Dana - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good morning, and welcome to Dana Incorporated's first quarter 2025 financial webcast and conference call. My name is Regina, and I will be your conference facilitator. Please be advised that our meeting today, both the speaker's remarks and Q&A session, will be recorded for replay purposes. For those participants who would like to access the call from the webcast, please reference the URL on our website and sign in as a guest. There will be a question-and-answer period after the speaker's remarks, and we will take questions from the telephone only. To ensure that everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to one question at a time. If you would like to ask an additional question, please return to the queue.

At this time, I would like to begin the presentation by turning the call over to Dana's Senior Director of Investor Relations and Corporate Communications, Craig Barber. Please go ahead, Mr. Barber.

Craig Barber (Senior Director, Investor Relations and Corporate Communications)

Good morning, and welcome to Dana Incorporated's first quarter 2025 finance call. Today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from what we discuss here today. For more details about the factors that could affect future results, please refer to our Safe Harbor statement found in our public filings and our reports with the SEC. I encourage you to visit our investor website, where you'll find this morning's press release and communication. As Regina said, the call today is being recorded, and supporting materials are the property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our written consent. With me this morning is Bruce McDonald, Dana Chairman and Chief Executive Officer, and Timothy Kraus, Senior Vice President and Chief Financial Officer. Bruce, now I'll turn the call over to you to get us started.

R. Bruce McDonald (Chairman and CEO)

All right. Thank you, Craig, and good morning, everybody. I'm going to start with on slide four here in terms of some highlights for the fourth quarter. I know there's a lot of interest in the Off-Highway divestiture process, and we're really not in a position where we can say a lot. What I would tell you is the process continues to be underway. We're pleased with the progress that we've made. It's been competitive, and we have multiple bidders. If you look at the quarter, I would say I'm pleased with Q1. Our results came in, generally speaking, in line with expectations. I would note that we did have a little bit of a headwind on tariffs of $6 million in the quarter. Absent that, we would have had comparable margins to last Q1, despite a pretty big reduction on the top line. Good result there.

We see that $6 million coming back. We just could not get the paperwork into our customers to get the recovery in the quarter. Real importantly for us, and we talked about this on our last earnings call, is we said we are going to look at our cost reduction plans and see what we could do to bring those forward. I am pleased to announce that we are accelerating the realization of our cost program here in 2025 from what was $175 million-$225 million. We completed the integration of our former Power Technologies segment and aftermarket business into Light Vehicle and CV, respectively. That has gone real well. Of the $300 million cost reduction, this integration is worth about $30-$35 million of that. I think we are going to see further benefits, not sort of SG&A-related benefits, as we leverage best practices across our aftermarket businesses.

I think as we bring some of the operational rigor and processes that we have in Light Vehicle to Power Technologies, I see operational improvements falling through in the back half of this year. More to come on that. Lastly, in free cash flow, Q1 is always a seasonal outflow, but we had a good start with, despite lower revenues and profitability on an absolute basis, our Q1 cash outflow was an improvement year-over-year of $67 million. We continue to focus on opportunities to reduce our CapEx, and I'm hoping that we can squeeze some money out of that in the back half of the year. Not that it's in free cash flow, but we are focused on a portfolio of non-core, non-strategic assets and things like that.

We expect to deliver $50 million here in the second quarter and could see our way maybe to another $50 million in the back half of the year. Generally, a good start to the year. In terms of the outlook and what we're seeing, I guess I would start with a very dynamic situation that, especially on the tariff front, changes significantly on a daily basis. Based on what we see right now, I guess I would just say our tariff situation is manageable. We can get into a lot more detail in some of the questions, but it's a manageable issue for Dana. Several mitigation actions have been completed. We've got recoveries into our customers with the right level of detail to support our claims being processed.

I guess the other thing I would note, if you look at the steel and aluminum tariffs, we've seen North America indices move up such that we expect we substantially recover the steel and aluminum through already negotiated mechanisms that we have in place with our customers. There could be some timing issues because those tend to work in a little bit of a lag, but I would say the impact of steel and aluminum tariffs with the way the indices have moved would be kind of a non-issue for us as we see things right now. In terms of what we're seeing in the market, the first, I guess, thing that we are seeing is a reduction in schedules for our North American commercial vehicle customers.

You see that in some of the calls that have come out before us with people taking their assumptions for North America down. We have reflected that in our outlook. That has sort of been a bit of a headwind for us. In Off-Highway, we are seeing a little bit of pre-buy interest here in the second quarter, nothing significant, but it is nice to see we are getting a little bit of that. We are starting to see outside of North America some green shoots in terms of improvements and orders in the second half of the year. In North America, we are not seeing anything in terms of LV schedules, any deterioration at this point in time. If you look at the mix of vehicles that we are exposed to, you guys all know where we have got where our money is made.

