Dana Incorporated

Good morning and welcome to Dana Incorporated's first quarter 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 speaker's remarks and Q&A session, will be recorded for replay purposes. There will be a question and answer period after the speaker's remarks and we'll take questions from the telephone only. If you would like to ask a question during this time, press star then the number one on your telephone keypad. 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. Thank you for joining us today for Dana's first quarter 2021 earnings call. You will find this morning's press release and presentation are now posted on our investor website. Today's call is being recorded, and the supporting materials are the property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. Allow me to remind you that the presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested by our comments today. Additional information about the factors that could affect future results are summarized in our safe harbor statement found in our public filings, including our reports with the SEC. On the call this morning are Jim Kamsiskis, Chairman and Chief Executive Officer, and Jonathan Collins, Executive Vice President and Chief Financial Officer. Jim, please start us off this morning.

Good morning, and thank you for joining us today. During the first quarter, our customers continued to accelerate production to meet strong demand across all of our end markets, driving sales for a quarter to nearly $2.3 billion compared with last year, representing a $337 million improvement. Adjusted EBITDA in the quarter was $234 million compared with $205 million for the same period in 2020. As is normal with the first quarter of our business, adjusted free cash flow was a use of $26 million, but this compares favorably to the use of $114 million in the first quarter of 2020, which saw the onset of the global pandemic shutdowns. Diluted adjusted earnings per share were 66 cents in the first quarter of 2021, compared with 47 cents in the same period of the prior year due to higher earnings this year. Moving to the key highlights on the upper right hand side of the page, we're able to meet stronger demand in key markets and continue to execute our sales, our strong sales backlog to drive sales higher for the quarter. We also continue to manage higher cost-related supply chain disruptions, logistics, and labor constraints that are challenging the industry as end market recovery quickly recovers from last year's production shutdowns. I will provide more detail around this in a moment. I will also update you on the efforts to expand our electrification capabilities to meet the growing EV sales and our backlog. Finally, we'll discuss the progress we are making on our ESG goals, which is illustrated in our recently published Sustainability and Social Responsibility Report. Please turn to page five as I'd like to go into further detail about how we're capitalizing on strong demand across all three of our markets. The world has certainly changed from a year ago as markets continue to recover globally strong demand in the first quarter was driven by continued higher volumes, especially in the light vehicle market and particularly full frame trucks in North America. We successfully capitalized on higher volumes. At the same time, we remain cautious on the outlook due to some of the challenges facing our industry, including the shortage of semiconductors, which are impacting many of the major OEMs around the world. Moving to the center of the slide, the heavy vehicle market continues to be strong, particularly in North America. The rebound of Class 8 truck sales continues as we're expecting production to be around 300,000 units. The medium duty segment also remains strong. However, we are seeing demand for the heavy and medium-duty trucks in Brazil remain somewhat subdued. Lastly, in our off-highway markets, we have a strong presence in Europe and Asia. Demand for off-highway equipment is improving. It remains especially strong for agricultural equipment, and we are seeing global construction and mining markets beginning to rebound. As you would expect, the higher demand across many of the end markets is pushing up against both capacity and labor constraints across the global supply chain. Please turn to slide six for how we are managing this challenge. As markets continue to recover from last year's shutdowns, higher raw material costs, semiconductor shortages impacting our customers, logistics constraints, and labor shortages related to COVID restrictions continue to test the mobility industry. Through all these challenges, we've remained focused on managing these issues to successfully serve our customers. In the upper left-hand side of the slide, we have seen a rapid rise in steel and other raw material costs, particularly SPQ steel and aluminum. As we have stated before, we recover a majority of the increase from our customers. Our supply chain team has done an outstanding job planning for these various impacts, and we continue to actively manage our supply base and recover mechanisms. Moving to the upper right-hand side of the slide, Everyone on the call is fully aware of the semiconductor shortage causing many major OEMs to slow or idle production. So far, there's been less of an impact on many of the key light truck programs that we serve, as our customers have prioritized these productions for those key vehicles. This remains a risk across the mobility industry, and it is something we continue to monitor in conjunction with our customers and adjust our output accordingly. Moving to the lower left, a sea container shortage and vessel availability also impacted global supply chains, resulting in shipping delays, bottlenecks at port facilities, and inflated freight prices. According to the industry reports, the cost of shipping a container has risen by 80% since early November and has nearly tripled over the past year. While these and other supply challenges have put cost pressures on our supply chain, we continue to implement countermeasures to limit the impact where we can, while still maintaining our commitments to our customers. On the lower right side of the page, it's very clear that we are not past the challenges related to COVID pandemic in all parts of the world. There remains hotspots such as Brazil and, of