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spk00: Good morning and welcome to Dana Incorporated's first quarter 2023 financial webcast and conference call. My name is Regina and I will be your conference facilitator. Please be advised that our meeting today, both the speaker's remarks and Q&A session, will be recorded for replay purposes. For those participants who would like access to 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.
spk01: Thank you, Regina. And good morning everyone on the call. Thanks for joining us today for our first quarter earnings call. You'll find this morning's press release and presentation have been posted on our investor website. Today's call is being recorded and the supporting materials are the property of Dane Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. Allow me to remind you that our presentation includes forward-looking statements about our expectations for Dane's future performance. Actual results could differ from those suggested by our comments here today. Additional information about the factors that could affect future results are summarized in our Safe Harbor Statement found in our public filings, including our reports with the SEC. On the call this morning are Jim Kamsiscus, Chairman and Chief Executive Officer, and Timothy Krause, Senior Vice President and Chief Financial Officer. I will now turn the call over to Jim. Jim?
spk07: Good morning, and thank you for joining us today. Please turn with me to page four, where I'll discuss our highlights for the first quarter of 2023. Starting on the left side, Dana achieved record first quarter sales of $2.6 billion, $164 million increase over the first quarter of last year, driven by continued steady customer demand, roll-on of our new business backlog across all of our end markets, and our ongoing cost recovery efforts. Adjusted EBITDA for the quarter was $204 million, up $34 million, a 20% improvement over the first quarter of last year. If you recall, it is normal for us to use cash in the first quarter. This quarter, free cash flow was a use of $290 million, $53 million more than last year, driven by working capital required to support our aggressive new business launch cadence and revenue growth this year. Lastly, for our results, adjusted earnings per share for the year were 25 cents, an improvement of 9 cents per share. Moving to the right of the page, I will highlight four of the key items this quarter. First, I'll provide you with an update on the current operating environment and outlook. The company continues to overcome the ongoing challenges that are impacting the entire mobility industry, including inflationary pressures, customer demand volatility, supply chain disruptions, and currency fluctuations. As all of these unprecedented headwinds took their toll on the mobility supply companies between 2020 and 2022, Dana never wavered from our commitment to establish complete, in-house, 4-in-1 e-propulsion product and system capabilities across all mobility markets. We successfully accomplished what we set out to achieve, that is, ensuring that we secured the right product technologies and capabilities, as well as talent and infrastructure, to serve our customers and sizably increase our content per vehicle potential in all of our business units. There are truly no words I can say to capture the appreciation I have for Dana's team, personal sacrifice made to completely transform the business while simultaneously navigating the generational challenges of the past three years. Their efforts helped Dana evolve from a purely mechanical company to the only supplier capable of delivering all elements of a complete, in-house, fully integrated electrified system across all mobility markets. While we established our electrification product portfolio from scratch, we dramatically strengthened our operations and customer relationships, which of course is the foundation for driving sustained value creation in any manufacturing company. As the industrial chaos is starting to calm, Dana is on a very good trajectory moving forward. I will also provide you an update on some extremely complex and high volume new business launches that are currently taking place and share how they will impact us through the remainder of the year. Next, I'll communicate some examples of how we are leading in sustainability. Dana has independently been recognized by numerous leading organizations for our extraordinary commitment to sustainability. In fact, you may have noticed on the cover page of our presentation today that Dana was named one of the world's most ethical companies by Episphere for 2023. Episphere evaluates performance in five major categories of which environmental and societal impact carry the most weight. Again, I'll come back to this important topic and share some additional updates in just a few minutes. Lastly, having provided you with a fairly heavy dose of new business growth via an annual sales backlog update in February, this quarter we'll be taking the opportunity to share a more isolated example of how we are intentionally leveraging some of the most advanced EV innovation in this case from our sports car and super sports car EV portfolio products across numerous applications in each of the other mobility markets. Dana's significant revenue growth over the past six years has not come by accident. Instead, it's come through our deliberate focus on outstanding customer satisfaction, operational excellence, and technology leadership. Please turn to me to page five, where I'll walk you through an update on our operating environment. As we shared with you last quarter, we anticipated an overall improved operating environment in 2023. And while it's still early in the year, so far things are shaping up mostly as we had expected. Beginning with commodity cost and currency on the left side of the slide, we expect to continue the recovery of prior period commodity cost increases through the first half of the year. As commodity costs moderate through the year, our recoveries will also step down with about a one-quarter leg. We are monitoring the index prices for certain grades of steel, which have shown some recent increases, but we still expect commodities to be a profit tailwind this year. The relative strength of the US