Q4 2020 Dana Inc Earnings Call
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Powered by recognized brands, such as Spicer, Victor right, Praveen, Fairfield, Graziano, Gwb's and long Dana delivers industry, leading solutions for the light vehicle commercial vehicle and off highway markets.
Good morning, and welcome to Dana Incorporated's fourth quarter, and full year 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 Speakers' remarks, and Q&A session will be recorded for replay purposes. There will be a question and answer period. After the Speakers' remarks, and we will take questions from the telephone only if he would like to ask a question. During this time press Star then the number one on your telephone.
And keep Pat do you want.
Sure that everyone has an opportunity to participate and today's Q&A, we ask that callers limit themselves to one question at a time and you would.
You are asking additional questions. Please return to the queue at this time I would like to begin the presentation by turning the call over to Dana Senior director of Investor Relations and strategic planning Craig Barber. Please go ahead Mr. Barber.
Thank you Regina and good morning, everyone on the call and thank you for joining us today for our 2024th quarter and full year earnings call. You'll find this morning's press release and presentation are now posted on our Investor website. Today's call is being recorded and the supporting materials are the property of Dana incorporated and they may not be recorded copied or rebroadcast without our written consent.
And so allow me to remind you that today's presentation includes forward looking statements about our expectations for dana's future performance actual results could differ from those suggested by our comments today additional information about the factors that could affect future results are summarized in our safe Harbor statement found in our public filings, including our reports with the SEC.
On the call. This morning, as usual are Jim <unk>, Chairman and Chief Executive Officer, and Jonathan Collins, Executive Vice President and Chief Financial Officer, Jimmy and start us off this morning.
Good morning, and thank you for joining us today as we move into the new year I think we can all agree that 'twenty and 'twenty was unlike any year, we've experienced the challenges brought about by the global COVID-19 pandemic tested everyone's resolved to the deepest levels I cannot be prouder of prouder of how the Dana family responded through at all.
We were able to quickly pivot and take the necessary measures to ensure the long term success of our business as you can see and the left side of slide four Dana achieved sales of $7 $1 billion for the year significantly impacted by the global pandemic as a result of the extraordinary commitment from our team and their dedication to executing our plan coupled with aggressive.
Cost flex actions taken during 2020, we achieved are just adjusted free cash flow target of $60 million adjusted EBITDA was $600 million and diluted adjusted earnings per share was 39 cents John.
Jonathan and walk you through our results in more detail, but first I'd briefly like to recap some of the actions we deployed over the past year to ensure the safety of our people and the communities we call home as well as our efforts to continue executing for our customers and shareholders.
Also.
Sure why I am excited about dana's future and we'll update you on our sales backlog, which includes several new business wins and finally, we'll review several key achievements for the year and provide you a look and are noteworthy and arguably unique initiative as we continue to execute towards a carbon free future. Please.
Please turn to page five as we update our update to you on our pandemic response and our way forward.
Reflecting on 2020, Dana demonstrated the best of who we are through the incredible perseverance and dedication and the team position the company to do great things in 2021 and beyond.
And if last year illustrated and anything it displayed that Dana adapt quickly and excels when faced with a severe market downturn the.
And the entire Dana organization did an amazing job to safely idol and restart over 100, Dana manufacturing and technical facilities around the world moving into 2021, we will continue executing our strategy, while maintaining our strong balance sheet Inc.
Kris and shareholder value and further strengthening Dana for the future.
Turning now to slide six and I'll provide you details about our updated sales backlog and talk about why I'm excited for dana's future.
On slide six our three year, new business back sales backlog is a strong $700 million with half attributable to E. Propulsion programs remember our backlog is truly net new growth over and above exiting sales and any market growth.
We expect to realize $500 million of incremental new business and 2021 $115 million increase from our prior outlook for this year due to stronger demand for key platforms, including the new Jeep Gladiator and Ford Bronco and Bronco Sport. We also anticipate an additional $200 million and incremental sales and 2022 driven.
New programs, such as the Ford Bronco and the full run rate on the medium duty EV truck programs as.
As we shared with you before we'll be rolling off production of the GM, Colorado Canyon program, but as you can see on the chart other new program wins, such as the Volkswagen and <unk> pickup, which is part of the strategic alliance between Volkswagen and Ford and share as a platform with the Port Ranger have offset the impact of that single program. As a result, we will maintain the 700 million and.
Cumulative new business growth through 2023.
And the rate of the slide you can see a significant increase and EV sales as part of our backlog with a full range of E propulsion products and systems, we are providing our customers with innovative solutions they need to reach their sustainability goals and supply their customers with the most advanced capabilities available to the market.
Our product portfolio and in house capabilities, supporting the EBIT markets, and which we participate which is indirect line with our enterprise strategy that we communicated three years ago.
We recognize that electrification megatrend early on and made a series of strategic moves to position ourselves, if and excess of vehicle electrification and hybridization to serve our customers.
And our investment of more than $400 million and electrodynamic capabilities is uniquely position Dana as a leader in this rapidly growing segment Dana as the only supplier and capable of delivering complete E propulsion systems across all mobility markets.
As we turn to the next slides the antennas day not only to provide you examples of how Dana and supporting and the three end markets and which we participate which of course are light and commercial vehicle plus of off highway, but also to illustrate how each of our four business units are leveraging our core electrification capabilities to support their respective customer needs.
