Q3 2024 Dana Inc Earnings Call
Regina: Good morning and welcome to Dana Incorporated 3rd quarter 2024 Financial Webcast and Conference Call. My name is Regina and I will be your conference facilitator.
Regina: Please be advised that our meeting today, both the speakers remarks and Q&A session, will be recorded for replay purposes. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as a guest.
Regina: There will be a question and answer period after the speakers remarks and we will take questions from the telephone only.
Regina: To ensure that everyone has an opportunity to participate in today's Q&A. We ask that callers limit themselves to one question at a time. If you would like to ask an additional question, please return to the Q.
Speaker Change: 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.
Speaker Change: Thank you for joining us today for the training of our British 3rd quarter, 2024 in East Call. Today's presentation includes for the 15 statements about our expectation for the Indian Future performance, and for results, good different from what we discussed today.
Speaker Change: For more details about the factors that could affect future results, please refer to our safe Harper-Stayman Foundation, our public filings, and our reports with the SEC.
Speaker Change: or proceed. I encourage you to visit our investor website where you'll find this morning's press release and presentation.
Speaker Change: As a reminder, today's call is being recorded with the supporting materials of the Property of Data Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. On the call this morning, we have Jim Kamsickas, Chairman and Chief Executive Officer, and Timothy Kraus, Senior Vice President and Chief Financial Officer.
Speaker Change: Now we'll get started. I'll turn the call over to Jim. Good morning and thank you for joining us today. Please turn with me to page four where I'll discuss the highlights from the third quarter of 2024.
Jim Kamsickas: Dana reported sales of $2.5 billion in the third quarter, lower than the prior year due to softening demand of electric vehicles across markets and reduced internal combustion engine vehicle sales for commercial trucks, off-highway equipment, and certain light truck programs.
Jim Kamsickas: Adjusted EBITDA for the quarter was $232 million, down slightly from last year, despite the significant and rapid sales reductions across all mobility markets.
Jim Kamsickas: Importantly, despite the reduced sales, Dana achieved 30 basis points of profit margin expansion, delivering 9.4% in the third quarter.
Jim Kamsickas: The strong profit performance was a direct result of outstanding operating and business system execution across all areas of the company. We continue to strengthen the business by leveraging core operations, new technology, and our exceptional people.
Jim Kamsickas: Moving to the upper right of the slide, I'll walk you through a few key highlights for the quarter and the remainder of the year.
Jim Kamsickas: We see further weakening demand for ICE, hybrid, and electric vehicles across most mobility markets, including commercial trucks, off-highway equipment, and certain light truck programs, as a result of ongoing inflationary pressure, global uncertainty, and higher vehicle inventory levels, which have driven down production.
Jim Kamsickas: Within our off-highway segment specifically, we saw lower demand, particularly in Europe, especially within the construction and agriculture equipment markets.
Jim Kamsickas: Second, yet again this quarter, the company continued to achieve company-wide efficiency improvements resulting in increased profit margin.
Jim Kamsickas: all while overcoming the softening demand impacting our markets. Our team has done a remarkable job efficiently flexing manufacturing-related cost drivers. At the same time, the entire organization continues to achieve price and other fixed and variable cost improvements across Dana and throughout our value chain.
Jim Kamsickas: Lastly, as stated in the bottom right-hand corner of the page, Dana remains within her full-year profit, profit margin, and free cash flow ranges as a result of, one, profit conversion on traditional and organic sales.
Jim Kamsickas: Two, strong working capital performance, and three, prompt and efficient capital investment spending adjustments as OEMs rapidly modify vehicle development plans and timelines for future ICE, hybrid, and electric vehicles.
Jim Kamsickas: Please turn with me to slide 5 to review how Dana consistently improved profit margin despite the challenging operating environment.
Jim Kamsickas: Over Dana's 120-year history, the company has been a leader in highly engineered internal combustion engine powertrain, ceiling, and thermal management solutions.
Jim Kamsickas: However, over the past several years, Dana did what many said could not be done.
