Dana Incorporated 2026 Q2 Earnings Call

Thank you, Regina. Good morning, welcome everyone to our second quarter earnings call for 2026. 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 disclaimer and safe harbor statements found in our public filings and our reports with the SEC. You will find this morning's press release and presentation posted on our investor website. As stated, today's call is being recorded, 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 our Chief Executive Officer, Byron Foster, and Timothy Kraus, Executive Vice President and Chief Financial Officer. Byron, I will turn the call over to you.

Okay. Thanks, Craig. Good morning, everyone, thanks for joining the call. I would like to start by hitting a few key highlights from the quarter. I am pleased to report strong second quarter financial results driven by a continued focus on executing our plan and strategic initiatives. Sales in the quarter came in at $2 billion with adjusted EBITDA of $207 million, which yields a margin of 10.3%, 270 basis points higher than the same period in 2025. Additionally, the team delivered $19 million of cost savings in the quarter. This brings our year-to-date cost savings number to $54 million and keeps us on track to realize the $65 million we have committed to in 2026, achieving our program target of $325 million. We continue to work on efficiency opportunities to chip away at the $40 million of stranded costs from the off-highway sale.

Next, I'm excited to share that we will be restarting our share repurchase program until the closing of the Eaton Mobility transaction. We additionally continue to evaluate the possibility of additional share repurchases post-closing. If you step back in terms of our share repurchase program, in Q2, we repurchased 1.2 million shares, returning $44 million to our shareholders. Year to date, that brings our share repurchases to $169 million. We're planning from this point forward an additional $200 million of repurchases in the balance of the calendar year. Program to date, we've repurchased $819 million through Q2, that'll bring us to just over $1 billion with the $200 million incremental for the balance of the year and keeps us on track to complete $2 billion of the authorization by 2029. The Eaton Mobility combination is progressing well.

One key update in regards to the transaction is that the separation will be structured as a split-off. I'll add a bit more color to that structure here in the coming slides. Finally, our Dana 2030 program continues to make significant progress. I'll talk a little bit about some of the customer recognition as well as the new business awards tied to the key growth pillars of the Dana 2030 plan. If we go to page five, as mentioned in my opening slide, our team's continued focus on executing and delivering real value for our customers is resulting in great recognition from our customers. We're honored to be recognized by three of our largest customers for our performance in quality, delivery, competitiveness, and commercial collaboration and data transparency regarding tariff recoveries.

These are a small sample of the positive feedback we continue to receive from our customers. We're proud to continue to work to build their trust and continue to grow in our key markets. Speaking of growth, if we go to page six, I want to provide a brief Dana 2030 update. You'll recall during our capital markets day, we showed a roadmap of how we will grow Dana's top line to $10 billion by 2030. There are three key pillars that we highlighted as part of that growth strategy, around our traditional products, aftermarket, and Applied Technologies. To highlight the aftermarket piece, our team continues to make great strides in expanding our Victor Reinz branded sealing products with a number of the nation's top retail chains.

With AutoZone, we're working on expanded DC participation. With Advance, we're working on SKU expansion, as well as launching new products with O'Reilly's. The combination of this effort is delivering $40 million of additional sales from these top national retail chains. The team is continuing to work on new opportunities across other key customers in this critical channel. If you go to page seven, another proof point of our aftermarket growth strategy is our new partnership with VIPAR, North America's largest heavy-duty truck parts program group. With VIPAR's 875+ locations and 430+ service locations, this partnership expands Dana's distribution reach and will deliver an incremental $10 million-$15 million of aftermarket sales beginning later this year. Moving on to page eight, the next pillar I want to highlight is Applied Technologies, where our strategy is to leverage Dana's off-the-shelf product and process capabilities for profitable growth.

The defense market is an area where we are getting great traction. Based on demand for the current ISV with GM Defense, we're seeing volume increases in the back half of the year and into next year. Additionally, we're in a rapid prototype phase on a major project with one of our large OEMs, where we're working to secure the production order by year-end. Just based on the programs that we participate in today and the increased demand, we're seeing $30 million of new sales in this pillar of our strategy alone. We continue to see defense as a real opportunity for profitable growth, and we're working with all the key players in the space on new program opportunities.

The Dana 2030 program continues to deliver great results, and we're excited about the top-line opportunities in aftermarket and defense, and we'll continue to provide updates in future calls. If we turn to page nine, turning to the Eaton Mobility transaction, a couple of important updates that we believe strengthen the transaction and directly address shareholder feedback. Dana will restart share repurchases immediately with an agreement in place with Eaton that allows us to continue returning capital to shareholders through the closing of the transaction. The transaction economics remain unchanged. The amount of the distribution to Eaton will be adjusted for lower share count. We expect to repurchase an additional $200 million of shares before the end of 2026, as I mentioned, additionally, we're continuing to evaluate the potential to continue repurchases after closing, which if successful, will avoid the previously announced 24-month pause.

Eaton has elected to separate mobility through a split-off structure. From Dana's perspective, this is a positive development as the structure remains tax-free to shareholders, and current Eaton shareholders will have the choice to participate in the exchange offer. We believe that choice will support a more orderly distribution of shares to investors who are interested in owning Dana and participating in the value creation opportunity of the combined company. We remain highly confident in the strategic and financial merits of the combination. If we move to page 10, I want to take a minute to reiterate the highlights and strategic rationale of the deal. Eaton Mobility brings a set of complementary products, meaningful Commercial Vehicle exposure, a strong aftermarket franchise, and capabilities that fit naturally with Dana's existing powertrain, thermal, sealing, and driveline technologies.

Together, the two companies create a focused, scaled powertrain leader that accelerates our Dana 2030 plan. The combination gives us a broader, complete system offering, increases our exposure to higher value Commercial Vehicle and aftermarket markets, and creates a stronger platform for margin expansion and free cash flow growth. Additionally, we have a clear plan to achieve at least $250 million of run rate cost synergies within 24 months after close. These savings are supported by specific work streams across corporate functions, engineering, manufacturing, purchasing, business unit optimization, and aftermarket network efficiencies. I'll come back to the synergies point in a couple of slides. We view commercial upside from cross-selling and the combined sales force as incremental opportunity.

Even with the planned buybacks, the combined company is expected to maintain attractive pro forma synergized 2026 net leverage of approximately 1.4 times, with a strong free cash flow profile and a clear path to deleveraging over time. Slide 11 is a good visual to illustrate why the industrial logic of the combination is so compelling. Dana and Eaton Mobility bring together highly complementary product portfolios across the powertrain system that literally fit together and connect to each other. Dana's existing strengths in axles, driveshafts, thermal management, and sealing are complemented by Eaton Mobility's Commercial Vehicle transmissions, engine components, emissions-related products, and advanced electrification capabilities. The result is a more complete, high-value powertrain offering. These are product categories we know well, and in many cases, they are areas where Dana has historical familiarity and technical depth.

By combining the portfolios, we can offer customers a broader system-level solution and create more opportunities for engineering collaboration, product integration, and commercial pull-through. This is also why we view the transaction as a continuation of our strategy, not a reversal of the simplification we achieved through the off-highway divestiture. We simplified Dana to focus on the core areas where we have scale, capability, and margin opportunity. Eaton Mobility deepens that core. Turning to page 12, we highlight one of the most attractive elements of the deal, creating a scaled global aftermarket leader. On a combined 2026 basis, aftermarket sales are expected to be approximately $1.7 billion, representing approximately 16% of our total sales, which is roughly four percentage points higher than Dana on a standalone basis. This larger aftermarket platform matters because aftermarket revenue is typically higher margin, less cyclical, and more resilient through the cycle.