Dana Incorporated

reference the URL on our website and sign in as a guest. There will be a question and answer period after the speaker's remarks, and we'll 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'd 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 Corporate Communications, Craig Barber. Please go ahead, Mr. Barber.

Thank you. Good morning. Welcome to Dana Incorporated's earnings call for the second quarter of 2025. Today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from what we discussed today. For more details about the factors that could affect our future results, please refer to our safe harbor statement found in our public filings and our reports at the SEC. I also encourage you to visit our investor website where you'll find this morning's press release and presentation. As stated, 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. With me this morning is Bruce McDonald, Dana Chairman and Chief Executive Officer, and Timothy Krause, Senior Vice President and Chief Financial Officer. I will now turn the call over to Bruce.

Thank you, Craig, and thank you all for joining Craig, Tim, and myself for our second quarter earnings call. You know, there is a lot of noise in our numbers as we've got to reclassify us highly as a discontinued operation. And so in our earnings deck and in our comments, we'll sort of talk intermittently between new data, i.e., data from continuing operations and the full data, which obviously is the basis of our previous guidance and things like that. I guess I'd sort of characterize the second quarter as another quarter of the Dana team delivering on our commitments with a solid Q2 beat, double digit margins and accelerating free cash flow. In terms of some of the highlights here on slide four, as everyone knows, we did announce in the quarter our agreement to sell. the off highway business to Allison for just over $2.7 billion with net cash proceeds expected to be about $2.4 billion. That closing is expected to occur here late in the fourth quarter. I think substantially all of the regulatory filings have been submitted and the teams are working hard, both ours and Allison's, on effecting a smooth transition of the business over to Allison. In terms of our Use of proceeds. We previously announced that we were going to take the proceeds from from the sales off highway business and return about $1 billion to our shareholders, as well as reduce our overall debt by a couple billion dollars. I'm pleased to announce this morning that as a result of strong free cash flow and our higher guide here for the year, we're raising the amount of capital return to our shareholders to 600 million from what was 550 previously. As things stand now, we anticipate using all of that to reduce our shares outstanding, and we're forecasting that we'll end the year with a share count of around 110 million, which would be about 25% year-over-year reduction. In the quarter, we did buy back just over 10% of our shares, returning $257 million to our shareholders. And as we look here into the third quarter, We anticipate buying back another 100 to 150 million shares. In terms of our cost reduction initiatives, this is where we sort of committed to a goal of 300 million run rate by 2026. We're upping that to 310 as a result of some of the projects coming in better than Tim and I had expected. In the quarter, we delivered nearly $60 million of cost reduction and $110 million to date. And so I think we can kind of tie a ribbon around cost reduction. I think we're highly, highly, highly confident in the $300 million. And we don't really have a long way to go to get to that runway here by the fourth quarter. In terms of tariffs and the tariff landscape, I mean, a lot's uh moving around lately here but i'd say the bottom the takeaway on tariffs is we're in great shape in terms of tariff mitigation uh and tariff recoveries uh right now we're we we have some headwind here in the second quarter about 80 basis points um that's that's worse than we expect is going to be the impact for the full year because we have some timing related catch-ups that we didn't get um customer agreements in place um by the end of the quarter overall we expect over an 80% recovery for the year. More importantly is the work that the teams are doing with our customers to mitigate the impact of the tariffs. This is critical for our industry because we don't want to just pass these costs along. We need to make them go away so that we don't impact end vehicle demand. In terms of our balance of the year outlook, I think when we were on a call at the end of the first quarter, In other words, considerable uncertainty around the impact of tariffs in terms of volumes. I guess what we've seen is very strong schedules holding up in the light vehicle side of our business. We have seen some softening in North America CV, which has been partially offset by a bit of better volumes coming out of South America and Europe. In terms of our profit guide, and here I'm referring only to New Dana, We're up in our profits guidance for the year by 35 million. And if you look at the whole company, it's up 15 million because off-highway is down 20. And on a free cash flow basis, we're up in our target by $50 million to about 275 at the midpoint of our guidance. So overall, a really strong quarter. I couldn't be more pleased with the results of the team. In terms of what new data looks like going forward, I mean, here's kind of an overall snapshot reflecting 2024 numbers, but we'll be much more of a light vehicle company. We'll be much more of a North American-centric company. We do have a nice split between commercial and light vehicle. Within commercial, we have a very strong aftermarket business. And, you know, we don't talk a lot about it, but our thermal and our sealing side of our business that we integrated into light vehicle continues to be a source of profit improvement going forward. In terms of the full year guide, we just want to spend a kind of a minute, a few minutes on this page, because this is the first time we're sort of showing our numbers with and without the discontinued operations. So our guidance, and as we talked at the end of the first quarter, we had indicated our sales were trending towards the higher end of our previous range. So we're saying right now on an old, on a total data basis, our sales would have been about 9.9 billion. You can see on the discontinued operations side, sales down 125. There we have seen softness in terms of the tariffs particularly European product that's imported into the United States that's bearing a tariff, we've seen those volumes drop off. However, on the continuing operations side, we see sales being up 250 million. In terms of the guidance for the two parts of the business, if you think about the original guide at 975, you can kind of see the split. 600 million for continuing operations and 375 for off-highway. Our revised guidance that I touched on in my previous slide, up 35 for New Dana, down 20 million for off-highway for a net positive 15. And then stranded costs are just a pocket switch between discontinued operations. Those are costs that we currently allocate to off-highway that remain with new dana just a point to note that number is higher than the sort of 40 million 30 to 5 to 40 million that we've previously guided to um the reason is in within that 60 million are variable costs allocated to off highways that will go away upon the sale those are 20 to 25 million and that's how you get back down to the range that we've talked about before and then In terms of cash flow, and I've seen a few notes where there's maybe a little bit of confusion about what's the cash flow split between disc ops and container ops. Under GAAP, we're required to report total cash flow inclusive of both pieces, and so that's what we're guiding here today. What you will see when we publish our queue is cash flow split by operating, investing, and earnings split between the two. and that'll get us to the year-to-date actuals. With that, Tim, I'm going to turn it over to you to go through the financials in more detail.

