Dana Incorporated

Good morning and welcome to Dana Incorporated's fourth quarter and full year 2022 financial webcast and conference call. My name is Rob 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. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as guest. There will be a question and answer period after the speaker's remarks, and we will take questions from the telephone only. To ensure that everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to one question at a time. If you would like to ask an additional question, please return to the queue. At this time, I would like to begin the presentation by turning the call over to Dana's Senior Director of Investor Relations and Strategic Planning, Craig Barber. Please go ahead, Mr. Barber.

Thank you, Rob, and good morning to everyone on the 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 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 Kamsiskas, Chairman and Chief Executive Officer, and Timothy Krause, Senior Vice President and Chief Financial Officer. It's my pleasure now to turn the call over to Jim.

Good morning and thank you for joining us today. Please turn with me to page four where I will discuss our business highlights for the last year and outlook for 2023. Starting on the left side, Dana achieved record sales of $10.2 billion last year, a $1.2 billion increase over the previous year. driven by often erratic but solid customer demand, new business backlog in all of our end markets, and the successful cost recovery efforts. While our top line has grown stronger, input costs continue to increase at a rapid pace due to global inflation and fluctuating industry demand. Adjusted EBITDA for the year was $700 million, down from 2021, as external cost pressures held back profit throughout the year. Despite the choppy operating environment and extreme inflation, I cannot be prouder of how our team managed working capital to generate free cash flow of $209 million, an increase of more than $420 million over the prior period. Lastly, for our results, adjusted earnings per share for the year were 37 cents. Moving to the middle of the page, you can see some of the key themes for 2022 that drove our industry. For the past year, we've been discussing challenging operating environment that our industry has faced. This turbulence included generationally high inflation, customer demand volatility, supply chain disruptions, and currency fluctuations that have created significant external headwinds to navigate and overcome. These challenges have led to persistent negotiations with all our customers as we work to recover these higher input costs. While we've been successful in our efforts to recoup a large portion of them, we were not able to recover all of the inflation and customer-driven inefficiencies or offset the margin impact. Although our cost recovery actions fell a bit short of our expectations last year, I could not be more proud of the entire Dana team for their relentless perseverance and efforts throughout the year. As we all navigated through the unrelenting operating environment, our program launch team members remained focused and dedicated themselves to prepare for the largest volume of new business launches in the company's history. We refer to these programs as roll-on business, replacing predecessor roll-off aged programs that will no longer be in the serial production. Our customers selected Dana for significant growth because, candidly, we create value with them. We can create value in many ways, but one significant way is because we've made the decision early to be at the forefront of powertrain electrification, resulting in complete company transformation. We were very intentional in doing what we refer to as leveraging the core. Over the past several years, we've accelerated change across all aspects of the business by leveraging synergies through our people, customer relations, operations, and technology more than Dana had in its 120-year history. Today, we leverage the capabilities across all our businesses and functions to win in all end markets. There are endless examples of this, but I'll mention only a few. After our commercial vehicle group led our electrification movement on the first adopting buses and last mile delivery vehicles a few years ago, our light vehicle and off-highway team members benefited from these in-house capabilities to establish the same in-house 4-in-1 system capabilities. Another example includes our power technology, ceiling, and IC thermal team reinventing itself to not only position the company to lead in vehicle battery and electronics cooling technology, But they are also deeply integrated in Dana's motor and inverter product lines, serving as one of the four critical elements in a four-in-one e-axle and e-transmission systems across all mobility markets. As a final example, historically, Dana's manufacturing plants were relatively isolated by business units. But for the good of our company, customers and shareholders, through the implementation of one common operating system, we leverage each of our 80-some major operating facilities to create value by driving synergies across all our factories. This has been especially important as we transition many facilities from pure ICE products to electrification products. Later in today's update, I will