Good morning and welcome to Dana Incorporated’s First Quarter 2023 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. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as guests. There will be a question-and-answer period after the speakers’ remarks, and we will take question from the telephone only. To ensure that everyone has an opportunity to participate in today’s Q&A, we ask that 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, Regina and good morning everyone on the call. Thanks for joining us today for our first quarter earnings call. You will find this morning’s press release and presentation now have been 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 our presentation includes forward-looking statements about our expectations for Dana’s future performance. Actual results could differ from those suggested by our comments here 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. I will now turn the call over to Jim. Jim?

Good morning, and thank you for joining us today. Please turn with me to Page 4, where I'll discuss our highlights for the first quarter of 2023. Starting on the left side, Dana achieved record first quarter sales of $2.6 billion, a $164 million increase over the first quarter of last year, driven by continued steady customer demand, roll on of our new business backlog across all of our end markets and our ongoing cost recovery efforts. Adjusted EBITDA for the quarter was $204 million, up $34 million, a 20% improvement over the first quarter of last year. If you recall, it is normal for us to use cash in the first quarter. This quarter, free cash flow was a use of $290 million, $53 million more than last year, driven by working capital required to support our aggressive new business launch cadence and revenue growth this year. Lastly, for our results, adjusted earnings per share for the year were $0.25, an improvement of $0.09 per share. Moving to the right of the page, I will highlight four of the key items this quarter. First, I'll provide you with an update on the current operating environment and outlook. The company continues to overcome the ongoing challenges that are impacting the entire mobility industry including inflationary pressures, customer demand volatility, supply chain disruptions and currency fluctuations. As all of these unprecedented headwinds took their toll on the mobility supply companies between 2020 and 2022, Dana never wavered from our commitment to establish complete in-house 4-in-1 e-Propulsion product and system capabilities across all mobility markets. We successfully accomplished what we set out to achieve that is ensuring that we secure the right product technologies and capabilities as well as talent and infrastructure to serve our customers and sizably increase our content per…

Thank you, Jim. Good morning. Please turn to Slide 11 for a review of our first quarter 2023 results. Sales were a record high for the first quarter at $2.6 billion. The $164 million increase over last year was primarily driven by strong demand in our Heavy Vehicle and Power Technologies businesses and recoveries of cost inflation through pricing actions. Adjusted EBITDA was $204 million for a profit margin of 7.7%, which was an 80 basis points increase over last year, driven by operational execution and timing of EV investment spending, partially offset by continuing customer-driven production and supply chain inefficiencies. Net income attributable to Dana was $28 million, compared with $17 million last year. Diluted adjusted earnings per share was $0.25, a $0.09 improvement over the first quarter of 2022. And finally, free cash flow was a use of $290 million for the quarter. Recall that it is normal for our business to use cash in the first quarter. Please turn with me now to Slide 12 for a closer look at the drivers of sales and profit change for the first quarter of 2023. Results for the first quarter were a significant improvement over last year even in the face of continuing inflation and inconsistent customer production supply patterns or production patterns and supply chain issues. First, traditional organic sales growth of $203 million was driven by higher demand, improved pricing, beneficial product mix and cost recoveries from customers. Adjusted EBITDA on higher sales was $27 million, which improved margin by 50 basis points. Cost inflation was offset by customer recoveries and improved operational execution somewhat muted other cost headwinds including inefficiencies, driven by volatile customer production and elevated launch costs to support our new and renewing programs. Next, throughout the execution of our EV strategy, we have…

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

Great. Thanks for taking my question. A bit surprised by how strong light vehicle driveline was particularly quarter-over-quarter. It looks sales not surprisingly down given the Super Duty launch. The margins actually got better. Any color on the puts and takes on how margins got better on lower sales? Usually it works the other way around.

Sure Colin. Colin this is Tim. Yes it's three main buckets. So favorable mix on product improved operating performance. And then the last is improved pricing on the new program. So as these new programs roll on we're getting the benefit of being able to reprice them.