Jim Kamsickas: We disrupted ourselves by establishing industry-leading, in-house hybrid and electric vehicle e-propulsion and e-thermal capabilities. The Dana team has proven it could be done.
Jim Kamsickas: Today, our vertically integrated ICE, PHEV, and EV strategy serves as a differentiator to winning replacement and new programs from our customers across all mobility markets.
Jim Kamsickas: As challenging as this technological transformation was, as slide 5 illustrates, this was accomplished by simultaneously expanding profit and facing the most volatile demand, unprecedented inflation, and supply chain disruptions that we've experienced in our lifetimes.
Jim Kamsickas: As of the end of the third quarter, we've achieved three consecutive years of consistent quarterly adjusted EBITDA margin improvement.
Jim Kamsickas: There is work to be done, but the team is doing a remarkable job threading the needle by positioning Dana as a supplier of choice for ICE, PHEV, and EV growth while navigating risk and improving returns.
Jim Kamsickas: The progress, including increasing our adjusted EBITDA margin to 9.4% in Q3, can be directly attributed to, first, providing differentiating customer satisfaction, meaning quality delivery in the most advanced technology portfolio in the history of the company.
Jim Kamsickas: Second, leveraging synergies and scale to achieve company-wide efficiency improvements. And third, materially improving performance on every facet of the company through our overall business execution.
Jim Kamsickas: Please turn with me to slide 6 where I'll provide a brief update in our markets.
Jim Kamsickas: As we finish out the year, we anticipate continued softening in most of our end markets. Beginning on the left side of the slide, let's look at our off-highway segment, where we're seeing lower demand, particularly in Europe.
Jim Kamsickas: Agriculture is down compared with last year and demand for construction equipment softened in the third quarter and will likely continue for the remainder of the year. Furthermore, we anticipate mining equipment demand staying flat compared with 2023.
Jim Kamsickas: While we expect light vehicle full-frame truck production volumes to remain relatively stable for key, recently refreshed vehicle platforms, we are seeing softening in some programs as dealer inventories have continued to rise.
Jim Kamsickas: Consistent with what we shared with you last quarter, we are witnessing markets for heavy vehicles to be lower compared with 2023.
Jim Kamsickas: with both medium-duty and heavy-duty truck demand softening in production throughout the remainder of the year.
Jim Kamsickas: Moving to the right of the slide, Dana's operating priorities as we look to finish out 2024 and move into 2025 include four key priorities. Our first priority is maintaining our discipline approach while achieving balanced growth.
Jim Kamsickas: Dana supplies class-leading conventional and clean energy solutions to nearly every vehicle manufacturer around the world, which provides stability through markets and locality.
Jim Kamsickas: This, combined with our ability to flex our cost structure and generate efficiencies through the current adverse market conditions, enable us to remain focused on technology innovations that support future growth.
Jim Kamsickas: Second, because Dana provides product, systems, and technology to customers across all in markets, we're able to leverage synergies and scales to maximize impact.
Jim Kamsickas: Thirdly, because of the flexibility of our manufacturing capabilities and locations, we can optimize our resources across multiple markets and regions which enables us to maintain agility to meet ICE, PHEV, and EV demand.
Jim Kamsickas: Lastly, a prudent use of capital enables us to maximize the investment necessary to continue supporting new business growth across markets.
Jim Kamsickas: Moving to the bottom of the slide, our early expectations for 2025 see us operating with a lower cost structure as we navigate softer end-market demand, including tempered demand for electric vehicles.
Jim Kamsickas: Please turn with me to slide 7 where I will share some exciting news with you about a first-of-a-kind high-performance transmission system innovation from Dana Graziano that is garnering deserved attention from across our industry.
Jim Kamsickas: As I highlighted on my previous slides, Dana is very calculated where we invest regarding technology and innovation to ensure that we achieve profitable growth while providing our customers with the most advanced capabilities they require to bring their products to market.