dollar compared with the number of foreign currencies in which we transact have been more volatile recently but is likely to remain a headwind to sales and profit for the remainder of the year. As we move to the middle of the page, strong operational execution for this quarter has partially offset the ongoing customer production volatility. We are experiencing inflated operational costs for things like energy and labor. However, pricing and cost recovery action should continue to mute most of the impact, resulting in a slight profit headwind from inflation. Moving to the right of the page, demand across all end markets remain strong as vehicle manufacturers are working to meet current demand and restock inventory. Unfortunately, customer order patterns continue to cause inefficiencies in our operations, but we remain focused on implementing changes in our operations to soften the impact. We do anticipate some improvement in demand patterns in the second half of the year. As I mentioned in February, because of our extraordinary operating performance, we continue to realize market share gains and above market growth in our commercial vehicle business. We are very thankful to our customers for entrusting Dana to support them so they can in turn support their dealer and fleet customers around the globe. And finally, age programs as we refer to them that have been battered by inflation throughout 2020 through 22 crisis are starting to build out of serial production lineups of our programs. This year, we are rolling over several of our largest volume programs, and these programs are rolling on with improved economics. As these programs launch and hit run rate later this year, we will see the benefit of this refresh. Let's turn to page six for some of these key launch highlights. If you recall, last quarter we provided you with an in-depth look at the record number of program launches that Dana currently has taking place in 2023, approximately 120 active launches. This includes new vehicles and models spanning our light vehicle, commercial vehicle, and off-highway markets globally, and is balanced across ICE and EV, including e-propulsion, e-thermal products, and e-thermal products integrated within our e-propulsion systems. As you can imagine, this cadence requires extensive collaboration, and our program launch team members are doing a tremendous job managing these important programs and leveraging our capabilities across all our businesses and functions as we simultaneously navigate through arguably the most difficult operating environment we have experienced across the mobility and industrial industries. To support these launches, we have invested significant capital to ensure the success of these programs. As much as we'd like to, we can't speed up the clock, though, and it takes time for our customers to ramp up to full capacity and provide the expected returns. The four programs I'll highlight today are within our light vehicle and market, including two of our highest volume, longest tenured, multi-year programs. Starting at the top left of the slide, the Ford Super Duty is a significant program in both our light vehicle driveline and power technologies group. Dana content included on this family of vehicles include front and rear axles, drive shafts, as well as both thermal and sealing products. This refreshed vehicle program commenced launch acceleration earlier this quarter and is steadily ramping up. We anticipate seeing a positive impact from it in the second quarter and beyond. Moving to the top right is the highly anticipated and newly redesigned Jeep Wrangler. This family of vehicles will feature Dana's most robust and award-winning driveline systems, which delivered unparalleled performance, allowing Jeep enthusiasts to handle some of the most extreme off-road conditions. We are beginning early-stage pre-production activities in the second quarter, and we will be working through the launch cycle involving some higher costs and lower efficiency for the next few quarters. Continuing along the bottom right, our production for the all-electric Ford Lightning will scale up in the third quarter. This high-demand EV pickup has become America's best-selling electric truck. It features Dana's award-winning custom-designed cooling systems, including our extensive range for battery cooling products, which help to stabilize the battery temperature and enable faster charging. Moving to the bottom left, in addition to the Jeep Wrangler, The next generation Jeep Gladiator will feature Dana's drivelines and be in launch mode later in the fourth quarter. This program, combined with the Wrangler, equates to one of Dana's largest volume programs. Again, these roll-on programs are just a sampling of the significant launch cadence we have this year, but they do showcase the scope of our ability to provide class-leading innovation to both traditional and EV platforms of some of the world's most popular and in-demand vehicles. They also reinforce why, over the past several years, we have elevated operational excellence in the organization, that is, to ensure that we are well prepared for this extreme launch cadence. We are off to a great start, and I'm confident that we will continue to exceed our customers' expectations. Please turn to slide 7, where I will provide you with an update on our sustainability initiatives. It's been some time since we provided you with an update on the commitment we have to be a leader in sustainability. And this slide tells you the story of how Dana is leading by example through data driven actions that are moving us towards zero emission future. Doing the right side and creating a better future for generations that follow is a major reason why we committed to being a leader in electrification more than seven years ago when we first introduced our strategy to completely transform the company. Since then, we've successfully taken a number of steps to ensure that we are a leader in the journey towards zero emissions future. This includes our recent announcement to accelerate reduction of Scope 1 and Scope 2 greenhouse gas emissions with plans to achieve a 75% decrease by 2030 and be net zero by 2040. Additionally, we are targeting a 25% reduction in scope 3 greenhouse gas emissions by 2030. We have also committed