Okay. And the other thing surprised me a bit is I think back in 2021, when raw material particularly steel spiked you had a $96 million headwind I believe. We see it jumped back at least a good portion. I guess the other day back down a little bit. But you're only raising or lowering your outlook by $15 million. So, what's sort of different now versus history? Why not a larger impact? Is it sort of the indexing? Is it just the time line and ability to get recoveries before year-end this time?

Yeah. It's a mix. It certainly depends on product what we're still buying how it turns. But we are seeing a bit higher prices later in the year for -- especially in North America for scrap, and that's an important input into forgings and castings which are also impacting the amount of the profit tailwind from commodities.

Okay. And just lastly, how should we think about a lot of puts and takes here with commodity recovery as inflationary costs. How should we think about the cadence of results through the year?

The cadence will be -- it's a little bit higher in the first part of the year the first two-plus quarters and then it will start to tail off in the back half of the year as we move through the lag in recoveries and the commodities start to stabilize at its new level.

So the commodity help actually kicks in is it more a first half focused? And then is it the inflation start -- kick in at the start of the year, or is that also kind of spread through the year?

Yeah. So it's spread throughout the year. It's obviously been a little bit higher in the first quarter. One of the reasons you don't have as big of an impact in the first quarter is that we have a lag in recoveries as well With a lot of the agreements we have with customers and you're seeing some of that lag in the first quarter despite still seeing some of those higher costs. But we still see sort of the net inflation impact for the year at around $50 million headwind.

Got it. Thanks for taking my questions.

Sure.

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

Hi. Thanks for taking the question. I wanted to understand the 2023 guidance a little bit especially as it relates to Q1. I mean obviously it looks like the EV costs were like you pointed out to not in Q1. Just curious what is kind of the true -- that's not true but what would be a kind of a good run rate per quarter of EV costs, if it was spread out for the year? What I'm trying to understand is kind of order of magnitude of that cost item just stripped out of EV costs to get a sense of how the year should kind of progress?

Yeah. We don't break out the actual investment in EV or the change in investment. What I can tell you if you think about first quarter where we showed a bit of a profit that's really just related to the timing on the spend. And then a big part of that is just the timing of recoveries. We -- in the places where we're investing we tend to get government incentives and recoveries. And we actually recovered a bit more in the first quarter than we were expecting and it was really just a change in sort of the timing of those recoveries. So that's the reason we ended up with a bit of a profit in the first quarter. But as you noted -- or as you noticed we're still expecting a full year loss on our incremental EV sales of about $35 million.

Okay. And the customer recovery piece that was also better in Q1 than it will be in the remainder of the year on a quarterly basis. Is that right?

Customer recoveries on commodities or inflation, or both?

Both yes.

Yes. So the lag we should see higher customer recoveries in commodities early versus later. On inflation that would follow the same pattern due to the lag.

Okay.

And as we see some of the costs start to abate as we go through the year.

Okay. Great. And lastly there's a lot of chatter on China. It -- just curious I know you guys aren't overly exposed there, but just curious as just here what you're seeing if any on developments there?

Yes. China is only about 5% of revenue for us. So it's not a big impact. Obviously, most of what we supply in China we manufacture in China is for China. So we haven't seen any significant impact on the business at this point.

Okay. Thanks. I turn it over.

Your next question comes from the line of Noah Kaye with Oppenheimer. Please go ahead.

Thanks. Good morning. First I just want to clarify the earlier comment on the cadence of results. You've mentioned a bit more weighting to the first half. Just for clarity were you speaking specifically about inflation and commodity recovery dynamics, or is that more broadly around your expected cadence of EBITDA and EPS for the year?

I was speaking on -- with respect specifically to the commodities and inflation.

Can you give us some indication on how to think about EBITDA and EPS more broadly or at least how you're thinking about it?

Yes. Some of our first quarter results were due to timing. You can see that in the EV profit for the first quarter. So we see the first half being good maybe a little bit of taper in the second half. That's a little bit of a change from where we were before, but a lot of this really has to do with some of the timing. It's -- but we still see full year coming in inside the guidance range and at the midpoint of $800 million.

