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Dana Incorporated (NYSE:DAN)
Q4 2020 Earnings Call
Feb 18, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Dana Incorporated's Fourth Quarter and Full Year Financial webcast and conference Call. My name is Regina, and I will be your conference facilitator. [Operator Instructions] At this time, I would like to begin the presentation by turning the call over to Dana's Senior Director of Investor Relations and Strategic Planning, Craig Barber. Please go ahead, Mr. Barber.

Craig Barber -- Head of Investor Relations

Thank you, Regina, and good morning, everyone, on the call. Thank you for joining us today for our 2020 fourth quarter and full year earnings call. You will find this morning's press release and presentation are now posted on our investor website. Today's call is being recorded, and the supporting materials are the property of Dana Incorporated. They may not be recorded, copied or rebroadcast without our written consent.

Also 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 affect future results are summarized in our Safe Harbor statement found in our public filings, including our reports with the SEC.

On the call this morning as usual are James Kamsickas, Chairman and Chief Executive Officer; and Jonathan Collins, Executive Vice President and Chief Financial Officer. Jim, you start us off this morning.

James Kamsickas -- Chairman and Chief Executive Officer

Good morning and thank you for joining us today. As we move into the new year, I think we can all agree that 2020 was unlike any year we've experienced. The challenges brought about by the global COVID-19 pandemic tested everyone's resolve to the deepest levels. I cannot be prouder of how the Dana family responded through it all. We were able to quickly pivot and take the necessary measures to ensure the long-term success of our business.

As you can see on the left side of Slide 4, Dana achieved sales of $7.1 billion for the year, significantly impacted by the global pandemic. As a result of the extraordinary commitment from our team and their dedication to executing our plan, coupled with aggressive cost flex actions taken during 2020, we achieved our adjusted free cash flow target of $60 million; adjusted EBITDA was $600 million, and diluted adjusted earnings per share was $0.39.

Jonathan will walk you through our results in more detail, but first I'd briefly like to recap some of the actions we deployed over the past year to ensure the safety of our people, and the communities we call home, as well as our efforts to continue executing for our customers and shareholders. I will also share why I'm excited about Dana's future and will update you on our sales backlog, which includes several new EV business wins. And finally, we'll review several key achievements for the year and provide you a look at our noteworthy and arguably unique initiative as we continue to execute toward a carbon-free future.

Please turn to Page 5 as we update you on our pandemic response and our way forward. Reflecting on 2020, Dana demonstrated the best of who we are through the incredible perseverance and dedication. The team positioned the company to do great things in 2021 and beyond. If last year illustrated anything, it displayed that Dana adapts quickly and excels when faced with a severe market downturn. The entire Dana organization did an amazing job to safely idle and restart over 100 Dana manufacturing and technical facilities around the world. Moving into 2021, we'll continue executing our strategy, while maintaining our strong balance sheet, increasing shareholder value and further strengthening Dana for the future.

Turning now to Slide 6, and I'll provide you details about our updated sales backlog and talk about why I'm excited for Dana's future. On Slide 6, our 3-year new business sales backlog is a strong $700 million, with half attributable to e-propulsion programs. Remember, our backlog is truly net new growth over and above ex-ing[Phonetic] sales and any market growth. We expect to realize $500 million of incremental new business in 2021, a $150 million increase from our prior outlook for this year due to stronger demand for key platforms, including the new Jeep Gladiator, Ford Bronco and Bronco Sport. We also anticipate an additional $200 million in incremental sales in 2022, driven by new programs such as the Ford Bronco and the full run rate on the medium-duty EV truck programs.

As we shared with you before, we'll be rolling off production of the GM Colorado Canyon program. But as you can see on the chart, other new program wins such as the Volkswagen Amarok pickup, which is part of the strategic alliance between Volkswagen and Ford and shares a platform with the Ford Ranger, have offset the impact of that single program. As a result, we will maintain the $700 million of cumulative new business growth through 2023. On the right of the slide, you can see a significant increase in EV sales as part of our backlog. With our full range of e-propulsion products and systems, we are providing our customers with innovative solutions they need to reach their sustainability goals and supply their customers with the most advanced capabilities available to the market.