course, India that are putting added pressure on an already challenged supply chain. To mitigate the risk, we have taken a proactive approach to work with our customers and suppliers to ensure the right material and labor is available. As we continue to be very thoughtful about the level of service we need to maintain for our customers, both within the impacted regions and outside. While we expect these issues will be a headline for the entire industry this year, our multi-end market focus and global presence aids in our ability to manage these forces. We have been successful in protecting our customers and enabling demand fulfillment while we continue to launch significant new business backlog and strengthen our position in vehicle electrification. Turning to slide seven, I'd like to update you on our new electrification facilities that will support our strategy to lead in electrification. Vehicle electrification isn't just a far-off ambition for the mobility industry. It's right here, right now, and we are investing in the infrastructure needed to meet this demand. As we continue to expand our sales backlog by winning new electric vehicle programs, we're adding manufacturing capacity in a measured fashion to ensure that we have the capability and capacity to meet the specialized electrodynamic needs of our customers around the globe. By expanding our electrification manufacturing footprint, not only are we installing the capacity to support current and future volumes, but we are also strengthening our electrification design, engineering, and manufacturing capabilities across the globe. The mobility industry exists on all points of the global map. Hence, it's important that we have the equipment and human capital in all regions of the world to support our customers. To date, NANA has commissioned more than 250,000 square feet of electrodynamic manufacturing capability to meet current and future demand in regions with strong EV growth. Beginning at the left side of the slide, in China, we continue to have an active and growing footprint ready to support the fast-growing vehicle electrification trend, including the new Dana Weifeng Electrodynamics Manufacturing Center. The Weifeng facility provides our customers full portfolio of motors and inverters, leveraging our global systems expertise in electrification. This facility has automated production lines as well as testing capabilities for electric and hybrid drive lines. In India, Dana's new Chacon Electrodynamic Manufacturing Facility is a world-class operation serving both the light and heavy vehicle markets domestically and for export. The Chacon team is responsible for manufacturing integrated mechanical and electrical components for alternative propulsion applications including low voltage, synchronous, and high voltage solution for vehicles from the smallest to the largest across our customer base. Moving to Europe. Dana's Chudley UK facility further expands our motor manufacturing capabilities, serving a variety of important customers. This facility produces electrodynamic products that are integrated seamlessly with Dana's e-axles, gearboxes, and hubs, or pumps. Applications include area work platforms, excavators, telehandlers, and many more. As the only supplier capable of delivering all elements of a complete, fully integrated electrified system across all mobility markets, we expect electrification to continue being a larger percentage of our sales backlog. To meet the growing demand, we are investing and partnering with our customers to support their electrification journey. Moving to slide eight, I'd like to talk about the continued progress we are making towards our sustainability and social responsibility objectives. From time to time, we're providing you an update on environmental, social, and governance activities. This quarter, I thought I would mention that we recently published our annual sustainability and social responsibility report on April 22nd. For us, this is not just a report that we pull together each year, but rather it helps encapsulate our vision for a better future and measure our progress as we adopt a balanced approach that considers the people we encounter, the products we develop, and the planet that enables us to do our work. Highlights include Dana's commitment to reducing our total annual greenhouse gas emissions by more than 50% before the end of 2035, along with supporting vehicle electrification and other sustainability initiatives to help achieve the Paris Climate Agreement targets. In addition, we're committed to 90% of our U.S. electricity demand being addressed by wind and exceed exceeded more than 1 billion customer miles driven with Dana's electric motors in 2020, equivalent to more than 275,000 metric tons of CO2 eliminated. To be clear, it all starts with people. Our number one priority is the health and safety of our employees, customers, suppliers, visitors, contractors, and the communities we call home. We practice safety first in everything that we do, and part of the safe work environment is providing a respectful and inclusive workplace where everyone can contribute, participate, and thrive. We believe that listening to diverse voices and opinions gives Dana strength, enabling us to solve problems faster and drive continuous improvement and profitable growth. We're also driven by a desire to provide innovation that helps to anticipate, understand, and shape market trends and fast-track new products that deliver industry-shaping ideas. Our strategy of leading in vehicle electrification is a key element of our sustainability objectives and ultimately helps our customers and their customers to achieve their sustainability goals. This brings us to our planet. In addition to our commitment to reducing greenhouse gas emissions, we've established a technology and sustainability committee with our board of directors and appointed a chief sustainability officer to our executive leadership team. Last but not least, we take corporate governance very seriously at Dana. Approaching everything that we do honestly and with integrity is ingrained in our strong One Dana culture, which has delivered outstanding service and unwavering commitment to ethics for more than 116 years. Thank you for your time today. Now I'd like to turn it over to Jonathan Collins for our financial update. Please go ahead, Jonathan.