Yes. I think a solid start in terms of -- versus typical seasonality. Just is there anything from a demand perspective I want to make sure that you're seeing for the back half, or is it really just the cost structure? Because it sounds like I mean the production slate is very full.

Yes. I think there's a number of drivers, right? So we've got a lot of launches that need to go well for both our customers and for the company. Inflation needs to come in where we expect it. And the operating environment needs to not only remain where it's at but actually improve. And then we need to see market demand stay, right? We had a very strong first quarter in market demand, especially, in the heavy vehicle segment. So we're just -- want to make sure we keep an eye on all of these factors that are really driving the cadence over the next couple of quarters.

Okay. And maybe -- and this might be for Jim. Just wanted to drill down a little bit on the improved operating performance and some of the share gains maybe taking a little bit of a win here as a result of your hard work. But just wanted to understand what was tactical what was structural? Anything that you've done that we might think about setting you up for better leverage as some of these order and efficiencies from the customers start to abate in the back half?

Thanks for the question. I don't know if I was going to get any today so I appreciate that. No, I'm just kidding. In all seriousness, thanks for the question. To answer your -- it goes back to our strategy. I think everybody knows our strategy. It's been very, very consistent since 2016. In the middle and most important priority was to leverage the core and that includes our operational systems across all our product lineups, all of our business units all of our regions. And there's no speeding up the clock on that as we continue to sustain and improve sustain and improve and get better and leverage best practices, leverage idea generation, leverage everything that we're doing, there's nothing you can't come out and say here's this like transformational self-help thing you are to lead in operations. You just have to continue to turn it up. That's what the team has been doing. And as you mentioned, as I mentioned we're incredibly appreciative to our commercial vehicle customers recently for saying hey let's go make more trucks together. And thank you to those gentlemen and -- ladies and gentlemen out there. And that's what happens in this business. The business has never changed still cost quality delivery, right? And the team has done a remarkable job in that regard. So, I hope that answers your question.

Great. Thanks so much.

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

Hey, good morning everyone. I guess just on off-highway to start. I think this is an official record revenue quarter. Should the first quarter here serve as a high watermark for the year, or is there demand and strength in demand to keep this type of trajectory going?

You know your facts well. We think it is too without doing deep, deep, deep research but I'm pretty sure it was as well. I think based on making that statement you know the markets well enough to know that everything is sort of peaking. I don't know about peaking, but certainly strong all at the same time. I can't really say because those markets move faster than others as you also would know. So, you can't really say for sure but we're definitely bullish that we'll have a strong year across construction, material handling, agriculture, underground mining, multiple other product lineups in segments that we participate in in off-highway.

And within those end markets within the verticals you just mentioned, what verticals are standing out that really drove this first quarter?

I think construction is usually a little bit better. I would say it's a little bit better in particular back to your other question construction for us typically is the strongest in the second and third quarter. So, that would -- I would point to that mostly but again we've been having the balance in our commercial side of the business in terms of good diversity across our customer base across the end markets. So, we're in a good position as they're all running at a really strong ambient level right now.

Got it. And then given the upcoming UAW situation this fall, are you seeing any intention or indication of a pull forward in schedules to some degree for this first half just in case we do get a repeat of 2019. Just curious to get your thoughts on that. And then separately in terms of schedule stability, is April showing to be a monthly improvement off March. Is this a consistent theme now, or are we not fully out of the woods yet?

Good questions. Maybe the April and how the customers are running and that type of thing. First, so I guess, I would point to I think our customers in the light vehicle segment you're mostly referring to in there have really been much -- been very intentional. I'm sure they were intentional before too but much more intentional in terms of getting more stability built in through their systems and operations and supply chain management. So, you're seeing that come through. But it's like I was mentioning relative to operational excellence. You can't speed up the clock. You just have to do their thing and they're doing their thing. So, I'd say it's still a little bit. It's -- the end of March was much more stable than even the beginning of March and I'd say we expect that to kind of sustain and improve to use those words again. What was the second question? I'm sorry what was your second question again?