We feel pretty good about our customers gaining share in our space. While we acknowledge there's some risk in the back half of the year, we're just being cautious right now. We don't see it reflected up in our schedules. We talked earlier about the $50 million of incremental cost reduction. I would just say, absent tariffs, we'd be sitting here this morning raising our guidance by about $50 million to reflect the acceleration on the cost reduction side. We're just holding back until we get a little bit more clarity on what happens in LV, particularly in the second half. Lastly, just a little bit of something to brag about here, but we won our 10th PACE Award, quite an honor in the industry. This for us is a hybrid transmission. It's kind of a niche product.

It's about $25 million of sales this year. It's a product that we've rolled out across the highest end of the automotive spectrum. So customers like Aston Martin, Lamborghini, McLaren. We see this as a business opportunity to grow to $200-$250, maybe even up to $300 million over the next few years at a highly accretive EBITDA margin. This product pushes 20%. Not a huge item, but it's an important, I think, margin expansion arrow in our quiver. I congratulate the technical teams for winning the award. With that, Tim, I'll turn it over to you.

Timothy R. Kraus (SVP and CFO)

Thank you, Bruce, and good morning to everyone. If you'd please turn to slide eight for a review of our first quarter results. Sales were $2.4 billion, $383 million lower than last year, driven by lower demand across all of our end markets. Adjusted EBITDA was $188 million for a profit margin of 8%, just 20 basis points lower than last year on lower sales as the benefits of our cost improvement actions begin to take hold. Net income attributable to Dana was $25 million in the first quarter of 2025, compared with $3 million last year. The difference was primarily due to the proposed divestiture of our non-core hydraulics business in 2024. A $29 million loss was recorded to adjust the carrying value of net assets to fair value in last year's first quarter.

Income taxes for the first quarter of 2025 were $29 million lower due to jurisdictional mix of profits and timing of payments. Finally, operating cash flow was a use, as is normally the case in the first quarter, of $37 million. This was an improvement of $65 million over the first quarter of last year due to lower working capital requirements. Please turn with me now to slide nine for the drivers of the sales and profit change. Beginning this quarter, we have revised our walk presentation to better detail the impacts of volume, mix, and performance of the operations. Previously, these two drivers were combined. We continue to show the benefit of our cost-saving initiative, and we have added the actual impact of tariffs as part of our walk.

Beginning with volume and mix on the left, we saw $345 million lower sales driven by lower demand in all of our end markets, specifically when compared to Q1 of last year when Light Vehicle production increased dramatically coming off of the UAW strike at the end of 2023. This year, we are seeing a slowdown in production as vehicle inventories remain high. We did not see any distinct change in order patterns from our key customers on key programs related to tariffs during the quarter. Adjusted EBITDA from sales, volume, and mix was lower by $90 million. This was a decremental margin of about 25%. We are breaking out performance, which includes efficiency gains in our manufacturing separately. Performance increased sales by $27 million, mostly through commercial actions, while profit increased by $35 million due to efficiency improvements across the company.

For the first quarter of 2025, cost savings added $41 million in profit through the various actions we have taken. As Bruce mentioned, we have accelerated some actions. We now expect to realize about $50 million more of our $300 million in total cost savings this year. To the left of the slide, we included a breakdown of where the permanent cost savings are coming from. You can see it's well distributed across the cost structure. The tariff impact in the quarter was just $6 million. Since our tariff recoveries will have a lag associated with them, we did not immediately recover the tariffs in the quarter, but we expect to receive recoveries throughout the year. Foreign currency translation decreased sales by $53 million, primarily driven by the lower value of the euro, real, and rupee compared to the US dollar.

Profit was lower by $4 million with no impact to margin. Finally, commodity cost recoveries in the first quarter were $10 million lower than last year due to the timing of cost mechanisms within the commodity recovery agreements with our customers. Profit was $11 million lower as the prices fall through to profit. Next, I will turn to slide 10, the details of the first quarter adjusted Free Cash Flow. Adjusted Free Cash Flow in the first quarter of 2025 was the use of $101 million, which is $67 million higher than the first quarter last year. Lower Adjusted EBITDA and higher one-time costs related to the cost-saving actions and the sale of the Off-Highway business were offset by lower working capital requirements. Finally, capital spending, net of proceeds of sales of fixed assets, was about the same as last year.

Please turn with me now to slide 11 for our guidance for 2025. Our 2025 full-year guidance ranges remain unchanged. As a reminder, our guidance includes the Off-Highway business for the full year and includes the estimated impact of disclosed tariffs. First thing you will note is that we are expecting sales to be above the midpoint of our range. The higher sales expectations are taking into account some of the softening in commercial vehicle end markets offset by the recovery of expected tariffs that will flow through sales and the improved outlook on currency translation. To date, we have not seen a change in the volume expectations of our major Light Vehicle programs. Our initial expectations were for slightly weaker end market demand for light trucks. If that market weakens further, we will adjust our outlook.