connect the dots, so to speak, of how Dana's company-wide transformation has led to customer satisfaction and technology leadership positions, which of course also leads to both ICE and electrification revenue growth. Moving to the right side of the page, we have highlighted our outlook for 2023. Beginning with the operating environment, fundamentals are somewhat improving throughout the mobility industry. The OEMs and supply base are addressing gaps such as tiered supply disruptions, labor shortages, logistic constraints, and so forth. While we do not anticipate an immediate return to historical operating stability levels, we are optimistic that demand volatility will ease throughout the year. In today's presentation, I'll also provide you a sense of the magnitude of the number of launches and roll-on business Dana has throughout 2023, and I will share details on the record sales backlog of $900 million over the next three years, which is a $100 million improvement over the prior backlog. We exceeded all expectations in overall sales growth and penetration into electric vehicle programs. This year, we're expecting above-market growth driven by high volumes, improved pricing achieved last year, and market share gains in key segments. Lastly, we will walk you through some examples of exciting new EV program wins in each of the end markets that illustrate the significant sales growth. Our strategy is working to lead in electric propulsion from high voltage to low voltage applications in the markets we selectively operate in. Let's turn to page five, where I will highlight some of the major customer and industry recognition across all our end markets that Dana received over the course of 2022. Slide five shows a sampling of the numerous customer and industry recognitions that Dana received throughout 2022. As you can see on the left-hand side of the page, Dana received no shortage of recognition from our customer base across all in markets and geographical regions. We are honored that they selected Dana as a supplier that exceeded their expectations, which undoubtedly plays an important role when new business sourcing decisions are made by the OEMs. This is certainly evidenced through Dana's ability to grow the business by nearly 75% over the past six years. On the right-hand side of the page, you can see that we received numerous industry recognitions and certifications that reinforce our view that we're running the business the right way. To that end, in 2022, Dana moved up to be the highest ranked among core competitors on the prestigious Drucker Institute list of best managed companies. In addition, we were recognized as a top employer around the world and recognized with numerous sustainability, diversity, equity, and inclusion honors, including being named Newsweek as one of America's most responsible companies and greatest workplaces for diversity. We believe that corporate leaders must make a difference and Dana is making a difference. Let's turn to page six to where I would walk you through the key launches taking place in 2023. Our customers have choices and they continue and trust Dana with many of their most important iconic and technologically advanced vehicles. This is a great honor and responsibility, and it's something we do not take lightly. Over the last several years, we have been preparing to execute an extremely high cadence of launches in 2023. And we've done it, and was perhaps the most difficult operating environment in the history of the mobility industry, all while transforming Dana to be an energy source agnostic company. Shown on this slide, Dana is launching product and systems on these representative systems representative sample of vehicles in 2023. These launches are balanced across IC and electric vehicles, e-propulsion and e-thermal products, mobility end markets, and geographical end markets. In total, we have approximately 120 active launches, including new vehicles, new models, and significant vehicle capacity uplifts that require extensive collaboration across all functions throughout the organization. As such, Dana has invested significant capital to ensure the successful launch of these programs in addition to restoring appropriate pricing to achieve the proper returns. While I won't walk through each one of them, I will draw your attention to a few key programs and highlight several exciting electrification programs later in the presentation. Please note, as we've denoted, EV products with a battery symbol. Starting at the top of the slide, an all-new electric bike program for zero motorcycle that we supply a high-efficiency 900 amp inverter for this application. This is their first e-adventure bike and one of several models that we supply for this customer in the future. Transitioning to the right, we are currently launching the traditional complete dry lines for Ford Ranger and BW Amarok in South Africa. The remaining Global Ranger programs will launch in Argentina and the United States later this year. Moving to the right and down, we're in the process of launching one of Dana's largest programs, the Ford Super Duty. For this program, we supply several key products and systems, including not only front and rear axles, drive shafts, but also numerous thermal and sealing products. The Super Duty program will steadily ramp up throughout