Our product portfolio and in-house capabilities are supporting the EV markets in which we participate, which is in direct line with our enterprise strategy that we communicated 3 years ago. We recognize that electrification megatrend early on and made a series of strategic moves to position ourselves at the nexus of vehicle electrification and hybridization to serve our customers.

Our investment of more than $400 million in electrodynamic capabilities has uniquely positioned Dana as a leader in this rapidly growing segment. Dana is the only supplier capable of delivering complete e-propulsion systems across all mobility markets. As we turn to the next slides, the intent is to not only to provide you examples of how Dana is supporting in the three end markets in which we participate, which, of course, are light and commercial vehicle plus off-highway, but also to illustrate how each of our four business units are leveraging our core electrification capabilities to support their respective customer needs.

Turning to Slide 7. As powertrains evolve, plug-in hybrid vehicles continue to gain in popularity across the light truck segment. In addition to traditional and electric powertrain capabilities, Dana has a full range of products to support today's most advanced plug-in hybrid vehicles as well. One example is the all new 2021 Jeep Wrangler 4Xe plug-in hybrid. As you expect from Jeep, this vehicle is built for the severe off-roading. Our approach to this type of hybrid is consistent with our enterprise strategy, delivering a robust mechanical solution in a P1 or P2 configuration when the e-motor is integrated into the transmission. The specialty enhanced front and rear axles and prop shafts that Dana has engineered for the 4xe manage the higher output and provide additional content per vehicle for us on the platform. And may I take a moment to say that we are very honored to serve as the driveline supplier for the Jeep Wrangler since its inception, 80 years ago, and we're very proud to continue to support Stellantis in the increasing popular off-road enthusiast market. This future demonstrates how Dana is engineering and designing innovations that enable us to grow in the existing and new segments while also enabling our customers to bring vehicles to market that meet their sustainability objectives.

Moving to Slide 8, I'd like to talk to you about our advancements in thermal management for electric vehicles. We are very excited to announce that Dana has been selected by General Motors to supply the battery cool plates for the Ultium battery packs on their third-generation EV platform. The multiyear program begins this year and will be our highest content per vehicle e-Thermal program. The first vehicle expected to feature this technology is the highly anticipated all new GMC Hummer EV shown on the right side of the slide. Dana award-winning battery cool plates combines superior thermal performance, resulting in a more stabilized battery temperature and faster charge. Something you may not know is that Dana has been designing custom battery and electronics cooling solutions for more than two decades, which gives us very strong credibility in the market and further positions us to lead the charge in this new era of mobility.

Moving to Slide 9. I'd like to move into the medium-duty truck segment and describe a new e-truck with Daimler. Many truck fleet operators are looking to electrify delivery trucks as they seek ways to reduce energy consumption, improve performance and increase cost savings. Daimler's custom chassis, latest medium-duty electric truck program, the MT50e is designed specifically to meet the fast-growing market and features Dana's full electric propulsion system. Production for the program is slated for the third quarter of this year and will include Dana's motor, inverter and axle, which are manufactured in-house and increases our content per vehicle by more than 4 times, boosting both the top and bottom line growth potential.

Turning to Slide 10. Let's transition to the Class 8 heavy-duty truck market. Here again, our team has provided our not to be disclosed at this time customer full e-powertrain solution required to support their full electric vehicle e-propulsion requirements. This program includes Dana's e-axle, including electric motor, inverter, mechanical solutions and embedded software and controls. We developed the new e-axle to serve the most popular heavy-duty 4x2 global market segment, meeting specific customer requirements. This program is targeted for 2024 and increases Dana's product content by approximately 4 times versus typical diesel propelled heavy-duty vehicle.

Moving to Slide 11. Now in our off-highway segment, we're excited to share with you a new electric access equipment program for JLG Industries that features Dana's all new electric torcup[Phonetic] technology, combined with the state-of-the-art Dana permanent magnet AC motor and inverter. The multiyear program for North America and Europe begins production early this year with the volumes expected to ramp up steadily in 2021. Dana has been a longtime leader in hydraulic-driven scissor lifts. But now we're leveraging our core gear technology, combined with the acquisitions to penetrate and expand into newly developed electric-driven scissor lift market.