Adjusted EBITDA is still expected to be $975 million at the midpoint of the range. This is approximately $90 million higher than 2024 and implies a profit margin of about 10%, a 140 basis point increase over 2024. Full-year adjusted free cash flow is expected to be $225 million at the midpoint of the range for the year. This is approximately $155 million higher than last year. Our adjusted EPS guidance is expected to be $1.40 per share at the midpoint of the range. This is down from our previous estimate solely due to the change in expected tax expense driven by our expected regional mix of profits. Lastly, please turn with me to slide 12 for an outlook of our adjusted free cash flow for 2025. We anticipate full-year 2025 adjusted free cash flow to be about $225 million at the midpoint of the guidance range.

We expect about $90 million of higher free cash flow from increased Adjusted EBITDA. One-time costs will be about $20 million higher as we invest in our cost savings program and we work to finalize the Off-Highway divestiture. Working capital requirements will be about $50 million lower and capital spending net is expected to be about $325 million this year, which is $45 million lower than 2024. Thank you, and I'll now ask Regina to open the call for questions.

Operator (participant)

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To ensure that everyone has an opportunity to participate in today's Q&A, we ask that callers limit themselves to one question at a time. If you'd like to ask an additional question, please return to the queue. Our first question comes from the line of Joe Spak with UBS. Please go ahead.

Thanks. Good morning, everyone. Maybe just to start on the guidance, I know you listed a number of things, some tariff headwinds and some negative market assumptions in what is, I guess, going to be new Dana, but then cost savings, and then in Off-Highway business, you mentioned some of that pre-buy commentary. I guess the question is, back in the beginning of the year, you provided some guidance for new Dana versus the Off-Highway. With all those factors you listed, is there any meaningful change to those assumptions we should consider?

Timothy R. Kraus (SVP and CFO)

Yeah. Commercial vehicle is going to be a bit lower than what we had seen just a couple of months ago. That is largely being offset by amounts in Light Vehicle and a little bit in Off-Highway. Obviously, the balance of that is coming from what we believe will be additional revenue from tariff offsets.

R. Bruce McDonald (Chairman and CEO)

Yeah. I guess maybe just a couple other things. Obviously, the incremental cost reduction targets all relate to corporate. It gets sort of smeared based on sales. I would say in Off-Highway, we are benefit in our outlook. We are picking up some translation on the euro. That would be disproportionate to Off-Highway. I mean, generally speaking, if you sort of $50 million cost reductions to pull for, if you think about when we gave sort of guidance around new Dana post Off-Highway sale in 2026, I think the message is, look, Q1, new Dana is up year-over-year margins, and Off-Highway is on a year-over-year basis down. The path to get new Dana in 2026 to the type of number that we commit to, the 10, 10.5, is thoroughly on track.

Okay. Just for 2025, again, I know you provided some ranges, and it seems like some moving parts, but generally, those ranges are still valid?

Timothy R. Kraus (SVP and CFO)

Yeah, they're generally valid. I mean, the sales are going to move around, as Bruce mentioned, right? Between tariffs and translation, we're going to have some tailwind on the top line. That's largely going to offset the headwinds that we're seeing in commercial vehicle from a volume perspective.

R. Bruce McDonald (Chairman and CEO)

Yeah. I guess if you think about tariffs overall, we don't bring in an awful lot of product from Europe into North America. When we talk about our tariff headwind, the commercial, sorry, the Off-Highway impact is relatively small.

Timothy R. Kraus (SVP and CFO)

Yeah, that business is primarily European. We do have a bit of business here in North America, but that's a relatively small portion of the overall business.

Okay. Bruce, appreciate your limited and what you could say about the process. I think you had some relatively encouraging commentary, but maybe you could just sort of indicate to us if sort of any of this market uncertainty has had any impact on the process, even in terms of sort of potential management distraction for potential buyers or anything there, or are things sort of mostly on track with what you thought?

R. Bruce McDonald (Chairman and CEO)

Yeah. I mean, I guess I would say, obviously, if you look at the last 90 days, I think the tariff situation is becoming clearer. It was swinging around pretty wildly when some of the IEEPA stuff was coming up and the China thing was escalating and things like that. I think now some of the rules, we've had a little bit of stability. We're getting clarification in terms of what's in and out, how we handle USMCA, non-USMCA. I would say we've definitely had maximum uncertainty. In that environment, people are nervous and want to understand things. Spending a little bit more time with our teams.

