Dana Incorporated

Good morning, and welcome to Dana Incorporated's financial webcast and conference call. My name is Holly, and I'll be your conference facilitator. Please be advised at 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 will take questions from the telephone only. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Now, to ensure 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 Dania, the Senior Director of Investor Relations and Strategic Planning, Craig Barber. Please go ahead, Mr. Barber.

thank you holly and good morning everyone on the call thanks for joining us today for dana's fourth quarter and full year 2021 earnings call you'll 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 of the property of data incorporated they may not be recorded copied or rebroadcast without our written consent allow me to remind you that today's presentation includes forward-looking statements about our expectations for dana's future performance actual results could differ from those suggested by our comments today. Additional information about the factors that could affect future results are summarized in our Safe Harbor Statement found in our public filings, including our reports with the SEC. On the call this morning are Jim Kamsiscus, Chairman and Chief Executive Officer, and joining us is Tim Krause, Senior Vice President and Chief Financial Officer. Jim, will you start us off this morning?

Good morning and thank you for joining us today. Dana has significantly stronger sales in 2021 as a result of improved overall market demand and the conversion of our new business backlog, while overcoming some of the most challenging market conditions we've experienced in our lifetimes. This included major global supply chain disruptions, commodity cost inflation, labor shortages, and erratic customer production schedules that continue to impact the entire mobility industry. As you can see on the left side of slide four, Dana achieved sales of nearly $9 billion in 2021, $1.8 billion higher than 2020. An adjusted EBITDA was nearly $800 million, a $200 million improvement over the prior year. Free cash flow ended the year with the use of $221 million, largely due to the temporarily inflated and elevated on-hand inventory levels resulting from immediate customer schedule fluctuations and reductions, as well as volatile demand fluctuations, protecting actions against major long lead item supply chain disruptions and to support higher than expected revenue growth in 2022, especially in our off-highway and commercial vehicle segments. Tim will walk you through this in greater detail later in the presentation. Diluted adjusted earnings per share was $1.66 per share, an improvement of $1.27 per share over the prior year. Last year was unprecedented for us, as it was for all manufacturing companies, but as outlined on the right side of the page, Dana had achieved numerous highlights as we continued to systematically leverage our e-propulsion capabilities across all mobility markets. We secured approximately $800 million in incremental new business over the next three years, and we've had several new EV programs launching over the next couple years, a few of which I will share with you later in the presentation. We are also pleased to highlight our continuing commitment to ESG, which are fundamental to Dana's culture and our core values and are reflected in how we operate our business every day. I will speak further to those commitments, highlighting several examples of our most recent ESG initiatives later in the presentation. In addition to discussing how we navigated through supply chain constraints, raw material cost inflation, and labor shortages, I will provide our view regarding the 2020 market dynamics as we expect demand to be extremely strong across all markets. While we do not expect commodities, labor, transportation, and customer demand issues to completely subside in 2022, we are optimistic that we will start to see more stability on the back half of the year. Please turn to page five, where I'll share with you how Dana's relentless commitment to customer satisfaction and technology leadership will yet again lead to sizable growth trajectory over the next three years. As you can see at the top of the 2024 bar in the mid-upper right of the page, Dana has established an $800 million sales backlog over the next three years with, as you can also see in the upper left-hand corner, $400 million of that revenue coming online in 2022, which is a $200 million increase from the prior backlog outlook. Importantly, if I draw your attention to the bottom right-hand corner of the page, you will notice the EV versus ICE chart that reflects that directionally half of the total three-year backlog is coming from electrification. Including in this year's $400 million of incremental new business is the extremely popular Ford Bronco, which was recently named the North America SUV of the Year and the long-anticipated Raptor version. Both of these vehicles are equipped with Dana's Adantech drivelines, which are renowned by off-road enthusiasts around the world. Moving back to the backlog, allow me to remind you that Dana's sales backlog is calculated on a net basis, which includes incremental new sales net of any losses. As an example, you will see in the 2023, the current GM Colorado Canyon program will build out and Dana will not produce the axles for the future vehicle. but we have more than offset these sales through other programs such as the new Volkswagen Amarok pickup truck, Line C full-size electric school bus, Conquest, Agco, Fendt 