Moving to Slide 12, I'd like to touch briefly on recognition that we received this year from customers and international media. The graphics on the slide are a small subset of the numerous awards that Dana has received throughout 2021. However, to speak with just a few examples, we are very proud to be recognized as Supplier of the Year by General Motors in both product categories we participate. That is, of course, driveline and thermal management product and systems groups. Of course, we're equally as proud for the wins we achieved across end markets with our partner customers in those vehicle segments. All of this said, as important as customer and industry recognition is, also being recognized as one of the World's Best Employers by Forbes and one of America's Most Responsible Companies by Newsweek, is extremely humbling to me and the entire Dana team. It's one thing to do business, it's another to do business the right way by putting people at the center of everything we do. I'm very fortunate to work together with a global team of 38,000 strong that do this every day.

Turning to Slide 13, I'd like to update you on the never-ending pursuit of continuous improvement in the area of sustainability. Last quarter, we shared with you our commitment to reducing our total annual greenhouse gas emissions by at least 50% before the end of 2035. This aggressive target will result in a reduction of more than 300,000 metric tons of greenhouse gas emissions annually. We also shared a road map with you on how we plan to achieve our goal. This includes reducing our energy consumption, and increasing efficiency of our processes, expanding our use of renewable energy such as wind or solar to make use of clean energy sources that will further reduce our greenhouse gas emissions and exploring the use of renewable energy credits purchased on the open market.

I'm very excited to share with you that Dana recently signed a virtual win electricity purchase agreement with a subsidiary of NextEra Energy Resources, LLC. This agreement will result in 300,000 megawatts of renewable electricity generated annually over a 12-year period beginning in 2022. It will also contribute to a 90% reduction of our current US annual electricity and greenhouse gas emissions. The mobility industry has a unique opportunity to lead by example, not only in how we design, but in how we manufacture our products to have a positive impact on the environment. This agreement goes a long way in supporting our continued progress achieving our 2035 emissions reduction goal of 50%.

Thank you very much for your time today. I'd like to turn it over to Jonathan to walk you through the financial results for the quarter.

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Thank you, Jim, and good morning everyone. Slide 15 provides an overview of our 2020 fourth quarter and full year results compared to the prior year. In the fourth quarter of this year, sales topped $2.1 billion as we experienced strong demand for our key full frame truck platforms in North America. Profit margin in the quarter was lower than the same period last year despite higher sales as one, a $17 million indirect tax recovery in 2019 did not recur in 2020; two, we continue to incur premium costs, primarily in the form of expedited freight to meet the elevated demand in our light vehicle segment as our supply base struggled to keep pace with the dramatic production ramp-up coming out of the pandemic shutdowns; and three, we accelerated our investments in electrification to bring to market some of the new business wins that Jim highlighted just a few moments ago.

Fourth quarter adjusted free cash flow was $46 million as earnings combined with a considerable source of cash from working capital surpassed interest, taxes and capital expenditures. For the full year, sales were $7.1 billion, a decrease of $1.5 billion compared to 2019, driven by the production shutdowns caused by the global pandemic. Adjusted EBITDA was $593 million for a profit margin of 8.3%. The net loss attributed to Dana was $31 million and resulted entirely from the goodwill impairment charge recorded during the onset of the global pandemic. Diluted adjusted EPS was $0.39, a $2.67 decline from the prior year due to lower adjusted EBITDA as well as higher depreciation and interest expenses. And finally, adjusted free cash flow was $60 million, below the prior year but in line with our expectations given the lower sales in 2020.

Please turn with me now to Slide 16 for a closer look at the drivers of the sales and profit changes for the full year. The changes in 2020 sales and adjusted EBITDA compared to the prior year is driven by four key factors shown here. First, organic sales drove the vast majority of the change as they decreased by more than $1.5 billion, primarily due to the pandemic shutdowns in the second quarter. Sales began to rebound sharply in the third quarter and continued into the fourth quarter.

As a result of decisive cost actions taken at the onset of the pandemic, we were able to maintain decremental margins of less than 30%. Second, inorganic growth partially offset the lower production volumes as the Graziano and Fairfield acquisitions provided a full year contribution to the business in 2020. Since we've lapped the acquisition date, the impact illustrated here is the first quarter increase in sales and profit and the year-over-year improvement due to cost synergies. Third, the currency impact during the year was a slight headwind to sales and profit as the US dollar compared to our basket of foreign currencies was generally unchanged from 2019. And finally, lower commodity costs modestly expanded profit margins as gross commodity costs decreased by $36 million for a net profit increase of $6 million for the year.