the first half of the year. With significant Dana content on this vehicle, there is an added cost associated with the launch. We likely will see a positive impact for this program in the second quarter and beyond. Another key launch is the GM or General Motors Ultima program, which serves as the foundation of GM's electrical architecture that will impact numerous vehicles in GM's future EV portfolio, such as the Silverado, the Lyric, the Equinox, and Bright Drop. You can also see several programs in our off-highway segment, including JLG, JCB, and the Conquest business on the Fendt 700 series tractor. In the bottom right corner, I would be remiss not to point out several of our commercial vehicle wins. While not a traditional launch like you would have in light vehicles, we have been preparing for market share gains with key customers such as PACCAR, Volvo, and Trayton. We're incredibly appreciative of these opportunities and the decades-long partnership we have had with these customers. Continuing along the bottom is the launch of the highly anticipated newly redesigned Jeep Wrangler and later in the year Jeep Gladiator. which combined is one of Dana's largest programs. To the left of the slide, we'll be launching what we refer to as uplift volumes on the Ford Lightning later this year. As we get to the end of the year, we'll be in production on bipolar metallic cooling plates on the Nikola Aveco tray fuel cell electric vehicle. And rounding out the year is the launch of the EV yard truck for Hyster Yale and Toyota's new Tacoma program. Turning to slide seven, we'll talk about growth is I'll walk you through our three-year new business backlog. Before we jump into the details of Dana's 2000 through 2025 sales backlog, allow me to remind you that Dana calculates backlog on a net basis, meaning it includes net sales, net of any losses, and we rebase the starting year and push out the ending year of each three-year period. This methodology provides a clear view of the actual above-market growth. As you will recall, I purposely highlighted the numerous industry and customer awards earlier in the presentation to articulate the often forgotten parallel between providing exceptional customer satisfaction and running the business the right way to winning new business. To this end, Dana has amassed $900 million of sales backlog through 2025, a record for the company. That is $100 million more than our prior three-year backlog, and as you can see in the upper part of the slide, includes 300 million of incremental new sales coming online in 2023. This is the sixth consecutive year that Dana has increased our three-year backlog. Including in this year's 300 million incremental new backlog, business backlog is a number of new programs across all markets. We expect to see an additional $150 million increase over the prior backlog for 2024, which will total 350 million in incremental sales with several important programs coming online for Stellantis, DAF, and Mitsubishi Caterpillar, to name a few. Turning your attention to the upper right hand of the slide, you can see that our sales backlog is well balanced across end markets and regions. And you'll move to the bottom right corner of the page You will notice the EV versus ICE chart shows that 65% of our total $900 million backlog is coming from electric vehicle programs. This is 30% increase from last year's totals is evidence that our in-house electrification and e-thermal management capabilities across all mobility markets are a differentiator that continues to position Dana for success as the world evolves to electrification. The velocity and momentum of our new business wins should continue for the foreseeable future. Turn with me to slide eight for an update on the market outlook. As I've stated in my opening slide, we do expect some improvement in production across all our end markets as we progress through the year. Vehicle inventories have improved but remain below historical levels across all our end markets, while at the same time, end customer demand for key vehicle platforms remains resilient. OEM fulfillment of this pent-up demand should continue to drive production. A quick reminder of how to read the chart on page 8. Our market outlook is based on input from third party forecasters as well as our customers and our own experience. The arrows for the markets and regions indicate the change expected for the year compared with 2022. For production volumes in these key markets, the arrow at the right under the diamond is the net sales impact for Dana from market volume, pricing, and market share changes. Beginning on the left-hand side of the page, in the full frame market where Dana is a strong presence, third-party forecast services are expecting production levels to remain relatively consistent with where we ended last year. Moving to the center of the page, the market for heavy vehicles remains resilient and consistent with last year's as OEMs continue to report strong order books. Remember, that even with disruption impacting production last year, it was still a very good volume year at over 300,000 Class 8 truck builds. And as I mentioned earlier, we are gaining market share in Class 8 trucks, which will drive above market growth in commercial vehicles. Moving to off-highway, as inventory levels continue to rebound