to achieving targets using science-based approach. After the science-based target initiative validated our 2022 climate commitments, we initiated a revised SPTI validation process for our 2040 net zero targets along with other climate actions. We are very proud to partner with SPTI's member organizations to derive to drive sustainable best practices and lead the way to a zero carbon economy. The bottom portion of the slide highlights the actions we are taking to achieve these aggressive targets. Moving left to right, we have positioned ourselves as a first mover in electrification. At last count, 65% of our new business backlog is coming from next generation clean energy technologies. We are also currently offsetting 100% of our emissions from purchased electricity in the United States and Canada. From 2025, we will offset 100% of emissions from purchased electricity in Europe as well. Additionally, 100% of Dana's major manufacturing sites are ISO 14001 certified, and we are pursuing ISO 50,001 energy management certification globally. We are driving accountability through our supply chain, through data-driven global commodity strategies, and engaging with our suppliers through collaboration and training. A vital area of our focus for us has been protecting water resources. Currently, we have more than 1,000 global efficiency projects across Dana that include water reduction and reuse programs and rainwater harvesting. These initiatives require a commitment to invest in sustainability, which is what we have done through a variety of means, including completely transforming our product portfolio towards zero-admissions innovation, a green bond offering, entering renewable energy agreements to offset emissions, sourcing renewable energy from onsite solar arrays around the world, and countless other initiatives and actions that are taking place at every Dana facility around the world to do things better and cleaner. Dana has built a culture that understands sustainability and social responsibility, which is why our global team is at the forefront of the innovation and forward thinking needed to make this a better world. To learn more about our sustainability and social responsibility efforts, please visit Dana.com to download our 2022 sustainability report, Better World. Now, shifting gears, literally, please turn with me to slide eight, where I will talk about a portion of our capabilities that perhaps has not drawn the attention that it should. And that is Dana's e-transmissions for high performance sport and super sport applications. Dana is usually thought of as being a truck, SUV, commercial and off-highway markets. What those applications have in common is they require the most robust and capable drive systems available. As I mentioned in my first slide, Dana Technologies are now driving some of the world's most notable and advanced high-performance vehicles such as Aston Martin, Audi, Ferrari, Lamborghini, and McLaren, just to name drop a few. In addition, to supplying premium driveline products for both conventional and hybrid applications for these supercars, Dana is also providing technically advanced e-transmission solutions. Today, we're excited to share the highly anticipated all-new Lamborghini RAV Volto will feature Dana's new electric hybrid eight-speed dual-clutch gearbox, which we developed in collaboration with Lamborghini. It is mounted behind the engine. which together with three electric motors has a total power output of 1,015 horsepower. In addition to the Lamborghini Revolto, Dana e-transmissions also power a number of McLaren models, and the Ferrari SF90 Stradale features Dana's front twin electric drive unit with a proprietary electromagnetic system for the connection and disconnection actuation. Dana also supplies conventional drive systems for the Audi R8 and the full lineup of Ashton Martins and will supply a new hybrid eight-speed dual clutch gearbox to the future Valhalla. This is yet another illustration of how Dana's superior engineering and technical expertise in EV and hybrid transmissions and gearboxes provide us with the inherent capability of leveraging our proven expertise across all markets that we serve. The modular approach to the transmission design allows us for a single or dual motor design, as well as an option power takeoff, depending on the specific vehicle requirements. For example, this class leading power shift technology is translating to our off highway market. We are already leveraging it across a number of vehicle types, including wheel loaders and rough terrain cranes in construction, large lift trucks, and empty container handlers, reach stackers, and terminal tractors in material handling, load hauling dumpers and underground mining, and forwarders in the forestry segment. We also shared with you in prior calls how electric yard trucks and refuge vehicles are currently using these capabilities in commercial vehicle market as well. As the markets continue to evolve, we are in pole position to provide tailor-made solutions for our customers' unique needs, whether it's in the light vehicle, off-highway, and industrial, or commercial vehicle applications. And speaking of commercial vehicles, please turn with me to slide nine. I want to share a sneak peek of some exciting things that will take place next week at the commercial vehicle-focused Advanced Clean Transportation Expo, known as ACT Expo. Dana is excited to be participating in the 12th edition of the ACT Expo, North America's largest advanced transportation and clean fleet event featuring the world's leading innovation from more than 275 of the top suppliers for all vehicle weight classes and fleet applications. In fact, I'm honored to be one of the keynote speakers discussing challenges and opportunities facing the commercial vehicle market as it moves towards adopting low and zero admission solutions. While I can't provide you the full details today of what we have in store for the show, I can share that we will be announcing the expansion of the electrification capabilities that we talked about today, but now for the medium duty electric vehicle application. So stay tuned for the exciting news next week. Thank you for your time today. Now I'd like to turn it over to Tim, who will walk you through the financials.