Please turn with me to Slide 17 for a closer look at how the full year adjusted EBITDA converted to adjusted free cash flow. We achieved our revised 2020 cash flow guidance by generating $60 million in adjusted free cash flow for a margin of about 1%. The profit decline of more than $400 million was partially offset by a more than $40 million reduction in onetime cost, a nearly $30 million reduction in cash taxes, a nearly $60 million improvement in working capital and a $100 million reduction in capital expenditures. Both working capital and capital expenditures were actively managed in response to the business impact of the pandemic.

Please turn with me to Slide 18 for a look at our full year guidance for 2021. As we look forward to this year, we anticipate a significant improvement in all our key financial metrics. We expect full year sales to be approximately $8.3 billion at the midpoint of our range, which is an increase of $1.2 billion or 17%. We anticipate adjusted EBITDA to be about $910 million at the midpoint of our range, which implies a profit margin of about 11% and an expansion of 270 basis points over last year. This level of profit implies an adjusted free cash flow margin of approximately 3%, a 2 percentage point improvement over last year. Diluted adjusted EPS is expected to be approximately $2.15 per share at the midpoint of the range.

Please turn with me to Slide 19 for an overview of our market expectations that underpin our financial guidance. This chart provides an overview of our vehicle and equipment volume expectations for this year compared to last year. The arrows and colors indicate the direction and scale of movements as shown in the legend at the lower left corner of the page. We're expecting increased demand in all our key markets and most regions.

I'd like to draw your attention to three quick highlights on the chart. First, we see increased volumes for full frame trucks in all regions. This is our largest end market, which was running strong for several years pre-pandemic and now will experience a meaningful increase over last year as a result of the production disruptions in the second quarter of last year. Second, we expect the North American Class 8 market to continue to improve in the beginning of this year, leading to double-digit growth compared with last year. Medium-duty truck volumes are expected to grow double digits internationally, and we remain cautiously optimistic for solid growth in the Brazilian heavy truck and bus market. Third, across the globe, we expect off-highway volumes to improve compared to last year including our core segments of construction and mining, which are beginning to recover from a period of decline over the last several years and are now expected to grow in the mid single-digit range in 2021. The combination of these key market themes leads to a total improvement of about $600 million in sales in 2021 compared to last year.

Please turn with me now to Slide 20, where I will highlight these as well as other drivers of our expected sales and profit changes for this year. As with our earlier comparisons, this chart highlights the four factors driving our expected sales and profit growth for 2021. First, organic growth is expected to add $1.1 billion in sales, including our new business backlog of $0.5 billion that Jim announced earlier and the end market volume increase of $600 million that I just detailed on the previous page. Incremental margins are expected to be in line with last year's decrementals at about 30%, providing a nearly 300 basis point margin benefit as permanent cost reduction actions are helping to fund increased spending in our electrification products and services.

Second, we now expect the pending acquisition of Modine's Automotive Liquid Cooling business to close mid-year. We're not including the impact of this acquisition in our guidance at this time, and will provide an update as we get closer to closing. As a reminder, in 2019 the business generated about $300 million of sales. Third, we anticipate the impact of foreign currency translation to be a slight benefit of $40 million to sales and about $5 million to profit. And finally, we expect gross commodity cost increases of about $75 million as steel prices have risen dramatically in the last 60 days. We anticipate recovering about $60 million of the increase from our customers in the form of higher selling prices, leaving a net profit impact of $15 million, which will compress margins by about 25 basis points.

Please turn with me now to Page 21 for a look at the anticipated seasonality of our sales and profits this year. The cadence of our sales and profit phasing in 2020 illustrated by the grey bars and diamonds respectively, are anything but normal. As you'll recall, sales plummeted just over $1 billion in Q2 and were near break-even for the quarter. Sales recovered significantly in the second half of the year as our customers sought to rebuild inventories that were depleted during the shutdown. The cadence of this year's expected sales phasing is represented by the solid black line and profit by the dotted curve. While we anticipate full year margins of about 11%, we expect the year will begin and end a bit lower with the highest margins mid-year due to our normal seasonality of sales based on workdays.

