Dana Incorporated

Good morning and welcome to Dana Incorporated's first quarter financial webcast and conference call. My name is Rain 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 will 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 to limit themselves to one question at a time. If you would like to ask a question, please return to the queue. At this time, I would like to begin the presentation by turning the call over to Dean and Senior Director of Investor Relations and Strategic Planning, Craig Barber. Please go ahead.

Thank you, Rainn. Good morning, everyone on the call. Thank you for joining us for our 2022 first quarter 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 are the property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. I'd like to remind you today 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 Camaciscus, Chairman and Chief Executive Officer, and Timothy Krause, Senior Vice President and Chief Financial Officer. Jim will start us off this morning with a little bit different, but we'll flip back to our cover page there, Christy. Jim, take it away.

Good morning, and thank you for joining us today. Before we begin this morning, I'd like to draw attention to the front cover of our presentation where we recognize that 100 years ago this month, Dana, then known as Spicer Manufacturing Company, was listed on the New York Stock Exchange as a publicly traded company. When we joined the New York Stock Exchange on April 19, 1922, we had approximately 1,000 employees and two facilities, primarily making automotive universal joints, which were invented and patented by our company's founder, Clarence Spicer. At that time, our sales were about $4.5 million. Today, the Dana family is 40,000 strong. spread across 139 facilities in 31 countries, with more than 10,000 patents granted and sales nearing $10 billion. You may find it interesting that only 27 other companies currently listed on the New York Stock Exchange have a longer tenure. The company has always persevered through our longstanding commitment to providing industry-leading product engineering and innovation via our Spicer-branded suite of mechanical products and systems. A century later, Dana continues to technologically differentiate not only in mechanical solutions, but now also through our full suite of Spicer electrified, electrodynamic, and e-propulsion systems across all mobility markets. Moving on to slide four. And our update for the quarter, Dana has significantly higher sales in the first quarter, totaling about $2.5 billion, a $217 million increase over last year, representing strong customer demand in our heavy vehicle markets and the recovery of some commodity costs. This strong sales performance is set against a backdrop of some of the most challenging market conditions any of us have experienced in our professional careers, including major global supply chain disruptions, severe input cost inflation, and erratic customer production schedules that are impacting the entire mobility industry. Our profit conversion on higher sales was tempered by these increased input costs and operational inefficiencies driven by erratic customer demand. As is normally the case in our business, free cash flow was a use in the quarter. And as we discussed in our last call, we have higher working capital requirements driven by higher sales, short notice supply chain disruptions, and elevated capital investment in support of our significant new business backlog and launches. And finally, diluted adjusted earnings per share were $0.16 per share. Tim will walk you through the details of our financial performance in greater detail later in the presentation. Moving to the right side of the page, some of the key areas we will discuss today include the impact of rising cost inflation and volatile customer demand patterns. We will also highlight that despite operating within this challenging environment, Dana continues to be recognized across industry for outstanding innovation, quality, and commitment to customer satisfaction. We are also excited to share several new business awards and how we are leveraging our EV capabilities to positively impact the lives of people in developing markets. please turn to page 5, where I will provide an update on the market conditions. The first quarter saw ongoing commodity price increases, record cost inflation, and global supply chain constraints that continue to disrupt our customers' production patterns, negatively impact our operational efficiency, and drive up on-hand inventories. It's unclear if the supply chain will see some stabilization later this year. However, we do expect commodity prices and cost inflation to continue to rise. When our customer supply chains do recover, we expect improvements in OEM production across all of our end markets, resulting in higher sales. Let's walk through each of our markets, beginning in the light vehicle on the left of the page. And market demand remains strong as vehicle inventories continue to be low as a result of disruptions in the OEM production due to ongoing supply chain constraints. As the year progresses, we anticipate that the global auto production output will increase somewhat through the balance of the year. This bodes well for Dana as we have been preparing for significant quantity of launches of refreshed OEM vehicles such as the JLR Range Rover, Range Rover Sport, Toyota Sequoia in Tacoma, and the Ford Super Duty, just to name a few. Moving to the middle of the slide, the heavy vehicle markets are also experiencing similarly high demand, with fewer OEM production disruptions than we are experiencing in light vehicle. In commercial vehicle, Dana is not only well positioned to support pent-up current demand, but we're also intensely preparing for previously announced new business growth. In North America, we're expecting volume improvement combined with significant medium-duty EV launch activity at our customers. Globally, demand remains strong for electric drive systems, especially for transit buses in Asia, and we expect EV demand to continue Moving to the far right, market demand in off-highway remains strong as backlogs have reached pre-pandemic levels and finished vehicle inventory for construction and agriculture equipment are at the lowest levels in the past several years. Additionally, we have seen minimal customer disruption as a result of the conflict in Ukraine. While all end markets are poised to see market growth simultaneously this year, we expect inflation and commodity costs to continue to increase during the period of volatile demand. Turning to slide six, I'd like to share with you how Dana's passion for customer satisfaction continues to be noticed across our industry. During these challenging times, it's especially important to remain focused on our customers, which in turn help to drive our success. To this point, I'm pleased to share with you that Dana earned major customer recognition across all three of our end markets in the first quarter. Starting on the left side of the page, Dana was named an Overdrive Award winner as part of GM's 30th Annual Supplier of the Year Awards. Marking the fifth consecutive year, we have been honored as a top GM supplier. This year, we're recognized for our leadership in advanced battery cooling technology, which is extremely critical for EV performance and reliability. This award is reserved for suppliers who display outstanding achievement across the global purchasing and supply chain organization's key priorities, including sustainability, innovation, relationships, total enterprise cost, launch excellence, and safety. To be a recipient once again of this prestigious award, while persevering through one of the most challenging years that history has ever faced, is a testament of our team's resilience and commitment to pursuing sustainability and innovation. Moving to the middle of the page, Dana was also recognized by PACCAR with their coveted North America Supplier Performance Management Achiever Award for 2021, with numerous Dana facilities receiving the 10 Parts Per Million Quality Award. Considering the ongoing disruptions and uncertainty facing our industry, these