I mean, I really can't say a lot, but we're a few weeks, I guess we had sort of talked about being in a position to say something, come to a resolution here early in the second quarter. Now, I guess I would just say that our timing's probably more like late in the quarter.

Okay. Appreciate that.

I mean, I wish I could say more, but the guys probably want to yell the room already, so.

Operator (participant)

Our next question comes from the line of Edison Yu with Deutsche Bank. Please go ahead.

Edison Yu (Analyst)

Hi. Thank you for taking our question. Just want to come back on the tariff. Can you share, I guess, what is the exposure at the moment in terms of the timing of recovery? How long do you think that will take on average?

Timothy R. Kraus (SVP and CFO)

I don't want to get into the overall exposure, mostly because I don't really want to negotiate with my customers in public. What I can say is from a recovery perspective, we expect it's probably going to be less than a quarter on a lag. Of course, that depends on the customer and the end market that we're dealing with. Most of our largest customers have set up a regimented process. As Bruce mentioned, we've already started to provide invoices and the detail backup that's required by our customers in order to obtain recovery. That process is well underway, and we see it working well given the level of detail that we're providing the customer. I'm guessing it's probably when they get through it, obviously, the customers are going to be pretty inundated.

We're looking at somewhere probably not longer than a quarter, but I think it'll end up being a little bit less given the impact that this will have across the supply base.

R. Bruce McDonald (Chairman and CEO)

Yeah. I mean, I'd expect us to be a cash flow timing issue in the quarter. I think by the time we're here in three months' time, we will know what our recoveries and have that process nailed down sufficiently so we'll be accruing the impact. The cash associated with it, we have to pay that out much sooner than we're going to get it back. I don't think that's going to be a major bridge item for us, but I feel pretty comfortable that it's not going to be a problem for us.

Edison Yu (Analyst)

In terms of the amount, is it baked in that you would recover essentially 100%, or is there some wiggle room or haircut to the recovery?

Timothy R. Kraus (SVP and CFO)

Our view is that we're going to be recovering 100% of the tariffs.

R. Bruce McDonald (Chairman and CEO)

Yeah, yeah. I think you maybe just a little bit of help there is, first of all, if you think about our commercial vehicle business and our Off-Highway business, we have very little risk of 100% recovery. That part of it, we're not worried about at all. I mentioned that the aluminum and steel will be recovered through normal indices that we already have in place. Once you sort of back out those three things and some mitigation actions that we've taken where we were the importer of record of finished goods, we bring some axles up from Mexico to North America and they're picked up at a warehouse in Laredo, we negotiate those exposures away. You are left with a fairly minor amount in the scheme of the $10 billion company.

We have all the documentation submitted to our Light Vehicle customers, and they've brought in external resources to process our claims. In one case, we know our claim has been processed and approved, but I haven't seen the check yet. We'll see where we end up.

Edison Yu (Analyst)

Understood. Just one last thing to clarify. I really know quantifying the exposure, but in terms of the mechanics, is it basically the non-USMCA part that you're assuming that gets exempt, or are you assuming that there's more than that, or the USMCA actually goes away?

Timothy R. Kraus (SVP and CFO)

What we've put out in terms of our guidance now is based on what we see coming out of Washington as of today. That will change tomorrow. I have no doubt it changed last night. The way the mechanisms are working with our customers are that we need to be able to prove the actual amount of tariffs that we've incurred and be able to trace them back by part number. That's the documentation that we're providing. Our expectation is that level of detail will allow us to recover the tariffs from our customers.

R. Bruce McDonald (Chairman and CEO)

It is a little bit more nuanced than your question. Let me just give you an example. Everything that we are talking about is for auto parts. It does not include our parts the way the definition and the

HTS codes are written. It does not include things like our Off-Highway and commercial vehicle products, nor does it even include some of our Super Duty business. They are not in this whole 232 switch that happened yesterday. They are still into the other buckets, IEEPA, reciprocals, things like that.

Edison Yu (Analyst)

Gotcha. Very much appreciated. Thank you.

R. Bruce McDonald (Chairman and CEO)

Yeah. Yeah.

Our next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Colin M. Langan (Analyst)

Oh, great. Thanks for taking my questions. Any way to frame what you're assuming for Light Vehicle production? Is it very in line with the recent S&P forecast? Is there any way to frame that? Because there's obviously a lot of uncertainty with tariffs.

R. Bruce McDonald (Chairman and CEO)

Sure. Yeah. I think the way obviously, when you think about the Light Vehicle outlook, we try to steer everybody back to the light truck production. We currently are not seeing any substantial change from where we were when we came out in February. That is what is currently baked into our forecast for North American light truck. If that changes in any material way, we will have to revisit our outlook. Right now, we have not seen anything and do not have anything from our customers on the horizon. That does not mean it will not change, but at this point, we are looking at it largely the same as we did two months ago. The only thing I would add to that, Colin, is we acknowledge there is a risk there, and that is why we are not up in our guide.

Colin M. Langan (Analyst)

Got it. On the S&P side, I mean, is it consistent with what S&P just provided, or more optimistic, less optimistic?

R. Bruce McDonald (Chairman and CEO)

I would say the latest S&P data, which we don't think is accurate, especially here in the short term and some of it. If you looked at the latest S&P information and we were to factor that in, we'd have more than enough coverage in the extra cost saved to hold our guide.

Colin M. Langan (Analyst)

Got it. That's helpful. If I look at, I think you said earlier you didn't want to provide a number on the tariff impact, but I mean, in the EBIT walk, it's $6 million. I mean, is that not a runway we should think about?

Timothy R. Kraus (SVP and CFO)

You have to, I mean, the tariffs were not for the entire quarter. They were staged in. You can't use the first quarter as sort of a viewpoint for the tariffs. They've also changed from week to week. Depending on when we imported the material and how it was classified determines what we ended up, what the impact was in the quarter. That's going to be different going forward. You cannot use the first quarter and try to do some sort of extrapolation. The rules and how these things are classified have changed dramatically from week to week.

R. Bruce McDonald (Chairman and CEO)

Four million of the six million, Colin, is related to where Dana was the importer of record, the example I gave in the previous color. We have already remediated that and billed it, and we are not at all worried about getting that four million back. Yeah, like Tim said, there are things that have come on and come off. There are bucketing issues, there are HTS code issues, etc.

Timothy R. Kraus (SVP and CFO)

Yeah. You have to remember, right, that a lot of this stuff is coming out in either an executive order or in a press release or a press conference. It then gets published in the commercial register, and then that's then translated by the Commerce Department and at the Customs and Border to determine how and what HTS codes are going to collect what tariffs on which. It is exceedingly complex and is changing as both the rules get more clarification and the rules change.

R. Bruce McDonald (Chairman and CEO)

Maybe just a few sort of scene setters on it to kind of get your understanding a bit better. Overall, our flow of goods from Mexico back up here to the United States is $7,800 million. And our Canada flow of goods is like $100 million. That split, 55% is USMCA compliance. Some of that also does not have anything to do with Section 232 because it relates to our commercial vehicle business. Our other exposure that we have is reciprocal tariffs on castings and things like that that us, like everybody else, buys from Korea and particularly India. Those are the headlines of where our exposures come from and kind of magnitude.

Timothy R. Kraus (SVP and CFO)

Yeah. I'll also point out that some of the material that's coming in that's non-USMCA compliant is directed sourced by the customer. We don't have a choice on where we're bringing in some of the parts based on the customer requirements. That is recovered dollar one right away because we don't have any choice.

Colin M. Langan (Analyst)

You said $7,800 million, Mexico $100 million, Canada. Any number on what's from the rest of the world brought into the United States?

Timothy R. Kraus (SVP and CFO)

Yeah. We're talking a few hundred million more. I mean, it obviously depends on production and where we're at, but largely those sorts of numbers.

Colin M. Langan (Analyst)

Got it. All right. Thank you very much. Thanks for taking my question.

R. Bruce McDonald (Chairman and CEO)

Thank you.

Our next question comes from the line of James Picariello with BNP Paribas. Please go ahead.

James Picariello (Analyst)

Good morning, everybody. Just as we think about the Off-Highway sale, and if we just consider the tariff exposure, the tariff exposure for the Off-Highway business, we know Off-Highway, as was mentioned, does not fall under the Section 232 autos tariffs. It would be subject to the broader Section 301 tariffs. That is a question just to confirm. Just regarding Off-Highway's regional sales mix, we know about 65% of total sales get produced in Europe. Can you just size up what portion of that or what portion properly constitutes North America, U.S. sales for Off-Highway, and what portion gets imported to understand the trade flow there? Thanks.

Timothy R. Kraus (SVP and CFO)

Yeah. The North American's a few hundred million dollars. A portion of that gets imported. I mean, I'd have to go look at the specifics, and we can get you that. The tariff overall U.S. tariff exposure for Off-Highway is very small and is 100% recoverable from the customer. We've already proactively actioned with those customers to get recovery. The tariff impact is not the issue around Off-Highway. I think the broader issue, and this is true for tariff generally, is, hey, how does this affect the macroeconomic environment, and how might it affect volume in all the end markets at the end of the day? Especially for Off-Highway, that's probably the bigger issue, right? As they pass these things through, how is it going to affect the various end markets within Off-Highway? To date, we haven't seen anything, and we've seen a little bit of prebuy.

When we look out at the back half of the year, we are starting to see the green shoots we were expecting. Right now, things are holding up pretty well, but it's a pretty fluid situation, and we're monitoring it pretty closely.

James Picariello (Analyst)

That's really helpful. Just my follow-up, I know there's a sensitive question, sensitive answer. Previous timing of the Off-Highway sale did point to something around the second quarter. Just curious if you could share any thoughts there. Within the revenue guidance, two things that are not tied to tariffs, right? FX and commodities in your revenue. Can you just confirm what those guidance assumptions, those guidance updates are? Thanks.

Timothy R. Kraus (SVP and CFO)

I'm not going to provide the update because then you can sort of back into what the tariff assumptions are. In terms of commodities, we would expect to be up a little bit. Obviously, the FX is going to be an additional tailwind. I don't want to get into specifics. We'll obviously be able to show that to you when we bring out second quarter on the Off-Highway sales. As Bruce mentioned earlier, we were expecting early to mid-second quarter. Given the amount of work that's being done by the bidders, we would expect that to move a little bit and probably be later in the second quarter.

James Picariello (Analyst)

Awesome. Thank you.

Operator (participant)

Our next question comes from the line of Ryan Brinkman with J.P. Morgan. Please go ahead.

Ryan Brinkman (Analyst)

Hi. Thanks for taking my question, which is in regard to the cost savings, including after following the acceleration this quarter, the $225 million you're looking for this year, it's now up to 25% of last year's EBITDA. That's really just a huge step change in cost. I wanted to check in again on the source of those savings, including the incremental savings. I think I heard you say largely corporate in nature. Also, your confidence in the ability to achieve the savings. Last quarter, you were very confident. Finally, just whether the costs are sustainable or do not have any associated drawbacks. For example, are you mostly cutting through corporate bureaucracy or layers of management discretionary so that it's not R&D?

I'm asking only because the magnitude of savings is so impressive that it sort of begs the question of if there really was all this fat to cut, why had it maybe not been targeted before?

Timothy R. Kraus (SVP and CFO)

Thanks, Ryan. That's a lot. I'll try to unpack it in some reasonable manner. I'll take the one that I like the most. In terms of our confidence, we are absolutely confident that we will, one, deliver the 225 and, two, deliver the 300 million on a run rate basis. If you just look at the first quarter, right, it's $41 million of incremental save. We had $10 million of savings in the fourth quarter. If you just take that, that's $51 million, multiply that by 4, that's $200 million of the 225 when you think about it, right, on a run rate base already. We took costs out all through the first quarter. Our run rate action number is already trending to where we need to be to deliver the 225.

We've got additional actions to happen throughout the year, but we are in very, very good shape to deliver the $225 million. We would not be here telling you we are going to deliver the $225 million if we were not absolutely positive we are going to deliver it. To give you some idea, and we broke out a little bit on the slide, sort of the percentages, but the really big buckets that if you want to think about the $300 million, 70% of that number is coming from headcount and engineering alone. Then an additional about 10% is related to the consolidation actions around the segments. If you just get through that, that is 80% of the number in those buckets. We look at the headcount. We have actioned over 70% of the headcount that we have slated to reduce within the organization has already been actioned.

The balance of that will be done through the rest of the year with a large chunk of that coming out late in the second quarter. We have visibility to where these costs are coming out and what are driving and our ability to deliver them. When you think about it, to get your question, hey, was there a lot of fat? What was it? If you think about engineering and even some of the headcount, a lot of that's related to the change in how we're addressing the EV business and where we think we need to be sized for where the EV business is today and where it's likely to go. A big part of that cost reduction is coming from the shift in strategy and expectation around our EV business.

The balance is, yeah, we took a really hard look at what we need to run the business and how we can get better at how we're running the business, especially around the corporate and overhead functions, whether they be physically here at corporate or in the business units themselves.

Ryan Brinkman (Analyst)

Very helpful. Thank you. Just maybe on the segmentation change, you see also that Power Technologies is being absorbed into the various different driveline motion segments. Previously, you'd explored the sale or not explored, but contemplated, and I think you've been moving away from that already because of the growing importance of Power Technologies and thermal regulation for electrification, etc. Does this kind of definitively kind of close the door on that, or does it sort of reflect how you go to market, or what was some of the thought process behind that?

R. Bruce McDonald (Chairman and CEO)

Yeah. It definitely closes the door on it. Power Technologies is not for sale. It's a good business, and it was really just a reflection of we think we can run leaner by having one less segment. Like I mentioned earlier, that alone is worth $30 million-$35 million in terms of doing the consolidation. I expect that we will get further improvement, not SG&A, so we won't be counting it in our $300 million. I do expect we're going to see significant opportunities to drive our margins as we leverage best practices across aftermarket and we bring in some of the rigor that we have in Light Vehicles that was not as strong in our Power Technologies operations.

Ryan Brinkman (Analyst)

Very helpful. Thank you.

R. Bruce McDonald (Chairman and CEO)

All right. Thanks.

Timothy R. Kraus (SVP and CFO)

Thanks, Ryan.

Operator (participant)

Our next question comes from the line of Dan Levy with Barclays. Please go ahead.

Dan Levy (Managing Director)

Hi. Good morning. Thanks for taking the question. Bruce, in your prepared remarks, you mentioned some actions around non-core assets and getting some proceeds in the second quarter, another $50 million in the back half of the year. Could you maybe just talk about what some of those assets are and maybe how deep is the set of assets out there that you view to be non-core at Dana?

R. Bruce McDonald (Chairman and CEO)

Yeah. I'll let Tim take it on. I mean, this is really with me coming in saying, hey, what are some bits and pieces of non-core minority JVs, etc, surplus assets, land, those types of things? There's not a lot of, I wouldn't say there's hundreds of millions, but there's lots of things, one, two, five million that we can action, a couple in the $30-40 million range. Go on, just give it.

Timothy R. Kraus (SVP and CFO)

Yeah. I'll just give you the best example. We had a non-consolidated joint venture in India that was in the commercial vehicle space. We owned 48% of the business. It's non-core. It's a supplier both to us and to others. We sold that in the quarter for over $40 million or in the second quarter for over $40 million. That is an asset that is sitting on the books at a far lower value than that and doesn't change anything related to how we run the business. I think those types of assets, and we have a handful of those types of things, where if you go back over time, we felt it was important to have equity interests in some of these types of operations. We don't think that that's true anymore.

Some of that's just because, hey, these joint ventures have grown and matured, and we don't need to be that close to them. Valuations in some of these places are pretty high, and so we're using the opportunity to divest them. To the extent they're a supplier, put a supply agreement in that gives us preferential supply, and then take the capital and redeploy it into something that has a far better return from our perspective.

R. Bruce McDonald (Chairman and CEO)

Yeah. Just our dividends from that joint venture, less than $1 million a year. Like Tim said, we got, I think it was just in the low $40 million pre-tax earlier this week. Just looking at things like that.

Dan Levy (Managing Director)

Okay. Thank you. As a follow-up, Tim, you'd mentioned that obviously a piece of the cost savings relates to EVs and maybe changes in the program schedules, but we actually haven't even seen yet any through modifications to OEM plans. I understand that some of this is maybe proactive, but wondering if the cancellations or delays or shifts start to come in, is there maybe further opportunity to pull back on some of the EVs?

Craig Barber (Senior Director, Investor Relations and Corporate Communications)

Yeah. I'll take that one.

James Picariello (Analyst)

EV is a small piece. Yeah. Thank you.

R. Bruce McDonald (Chairman and CEO)

Yeah. I'll take that one here. It's not really what you just said. It is when we changed our strategy, what we said was where we have ICE business and EV, we want to be our partner's technology of choice, and therefore we're willing to invest our capital and our engineering to chase that type of business, but making sure we get the right level of risk sharing. Where we don't have any ICE business and we're chasing incremental volumes, or we're dealing with customers where we're in the next generation investment and the first generation that has volumes that are 5% or 10% of what we thought, we are saying it needs to be 100% funded, otherwise we're just not willing to bear the risk. It is more a question of us lowering our pursuit of new electric business to reflect the massive increase in risk.

Timothy R. Kraus (SVP and CFO)

Yeah. I think it's that. Our engineering has always shown net, right? To the extent programs are continuing, they haven't been canceled, but now instead of us outflowing the engineering dollars, the customer is responsible for that on a pay-as-you-go basis. That's some of it. There is a big chunk where we had a lot of development plans where we were developing products and technologies that, given the slowdown in the market, we don't need to create the second, third, or the third generation of a product today. Our customers are more than happy to continue to use the first or the second generation of those products for a much longer period of time. That's allowed us to reduce the amount of engineering dollars we have to spend on those next-gen programs.

R. Bruce McDonald (Chairman and CEO)

I guess kind of your question and where you're going is, as our customers look at their product plans, because I'm sure they're leaving no stone unturned in terms of what actions they can take to mitigate the impact of tariffs, I'm sure looking at some of their EV pipeline is going to be on the table. To the extent they decide to push some programs, I would say there's one or two that could, if they were to push them out, would have a favorable impact on mainly our capital, but it wouldn't be a 2025 savings. It would be a 2026 and 2027 type number that would come down.

Dan Levy (Managing Director)

Great. Thank you. Very helpful.

Operator (participant)

Our next question comes from the line of Emmanuel Rosner with Wolfe Research. Please go ahead.

Emmanuel Rosner (Analyst)

Thank you. Good morning. I was hoping you can help us with how to think about the cadence of revenue and earnings for the rest of the year. What's assumed in your reiterated guidance, and in particular, sort of back half versus first half?

Timothy R. Kraus (SVP and CFO)

Yeah. I mean, largely the same as we talked about, Emmanuel, a couple of months ago. We do expect the first half to be weaker, first quarter to be the weakest, and we would expect to see, again, under our current volume assumptions, to see a recovery in the back half of the year. That is still our expectation for revenue.

R. Bruce McDonald (Chairman and CEO)

I guess as we go out, though, the sort of headwind that we saw in revenue starts to decline sequentially.

Emmanuel Rosner (Analyst)

Correct.

Okay. That is a volume assumption around the back half. I guess in terms of the headwind you are describing, you are talking about some of the destocking?

R. Bruce McDonald (Chairman and CEO)

Yeah. It's not so much our volume assumption. We're going against easier comps. If you think about Q1 of last year, volumes were up because customers were rebuilding from the strike. We had Off-Highway hadn't sort of started to slow down. As we go through, get into the second quarter, there's less of a year-over-year headwind on Off-Highway and same thing on LV. This quarter, we're down $300 million and something. That delta drops sequentially quarter-on-quarter here.

Timothy R. Kraus (SVP and CFO)

Yeah. Exactly. I mean, and the big drivers when we were having this conversation a couple of months ago were really around Light Vehicle and Off-Highway. We're seeing a little bit of additional weakness from a CV perspective, but that's more than being offset by, from a top line anyway, from tariffs and our expected gains on the FX. Assuming the FX stays kind of where we're seeing today, especially around the euro.

Emmanuel Rosner (Analyst)

Got it. On the tariff side, it's obviously encouraging to see that you expect to recover everything from your customers. Have there been some discussions with them around longer-term moves that will be needed to address some of where the capacity is? Will there be need for reshoring? Do you need to move anything?

R. Bruce McDonald (Chairman and CEO)

Yeah. I mean, it's a good question. What I would tell you is there's been so much volatility in what the rules are that as an industry, we have not had enough time to know what the rule is to start to do exactly what you just said. I think right now, some of the information that came out last night, we'll have to sort through that. We're definitely now in a position, and we're having early discussions about, okay, what are the types of things that we can do to mitigate the issue from either reshoring or changing some suppliers, flipping things that aren't USMCA compliant, etc. What is 100% clear, though, is there are some things that if you take a two-year window are not going to be addressed. I just use castings as an example. Everybody buys castings from India.

In the next two years, we're not going to be in a position where we can reshore that. So they're subject to the 10% reciprocals right now. Before, there was a higher list of additional reciprocal tariffs. We're just going to have to wait and see how those play out as the administration negotiates some of these trade deals. Hey, we're running against our time, so I'm going to have to wrap it up right now. Do we have one more question?

Oh, I'm sorry.

Operator (participant)

Yeah. We'll take our final question from the line of Doug Karson at Bank of America. Please go ahead.

Doug Karson (VP and Quantitative Finance Analyst)

Great, guys. Thanks for letting me in. The last question here. I really appreciate it. Bondholders have been pretty excited about the future of debt reduction and leverage coming down. I know we can't talk about the sale of Off-Highway. Could you just refresh us or just reconfirm that balance sheet delevering is still a focus and we could see a meaningful reduction in debt? Is that still the game plan? That is. Absolutely. All right. That's helpful for us. I think the last target we had was leverage being in the one to two-turn kind of range through the cycle. I'm not going to pin you down on that, but is that still kind of directionally? Yeah. We've been talking about sort of one turn through the cycle on a net basis. Net basis. Okay. All right. That's good.

Timothy R. Kraus (SVP and CFO)

Again, through the cycle, at different points, it might be a little lower. At different points, it might be higher, but on a net basis, one turn.

R. Bruce McDonald (Chairman and CEO)

Yeah. I mean, again, just to help you out, we believe that upon the sale of Off-Highway, we'd be required to tender our bonds.

Doug Karson (VP and Quantitative Finance Analyst)

Yeah. That'd be helpful. Thank you.

R. Bruce McDonald (Chairman and CEO)

All right. Maybe with that, I'll just, first of all, obviously, a big thank you to the Dana global team. I mean, we have a lot going on. Tariffs was something that we certainly were not thinking was going to get thrown at us three months ago. I just could not be prouder of the results our teams have delivered in the environment that we are in here. We feel really good about the things that we have control on. We are 100% certain on our cost reduction savings that we can bring those forward. I think from an overall point of view, the things that we can control and manage, our teams are doing a great job. We look forward to sharing further progress on things in 90 days. Thank you, everybody.

Timothy R. Kraus (SVP and CFO)

Thanks, guys.

Operator (participant)

This will conclude today's meeting. Thank you all for joining. You may now disconnect.