Jim Kamsickas: A great example of this is Dana's Modular High-Performance Hybrid 8-Speed Dual Clutch Transmission, which has been selected as an Automotive News PACE Award finalist for 2025.
Jim Kamsickas: This state-of-the-art hybrid 8-speed DCT transmission platform is unparalleled in the market. We developed this first-of-a-kind solution to enable the highest levels of power and torque density performance in its class.
Jim Kamsickas: As you know, supercars are defined by their performance, so electrification must enhance them while at the same time delivering emissions improvements. And believe me, improved emissions does not take away from the performance of the all-new 2024 Lamborghini Reboluto, its first series-produced plug-in hybrid.
Jim Kamsickas: The vehicle boosts an output of just over 1000 horsepower and goes from 0 to 60 in a remarkable 2.5 seconds.
Jim Kamsickas: The technology is versatile, with vehicles being able to operate in IC only.
Jim Kamsickas: Pure EV or a variety of hybrid blended modes.
Jim Kamsickas: The key being that users can switch between these modes to amplify efficiency and performance.
Jim Kamsickas: Whether the driver prioritizes fuel economy, craves exhilarating performance, or seeks a balanced approach, there is a mode to perfectly suit their needs. Thank you for your time today. Now I'd like to turn it over to Tim, who will walk you through the financials.
Tim: Thank you, Jim, and good morning to everyone. Please turn to slide 9 for a review of our third quarter and year-to-date results for 2024.
Tim: Beginning with the third quarter, sales were $2.48 billion, $193 million below last year due to lower vehicle production. Year-to-date sales were $7.95 billion, lower by $119 million.
Tim: Adjusted EBITDA was $232 million in the third quarter for a profit margin of 9.4%.
Tim: That is a 30 basis points improvement over last year's third quarter.
Tim: Year-to-date adjusted EBITDA was $699 million, $10 million higher than the previous year, for a profit margin of 8.8 percent.
Tim: 30 basis points better than last year.
Tim: Profit improvement is primarily due to cost-saving actions and better efficiencies across the company, which is more than offsetting the negative contribution margin on lower sales.
Tim: Net income attributable to Dana was $4 million for the second quarter, about $15 million lower than last year, primarily due to higher income taxes.
Tim: Full year net income.
Tim: or year-to-date net income was $23 million compared to net income of $77 million last year.
Tim: The difference is primarily due to higher taxes and the planned divestiture of a non-core hydraulics business that was announced earlier this year. This transaction did not close in the third quarter as expected, and we are no longer classifying this business as held for sale.
Tim: The overall loss has been adjusted to reflect this change in classification. However, 26 million dollars of the loss that was previously recognized to adjust the carrying value of net assets to fair value remains as per Jake Dana's accounting policy.
Tim: And finally, operating cash flow was $35 million for the quarter and $148 million year-to-date.
Tim: Lower operating cash flow this year was driven by higher working capital.
Speaker Change: Please turn with me now to slide 10 for the drivers of the sales and profit change for the third quarter of 2024.
Speaker Change: Beginning on the left, traditional organic sales were about $100 million dollars lower, driven by lower OEM production of heavy vehicles and certain light truck programs, partially offset by market share gains and new business.
Speaker Change: Adjusted EBITDA on organic sales was 22 million dollars. This strong profit flow-through was due primarily to improved cost efficiencies across the entire company that generated a 125 basis points improvement margin.
Speaker Change: EV organic sales declined by $54 million, driven by reduced in-market demand in our driveline segments, offset by gains in battery cooling sales in power technologies.
Speaker Change: Adjusted EBITDA was $25 million lower which included the impacts of both lower sales, unfavorable mix, as well as higher launch costs as we ramp new EV programs.
Speaker Change: Foreign currency translation decreased by $15 million, primarily driven by lower value of the euro and real compared to the US dollar. Profit was lowered by $1 million with no margin impact.
Speaker Change: Finally, due to falling commodity prices, commodity cost recoveries in the second quarter were $19 million lower than last year. The profit benefit of the lower commodity prices was offset by the timing of cost mechanisms within the commodity recovery agreements.
