at where we think we're going to end up first quarter between $35,000,000 and $40,000,000 our ability to hit that $175,000,000 for the full year is we think is very, very, very

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

certain.

[Bruce McDonald, Chairman & CEO at Dana]

Yes. And then just on your question about capital, I guess I would say is we'll get be able to return back to the sort of roughly 4% type capital reinvestment. In the business, obviously, we were significantly higher than that in the last few years. In the next couple of years, we still have a few programs that we have that will require some capital expenditure and we expect, you'll see a little bit of change in the balance sheet, but we do expect to have suppliers sorry, customers, providing us with offsets to the capital expenditure beginning this fiscal year.

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Okay. Thanks. And then just lastly, I think one of the reasons why there's been such a positive shift as reaction to your multi year cost savings plan is that it comes at the same time as the off highway sale and it sounds like it's maybe even catalyzed by the sale given the simpler corporate structure that it can allow. But earlier I remember management highlighting the cost synergies of supplying across multiple end markets and you will still be supplying across the light in commercial markets of course. But just wanted to check-in on that and what you think there may be from a dis synergies perspective or are most of those synergies between the light and the commercial sort of in between space that are class four or five, etcetera?

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Just curious.

[Bruce McDonald, Chairman & CEO at Dana]

Yes. I mean, I'll do a few maybe. I guess, first of all, there's definitely a dis synergy associated with stranded costs and we've talked about that. We're continuing to chip away. But basically, it's our corporate costs that get allocated to off highway and how some of them are very variable.

[Bruce McDonald, Chairman & CEO at Dana]

Some of our corporate costs will go with the sale, but that is a dissynergy that we have to chip away at. Secondly, if you think about we buy steel and a lot of common components, and we do similar things like night gears and things like that. So yes, for sure there is a benefit of having the off highway in terms of purchasing scale and maybe leveraging our footprint. But in the scheme of things, it's manageable. And to your point about, so all things being equal, we're certainly not doing it to capture synergies.

[Bruce McDonald, Chairman & CEO at Dana]

We're doing it the driver for the off highway business is very straightforward. It's looked the value of that business in terms of the multiple trades that it will sell for versus the value that's reflected in our stock price. It's just not being recognized at the market. And the market has spoken. Our stock prices reacted very favorably because we're going to capture that delta.

[Bruce McDonald, Chairman & CEO at Dana]

Tim, you may have a few other Yes.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

I think the CV and LV businesses certainly are much more aligned in terms of both process and product, but also geography. So those are just two businesses that are primarily North American businesses. So there are certainly more synergies there than between those and the off highway business. But the other thing to think about here is that we any of those dis synergies, we've taken those into consideration as we thought about how the value unlock happens and where new data margins end up. So when we think about new data margins in the 10%, ten point five % when we get on the other side of this thing that already has those impacts.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

So and as Bruce mentioned, we are currently showing that we have about $40,000,000 where the stranded costs related to the transaction that we're fully focused on actioning and reducing as we after we get through the sale.

[Ryan Brinkman, Equity Research Analyst at JP Morgan]

Very helpful. Thank you.

[Operator]

Yes.

[Operator]

Our next question will come from the line of Joseph Spak with UBS. Please go ahead.

[Analyst]

Hi, good morning. It's Alejandro on for Joe. Maybe just following up on the backlog question. I think you highlighted sort of roughly 20% will be in off highway. So should I be thinking about the sort of the majority or the remaining 80% in LV or how should I think about that LV and CV split?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes, I mean, look, I think those are rough numbers in terms of 20 ish percent or whatever they move around. You got to remember the backlog number we're looking at there is typically through the three years. But yes, I mean, there isn't a lot of backlog in the CV business. It's a catalog based business and it's usually market share based, not backlog. There is a little bit of backlog in there, but it's not significant.

[Analyst]

Got it. Okay. And maybe as a follow-up, you mentioned some weakness in 2Q in your prepared remarks. Can you maybe just give us some additional color on that?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. It won't be as dramatic as first quarter, but we'll see a little bit of additional weakness across the end markets in Q2 and then we'll see that recovery start to really come through in Q3 and Q4. And I think if you look at Page 15 of the deck, you can see the bars reflect sort of that cadence.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Great. Thank you.