From a year-over-year perspective, we anticipate first quarter margins will be comparable with last year, while the second quarter will be dramatically improved as a result of the shutdowns last year. Margin expansion in the second half of the year will be driven primarily by improved operating efficiencies in our light vehicle segment as we dramatically reduce premium cost incurred in 2020 as a result of the V-shaped recovery in production volumes coming out of the shutdowns.

Please turn with me to Slide 22 for more detail on how we expect the full year adjusted EBITDA will convert to adjusted free cash flow. Our full year outlook for adjusted free cash flow margin is about 3% of sales, representing a nearly $200 million and a 2 percentage point improvement over last year. Increased profit will be partially offset by slightly higher cash taxes, working capital requirements for the higher sales and capital spending to support the new business backlog and electrification growth.

Please turn with me now to Page 23 for a look beyond 2021 at the long-term financial potential of our business. As we revisit our long-term financial projections we first set out for you at our Investor Day 2 years ago, we remain convinced in the potential for our business to reach $10 billion of sales in 2023.

Using our expectations for 2021 as the starting point on the left side of the chart, we expect three factors to drive the growth. First, given our volume projections for this year, we have a tremendous amount of headroom in our heavy vehicle markets to deliver more than $1 billion of organic growth over the next few years. Second, as Jim outlined earlier, we have another $200 million of sales backlog that will come online over this period. And as we demonstrated with the 2021 tranche, which is up $150 million since we reported last year, there's ample room for this number to improve as we win new business that could launch in the next few years. Third, the acquisition of Modine's Automotive Liquid Cooling business should add at least $300 million of sales over this period and round out our commercial and geographic presence in the thermal portion of our Power Technologies segment.

Assuming relatively flat foreign currency rates and commodity costs, our business is on track to grow to $10 billion. And of equal importance, based on the comportment of our backlog at 50% EVs, we're also on track to meaningfully exceed our $0.5 billion target for electrified sales in 2023.

Please turn with me now to Page 24 for an update on how we expect these sales will convert to profit and free cash flow. The endpoints of our key financial metrics are similar to what we shared with you a couple of years ago when we originally provided our long-term projections. I'll work through this slide in clockwise order. The upper left illustrates our trajectory toward the $10 billion sales mark I just outlined on the prior page. The upper right highlights the profit growth and margin expansion we anticipate as we drive toward our long-term margin potential in excess of 12%. Even at these levels, we're giving ourselves room to continue to accelerate our investments in electrification as the market potential and rate of adoption for EVs is exceeding our expectations from just a couple years ago. In the lower right, you can see that this level of adjusted EBITDA will translate to EPS growth well in excess of the record $3 level we experienced the year before last.

And finally, in the lower left, what we're most excited about as a team is the potential to deliver increased cash flow returns for our shareholders. As our profits grow, we expect a higher cash flow conversion, leading to a margin of approximately 5% and a 3-year cumulative generation of more than $1 billion. And this contemplates investing more than $1 billion in capital expenditures over the same period, largely concentrated on new business growth.

Please turn with me now to Page 25 for a look at how we plan to deploy the $1 billion of cash flow to generate attractive returns for our shareholders. The pie chart on the left of the page illustrates the balanced approach we plan to take in allocating the $1 billion of capital to drive value. This morning, we announced two important actions, one, the reinstatement of our quarterly dividend at the same $0.10 per share level as was previously paid prior to the suspension during the pandemic; and two, the extension of our existing share repurchase authorization through 2023. Both represent important forms of capital repatriation to our shareholders and demonstrate the confidence we have in the financial performance of our business moving forward.

We expect to use the remainder of our cash flow to repay debt as we prosecute our plan to reduce our net leverage to approximately 1 turn, which is illustrated in the upper right of the page. Even though our net remained flat this last year, you can see that our net leverage increased by a turn due to the profit declines caused by the pandemic. Last year served as a helpful reminder of the importance of a strong balance sheet for a global mobility supplier. We do expect to be back to about 2 turns of net leverage by the end of this year, and we've carefully structured our debt stack to minimize prepayment cost in the form of call premiums as we delever. As you can see in the lower right corner of the page, we've also maintained flexibility as we have no debt maturities in the next 3 years.