awards truly highlight the tremendous focus and dedication our team has delivering quality products no matter the business environment in which we are operating. Lastly, Dana was honored for the fifth consecutive year by John Deere for Supplier Excellence, Best Quality, Innovation, and Best Process Alignment. The Best Process Alignment Award is a result of all Dana functions engaging with the customer to create value and improve customer satisfaction throughout the entire product cycle. Dana's passion for customer centricity is core to who we are and how we run the business. Being recognized by some of our most important customers is a true honor, and it further illustrates the commitment we have to providing our customers the world-class innovation, quality, and customer service. Turning to slide seven, I'm excited to share how Dana secured a leading position across the Automotive News PACE and PACE Pilot award programs. Earlier this year, we announced that Dana leads this year's Automotive News PACE and PACE Pilot Awards program with five innovative electrification technologies being named as finalists. The PACE Awards represents the highest level of recognition in our industry. These prestigious awards distinguish suppliers for their game-changing technologies that deliver superior innovation, technological advancement, and business performance. For this year, Dana was named a PACE finalist for our complete e-propulsion and e-power systems, Dana TM4 high-performance inverters, and metallic bipolar plates for fuel cell stacks. In addition, our electric rigid beam axle and composite battery enclosure with integrated thermal management were both selected as finalists for the PACE pilot award. which recognizes pre-commercial, post-pilot animations in automotive or future mobility space, including products, processes, software, and IT systems. Over the last decade, Dana has won three PACE Awards, two Partnership Awards, and has been named finalist 12 times. Whether it's individual components, fully integrated systems, or complete vehicle e-propulsion, we are leveraging our expertise in design, engineering, manufacturing, and integration to meet electrification needs of our customers across all mobility segments. Slide 8 highlights the depth of our industry-leading driveline solutions, as well as a steadfast commitment to partner with our customers to meet their unique vehicle platform needs. We're very excited to share with you that Dana Spicer driveline technologies, including our drive axles, front steer axles, and drive shafts, are featured on the Work Truck Magazine 2022 Medium Duty Truck of the Year winner, the Ford F650 and 750. And our award-winning technology was also featured on all five of this year's finalists. In fact, Dana has provided the complete driveline on 13 of the 15 winning vehicles beginning in 2008. The Truck of the Year winner is chosen by the real-life professional fleet managers who are asked to select the truck that best fits their fleet requirements as it relates to durability, quality, servicing, maintenance, and lifestyle cost. It's a tremendous honor to be able to partner with our customers as they provide vehicles to the marketplace that impact real people who are running businesses and providing services. Turning to slide nine, I'll provide you an update regarding an exciting new electrification win for Dana in our light vehicle segment. Dana has been at the forefront of developing and manufacturing electrified vehicle powertrains for some of the world's most recognized brands in the heavy vehicle markets. If you recall, last fall at our Capital Markets Day, we shared with you how electrification adoption is rapidly accelerating in the light vehicle segment and that there are a number of new programs that Dana is working on with major customers. Today, I'm pleased to announce that Dana has been selected as the electrification partner for a major light vehicle OEM for multiple all-new EV programs. While we're not able to name the customer at this point, I can share with you that it is a significant multi-year relationship, which we expect to be worth over a billion dollars in sales for us. The first models are slated for production in the next few years and will include our integrated complete e-propulsion systems providing greater than three times the vehicle content versus your traditional ICE drivelines. Consistent with our commercial vehicle and off-highway customers, our light vehicle customers recognize and are capitalizing on Dana's complete in-house e-propulsion capability, including but not limited to inverters, e-thermal, software, motors, controls, and, of course, e-mechanical capabilities to differentiate their vehicles in the future. Moving to slide number 10. Speaking of electrification, off-highway is one of the fastest-growing segments in the mobility industry. And, as you would expect, Dana is at the forefront, partnering with our customers to meet their unique electrification needs in construction, underground mining, material handling, and agricultural applications. Again, during our Investor Day in September, we outlined the new opportunities that are emerging and showcased how we are working with new and existing customers to further penetrate this market. As slide 9 highlights, we continue to build on that momentum by winning new EB programs with a number of important customers, including Arcimoto, Hyster Yale, JCB, Polaris, Gagne, Takichi, and Toro, among others, to provide our advanced electrified solutions for a broad range of applications. This includes mini excavators, boom lifts, port equipment, electric loaders, access equipment, motor support, and recreational vehicles, and lawn and turf equipment. As we continue to see the expansion in our addressable markets, we are able to support a wide range of vehicles by leveraging our capabilities across many different applications to achieve maximum efficiency, productivity, and performance for each vehicle. A great example are mini excavators, which are rapidly transitioning to electric power. This is one of the fastest growing segments in the construction market with a five-year growth rate of about 30%. It's a market that Dana did not historically participate in, but our multi-market mobility capabilities and scale are positioning us to secure several new business wins for electric versions of this equipment. Whether we're providing electric drive systems or low-voltage motors and inverters, the key takeaway is that we are working in lockstep with our customers to ensure that we are on the forefront of the transformational EV growth in these new markets, and the result is increased content per vehicle for Dana. Turn with me now to slide 11, where I'd like to illustrate how electrification is not only about protecting the environment, but it's about impacting people's ways of life. Sustainability directly aligns with our leadership in vehicle electrification and is critical to supporting our customers as they work to achieve their goals. But sustainability is more than just efficiency and protecting the environment. It's about helping people to live better lives. That is why I'm so excited to be sharing with you that Dana is leading efforts to provide the e-powertrain for the world's first flat-pack utility vehicle destined for emerging markets in Africa from Ox Delivers, a U.K.-based zero-admissions smart logistics company. To support these efforts, we've been able to leverage current capabilities and designs to supply the Ox truck with our electric motor, inverter, e-gearbox, and software, which are engineered to tackle the toughest terrain. The systems will be shipped as a flat pack and assembled in the destination country, providing efficiency and ease of use for Ox and helping to advance prosperous trade in rural emerging markets while driving sustainability. We are proud to be partnering with Ox on this important initiative. It illustrates how Dana's guiding vision towards zero-admissions future is focused on what is most important, people. Thank you for your time today. Now I'd like to turn it over to Dana's CFO, Tim Krause, who will walk us through the financials. Please go ahead, Tim.

