DANA Inc Q4 2025 earnings call

Thank you, Regina. Good morning, and welcome, everyone. Today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from what we discuss today. For more details about the factors that may affect future results, please refer to our safe harbor statement found in our public filings and other reports with the SEC. I encourage you to visit our investor website, where you'll find this morning's press release and presentation.

As stated, today's call is being recorded, and the supporting materials are the property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. With us this morning is Bruce McDonald, Dana's Chairman and Chief Executive Officer, Byron Foster, Senior Vice President and President of Light Vehicle Systems Group, and Timothy Kraus, Senior Vice President and Chief Financial Officer. Bruce, I'll now turn the call over to you.

Thanks, Craig. Good morning, everyone, and thanks for joining us on our Q4 earnings call. With us today, in addition to the usual cast of characters, we have Byron Foster, our incoming CEO, with us. You know, I've known Byron and worked with him for many years. He and the rest of the management team here at Dana have been instrumental in our cost reduction activities and our transformation plans, as well as the development of our Dana 2030 strategy.

And so I think the board and myself have the utmost confidence in the team under Byron's leadership, and I'm very confident in the team's ability to deliver on the financial objectives that we're gonna share with you today. Turning to the business overview, our final results for the fourth quarter came in higher than our preliminary estimates. So you can see here for the fourth quarter, our margins at 11.1%, with $10 million, 40 basis points higher, $10 million higher than the announced pre-announcement numbers. In terms of full-year cash flow, we came in at $331 million, which is $16 million higher.

And I'd point out that that cash flow is the highest the company has delivered since 2013. We completed the sale of the Off-Highway business on January first and used the most of the $2 billion proceeds to repay down debt, and Tim will take you through what our new debt profile looks like later on in the pack. In terms of cost reduction, great job by the team. You know, we had originally committed to a $200 million run rate. We upped that to $300, and we delivered $248 in a year and a run rate of $325, going into 2026.

You know, we've talked before about our stranded costs post the sale of Off-Highway being about $40 million. We're very confident in our guidance. We're assuming that we're gonna be able to substantially eliminate those in next year. In terms of new business, we shared our backlog a couple weeks ago at $750 million. So despite, I'd say, the turmoil in the EV side of our business, the teams secured a higher backlog than we had last year, of which $200 million is gonna flow through in 2026.

And then I think if you look at our capital return, we returned just over $700 million for our shareholders last year, and we've grown our dividend. So I think, you know, where Dana sits exiting 2025, I think we're extremely well-positioned. We have strong momentum, and I think we've got a strong plan going forward here. Just a little bit more on the capital return plan, which we upped to $2 billion of share repurchase through 2030, and that really reflects our confidence in the delivery of the longer-term financial targets that we're gonna share on the call later today.

For 2025, we bought back just a shade over 34 million shares, which on an average cost of $18.96, and paid $54 million in dividends. In the first quarter here, we've already bought back $100 million worth of share, a little bit over $27 a share. In the balance of the year, we forecast buying back another couple hundred million, which, you know, at current prices, $5 million-$6 million, something like that. Lastly, on the dividend, we upped our dividend by, excuse me, by 20% to $0.12 a quarter. The way we're sort of thinking about this is we're gonna grow our dividend as our share count declines.

We got a lot of confidence in the value that we're creating. I think if you look at the company right now, while we're able to accelerate growth investments and margin enhancement investments in our business, we're also de-leveraging, growing our dividend, and comfortably buying back a significant amount of stock every year. So with that, Byron, I'll turn it over to you.

Okay. Thanks, Bruce, and good morning, everybody. ... So just to cover on page six, a little bit on the market outlook as we look at the 2026 plan. On the light truck side, we continue to see the light truck market holding steady, and our plan is built around really kind of flat volume year-over-year from 2025 levels. I would say we're seeing a consistent operating environment and volume from our customers, which is allowing us to run at a good, steady clip. On the commercial vehicle side, as well, we've built the plan around flat volumes to 2025 levels.