Turning to slide seven as powertrains evolve plug and hybrid vehicles continued to gain in popularity across the light truck segment. In addition to traditional and electric powertrain capabilities. Dana has a full range of products to support today's most advanced plug and hybrid vehicles as well. One example is the all new 2021 Jeep Wrangler.
<unk> plug and hybrid as you would expect from Jeep vehicles built for the severe off roading.
Our approach is to this type of hybrid is consistent with our enterprise strategy delivering a robust mechanical solution and a PD one or <unk> configuration, when the E motor is integrated into the transmission.
Especially enhanced front and rear axles and <unk> chefs and Dana has engineered for the poor XC manage the higher output and provide additional content per vehicle for us and platform.
And.
I mean, I'll take a moment to say that we are very honored to serve as the driveline supplier for the Jeep wrangler.
Since its inception 80 years ago, and we're very proud to continue to support still antigen and increasing popular off road enthusiast market.
This future demonstrates how Dana is engineering and designing innovations that enable us to grow and in the existing and new segments. While also enabling our customers to bring vehicles to market that meet their sustainability objectives.
Moving to slide eight I'd like to talk to you about our advancements and thermal management for electric vehicles.
We are very excited to announce a day and has been selected by general motors to supply the cold battery cold plates for the ultimate and battery packs and their third generation <unk> platform.
The multiyear program begins this year and will be our highest content per vehicle E thermal program the.
The first vehicle expected to feature this technology is the highly anticipated all new GMC Hummer EV shown on the right side of the slot.
Dana Award winning battery cold plates, combined superior thermal performance, resulting in a more stabilized battery temperature and faster charge.
Something you may not know is the Dana has been designing custom battery and electronics cooling solutions for more than two decades, which gives us very strong credibility and the market and further positions us to lead the charge and this new era and mobility.
Moving to slide nine I'd like to move into the medium duty truck segment and describe and E truck with Daimler.
Many truck fleet operators are looking to electrify delivery trucks as they seek ways to reduce energy consumption improved performance and increased cost savings downloads custom chassis latest medium duty electric truck program. The empty 50. He is designed specifically to and to meet the fast growing market and features dana's full electric propulsion system.
Production for the program is slated for the third quarter of this year and will include Dana's motor inverter and axle, which are manufactured in house and increases our content per vehicle by more than four times boosting both the top and bottom line growth potential.
Turning to slide 10, let's transition to the class eight heavy duty truck market here again. Our team has provided are not to be disclosed at this time customer full E. Powertrain solution required to support their full electric vehicle E propulsion requirements and this program includes dana's EXL, including electric motor and inverter.
<unk> solutions and embedded software and controls.
And we developed the new E axle to serve the most popular heavy duty for by two global market segment meeting specific customer requirements.
Program is targeted for 2024 and increases Dana as product content by approximately four times versus typical typical diesel propelled heavy duty vehicle.
Moving to slide 11, now and our off Highway segment, we're excited to share with you a new electric asset excess equipment program for <unk> industries that features Dana is all new electric torque hub technology combined with the state of the art Dana permanent magnet AC motor and inverter.
And the multi year program for North America, and Europe begins production early this year with the volume is expected to ramp up steadily and 2021 Dana has been a longtime leader and hydraulic driven and scissor lifts, but now we're leveraging our core near technology combined with the acquisitions to penetrate and expand and a newly developed electric driven lift market.
Moving to slide 12, I'd like to touch briefly on recognition that we received this year from customers and international media.
The graphics on the slide are small subset of the numerous awards that Dana has received throughout 2021, however to speak with just a few examples we are very proud to be recognized as supplier of the year by general Motors and both product categories. We participate and that is of course, driveline and thermal management products and systems groups of course, we're equally as proud for the wins we've achieved.
Crossed and markets with our partner customers and those vehicle segments. All of this said as important as customer and industry recognition is also being recognized as one of the world's best employers by Forbes and one of America's most responsible companies by Newsweek as extremely humbling to me and the entire entire day and her team is one thing to do.
<unk>, it's another to do business the right way by putting people at the center of everything we do I'm very fortunate to work together with a global team of 38000 and strong that do this every day.
Turning to slide 13, and I'd like to update you on the never ending pursuit of continuous improvement and the area of sustainability.
Last quarter, we shared with you our commitment to reducing our total annual greenhouse gas emissions by at least 50% before the end of 2035. This aggressive target result, and reduction of more than 300000 metric tons of greenhouse gas emissions annually. We also shared our roadmap with you and how we plan to achieve our goal this includes reducing.
And our energy consumption and increasing efficiency of our processes expanding our use of renewable energy such as wind or solar to make use of clean energy sources that will further reduce our greenhouse gas emissions and exploring the use of renewable energy credits purchased on the open market.
And I'm very excited to share with you that Dana recently signed to virtual wind electricity purchase agreement with a subsidiary of Nextera Energy resources LLC. This agreement will result in a 300000 megawatts of new renewable electric electricity generated annually over a 12 year period beginning in 2022.
Will also contribute to a 90% reduction of our current U S annual electricity and greenhouse gas emissions the mobility and she has a unique opportunity to lead by example, not only and how we design, but and how we manufacture our products to have a positive impact on the environment. This agreement goes a long way and supporting our continued progress achieved.