700 series tractor axle business, as well as other ICE and electrification programs. On the upper right-hand side of the slide, you can see that our sales backlog is well-balanced across end markets and regions. For 2022, 400 million of our total three-year backlog represents nearly one and a half times incremental growth versus the overall market. Moving to slide six, I would like to illustrate how our complete portfolio of electrification offerings has moved far beyond new business wins and into full vehicle development programs with our customers across all of our end markets. Dana's addressable market for electrification will be nearly $20 billion by the end of the decade. Thanks to our past successes, present capabilities, application know-how, and clearly defined strategy for the future, we're able to partner with and create value for our customers at any stage in their electrification evolution. As we outlined for you this past September at our Capital Markets Day, our customers have confidence in us, as evidenced by the number of program awards showcased on slide 6. As you can see, our EV solutions are being utilized across all mobility markets. For example, in our off-highway segment, we're partnering with customers to meet their unique electrification needs in construction, underground mining, material handling, and even some new green shoots in agriculture applications, as well as the fast-growing compact utility vehicle market. In commercial vehicle, our initial focus and commitment were to medium and heavy-duty trucks and buses, and I'm extremely excited about our success in the EV bus market, which I'll talk more about on the next slide. Most of our recently announced light vehicle programs utilize Dana's industry-leading battery and electronics cooling technology. We also have major new business wins for the emerging technology of hydrogen fuel cell metallic bipolar plates. On slide 7, I'd like to turn your attention to our electrified product range for an important part of the commercial vehicle market, electric buses. As countries seek to limit emissions, electric buses will present significant opportunities in the shift to fully electrified platforms. In fact, it's expected that 75% of buses will be electric by 2030. In North America, where electrified school buses have been a major focus, Dana supplies EV dynamics to the top manufacturers that make up a vast majority of this market. First, Navistar selected Dana for its electric school bus application, and Lion Electric chose Dana as its preferred supplier for traditional electrified componentry for the Lion C full-size electric school bus, which has been in production since 2016. We are also proud to be supplying the motors and inverters to the Bluebird Vision electric school bus, which can go up to 120 miles on a single charge. In Europe, we are pleased to be supplying our motors and inverters to Safra, French-made fuel cell buses, and also Temsa, one of the leading coach manufacturers. In Asia, we are providing motors and inverters to Volvo Aisher for their 9- and 12-meter buses, as well as the Tata Starbus EV series. Early on, we identified the bus market would be a natural fit for the adoption of electrification. Our leadership, strong global presence, and more than a decade of experience in heavy vehicle electrification is evidenced by these wins. Please turn to slide 8 with me. As you can see on the page, I have moved from some of the largest vehicles on the road to a vehicle that will be one of the most capable on the road in the future. The vehicle on the page is the all-new Aston Martin Valhalla Hybrid Electric Hypercar. The European high-performance sports car will feature Dana's hybrid 8-speed dual-clutch transmission system. Dana's iconic Graziano high-performance transmission capabilities and experience made it possible to create the cutting-edge DCT hybridization product. In this system, electric power is channeled through the internal elements of the transmission thanks to an unprecedented level of integration, thus providing the consumer significantly more capability than a traditional electrified DCT transmission. Needless to say, serving as a core supplier partner to Ashton Martin speaks volumes relative to Dana's depth of knowledge, capability, and technological know-how in the electrified mobility space. Let's now turn to slide 9 to yet again display how our PAN Dana electrification capability supports another one of our important end markets. As you're well aware, Dana is a significant drivetrain supplier in the agriculture market. Historically, we've not participated in the outdoor power equipment subsegment of the market, though. With Dana's advancements in electrification systems, we're excited to announce that we'll be providing electric mechanical drive and auxiliary motors to Toro, one of the most successful companies in the professional turf equipment market. The all-new Toro electric professional lawnmowers will feature everything customers have come to love about Toro, Toro's quality and performance, but with a quieter, eco-friendly design. The examples we have shared on the last few slides illustrate the breadth of our electrification capabilities and how we are helping our customers bring innovative and sustainable solutions to market, no matter how big or small. Turning to slide 10, I believe that you may be interested in learning about some real-life examples of how Dana and the Dana team are very dedicated to sustainability and taking real actions to support our commitment. As we have shared with you, sustainability