Thank you, Jim. Please turn to slide 13 for our first quarter 2022 results compared to last year. Sales were up $2.5 billion, driven by stronger demand in our heavy vehicle markets and recovery of commodity costs partially offset by currency impacts. Adjusted EBITDA was $170 million. Profit margins in the quarter were 340 basis points lower than the same period last year, despite higher sales. Due to margin compression from inflationary costs, including higher costs for labor, energy, transportations, raw materials as well as operational inefficiencies resulting from customer supply chain challenges and customer schedule volatilities. Net income attributable to Dana was $17 million in this year's first quarter compared to $71 million last year. The difference was primarily due to lower adjusted EBITDA. Diluted adjusted EPS was $0.16, $0.50 lower than the prior year due to lower adjusted EBITDA and lower earnings from equity method affiliates. Free cash flow was a use of $237 million compared with the use of $26 million in the first quarter of 2021. The higher free cash flow use in this year's first quarter was driven by lower earnings, higher working capital requirements, and elevated capital investment in support of awarded new business. As we discussed last quarter, we continue to work through higher inventory levels driven by customer supply chain challenges and customer schedule volatility. Please turn with me now to slide 14 for a closer look at the drivers of sales and profit change for the first quarter. First, organic sales growth of $82 million was driven by higher demand, primarily in heavy vehicle segments, and to a lesser extent, recovery of some cost inflation from customers. Adjusted EBITDA on higher sales was a loss of $35 million for a margin headwind of 170 basis points. This loss was driven by input cost inflation and continued operational inefficiencies brought about by volatile customer production schedules, primarily in our light vehicle markets. The inflationary impact in the quarter was significant, totaling about $45 million in organic profit reduction. Second, as we began in our 2022 outlook in February, We are detailing the impact of EV sales on our results. For the first quarter, EV product sales grew 68 million from the same period last year. The profit impact from the required investment in engineering to develop and commercialize these new technologies drove a $7 million loss in Q1, a margin headwind of 50 basis points. Third, Foreign currency translation reduced sales by about 55 million as the dollar increased in value against foreign currencies we transact in, principally the euro. This drove a slight profit margin impact as our largest euro exposure is in our higher margin off-highway businesses. Finally, commodity costs, primarily steel, continue to rise in the quarter. Gross material costs were $138 million higher in this year's first quarter compared to 2021. Though our commodity inflation recovery mechanisms, we recovered approximately 88% of our commodity cost increases from our customers through higher pricing. The net impact of rising costs and higher recoveries resulted in a $16 million profit headwind and 115 basis points of margin deterioration due to the lag in timing of customer recoveries. Please turn with me to slide 15 to look at our free cash flow for the first quarter of 2022. While it's normal for our business to use cash in the first quarter, this year our use of cash was $237 million, which was $211 million higher than the previous year due to lower adjusted EBITDA, working capital requirements, and higher capital spending, each of these contributing about a third of the change. Higher working capital requirements in this year's first quarter is primarily due to increased accounts receivable due to higher year-over-year sales. Elevated capital spending is due to the timing of investment in support of new business and program launches. Please turn with me now to slide 16 for an update in the market dynamics that are impacting our business. We continue to track the main factors challenging our end markets and our operations. While production disruptions continued in the first quarter, we are expecting some easing of OEM production volatility caused by shortages of semiconductors and other key components in the latter part of the year. This assumes China returns to normalized port operations during the second quarter. We do not expect the issues driving higher transportation costs to abate this year. Issues such as the conflict in Ukraine, while not directly impacting our operations, have caused an already stressed global transportation network to adapt and has increased costs to reroute shipping lines. We will continue to actively manage our supply chains to mitigate the impact where possible. The most acute concern have been the rapid rise in inflation of input costs and continued rising commodity costs. Higher prices for energy, transportation, and labor were a $45 million headwind for us in the first quarter of this year alone. We expect these inflationary pressures to continue throughout the year as we work with our customers and supplier partners to mitigate these impacts. When we guided last quarter, we anticipated some modest easing of commodity costs, primarily steel products, later this year. Given global events and tight supply market, we now anticipate steel and other commodity prices will remain at elevated levels this year. To highlight the scale of the swings, price forecasts for scrapped steel, a key input to many of our steel products, has increased over 80% since February alone. The combination of rebounding volume and increased cost recoveries are driving up sales, while higher input costs and lag in associated recoveries continue to pressure margins. Please turn with me now to slide 17 for a look at our revised full year guidance for 2022. We are updating our full year financial guidance to account for the cost inflation pressures that we now expect to continue for the remainder of the year. We now expect 2022 sales to be approximately $10.1 billion at the midpoint of our guidance range, an increase of about $225 million above our previous expectation, driven by stronger end market demand and cost recoveries. Adjusted EBITDA is now expected to be about $820 million at the midpoint of the range of our guidance, which is lower by about $130 million from our prior guidance due to the continuation of elevated commodity and input costs. Increased sales and lower profits will generate margin that is expected to be approximately 7.8% to 8.4%. Free cash flow margin is expected to be approximately 1.9% to 2.3% of sales. Diluted adjusted EPS is now expected to be $1.30 per share at the midpoint of the range with the change due to lower earnings, higher expected income taxes, and lower equity income. Please turn with me now to slide 18, where I'll highlight the drivers of the full year expected sales and profit changes from last year. Beginning with organic growth, we took to add about $685 million in sales from traditional products through a combination of new business, market growth, and recovery of cost inflation. Adjusted EBITDA on these higher sales is expected to be about $75 million. Included in the organic element is the impact of inflationary costs, including labor, energy, and transportation. We are estimating that these incremental costs will total about 120 million net of recoveries. Adjusting for inflation, our conversion on total organic sales growth is expected to be about 27%. We expect $200 million of added EV product sales this year. This is a combination of market demand and our strong backlog. Due to the required investment for development and commercialization, we expect incremental EV EBITDA to be a modest loss. Next, we now anticipate the impact of foreign currency translation to be a headwind of approximately $200 million to sales primarily driven by the Euro with minimal impact to margin. Finally, we expect commodity costs remain elevated through the year. We anticipate recovering about $470 million from our customers in the form of higher selling prices, while higher prices for steel and other commodities will result in a net profit headwind of about $20 million. Please turn with me to slide 19 for an outlook on free cash flow for 2022. We anticipate full-year free cash flow to be about $215 million at the midpoint of our guidance range. This is an improvement of about $425 million compared to last year. The benefit is being driven by lower working capital requirements, specifically lower inventory. We've been operating with higher than normal inventory levels as a hedge against both an unreliable global supply chain and unpredictable customer demand and build patterns. As these two factors stabilize, we should be able to drive our inventory levels down as we move throughout the year. Page 20 provides an updated summary of our outlook for the remainder of the year, which highlights an expected outcome of higher sales growth muted by cost inflation. We remain committed to capitalizing on the strong drivers of growth, including the accelerating EV market and our growing backlog as we continue to work to offset the inflationary pressures that are plaguing every corner of our industry. Our core business remains strong, and we are not wavering from our commitment to future technology. We have a rock-solid balance sheet and the right assets in place to push through yet another challenging year. Thank you all for listening this morning. I will now turn the call back over to Reen so we can take your questions. Thank you.