spk06: Thank you, Jim. Good morning. Please turn to slide 11 for review of our first quarter 2023 results. Sales were a record high for the first quarter at $2.6 billion. The $164 million increase over last year was primarily driven by strong demand in our heavy vehicle and power technologies businesses and recoveries of cost inflation through pricing actions. Adjusted EBITDA was $204 million for a profit margin of 7.7%. was an 80 basis points increase over last year driven by operational execution and timing of ev investment spending partially offset by continuing customer driven production and supply chain inefficiencies net income attributable dana was 28 million dollars compared with 17 million dollars last year diluted adjusted earnings per share was 25 cents a nine cent improvement over the first quarter of 2022 and finally Free cash flow was a use of $290 million for the quarter. Recall that it is normal for our business to use cash in the first quarter. Please turn with me now to slide 12 for a closer look at the drivers of sales and profit change for the first quarter of 2023. Results for the first quarter were a significant improvement over last year, even in the face of continuing inflation and inconsistent customer production supply patterns or production patterns and supply chain issues. First, traditional organic sales growth of $203 million was driven by higher demand, improved pricing, beneficial product mix, and cost recoveries from customers. Adjusted EBITDA on higher sales was $27 million, which improved margin by 50 basis points. Cost inflation was offset by customer recoveries and improved operational execution somewhat muted other cost headwinds, including inefficiencies driven by volatile customer production, and elevated launch costs to support our new and renewing programs. Next, throughout the execution of our EV strategy, we have been highlighting that the electrification business we are building has profitable contribution and is scalable, but requires investment to achieve that scale. This is why when we highlight our EV sales and adjusted EBITDA in our quarterly walks, there is usually negative profit and margin. We have also said that investment will be variable over time. We see that effect this quarter as our investment in EV was lower than it was in the first quarter of last year, allowing for a positive profit contribution of $6 million to peak through on higher sales of $31 million. However, as you will see when we review our full year guidance, it is just due to timing of investment and recoveries. We still foresee true break-even in our EV business in 2025. Third, foreign currency translation headwinds reduced sales by about $75 million, as the dollar increased in value against several foreign currencies. This lowered profit by $12 million and had a margin impact of 30 basis points. Finally, the recovery of prior period commodity cost increases added $5 million in sales and a net profit benefit of $13 million driven by lower commodity costs. This resulted in 50 basis points of margin benefit. Next, I will turn to slide 13 for a closer look at the drivers of profit and profit change for the first quarter. Free cash flow was a use $290 million in the first quarter. As I mentioned, it is normal in our business to see a use of cash early in the year. One-time costs were slightly lower while cash interest was $8 million higher due to the timing of interest payments related to our 2032 notes that were issued in late 2021. Cash taxes were $2 million lower due to changing mix of tax jurisdictions and the timing of payments. Working capital requirements were $80 million higher in this year's first quarter, primarily driven by increased inventory to support our large number of launches and the ramp up of sales in our heavy vehicle markets, as well as higher accounts receivable due to the mix of sales between segments. And finally, capital spending was $4 million lower than last year, but we are on track to execute our capital investment plan this year. Please turn with me now to slide 14 for our 2023 outlook. Our 2023 outlook remains unchanged from our initial guidance in February. We expect sales to be approximately $10.6 billion at the midpoint of our guidance range. This is an increase of about $445 million from 2022. Adjusted EBITDA is expected to be around $800 million at the midpoint of our guidance range, which is approximately $100 million from last year. Profit margin is expected to be approximately 7.2% to 7.8%, a 60 basis points improvement at the midpoint of the range. Free cash flow is expected to be approximately $25 million at the midpoint of the range, which is a decrease compared to last year as working capital is aligned with sales growth and capital spending increases to support program launches and our backlog. Diluted adjusted EPS is expected to be 50 cents per share at the midpoint of the range. Our EPS guide includes a higher than usual tax rate, primarily due to the valuation allowance on U.S. tax assets recorded in 2022. Please turn with me now to slide 15. I will highlight the drivers of full year expected sales and profit changes from last year. While our full year guidance remains the same, we are updating the drivers of our year-over-year change in sales and profit. Beginning with organic growth, compared to last year, we now expect an additional $430 million in sales from traditional products through a combination of new business, market growth, market share gains, and customer recoveries. This revised estimate is about $30 million lower than our previous outlook due to expected lower gross inflation and related recoveries. And the adjusted EBITDA increase on traditional organic sales growth is now expected to be about $80 million. That's about $15 million higher than our previous estimate due to better sales mix and operating efficiencies. We are still estimating inflation will total about $50 million net of recoveries. Also included in the organic column are lingering customer-driven operational inefficiencies and program launch costs, which will continue to impact profit and margin. Our outlook for EV organic sales remains unchanged. We expect about $150 million in incremental EV product sales this year, and we are making further investments for development and commercialization of this new technology, which will offset the profit benefit from higher sales. Adjusted EBITDA on these incremental sales will be a loss of about $35 million, reflecting these investments. Foreign currency translation on sales is now expected to be less of a headwind at approximately $90 million due to movements in a few Latin American currencies. However, due to the mix of currencies and our business, the profit impact will remain about $15 million. Finally, our current commodity outlook is taking into account some elevated prices for certain grades of steel as the year progresses versus our prior guidance and will have us recovering about $35 million less than last year due to the timing and recoveries in our customer agreements. Input prices this year are still expected to be lower than last year and will result in a net profit tailwind of about $70 million and about 70 basis points of margin improvement. Please turn with me to slide 16 for an outlook on our free cash flow for 2023. Our free cash flow outlook also remains unchanged. We anticipate full year free cash flow to be break-even to about $50 million, or $25 million at the midpoint. We expect about $100 million of higher free cash flow from increased profits on higher sales and lower input costs. More than offsetting the profit increase is a return to working capital levels that are aligned with growth, resulting in about $190 million less in free cash flow generation than last year. Higher capital spending to support our sales growth and technology transformation will result in about $70 million of lower free cash flow compared to 2022. Thank you for listening. I will now turn the call back over to Regina to open it up for questions.