We believe this balanced approach toward capital allocation will augment the strong growth in all our key financial metrics as we execute our strategy and will deliver significant capital appreciation for our shareholders in the coming years.

I'd like to thank all of you for listening in this morning, and I'll now turn the call back over to Regina so that we can take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Noah Kaye with Oppenheimer.

Noah Kaye -- Oppenheimer -- Analyst

Good morning. Thanks so much for taking the questions. I guess first one, just following up on your commentary around continued EV investment, is there a way to kind of frame out what that impact might be? Are you thinking this primarily organic? Or are you referring to inorganic as well? And I guess as a related question, we saw one of the major Tier 1 powertrain suppliers recently announced they were integrating into commercial vehicle battery packs. I'm just wondering how you're thinking about gaps in your portfolio and the electrification side they exist in and where you want to focus your efforts and resources? Thanks.

James Kamsickas -- Chairman and Chief Executive Officer

Well, good morning, and thank you very much for the question. I'll tag team this one a little bit with Jonathan, the first part of your question was more on allocating capital and investment on electrification. The latter was relative to strategy on battery management and the such. From that standpoint, I'll just remind the audience, I guess, I would say as it relates to battery management capabilities and what we do, we had integrated into that already. We had been in that with our acquisition, a couple of our acquisitions. So we're doing that. If you just think about some of the key platforms, in fact, platforms that are launching here in 2021 as it relates to the PACCAR programs, et cetera, et cetera, that is full battery management, et cetera, et cetera.

So we see what our competitors are doing. We're going to have good competitors. And that's fine. But we see it, we have been very selective, we haven't kind of pushed all the chips or over-saturated our investment in one direction or another in our EV strategy. We've put it into the right pockets and then build it up from there organically with the great people and assets that come with it. So from that standpoint, we're in pretty good shape there. Jonathan?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. Noah, in terms of the investments we referenced, that's really on the organic side. So these would be increases in spending in program management, core engineering, application engineering to deliver a lot of these programs and continue to stay ahead of the technology curve in terms of developing new products. So we'll think about dimensioning that going forward. But as the market is moving faster, we are certainly in a position where it makes sense for us to accelerate the rate of investment.

Noah Kaye -- Oppenheimer -- Analyst

Yes, that makes sense. Thank you. I guess just a follow-up on production assumptions. Clearly, I think the customer base is like people prioritizing the type of vehicles that -- you produce content for right full-frame trucks, et cetera. But just any thoughts on potential impact to production cadence from the semiconductor shortage? Or any other supply chain issues that you're seeing across the industry?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. We're certainly watching that carefully. And when we constructed our guidance, we're optimistic about the way the market is heading. But we're also cognizant that we're not entirely out of the woods on the pandemic. We're encouraged by the vaccine distribution. And obviously, we think the economy is moving in the right direction to recover. But also, as you noted, we're in the midst of a chip famine. We are starting to see our customers effective. You are right, it's early on. It's affected us less because a lot of our programs are critically important to the customers, and they seem to be preserving those. But we're watching those carefully and we'll keep an eye out going forward.

Noah Kaye -- Oppenheimer -- Analyst

Great. Thanks so much.

Operator

Your next question comes from the line of Aileen Smith with Bank of America.

Aileen Smith -- Bank of America Securities -- Analyst

Good morning, everyone. To ask another question around electrification investment, the call out of it being a margin headwind in the quarter because I think the first time that it's been explicitly referenced by you guys, but it's not really surprising given the strategy from you over the past several years in acquiring and investing in EV technologies. So to understand it correctly, this is just the dynamic of commercialization investment rather than technology development as the backlog is finally ramping up with customer buy-in?

And as you think about the margin bridge from 9% in the fourth quarter to 11% in 2021, is that outlook based on the assumption that the electrification investment burden moderates in any way? Or it's just offset by operating leverage on the broader volume and your revenue recovery?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. To the latter part -- or I guess, I'll take the first part. In terms of it first time being called out, that's correct. And you are right, it's largely due to the commercialization of the products, but we're also spending a bit more in product development for new products. So the success that we're having in winning programs, like Jim outlined, is leading us to a decision where we can capitalize on these opportunities by continuing to advance the technology. So I think your characterization there is correct.