Thank you. At this time, we would like to begin the Q&A session. If you would like to ask a question, Please press star followed by the number one on your telephone keypad. Your first question comes from Colin Lingen from Wells Fargo. Your line is open.

Oh, great. Thanks for taking my questions. Can we go back to slide 18 where you talk about the walk? I just want to understand, the 685, that was up from the original guidance. Is that related to the inflation, or are some of the markets coming in better? I wasn't sure where sort of those buckets kind of go, because I would assume the inflation hits your margin more than the sales. And if so, like, what markets are actually coming in better?

Hi, Colin. This is Tim. So it's a combination of both higher-end market demand as well as recovery of inflationary costs. So we continue to see – positive in-market demand, well, across all of our markets, but the heavy-duty markets or heavy vehicle markets continue to sort of lead the way.

Okay, so heavy-duty is better. And of the 120, is that different than the raw materials, or is that 120 headwind that you're expecting also include raw materials?

No, the 120 is solely non-commodity inflation-related costs. Got it, okay.

And then just going on slide nine, the $1 billion, I think you said it was over the life, a $1 billion light vehicle propulsion win. Is that your sort of first win in light vehicle market? Because, I mean, most of the headlines I recall being more medium and off-highway. And then any color on the kind of product? Is this more like a light truck like most of your core business? And is this, you know, gearbox, e-motor, inverter, or what is actually included? Yeah.

Hey, Colin. Thanks for the question. This is Jim. I would say it's our largest full complete e-propulsion system when you're talking about motors, inverters, gearbox, et cetera, and other. I can't go a lot deeper than that, so it's the largest in that. But as you recall, we've talked about multiple other wins. Let me just think back. The last meeting, we tried to give you a little bit each month, or excuse me, each quarter. I think last quarter, we talked about Aston Martin, so on and so forth. But from a scale standpoint, this is the largest with the full e-propulsion system, if you want to call it vertically integrated by Dana. Got it.

All right. Thanks for taking my questions.

Your next question comes from Aileen Smith from Bank of America.

Good morning, everyone. I wanted to ask the first question around cost inflation. And on the one hand, you have the commodity cost recoveries with your customers that are contractual and you're making good progress on that front. But the cost inflation is everywhere. And you pointed out and you've commented a couple of times the 120 million net expected impact in your outlook. It's clear to us that automakers have been successful in passing on incremental costs, whatever form it may take. to their customers in the form of price. So based on your experience with inflation and discussions with your customers over the past few months, are automakers more receptive to maybe taking on some of the incremental cost burden beyond commodities? And do those or can those come in the form of recoveries or rather just help from a pricing or booking perspective for new business?

Thanks, Eileen. I'll take that one. This is Jim. I think the key question is just to have a little bit of tongue-in-cheek with you is define receptive. From the standpoint of are there discussions now in the playbook between suppliers and OEMs on the key, the new buckets, if you want to call it that, energy, freight, labor costs? Absolutely. Absolutely. Are they going to get on a fast horse to be kind of closed loop like the commodity programs we've all collectively put in between the customers and suppliers over the last 20, 25 years? No, they're not there yet or whatever. Depending on how things go here, it's not as if the supply base doesn't know how to adapt to that, and we don't know how to provide the information. If you take hyperinflation countries such as, I'll make one, use one such as Argentina, we operate in that type of environment every day, and we have for years with monthly true-ups and all the other things that go along with it. I can tell you that there's plenty of discussion about what to do with the other three pillars, because at the end of the day, as I've said on every, I think almost every quarterly earnings call I've had with all of you, is just that the OEMs have definitely adjusted to be much more flexible and to work with suppliers more since the 2008-2009 crisis, because without a stable no snow vehicle production. So they're a lot more receptive to the conversation, but because it's really much newer, especially in markets such as North America and Europe, that it's taking some work and there's some wood to chop for all the suppliers to get that done.

Got it. That's helpful commentary. And then second question, I wanted to get some clarity around the EV business. You cited, I think on slide 14, that investment in the growing EV business is offsetting profit contributions. from early low-volume programs. And I think Tim mentioned that, you know, in total, the incremental EV business is expected to be a modest EV loss for this year. The early low-volume programs being profitable outside of investment in the business, would you say that's better than expectations? And what confidence does that give you in terms of some of the targets you provided at your Capital Markets Day last year, specifically what I think was adjusted EBITDA break-even around 2023 and then adjusted EBITDA accretive by the end of the decade?

Yeah, I'm not trying to be direct with this, Jim, and I'm not trying to not be direct with the answer, but I would almost tell you it's a little bit too early to tell to give you any direct answer on profitability on new programs versus other more traditional programs. It's just because most of our programs, as I said in my prepared remarks, we're starting to see a lot of the medium-duty programs start to roll in towards the end of this year. We'll have a lot of new business, electrification programs, both mechanical, e-mechanical, as well as full 3-in-1, 4-in-1, 5-in-1, 6-in-1 programs starting into next year. So there's a lot of moving parts here, especially with everything going on, that I'd rather not comment on where that profitability is. I am comfortable that they're going to, our programs are going to meet our hurdle rates at which we invested in them. So I feel good about that. But other than that, I can't really give you any other commentary at this time.

Okay, understood. Thanks for taking the questions.

Your next question comes from Brian Johnson from Berkeley.

Yes, good morning. Looking at page 22 and continuing the theme of working with customers for reimbursement for non-indexed costs, it looks like, just as I look at the waterfall, that the off-highway and commercial vehicle customers either are more receptive or perhaps you have less rigid, more flexible pricing arrangements with those than light vehicles. I mean, first question is, is that a fair assessment of the difference between PT and LV, light vehicle and CB and off-highway?

Yeah, traditionally, Brian, thanks for the Thanks for the question. This is Jim again. Yeah, traditionally, that's the nature of the business for a multiple of different reasons. That's the case. And that's kind of what I was alluding to back to when I was talking about more so for light vehicle. Traditionally, commodity programs, as you know, you and I have talked about it directly before, commodity programs have been instilled over the course of the years. But there hasn't really been a significant reason to do it. until now in the more established mobility markets such as, you know, America, Canada, Western Europe, et cetera. So the answer is yes, there's better programs or more detailed programs in some of those markets than there is in the light vehicle, but we're working on it and I think all suppliers are working on it.

And do you see just kind of broadly for the industry, light vehicle industry, either a way to amend the existing procurement agreements to put in These are all buzzwords from the 70s, COLAs, inflationary adjustments, or is it something that's going to be ad hoc on the existing book of business, which then is the second question, which we did hear from Sensati yesterday. New contracts will get signed with the 70s-style inflationary protections or Brazilian or Argentine-style inflationary contractual terms.