spk00: At this time, if you'd like to ask a question, simply press star 1 on your telephone keypad. Our first question comes from the line of Colin Langan with Wells Fargo. Please go ahead.
spk08: Oh, great. Thanks for taking my question. I'm a bit surprised by how strong light vehicle driveline was, particularly quarter over quarter. It looked, you know, sales, you know, not surprisingly down given the Super Duty launch. The margins actually got better. Any color on the puts and takes on how margins got better on lower sales?
spk06: Usually it works the other way around. Sure, Collins. This is Tim. Yeah, it's three main buckets. So favorable mix on product. improved operating performance, and then the last is improved pricing on the new program. So, you know, as these new programs roll on, we're getting the benefit of being able to reprice them.
spk08: Okay. And the other thing that surprised me a bit is I think back in 21 when raw material, particularly steel, spiked, you know, you had a $96 million headwind, I believe. We've seen it jump back at least a good portion. I guess the other day it backed down a little bit. But you're only raising or lowering your outlook by 15 million. So what's sort of different now versus history? Why not a larger impact? Is it sort of the indexing? Is it just the timeline and ability to get recoveries before year-end this time?
spk06: Yeah, you know, it's a mix. It certainly depends on product, what we're still buying, how it turns. But, you know, we are seeing a bit higher prices later in the year, especially in North America, for scrap. And that's an important input into, you know, forgings and castings, which are also impacting the amount of the profit tailwind from commodities.
spk08: Okay. And just lastly, how should we think about a lot of puts and takes here with commodity recovery as inflationary costs? How should we think about the cadence of results through the year?
spk06: You know, the cadence will be, you know, it's a little bit higher in the first part of the year, the first, you know, two plus quarters, and then it'll start to tail off in the back half of the year as we move through the lag in recoveries and the commodities start to stabilize at its new level.
spk08: So the commodity help actually kicks in as more first half focused? And then does the inflation kick in at the start of the year, or is that also kind of spread through the year?
spk06: Yeah, so it's spread throughout the year. It's obviously been a little bit higher in the first quarter. One of the reasons you don't have as big of an impact in the first quarter is we have a lag in recoveries as well. with a lot of the agreements we have with customers. And you're seeing some of that lag in the first quarter, despite still seeing some of those higher costs. But we still see sort of the net inflation impact for the year at around 50 million headwind.
spk03: Got it. All right. Thanks for taking my questions.
spk00: Sure. Your next question comes from the line of Tom Narayan with RBC. Please go ahead.
spk11: Hi. Thanks for taking the question. I wanted to understand the 23 guidance a little bit, especially as it relates to Q1. Obviously, it looks like the EV costs were, like you pointed out too, not in Q1. Just curious, what is the true, not true, but what would be a good run rate per quarter EV costs if it was spread out for the year. What I'm trying to understand is kind of order of magnitude of that cost item just stripped out of EV costs to get a sense of how the year should kind of progress.
spk06: Yeah, we don't break out the actual investment in EV or the change in the investment. What I can tell you, if you think about first quarter where we showed a bit of a profit, that's really just related to the timing on the spend. And then a big part of that is just the timing of recoveries. In the places where we're investing, we tend to get government incentives and recoveries. And we actually recovered a bit more in the first quarter than we were expecting. And it was really just a change in sort of the timing of those recoveries. So that's the reason we ended up with a bit of a profit in the first quarter. But as you noted, or as you noticed, we're still expecting a full year loss on our incremental EV sales of about $35 million. Okay.
spk11: And the customer recovery piece, that was also better in Q1 than it will be in the in the remainder of the year on a quarterly basis, is that right?