[Operator]

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

[Dan Lévy, Analyst at Barclays Capital]

Hi, good morning. Thank you for taking the questions. I'm joining late, so I apologize if it was mentioned earlier. But if you could just talk to the backlog within the light vehicle side, how much of that is reflecting extensions of current light vehicle programs? And given this idea of there could be a potential super cycle here as automakers see the longer tail of ICE, How much incremental activity could we see added to the backlog in subsequent periods?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. Hey, Dan. So couple of things. Remember, the way we calculate backlog is it's truly incremental. So we don't count additional vehicle volume on our programs in the backlog.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

So you should be able if you were to hold FX commodity and volume constant across the three year period, you should be able to just you will just add the amounts in the backlog to our sales to get what our resulting sales would be in 2025, '20 '20 '6, '20 '20 '7. So the idea that, hey, there's going to be a lot more volume on our current programs, that would not be in our backlog. It would be in our market outlook, but it won't. Now if they bring out a brand new variant or something like that, that would go to backlog, something we haven't previously made or sold to the automakers, but not pure volume.

[Dan Lévy, Analyst at Barclays Capital]

Great. Okay. Thank you. And then just as a follow-up, with the news of potential tariffs on steel and aluminum, can you just remind us of how this played out when we saw this in 2018 and just what the timing effects are of you passing this onto your customers?

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. So I know this

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

came up

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

a little bit earlier. We've obviously looking at the what the impacts are likely to be on the business and we continue to kind of work through that. And as we know more about like how they're going to deal with, you know, Meteelas and some of the other the other nuances within the supply chain, we'll know more. But one thing we have done is we have put our all of our customers on formal notice. So we formally notify them that, that it is our intention to pass through every dollar of tariff that comes through as a result of it and that we expect them that they're going to pay.

[Bruce McDonald, Chairman & CEO at Dana]

Yes. I guess I'd maybe add to that Dan is if you think about the light vehicle business, we're far more indexed now than we would have been back then. So to the extent that tariffs drive up the cost, the recovery mechanisms through indexes we already have in places higher than it was back in 2018.

[Timothy Kraus, Senior Vice President & CFO at Dana Incorporated]

Yes. And that at least gets you 75%, but our view is we're not going to eat the 25% that doesn't get recovered in our current commodity agreements. We also don't know if it will be reflected in the indexes or not and maybe surcharge. We just don't know. But at the end of the day, our intention and our expectation is that our customers will pay every dollar.

[Dan Lévy, Analyst at Barclays Capital]

Got it. Thank you.

[Bruce McDonald, Chairman & CEO at Dana]

Yes.

[Bruce McDonald, Chairman & CEO at Dana]

Okay. Maybe just in a few concluding remarks, I guess, first of all, I'd like to thank the Dana team and our leaders for delivering our improved financial results. For me personally, I feel really good about the progress the team is making in actioning the $300,000,000 cost reduction roadmap that we have. 2025 for us is going to be it's a transformational year for Dana. The sale of our off highway business is going to unlock significant shareholder value while at the same time enabling us to return capital to our shareholders and be left with the best in class balance sheet in our space.

[Bruce McDonald, Chairman & CEO at Dana]

I'm really excited to be here and I look forward to sharing our progress in three months' time. Thank you everyone.

[Operator]

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

Participants

Executives

• Craig Barber, Senior Director - Investor Relations & Corporate Communications
• Bruce McDonald, Chairman & CEO
• Timothy Kraus, Senior Vice President & CFO

Analysts

• Tom Narayan, Lead Equity Analyst at RBC Capital Markets
• Colin Langan, Automotive & Mobility Analyst at Wells Fargo
• Edison Yu, Analyst at Deutsche Bank
• Jake Scholl, Equity Research Associate at BNP Paribas
• Ryan Brinkman, Equity Research Analyst at JP Morgan
• Analyst
• Dan Lévy, Analyst at Barclays Capital