I think you'll see some of that maybe, but I would say it's going to be on a customer by customer basis. And I'll use a different set of words. Will there be potentially indexes put in for freight in the future, indexes put in for labor in the future, or energy in the future? I think you're going to see some of that on a customer-by-customer basis. There's actually some customers, no matter what the end market, are very bullish on getting that in. They'd rather have it be a transparent activity between the supply base and the customer, so it kind of takes the noise away from the rest of it. There's others that are not. So it's going to be a case-by-case basis. It just feels a little bit, Brian, like deja vu of where we were 20, 25 years ago, putting programs in for copper and for resin and for steel and for everything else. So we're working on that. And, again, every customer is a little bit different.

I remember when John Devine switched from fighting off those requests at GM to actively pursuing them at Dana. So good luck.

Your next question comes from James Piccarello from BNP Paribas XA.

Hey, good morning, guys. Good morning. Can you hear me? Yeah. So congrats on the light vehicle EV program. Just wondering, can you confirm what was mentioned, you know, over there was a billion dollars in revenue over the life of the program. But the question I really wanted to ask was, you know, Are you providing the complete rear e-axle for those two vehicles shown on slide nine? I mean, I assume your axle is included, but I mean, I suppose given Dana's complete portfolio that you could just be providing the mounted e-drive.

Thanks for the question. For the audience, I would say like it usually is. Those are representative pictures. In this case, you know, that was a shelf photo, I guess we would call it around here. So we definitely do not get out in front of our customers to say exactly what the propulsion system is going to be. What I will, as I said in my prepared comments, and I'll just reinforce, it is definitely the full system, inverter, motor, gearbox, software, et cetera, that... that we're providing to the customer. But that's the extent I can give you today.

Okay. Fair enough. And then, you know, light vehicle seems to be getting hit the hardest by, you know, current cost pressures. Just wondering if you could kind of split out what, given the last two quarters in light vehicle, I mean, what attributes to the erratic performance stop starts by your your key customers right i mean we understand the inflation and the commodity pressure but what really is tied to that those inefficiencies just from the customer uh you know the lack of visibility with your your you know your key customers yeah i i don't want to get in front of i don't want to get in front of the customer i think they're going to provide you plenty of color uh or already have relative to the challenges that they have i can only represent that you know it's a uh

We're all in manufacturing, let's put it that way. We're all in a global integrated supply chain. So I'm sure they're challenged with exactly what we're challenged with is that it's a tier one, tier two, tier three, tier four, you name it, all the way through the pipeline. And there's just starts and stops of what that would be. Again, based on public information, I'm not saying anything at school. Microchips is certainly... It's got to be the biggest challenge out there, but it does create some havoc. And, you know, what has become a bit of the new normal in a way, it doesn't necessarily eliminate the production inefficiency we've had. I can tell you, speaking on behalf of Dana, we've adapted our business to be much better at adjusting to kind of like immediate term change on schedules and output from our customers. But it's still a real issue and a real challenge that until things kind of calm down out there, we're going to have to deal with it.

Got it. And if I could just squeeze one more, just back to profitability around electrification. And now that you have, you know, with this light vehicle program, obviously you haven't started to ship it yet. But as you think about, you know, commercial vehicle, off highway, light vehicle, is there going to be a material difference in the profitability for the EV programs that you have won and will win in the future? Sure. Will the margin differential be similar to what it is today in combustion?

Hi, this is Tim. So I think it's a little early to break down either the new program or some of them. Obviously, we see a pretty sizable uplift in content per vehicle. And as Jim mentioned, the programs are all coming in. you know, above our hurdle rate. And we expect, as we laid out last year during the investor day, a cadence of breakeven and then positive contribution to EBITDA, you know, after that point.

Understood. Thanks.

Your next question comes from Emmanuel Rossner from Deutsche Bank.

Thank you. Good morning. First question is on the commodities inflation. Can you give a little bit more detail around how you expected this to play out for the rest of the year, the push and pull between commodities hit and recoveries? Looks like the gross hit that you expect now for the year is probably twice as high as what you saw three months or so ago. But then the net is really only 50 million higher or so. And then Also, this 20 million net headwind for the year is pretty much what you saw in the first quarter. So does that mean that for the next three quarters, commodities should be neutral as a factor?

Yeah. Hey, Emanuel. It's Tim. Yeah, you're seeing it right out. Obviously, we've seen a very dramatic uptick in commodities over the first quarter. You can see it in SBQ, scrap, nickel, aluminum. They're all at significantly elevated levels than from where we started the year and from where we were expecting them. So that's why you're seeing the increase in in that recoveries on the top line. Yes, we don't expect significant further increases. There's some in there, but we do think that they'll start to moderate as we get into the back half of the year, really late in the year, which is why you're seeing the recoveries for us come in at around 96%. It's reflecting a little bit of that catch-up in the lag.

In terms of, I guess, walk for the next three quarters or so? I mean, is it fair to say, based on what you're showing, that you're essentially expecting recoveries to catch up to be basically offsetting the complete hit?

Yeah, I mean, there'll be some variability by quarter, because the The decrease we're seeing or the slight decrease we're seeing in base commodity costs won't be until later in the year. So it's not like you'll see it next quarter. So there will be some variability in there by quarter. Okay, thanks.

And then I guess looking ahead on this factor as well, how does this recovery mechanism play out as you move into next year? Like would there be still more? Like assuming commodity stay at this higher level, would there still be more, you know, catch up in terms of additional recoveries next year, which would then become a tailwind? And I guess sort of like, you know, broader picture, obviously I assume that, you know, your previous 2023 targets are going to be difficult to achieve at this point, but I guess what would be required for you to, you know, eventually achieve them? Like is there going to be, a period of time where you could recover some of these headwinds, assuming the prices stay stable.

Yeah, I mean, I think obviously a more stable commodity environment would be very helpful in terms of stabilizing the changes in profitability. But obviously, if commodities stay at the higher levels that they're at today, ultimately the lag will be caught up. But if they stay elevated, then the margin pressure we've seen, while we'll be abated a little bit, we'll still be there because we typically aren't recovering 100% of those commodities.

Okay. And then on the non-materials piece, the inflation expectation of net $120 million, are you embedding some recoveries in there? Are there some you know, discussions going on and then potential for better outcomes in the back half of the year? And then how does this $120 million compare with, I guess, what was previously embedded in guidance?

So I'll take the last piece. The current 120 is obviously higher than the headwind that we had assumed in our guidance in the first quarter. That's obviously a reflection of what's going on from a macro perspective across all of our end markets. Yes, the 120 is a net number. And, you know, as Jim mentioned, you know, we're in, you know, really on a daily basis talking with all of our customers across all of the end markets about recovering these higher costs. And we'll continue to do that, and the teams continue to make really good progress with all of the OEMs across the end markets.

But this already assumes some recovery.