spk06: Customer recoveries on commodities or inflation? Both, yeah. Yeah, so the lag, we should see higher customer recoveries in commodities early versus later. On inflation, that would follow the same pattern due to the lag, and as we see some of the costs start to abate as we go through the year.
spk11: Okay, great. And lastly, there's a lot of chatter on China. Just curious, I know you guys aren't overly exposed there, but just curious, is hear what you're seeing, if any, on developments there.
spk06: Yeah, you know, China's only about 5% of revenue for us, so, you know, it's not a big impact. You know, obviously, most of what we supply in China or we manufacture in China is for China, so we haven't seen any significant impact on the business at this point.
spk11: Okay, thanks. Turn it over.
spk00: Sure. Your next question comes from the line of Noah Kay with Oppenheimer. Please go ahead.
spk02: Thanks. Good morning. First, just want to clarify the earlier comment on the cadence of results. You know, you'd mentioned a bit more waiting to the first half. Just for clarity, were you speaking specifically about inflation and commodity recovery dynamics or that more broadly around your expected cadence of EBITDA and EPS for the year?
spk06: I was speaking with respect specifically to commodities and inflation.
spk02: Can you give us some indication on how to think about EBITDA and EPS more broadly, or at least how you're thinking about it?
spk06: Yeah. Some of our first quarter results were due to timing. You can see that in the EV profit for the first quarter. So we see the... first first first half being um being good maybe a little bit of uh taper in the in the second half um that's a little bit of a change from uh from where we were before but a lot of this really is to do with some of the the timing it's it's you know but we still see full year coming in you know inside the guidance range and at the midpoint of 800.
spk02: Yeah, I think this is a solid start in terms of versus typical seasonality. Just is there anything from a demand perspective I want to make sure that you're seeing for the back half? Or is it really just the cost structure? Because it sounds like the production slate is very full.
spk06: Yeah, I think there's a number of drivers, right? So we've got a lot of launches that need to go well for both our customers and for the company. Inflation needs to come in. where we expect it. And the operating environment needs to not only remain where it's at, but actually improve. And then we need to see market demand stay. We had a very strong first quarter in market demand, especially in the heavy vehicle segments. So we're just I want to make sure we keep an eye on all of these factors that are really driving the cadence over the next couple of quarters.
spk02: Okay. And maybe, you know, and this might be for Jim, just wanted to drill down a little bit on the improved operating performance and some of the share gains. Maybe taking a little bit of a win here as a result of your hard work, but just wanted to understand what was tactical, what was structural performance, Anything that you've done that we might think about setting you up for better leverage as some of these order and efficiencies from the customers start to abate in the back half?
spk07: Thanks for the question. I didn't know if I was going to get any today, so I appreciate that. No, just kidding. No, just kidding. In all seriousness, thanks for the question. You know, to answer your question, it goes back to our strategy. I think everybody knows our strategy. It's been very, very consistent since 2016. And the middle and most important priority was to leverage the core. And that includes our operational systems across all our product lineups, all of our business units, all of our regions. And, you know, there's no speeding up the clock on that. As we continue to sustain and improve, sustain and improve and get better and leverage best practices, leverage idea generation, leverage everything that we're doing, it's nothing, you can't come out and say, here's this like transformational self-help thing you are to lead in operations you just have to continue to turn it up that's what the team has been doing and as i'm as you mentioned as i mentioned we were incredibly appreciative to our commercial vehicle customers recently for saying hey let's go make more trucks together and uh thank you to those gentlemen and ladies and gentlemen out there and that's what happens in this business the business has never changed still cost quality delivery right and the team's done a remarkable job in that regard so i hope that answers your question okay all right thanks so much
spk00: Your next question comes from the line of James Piccariello with BNP Paribas. Please go ahead.
spk09: Hey, good morning, everyone. I guess just on off highway way to start, you know, I think this is an official record revenue quarter. Should the first quarter here serve as a high watermark for the year or is there You know, demand and strengthen in demand to keep to keep this this type of trajectory going.
spk07: You know, your, you know, your facts well, we think it is too if without doing deep, deep, deep research, but I'm pretty sure it was as well. You know, based on making that statement, you know, the market's well enough to know that the, you know, everything is sort of peaking. I don't know about peaking, but certainly strong. all at the same time. Can't really say because those markets move faster than others, as you also would know. So you can't really say for sure, but we're definitely bullish that we'll have a strong year across construction, material handling, agriculture, underground mining, multiple other product lineups and segments that we participate in and off highway.
spk09: Within those end markets, within the verticals you just mentioned, What verticals are standing out that really drove this first quarter?
spk07: I think construction's usually a little bit better. I would say it's a little bit better. In particular, back to your other question, construction for us typically is the strongest in second and third quarter. So I would point to that mostly. But again, we've been having the balance in our commercial side of the business in terms of good diversity across our customer base, across the end markets. We're in a good position as they're all running at a really strong ambient level right now.