Achieving our 2035 and emissions reduction goal of 50 per cent.
Thank you very much for your time today I'd like to turn it over to Jonathan to walk you through the financial results for the quarter.
Thank you Jim and good morning, everyone. Slide 15 provides an overview of our 2024th quarter and full year results compared to the prior year.
And the fourth quarter of this share sales topped $2 1 billion as we experienced strong demand for our key full frame truck platforms and North America.
Profit margin and the quarter was lower than the same period last year. Despite higher sales as 117 million indirect tax recovery in 2019 did not recur in 2022, we continued to incur premium costs, primarily in the form of expedited freight to meet the elevated demand and our light vehicle segment is our supply base struggled to keep pace with a dramatic production ramp.
Coming out of the pandemic shutdowns and three we accelerated our investments and electrification to bring to market. Some of the new business wins that Jim highlighted just a few moments ago.
Fourth quarter adjusted free cash flow was $46 million as earnings combined with a considerable source of cash from working capital surpassed interest taxes and capital expenditures for the full year sales were $7 1 billion a decrease of <unk> 5 billion compared to 2019, driven by the production shutdowns caused by the global pandemic adjusted EBITDA.
It was 593 million from a profit margin of eight 3%.
The net loss attributed to Dana was $31 million and resulted entirely from the goodwill impairment charge recorded during the onset of the global pandemic.
Diluted adjusted EPS was <unk> 39, a.
$2, 67% decline from the prior year due to lower adjusted EBITDA as well as higher depreciation and interest expenses.
And finally, adjusted free cash flow was $60 million below the prior year, but in line with our expectations given the lower sales in 2020.
Please turn with me now to slide 16 for a closer look at the drivers and our sales and profit changes for the full year.
The changes in 2020 sales and adjusted EBITDA compared to the prior to year is driven by four key factors shown here first organic sales drove the vast majority of the change as the decrease as they decreased by more than one 5 billion, primarily due to the pandemic shutdowns and the second quarter.
Sales began to rebound sharply sharply and the third quarter and continued into the fourth quarter. As a result of decisive cost actions taken at the onset of the pandemic, we were able to maintain decremental margins of less than 30%.
And inorganic growth, partially offset the lower production volumes as the Graziano and Fairfield acquisitions provided a full year contribution to the business in 2020 since we've last lap the acquisition day. The impact illustrated here is the first quarter increase and sales and profit and the year over year improvement due to cost synergies.
Third the currency impact during the year was a slight headwind to sales and profit as the U S dollar compared to our basket of foreign currencies was generally unchanged from 2019, and finally lower commodity costs and modestly expanded profit margins has gross commodity costs decreased by $36 million for a net profit increase of $6 million per.
For the year.
Please turn with me to slide 17 for a closer look at how the full year adjusted EBITDA converted to adjusted free cash flow.
We achieved our revised 2020 cash flow guidance by generating $60 million and adjusted free cash flow from a margin of about 1%.
The profit decline of more than $400 million was partially offset by a more than 40 million reduction and one time cost and nearly $30 million reduction and cash taxes, and nearly $60 million improvement and working capital and $100 million reduction and capital expenditures, both working capital and capital expenditures were actively managed and response to the <unk>.
Business impact of the pandemic. Please.
Please turn with me to slide 18 for a look at our full year guidance for 2021.
As we look forward to this year, we anticipate a significant improvement and all our key financial metrics. We expect full year sales to be approximately $8 3 billion at the midpoint of our range, which is an increase of $1 2 billion or 17%.
We anticipate adjusted EBITDA to be about $910 million at the midpoint of our range, which implies a profit margin of about 11% and and expansion of 270 basis points over last year. This level of profit implies an adjusted free cash flow margin of approximately 3% a two percentage point improvement over last year.
Diluted adjusted EPS is expected to be approximately $2 15 per share at the midpoint of the range.
Please turn with me to slide 19 for an overview of our market expectations that underpin our financial guidance.
This chart provides an overview of our vehicle and equipment volume expectations for this year compared to last year, the arrows and colors indicate the direction and scale of movements as shown in the legend at the lower left corner of the page, we're expecting increased demand in all our key markets and most regions.
Like to draw your attention to three quick highlights on the chart first we see increased volumes for full frame trucks and all regions.
This is our largest end market, which was running strong for several years pre pandemic and now we will experience a meaningful increase over last year as a result of the production disruptions and the second quarter of last year.
Second we expect the North American class eight market to continue to improve and the beginning of this year, leading to double digit growth compared with last year medium duty truck volumes are expected to grow double digits internationally and we remain cautiously optimistic for solid growth in the Brazilian heavy truck and bus market.
Third across the globe, we expect off highway volumes to improve compared to last year, including our core segments of construction and mining which are beginning to recover from a period of decline over the last several years and are now expected to grow and the mid single digit range in 2021.
The combination of these key market themes leads to a total improvement of about $600 million and sales and 2021 compared to last year.
Please turn with me now to slide 20, where I will highlight these as well as other drivers of our expected sales and profit changes for this year.
As with our earlier comparisons this chart highlights the four factors driving our expected sales and profit growth for 2021.