Yes, it does.

Okay. Thank you. Okay.

Your next question comes from Dan Levy from Credit Suisse. Your line is open.

Hi, good morning. Thank you for taking the question. I wanted to just follow up on that last question from Emmanuel. Maybe you can just elaborate a little more on the non-commodity inflation headwinds. I think in your prepared remarks that you mentioned, it's energy, it's labor, it's transport. Is any one of these the dominant factor And just how should we consider these, you know, should we consider these as temporary or permanent? That is just not, you know, going to come out and maybe you can have discussions with your customers. But for now, we should just assume this is permanent in the cost structure.

Yeah, I think obviously as you look across, they're all a little bit different. I would say labor tends to be a little more permanent than freight. Obviously, freight's contingent on many things, some of them very macro-based in terms of the economy and then obviously very micro-based in terms of the availability of sea containers and port congestion and the like. So I think, and the same is true for energy, right? We saw dramatic increases in energy, especially in Europe, as a result of what's going on in Ukraine and the issues around supplies of natural gas and other energy products into Europe. You know, it's very hard for us to make a call on are they truly permanent? Are they going to be here for a while? I think our view is we're going to continue to monitor them and work with both our customers and our suppliers to try to mitigate what we can around them.

these impacts but but it looks like they're going to be with us at least at least in the near term and probably into into the future for just to some extent Jim I don't know if you I just put a just a final point on that a little bit and again as it relates to it it all depends on end market and all depends on customer and it all depends on your role on what I'd like to call is your role on roll-off business right so if you have programs that are long in the tooth that are ready to build out and new programs are rolling in those are obviously going to get reset and reestablish your points of cost and if you're in end markets where it's appropriate and if you work through it with customers that are really keen on ensuring that there's a reasonable profitability coming out of the program so everybody's healthy etc and it's going to be different on a case-by-case basis so Tim's right we don't know exactly what's going to happen on sea container costs these days or energy costs these days and so on and so forth. But we do have a playbook either on the pure recovery for programs that will stay in production or new programs that are rolling on. And we, as I think I mentioned earlier in my prepared remarks, we have a significant of a new roll on business coming our way this year and really in the next 18 months. Thank you.

Great. And then just as a follow-up, and you mentioned it's going to depend on, you know, end market and customer engagement. You know, when we look at the first quarter results, we see just very stark contrast between light vehicle and off-highway. So maybe you can just give us a bit more color on how inflation and the operating inefficiencies are hitting the segment differently, because it is just interesting to see that off-highway is doing still really well, pretty good conversion. Interesting, actually, that all of your or a lot of your Europe exposure is is in off-highway and yet really no impact from what's going on in Ukraine, but light vehicles seem to be hit much harder. So maybe you can just give some color on how the inflation and inefficiencies are hitting your segments differently.

Yeah, I feel almost like a macroeconomist, I guess, because I've got to talk about all the end markets. But no, it's good because it actually helps us as a company because we see different trends and different inputs to help us manage through the other markets. But anyway, the point of the matter is just that I can, without going on for hours, the two big picture things to think about in that is recovery percentages across just not commodities, but the other input costs is the biggest difference on that. And the second one is volume matters. And what do I mean by volume matters? If you have a customer in one market that's a low volume, high complexity market, and they end up having different interruptions, short notice stoppages, so on and so forth, obviously your ability to control cost and the impact on having, for example, full plant or full plants full of people on site already or whatever example you want to use it's going to it's going to multiply faster in the larger plants larger volumes so therefore you can see the impact when when you have customers in the light vehicle segment that are going to be more sporadic it's going to have just pure statistics in math you're just going to have a bigger impact on the business than it would on low complexity lower or high complexity lower volume facilities such as an off-highway and to a lesser degree in commercial vehicle

Great. Kim, if I could just squeeze in one more. This is a weaker earnings profile for you and questioning whether the 2023 guidance holds or not. But we know that alongside this, you have this longer term push toward electrification. So very simply, does a weaker earnings profile impact how you think about spending toward electrification or pursuing new electrification? I assume the answer is no.

No, definitely not. I mean, the enterprise strategy, which we outlined originally in 2016 and then re-updated in 2018, I think the picture's worth a thousand words in every earnings deck we show you, including today's. It continues to come together. That is the future of mobility. It doesn't matter which market you're in. And, you know, we're spending quite a bit of money now, and we'll continue to roll on programs. And, you know, without a top line, I don't think you have a bottom line and all the things that go along with it. So we're going to continue to invest as we have. But it's not just that. ICE products are going to be around for a long period of time, and we have very, very healthy – I mentioned a couple of the programs and customers earlier in the prepared remarks. We have very, very strong backlog on ICE. So we're going to continue to have a nice – pivot table of strong backlog on the ICE products for the next whatever number of years are going to be in production, 5, 10, 15, 20. But we also have a really strong stream of electrification products at the same time. I don't know any other way to run a business, but in terms of other than to make sure you have the optionality and that you get your fair share of the market. And I think we positioned the company to do that. We just have to, you can't be at more trough than we in many other suppliers for that matter because of this tsunami of Inbound costs that are coming at us like nobody's ever saw before but we'll work our way through it and I'm not just saying this.

I'm very excited about 2023 and beyond for sure Great, thank you Your next question comes from Ron Leach from wolf research your lines open Hi everybody

I think like a lot of other people, just trying to interpret your comments about adapting to the higher inflation environment, X commodities. So can you just maybe give us a little color about a realistic timeframe for this? You mentioned that it depends on the customer. So does it look like maybe half of your customers are working with you to help recover it and half not? It could take a couple years to feather that into pricing on contracts. And it also, by the way, looks like your conversion on volume includes something that is temporary. It looks like it was weak, even adjusted for inflation in Q1, but much more normal, adjusted for inflation for the year. So maybe you could just comment on what inefficiencies or the magnitude of temporary factors in there.

I'll let Tim give any color. Let me take the second one. Good morning, Raj, Jim. I mean, the inefficiencies, if Tim has some color, he can add it. But I will tell you, at least for our production schedules, particularly in January and February, they couldn't have been more erratic. They couldn't have been more kind of all over the place. So there was a real cost to that. So I'll let Tim kind of put some color to that in a second. And then back to your question really on inflationary cost outside of commodities. I'd like to give you a more direct answer, but it's just a complicated puzzle. How would I take you back again to it depends on the end market recoveries for the reasons I've already mentioned. So on the customers, I'm not saying it isn't a customer basis, but if you take them on kind of a layered effect, We had stronger recoveries in our off-highway side of the business for the reasons I've already mentioned. We got strong recoveries but not quite as solid of recoveries in a commercial vehicle, and we're still working a lot more on the light vehicle. Then it gets into a customer-by-customer discussion. And depending on that customer, the timing, you know, again, it all depends. Some of it I expect more and more of it to come in the non-commodity cost in Q2 and Q3. Some maybe not as much because they may have a different strategy on different things as it relates to those recoveries. So that's a lot of words to say that it all depends, but it usually comes back to the end market more so than it does the customer itself. So I didn't want to overcook that it was a customer piece. Tim, did you have something to add?