Speaker Change: with customers, resulting in profit being lower by $6 million, a 20 basis points decrement to margin.
Speaker Change: Next, I will turn to slide 11 for the details of our third quarter pre-cash flow.
Speaker Change: Free cash flow was a use of $11 million in the third quarter, $6 million lower than last year.
Speaker Change: Higher net interest due to the timing of interest payments and higher taxes driven by the timing of payments and regional mix. Working capital requirements were $13 million higher than last year, primarily due to higher inventory driven by a slowdown in demand.
Speaker Change: Finally, use of cash was mostly offset by $71 million of lower capital spending driven by a more normalized launch cadence this year and the timing of investment for future EV programs.
Speaker Change: Please turn with me now to slide 12 for an updated guidance for 2024.
Speaker Change: As we look forward to finishing the year, we are updating our outlook.
Speaker Change: We are lowering our sales expectation for this year to about $10.3 billion.
Speaker Change: and $875 million in adjusted EBITDA at the midpoint of the tighter ranges.
Speaker Change: This is about $30 million higher than last year and implies a profit margin of 8.5 percent, a 50 basis point increase over last year. This change is due to the lower sales in the second half of the year, driven by lower demand for traditional and electric vehicles, as well as equipment across all our end markets.
Speaker Change: We are maintaining our guidance for full year free cash flow at $100 million. This is approximately $125 million higher than last year at the midpoint of the range.
Speaker Change: Our GAAP EPS guidance is expected to be $0.15 per share and adjusted EPS is approximately $0.85 per share at the midpoint of the range.
Speaker Change: Please turn with me now to slide 13 where I'll highlight the drivers of the full year expected sales and profit changes compared.
Speaker Change: to last year.
Speaker Change: The adjusted EBITDA increase on traditional organic sales is expected to be approximately $140 million. The higher profit and margin increase of about 140 basis points due to company-wide efficiencies and aggressive cost-saving actions.
Speaker Change: Sales expectations for EV products have declined further this year due to the industry-wide pause in demand. We now expect about $35 million in lower incremental EV sales than last year.
Speaker Change: Adjusted EBITDA to be about 65 million dollar headwind and 60 basis points of margin.
Speaker Change: Foreign currency translation on sales is expected to be a headwind of approximately $40 million with a profit impact of about $5 million.
Speaker Change: Lastly, please turn with me to slide 14 for an outlook of our free cash flow for 2024.
Speaker Change: We are maintaining our full year 2024 free cash flow expectations at $100 million at the midpoint of the guidance range.
Speaker Change: This is a $125 million improvement over last year. We expect about $30 million of higher free cash flow from increased profits.
Speaker Change: Net interest will be about $35 million higher due to timing of interest rates and the timing of payments due to the refinancing that occurred in 2023. Working capital is expected to be a use of about $40 million, that is $45 million better than last year.
Speaker Change: Capital spending to support our backlog and technology is expected to be about $375 million dollars this year, which is $50 million dollars lower than our prior outlook and $125 million dollars lower than last year, as we continue to flex spending to match customer program timing.
Speaker Change: Thank you for joining us today, and I will now turn the call back over to Regina, and we will take questions.
Regina: At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. And to ensure that everyone has an opportunity to participate in the Q&A, we ask that you limit yourself to one question at a time. You may return to the queue for any additional questions. Our first question will come from the line of Tom Narayan with RBC. Please go ahead.
Tom Narayan: Thanks for taking the questions.
Tom Narayan: My question has to do with the slide, the guidance slide for 2024.
Tom Narayan: If I look at that and compare it to the one from last quarter, two things stand out. Traditional organic, you have revenue down $345 million, but EBITDA only down $5 million. I know you talked about...
Tom Narayan: cost-wide efficiency or company-wide efficiencies cost-cutting just would love to double click on that to get what exactly that is and then the EV side Obviously, it's coming down by 45 million on EBITDA. We just love to hear
Tom Narayan: How that works logistically, like...