First organic growth is expected to add $1.1 billion and sales, including our new business backlog of a half a billion that Jim announced earlier and the end market volume increase of 600 million that I just detailed on the previous page incremental margins are expected to be in line with last year's Decrementals at about 30%, providing and nearly 300 basis point margin.
And benefit as permanent cost reduction actions are helping to fund increased spending and our electrification products and services second we now expect the pending acquisition of <unk> automotive liquid cooling business to close mid year, we're not including the impact of this acquisition and our guidance at this time and will provide an update as we get closer to closing as it.
Reminder, and 2019, the business generated about $300 million of sales.
Third we anticipate the impact of foreign currency translation to be a slight benefit of $40 million of sales and about $5 million to profit and finally, we expect gross commodity cost increases of about $75 million as steel prices have risen dramatically and the last 60 days, we anticipate recovering about 60 million and the increase from our customers and the form of higher.
Selling prices, leaving a net profit impact of $15 million, which will compress margins by about 25 basis points.
Please turn with me now to page 21 for a look at the anticipated seasonality of our sales and profits this year.
The cadence of our sales and profit phasing in 2020 illustrated by the Gray bars, and diamond's, respectively are anything but normal as youll recall sales plummeted, just over $1 billion in Q2 and were near breakeven for the quarter sales recovered significantly and the second half of the year as our customers sought to rebuild inventories that were completed during the shut.
Down.
The cadence of this year as expected sales phasing as represented by the solid Black line and profit by the dotted curve.
While we anticipate full year margins and a lot of 11%, we expect the year will begin and and a bit lower with the highest margins mid year due to our normal seasonality of sales based on work days from a year over year perspective, we anticipate first quarter margins will be comparable with last year, while the second quarter will be dramatically improved as a result of the shutdowns last year Mark.
And expansion and the second half of the year will be driven primarily by improved operating efficiencies and our light vehicle segment as we dramatically reduced premium cost incurred in 2020 as a result of the V shaped recovery and production volumes coming out of the shutdowns.
Please turn with me to slide 22 for more detail on how we expect our full year adjusted EBITDA will convert to adjusted free cash flow.
Our full year outlook for adjusted free cash flow margin is about 3% of sales representing a nearly $200 million and a two percentage point improvement over last year increased profit will be partially offset by slightly higher cash taxes working capital requirements for the higher sales and capital spending to support the new business backlog and electrification growth.
Please turn with me now to page 23 for a look beyond 2021 at the long term financial potential of our business.
As we revisit our long term financial projections, we first set out for you at our Investor Day, two years ago, we remain convinced and the potential for our business to reach $10 billion of sales in 2023, using our expectations for 2021 as the starting point on the left side of the chart. We expect three factors to drive the growth first given our volume projections.
For this year, we have a tremendous amount of headroom and our heavy vehicle markets to deliver more than $1 billion of organic growth over the next few years.
Second as Jim outlined earlier, we have another $200 million of sales backlog that will come online over this period and as we demonstrated with the 2021 tranche, which is up 150 million. Since we reported last year. There is ample room for this number to improve as we win new business that could launch and the next few years.
Third the acquisition of loadings automotive liquid cooling business should add at least $300 million of sales over this period and round out our commercial and geographic presence and the thermal portion of our power technologies segment.
Assuming relatively flat foreign currency rates and commodity cost our business is on track to grow to $10 billion and of equal importance based on the compartment of our backlog at 50% Evs. We're also on track to meaningfully exceed our half a billion target for electrified sales and 2023.
Please turn with me now to page 24 for an update on how we expect these sales will convert to profit and free cash flow.
The and points of our key financial metrics are similar to what we shared with you a couple of years ago. When we originally provided our long term projections I'll work through this slide and clockwise order the upper left illustrates our trajectory towards the $10 billion sales Mark I just outlined on the prior page the upper right highlights the profit growth and margin expansion we anticipate.
As we drive towards our long term margin potential and excess of 12 per cent. Even at these levels, we're giving ourselves room to continue to accelerate our investments and electrification as the market potential and rate of adoption for evs is exceeding our expectations from just a couple of years ago.
In the lower right you can see that this level of adjusted EBITDA will translate to EPS growth well in excess of the record $3 level, we experienced the year before last.
And finally and the lower left what we're most excited about as a team has the potential to deliver increased cash flow returns for our shareholders as our profits grow we expect a higher cash flow conversion, leading to a margin of approximately 5% and a three year cumulative generation of more than 1 billion and this contemplates investing more than $1 billion and capital.
<unk> over the same period, largely concentrated on new business growth.
Please turn with me now to page 25 for a look at how we plan to deploy and $1 billion of cash flow to generate attractive returns for our shareholders.
The Pie chart on the left of the page illustrates the balanced approach, we plan to take and allocating $1 billion of capital to drive value.
This morning, we announced two important actions one the reinstatement of our quarterly dividend at the same 10 cents per share level as was previously paid prior to the suspension during the pandemic and to the extension of our existing share repurchase authorization through 2023, both represent important forms of capital repatriation to our shareholders and <unk>.
Demonstrate the confidence we have and the financial performance of our business moving forward we.
We expect to use the remainder of our cash flow to repay debt as we prosecute our plan to reduce our net leverage to approximately one turn which is illustrated in the upper right of the page even though our net debt remained flat. This last year you can see that our net leverage increase by a turn due to the profit declines caused by the pandemic last year served as a helpful reminder of the importance of a strong.