Thanks, Bruce. Let's begin with how we will be presenting our results in the prior periods. With the signing of the agreement to sell our off-highway business, that business will now be considered as discontinued operations. We will be reporting continuing operations in our financial statements. Continuing operations contain our light vehicle and commercial vehicle systems reporting segments. The majority difference between these new reporting segments and the prior reporting segments is they now incorporate certain retained operations that were not included in the off-highway sale, as well as stranded corporate costs and prior intercompany sales to off-highway that are now treated as third-party sales, according to the accounting rules. The net effect of the higher sales and increased stranded cost is to temporarily lower the profit margin of continuing operations until the sale closes and transition service payments begin. Third payment party sales agreements and stranded cost reductions that should begin early next year. And finally, cash flow is the one metric that will include off-highway as we had previously. Since the sale transaction excludes cash, all cash flow will remain with Dana until closing. For continuing operations, sales were $1.94 billion, $112 million lower than last year, driven by lower in-market demand. Adjusted EBITDA was $145 million for a profit margin of 7.5%, 210 basis points higher than last year, as the benefits of our cost saving and productivity improvements more than offset the lower sales and impacts from tariffs. Earnings before tax attributable attributable to continuing operations was a loss of $24 million, a $30 million improvement from 2024. Please turn with me now to slide nine for the drivers of sales and profit change. In line with the new accounting and reporting method, we've revised our walk presentation to include the impact of discontinued operations for the current and prior periods. The $691 million in sales and $136 million in profit removed from 2024 represents the off-highway sales perimeter and accounting treatment for discontinued operations. Moving to the right, for this year's second quarter, the change in discontinued operations lowered sales by $7 million and overall volume and mix lowered sales by $173 million, driven by lower demand in both light vehicle and commercial vehicle end markets. Performance drove sales higher by $29 million due to pricing actions in commercial vehicle and or aftermarket business while tariff recoveries totaled $26 million for the quarter. Changes in adjusted EBITDA from continuing operations was $6 million for the quarter. The flow-through of sales from volume mix lowered adjusted EBITDA by $52 million. This was a decremental margin of about 30%. But recall that breaking out performance now, which includes efficiency gains in manufacturing separately, Performance increased profit by $30 million due to pricing and efficiency improvements in commercial and light vehicle businesses. Cost savings added $59 million in profit through the various actions we have taken. This brings us to $110 million to date, and we are firmly on track to deliver our target of $225 million in savings for the current year. The tariff impact in the quarter was just $15 million. Since our tariff recovery mechanisms have a lag and the landscape continues to evolve, we expect to see a continuing headwind due to the timing, but we expect to recover the majority of the impacts this year. Next, I will turn to slide 10 for the details of our second quarter free cash flow. As I discussed on slide 8, the accounting for cash flow includes both continued and discontinued operations as shown on slide 10. Adjusted pre-cash flow for the second quarter of 2025 was a use of $5 million, which was $109 million lower than the second quarter of last year. Higher adjusted EBITDA in continuing operations was partially offset by lower earnings in the off-highway segment and higher one-time costs related to our cost savings and other improvement actions. Taxes were $22 million this year mainly related to the sale of our joint venture interest, as well as jurisdictional mix of income. Working capital was a use of $115 million during the second quarter as requirements normalized after an unusually strong first quarter this year. Finally, capital spending net of proceeds of sales of fixed assets and contributions from our customers was $70 million better than last year. Please turn with me now to slide 11 for a summary of our updated guidance for 2025. As Bruce outlined earlier, our 2025 full-year guidance ranges have been updated for the impacts of discontinued operation. On page 11, we are summarizing the continued operations guidance as well as showing an illustrative view of the prior guidance method for comparison. We are expecting sales from continuing operations to be approximately $7.4 billion at the midpoint of the range. This is about $250 million higher than our previous expectation, as you can see in the column on the right. Higher sales are primarily due to expected tariff recoveries as well as tailwinds from currency rates. Adjusted EBITDA from continuing operations is expected to be about $575 million at the midpoint of the range. This is approximately $35 million higher than previously anticipated, driven by cost savings and performance improvements after adjusting for accounting impacts of the discontinued operations. Full-year adjusted free cash flow is anticipated at $275 million at the midpoint of the range for the year. This is approximately $50 million higher than previously expected, driven by higher profit and working capital efficiencies. Please turn with me now to slide 12 for the drivers of sales and profit change for our full-year guidance. As with the quarterly walk, we showed earlier, our full year guidance walk adjusts 2024 for discontinued operations and walks forward our guidance for continuing operations. Beginning on the left, discontinued operations reduced 2024 sales by approximately $2.5 billion, so we begin with 2024 at $7.7 billion in sales for continuing operations. Adjusted EBITDA from discontinued operations was $498 million, reducing 2024 adjusted EBITDA to $387 million, resulting in about a 5% margin on sales. Discontinued operations this year is expected to further reduce sales by $10 million, or excuse me, $100 million due to lower sales between discontinued and continuing operation, but adds approximately $15 million to adjusted EBITDA due to lower unallocated costs. Volume and mix are expected to lower sales by $425 million, driven by lower demand across both light vehicle and commercial vehicle markets. Adjusted EBITDA from volume mix is expected to be lower by about $90 million, a decremental margin of about 20%. Performance is anticipated to increase sales by approximately $80 million, with $90 million in EBITDA impacts, mostly through pricing and efficiency improvements. Cost savings will add $225 million in profit, as I mentioned earlier. The tariff impact for the full year is expected to add about $150 million to sales and lower profit by about $35 million. The majority of this profit headwind will be recovered next year. Foreign currency translation is still expected to decrease sales by $45 million driven by a mix of currencies with no margin impact. Finally, Commodity cost recovery should be about $10 million higher in sales and an equal amount headwind to profit. The net result will be about a 280 basis points margin improvement in continuing operations when compared to last year's, as performance and cost-saving actions overcome the headwinds we are experiencing in the business. Next, I will turn to slide 13 for the details of free cash flow guidance. We anticipate full year 2025 adjusted free cash flow to now be about $275 million at the midpoint of the guidance range, $50 million higher than our previous guidance. We expect about $105 million of higher free cash flow from increased adjusted EBITDA when compared to 2024. One-time costs will be about $70 million. $25 million higher than last year as we invest in our cost-saving program and other restructuring actions. Working capital will be about $30 million source of cash, about $100 million better than last year as we continue to lower the requirements in the back half of the year for working capital. And capital spending net is expected to be about $325 million this year, which will be $45 million better than last year. And lastly, please turn with me to slide 14 for a look at our balance sheet and capital allocation priorities. On the left side of the page, you will see that we have ample liquidity of about $1.35 billion at the end of the second quarter. During the second quarter, we returned over $250 million to shareholders through share repurchases in addition to our regular dividend. As we look to the end of the year, we expect to close the off-highway sale in the fourth quarter and expect our net debt leverage to be about 0.7 times expected EBITDA. We expect to continue to execute on our $1 billion capital return authorization and repurchase a total of $600 million of our stock this year, which could result in having about 110 million shares outstanding at the end of the year at the current share price. As we look forward, our capital allocation priorities are first to drive organic growth as we will continue to be selective with where we spend capital to drive proper growth within the light vehicle and commercial vehicle segments. We will aggressively lower debt as we look to achieve our one-times net leverage target over the business cycle. And as we have demonstrated this quarter, we will return cash to shareholders while increasing the overall value of the company. Thank you for listening, and I will now turn the call back over to Bruce for his final comments.

