Dana Incorporated (DAN) Earnings Call Transcript & Summary

Okay. Welcome, everyone. We're very happy to have with us today, Dana Incorporated. As you can see, they're actually live in person, but socially distant, looks like in their Maumee headquarters. Help -- please welcome Jim Kamsickas, the CEO and Chairman of Dana Incorporated; along with Craig Barber, who many have known running IR, among other things. They're going to start with some few slides. I'll be on mute for a minute or 2, and then we'll get right back in and talk about the strategies and the financials.

Great. Thanks, first of all, Brian, for the welcoming and inviting us back to Barclays this year, it's an honor to be back. I'm Jim Kamsickas, Chairman and CEO. Just like you said, just a couple of slides, just in case, in particular, in case there's a couple of folks that may be with us that that aren't familiar with the 116-year-old company out of Maumee, Ohio. As you can see on the slide in front of you, we break ourselves into markets and technologies so on and so forth. Starting here just real quick, then I'll go on left to right. We see ourselves as being in 3 main markets. Light Vehicle market, which is a big portion of what this group is today. Obviously, commercial vehicles, some people define it as heavy, but that's your Class 8 truck, Medium-Duty truck, vocational truck and then Off-Highway markets that typically consist of material handling or forklifts, construction, agriculture, our underground mining. Kind of moving right to left, you can see how we're broken up into subsets within what we call segments. Right of that, the region will break up based on sales. We go the right of that, various technologies, what you may find a little bit unique to us versus maybe others, other than the fact that we're a cross mobility market, like I mentioned early on, is just that we have areas of technology such as motion, and you could ask the question, what is motion? Motion would be such things as winches, slew drives, so on and so forth. Still very much in our core as it relates to mechanical products, et cetera, et cetera. Going down below that. I'm sure we'll spend some time a little bit on electrification, but what we call electrodynamic. Beyond that, you can see our thermal business and sealing business falls within our Power Technologies group. Those are very -- also very much involved in the electrification movement. And then last but not least, digital. As we move down to the next slide, just a brief update on sustainability, and more specifically, our goals. If you kind of zoom back and think about Dana and where we were and where we've been, certainly historically known as a mechanical. Some people may argue iconic American automotive supplier, mobility supplier, that has very much transformed itself. We established an enterprise strategy back in, I guess, it was 2016 with a major focus on sustainability via -- through our products, electrification products, of course, that would be, but you'll see our portfolio has that more than covered. But beyond that, we've been very much focused on the overall world and what we can contribute via our manufacturing operations and other operations. Even to the fact I recently announced publicly that it's our commitment to reduce our total greenhouse gas emissions, reduced by 50% by 2035. And we do that through a lot of different activities. We had -- I think it's over 400 just over the last couple of years. So this being one kind of representative, an illustrative example on the slide, this happens to be a plant in Toledo, Ohio, where you can see the solar array, which we have across many facilities around the world. Next slide, please. And just in general, as we would expect, you're going to be interested in our markets because we participate in all of the various mobility markets, of course, Light Vehicle, Commercial Vehicle and the Off-Highway markets, as I described a little bit earlier today. The good news is, for us, as a result of the pandemic coming out of it or other reasons, all of our markets are -- certainly have a good trajectory. In the Light Vehicle side, and again, just for reference, Dana is largely a Medium-Duty truck and up supplier in terms of size. And so that's a very high demand area, and we've been running essentially at max volume ever since we came back out early in June out of the pandemic days from a volume standpoint. Moving forward, we have some really exciting products coming out that we're launching either late this year or in the next year, in particular, the Bronco Sport this year and then into the exciting Bronco early into next year. And then moving on to some updates on the commercial vehicle. The volumes were a little bit [ tapish ] early in the year, kind of prepandemic. But you can see a little bit more positive momentum across the board as we move forward. And then the Off-Highway, a good way of looking at it, agriculture, as you would expect, has been on full speed, similar to Light Vehicle trucks and agriculture has been there, but the other markets are relatively flat, but some potential positive signs there as well. So with that, I'll get off the stage relative to the presentation, and we will bring it back to Brian and questions. Thank you.

Thank you. Well, let's dive in. You outlined some of the ways electrification touches you. Maybe -- and let's maybe talk about like -- well, let's talk about Commercial Vehicle and Off-Highway first. What's the kind of content per vehicle that you would expect to achieve on either hybrid or electric commercial trucks and/or -- and Off-Highway? And how does that differ from what you currently have on those vehicles?

