Dana Inc at Oppenheimer Industrial Growth Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : So there's really a discussion I wanted to have in two parts. (Conference Instructions) But I want to focus the first half of the discussion around profitability. At your Capital Markets Day last September, the company put out targets to reach 12% EBITDA margins in 2023. Inflation took off since then. And following your latest guidance, expectations were reset for what this year and next year look like. But broadly speaking, what's under your control that you're focusing on now to get this business back to double-digit margins? What do you view as a reasonable timeframe to get there? Just walk us through the plan, if you can.

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes, yes, make sense. And I think just sticking with that theme, one of the dominant issues, if you want to call it that, that auto suppliers have been seeing over the last really three to four quarters, I would say, is the lack of structural price relief mechanisms to deal with this high core inflation and that is outside commodities. So how do you think that evolves over the next few years? How do contract structures start to incorporate and adjust for that?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : I guess if we zoom in a bit there, you do have a large chunk of programs that would be turning over later this year or early next, I think. How far in advance of program refreshes or launches do you typically look to cement that pricing structure? What can you share about how the current environment is impacting those discussions?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : That's very helpful. It did seem like although production remained choppy in light vehicle during 1Q -- and we've heard from others in this space that it's still a bumpy and challenging environment -- it does seem, based off of your and peers' comments, that the environment maybe started to get a little bit better near quarter end. So can you frame up some of the production inefficiencies you are carrying, and what you are expecting in terms of improving factory utilization through the balance of the year?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yeah, yeah. And I want to ask you about this, just one of the things that we appreciated as we got to know the company and started covering was the amount of effort and time you invested into creating a very agile cost structure. You have to be nimble to survive in this industry. But it does seem like the complexities of being a global operator keep mounting. So does the current environment warrant a more comprehensive cost reduction plan for the business? Are there -- or what kind of cost out opportunities might you see to structurally improve margins?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes, yes. And there are a couple related questions around those remarks before we dive into those technology in the EV trends. Number one is just your own, if you want to call it legacy combustion portfolio. You don't necessarily have as much of a need as some others in the space to evolve your product portfolio because you are primarily driveline focused in terms of risk of outdated products or disruption risk from IC, if you want to call it that. But you do have some exposure in things like transmission, et cetera. So are there parts of the portfolio that you have today that you don't necessarily see making sense for Dana in the future? How do you think about the current portfolio and whether or not it needs to be reduced or trimmed down?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Thanks, Tim. That's a great answer, and it will segue in a minute. But the last question I want to ask around industry structure and trends is, we're seeing some consolidation now amongst all the suppliers, including some of the peers. What do you see as the competitive implications? Are there strategic opportunities to benefit from this consolidation? Does it just point to more disciplined industry actors in the future? What do you think it means for Dana?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : And one could look at it through the lens of validating the decisions in investments you've made already, and so I want to go there next. As you said, the company was earlier than many suppliers to decisively move into this EV space. You made a large number of acquisitions; you've gained a broad range of competencies. Can you talk about how at this point you see your acquisitions meshing together, and what you see as the company's competitive advantage?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes, that makes sense. So as you mentioned, the major OEM light vehicle win you announced last week, really up until recently most of those wins had been coming in the commercial vehicle and off-highway space. So to get a $1 billion estimated lifetime bookings program is a big deal. You are supplying the complete e-Powertrain there. And this wasn't out of the blue necessarily because you talked about it at the Capital Markets Day, some of the development work you were doing. But I guess what do you see as the implications of this win for the platform and where do you see future growth in the EVs coming from? Should we be thinking about a deeper pipeline of light vehicles to come? Or do you expect it to be more skewed to commercial vehicle and off-highway side in the future as well?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes, yes. A supply-chain question for you there. Because the EV industry certainly hasn't been immune from supply chain and cost inflation problems, and most notably on batteries. You've been talking with a bunch of companies even today at the conference about it. But how are you navigating those constraints? How would you think about the impacts on profitability from higher battery costs or ability to deliver batteries timely?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Just to clarify that, if I could. When you are supplying completely powertrain systems, you're typically supplying the battery pack as part of that, right?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes. And so your backlog and your revenue opportunities really skew more towards the axle e-motor power electronics integration, that's a fair assessment?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yeah, yeah. Very helpful. Okay. So in terms of profitability for EVs, you guided to a modest loss this year in the EV business, I think about a $5 million loss on revenues of roughly I guess $550 million, 50% to 60% growth, if I've got that right. So what's the algorithm that gets you to breakeven next year? And how do we think about EV investment spending as a percentage of revenue for 2022 and 2023?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes, yes. So other suppliers have communicated a similar thing, but I think it's very relevant here. Presumably, your product margins, your gross margins on these EV products are going to be comparable to corporate average -- possibly better than corporate average -- right, because you loaded upfront R&D investment?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yeah, yeah. So effectively, the programs you have already are profitable, but you are investing for future growth. And I don't think that's always appreciated in the markets. But I do want to note that this was a quarter where you started to break out that EV revenue and profitability profile. So thanks, I guess, for helping us to begin to get a little bit more transparency into this, and we certainly look forward to getting those metrics in the future. All right. I just wanted to (multiple speakers). Go ahead.

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yes, absolutely. Just going through some questions here. Can you talk about the competitive environment for e-Axles? Obviously, there's been a number of competitors of yours who come to the market with product. Where do you consider your competitive positioning to be on e-Axles?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yeah. Okay, thanks. Next question, we've heard a lot of concerns about OEMs insourcing more as we go to EVs. What is the company seeing in terms of insourcing versus outsourcing trends, and where is Dana positioned to see benefit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 03, 2022 / 4:45PM, DAN.N - Dana Inc at Oppenheimer Industrial Growth Conference (Virtual)

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Yeah. And I just want to ask -- that was a good question. I want to ask a follow-up. When you get a win on something that's going to be high volume, right, like the GM Ultium platform and you are providing the cooling plates, what does that do in terms of being able to hang around the hoop, if you will, for additional sell-through opportunities or increasing content? You've still got very much a part of that solution.

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Okay. Next question. We've heard some mixed signals coming out of China in terms of demand. What is Dana's China exposure, and how do you see the market there trending?

Question: Noah Kaye - Oppenheimer & Co. Inc. - Analyst : Great, great. Well, Tim and everyone on the call, I think that's all the time we have, but I want to thank you for your participation today. I certainly hope everyone has a great conference and we want to encourage you to follow up with either of us or with the company directly to learn more about what Dana is up to. They've got a lot of great programs in the works, and we look forward to continuing to follow your progress. So thank you all. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 03, 2022 / 4:45PM, DAN.N - Dana Inc at Oppenheimer Industrial Growth Conference (Virtual)