Speaker Change: Presumably, you have a line of sight from last quarter of the order book.
Speaker Change: Is it that OEM customers are deferring these orders to later and if so wouldn't they have to compensate? You're just trying to understand the mechanics of why that would change so dramatically given you have a line of sight. Yeah, thanks.
Speaker Change: Hi Tom, this is Tim. Sure, good questions. So on the traditional, so if you if you think about where the the fall-off is coming from, it's in the heavy vehicle markets. Those markets tend to move more quickly than others and
Speaker Change: our customers can drop out orders or expected deliveries on a relatively quick basis. So that's why you're seeing such a large fall-off from the second quarter guide to now. That's really just the nature of those businesses.
Speaker Change: And of course, it depends on which of the markets we're playing in and how quickly that demand falls off.
Speaker Change: When you think about, obviously, the lower EBITDA, obviously, much of the non-flow-through of the expected contribution margin is really a combination of
Speaker Change: better cost efficiencies and our ability to take those costs out. We also have, you know, some of some of its mix. So some of the places we're seeing a lower
Speaker Change: Lower sales volume, we have lower margins, so that mixed differential is flowing through as well. So that's on the traditional side.
Speaker Change: On the EV side, so here, you know, we've seen a pretty dramatic fall off in in the demand. And there, there's a pretty strong mix change in that in terms of where those sales are coming from.
Speaker Change: And then, you know, we're in the middle of really ramping up in PT on battery cooling. So we're continuing to have launch-related costs in that business. And if you look at the
Speaker Change: the segment walks. You'll see the sales up in PT and the flow through is not quite where we would expect it to be and that's typically and that's really around that that that launch some of the launch impacts for that business.
Speaker Change: Okay, thank you.
Speaker Change: Oh great, thanks for taking my questions. There's been some pretty clear media reports about that you might be considering selling your off-highway division. Any comment there? Would that be something that's on the table? Is there evaluation you might consider that would make that sort of palatable to you?
Speaker Change: You know, is it possible because I think in the past you've talked about how all these segments are sharing things like EV tech So can you actually split out one of the divisions? Thanks
Speaker Change: Hey Collin, good morning. This is Jim. You know, the first answer you know I'm going to give you, which is no one should ever, and we don't either, we don't kind of respond to media reports, so on and so forth. I would also just say don't, the 101 is the...
Speaker Change: None of us can always believe what we hear type of thing from our standpoint What we do is we focus the entire team and everything we're doing on what we do, which is execute execute execute And that's where we're moving
Speaker Change: I mean, maybe you could address whether is it possible to spin off a division because you have talked about how you share EBTech, or is that something that you can do if you wanted to?
Speaker Change: I'm not to get pedestrian on you, I guess from my answer, but maybe this my 18th year as a CEO I would say anybody says you can't spin it spin off any division in any company That's that's just kind of reckless comment to say that they couldn't so I'd say anything's always possible in any business
Speaker Change: Okay.
Speaker Change: And then if I look quarter over quarter, sorry, you have a sales down five percent and a
Speaker Change: pretty high conversion of 45% on those lower sales. How should we think about the puts and takes quarter over quarter and what's driving that sort of little bit above average conversion into Q4?
Speaker Change: at the midpoint, here, go ahead. Yeah, I mean, Colin, this is Tim. I think it's really the company-wide efficiencies and cost actions. And we've been talking about this, I think, over the last couple of years as we get, you know,
Speaker Change: better
Speaker Change: better OEM production schedules, more normalized, we're able to drive those efficiencies through the plant floor, so we're certainly seeing that come through. Obviously, I think there's also, as we go through this on the
Speaker Change: overhead side we continue to make sure that we're we're spending what we need to spend when we need to spend it to help support what the company is doing from a technology and a growth perspective so obviously being careful where we're spending money there and and then obviously there's there's a few you know one-timers in there that that may not repeat related to certain recoveries and whatnot.