<unk> balance sheet for a global mobility supplier, we do expect to be back to about two turns and net leverage by the end of this year and we've carefully structured our debt stack to minimize prepayment cost and the form of call premiums as we de lever as you can see and the lower right corner of the page. We've also maintain flexibility as we have no debt maturities and the next three years we.
We believe this balanced approach towards capital allocation will augment the strong growth and all our key financial metrics as we execute our strategy and will deliver significant capital appreciation for our shareholders and the coming years.
Like to thank all of you for listening and this morning, and I'll now turn the call back over to Regina. So that we can take your questions.
At this time, we would like to begin the Q&A session. If you would like to ask a question press the star key and the number one on your telephone keypad. Our first question comes from the line of Noah Kaye with Oppenheimer.
Good morning, Thanks, so much for taking the questions.
I guess the first one just following up and your commentary around continued EV investment is there a way to frame out what that impact might be.
I think and this is primarily organic.
Or are you, referring to or inorganic as well and I guess as a related question you know we saw.
And the major tier one powertrain suppliers and recently announced they were.
Integrating into commercial vehicle battery packs I'm, just wondering how you're thinking about you know gaps in your portfolio and the electrification side, if they exist and and where you want to focus your efforts and resources.
Well good morning, and thank you very much for the question and I'll Tag team. This one and a little bit with Jonathan the first part of your question was more on allocating capital and investment on electrification the ladder was relative to strategy and.
Battery management and the such from our standpoint, and I'll, just remind the audience I guess I would say as it relates to battery management capabilities and what we do we had integrated into that already we had been and that with our acquisition.
A couple of our acquisitions. So we're doing that if you just think about some of the key platforms and fact platforms that are launching here in 2021 as it relates to the pack our programs et cetera, et cetera that is full battery management and et cetera et cetera. So we see we see what our competitors are do we're going to have good competitors and that's fine, but we see it that we have.
Been very selective we haven't kind of pushed all the chips are overly overly saturated our investment in one direction or another and in our EV strategy, we put it into the right package and then build it up from there organically with the great people and assets that come with it so from that standpoint, we're in pretty good shape, there, Jonathan Yeah, and Noah and in terms of the investments.
We referenced that's really on the organic side. So these would be increases and spending and program management core engineering application engineering to deliver a lot of these programs and continue to stay ahead of the technology curve in terms of developing new products. So.
And we'll think about dimensioning that going forward, but as the market is moving faster. We are certainly in a position where it makes sense for us to accelerate the rate of investment.
Yes that makes sense. Thank you I guess just to follow up on production assumptions and clearly I think the customer basis.
And light vehicle prioritizing the type of vehicles that you produce content for our rightful thing.
Trucks etcetera.
But just any thoughts on.
<unk> impact to production cadence from this I'd make conductor shortage or any other supply chain issues that youre seeing across the industry.
Yeah, we're certainly watching that carefully and when we constructed our guidance we're optimistic about the way the market is heading but we're also cognizant that we're not entirely out of the woods on the pandemic. We are encouraged by the vaccine distribution and obviously, we think the economy's moving and the right direction through it.
Cover but also as you noted we're in the midst of a chip family and we are starting to see our customers effective you are right. It's early on it's affected us less because.
A lot of our programs are critically important to the customers and they seem to be preserving those but we're watching those carefully and.
We'll keep an eye out going forward.
Great very much thanks, so much.
Your next question comes from the line of Aileen Smith with Bank of America.
Good morning, everyone.
And I'll ask another question around electrification and that's one part of it being a margin headwind and the quarter and I think the first time and it's been explicitly referenced by you guys, but it's not really surprising given the strategy from you over the past several years and acquiring and investing and EV technology and so to understand it correctly. This is just the dynamic of a commercialization investment.
Rather than technology development as the backlog is finally ramping up with customer buying and as you think about and the margin bridge from 9% and the fourth quarter to 11% in 'twenty and 'twenty. One is that outlook based on the assumption that the electrification investment burden and moderates and any way or it's just offset by operating leverage on the broader volume in Europe.
Revenue recovery.
Yeah to the latter part or I guess I'll take your first part in terms of it first time being called out that's correct and you are right. It's largely due to the commercialization of the project or the products, but we're also spending a bit more and product development for new products. So the success that we're having and winning programs like Jim outlaw.
And is leading us to a decision where we can capitalize on these opportunities by continuing to advance the technology. So I think your characterization there is correct.
And then from a Q quarter over quarter margin perspective.
We're going to continue to keep the rate high there is some seasonality of the spending based on customer launch cycles of vehicles and so there'll be a little lift from Q4 to Q1 on the spend but a lot of it has to do with the operating cadence and particular as we continue to get the supply base and a better position, we anticipate some of the premium costs that we incurred.
And the second half of last year abating in the first half of this year.
Okay. That's helpful. And then wanted to touch upon one of the comments and your prepared remarks that you're going to be supplying the cold plates for Gms Ultimate Alta and batteries are you able to provide us with an estimate for the total related content and youre going to have on that platform and as a reminder, will you be on the entirety of that platform for example, the $1 million by two.
And your 25 target that Jim has established or will it be for specific models.
