Dana(DAN) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Q2 and H1 2024 financial statements show decreased net income, reduced assets, and a loss from the European hydraulics business sale Consolidated Statement of Operations The consolidated statement of operations details the company's revenue, expenses, and net income for Q2 and H1 2024 versus 2023 Q2 & H1 2024 vs 2023 Performance Summary | Metric | Q2 2024 | Q2 2023 | YoY Change | H1 2024 | H1 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,738M | $2,748M | -0.4% | $5,473M | $5,392M | +1.5% | | Earnings Before Interest and Taxes (EBIT) | $104M | $124M | -16.1% | $174M | $214M | -18.7% | | Net Income | $16M | $36M | -55.6% | $16M | $67M | -76.1% | | Net Income Attributable to Parent | $16M | $30M | -46.7% | $19M | $58M | -67.2% | | Diluted EPS | $0.11 | $0.21 | -47.6% | $0.13 | $0.40 | -67.5% | Consolidated Balance Sheet The balance sheet details the company's assets, liabilities, and equity as of June 30, 2024, and December 31, 2023 Balance Sheet Summary | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $419M | $529M | | Total current assets | $4,076M | $4,103M | | Total assets | $7,808M | $7,965M | | Total current liabilities | $2,758M | $2,602M | | Long-term debt | $2,386M | $2,598M | | Total liabilities | $6,059M | $6,137M | | Total parent company stockholders' equity | $1,475M | $1,575M | Consolidated Statement of Cash Flows The consolidated statement of cash flows summarizes cash movements from operating, investing, and financing activities for the six months ended June 30 Six Months Ended June 30 Cash Flow Summary | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $113M | $86M | | Net cash used in investing activities | ($177M) | ($245M) | | Net cash (used in) provided by financing activities | ($30M) | $209M | | Net (decrease) increase in cash | ($94M) | $50M | Notes to Consolidated Financial Statements Notes provide detailed explanations for significant financial events, including business divestitures, restructuring charges, and segment performance - In February 2024, Dana agreed to sell its European hydraulics business for approximately $38 million, resulting in a $30 million loss to adjust the carrying value of net assets to fair value less costs to sell[28] - Restructuring charges of $12 million in Q2 2024 and $17 million in H1 2024 were primarily for separation costs related to global administrative rationalization and manufacturing footprint realignment, affecting approximately 500 employees[30][31] Revenue by Segment (Six Months Ended June 30) | Segment | 2024 Revenue | 2023 Revenue | | :--- | :--- | :--- | | Light Vehicle | $2,230M | $2,028M | | Commercial Vehicle | $1,051M | $1,048M | | Off-Highway | $1,527M | $1,684M | | Power Technologies | $665M | $632M | | Total | $5,473M | $5,392M | Segment EBITDA (Six Months Ended June 30) | Segment | 2024 EBITDA | 2023 EBITDA | | :--- | :--- | :--- | | Light Vehicle | $151M | $115M | | Commercial Vehicle | $40M | $45M | | Off-Highway | $231M | $249M | | Power Technologies | $49M | $42M | | Total | $471M | $451M | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A analyzes Q2 2024 sales, gross margin, revised full-year outlook, and strategic focus on core operations and electrification Operational and Strategic Initiatives Dana's strategy focuses on leveraging core operations, customer centricity, global expansion, and leading electric propulsion solutions - Dana's enterprise strategy is focused on four key pillars[107] - Leveraging Core Operations: Driving synergies across engineering, purchasing, and manufacturing to improve profitability and competitive advantage[108] - Driving Customer Centricity: Focusing on customer relationships and engineering solutions to win new business[109] - Expanding Global Markets: Prioritizing growth in Asia, particularly China and India, through partnerships, acquisitions, and organic investment[110] - Delivering Innovative Solutions & Leading Electric Propulsion: Investing in e-Propulsion systems to capitalize on vehicle electrification trends[111] Trends in Our Markets Market trends show stable light-truck production, weakening North American commercial vehicle demand, and mixed off-highway growth - Light Vehicle: 2024 outlook reflects relatively stable global light-truck production compared to 2023[122] - Commercial Vehicle: 2024 outlook indicates weakening demand in North America, with moderately lower production, while South America and Asia Pacific expect modest increases[123] - Off-Highway: 2024 outlook projects modest growth in the Americas and Asia Pacific, offset by moderately