Speaker Change: Okay, so the higher decremental, is that more of the last item, the one-timers that are in key?
Speaker Change: Thank you.
Speaker Change: It's a mix, certainly. I mean, when you think about the quarter, but certainly you're seeing it and you've seen it all year in terms of our ability to continue to convert at a pretty high rate.
Speaker Change: in the first two quarters of the year as well, and that's continued on.
Speaker Change: Okay, thanks for taking my questions.
Speaker Change: Our next question comes from the line of James Picariello with BNP Paribas. Please go ahead.
James Picariello: Hi guys. Can you just provide any context that you could share just on what happened to the the off-highway business sale, the European hydraulics business, you know, why or how is that falling through now?
Speaker Change: Hey, James, this is Tim. Yeah, I'll cover that. So, you know, we had the agreement and the buyer was not able to secure its financing, or I should say that their financing fell through for the business.
Speaker Change: Okay.
James Picariello: All right, understood. And then can you just provide...
James Picariello: color on on what you're seeing within off-highway in terms of the end market weakness right we could
James Picariello: certainly coming in for
James Picariello: what you see for the fourth quarter and then, you know, just based on your history within each of these cycles, you know, how long might this downturn, you know, last? You know, just your high-level thoughts there. Thanks.
Speaker Change: So, yeah, we're really seeing market weakness across all the MSOs. You mentioned basically all of them, right? Ag, construction, material handling, mining, those are all coming in weaker now. It depends on, you know, you know,
Speaker Change: Those are the broad categories. We obviously don't supply everything to everybody, so there's a little bit of mix in there as well. So that's what we're seeing. We're continuing to be cautious about those end markets as we move through the end of the year.
Speaker Change: To answer your questions, you know, the markets tend to move quickly.
Speaker Change: So while we're continuing to think about this, I mean, we're coming out of a little bit of a different where we were up for a number of years, so we're just being cautious and keeping our eye out for
Speaker Change: for where the inventories are and what our customers are saying in order to gauge where this might go. But obviously, you know, the team continues to perform.
Speaker Change: and flex cost in that business.
Speaker Change: really, really well. If you just think about, you know, the third quarter, you know, sales were down, you know, over a hundred million and I think the only the downside conversion on that was less than ten percent. So, obviously, still doing a really great job of flexing costs and improving efficiency in light of the softer markets.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of Bruno De Sina with Wolf Research. Please go ahead.
Speaker Change: Hi, thank you for taking the questions.
Speaker Change: I wanted to come back to the cost performance that you
Speaker Change: He showed in the third quarter and that I believe is being implied in fourth quarter guidance as well and specifically if these, if this cost performance represents changes to the underlying capital base that
Speaker Change: longer term would indicate higher profitability and free cash flow at any level of industry volume. Thanks.
Speaker Change: Yeah Bruno, this is Tim. So, you know, yeah, these are these are real structural, you know cost changes in the business You know, we really it's it's it's in the DNA for us to continually improve
Speaker Change: what we're doing, you know, whether that's, you know, the purchasing organization, whether it's the back office, whether it's the plant floor, so, you know, we obviously see the cost savings and the margin improvement to be enduring and we continue to.
Speaker Change: Okay, I think on a similar line with respect to the capital base
Speaker Change: Look, I think we can all appreciate the expectations for EV volumes have come down for several years ago, but it would also make sense if the level, the pace of EV investment the company was making over the past several years angered to a volume assumption.
Speaker Change: It was much higher than is actually being realized and so I was also hoping you could
Speaker Change: provide some context around what these EV investments have done to the underlying capital base and how that may impact returns going forward. Thank you.
Speaker Change: Yeah, I think the, generally speaking, we, you know, for the largest of our
Speaker Change: of our expectations, we've been able to flex putting that capital base onto the ground. Obviously, we have
Speaker Change: What additional capacity we might bring on based upon, you know, how we see the market going so I think
Speaker Change: when you think about what we've spent to date and what we were planning to spend in the future, we continue to be able to flex that and you're seeing that this year. I would continue to see our ability to be able to flex that into the future based on where we see the market and the growth in those markets. But I don't look at it as we have a lot of idle capacity that we built up in expectation. The highest volume and the largest investments in the business.