And I'm going to give you half an answer on that one but at least I'm transparent when I say that this is Jim.
We will be on a full platform for sure, but I can't give you a content per vehicle or anything like that and I think you respect that.
Yep understood. Thanks for taking my questions.
Youre welcome. Thank you for the question.
Your next question comes from the line of Dan Levy with Credit Suisse.
Hey.
And good morning, everyone. Thank.
Thank you for taking the questions.
I wanted to start by asking a question on your margin guide for 2020 for.
And for 2021, rather and I recognize you're guiding to a 30% conversion and markets are strong and and if I look at the margin you put up and your segments and prior periods with better and markets.
Would've bought them upside to your guide and you know 11% is still below the 12% pace you added 18 and 19.
And I, just would've thought upside given synergy better cost efficiencies and maybe you could give some color on the margin and specifically the segment margin and as to why Theres, maybe not as much upside as it.
Investment and R&D or.
It still a function and end markets just a little color on the segment margins as to what's a higher thank you.
Yeah sure Dan So I guess, the one thing I'd point to is we're still.
Now a few hundred million short of where we were in 2019. So obviously the conversion on those extra sales would be helpful and getting us back up closer to that 12% margin. So that's probably the biggest driver of the difference there, but I'd also highlight the comments, we made and just.
Just on a question, we are giving ourselves a bit of room to continue to.
Ramp up and spend very thoughtfully and electrification given the success, we have not only and book business, but also the really robust pipeline of opportunities that we're working through with our customers right. Now. So I would just say still being a few hundred million dollars short and volume from where we were in.
2019, as well as the electrification spending are the only reasons that were sitting around that 11 versus closer to where we were a couple of years ago.
And any comments on the <unk>.
Margin by segment.
Yeah, sorry from a segment perspective on the CV side is one area, where you'll see some concentration on the electrification investment. So obviously the medium duty segment is moving quickly. We now have the heavy duty win that's coming to market and the next few years. So I would say that's going to get a disproportionate amount of the EV spend and put a little pressure there and then really.
The off highway business has got really great.
Margin potential on the upswing were still highlighting mid single digit growth, but if that market starts to move further we're really excited about the incrementals you could see and off highway after the integration of the.
And the Graziano and Fairfield businesses and the cost synergies that we achieved there.
Great. Thanks, and second question is a bit more.
Essential and we saw G and we've now seen a few automakers actually and the last week, you know really put a wind and the sand about outlining a target being fully electric by given time period, Jim talking about 2035 board.
And for the electric and Europe by 2030 Jaguar fully electric.
And I'm sure there's going to be other announcements out there on a similar transition and timeline.
I realize there's a lot that can happen between now and 2030 of 2035, but my question for you on the light vehicle side, because they pay and I guess I would maybe define it more broadly and you think through all the things you need to do to transition to a fully easy we'll be it on the product or manufacturing side and.
And it's 15 years, a reasonable period of time to make that full transition and I guess that would be more focus on light vehicle, but we could even extend that to commercial or off highway as well, but light vehicle, where I think we're really seeing this transition aggressively.
I think it's a very good question. This is Jim. Thanks for the question I would say use your word reasonable I think it is reasonable.
But I can tell you from the way we've designed the company and our strategy and everything else. We assume everything is going to come twice as fast as it is than it was originally anticipated and oh by the way either lucky or good I would say back to even when we rolled out the strategy. In 2016. There is a lot of people that thought maybe we had lost her mind and frankly I think we're closer.
To reality than than maybe most but whatever the case, that's not a victory lap other than just to reinforce and with example that that's how we look at the business and that's how we as travelers your strategy. The key is and you use good examples out there of a various light vehicle customers and what they're doing and their commitments, but as you also know is that theyre going to continue to make the vehicles that are in pocket today.
And some of those given where their uses are out and the field. If it's out on farms are and our case out and farms and construction sites and a bunch of other thing, it's very natural that theyre going to still be and the IC world for period. The point is is that we are very much structured for success to be able to continue they're going to continue to make those vehicles, we're not going to say to them of course and I've got a great idea, we're not going to.
To supply you the driveline on them, we are going to supply. The driveline is on them, but as you can see we can have two swim lanes at Dana because we have the full in house capability and hopefully that was very much represented today and the presentation. So I feel very comfortable if it's a 15 year transition or it's a seven year transition or to 80 year transition at the end of the day, we're able to run the company that way because we've been structuring.
That way for essentially four or five years.
Great. Thank you.
Thanks, Jim.
Your next question comes from the line of Brian Johnson with Barclays.
Yes couple of questions and again to kind of hit the electrification theme.
As you look at that.
5% electrification goal and then on page six the backlog slide 50% EPS.
Directionally, what's the mix between light vehicle and commercial they call that match and it's kind of heavy on the commercial vehicle side.
Yes.
Yeah, we didn't provide the breakdown, Brian whether for the whole backlog and the other but I would say the electrification portion is certainly skewed to the heavier vehicle markets and in particular commercial vehicle. We tried to give some of the representative platforms on that page that are launching and as you can see and commercial vehicle and most of the big wins are.
Hybrid or full electric vehicles. So just to give you a general sense I think the way that chart represents the number of programs is pretty representative of the balance between the three end markets.