And then from a quarter-over-quarter margin perspective, we're going to continue to keep the rate high. There is some seasonality of the spending based on customer launch cycles of vehicles. So may be a little lift from Q4 to Q1 on the spend. But a lot of it has to do with the operating cadence in particular as we continue to get the supply base in a better position. We anticipate some of the premium costs that we incurred in the second half of last year abating in the first half of this year.

Aileen Smith -- Bank of America Securities -- Analyst

Okay. That's helpful. And then wanted to touch upon one of the comments in your prepared remarks that you're going to be supplying the cold plates for GM's Ultium batteries. Are you able to provide us with an estimate for the total related content that you're going to have on that platform? And as a reminder, will you be on the entirety of that platform, for example, the 1 million by 2025 target that GM has established? Or will it be for specific models?

James Kamsickas -- Chairman and Chief Executive Officer

Aileen, I'm going to give you half an answer on that one, but at least I'm transparent when I say that. This is Jim. We'll be on the full platform for sure, but I can't give you a content per vehicle or anything like that. And I think you respect that.

Aileen Smith -- Bank of America Securities -- Analyst

Yes, understood. Thanks for taking the questions.

James Kamsickas -- Chairman and Chief Executive Officer

You're welcome. Thank you for the question.

Operator

Your next question comes from the line of Dan Levy with Credit Suisse.

Dan Levy -- Credit Suisse -- Analyst

Hey, good morning everyone. Thank you for taking the questions. I wanted to start by asking a question on your margin guide for 2020 -- for 2021 rather. And I recognize you're guiding to a 30% conversion, but end markets are strong. And if I look at the margins you've put up in your segments in prior periods with better end markets, I would have thought some upside to your guiding, 11% is still below the 12% pace you had in '18 and '19. And I just would have thought upside given synergies, better cost efficiency. Maybe you could give some color on the margins and specifically the segment margins as to why there's maybe not as much upside, is it investment in R&D? Or is it still a function of end markets? Just a little color on the segment margins to why it's higher.

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. Sure, Dan. So I guess the one thing I'd point to is we're still a few hundred million short of where we were in 2019. So obviously, the conversion on those extra sales would be helpful in getting us back up closer to that 12% margin. So that's probably the biggest driver of the difference there. But I'd also highlight the comments we made and just discussed on a question, we are giving ourselves a bit of room to continue to ramp up and spend very thoughtfully in electrification given the success we have not only in book business, but also the really robust pipeline of opportunities that we're working through with our customers right now. So I would just say, still being a few hundred million dollars short in volume from where we were in 2019 as well as the electrification spending are the only reasons that we're sitting around that 11% versus closer to where we were a couple years ago.

Dan Levy -- Credit Suisse -- Analyst

And any comments on the margins by segment?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. Sorry. From a segment perspective, on the CV side is one area where you'll see some concentration on the electrification investment. So, obviously, the medium duty segment is moving quickly. We now have the heavy-duty win that's coming to market in the next few years. So I would say that's going to get a disproportionate amount of the EV spend and put a little pressure there. And then really, the off-highway business has got really great margin potential on the upswing. We're still highlighting mid single-digit growth. But if that market starts to move further, we're really excited about the incrementals you could see in off-highway after the integration of the Graziano and Fairfield businesses and the cost synergies that we achieved there.

Dan Levy -- Credit Suisse -- Analyst

Great. Thanks. And second question is a bit more existential. We saw GM. We've now seen a few automakers actually in the last week really put a line in the sand about outlining a target being fully electrified, given time period, Jim talking about 2035, Ford being fully electric in Europe by 2030, Jaguar fully electric. I'm sure there's going to be other announcements out there on a similar transition and time line. I realize there's a lot that can happen between now and 2030 or 2035. But my question for you on the light vehicle side because --.

And I guess I would maybe explain it more broadly is, as you think through all the things you need to do to transition to a fully EV world, be it on the product or manufacturing side, is this 15 years a reasonable period of time to make that full transition? And I guess that would be more focused on light vehicle, but we could even extend that to commercial or off-highway as well but light vehicle where I think we're really seeing this transition aggressively.