Speaker Change: really haven't been made yet and we've benefited from our ability to flex when we have to make those investments based on customer demand patterns.
Speaker Change: Our next question comes from the line of Joe Speck with UBS. Please go ahead.
Joe Speck: Thanks. Good morning, everyone.
Speaker Change: and markets and we can make our own assumptions there as to, you know, the sales and sort of the flow-through, but if we start with whatever
Joe Speck: you know, Assumption of Evita that we want. What else should we think about from a free cash flow perspective in 2025, whether it's working capital, taxes, CapEx, and I guess also just from a cash perspective, is there any other expected residual payment for TM4 next year?
Speaker Change: Thank you. Thank you.
Speaker Change: So, you know, I'm not really prepared to to talk about 25 and any specificity at this point I think a couple of data points. Well, maybe I'll take your first fourth quarter
Speaker Change: question first. So we do expect pretty strong cash flow in the fourth quarter. You know, that's not unusual when you look at the seasonality in our business and when cash flows generally come in. So that follows along with
Speaker Change: from a timing perspective.
Speaker Change: And then into next year, obviously I don't want to get into the details, but we do think we still have some more opportunity from a core working capital, especially given how quickly some of the end markets fell off in the businesses where we have a bit longer supply chain. So we do think we have some opportunity next year from a working capital perspective that we can still go and work to get more efficient on.
Speaker Change: And anything on TM4? Obviously, we have ongoing conversations and negotiations with TM4, but no update at this point.
Speaker Change: Let's say off-highway in the rest of your business for instance I noticed like in the slide you mentioned Graziano on the Lambeau and if I recall that Graziano acquisition was really centered around off-highway, so maybe just sort of you know how some of the
Speaker Change: tech and capabilities within Off-Highway Cascade to your other businesses, just a refresher there would be helpful.
Jim Kamsickas: Thanks for the questions, Jim. I'm going to use Tim's style here. I'm going to work from the back forward. Let's take your example of Graziano.
Jim Kamsickas: Graziano's was a brand inside of the Oerlikon acquisition and had a good blend of off-highway and light vehicle super sports car transmission capabilities and then a little bit in between The brand is the brand the product capabilities in the company
Jim Kamsickas: You know, we used them. They really were a cross market. They were in all three markets as well. It just wasn't as much, kind of, it wasn't the, it wasn't, it was front and center when you looked at it from the outside looking in.
Jim Kamsickas: Speaking of the synergy of the company, it's very straightforward. This is probably more just a public service announcement about Dana than it is, but it will answer your question.
Jim Kamsickas: I mean, we all, we understand, Dana, for a three...
Jim Kamsickas: business unit, division, call it what you want, driveline company, and the power techs group supports all three relative to thermal management capabilities, ceiling capabilities, and obviously electrification capabilities even more than the others. So they're all interconnected. There's not one thing I can point to that's, you know, there's not some benefit to it.
Jim Kamsickas: But there's also, like I said earlier on the call, I mean, everything's flexible in the business as the industries change and opportunities exist. You know, we look at all those things. So, there's not one thing that I'd say is you can't continue to get synergies one way or the other. And I can't say there's one thing or another that wouldn't say that there isn't synergies that exist. So, I know I can't answer your question that, because if I did, I'd talk about every line item detail in any given company about where there's synergies. But, long story short, you know, they run a great business in the off-highway. They run a great business in commercial vehicle. They run a great business in all the businesses. And, you know, when the opportunity exists, they take it.
Speaker Change: Thank you.
Speaker Change: Our final question will come from the line of Dan Levy with Barclays. Please go ahead.
Dan Levy: How much runway there is there, and you know, just given the end markets, you know, are likely to remain soft for the time being, you know, how much more you can flex it down? And maybe you could just remind us of how much more low-hanging fruit there is on inflation reversals.