Just your thoughts on UAW--

So, in the third quarter and the things that are going on there. And about the scheduled pull heads not so much. The deployed capital we have and the capacity that we have deployed is lined up with capacity planning volumes. And I would say our schedules are basically at that. So, our customers are going to run steady. It looks like at least from our line of sight are going to run steady to what they would have put in the releases I don't know two months ago, three months ago, four months ago. So, I would say no major change from our line of sight anyway.

Thanks.

Thank you.

Your next question comes from the line of Ryan Brinkman with J.P. Morgan. Please go ahead.

Hi. Thanks for taking my questions. I realized organic growth in 1Q was stronger and the full year reiterated. I see the comments about demand remaining strong across all end markets. Market condition is expected to improve throughout 2023, which is helpful. Just sort of trying to square that with seemingly increasing calls for a macroeconomic slowdown or maybe pull back on project financing from regional banks et cetera. So, just given all of your insight into multiple different macro sensitive and rate sensitive end markets including industrial, commercial and highway construction et cetera, are you seeing anything that would indicate slowing at the margin?

We're not seeing anything that really sticks out to us, right? I mean, we're building to the customer schedules. I think the customers are still building to their demand patterns but we don't see anything specific.

Okay. That's helpful. Thanks. And then just given the conversation earlier about the margin benefit in 1Q from the timing of periodic spending on development for electrification products, can you maybe help us on the expected cadence of spending for these products as the year progresses? And then, I'm curious too, like, how discretionary the timing of some of the investments might be? Like, how much of the spending would you say is tied to awarded customer programs launching according to a specified schedule. And so therefore, maybe not within your ability to time particularly if they're launching over the shorter term versus, how much of the spending is maybe like more research not tied to specific programs rather than development spending and so you're able to better control the timing.

Yeah. The bulk the timing is customer-driven.

Okay. Very helpful. Thank you.

Your next question comes from the line of Rod Lache with Wolfe Research. Please go ahead.

Good morning everybody. I could see from the guidance this nice improvement in incremental margins that you're expecting for the rest of the year it looks like something closer to 24%, even after the $50 million of inflation. From your discussion earlier, it sounded like a lot of that was CPV on launches. So I was hoping that you could provide some kind of order of magnitude on -- maybe one way to characterize this would be just the percentage of your business is from new contracts this year how that compared with last year? And what that would look like in 2024?

Sure. I mean this is our heaviest launch year, especially when you think about 120 launches but really when you think about light vehicle where the programs come with an enormous amount of revenue. So just think about Super Duty and…

Yeah.

… in Wrangler. Now last year we had Global Ranger started to launch. So I would say that this is -- if you think about this is our heaviest year. But those programs don't get to full run rate even out of this year until we get to the end.

Okay. But any way to sort of provide a magnitude would be helpful.

Yeah. The Wrangler and Super Duty are the two single largest programs…

Yeah.

… in the company. So, we're talking about revenue that's on an annual basis that's well in excess of $1 billion.

Okay. And then, just secondly, any thoughts on these new EPA rules for commercial vehicles what does that imply for the business if that happens? And does that have any impact on what you kind of need to spend over the next couple of years to prepare for that?

Hey. Good morning. Rod, I hope you're doing well. I would tell you from our perspective it's not -- it's going to be more of an ambient level. We've evolved through the -- so much of the disruption curve for anything coming as either on the diesel side or the electrified side. So I wouldn't expect any significant spikes or anything like that kind of moving forward.

Okay. All right. Thank you.

You're welcome.

Your next question comes from the line of Dan Levy with Barclays. Please go ahead.

Hi. Good morning. Thanks for taking my questions. First, I want to go back to your full year bridge. And I think the answer, to this is around the recoveries, but I just compare the bridge you provided back in February versus today, you have organic up $20 million on the EBITDA side but revenue is down $30 million. So I assume that inflation is still flat at a $50 million impact. So what's driving the higher EBITDA, on lower revenue? I assume that's just a function of recoveries?

Yes, it's two things. It will be mix, right? So in terms of the business, and then better operating performance in the business as well as some pricing coming in. So...