Thank you. Thank you, Tim. In terms of... 2026, again, a fair bit of comments I've seen from the street around how do we get to 10% for next year? So I just wanted to sort of focus on the way that we're looking at it. So start off with our cost reduction savings plan. We expect that to be 310 million run rate for 2026. So that's a good news story for us and gives us a strong tailwind as we start the next fiscal year. Just starting off in terms of a walk, if you use Tim's guidance at the midpoint, we're at about 7.8% for new data as well. We're going to report our numbers here in 2025. First item is the annualization of the cost savings. So this just basically is reflecting the fact that in Q1 and Q2 particularly, we weren't tracking to a $310 million annual cost rate savings that number you can kind of think about in the bag and just annualizing that would take our 7.8 up to 8.8 if i just look at the flow through of our backlog we expect that to add about 60 basis points in terms of stranded costs um you know to get this extra 50 basis points we have to eliminate the variable costs that go away on day one which is a gimme And then we're assuming we're going to offset 50% of the stranded costs here. I would tell you that I'd be highly disappointed if that's where we end up. I would expect a combination of TSAs and continued focus on those stranded costs that we should be able to do much better than that. And then lastly, operational performance, we're factoring in 40 basis points to get there. And I guess what I would just point out on that one is That's about half of the operational performance benefit that we've delivered in 2025. So I really don't look at the 2026 target here of 10 to 10.5% as being a stretch. I think it is a commitment that I have just as much confidence in delivering as I did when we committed to the $300 million cost savings. When you take that margin and apply it to our sales for next year, you factor in lower cash taxes and interest that we've talked about for some time that we will benefit from once the off-highway business is gone. We see free cash flow being in the 4% of sales range, which, if you do the math, is higher than this year. In terms of our share authorization and the capital return of a billion, We will continue as cash flow improves as we focus on sale of non-core assets, expanding the timing of that to deliver more quickly to our shareholders in addition to our existing dividends. Then lastly, we probably haven't done ourselves a disservice here in terms of our top line story. I do think Dana has an underappreciated growth story here. We have a solid backlog that we'll be reporting next year, and we continue to be, have been very productive with the discussions with both our light vehicle and commercial vehicle customers on gaining share and winning new business. And with that, I'll open it up to Q&A.