directly aligns with our leadership and vehicle electrification, and it's critical supporting our customers as they work to achieve their goals. Our focus is more than just advancing innovative products. It is also about striving to improve operational efficiencies around the globe in ways that can achieve real results. Currently, Dana has more than 300 active initiatives that focus on energy efficiency, renewable energy, waste elimination, and water conservation. Each one is helping us to move closer to our goal of reducing greenhouse gas emissions company-wide by more than 50% by 2030. Slide 10 illustrates how our focus on small but important changes are reaping big results. By leveraging ideas and resources globally, we have reduced electricity consumption by approximately 4,700 megawatts hours through the use of LED lighting and machine optimization. And by utilizing solar arrays throughout five facilities, we have successfully produced more than 7,000 megawatt hours of renewable electricity annually. We have also been able to save more than 7 million gallons of water annually by installing recirculating systems in our facility. These are just a few examples of the ways we're having a large impact on our environment through innovation and leveraging our resources. Our commitment to sustainability is not going unnoticed either. Earlier this month, we announced that Dana had placed in the 90th percentile for the automotive sector on the S&P Global Corporate Sustainability Assessment in our first year participating in the assessment. We are also recognized with the S&P Global 2022 Sustainability Yearbook Member Award, which honors the top performing companies by industry. This recognition is a result of Dana's commitment across our organization to reduce our environmental footprint and advance sustainable business practices through innovation. Now I'd like to switch gears and provide you an update on our market and demand outlook for the upcoming year. Turn with me to page 11. Whether it's semiconductor shortages, transportation costs, labor shortages, or drastically rising raw material prices, I think it's safe to say that companies across the industry are having to navigate through unprecedented challenges. While we anticipate end market demand to continue recovering this year, we also expect continued cost pressures through most of 2022 requiring us to actively manage through this challenging environment. We expect the following trends to play out over the course of this year, including some easing of oem production disruptions caused by shortages of semiconductors and other key components we expect markets to remain a bit unsettled in the first part of the year with excuse me with most of the improvement coming through the second half of the year regarding transportation costs with truck driver shortages high fuel costs and drastically increased sea container costs we do not expect to see Costs improve anytime soon. If there is a silver lining, operationally, it would be that we're managing the unpredictable supply chain has almost become the new normal. Hence, we have realigned our procurement and logistics systems to adapt to dramatic real-time events in a very efficient manner. As it relates to labor... we see some stability and availability as the government support programs have largely ceased. However, hourly associate shortages will continue to be a challenge for manufacturers. To put this into perspective, in the U.S. alone, as of December 2021, manufacturing job openings are up 66% to pre-pandemic levels or around 850,000 job openings. And lastly, commodity costs, primarily steel products, are showing signs of retreating. We anticipate that a majority of our input costs will remain elevated through most of the year. Tim will discuss our material cost recovery outlook in just a few moments. As the entire mobility industry navigates these challenges through this year, continued high-end user demand combined with the constrained production have led to historically lower finished vehicle inventory levels at our OEM customers. As the environment improves and input challenges subside, we are well positioned to capitalize on this unique market dynamic of low inventory and high demand that points to a strong and sustained recovery. Moving to slide 12, I will update you on our outlook for our end markets. While we are not completely past the market disruptions of last year, we do expect a significant improvement in OEM production across all of our end markets. As shown by recent third-party forecasts, global auto production is slated to accelerate as the year progresses, and its advantageous position in the popular light truck and SUV markets aligns us well with the recovery as semiconductor shortages abate and dealers begin to fill their order backlog. commercial vehicle and off-highway segments are experiencing similar high demand, Class 8 truck sales backlogs have reached pre-pandemic levels, and finished vehicle inventory for construction and agriculture equipment are at the lowest levels in the last three years, resulting in unfulfilled end consumer demand. For the first time in several years, all end markets and regions are poised to see market growth simultaneously. With that, I would like to thank you for listening today and introduce Dana's new Senior Vice President and Chief Financial Officer, Tim Krause. Tim joined Dana in 2010 and has been a key member of our finance team and has been instrumental in helping to shape and execute our enterprise strategy. Tim, we're glad to have you here today. Please go ahead.