However, I would say there is some optimism that towards the back half of the year, perhaps we'll see some improved volumes on the commercial vehicle side. As Bruce mentioned, you can see on the right-hand side of this page, our three-year net backlog of $750 million, of which $200 million is built into our 2026 plan, and you can see kinda how that matures through 2028. If we go to page seven, I thought it might be interesting to give you a bit of a view of how our new business pursuit activities have kind of evolved here over the last 7 or 8 years.

You can see a really dramatic increase in business pursuit activity, kinda in the early 2000s, really dominated by increasing EV activity. Then, you can see here more recently how that trend has really pivoted and reversed itself from kinda 80% EV level activity to now really heavy mix towards our more traditional or ICE powertrain types of vehicles.

And we really expect that trend to continue as our customers are revisiting their product plans to adjust to consumer demand for ICE, more traditional ICE-type vehicles, as well as hybrids and some full BEVs will still exist, but obviously at lower rates than kind of what we saw a few years back. So we're encouraged by that, and as we talk about growth going forward, we expect that's really going to play into our ability to capitalize on that opportunity. So with that, I'll hand it over to Tim, and he'll take us through the numbers.

Thanks, Byron. And good morning to everyone. Please turn with me now to slide nine for a review of our fourth quarter and full year results for 2025. All results discussed this morning reflect continuing operations, except for adjusted free cash flow. Starting on the left side of the fourth quarter, sales were $1.867 billion, an increase of $93 million compared with last year. Improvement was driven primarily by customer recoveries and currency translation. Adjusted EBITDA for the quarter was $208 million, resulting in an 11.1% margin.

That's a 640 basis points improvement over the prior year's fourth quarter, reflecting better mix and continued benefit of the company-wide cost improvement actions. EBIT from continuing operations was $61 million, compared with a loss of $117 million in last year's fourth quarter. Interest expense was $49 million, an increase of about $12 million from last year due to higher average borrowing costs tied to our accelerated capital return initiatives that we did last year.

Operating cash flow was $406 million for the quarter, an increase of $104 million, driven by higher earnings and disciplined working capital management. Turning now to the full year results on the right side of the slide. Sales for 2025 were $7.5 billion, down $234 million from 2024. As we noted earlier, this reflects weakening market demand across both light vehicle and commercial vehicle sectors, partially offset by customer recoveries.

Full year adjusted EBITDA was $610 million, an improvement of $215 million from the prior year, resulting in an 8.1% margin, up 300 basis points. The year-over-year improvement was driven by accelerated cost savings, higher production efficiency, and improved execution across the entire Dana organization. EBIT from continuing operations was $138 million, compared with a loss of $176 million last year. Interest expense was $171 million, up $26 million from last year. Note that we closed the Off-Highway divestiture on January first and began our delevering program in 2026.

So this is not yet reflected in our 2025 results. Finally, operating cash flow was $512 million, a $62 million increase compared with last year, supported by improved earnings and continued working capital discipline. Overall, 2025 delivered meaningful margin expansion and stronger free cash flow generation, despite a challenging demand environment, underscoring the effectiveness of our cost action programs and operational execution. Please turn with me now to slide 10 for the drivers of the sales and profit change for the fourth quarter of 2025.

As a reminder, results are presented excluding the Off-Highway business, which is classified as discontinued operations. The removal of $561 million in sales and $102 million of profit from 2024 provides a comparable baseline for our continuing operations. Starting with sales, our fourth quarter 2024 continuing operations for the quarter was $1.774 billion. Year-over-year volume and mix increased sales modestly by $2 million, with light vehicle growth largely offset by weaker demand in certain commercial vehicle markets.

Performance action contributed an additional $17 million, driven by commercial recoveries and pricing initiatives implemented earlier in the year. Tariff recoveries were $27 million, and currency translation added $31 million, largely due to the benefit of the euro against the US dollars. Commodities provided a further $16 million dollar benefit for the quarter. Altogether, these items resulted in Q4 2025 sales of $1.867 billion. Moving to adjusted EBITDA, starting from $84 million in Q4 of 2024, representing a 4.7% margin, volume and mix contributed $33 million of incremental profit in the quarter.