At this time, if you'd like to ask a question, press star, then the number one on your telephone keypad. To ensure everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to one question at a time and rejoin the queue for any additional questions. Our first question will come from the line of Joseph Spack with UBS. Please go ahead.

Hey, team. This is Rob Saltzman on for Joe today. Just on the 2026 outlook, you mentioned you'd expect 60 basis points of margin from that creative new business backlog. Can you just provide some color on What's driving those new business winds and kind of where the winds are coming from in Cordain? That's my first question. Thanks.

Yeah. So, I mean, if you just look back, right, we had incremental backlog when we reported in February. So in large part that's coming in, it's a mix of both on the commercial vehicle side as well as on – light vehicle side. We have some significant programs. So we have a program with JLR that's launching next year. We've got volume uplift and additional amounts on a number of big Ford programs, including the Super Duty. And then we have a number of smaller programs across a number of customers across the world that'll be being updated and driving that backlog. with additional content for those vehicles.

Thanks. And just my last follow-up here, just on the cost reduction side. So, you know, you increased the goal to $310 million, you know, $10 million higher versus prior, but you've kind of continued to increase that, you know, target over the course of this year. But, you know, how much room would you say you have to run here on finding incremental cost savings to kind of pull out of the business from the current levels?

Yeah, I think the big driver, so most of our cost-saving programs here for the 310 is really above the plants. Most of what we have left is really going to be around operating improvements, largely in the plant. Those would naturally flow through what we're calling performance, and we do that today. Look, we'll continue to look at the cost structure as we move into 2026, and I'm sure there'll be some opportunities, especially as we We push forward and find ways to increase efficiencies. But in terms of the big driver on cost reductions, I think the largest and the lowest hanging fruit's been done. I think our real focus next year on those types of things will be around taking the stranded costs out. A lot of those are semi-variable or fixed, so that's where we're going to be concentrating. I mean, the accounting has us at 60. That's really more like 35 or 40 when you adjust for some of the nuances on how we have to account for them with the discontinued ops rules. But we do believe that we can get at least half, if not more than that $40 million out before the end of next year. So we think we're in really good shape to deliver the 10%, 10.5% margins for next year.

Yeah, maybe just to add on a little bit. If you look at the cost reduction where we got the $300 million, and if I think about new data, our total costs are in the just under $7 billion. And the $300 million, we went hunting in about a billion dollars of that. And if you think about it, it was quick wins, things that we could do quickly without significant investment, and things like that. I would tell you that in that remaining bucket, in terms of what we can do longer term and where we can make some investments, there's still enormous opportunities. I would also tell you on the $6 billion when we didn't go hunting, which is, I would say, the plant cost, again, an enormous opportunity for us. So it's not stuff that we will bang into like a huge number in 2026, but I think over the next three to four years, it is a significant opportunity for us to expand our margins.

Thanks so much, team. Appreciate it. Yep.

Our next question comes from the line of Tom Narayan with RBC. Please go ahead.

Hey, guys. Thanks for taking the question. Not a lot to nitpick here, as you guys pointed out. But I guess if I had to ask, you know, the off-highway guidance obviously coming down on tariffs. But I guess this would be different maybe than from what Austin would have known, I guess, Is there any risk or anything we should know about in terms of how that guidance cut could potentially impact deal closing timing? And then I have a follow up.

Thanks. Yeah, no, it won't. It won't impact deal close timing. There's no covenants other than the typical, you know, running the business in the ordinary course. The one thing I will say, although the top line guidance is coming down and there's obviously some degradation around the base or the dollar EBITDA number. The off-highway team has done what they always do, which is maintaining or improving their margins despite the lower top-line revenue. So they've done an incredible job of flexing their cost structure to support and maintain their quality of earnings. So that's really the power that's in the business, and it should not or will not have any impact on timing it.