Yeah, I think when you think about variability in terms of schedule and production, what you're seeing in the segments is what's showing up with our light vehicle customers, which they've been – you know, more erratic than the other segments. So that's part of what you're seeing when you, you know, kind of compare light vehicle to, say, off-highway. I think the other thing to look at when you look at power tech, you know, that's – That conversion is also impacted by aftermarket and the situation in Europe with Ukraine. So it's a lot of different factors that come in that Jim mentioned, and obviously all of them need to be thought about and then obviously managed. Okay, thank you. And just secondly, Jim, since you're willing to put your economist hat on here for us, obviously a lot of discussion. about the macro environment, and maybe you could just give us your thoughts on how you are reading those tea leaves. If you look beyond this year, do you have more cyclical concerns about commercial vehicle or off-highway, or do you see yourselves as kind of insulated because of pent-up demand? And on the off-highway side, we're looking at high commodities, relatively high ag prices. There's some infrastructure spending. It seems like there are a few things that It actually looked pretty good.

Yeah. Thanks for the question, Rod. I mean, there's a lot of moving parts out there, and I won't play economist, but thanks for allowing me to have a little fun here. But I will say this. The way I look at it is that let's go to the starting point, which is, to me, it is demand, and we have strong demand. This isn't a Dana advertisement. It's a fact. is we have strong demand across all of our end markets. So the secondary question will be our customers' ability to get the supply that they need to be able to produce a vehicle because there's plenty of pent-up demand across all. So I don't see that. Getting back to the broader picture on all the causal factors, everybody on this call probably studies it more than than i do for degree but there's still plenty of concern out there for everybody shane we didn't talk too much about it tim had a little bit of it in the in his prepared remarks does how much of an impact does shanghai ports have on not so much us but maybe our oems across all in markets ability to get product you know we have you know the mobility markets have incredible tenacity and abilities to get things done we've seen that for decades so do i think they're going to overcome i think they will but we just don't know And then when you have those constraints, is that going to be a bigger constraint on this end market versus that end market? Is it going to be a bigger constraint on this customer versus that customer, using that as an example? And so that's a lot of words to say that I'm not exactly sure. All I know is we have a strong demand, and we're prepared for that demand, and we have a lot of roll-on business that's coming at us that we're preparing for at the same time. both in internal combustion engine products that are going to go for a good decade, as well as electrified product, which we all know is going to be the propulsion solution of the future.

Great. Thank you.

Thank you.

Your next question comes from Noah K. from Oppenheimer.

Good morning. So thanks for breaking out the EV business. There have been a couple of questions this morning around profitability there. So if it's possible to clarify, if we look at the $5 million expected EBITDA loss for the year, how much of that is just pure investment spending? Okay.

How much of the $5 million loss is pretty invested? The programs from an individual contribution margin perspective are generally profitable. And what's showing up there is the investment costs related to commercialization, engineering, all that goes into helping to continue to develop and drive what is a very large and growing pipeline of of EV wins. And so that's what's offsetting the contribution margin that's coming from the individual products. If you looked at our investor day last year, right, we show that kind of getting the size of the EV business needs to grow to its critical mass in order to have enough contribution margin to cover that investment. And we see that sort of happening in late 2023. Yeah.

It's fair to say, I mean, if you're front-loading EV investment for future growth, so, you know, I'm just picking numbers out of a hack here, but whatever the investment spending is that's in this year's number, you strip that out and the existing programs are profitable, probably near corporate average or better. Is that fair? That's fair. Okay, great. To clarify the production inefficiencies, you know, just with respect to the choppy customer scheduling, Did that increase in the last few months, particularly post-rush to Ukraine? Is it sustained? Is it better? What's the incremental inefficiency that you've embedded?

Yeah, I would tell you that's – Good question, but almost an impossible question to answer. It's been rough for a good six, nine months, whatever the case may be. I will tell you it was very severe for us, at least in the first couple months of the year, but it started to calm down quite a bit in March, and so we're hopeful that it will continue to calm throughout the balance of the year, especially for Q2, which is obviously right up in front of us. So I wish I could give you a more direct answer, but that would be me trying to speak for, you know, multiple customers across all in markets and everything's a little bit different. So. Okay, great.

And then, you know, Jim, you talked about, you know, the enterprise strategy that you formulated many years ago and, and, and leverage the core. And, and I think it's clear that, you know, the resiliency of the company and, and, you know, the industry is much better now than it was decades ago, but, you know, last three years we've had, I mean, you didn't want to throw China tariffs in there, but then obviously COVID, then the chip crunch, and now much of Ukraine and the commodities inflation, I guess, how do you, when you take a step back, think about strategic priorities to keep pushing the quality of the resiliency of the business forward? Where are the focus areas that we should be looking for?

Um, Let me start with don't let your kid grow up to be a CEO. No, in all seriousness, the way I look at it, it is for all of us. I mean, all of our jobs are tough. I'm just trying to put a little light on a tough situation for all of us, right? You know, how do I think about the most important thing is when I look at it, I ask myself the question, creating value for your customers they call you first or when the door closes they say we have to work with that company to create value for them to sell more vehicles that are going to be more reliable so and so forth I can tell you in behalf of Dana when we leverage the core that's a set of words that means a lot of things but it's mostly it was to leverage all all resources across the company people resources in particular equipment and resources as well to make sure that we've got all the best practices utilized and we're the best of best of everything we've done. And that's working in the spirit of creating value for our customers that our customers are saying to themselves as they move into this disruptive world of electrification, who are they going to bet on to make sure that they're there to create value for them so they can sell more vehicles that are more reliable? I can tell you across all of our end markets, we've positioned ourself. In my view, I'm not saying it's not with any ego or it's not with anything that we feel any entitlement. I'm just saying I think we position the company with all of our end markets to ensure that we're in that position in our continued backlog. I mean, customers just don't decide to pick somebody for the sake of put ourselves in a position to do that so the resiliency having a strong top line having a lot of deep technology behind it and most importantly have the people that can execute it and if you think about how we've tried to build the company or transform the company by doing a lot of acquisitions kind of before maybe other people were looking at electrification or didn't believe in it has been incredibly instrumental in terms of developing our people training our people and and making sure that we're not faking it when it comes down to electrification and supporting our customers. That, to me, is how I define resiliency and being in a position to win for decades to come.