Okay. Thanks again, Brian, for having us. And just the question is going to be, obviously, all depends on the product. Let's start with Off-Highway first. Publicly, we stated that it would be electrification closer to 2x versus being 3x, we would have a Commercial Vehicle or in Light Vehicle. And the only reason is we are early large transmission supplier in the Off-Highway market. Therefore, that content per vehicle and cost in those much higher. However, if you can go back to one of our more recent announcements in our recent earnings call, you saw that we publicly announced for a reach stacker application award that is actually 4x the content of what we would traditionally have on a reach stacker. So it's going to be all depends. But I think it's a conservative and reasonable answer to say, at least 2x on the Off-Highway. Commercial Vehicle, I just alluded to it, that we see it more as a 3x scenario. If you go with the full 3 in 1 system of motor inverter and full axle content and similar nature on the Light Vehicle.

Okay. What content goes away versus what content you add? Again, maybe let's talk about commercial truck because that's a little bit more homogeneous than the various off-highway niche as you find yourself in?

What goes away? That's in all depends as well. The most obvious on a Commercial Vehicle, you're still going to, obviously, for torque and for load capacity and everything, you're still going to need an axle, probably a rigid axle beam axle, so on and so forth. So really not a whole lot of difference there. You could argue that when you think about it, propshafts or driveshafts could be -- down the road could be eliminated. But if you think about it, and I don't expect everybody to be out there to be an expert in electrification and, more specifically, in motors and inverters. But there are lots of applications that driveshafts and propshafts are still required in the electrification, especially what I would suspect on the early days of electrification being in the first 5 to 10 years on the Commercial Vehicle segment. To answer that, across the board, it's probably a similar answer across the other -- 2 other end markets, Brian.

Okay. And I think about Light Vehicle, though. Certainly, one of your core products are driveshafts and axles for light trucks, particularly the Super Duty end of the spectrum, the rugged off-road. Later in this conference, we're, of course, going to have Mrs. Barra talking about -- likely to talk about the new Hummer; the head of Ford North America on their North American strategy, including electrification; and Rivian. So kind of same question, kind of what goes and what comes back, should some of those kind of more off-road performance-oriented heavier end of trucks go electric.

Yes. I mean if you take that -- for an example, there's going to be different configurations and designs, and there's going to be like -- oh, by the way, they very much is today, in-sourcing on -- from the OEMs. They do a very large portion of axles and -- today. But when you think about it, if you take some of those scenarios, if you think about large trucks like big product for us would be the F-250, 350, 450, it's still going to need that load-bearing capacity of a rigid axle tools and so on and so forth. So even in the event that, that were to go electrify that I think will reinforce the point that people may not know about at Dana, even if you had a -- hypothetically, had a swap where they didn't require a propshaft in the future, the pure content of what we have now that we didn't have for the first 110 years of our 116-year career, as we now have full motor capability, full inverter capability as well as many other low voltage products that are available to our customers. So on an offset standpoint. So yes, there could be that decontent, but there's probably more -- not probably, there's more upside, at least for Dana, as it relates to the content per vehicle looking at those vehicles.

And is it fair to say that in your electrification efforts to date, you've been focused on commercial truck and Off-Highway and haven't done a lot in Light Vehicle. Is that by design? Do you like the margin and/or content opportunities better on commercial truck Off-Highway? Do you like the fact that OEMs historically have outsourced powertrain and you can, in fact, pick up, in effect, content from the transmission companies and engine companies you didn't have before? Or are you planning to be more active in Light Vehicle?

Yes. From -- that's the right question, and thank you for the question. From the outside looking, again, I could see where someone should ask that question. But the reality is, is even if we go back to our investment day in 2016, and we said nobody has a crystal ball, but this is our house view on where electrification is going, you said you have to think about where our markets are at, and we said, look, Commercial Vehicle is going to go first as it relates to Medium-Duty truck, and the bus market is going to go right there with it. Underground mining is going to be right there with it, and they're going to take steps. And oh, by the way, the end of cycle is going to be the large Light Vehicle pickup truck market for multiple reasons. So we -- I'm not saying -- usually, when it comes to predicting, I'm usually wrong. But on this one, we're largely speaking right. So when you look at Dana from the outside, well, it looks like they've definitely slanted their efforts and investment towards us. No. What you're hearing about is what we are working on because of the pull-through demand. The benefit for it, of course, is all of those products, number one; all of those learnings, number two, and not necessarily in that order, are all now in-house in terms of our ability to support the Light Vehicle market as it does come through in our particular space, which is the high end truck side of the business.

And what would the CPV -- how -- right now, I mean, we model a couple thousand CPV for a heavy-duty truck, some number, maybe not too far away, of course, you won't ever confirm on Wrangler, Gladiator, Bronco. But realistically, if those go electric and if the OEM is at least assembling motors in-house. Someday, I predict Cleveland Engine will be Cleveland Electric Engine. What does that mean for your CPV on those key Light Vehicle programs?