I would just maybe add to that. If you think about where we were at the end of the first quarter prior to signing this deal, we all had some concerns around volumes from tariffs and we knew we had some issues in front of us, particularly on off-highway on a small percentage of their business, which is product that they manufacture in Europe that they import into the U.S. That's you know facing a fairly significant price increase and and we're seeing the volume so nothing that we're seeing in terms of business performance is any different than i would say the time uh we closed sorry and then um for my for my follow-up

The cost outs, Q2 looks like it was $32 million across LB and CV, I think, $22 for LB, $10 for CV out of the $59 total. What was the remainder of the cost outs? Was that just kind of overhead?

It's in corporate. It would be in corporate, yeah. I mean, it gets reallocated. But, yeah, I mean, what you're seeing is the cost outs on the corporate side that then get reallocated back into the businesses. Correct.

Okay. And then I had thought that maybe CV would have seen more because of the EV side, you know, with the cost stats.

I thought CV would have more. Well, so a lot of that does sit from an engineering side in corporate, so that's probably where we're seeing the disconnect.

Oh, got it. Thank you.

Our next question comes from the line of Edison Yu with Deutsche Bank. Please go ahead.

Hi, thank you. This is Winnie for Edison. I was wondering if you can comment a bit on what you're seeing in markets now for light vehicles, especially from senior top customers, and then also on commercial vehicles, and what kind of maybe marketing conditions are you betting into the second half?

Sure. I mean, from a light vehicle, and Bruce mentioned this, pretty stable from a From a light vehicle perspective. Now, for us, you have to look specifically into the light truck market in North America, as that's the majority of where our revenue is generated, and particularly on four large programs. So you've got to be careful not to read across the entire SAR for the light vehicle business in North America to Dana, just given the concentration we have on a number of large heavy truck programs. On commercial vehicle, we are seeing softness in North America, largely around some of the tariff uncertainty. We've seen that impact sales both in the first half of the year, and we expect that softness to continue into the second. Offsetting that is some moderate strength in South America. particularly Brazil, and then in Europe. Those are a bit smaller businesses for us, but certainly are helpful in terms of mitigating some of the weakness we're seeing or softness we're seeing in North American CV market.

Yeah, and I think softness might be too kind a word. I mean, if you look at the class-based market, you know, we've talked to a few of our customers. I mean, right now, you know, order... Ordering like book to build is is dropping fast. Orders are like run in half of last year, so it's it's just not looking good and it's not. That's a combination of obviously the impact of tariffs, but but more importantly is the uncertainty associated with the business climate here and people are just deferring purchases. When they can so so we we factored in in terms of our outlook, pessimistic view on North America. But it's we don't and we're not sort of our 2026 guidance. We're not we're not factoring in a cyclical upturn in the in the in the commercial vehicle market in terms of getting to our numbers.

Okay, great. That was very helpful to know. And then just on the on the quarter itself, if I just look at the bridge on flight nine, you know, the different The incremental on the volume mixed bucket seems to be about 30% or so. I know in your preparing model, you talked about splitting the performance bucket out. But if I just look at the four-year bridge, the implied incremental is about 20%. So I'm just curious on the difference here and what you expect for the four-year and what then occurred in the second half. And then how do we think about that on a go-forward basis? performance is sort of a strip out budget. Thank you.

Yeah, no, so we had a fairly unfavorable mix in the in the second quarter. Particularly, you know, we lost, you know, we have some relatively high margin sales from a CV perspective, especially in the EV side of the business that continues to impact the business. A lot of that around sort of some of the issues in terms of being able to export out of China. So that's impacting the business. So just being able to get magnets and those sorts of things and rare materials. And those are higher margin business than the rest. And then even on the light vehicle side, we had a pretty strange mix of some of the sales differences that drove a decrement of the other that's a lot different than what we would normally see. When you look in the back half of the year, we're seeing a much better or more favorable mix. We're not seeing quite as much of the downturn from a CV perspective in the EV part of the market. And then our sales mix around light vehicle is is more normalized. So it's unfortunately just a mixed issue within the quarter for us, you know, given just the sales side.

Yeah, as we get into Q3 and Q4, the volume mix bar changes color here on us. So we've been fighting year over year negative on the volume mix side of things as we get into Q3, Q4, especially as we just focus on new data. That turns from a a headwind to a tailwind. So again, some of the comments around first half, second half comps, a lot of, I think, is addressed by the fact that we don't have the volume headwinds in the second half of the year that we had in the first half.

Got it. Thank you so much. I'll pass it on.

Thank you.

Our next question comes from the line of Dan Levy with Barclays. Please go ahead.