lower production in Europe, with softening global agriculture equipment demand[124] Sales, Earnings and Cash Flow Outlook The 2024 sales outlook was lowered due to reduced EV demand, while Adjusted EBITDA guidance was maintained and free cash flow increased - The 2024 sales outlook was lowered by $200 million to a range of $10,450 - $10,950 million, reflecting a reduction in electric-vehicle demand[130] 2024 Financial Outlook | Metric | 2024 Outlook | 2023 Actual | | :--- | :--- | :--- | | Sales | $10,450 - $10,950M | $10,555M | | Adjusted EBITDA | $875 - $975M | $845M | | Net cash provided by operating activities | $500 - $550M | $476M | | Free cash flow | $75 - $125M | ($25M) | - Adjusted EBITDA guidance remains unchanged, with the margin expected to improve by 60 basis points over 2023 at the midpoint, and free cash flow guidance was increased by $25 million due to reduced capital spending[130] Consolidated Results of Operations Consolidated results show a slight Q2 sales decrease and H1 organic sales growth, despite gross margin compression from inflation and mix - Q2 2024 sales decreased by $10 million YoY to $2,738 million, with weaker international currencies having a negative impact of $22 million, partially offset by $14 million in organic sales growth[131][132] - Q2 2024 gross margin decreased by $16 million to $255 million (9.3% of sales), down 60 basis points from 2023, driven by lower sales volumes, unfavorable product mix, and $51 million in non-material inflationary costs[134][135] - H1 2024 sales increased by $81 million YoY to $5,473 million, with $102 million in organic sales growth partially offset by a $19 million negative currency impact[145][146] Segment Results of Operations Segment results highlight organic growth in Light Vehicle and Power Technologies, with challenges in Commercial Vehicle and Off-Highway sales declines - Light Vehicle: Q2 sales grew 7% organically, driving segment EBITDA up by $18 million to $84 million, with margin improving to 7.4% from 6.2% YoY[159][160] - Commercial Vehicle: Q2 sales were up 1% organically, but unfavorable product mix caused segment EBITDA to fall by $5 million to $23 million, with margin contracting to 4.4% from 5.3% YoY[161][162] - Off-Highway: Q2 sales declined 10% organically due to softening global markets, particularly in Europe, leading to a $15 million decrease in segment EBITDA to $116 million, with a stable margin of 15.5%[163][164] - Power Technologies: Q2 sales grew 7% organically, with segment EBITDA increasing by $3 million to $22 million, and margin expanding to 6.6% from 6.1% YoY, despite unfavorable product mix[165][166] Liquidity and Capital Resources The company maintains strong liquidity, with $1.56 billion available as of June 30, 2024, and remains compliant with all debt covenants Total Liquidity as of June 30, 2024 | Component | Amount | | :--- | :--- | | Cash and cash equivalents | $419M | | Additional cash availability from Revolving Facility | $1,141M | | Total liquidity | $1,560M | - As of June 30, 2024, the company was in compliance with all debt covenants, with principal liquidity sources expected from cash from operations, cash on hand, and borrowings from the Revolving Facility[176][178] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures, including currency, interest rates, or commodity costs, have occurred since the 2023 Form 10-K - There have been no material changes to market risk exposures concerning currency exchange rates, interest rates, or commodity costs since the 2023 Form 10-K[188] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective[190] - No changes occurred during the fiscal quarter ended June 30, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[191] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal proceedings, with no expected material adverse effect on its financial condition or operations - The company does not believe that liabilities from pending legal proceedings are reasonably likely to have a material adverse effect on its financial condition or results of operations[194] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since those disclosed in the 2023 Form 10-K - There have been no material changes in the company's risk factors from those disclosed in the 2023 Form 10-K[195] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including incentive plan amendments and required CEO/CFO certifications - Exhibits filed with the report include the First Amendment to the Dana Incorporated 2021 Omnibus Incentive Plan, CEO and CFO certifications under Rule 13a-14(a)/15d-14(a), and Section 1350 certifications[198]