spk09: Got it. And then given the upcoming UAW situation this fall, are you seeing any intention or indication of a pull forward in schedules to some degree for this first half, just in case we do get a repeat of 2019? Just curious to get your thoughts on that. And then separately, in terms of schedule stability, is April showing to be a monthly improvement off March? Is this a consistent theme now, or are we not fully out of the woods yet?
spk07: Good questions. Maybe the April and how the customers are running and that type of thing. First of all, I guess I would point to I think our customers in the light vehicle segment you're most referring to in there. have really been much, been very intentional. I'm sure they were intentional before too, but much more intentional in terms of getting more stability built in through their systems and operations and supply chain management. So you're seeing that come through, but it's like I was mentioning relative to operational excellence. You can't speed up the clock. You just have to do their thing and they're doing their thing. So I'd say it's still a little bit, it's the end of March was much more stable than even the beginning of March. And I'd say we expect that to, you know, kind of sustain and improve to use those words again. Um, what's the 2nd question? Well, I'm probably what was your 2nd question again? Oh, just your thoughts on on the on the border and the things that are going on there. We're going to schedule pull heads. Not so much. Uh, you know, the, the deployed capital we have and the capacity that we have deployed is lined up with, uh, you know, capacity planning volumes. And I would say our. Our schedules are basically at that. So our customers are going to run steady. It looks like, at least from our line of sight, are going to run steady to what they would have put in the releases, I don't know, two months ago, three months ago, four months ago. So I would say no major change from our line of sight anyway. Thanks. Thank you.
spk00: Your next question comes from the line of Ryan Brinkman with JP Morgan. Please go ahead.
spk04: Hi, thanks for taking my questions. I realize organic growth in 1Q was stronger in the full year reiterated. I see the comments about demand remaining strong across all end markets. Market conditions expected to improve throughout 23, which is helpful. Just sort of, you know, trying to square that with seemingly increasing calls for a macroeconomic slowdown or maybe pullback on project financing from regional banks, et cetera. So, you know, just given all of your insight into multiple different macro sensitive and rate sensitive markets, end markets, including industrial, commercial and highway, construction, et cetera. Are you seeing anything that would indicate slowing at the margin?
spk06: You know, we're not seeing anything that really sticks out to us, right? I mean, we're building to the customer schedules. I think the customers are still building to their demand patterns, but we don't see anything specific.
spk04: Okay, that's helpful. Thanks. And then just given that conversation earlier about the margin benefit in one queue from the timing of periodic spending on development for electrification products. Can you maybe help us on the expected cadence of spending for these products as the year progresses? And then I'm curious too, how discretionary the timing of some of the investments might be? How much of the spending would you say is tied to awarded customer programs launching according to a specified schedule and so therefore maybe not within your ability to time, particularly if they're launching over the shorter term, versus how much of the spending is maybe more research, not tied to specific programs rather than development spending, and so you're able to better control the timing.
spk06: Yeah, the bulk of the time is customer-driven.
spk04: Okay, very helpful. Thank you.
spk00: Your next question comes from the line of Rod Lash with Wolf Research. Please go ahead.
spk05: Good morning, everybody. I could see from the guidance this nice improvement in incremental margins that you're expecting for the rest of the year. It looks like something closer to 24% even after the $50 million of inflation. From your discussion earlier, it sounded like a lot of that was CPV on launches. So I was hoping that you could provide some kind of order of magnitude on maybe one way to characterize this would be just the percentage of your business that's from new contracts this year, how that compared with last year and what that would look like in 2024. Sure.
spk06: I mean, this is our heaviest launch project. especially when you think about 120 launches, but really when you think about light vehicle where the programs come with an enormous amount of revenue, so just think about Super Duty and Wrangler. Now, last year we had Global Ranger start to launch, so I would say that this is, if you think about it, this is our heaviest year. But those programs don't get the full run rate even out of this year until we get to the end.
spk05: Okay. But any way to sort of provide a magnitude would be helpful.
spk06: Yeah, Wrangler and Super Duty are the two single largest programs in the company. So we're talking about revenue that's on an annual basis that's well in excess of a billion dollars.
spk05: Okay. And then just secondly, any thoughts on these new EPA rules for commercial vehicles? What does that imply for the business if that happens? And does that have any impact on what you kind of need to spend? over the next couple years to prepare for that.
spk07: Hey, good morning, Rod. I hope you're doing well. I would tell you from our perspective, it's going to be more of an ambient level. We've evolved through so much of the disruption curve for anything coming as well, either on the diesel side or the electrified side, so I wouldn't expect any significant spikes or anything like that kind of moving forward. All right, thank you. You're welcome.
spk00: Your next question comes from the line of Dan Levy with Barclays. Please go ahead.