Hi, good morning. Thanks for taking the question. I wanted to first just unpack the free cash flow. And maybe you could just help us understand. And we look at to try to bridge the free cash flow you've provided, which includes off-highway this year, which is, you know, call it 2.8% of sales. And you're saying next year is 4% of sales for RemainCo. Maybe you could just help us understand the rough bridge there. I understand part of it is going to be improved EBITDA. Part of it is going to be... lower interest expense but maybe help us understand what the adjusted number this year would be for just remain co as opposed to including uh off highway uh you know and what that bridges to next year and then maybe some color on so what these adjustments are that are cash items but are being excluded from the adjusted free cash

Yeah, so in terms of being able to give you a 25 pro forma number, it's really tough given that, you know, all the debt sits, you know, outside of the off-highway perimeter and then you have sort of the tax impact. We've called out about $200 million between those two lines as you bridge from this year to next that's going to come out as a result of the transaction. But, like, trying to do a complete pro forma is, you know, a bit difficult. As you hit it, right, the, you know, we'll get help from an EBITDA perspective. Also, the one-time cost, right? $70 million in one-time costs should come down significantly, just given that there's a bunch of costs sitting in there related to the restructuring program and the cost-out program we have this way. The other is we'll continue to see more efficiency coming through working capital. So that should be additional head tailwind, excuse me, for us on getting to the 4% free cash flow.

Okay. Thank you. And then the second question is on the outlook into next year. And I recognize the end markets are going to move around, but one of the things we've obviously been hearing from the OEMs is with EV and emission standards easing considerably there is an opportunity for them to have much richer mix. In fact, Ford was talking about this on their earnings call. Is this the type of thing that is, you know, sort of not currently considered in the schedules and the outlook, but once we see the standards easing and mix starts to enrich, that that is something that could help you. There are certain variants of Ford trucks that could be richer mix for you. So just how much mix could get better using emission standards, even outside of just less EVs.

Yeah, I mean, obviously, I don't want to get ahead of our customers as to what their build mix might be, but certainly anything from a from a market perspective that drives higher heavy truck and pickup purchases is good for data. I mean, just think about the main programs, right? Super Duty, Ranger, Bronco, and Wrangler, right? Those are four, you know, obviously very popular brands of vehicle. And if the customer builds more of them, instead of building an EV or a passenger car or a crossover, that's better for Dana, clearly.

As are lower gas prices on those vehicles, right? Right. Yeah, and, you know, in our accretive new business line, we do have volume uplift on super duty is in there. You know, Ford's announced that they're going to start to manufacture additional volume next year, another plant, and that's flowing through in the back half of next year.

Yeah, we would consider that to be backlogged because that's incremental volume from an added plant. So that would end up in our, when you think about, you know, Bruce's comments about backlog and the incremental contribution margin that comes from it. Great.

Thank you.

Our next question comes from the line of James Piccariello with BNP Paribas. Please go ahead.

Hi. Good morning, everybody. Buybacks will account for the full 600 million in this year's targeted share of the returns. For the remaining $400 million commitment, should we consider any special dividend, or has the company fully committed to share repurchases? And just to clarify, does last week's bridge loan just essentially help the company fund buybacks until the off-highway proceeds are received?

Yeah, so on your second question, yeah, I mean, obviously we drew down the revolver to make the purchases in the second quarter. We just wanted to put some liquidity back in to bridge us through the cash flow we're going to generate through the end of the year and then the closing of the transaction. So if you look at it, the bridge falls away at the earlier of basically a year or the closing of the transaction. So that's exactly why we put it in. just to make sure that there's sufficient liquidity and we have the flexibility to go ahead and do what we need to do between now and closing. On your first question, I think, look, it remains to be seen. We will remain flexible in terms of what we do, but at the current level that the stock's trading at, if we don't think that there's a recognition in the market for the value, uh, the intrinsic value within, within, uh, the, the stock, then, you know, our, our choices made easier for us. And we're trading sub 16. Um, I, I do believe that, uh, that the, the company is undervalued on an intrinsic basis.

Yeah. I, I, I, they'd even stay a bit stronger than that. I mean, I, I think that our board, um, you know, we continually, our shares are extremely undervalued right now. If you, you know, uh, Our confidence level in the margins that we're talking about here for next year is extremely high, higher than I guess you could say consensus is. And therefore, if you do the math using our margins for next year and you look at the share count that we expect to have at the end of the year and the debt level, we see it being significantly undervalued and we will be looking to as we generate more cash flow buyback more faster.

Got it. That's helpful. And my follow-up, are the $60 million in stranded costs mainly reflected in the higher corporate expense now? And the $310 million in cost savings through next year include the recovery of stranded costs. Is that correct?

Yeah. So, correct. We're showing.

Go to the second part. Yeah.

So on your first question, we are showing the stranded costs just separated into corporate. We typically have very, you know, less than $10 million in corporate costs. You'll see those be significantly higher. That's where those are being sort of parked in terms of the walks when you think through it. In terms of your 310, the 310 is without the recovery. You know, we assume the $40 million would come off of that, but... to, to, to our point, we, we, we believe we'll, we'll be able to get, um, you know, at least half, if not more of that 40 million out of the business next year. And then when we go into 27, we'll have largely mitigated the entire, uh, the entire stranded cost item. So, cause our, our, the view on stranded costs for us is it's 40. The accounting rules have, have us at 60 only because, um, if, if a, If a cost that's allocated is not actually going with the business, even if it's going to go away, you can't put it in discontinued ops. It has to go back and be shown in continuing ops. So that's the disconnect in terms of the accounting versus the reality of what it's going to look like when we get to new data for 2026.