for construction and agriculture equipment, we expect agriculture to be flat, while construction and mining demand should both somewhat increase. At the bottom of the page, you can see, on a regional basis, North America and Asia Pacific production is expected to accelerate some in 2023, while Europe and South America remain flat. Overall, we anticipate above-market growth due to somewhat higher volumes, market share gains, and improved pricing, revolting in $300 million in higher sales this year. Please turn with me to slide nine, where I'll share the details of some exciting new programs we are working on. Building on our longstanding relationship with Jaguar Land Rover, I'm pleased to share with you today that Dana will be supplying our Thermaltek battery cold plates and battery electronics module cooling for JLR's three next generation global electric vehicle platforms. Under its reimagined strategy to realize a sustainable driven future for modern luxury, JLR's ambition is to achieve net zero carbon emissions across the supply chain, products, and operations by 2039. Dana has a long association with Jaguar Land Rover, having supplied components to some of its most iconic vehicles for more than a decade. We are looking forward to helping them continue their journey by providing them thermal management products for some of their most advanced and now sustainable vehicles in the world. Please turn with me to slide 10. The Dana Graziano brand is known worldwide for its technically advanced transmission solutions for high-performance vehicles. OEMs such as McLaren, Ferrari, Lamborghini, Audi, and Aston Martin, to name a few, rely on Dana to supply premium driveline products for both conventional and electrified applications. Today, we're excited to share with you that we will be partnering with the global OEM for their next generation of electric sport vehicles for both North America and Europe. Dana will be providing our two-speed electric drive module for several models of their electric sports cars. Our fully integrated electric drive module will help to ensure these electric sport vehicles maintain leading power density and full system efficiency that sets them apart in the marketplace while also helping to further reduce emissions. Moving to slide 11, I would like to shift gears and talk about several new programs for delivery vehicles. Brian G McAdoo, Right drop is a subsidy subsidiary of General Motors that is reimagined commercial vehicle delivery and logistics for an all electric future. Brian G McAdoo, General Motors foreign bright drop in 2021 is a business focused on providing emissions free products for delivery companies and they're moving at warp speed going from concept to commercialization and less than two years. Brian G McAdoo, Dana has supported General Motors over a century. That is why we're excited to continue the relationship by supplying the patented rear axle for all-wheel drive version of the ZEVO 600 delivery vehicle, while we'll also provide the rear axle for the ZEVO 400 all-wheel drive launching later this year, as well as the front-wheel drive version of both the ZEVO 400 and 600 scheduled to launch next year. Please move to slide 12, where I'll share details about an important new program featuring Dana's 4-in-1 e-powertrain system. Blue Arc is part of the shift group, formerly Spartan Motors, and their all new medium duty electric delivery truck is designed for high frequency last mile delivery fleets. The BEV features Dana's electric rigid beam axle 800 volt inverter that is designed to meet today's demanding and complex commercial applications, providing features such as weight reduction, additional payload, greater battery capacity, and increased range and cost savings. Our compact and robust four-in-one system is capable of handling a wide range of both on- and off-road vehicles. BEVs work well for last-mile delivery services since they avoid vehicle idle laws in certain cities and make use of stop-and-go city driving to recharge through regenerative braking. Please go to slide 13, now where I will highlight a recently announced multi-year program for our off-highway segment. As demand for electrified compact construction equipment continues to rise, we are pleased to share that Dana was recently selected by Wacker Newsome Group, a leading manufacturer of construction equipment, to provide the e-propulsion system for its compact construction vehicle lineup in Europe, including an electric wheel loader and electric telehandler. The multi-year program is expected to begin production later this year. It will feature complete vehicle integration of electrodynamic systems, including a data traction and work function motor, an inverter, e-transmission, and driveline controller that through our in-house software development capabilities manages the energy source powering vehicle traction and multiple operating functions, such as hydraulics, AC, vehicle lights, and accessories for Wiedemann and Kramer brands. We're excited about the opportunity to continue our more than 20-year collaboration with Wacker Newsome as we work together to bring this complete e-propulsion system to market, helping to meet the rising demand for sustainability solutions. Thank you for your time. I'll now hand it over to Tim, who will walk you through the financials.