Yes, Brian, it's too early to tell because did mention the configuration of that vehicle makes all the difference in how they're assembled. I think our 2x number, when we talk about added content, would make sense in that scenario, just because of the breadth of product that we have available. It would all depend, though, on the take rate on what part of the system is included and how that is configured inside the vehicle? Is it a central motor? Is it a 3 in 1 e-Axle? How much of the battery system is assembled by us or by them? So a lot of different configurations. But I think the key takeaway is that we have system that complete capability available. So 2x plus is probably a good number.

I would just add, if I may, Brian, in that electrification, sure, we think it's the right thing for a supplier to provide that full integrated system because we'll have no different than suppliers have in the past. They will have the learnings and the scale going across customers, so on and so forth. But for us, it's not a must have. It's a nice to have. If we do the full electrification, motor, inverter and gearbox, so on and so forth. We will definitely be selling motor, inverter, gearbox, right. Now we already see significant synergies where our motors, inverters just to take those 2 are in very similar or the same are in underground mining is our in Commercial Vehicle, which could all, by the way, be supportive to the light vehicle market. So we are going to be able to be flexible. Even if, net-net, we end up the same, and we're a mechanical supplier on the Light Vehicle side of the business, it is what it is. I just don't personally see how there's not a significant value prop for our Light Vehicle customers because -- and I don't think it's ever been a situation where it makes sense to do everything in-house. They would be the first ones to tell you that they also -- there's not a one-shoe-fits-all for every single business case that they have out there for how to deploy their capital.

And for an OEM who wants to do it mostly in-house, at least in terms of final assembly, what would you flag as the 2 or 3 key components where Dana both has a good position and you think can drive defensible margins?

As it relates to the mechanical, it's the same as we always have. If you go down that road, it's a full-blown drive axle and certainly the steer or front axle. If need to be a propshaft, that's for sure, we'll always be there. But separate from that, no one will have as much experience with on-the-road electrodynamic components as Dana does in the large truck, large bus, large areas, such as that, we've had the [ obeah ], albeit on acquisitions. When people weren't even thinking about electrifications, the companies that we have acquired have been doing this for over a decade throughout different markets in the world.

And just kind of final question on electrification. Can you talk maybe a bit more about the software acquisitions and software skills you've built in Dana? In particular, one thing we've talked about with some of the EV start-ups is with connected cars with the ability to send a lot of data up into the cloud, is there a business there to kind of take performance data out of the vehicles and how the e-drive systems are working? Tune it, send out different control algorithms, see how each of them performs and then kind of revise the control algorithms as you go along.

Yes. I'll take the second question first, and then we'll work back. That's not -- we understand the swim lane at which we're in, which is we’re here as a full system provider of a propulsion system or a mechanical historical ICE system. As it relates to electrification and the future of what you're referring to over-the-air updates and as well as managing that data, that's our OEMs, that's their sweet spot, that's what they do for a living, and that's the way it should be. We're here to be the best e-propulsion system provider we can, not to mention, so it's not lost on anybody in our Power Technologies group, full thermal and sealing capabilities, which is battery cooling, electronics cooling, fuel cell plates, et cetera, et cetera. That's where we're going to position ourself. To your first question, Brian, coming back to the software, you're right. And we've been pretty consistent or I know, at least, I've been very consistent, as we've done acquisitions where appropriate. Some -- just because industrial logic, like we announced a couple of weeks ago on Modine, but most of them on electrification. But the ones most specifically of recent in electrification have been in software. We talked about Pi Innovo just a couple of weeks as well. Frankly, that is getting software engineers that have launched vehicles, ECUs, VCUs, so on and so forth in the market on our team versus -- oh, by the way, hire randomly off the street, unexperienced, try to develop them. That doesn't work for me, and it doesn't work for the industry. So that's really where we targeted getting the software capabilities.

Okay. And while we're on Modine, how much of that business is thermal as it relates to engines? How much of it is thermal as it relates to H -- comfort, cabin comfort? And then how will each of those evolve in an electrified world?

So none of it's related to cabin comfort. So we're not taking any of that part of it. That's not we're at it is. It is absolutely as it relates to thermal. Thermal. First of all, I would go down the road, thermal, has electrification thermal, but it also has, of course, some historical products as it relates to transmission, engine, so on and so forth. But make no mistake on that. Obviously, it was -- it's an accretive day 1 type of activity, and we're going to -- it's going to be a very nice fit for us, a lot of industrial logic but not to be lost anybody, and I don't think it is. When you think about electrification, if you are not thinking thermal management, you're missing the pitch. And so it's just our ability to have those assets. And most importantly, the human assets that understand thermal management to help us fill out our portfolio around the world.

Right. And Modine said there was restructuring they're avoided by doing it. Can you comment on -- you basically got the company for free, but what the level of investment is you need to restructure it? Or do you need to?