Yeah, we expect to eliminate the stranded costs in their entirety. Are they all going to be out for next year? No, but they will all be out in 2027. Absolute certainty.

Thank you. Our next question comes from the line of Ryan Brinkman with JP Morgan. Please go ahead.

Thanks for taking my question. Could you discuss a bit further what is giving rise to the expected improvement in working capital for the full year versus the prior view? I assume this is behind the plan to return $600 million of cash to shareholders before the close as opposed to $550, including sometimes there's an investment needed in working capital to support higher sales, which you are forecasting. I know you generate a lot of your full year cash in the fourth quarter, so is it kind of like timing-related stuff, how you see sales and production kind of trending toward the end of the year, or just curious what's given rise to that improvement, and then how should we think about that maybe spilling over into 2026?

Yeah, so you have it right. I mean, you know, if you look at the CV, and from a cash flow perspective, from a highway perspective, both those businesses have, you know, much longer supply line than in the light vehicle business. Both have shown, you know, obviously softness through the first half of the year. You know, it takes a little bit of time to start getting that out. That's all going to get worked out as we go through the back half of the year. And quite frankly, you know, Bruce and I are really getting the team focused on taking that out. And then if you think about it into next year, yes, that's another part of how we're getting to our 4% free cash flow is additional improvement

in working capital efficiency within the the business that we're going to retain okay great thanks and then you've helped a lot already on the whole temporary stranded cost part of the guidance on slide six the overhead component I think that's easy to understand but I guess I'm just still a little confused on uh about the variable cost component I mean usually when I think of variable costs it's like associated with production volume you know it wouldn't ordinarily sit above the segment to be allocated? Can you maybe just help explain the nature of those costs a little bit further, what gives rise to them, and then your confidence that it goes away?

Yeah, so a couple of really easy ones, right? So if you just think about the cost to audit the company, right? So we're auditing a $10 billion business today. Next year, we'll be auditing, you know, a business that's $7 to $8 billion, right? So while that cost is fixed, right, it doesn't change, it's effectively variable in the sense that it's not going to cost the same to audit the $7.5 billion company as it is the 10. So that will end up, those costs can come out. Those are the type of costs that I would call variable. Another would be we have a global insurance program. So we have insurance related to the entire business that when it shrinks by a third, that will go away. Those are fixed costs today. They don't get allocated to discontinued ops. They end up staying in continuing ops because they're allocated and they're not physically going with the business, but they naturally will go away as we shrink the business because we'll just buy less insurance because we'll have less stuff to insure or we'll have a lower audit fee because the company will be smaller and the cost to audit it will be lower. That's the kind of things to think about.

But a big bucket in there is also IT.

IT, right. Yeah, that's the other one. IT is the other one where we've got licenses that we buy globally, centrally for, say, Microsoft or other types of IT software that is not technically going with the business, but when we sell it, we'll need less licenses to affect our Microsoft Office. So those costs will naturally go away. So those are the easy ones to think about.

So when we say they're variable, what we mean is upon the sale, they will go away. There's no risk.

That explains it. Thank you. Got it.

Our next question comes from the line of Emmanuel Rosner with Wolf Research. Please go ahead.

Thank you. Good morning. I wanted to ask you about the growth trajectory message with the robust three-year new sales backlog. So first, if you can just help us a little bit with some of the assumption in the creative new business contribution to margin next year. I think last time you published backlog was probably about $300 million for next year. Is that still ballpark what you're assuming in that margin walk? And then just more generally curious, You know, how much did new business sort of contribute this past year, and what are sort of like the drivers or sources of acceleration over the next few years?

Yeah, so, I mean, we haven't published updated guidance, but, you know, the $300 million that was in our last guide is still reasonable. There's going to be a lot of puts and takes given some of the changes, but that's still a pretty reasonable number to have out there. In terms of our new business growth that's come on, We continue to have a number of different programs, both on the light vehicle and on the commercial vehicle side coming online. Now, some of those are at a bit lower volume, so some of the actual flow-through is a bit lower. But we are continuing to launch programs both on the ICE and the EV side. A bit of our growth this year was on the EV side, so that's a bit tempered. But again, it is across the board. We've got light vehicle programs outside the U.S. that continue to launch that are ICE-related, as well as new variants within our programs here. We're getting ready to launch the next version of the Wrangler, so that has added content. So there's a number of different drivers for us from a backlog perspective this year.

And then your broader comments are on the three-year new sales backlog. Is it fair to say that the previous disclosure is still directionally correct, sort of like on the three-year basis? Or are there any big new pieces of programs that you've launched?