This was driven primarily by a richer mix in Light Vehicle Systems. Performance added $6 million, reflecting pricing and commercial actions, mostly offset by higher conversion costs. Cost savings contributed $74 million, tariffs provided an $8 million benefit, while currency added $3 million. Commodity impacts were neutral year-over-year. Bringing these together, adjusted EBITDA for our continuing operations was $208 million, representing an 11.1% margin, a significant expansion from last year.

This improvement reflects strong performance execution and the structural benefits realized from our cost action programs. Next, I will turn to Slide 11 for the drivers of sales and profit change for the full year 2025. This slide shows full year sales and profit changes for 2025 on the same basis as the previous quarterly slide. Starting with sales, our 2024 continuing operations baseline is $7.734 billion. For 2025, year-over-year volume and mix reduces sales by $464 million, primarily due to lower demand across both our end markets, with commercial vehicle and light vehicle largely equal contributor to the lower sales.

Performance, which includes pricing and commercial actions, adds $981 million of sales. Tariff recoveries were $102 million, representing the majority of our tariffs for the year. Currency translation provided a $28 million benefit, largely driven by strengthening euro against the US dollar. Commodities added an additional $19 million, supported by market stability and our structured recovery mechanisms with our customers. Taken together, these drivers result in 2025 sales of $8.4 billion for our continuing... or $7.5 billion for our continuing operations.

Moving to Adjusted EBITDA, starting from $395 million in 2024 and a 5.1% margin. Volume and mix reduces profit by $112 million, consistent with the reduced sales level and some unfavorable mix early in the year. Performance actions added $90 million, reflecting both pricing and ongoing efficiency improvements across our manufacturing footprint. Cost savings remain a meaningful contributor, adding $248 million in 2025. These benefits more than offset the margin pressure created by lower volumes and continue to demonstrate the momentum behind our cost-saving programs as we enter 2026.

Tariffs represented a $14 million headwind due to timing of recoveries. Together, adjusted EBITDA for our continuing operations was $610 million, representing an 8.1% margin, a 300 basis points improvement over last year. This improvement is driven primarily by operational efficiencies and our accelerated cost action program, which more than offset both the volume declines and the modest tariff impacts for the year. Next, I will turn to slide 12 on a detail of our fourth quarter, our full year cash flows.

Okay, great. Thank you, Tim. And, hey, before I get into the targets here, I do want to take the opportunity to thank Bruce for his leadership through Dana's transformation here over the last year and a half or so. And as he mentioned, we will have a very seamless transition here through the end of Q2. And, myself and the management team, we couldn't be more excited for the opportunities ahead for Dana. So let's take a look at our long-term targets and our plans to continue to drive performance of the company to new levels.

So if you look at the 2030 financial targets, starting with revenue, we're targeting close to $10 billion of sales, which would be 33% higher than the midpoint of the 2026 guide that Tim just took us through. We expect margins to increase by close to 400 basis points, to 14%-15% at the EBITDA line, and adjusted free cash flow at 6%, which would be about a 200 basis point improvement from our 2026 guide.

In terms of returning capital to our shareholders, you can see that we plan to return $2 billion vis-a-vis stock buybacks, of which $650 million has been completed in 2025, with the remaining plan for 2026 through 2030. And specifically in 2026, we're targeting $300 million of buybacks. And that's on top of the 20% dividend increase that was previously announced. In terms of our roadmap of how we plan to deliver that level of performance, it's really all under our strategy that we've called Dana 2030.

And you can see the five pillars of that plan, three related to growth in our aftermarket business, our traditional light vehicle and commercial vehicle business, as well as our EV and Applied Technologies, which basically takes, Dana's know-how and technology and explores opportunities for growth in new and adjacent markets. In addition to those growth pillars, there's two pillars around efficiency and execution in everything we do, both at the manufacturing level as well as our structural cost and support, of the business.

We look forward to sharing more details of our 2030 plans, with you during our Capital Markets Day, which is planned for March 25th in New York at 9:00 A.M., and we're hoping to see you guys all there so we can talk more about the future ahead for Dana. So with that, I'll hand it back to Regina for Q&A. Thank you.