Speaker Change: Good question. This is the day of broad questions that are tough to give a direct answer to, and this one included because there are so many moving parts inside of a business. As I mentioned in my prepared remarks, our ability to continue to basically reduce our break-even point and continue to expand margin, even in reduced sales, is a combination of focusing on material costs, conversion costs, obviously to make the product and pricing actions. The most important thing you can take away from Dana is that it is a very, very
Speaker Change: System Driven
Speaker Change: operations, very controlled, administrative controls, very controlled across the board. Once you have that, you now have, you have
Speaker Change: standardized, I call it standardized work coming to my manufacturing days, but standardized work across every single thing we do.
Speaker Change: So, every one of those elements, we're going to continue to take incremental improvement. And that's what we've been doing quarter after quarter after quarter, and we're going to do in the future.
Speaker Change: What does that mean as it relates moving forward? My expectation of the company is to continue to evolve those curves you saw on that prepared slide in my section, which is what I call sustained and improved process, sustained and improved margin improvement by pulling on material costs, conversion costs, and pricing improvements. So very ambiguous in general because it's too hard to talk about isolated actions you take, but that's the way we run the business and we fully expect we'll get where we want to be
Speaker Change: that position us to continue to win full, complete 3-in-1 E-Axle and E-Systems across our end markets.
Speaker Change: Great, thank you.
Speaker Change: As a follow-up...
Speaker Change: Look, obviously, this is the question that keeps on coming up, you know, EV environment is lower.
Speaker Change: At what point do we start to see sort of a materially lower CapEx outlook or reduced R&D reflecting, you know, either A, some recoveries from customers, which I think that the question was brought up, a comment was brought up earlier, but B, just, you know, less in the way of tooling activity as some of these programs are delayed or slowed down?
Speaker Change: Yeah, Dan, this is Tim. So I think you're obviously seeing that...
Speaker Change: Right now, right? So, you know, our cap ex, you know, in the forecast for the outlook is materially lower than where we started the year and a large piece of that is the flex on EV spending versus where we
Speaker Change: We originally thought we were going to be based on program timing. I think...
Speaker Change: Absolutely, there's more that will flow through and we'll continue to really push and make sure that the timing is absolutely where it needs to be and not a minute before, and not a dollar more than we really need to, to make sure we're
Speaker Change: We're being as efficient as as possible in terms of of the the period cost
Speaker Change: you know that's already happening as as well. I mean it's it's tough to see it when you look at the year-over-year comparisons given the drop-off in in the EV sales but we are flexing the the engineering and program costs around EV to make sure that it's being spent appropriately relative to where the timing on these programs is as they get delayed or elongated and moved around with the customer.
Speaker Change: Okay, great, thank you.
Speaker Change: Yep.
Jim Kamsickas: Okay, well this is Jim. Thanks everybody for attending the call. As always, we appreciate your interest in Dana and your great questions that you have.
Jim Kamsickas: Just some brief closing comments would be, you know, you see with Dana, it's the beauty of our business. We are in all the different markets. Some of them come with, you know, faster and quicker movements on demand, which can be really good, and sometimes it makes it a little bit more difficult.
Jim Kamsickas: But what should be the read-through, I hope, is the read-through is just our ability to flex in that. The company has never been positioned stronger with an ability to flex for demand increases or quick demand reductions that we saw in the quarter. And they weren't demand reductions only in off-highway or commercial vehicle or light vehicle. They were across the board. Because there's so much stability in the business and the company is ran by process, not by hard work and just thought. But in terms of process, the team has done a remarkable job, continues to do a remarkable job, providing leading quality delivery.
Jim Kamsickas: overall customer satisfaction while having the technology platform that customers need across IC, hybrid, and electric vehicles. So thank you very much for your time and attention today.
Speaker Change: That will conclude today's call. Thank you all for joining. You may now disconnect.
Speaker Change: [music]