James Kamsickas -- Chairman and Chief Executive Officer

I think it's a very good question. This is Jim. Thanks for the question. I would say to use your word reasonable, I think it is reasonable. But, yes, I can tell you from the way we've designed the company and our strategy and everything else, we assume everything is going to come twice as fast as it's going to -- than it was originally anticipated. No, by the way either lucky or good, I would say back to even when we rolled out the strategy in 2016, there was a lot of people that thought maybe we had lost our mind. And frankly, I think we are closer to reality than maybe most. But whatever the case, that's not a victory lap other than just to reinforce with example that that's how we look at the business and that's how we established our strategy.

The key is and you used good examples out there of various light vehicle customers and what they're doing and their commitments. But as you also know, is that they're going to continue to make the vehicles that are in pocket today. And some of those, given what their uses are out in the field, if it's out on farms or in our case out on farms or construction sites and a bunch of other things, it's pretty natural that they're going to still be in the IC world for a period. The point is, that we are very much structured for success to be able to -- they're going to continue to make those vehicles. We're not going to say to them, of course, hey, I got a great idea., we're not going to continue to supply you the drive-lines on them. We are going to supply the drivelines on them. But as you can see, we can have two swim lanes at Dana because we have the full in-house capability. And hopefully, that was very much represented today in the presentation.

So I feel very comfortable if it's a 15-year transition or it's a 7-year transition or it's a 80-year transition, at the end of the day we're able to run the company that way because we've been structuring that way for essentially 4 or 5 years.

Dan Levy -- Credit Suisse -- Analyst

Great. Thank you.

James Kamsickas -- Chairman and Chief Executive Officer

Thanks, Dan.

Operator

Your next question comes from the line of Brian Johnson with Barclays.

Brian Johnson -- Barclays -- Analyst

Yes. Couple questions, and again, to kind of hit the electrification theme. Kind of as you look at that 5% electrification goal and then on Page 6, the backlog slide, 50% EV, directionally what's the mix between light vehicle and commercial vehicle image and it's kind of heavy on the commercial vehicle side?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. We didn't provide the breakdown, Brian, whether for the whole backlog or the other, but I would say the electrification portion is certainly skewed to the heavier vehicle markets. And in particular, commercial vehicle. We tried to give some of the representative platforms on that page that are launching. And as you can see in commercial vehicle, most of the big wins are hybrid or full electric vehicles. So just to give you a general sense, I think the way that chart represents the number of programs is pretty representative of the balance between the three end markets.

Brian Johnson -- Barclays -- Analyst

And then you did mention that it could be greater than 5% electrified in 2023. Is there any reason you haven't taken that number up or directionally how far that could go?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. I think we're just saving it for later this year. What we wanted to indicate this morning is based on the book business that we do have, we're running well ahead of that number. So more to come on that, I would say later this year.

Brian Johnson -- Barclays -- Analyst

Okay. And if you just think of that as $0.5 billion at minimum of EV revenue and we're to put a spac multiple on it, call it 4 times '23 revenue. You get a market cap of $2 billion. Kind of two follow-ons. One, your overall market cap is $3 billion, any comments? And two, that $400 million, I don't know if that includes every tuck-in acquisition you did but what is your real cost basis in EV business given that you and Jim were out buying these little EV companies when they were still affordable and not unicorns?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. I guess for the first component, your logic on valuation makes a lot of sense, and that's probably why our comments around the upside we see moving forward. We're pretty excited about those. So today, we're putting some more concrete proof points that the strategy is working effectively. So I think the confidence in the growth in our EV business should continue to improve moving forward. So we are pretty excited about the valuation potential there. And then I would say the second piece is you're right, we still paid reasonable values for the businesses that we acquired, but we were a bit early. So you're right, as we start to see that, the appreciation of our EV business be recognized in our valuation, it should create really attractive returns for our shareholders because of the timing that we bought in on the electrodynamic components.

Brian Johnson -- Barclays -- Analyst

Okay. Thanks.

Operator

Your next question comes from the line of James Picariello with KeyBanc Capital Markets.

James Picariello -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. If I'm reading Slide 6 correctly, it looks like electrification spend will trend at around $400 million over the next 3 years. What portion of that is included within your 2021 guide? Because if we bridge 2021 guidance to the 12% plus EBITDA margin trajectory for 2023, implied incrementals are what, somewhere in the high teens. Just wondering what level of conservatism is baked in? How much of the $400 million in spend is included in 2021 that might help bridge everything? