Q4 2023 Dana Inc Earnings Call

Participants

Craig Barber; Senior Director of IR & Strategic Planning; Dana Incorporated

Jim Kamsickas; Chairman, President & CEO; Dana Incorporated

Timothy Kraus; Senior VP & CFO; Dana Incorporated

Noah Kaye; Analyst; Oppenheimer & Co. Inc.

Colin Langan; Analyst; Wells Fargo Securities, LLC,

Trevor Young; Analyst; Barclays Bank PLC

Joseph Spak; Analyst; UBS Investment Bank

Presentation

Operator

Good morning, and welcome to Dana Inc. fourth quarter and full year 2023 financial webcast And conference call. My name is Regina, and I will be your conference facilitator. (Operator Instructions) I would like to begin the presentation by turning the call over to Dana's Senior Director of Investor Relations, Strategic Planning and Corporate Communications, Craig Barber. Please go ahead, Mr. Barber.

Craig Barber

Thanks, Regina, and good morning, everyone on the call. Thanks for joining us today for our fourth quarter and full year 2023 earnings call. You'll find this morning's release and presentation are now posted on our investor website.
Today's call is being recorded and the supporting materials are property of Dana Incorporated. They may not be recorded, copied, or rebroadcast without our allow me to remind you that today's presentation includes forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested by our comments today.
Additional information about the factors that could impact future results are summarized in our Safe Harbor statement found in our public filings including our reports on the call this morning are Jim Kamsickas our Chairman and Chief Executive Officer; and Timothy Kraus, Senior Vice President and Chief Financial.
Now my pleasure to turn the call over to Jim.

Jim Kamsickas

Good morning, and thank you for joining us today. Before I began, I want to acknowledge the Dana is celebrating 120 years serving as a leading innovator across all mobility markets. We've been serving our customers every step of the way, beginning with inventing the encased universal joint, which enable the transition from chain driven vehicles to modern propulsion systems.
Today, Dana developed fully integrated propulsion systems for the most advanced ICE hybrid and electrified powertrains. It's an honor and privilege for the 42,000 Dana associates today to represent the collective Dana family over the decades.
Please turn with me to page 4 or I will discuss the highlights from last year and our outlook for 2024.
Starting on the left side, I'm pleased to report that Dana achieved strong sales in 2023 of $10.6 billion and nearly $400 million increase over last year, driven by strong customer demand, the roll-on of our new business backlog across all end markets, including traditional ICE. and D. programs, market share gains and cost inflation recoveries are continuing this year over year. Sales growth demonstrates the confidence and trust our customers have in Dana.
Adjusted EBITDA for the year was $845 million, up $145 million, driven by efficient execution across the company. This is a significant accomplishment considering the headwinds the light vehicle market faced in the fourth quarter through the UAW strike.
As you are aware, Dana was disproportionately impacted given the vehicles involved. As you know, some of that Dana's largest vehicle platforms include the Jeep Wrangler and Gladiator, Ford, Bronco and Ranger and the Ford Super Duty, all of which stopped per vehicle production due to the UAW stand-up strike last fall. Accordingly, numerous Dana plants immediately reacted and shut down all or substantial portions of their manufacturing, which supply these respective vehicle programs as challenging as the shutdowns were, the restart was even more daunting task, ensuring that labor component supply logistics and so forth were in place and coordinated for a successful operational restart.
It was very difficult to execute, but the entire Dana team pulled together resulting in a near flawless shutdown and restart across the Company. A huge thank you to our Dana associates for their collaboration, commitment and teamwork to ensure our customers were successfully supported.
Next free cash flow came in about where we expected for the year, which is reflective of the higher capital expenditures and working capital requirements to support our aggressive launch schedule this past year and new business growth as well as some impact from the UAW strike.
Moving to the centers of the slide, a few key highlights of the year include our sales improved by 4% over the prior year, more than an 80% increase since 2016. Profit growth was up 20% year over year, leveraging organic incrementals of more than 40%, driven by the roll-on of new and replacement programs, improved efficiencies across the Company as customer order volatility continued to decrease in 2023, we made significant investments to support the growth of our business, including executing a record 100 plus launches, spanning both ICE. and EV. vehicles across all end markets.
Additionally, we continued to strengthen our capabilities across the Company to improve our process technology and manufacturing capabilities. Simultaneously, we organically complete the build-out of our balanced product portfolio, including our complete in-house electrification capabilities that solidify Dana as an energy source agnostic supplier, providing class-leading products and systems to support ICE hybrid and EV manufacturers. Our results to date are direct reflection of the actions taken by our cohesive and integrated organization Our efforts continue to strengthen our foundation, which is driving strong momentum going into 2024.
Moving to the right side of the slide, we will provide details about our outlook for 2024. Key point this year is that we expect higher sales profits and free cash flow driven by improved operating environment as supply chains and customer production schedules, return to more normal conditions. We are continuing to drive synergies across the business, resulting in robust efficiency improvements.
Not only did this positively impact our financial performance, but these actions also allowed us to differentiate in customer satisfaction, leading to a record sales backlog of $950 million over the next three years. This is a $50 million improvement over the prior three year. Backlog, steady and measured sales growth is balanced across ICE E and clean energy programs and aligns with our respective OEM partners' product development plans, which spanned their full suite of vehicle portfolios. The strength of Dana is that we are balanced by ICE. and EV. products, mobility, end markets, geographies, and customers by driving natural synergies across our company. Dana is more capable than ever to continue to deliver profitable growth.
Please turn with me to page 5 for the outlook on the operating environment for this year. As we look to 2024, we anticipate Dana's overall operating environment to improve due to the refresh programs, our record new business backlog and ongoing company-wide efficiency improvements driving profitable growth being on the left side of the slide, we expect commodities to be a slight headwind to sales and profit in 2024. This is true, even though steel prices have declined from peak and are expected to be modestly flat compared with 2023, with lower volatility as we see the reversal of commodity recoveries with customers.
Finally, for this section. Foreign currencies are has translated to the United States will continue to be a slight headwind due to the relative strength of the dollar.
Moving to the center of the slide cost inflation continues to moderate. The labor costs have increased globally with recent global events. We are monitoring ocean freight conditions, and we'll navigate alter alternative logistics as needed. And of course, we are continuing our efforts to improve cost and price to meet the impact of inflation.
Finally, on the right of the page, as customer production stability continues to improve, enables us to avoid numerous inefficiencies, eliminate waste and acutely leverage cost synergies across the Company. This coupled with the return to a more normalized number of new program launches after our record year in 2023 will enable us to lower launch costs.
Let's turn to Slide 6, where I'll provide perspective on the global end market trends we are seeing across light vehicle, commercial vehicle, and off-highway markets. I want to remind you that our market outlook is based on input from third-party forecasters as well as our customers and our own experience.
The arrows for the markets in the regions indicate the change expected for this year compared with the prior year for production volumes in these key markets that arrow at the rate under the Diamond is the net sales impact for Dana from market volume, pricing and market share changes. Beginning at the left of the page, we anticipate the light vehicle full-frame production volumes to be up 2% and 5% as customer demand remained resilient for key platforms and returns to normal production after the UAW strike last year.
Moving to the center of the page, the market for heavy vehicles will be lower compared to last year after several years of growth, as we will share with you a little later is gaining market share in commercial vehicle, which will help offset lower production levels in this market.
Moving to Off Highway with improvement in equipment inventory levels last year, we expect ag to be down while construction and mining demand should both trend somewhat flat compared with last year. We will continue to monitor these end markets as demand can move quickly at the bottom of the page, you can see on a regional basis, it's a bit of a mixed bag with North America and Asia seeing growth somewhat offset by Europe and South America. The net result for Dana will be a market growth of $135 million. This above market growth is driven by share gains and a beneficial market mix.
Please turn to Slide 7. I will provide a brief update on our very substantial new vehicle program launch performance last year. As we shared with you in prior calls, Dana completed a record number of launches in 2023 with over 100 programs encompassing traditional hybrid and EV applications across all markets globally.
This effort requires significant investment of people and capital resources to launch our extremely large and complex programs that together represented more than $2.5 billion in annual sales. The bottom line is that if the company gets launches wrong, it often requires years to recover if you get them running the programs often serve as a foundation for future company success.
There is no question. We had a remarkable launch here in 2023 customer satisfaction was outstanding as our program management, product engineering and operating teams performed at an exceptionally high level. A big thank you to the global Dana team for their tremendous efforts and of course, for successfully industrializing the new programs to ensure that our customers were in turn successful and their respectable respective vehicle launches.
Please turn to slide 8 for a look at some examples of new vehicles. We will be equipping with our award-winning systems as part of our three-year record three year new business sales backlog for the seventh consecutive year. Dana has increased our three year sales backlog. As a reminder, we calculate our backlog on a net basis, which includes only new sales net of any lost business, and we rebase the starting year and push out the ending year of that three year period. This methodical methodically helps to provide a clear view of the actual above market growth.
This slide shows just a representative. It represented programs as our record three-year backlog is made up of numerous new business wins for both EV and ICE powered vehicles. To that end, Dana has amassed $950 million of sales backlog through 2026, another record for the company that is $50 million more than our prior three-year backlog. And as you can see, in the upper part of the slide, includes $350 million of incremental new sales coming online in 2024.
Including in this year's $350 million. Incremental new business is a strong balance of new IC and EV programs across all markets and regions. We expect to see an additional $300 million increase over the prior backlog for 2025, which will total $650 million in incremental sales with several important programs coming online from JLR, Volvo and Mitsubishi, Caterpillar, Caterpillar to name a few through 2026. Sales backlog increases an additional $300 million the major global light vehicle program that I touched on earlier in the presentation, along with key programs in both commercial vehicle and off-highway customers such as Navistar and Kramer.
Turning your attention to the upper right-hand side of the slide, you can see that our sales backed backlog is well balanced across end markets and regions.
As you move to the bottom right corner of the page, you will notice that EVs and see chart shows that 74% of the total $950 million backlog is coming from electric vehicle platforms. Our consistent and sustained revenue growth continues to serve as evidence that our energy source agnostic propulsion strategy is highly valued by our customers by skilled mix.
By possessing complete ICE hybrid and EV in-house capabilities. We create value for our customers, which leads to content per vehicle and overall revenue growth for Dana. Dana is well-positioned to build on the strong momentum as we expect to further expand sales, which puts us firmly on track to achieve our long-term sales target in 2025 of more than $11 billion.
Our next few slides will provide a sampling of new business awards across our end markets. Please turn to Slide 9 for a unique Off Highway new business win, which happens to also be a new market for us. We are excited to share with you today that Dana is providing our class-leading electric vertical motor drive unit for home who buy stereo three wheel electric forklift truck going into production next year.
The newly designed forklift will feature our super compact electric drive unit with a high efficiency, Dana motor that offers both superior traction and steering benefits as well as enhanced productivity and cost of ownership. This is not only new business for Dana but is also a new market for us as well. Further proof that our early push towards electrification has allowed us to expand in previously untapped markets, which is creating new and exciting growth opportunities for the future.
Please turn with me to Slide 10, where I will share an update on a new multi-market EV program in Europe. Next state update had previously been shared with you during our last Investor Day when we communicated that Dana had been awarded a multi-market motor application for unspecified major European OEM.
Today, we can provide you with some details on this important new business. We're excited to share that Dana is supplying electric motors for Dana, for mobiles, commercial vehicle business for their heavy duty and vocational trucks, while also supplying this technology for Volvo Construction Equipment business on their new EC. 2,230 electric excavator off-highway application.
\We have been supplying this technology for mobile's latest medium-duty truck in Europe since the second half of last year and the electric excavator will launch later this spring. Thus far, the launches and products have been a great success as you can see on this page, we continue to successfully scale our electrodynamic components and systems across multiple mobility markets. Internally. This is possible because we leverage internal purchasing product systems and engineering, manufacturing and so forth, while of course, benefiting from meet many other institutional synergies across the Company.
This is nothing new for Dana as we have scaled our traditional ICE products across multiple end user markets with customers such as Volvo for decades, stay tuned as we'll be making additional announcements about other vehicle applications that will also leverage this new technology in the future.
Let's move to slide 11, where I'll talk about how we are further penetrating the North America commercial vehicle market operationally, taking on a significant taking on significant market share on short notice in a stable market is difficult to accomplish now consider doing so in the middle of the most challenging operating environment in decades. And in Dana specific case launching more than 100 complex high volume programs at the same time for our extraordinary efforts in 2023, Dana has methodically gained commercial vehicle market share under the soaps under some of the most extreme and compressed industrialization, timing and conditions.
As highlighted on Slide 11, I'm excited to report that through these gains, we are achieving a more balanced customer distribution with multiple OEMs, including Packard, Triton, Navistar and Volvo. In fact, in 2023, we achieved our highest revenue in this segment since 2011 and increased our market share by more than 70% since 2016. We are also expecting increased sales in 2024. Our collaborative approach and operational execution are appreciated by our customers, which I believe will continue to drive growth now and in the future.
Please turn to slide 12, where I will share some exciting news about expanding new business with our light vehicle customers. Slide 12 is another example of our ability to leverage our mechanical electric and thermal management capabilities across multiple vehicle platforms. If you recall, we announced during a prior earnings call that Dana was selected as electrification partner to supplier integrated, complete e-Propulsion systems for multiple all new EV programs for a major well-known flight vehicle OEM.
We are still not permitted to share the specifics at this time, but I can tell you that we have recently expanded on a significant multi-year relationship with the addition of an all new electric SUV lineup. As you can see in the picture of the e-drive at the e-drive unit itself, our 4-in-1 independent drive system, including the Dana motor inverter Y transmission and pictured in blue, is an example of our E thermal components. As a reminder, the Dana form one independent e-drive uses similar technology and many of the same components is our rigid e-beam system, which we have talked about previously for use in heavier applications for full-frame programs we have been awarded in our light vehicle segment consistent with our commercial vehicle and off-highway customers.
Our light vehicle customers recognize and are benefiting from Dana's complete in-house e-Propulsion capability, while electrification adopt and adoption is accelerating at different rates when you compare heavy vehicle to off-highway to light vehicle, the truth of the matter is we are scaling volumes across markets and are prepared for whatever our customers' needs may be, regardless of where they are in their journey towards zero emissions.
Please move to Slide 13, where I'll discuss drivers of profit improvement. This slide illustrates the drivers of Dana's profit growth in 2023 as well as 2024 being on the top left, as we have seen and have seen less volatility in customer build patterns. Thus, we have been able to accelerate actions to improve the overall efficiency of the business, driving increased profitability. For example, we've been able to achieve fixed cost savings and increase asset utilization by ensuring that we are leveraging our resources in the most efficient way possible.
Moving down to the center box. The two most relevant factors in improving profitability have been the rollout of new and replacement programs at strong margins and our ability to drive greater efficiencies across the entire organization.
Third, in the bottom left corner, ongoing inflation recoveries from customers as well as more efficient supply chain management and product engineering help have helped us lower our cost and improved profits.
Now if you look to the right of the slide, our EBITDA increased by $145 million or greater than 20% from 2022 to 2023 landing at $845 million of EBITDA for the year. As Tim will walk you through in greater detail in a few minutes, we're guiding increasing again by another $80 million or nearly another 10% from 2023 to 2024, with the Company expecting to realize around $925 million in earnings in 2024.
We are on a solid trajectory in 2024 to achieve approximately a 32% improvement or $225 million of additional profit or were two year period. I'm very proud of the collective Dana team's efforts in leveraging our core, meaning implementing synergies across the organization to drive earnings expansion and strongly positioning us towards our long-term sales and profit targets of over $1 billion of adjusted EBITDA in 2025.
Thank you for your time today. I'd now like to turn it over to Tim, who will walk you through the financials.

Timothy Kraus

Thank you, Jim, and good morning. Please turn to slide 15 for a review of our fourth quarter and full year results for 2023. Beginning with the fourth quarter, sales were $2.5 billion, $61 million lower than last year, driven by the impact of the UAW strike at several of our key customers. For the full year, sales were $10.6 billion, an increase of nearly $400 million. Higher sales were primarily driven by improved demand in all of our end markets and recovery of cost inflation, primarily offset by lower volume due to the UAW strike.
Adjusted EBITDA was $156 million in the fourth quarter for a profit margin of 6.3%. Full year adjusted EBITDA was $845 million. That is $145 million higher than the previous year, primarily due to improved efficiencies aided by more stable customer order patterns and cost improvements across the company.
The net loss attributable to Dana was $39 million for the fourth quarter of 2023 due primarily to the impacts of the UAW strike, lower earnings from equity method affiliates and the devaluation of the Argentine peso. The net loss of $179 million in the fourth quarter of 2022 was mainly driven by the recording of non-cash tax valuation allowances.
Full year net income was $38 million compared to a net loss of $242 million last year. The net loss in 2022 was primarily driven by onetime noncash goodwill impairment charge and the recording of noncash tax valuation allowances.
And finally, free cash flow was $136 million for the quarter and a use of $25 million for the full year -- excuse me, $234 million lower than 2022. The decreasing key free cash flow for the full year was driven by higher working capital requirements and higher capital spending.
Please turn with me now to Slide 16 for the drivers of the sales and profit change for the fourth quarter of 2023. Beginning on the left, traditional Atlantic sales were $132 million lower, driven by the impact of the UAW strike at several of our light vehicle customers as mentioned previously, Dana was disproportionately impacted by the mix of customers and programs targeted by the strike. And while the restarted production occurred in an orderly fashion, the ramp up in unit volume was a bit slower than expected.
Adjusted EBITDA on our gear organic sales was $7 million lower than the fourth quarter of last year. This very low decremental margin was due to our improved cost efficiencies across the entire company and nearly offset the profit impact of the lower volume due to the strike.
Our excellent performance with a 10 basis points benefit to margin. Food EV organic sales were $34 million higher than 2022, and adjusted EBITDA was $14 million lower, a 60 basis point margin headwind, higher engineering investment for EV programs, total drove the lower profit, offsetting the positive contribution from the higher sales. Foreign currency translation increased sales by $45 million and profit by $3 million with no margin impact as the dollar weakened in value against several currencies, but primarily the euro.
Finally, due to falling commodity prices, commodity cost recovery in the fourth quarter was $8 million lower than last year. The profit benefit of the lower commodity prices was offset by the timing of cost true-up mechanisms within the commodity recovery agreements. We have with our customers, resulting in profit being lower by $2 million, a 10 basis point decrement to margin.
Next, I will turn to slide 17 for the drivers of the sales and profit change for the full year 2023. First is traditional organic sales growth of $228 million, driven by cost recoveries and higher demand across our segments, except for light vehicle, which was down slightly due to last year. The new year's impact of the UAW strike.
Adjusted EBITDA on the increased traditional organic sales increased by $100 million, representing a 44% incremental margin and in 80 basis points of benefit to overall margin. This increase was due to cost-saving actions, improved efficiencies across the entire company and customer recoveries that offset nearly all cost inflation in 2023.
Second, EV product sales grew by $182 million over 2022. Total EV sales in 2023 were $760 million across all of our end markets. The adjusted EBITDA on the incremental sales was $8 million as the benefit of higher sales slightly more than offset the investment in engineering and commercialization costs needed to bring new EV technologies to market.
Third, foreign currency translation reduced sales by $9 million, increased in value against the basket of currencies. Profit was lower by $12 million due to the mix of currencies involved. Finally, the lower recovery of commodity costs reduced sales by $2 million as prices for materials moderated throughout the year due to the inherent lag in our recovery mechanisms, profit benefited from the falling commodity prices for the majority of the year.
However, as we showed in the previous slide, the recovery mechanisms began to reverse in the fourth quarter as customer pricing normalize to account for the lower input costs, margin benefited by 50 basis points, driven by lower sales recover and higher profits due to the lower commodity costs.
Please turn with me to Slide 18. For details of our 2023 free cash flow and free cash flow was a use of $25 million in 2023. Higher profit was offset by increased working capital requirements that were [$209 million] higher than the previous year. This was primarily driven by three factors. First, the higher inventory required to support increased sales and the large volume of program launches.
We also ended with higher inventory late in the year due to the UAW strike.
Second, the timing of the UNIW. strike drove lower sales in the early part of the fourth quarter which drove lower cash collections later in the quarter.
And lastly, as we mentioned on our third quarter call, we continue to render support to distressed supplier. Capital spending was $61 million higher than last year to support our backlog of new business as well as the capacity and capability improvements that have allowed us to capture market share gains.
Please turn with me now to Slide 19 for an update of our guidance for 2024. We expect 2024 sales to be approximately $10.9 billion at the midpoint of our guidance range, an increase of about $345 million over 2023.
Adjusted EBITDA is expected to be about $925 million at the midpoint of our guidance range, which is up approximately $80 million from last year. Profit margin is expected to be approximately 8.2% to 8.7% a 50 basis points improvement at the midpoint of that range.
Free cash flow is expected to be approximately $50 million at the midpoint of the range, which is a $75 million increase compared to last year, primarily driven by higher profit and lower capital spending. We are introducing a new guidance item this year. GAAP diluted EPS. This metric will replace our prior non-GAAP diluted adjusted EPS metric for 2024, we expect diluted EPS to be approximately $0.60 at the midpoint of the range, which is a $0.34 per share increase compared to last year's result to support this new EPS guide. And we've added a few outlook assumptions at the bottom of page 19.
Please turn with me now to Slide 20, where I'll highlight the drivers of the full year, expected sales and profit changes from 2023, beginning with organic growth for 2024, we expect about $240 million in additional sales from our traditional products through new business market growth and market share gains. The adjusted EBITDA increase on traditional organic sales growth is expected to be approximately $135 million. The higher profit and margin increase of about 110 basis points is a continuation of the improved efficiency and cost-saving actions that we began in 2023.
Our more efficient operations will allow us to capitalize on a more stable and predictable customer order patterns that we would expect to see throughout 2024, we expect about $245 million in incremental EV product sales this year. This will bring our expected total EPD sales to more than $1 billion in 2024.
As I mentioned a few moments ago, the EV business contributes positive profit. However, we expect EBT adjusted EBITDA to be a headwind of about $20 million this year due to continued spending on engineering and associated costs for new EV programs. Foreign currency translation on sales is expected to be a headwind of approximately $70 million with a profit impact of about $10 million.
Finally, our commodity outlook is expected to be a headwind to sales of about $70 million due to lower recoveries driven by falling steel and other commodity prices. We expect a $25 million profit headwind due to the true-up and pricing governed by our two way commodity recovery Rakuten's that we have with our customers.
Lastly, please turn with me to slide 21 for outlook on our free cash flow for 2024, we anticipate full year 2024 free cash flow to be about $50 million at the midpoint of the guidance range. We expect about $8 million of higher free cash flow from increased profits on higher sales. Net interest will be about $35 million higher due to higher interest rates and payment timing to the refinancing that occurred in 2023 and capital spending to support our sales growth and technologies is expected to be about $450 million this year, which is $50 million lower than last year as we continue to flex spending to match customer program timing.
Thank you for joining us today. I will now turn the call back over to Regina, and we'll take questions at this time.

Question and Answer Session

Operator

(Operator Instructions) Noah Kaye, Oppenheimer.

Noah Kaye

Thanks good morning.
Appreciate you taking the questions on. First one, just start out with a question around cadence in the outlook. Are we kind of back to it more normalized cadence for the Company with sort of important to 4Q being lighter, 2Q, 3Q being the heaviest, is there anything that would kind of impact seasonality this year that we should be aware.

Timothy Kraus

I know as Tammy I don't know.
I wouldn't I would.
I think that's accurate.
We see our profit pattern Cadence returning to a more normalized range. You have it right.

Noah Kaye

Okay.
Great.
And then actually just picking up on your comments around the EV profile. So your sales will be at more than $1 billion. You're getting a pretty significant growth year over year here of it possible to kind of dimension out the level of engineering spend step up. I think it will help folks understand kind of what the profit actually looks like on an underlying basis for these programs?

Timothy Kraus

Yeah, we're not going to give any real specifics.
Obviously, as we continue to move through the development cycle is pretty fluid given what's going on with many of the end markets and the customers. But as we've been saying, the profit margin in terms of the contribution is positive.
The other issue with sort of dimensioning that is it's a competitive issue for us. We are we don't want to give too much away to the to the competition.

Noah Kaye

Yes, I had to let me ask a little bit about the backlog in a way that maybe hasn't really the answer is we haven't asked before I think about the mix of components versus systems. It may be an arbitrary distinction. But when I hear about some of your wins, some of them are for now components like motors, some of them are more integrated units up.
Can you just talk a little bit about how that is trending, whether you can put it into numbers or just talk about it qualitatively, I think it will help us get a sense of how much of this new business and particularly on the EV side, it's really integrated systems for Sub.

Jim Kamsickas

Hey, good morning. This is Jim. I'll take a shot at on the answer to the question is there's no one shoe fits all in terms of that. It is different by end market, a vehicle within end market by region by customer across the board in our various customers have changed strategies two or three different times over the course of last three to four years.
And that's going to continue to be that way. And if I just spoke like an example forms, right, there may be some regions where they have a particular customer just wants to go with a component type of strategy with Dana. Conversely, can you just take an example, perhaps we have footprint many footprint and capability, et cetera, in a region where maybe they don't that it's more appropriate for us to do a full system, whatever the case may be. And there's multiple other things as it relates to differentiating between the technology that we have versus other people had efforts as whatever so we will never get to.
This is a this is a black-and-white cut and dry one shoe fits all for everybody. It's always going to be based on based on those type of factors. The thing that works for us, just to remind you, though, is that because we're able to scale across not only the across the end markets, but to be able to scale across the regions to scale across multiple factors. It puts us in a good position for whatever our customers want us to adapt to. We just find a way to adapt with them either on a component level or a system level.

Noah Kaye

Thanks very much. I'll turn it back.

Operator

(Operator Instructions) James Picariello, BNP Paribas.

Hey, guys. This is Jake on for James on. So in the slide deck, you made a comment that you're on track to hit the 2025 sales target. Our cities also still expect to exceed the $1 billion EBITDA.
And can you share just some of the puts and takes and how you're thinking about cash flow because obviously, for us a pretty big bridge to hit that's 3% of sales.

Timothy Kraus

Yes.
Hey, James, as Tim so absolutely, we're still on track for both sales and EBITDA I think the when you think about cash flow, it remains a little bit more fluid given timing on programs and whatnot. But as you saw what we put out for next year. We do can continue to see some improvement in the cash flow conversion over the next few years as we continue to grow the business and it moves through the investment time line for the end markets in the products.

Thank you. And then how should we think about the overall alignment of your EV and ICE programs? So if the EV launches are pushed out or come out at a lower volumes. Should we expect to see us all of those programs extended and kind of fill in that revenue gap? Thank you.

Timothy Kraus

Yes, to the extent you are seeing somewhat of a delay or a tradeoff between ICE and EV, that's a different assumption. It really does depend on what the program is and whether we're on the ICE version on because we're both winning conquest business and as well as traditional our business with customers that we've historically supplied ICE.

very helpful thank you.

Operator

(Operator Instructions) Colin Langan, Wells Fargo.

Colin Langan

Okay, great.
Thanks for taking my questions. Your commentary indicates that you're expecting cost recoveries to offset inflation and any parameters on inflation? Other suppliers have kind of highlighted continued labor inflation and other costs into this year. Just trying to gauge how much iPhone recoveries, you're going to be new?

Timothy Kraus

Yes. And so I mean, we're continuing to see in inflation from 23 into 24. I think what we're certainly starting to see is the customers reverting back to their traditional way of looking at recoveries where and we need to go and get recovery around inflation and other costs through added productivity improvements within our own cost structure.
And that's really what we're concentrating on.
We continue to address and the recovery question as we go through and have new role on programs. But I think from our perspective, we're starting to see a movement back to the to the environment in which the OEMs really across all the end markets operated in private prior to.

Colin Langan

Got it the backhaul roads, but not only did it rise, but your mix of EV increased, which is a bit surprising because all we've seen are headlines about EV programs getting pushed out.
I mean, what is driving the higher EV growth in the backlog by some of the cuts to programs going on?

Jim Kamsickas

Hey Colin just Jim.
Good morning. What I would offer to you is maybe think about it in buckets of time on if you kind of go back. I mean, we've all seen the significant shift and I'll call it somewhat of a vote, pull out, pull back and push out dumb on electric vehicles for all the reasons we all understand at this point. But if you go back and buckets of time of the last year, two years, three years.
I mean, the cadence of electrification sourcing in that window of time was really heavily on influenced or pivoted towards electric vehicles. So now, from a balancing standpoint, I think you'll start to see maybe that kind of blend back to a more of an average more of a middle of the road average. I'm not going to predict what that's going to be exactly.
But again, it's important what was what was sourced was pursued and what was sourced over the last couple of years is what's going to be reflective that we're putting into the backlog. So that's the best way I would do. It is just buckets of time would be the most important thing to think about.
And I guess I'd also add it doesn't include wins for the current business and ICERIC. business because of that's all staying in line, maybe even slightly better because those are often or more often to be a replacement win in our backlog. So it doesn't add to the pile.

Colin Langan

Got it. And just lastly, how should we think about Off Highway? That's obviously the highest margin segment is data and those markets seem to be rolling over that. It's not going to be down? Is that a drag overall that we should consider?

Jim Kamsickas

I'll just briefly, Tim add some additional color on that.
Jim, again, just I tried to mention in my prepared remarks that we see agree to ag down a little bit numb this year. We see the other potent, other end markets, underground mining, ore, material handling, et cetera, to be relatively neutral to prior year.

Colin Langan

Okay.
Thanks.

Operator

(Operator Instructions) Dan Levy, Barclays.

Trevor Young

Hi, Trevor Young on from Dan Levy today.
Thanks for taking the questions. So I guess first, I just wanted to ask a couple for the guide for the guide on free cash flow. So are there any ways for you to manage down CapEx spending at customer plants slow. And if it is that also is there not a meaningful unwind of working capital coming from the non-repeat of the UAW strike impacts you mentioned. And then I guess, more broadly on free cash flow and when can we expect to start to see a stronger conversion?

Timothy Kraus

Yes, I'll take those in pieces. So your first one, you know, absolutely, as we move through the development cycle and programs are pushed off, then absolutely worth it. We're able to flex capital, don't forget some of the largest wins that we've announced our own are not in the backlog.
So we wouldn't be spending an enormous amount of CapEx in the near term on those programs. So you're not seeing some of that from a necessarily affecting CapEx spend. But absolutely, we continue to flex capital up, not just in ET, but in ICE as well. And then yes, we'll continue to see an unwind in in in some of the working capital. That is the result of the UAW strike. But the sales growth will also come with some additional capital. And then we continue to work with customers around terms changes and things like that.
So I think there's a some it's still some opportunity in free cash flow as we move through.
But I think when you look at the sales growth and I think it's converting it, it's about 20%-ish so we saw a little bit of some efficiency there that we can probably still go get. And then I think we'll continue to your longer-term question on sort of the free cash flow conversion as we as we continue to see the replacement programs come on and the margin increase that that free cash flow conversion from, you know that the growth that you've seen from last year to 24 and then 24, 25, 25, 26. I think you think you'll continue to see that cadence grow throughout that period.

Trevor Young

Great. Thank you for that. And then on the on the EV, on the guide to the $20 million is the headwind in 2024. Can you quantify the portion of that that relates to spending that was delayed from 2023. And then I guess on top of that, do you have any updates and sorry if I missed it, but do you have any updates on the timing for reaching EV breakeven overall.

Timothy Kraus

So on the amount that's that was delayed from last year. I don't I don't have a number, but you know, there's obviously millions of dollars that that continue to get pushed around depending on program timing by customer. So, it'll move this year as well. I have no doubt it will go up go down depending on where we're at in the product cycles and what new, quite frankly, what new business we win from.
So and then in terms of breakeven I our view on breakeven hasn't changed. We continue to and to see both the sales growth. And then as I've mentioned on a number of the calls, we continue to get more efficient in terms of deploying the costs that we need to commercialize these technologies and these programs, and we think that will continue. So no change on our view on when we'll hit breakeven on our EV business group.

Trevor Young

Thank you.

Operator

(Operator Instructions) Joseph Robert Spak, UBS.

Joseph Spak

Thanks. Good morning.
Tom, maybe to start on the traditional organic in the guidance for 24 interest organic 56% conversion. I know you sort of provided some of those facts on slide 12, is there any way you could sort of help us with order of magnitude or even a little bit more detail there? Just sort of get comfortable with the conversion on higher sales.

Timothy Kraus

As, I'm not going to go into a whole bunch of detail, but if you really look back, look back to 21 and look at the decrementals that we that were impacting us when we had a lot of the supply chain and in customer order pattern issues, those are starting obviously started to reverse last year. On, we'll continue to see those get those benefits coming into 24.
And that's part of what's reflected in that, that positive conversion rate that you're seeing, I think the other thing is we're continuing to drive efficiency across the business, whether it be plant related on conversion costs or with our fixed cost structure. And those are all being reflected primarily in that ICE traditional conversion rate.

Joseph Spak

Okay come on the $225 million higher EV sales if I if I look in 23 in your appendix it actually looks like and it was pretty evenly split between the different segments. Is that what we shouldn't expect to continue in 24? Or is any of that growth targeted more towards one segment versus another one?

Jim Kamsickas

I think the growth continues to be relatively balanced. I mean, I think that we continue to see a lot of puts and takes even throughout the years relative to where we're seeing growth or demand. And I think that that that probably continues, but I don't think there's one from one segment that's been overweighted.

Joseph Spak

So but is it still the case just broadly, right, where you sort of first started with this technology in the commercial vehicle segment where that where that's sort of still the largest I guess, profit contributor and the need to sort of continue to scale in the other segments as that growth comes through?

Jim Kamsickas

Yes, there's some of that I think when you think about some of the places where the growth is on.
Is it coming from yeah, we continue to see it in some we could see growth in the CD market, but I think the other thing you should think about it as I have I've sort of we think through that, right. I think we will see a little bit more growth in the light vehicle segment than we will in off-highway or CV this year, if you're trying to weight it, some of that's due to some of the production lost in the LV section or LD business last year from the UAW strike.

Joseph Spak

Okay and last one, sorry if I missed this, but did you say how much of the $450 million in CapEx is for some electrification?

Jim Kamsickas

No, we don't we don't break out the CapEx between ICE and EV.

Joseph Spak

Okay thank you.

Jim Kamsickas

Yes okay. With that, thank you very much for joining the call.
As always, we appreciate the privilege of your time. Just to recap from my standpoint from a business perspective, collectively, it's been a life-and-death life and death collided every day as a company that's trying to survive product portfolio disruption as well as a three to four year COVID slash UAW driven industrial crisis.
But I would offer that Dana has more than survived these two once-in-a-lifetime generational challenges. In fact, I think we use that as the events are to significantly strengthen the company. Arguably, it's terminology I like to use post the crisis is a terrible thing to waste. By doing that, we focused on the processes, we focused on the business. We focused on customers. And as you can see as it relates to creating long-term shareholder value. We believe you're starting to see it come through in the numbers and you'll continue to see it come through the numbers. So thank you very much for your continued support and interest in Dana, and we'll talk to you all soon.

Operator

That does conclude today's conference. We thank you all for joining, and you may now disconnect.