And just on that better operating performance, just to be clear it sounds like you're saying that you're seeing some of that choppiness abate, but really there's a lot more of an opportunity in second half for that, which creates a runway into next year, is that correct?

Yes. I think there's still -- I mean look the customers are certainly better than last year, becoming a bit more stable, but we need to see the customers run and the suppliers for that matter, run better consistently before we'll say that we're starting to see the end of the line here.

I would just add to that as well you kind of be more unique to Dana, definitely tied to your question. When you're launching the magnitude of launches that we are, in manufacturing 101, I guess is that your choppiness take the macro stuff going on right now the choppiness comes in that last 20% of launches, right, because you're now stressing the OEMs and ourselves we're stressing our supply base. We're stressing our specific capital, we're stressing the how well have we trained our labor and all that stuff. So, that's part of what we're making sure we're keeping kind of a clear line of sight on through the balance of the year and into next year as well, to make sure that we stay in front of that. It's not just a push command for and all the OEMs are going to be up at their full capacity, et cetera, et cetera. There's a lot of wood to chop there.

Great. Thank you. And then as a follow-up, I just want to ask about electrification. At least on the light vehicle side, we've seen that some of these ramps from some of these programs have been going slowly and there's some choppiness. The question has even emerged on just with profitability and questions. Do some of these ramps sort of intentionally go maybe, a little more slowly. So -- and I know your focus right now is a bit more on commercial vehicles, but you're still trying to hit all of your segments. So on your EV plan, what is your visibility of the EV revenue and the customer volumes, how are they faring versus the original expectations? And to the extent, that it is a slower ramp from your customers, how does that impact your strategy if at all?

Yes. Good -- great question. Great question. First of all, I will reiterate that it is a benefit for us to have clear line of sight into all mobility markets. And in this example, that you're bringing, electrification we have strong penetration. We're launching in all the markets, even to motorcycle market, as you remember probably from Q1, or our February update. So -- but more specific to your question, what you're stating is true, but it's not just true for the OEMs it's true for suppliers. I mean this is -- you're kind of drawing the architecture drawing at the same time, you're building the house. You're bound to have the challenges, right? When Tesla came up the curve, they had their own challenges. Everybody had their challenges, right? So I think there's an element of some slowness to it, across all the markets all the OEMs because people need to make sure they get it right. But at the same time, at least from our line of sight, the demand is still very, very strong. And I have a lot of respect for all of our OEM partners out there and when they make statements, they're making their business plans. They're doing it with really strong empirical data and information, to support their commitments and their -- and with their plans. So, I'm still very bullish. So you might have a lag in timing, in some cases. But at the end of the day, it's for the right reason. It's for them to get it right and for the suppliers like Dana, to get it right as well.

Great. Thank you.

You’re welcome. Okay. With that, just I guess a quick recap. Thank you, everyone for your time and attention today. We definitely appreciate it. From the Dana perspective, as a company we recognized much earlier I would say back in 2016, that the mobility space would be disrupted. And in particular the OEMs and powertrain suppliers would be disrupted, by far the most. So in our case instead of being reactive and allowing the electrification make a trend to disrupt Dana, we definitely disrupted ourselves. So we've completely transformed the business. And of course, amongst the most courageous and aggressive actions we took, were the two most transformational actions which was: one, leverage the core we talked about, a little bit earlier today, which was to go scale, drive best practices, lesson learned, people management across engineering, across operations, across technology, across everything. And it was a dramatic and courageous thing to do, but it's -- you can see the benefits coming through what we call One Dana. One Dana not disparate Dana, One Dana driving the business. And the second, was to make sure that we achieve that first mover position to ensure that we are energy-source agnostic, whenever electrification rubber started to hit the road. So we couldn't speed up the clock through 2020 through 2023, and we were certainly not going to back off from our commitment and have a schizophrenic strategy, that we didn't live to. We stayed the course, painful, challenging. But as you can see through our growth, as you can see through our operational excellence leading to growth, our new technology, our product portfolio and again coming back to being truly energy-source agnostic, the plans coming together. And we appreciate everybody's time and attention again today. We look forward to providing you an update, next quarter. Thanks.

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