And then you did mention that it could be greater than 5%.
Electrified and talking through is there any reason you haven't taken that number off our directionally.
How far that could go.
Yeah, I think we're just saving it for later this year, what we wanted to indicate this morning is based on the book business that we do have we're running well ahead of that number so more to come on that I would say later this year.
Okay, and if you just think of that as half a billion at minimum of EV revenue and where to put us back multiple on it call. It four times 23 revenue.
You get a market cap of $2 billion kind of two follow ons. One your overall market cap is 3 billion any comments and to that 400 million I don't know if that includes every tuck in acquisition you did but you know what is your real cost basis, and EBIT business, given that you and Jim were out buying these literally be companies when they were still.
Affordable and not unicorns.
Yeah, I guess for the first component.
And your logic on evaluation makes a lot of sense and that's probably why our comments around the the upside we see and moving forward, we're pretty excited about those so today, we're putting some more concrete proof points that the strategy is working effectively so I think the confidence and the growth and our EV business should continue to improve moving forward.
So we are pretty excited about the the valuation potential there.
And then I would say the second pieces you are right.
Still paid reason.
Reasonable values for the businesses that we acquired but we were a bit early so.
Youre right as we start to see that the appreciation of our EV business be recognized.
And our valuation should create really attractive returns for our shareholders because of the timing that we bought in on the electrodynamic components.
Yep.
Yep.
Yeah.
Your next.
The next question comes from the line of James Picariello with Keybanc capital markets.
Hey, good morning, guys. Good morning, James if.
If I'm reading slide six correctly and it looks like electrification spend will trend at around $400 million over the next three years.
What portion of that is included within your 2021 Guy because.
And if we bridged 2021 guidance to the 12% plus EBITDA margin trajectory for 2023 and <unk>.
Incrementals, there, but somewhere in the and the high teens just want just wondering what level of conservatism is baked in and how much of it.
The $400 million and spend is included in 'twenty and 'twenty, one that might help bridge everything. Thanks, Yeah, Yeah, Good point and James just as a point of clarification on that slide that $400 million number is a look back through the last three years. So it includes the acquisitions that we made of the original Tam for business the SME business.
Also and our dresser ashwood. So all of these assets are included in that number as well as post acquisition the organic investment that we've been making so that number is is includes a lot of those upfront costs kind of to Bryan's point, just a moment ago, what it took to get electrodynamics and house.
Moving forward that annual run rate, we expect it will continue to step up to support new business and we.
We will continue to provide updates moving forward as we continue to make these investments.
Okay.
Alright, yes, because that would that would you.
Yeah that would kind of indicate the high teens incrementals might yeah, yeah, it might be more conservative, but it will depend on what the quantification of that.
This additional spend okay. So just to clarify the cash.
Couple of vacation play and over the next three years and.
And he doesn't have any any debt maturities until 2024.
But we'll likely deploy another what $650 million or so toward toward debt repayment. Before then is that right and then just from an M&A pipeline standpoint, yeah as you think about it.
Dana is electrification portfolio are there any areas that Jim.
Make the most strategic sense to you know to explore any color there would be helpful. Thanks.
Sure that those two go hand in hand, so obviously that pie excludes any opportunistic M&A and as we've demonstrated even in the last year will continue to be on the lookout for really attractive values like and the Modi and case to create value for shareholders that way or like in the case and the investment we made and Pi and novo to build out further our electrode.
Dynamic capabilities, particularly in the area of software. So we've continued to highlight that.
We have an opportunity to differentiate our systems from a performance perspective based on the software that controls them. So we'll continue to look at those but to your point you know and the absence of that there's quite a bit available for debt pay down obviously the term loan. We have is pre payable without any penalties and then the the first try.
Onshore bonds here will become callable pretty soon.
And a pretty small costs, so there's plenty of opportunity and the debt stack to be able to to delever and a very efficient way.
Thanks, Jim.
Yeah.
Your next question comes from the line of Joseph Spak with RBC capital markets.
Thanks. Good morning, this is actually Gary Cooper on for Joe.
Going back to the backlog.
And all rolling off and by 2022, so I understand and Colorado Canyon weighs on 'twenty and 'twenty, three but given kind of the increased content on some of the easy wins and those just ramping up as we get into 2023 I guess.
A little surprised that that came.
Came in flat so just any color on what the potential is for some upside just based on sourcing activity.
And then I guess more of a clarification question. So you said you'd be on the entire altium platform, but it's only the hummer included in that backlog number are also some of the other opium nameplates had been announced are also included in that backlog.
Yeah I'll take the second part first the answer is the backlog includes the platform not just the individual vehicle badge that we highlighted today.
To the first part of your question as it relates to the backlog I guess, the best thing to point to and that cases, what happened with the 2021 tranche of our backlog, which last year. When we reported we expect it to be about $350 million and now it's a half a billion. So our backlog is pretty conservative and that the business has to be awarded with production volumes.
<unk> during the period. So there is ample time, particularly and the electrification landscape to win business that launches and a shorter window than you might normally expect for our program lifecycle. So that's the thing I would point to on the second and third years of our backlog and we tried to indicate that there is there is some opportunity there for that number to.
Improve as we drive towards that $10 billion sales target.