spk10: Hi. Good morning. Thanks for taking questions. First, I want to go back to your full-year bridge. And I think the answer to this is around the recoveries. But just compare the bridge you provided back in February versus today. You have organic up $20 million. on the EBITDA side, that revenue is down 30 million. So I assume that inflation is still flat at a 50 million impact. So what's driving the higher EBITDA on lower revenue? I assume that's just a function of recoveries.
spk06: Yeah, it's two things. It'll be mixed, right? So in terms of the business and then, you know, better operating performance. in the business, as well as some pricing coming in.
spk10: And just on that better operating performance, just to be clear, it sounds like you're saying that you're seeing some of that choppiness abate, but really there's a lot more of an opportunity in second half for that, which creates a runway into next year. Is that correct?
spk06: Yeah, I think there's still... Look, the customers are certainly better than last year, becoming a bit more stable, but we need to see the customers run, and the suppliers for that matter, run better consistently before we'll say that we're starting to see the end of the line here.
spk07: I would just add to that as well, kind of more unique to Dana, definitely tied to your question. When you're launching the magnitude of launches that we are in manufacturing 101, I guess, is that your choppiness, take the macro stuff going on right now, the choppiness comes in that last 20% of launches, right? Because you're now stressing the OEMs and ourselves, we're stressing our supply base, we're stressing our specific capital, we're stressing how well have we trained our labor, all that stuff. So that's part of what we're making sure we're keeping kind of a clear line of sight on through the balance of the year and into next year as well to make sure that we stay in front of that. It's not just a push command four and all the OEMs are going to be up at their full capacity, et cetera, et cetera. There's a lot of wood to chop there.
spk10: Great. Thank you. And then as a follow-up, I just want to ask about electrification. At least on the light vehicle side, we've seen that some of these ramps uh from some of these programs have been going slowly and there's some choppiness uh the question has even emerged on you know just with uh profitability and some questions do some of these ramps sort of intentionally go maybe a little more slowly so uh and i know your your focus right now is a bit more on on commercial vehicles but you're you're still trying to hit all of your segments so on your ev plan what what is your visibility of the EV revenue and the customer volumes, how are they faring versus the original expectations? And to the extent that it is a slower ramp from your customers, how does that impact your strategy, if at all?
spk07: Yeah. Great question. Great question. First of all, I will reiterate that it is a benefit for us to have clear line of sight into all mobility markets. And in this example that you're bringing, electrification, we have strong penetration. We're launching in all the markets, even to motorcycle market, as you remember, probably from Q1 or February update. So, but more specific to your question, what you're stating is true, but it's not just true for the OEMs. It's true for suppliers. I mean, this is, you know, you're kind of drawing the architecture drawings at the same time you're building the house. You're bound to have the challenges, right? When Tesla came up the curve, they had their own challenges. Everybody had their challenges, right? So I think there's the element of some slowness to it across all the markets, all the OEMs, because people need to make sure they get it right. But at the same time, at least from our line of sight, the demand is still very, very strong. I have a lot of respect for all of our OEM partners out there. And when they make statements, they're and making their business plans. They're doing it with really strong empirical data and information to support their commitments and their plans. So I'm still very bullish. So you might have a lag in timing in some cases, but at the end of the day, it's for the right reason. It's for them to get it right and for the suppliers like Dana to get it right as well.
spk10: Great. Thank you.
spk07: You're welcome. Okay, with that, just I guess a quick recap. Thank you, everyone, for your time and attention today. We definitely appreciate it. From the Dana perspective, as a company, we recognized much earlier, I would say back in 2016, that the mobility space would be disrupted, and in particular, the OEMs and powertrain suppliers would be disrupted by far the most. So in our case, instead of being reactive and allowing the electrification megatrend to disrupt Dana, we definitely disrupted ourselves. So we've completely transformed the business. And of course, amongst the most courageous and aggressive actions we took were the two most transformational actions, which was one, leverage the core. We talked about it a little bit earlier today, which was to go scale and drive best practices, lesson learned, people management across engineering, across operations, across technology, across everything. And it was a dramatic and courageous thing to do. But you can see the benefits coming through what we call one Dana. One Dana, not disparate Dana. One Dana driving the business. And the second was to make sure that we achieve that first mover position to ensure that we are energy source agnostic whenever electrification rubber started to hit the road. So we couldn't speed up the clock through 2020 through 2023. And we were certainly not going to back off from our commitment and have a schizophrenic strategy that we didn't live to. We stayed the course, painful, challenging, but as you can see through our growth, as you can see through our operational excellence leading to growth, our new technology, our product portfolio, and again, coming back to being truly energy source agnostic, the plan's coming together. And we appreciate everybody's time and attention again today. We look forward to providing you an update next quarter. Thanks.
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