Yes, it is. Obviously, there's a piece in there that is off-highway that obviously won't be in there, but the backlog for off-highway is typically pretty small, just because of the nature of the way the programs work. But yes, directionally, those numbers are still reasonable. I think the mix of that is probably going to change a bit. I think there was 70% or 75% EV. I think that mixed change, but that's reflective of what we're seeing from from the end markets with our customers.

Okay. Thank you. One quick clarification on tariffs. So the net headwinds are at the end of the year. Is that a timing and you would recover the remainder into next year, or is that a piece that you believe in the end you will have to absorb?

No, no, no. We believe there's timing. I mean, look, we're not going to get 100%. We love to say we're going to get 100%. We'll get the majority of that, but there's still additional recovery from the lag that will come in next year. Yeah.

Great. Thank you.

Thanks. Our final question will come from the line of Colin Langen with Wells Fargo. Please go ahead.

Oh, great. Thanks for taking my questions. Just wanted to follow up on the The implied second half guide, it implies that sales are down about 1%, but you have like 100 million implied second half adjusted EBIT improvement. How should we think about those main buckets? Because if I look at the year-over-year basis, it looks like you had 100 million of cost saves in the first half, so it looks like that gets on a year-over-year only a little better. Performance is also pretty strong on your sides in the first half. I guess tariffs a little bit of help, but what are the main drivers to get that $100 million?

Yeah, I mean, it's better contributions, contribution margin on the sales. So we got better mix coming in. We will have accelerating cost savings coming through. So we expect $225 million for the year. I think you said we're $100 million, so we're about $25 million better in the back half of the year, which makes sense. We're going to get to the $310 million And then tariffs should be better in the back half than they are in the first half. And then we continue to see performance in the business driving margin expansion as we come through the end of the year.

Yeah, we have a couple of footprinting inefficiencies, I'll say, in the first half of the year, $20, $30 million in the first half that kind of go away in the second half as the plants normalize here. I mean, a lot of that was rampant, like we're kind of at that exit rate at the end of the second quarter. But Q1 and as we got into Q2, there's pretty big headwind that goes away in the back half of the year.

Yeah, largely around a couple of plants that we've closed and are in the process of ramping up elsewhere. And those ramp ups have hindered our ability to deliver what would have been even better performance from the first half of the year.

Got it. And if I look at sales first half to second half, it implies at the midpoint down one. If I look at, you know, S&P, you know, Europe and North America, which I think is about 75% of your sales, they're down nine. And commercial truck in North America, class eight, I think it's down over 20, first half to second half. So what is driving that 1%? Is there other, I guess there's some recoveries in there, so maybe some FX in there that... Yeah, there's recovery.

There's some effects. There's going to be some, you know, obviously tariffs add sales. So that's part of it. And then, you know, just the mix, you know, in terms of what we're supplying and to whom, you know, can have a difference between, you know, what the general market from, say, S&P is showing and what we think we're going to end up being able to deliver.

Yeah, you really got to look at our four or five main programs, Colin, as opposed to S&P number.

Okay. I mean, I see Super Duty's up. Are there any other ones that you'd flag as being?

Oh, that's a huge percentage of our sales.

Yeah, with Super Duty, we're going to have better comps when you look at Wrangler because, you know, if you think about Philantis with the Wrangler program at the back half, they essentially didn't even run. They barely ran in the back half of the third quarter and into the fourth quarter. Even this year. Yeah, yeah. So if you say that we had tough sales. Comparables in the first half of the year because they ran really strong in the first half of 24 coming out of the 2023 Q4 strike and then fell off at the end of 2024. Now we've got a much more normalized production pattern from Stellantis on the Wrangler and the comparables for the back half of the year on Wrangler versus last year are going to be very, very favorable to us. Even if they don't run super strong, if they just run normalized like they've been running, which, by the way, we really like because it makes our operating performance that much better, those are going to be good comps for us.

We're going to have to close it down, Colin. You can follow up with Tim and Craig and give you a bit more comfort there in terms of the sales outlook. But I want to sort of just wrap up here the call. Again, thanks everybody for participating today. I know there's a lot of noise in these numbers. For me, the key takeaway is the solid Q2 beat against every number that's out there. We're raising our guidance. New Dana is doing better than overall Dana, as we explained with the tariff-related volume issues in off-highway. We're adjusting our free cash flow guidance up and pumping it into share buyback because we believe we're significantly undervalued. In terms of cost reduction, it's running well. We're up in our target to 310. I'm highly confident we're going to get there. In terms of 2026, you know, the 10 to 10.5% is a commitment from the team. I don't think there's any doubt in my mind that we can get there next year. using a golf analogy, I view that as being a tap-in. Lastly, if you sort of look at where we think our shares should be trading and the value that we're creating here, using a double-digit margin next year, 4% free cash flow, share count is down 25%, a substantially de-levered balance sheet. We think we're well undervalued and The team's committed to generating more cash so that we can buy back shares more quickly. With that, I'll thank everybody and thank to our employees for delivering a terrific quarter.

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