Got it. Thank you and then I guess just on CV and margins as we think about next year I mean, I think kind of historically the sweet spot for the commercial vehicle margin. So it's been kind of with North America class eight kind of and that $2 50000.
<unk> thousand dollars.
And unit range I think AC T has it and are well above that for next year. So I understand that you know medium to use a little more important the class eight but how are you thinking about the potential for premium costs to come in as class eight and get above that that replacement level.
Yeah, and it's a great point, if it works out on paper or as it is on paper right now I think youre right its real close to that sweet spot and and we've said that the traditional business within commercial vehicle is going to hone in on that double digit margin with that.
Thing that will pull that back a little bit next year as the investment and electrification. So as I mentioned, a few minutes ago, a lot of the new wins coming in the medium duty and now starting in the heavy duty space are coming through and Theres going to be.
And some spending there to bring those online so that combination and the combination of those two will will probably pull it back a bit but we would expect certainly margins to improve compared to last year.
Thank you very much sure. Thank you.
Your final question will come from the line of Ryan Brinkman with J P. Morgan.
Alright, Thanks for taking my question just wanted to check in with you with regard to your latest thoughts are and the attractiveness and normalized growth of the power technologies business in light of the New E Thermal award and electrification and generally can you remind us of what your average traditional thermal versus ether more content per vehicle is you know how much.
And there might be from the transition away from internal combustion and how much tailwind there might be from the move to battery electric and any thoughts on sort of where hybrid debt and if that might be a sweet spot et cetera.
Yeah, It's a great point, Ryan we have indicated before that hybrid is the sweet spot because you have the thermal content and the combustion engine thats cooling fluids as well as the the sealing products and insulating products you know the thermal acoustic protective shield. So all of those and then when you add the potential.
On the battery cooling side, and even potentially battery and closures that becomes really and the most attractive space.
We've not specifically dimension and the power technologies business the content Upsized from IC to EV as we have with our three drive systems business, but certainly based on what we're seeing and early programs for the battery cooling there is a content uplift opportunity as we move from IC to EV.
Okay. Thanks, and then maybe a little bit of a related note and you know would you say that there are any kind of a go to market advantages as a result of having our electrification capabilities from both thermal and the driveline perspective, I mean, if nothing else gets it allows you to have content on opium batteries, whereas opium drive might be more vertically integrated and just curious if.
A thermal offering and.
Hans.
Driveline or vice versa and year over year.
A great question by the way are outstanding question in and not because I like being able to give you the answer to it because it's just very in depth and the reality is there is a I'll use a different word theres a lot of synergies, let's talk what are we talking about when we think about synergies and think about commercial synergies start commercial synergies you're talking to the same customers that are right in front of us.
Forefront of the electrification movement and how we can help them and the full full system approach to their vehicle. So maybe we're talking about them to the E E drive type of product over here and it helps on Pete on the on the cooling and thermal management over there or vice versa. So it's a very big deal as it associates with that the other part of it is as you go talk to any.
Vacation engineer at any OEM, that's out there I will guarantee you that you won't get past the second paragraph or the second sentence, whatever you want to use and they're not talking about the criticality of thermal management around the full E propulsion system. So just the just the pure fact that we have the associates that have been doing it for decades and house to be able to help us manage through the <unk>.
<unk> system, and being able to do the tradeoffs for integration and capabilities to be able to support our customers.
Can't even put it into words, so great question.
Okay. Thanks, and then just finally are you seeing that the commercial vehicle industry has not been impacted by the semiconductor shortage issue I mean, we've heard as much about I guess commercial on highway trucks that maybe they are using with one generation and older of chips, which are needed and.
Shorted supply, but you start with a number of other end markets as well and just curious what you're seeing and if there's any impact on the other parts of the business.
I would say I would use the word very low compared to the balance of the end markets that we participate there's a simple answer.
Okay very helpful. Thank you.
Sure Yep.
Okay.
Real quick I'll give you a quick summary, if that's okay. Thank you very much for your the privilege of your time and your continued support it really helps just real quick if today didn't resonate with you or it hasn't resonated with you before that Dana doesn't provide components and systems for light vehicle commercial vehicle.
Our off highway, but instead, we provide solutions for customers I would think that that's the key point why do I say that it's not by accident. When you think about our enterprise strategy and what we all talked about together five years ago, four years ago et cetera that the starting the tip of the spear was what we did is we went and balanced our business to be 50% heavy and 50.
Were sent light across the board and that Wouldnt, then on top of that we parlayed into solutions that we can cascade across all of our end markets. We are going to be successful and all three of the markets. There is no question about that Theres no I have no concern at that and the slightest.
But and we're just going to continue to proceed as the markets come our way last but not least like I like to say it all the time, we are not perfect Oh by the way company and it may tell you that their perfect, but nobody is and they're not real and we're going to continue to work on continuous improvement and driving performance and doing all the things that we've been trying to do for quite some time now and you should.
We continue to expect that out of our out of Dana.
But I will say this before we leave and.
And as I said in my prepared remarks, it's all about springing forward and I'm very excited about where we go from here last but not least I conclude with we all call it close to the business and the priorities of the business and it is everybody. Please be safe because it's still out there and we're going to get passed to get past Covid together. Thank you very much everybody.
Ladies and gentlemen that will conclude today's call. Thank you all for joining and you may now disconnect.
Okay.
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