Appreciate the thoughts. Thank you. Thank you.

Our next question comes from Ryan Brinkman from J.P. Morgan.

Hi, thanks for taking my question, which is another one on the light vehicle electrification win on slide nine. I think to date, your electrification wins have been disproportionately on the commercial vehicle side, and I think you'd suggest that maybe your light vehicle electrification wins could be weighted more toward higher torque applications. So just curious to what extent you see yourself as a competitor to others, such as You know, BorgWarner, American Axle, Magna, and the so-called electronic drive unit or integrated drive module market for light vehicles. I understand you're limited what you can say about this particular program. Behind those blue sheets, which might be sort of a template picture, appear to be an SDV and a passenger car. You know, just curious the extent to which you see yourself competing in the electronic drive unit market, even for, like, light-duty passenger cars. And just sort of trying to, you know, size up what you see as your addressable market on the light vehicle electrification side for drive units and your appetite for pursuing programs for vehicles of different sizes, drive configurations, and torque ranges on the light vehicle electrification side.

Well, you're going to make me work for a living today, Ryan. That's a lot. Let me try to dimension it for you here. Let me start with this. As it relates to winds and timing and all that stuff, I call it two words. I call it inflection point, right, which we knew each one of our end markets, even products within the inflection points had hit different points when they were going to come. So we knew back two, two and a half years ago the bus market was coming first. We had to be ready. Then we knew last mile delivery, medium duty, we needed to be ready. And I could go on underground mining, et cetera. We were ready as each of those came. as our product portfolio needed to be ready in the late vehicle side of the business we told you the inflection point would be likely around 2022 and that's essentially what we're talking about here today so it came together in that regard how do i feel about the competitive segment i never underestimate any competitor i respect all competitors those are all really good companies that you refer to only thing i can tell you is we're going to stick to our competitive advantage which is we have the full, I'll call it, three-in-one e-propulsion. It's actually much more complicated than that because it also talks about software and cyber and all the other things that go with it. You can't fake it. And I feel very good that all of the lessons learned and product that we have on the road, in the field, already over the last couple of years continues to grow our talent and depth to be able to support our customers in any end market that goes forward. goes forward. So I think we have plenty of opportunity moving forward. That's how I kind of look at the world. I hope that answers your question. Yeah, it's very helpful. Thank you.

Your next question comes from Joseph Speck from RBC Capital Markets.

Thank you. Maybe just one clarification first on... your new EBITDA guidance, the commodity impact you're saying is now a $20 million year-over-year headwind. I know previously that was going to be positive, but then it was already sort of minus 16 in the first quarter. So the implications, it's pretty limited for the rest of the year. And I just want to better understand, I guess, what your underlying assumptions of inputs are there. Is it sort of current levels, some further inflation, or maybe just some clarifications?

Yeah, hey, Joe, this is Tim. So, yeah, obviously 16 in the first quarter, 20 overall. You know, what you're seeing, and I think I mentioned this earlier, elevated levels of commodities so we'll probably continue to see some headwinds in uh you know over the next couple of quarters and then late in the year we start to see some of those come down albeit modestly and then we'll start to get a get a little of it back which is why you sort of see the 20 overall and 16 in the first quarter and maybe you know having a hard time sort of boxing it but that's um that's kind of the way it goes higher and then maybe some recovery at the end of the year um

Okay. And then look, obviously a ton of questions here on, on, on light vehicle. I mean, I'd be curious if you'd be willing to sort of help us out and help investors out a little bit, maybe just sort of proper set expectations in terms of like what, what is the level of profitability you're expecting there for this year? Because I mean, we could all look at production schedules. You guys have been doing like, you know, call it 900 to a billion dollars per quarter. It seems like that's probably mostly reasonable for the rest of the year, but you used to be doing, you know, double-digit margins, and now you're down to 3%. So how does that sort of, you know, progress through the year? I understand there's both scheduled volatility and inflation, but, you know, at least it sounds like you're hopeful that scheduled volatility can start to get better. So I was wondering if you could just, you know, set the record straight here for us.

yeah um yeah so i won't get into to sort of margins by uh or projected margins by by uh by segment for the year but you know yes i mean we continue to see um vol demand and and that's impacting um in schedules for for customers in light vehicle that are continuing to uh to impact margins in the near term um obviously we're continuing to work we we As Jim mentioned, we're starting to see a little bit of that starting to lighten up and get some good runs out of the customer. That certainly should help on conversion costs for us. And then, obviously, you know, we're continuing to work with the customer for the recoveries on all of the inflationary costs that are – that are continuing to impact the business, especially not just light vehicle, but all the businesses, but obviously with light vehicle. I think Jim mentioned something a little bit earlier that I think is really important. We've got a great number of our light vehicle programs that are going to be rolling off. We've got Global Ranger launching now. We're going to have Super Duty launching. launching near the end of the year. These are all opportunities where the programs will get repriced for a lot of the impacts we've seen over the last few years. And so those should help generate and start moving the margins in the business back to where we know they should be. Okay. Thank you.

Okay, hey, just before I close real quick, I did miss the second half of one of the questions. One of the questions was on the light vehicle award and past car versus truck versus this and that. The other one, I just wanted to apologize for missing it, just to be clear so there's no ambiguity in Dana's strategy. It hasn't not been by accident over the years that we've evolved a strategy to be focused on truck, SUV, and more recently tied in with an acquisition that we did. We didn't get into passenger car, but we did get into the high-performance vehicle market, as we talked about with different examples of Aston Martin, Ferrari, so on and so forth. So to answer the question back to that, because there is a lot of product similarity and synergy between high-torque, high-performance truck SUV and the high-performance vehicle segment, that's why that bridges with our strategy. So I don't want there to be any ambiguity in that. We're not diverting back, trying to be everything for everybody, trying to be in the passenger car business itself. So I want to answer that first. Coming back to the summary comments of the day, like I said a little bit earlier, I believe the enterprise strategy still continues to fall in line exactly the way we would have hoped it would. I mean, this is just a very rocky road out there as it relates to, I can't use the word hyperinflation, they tell me, but I'll call it superinflation that's out there. I do have a lot of confidence in our customers. Our customers are really working with us. quite well. It's painful to go through it, as I think Brian mentioned a little bit earlier today, but that's what we get paid to do, so we'll continue to, you know, charge the hill, and we'll provide you more color commentary around it as we proceed throughout the balance of the year. Thank you all for your time and attention today.

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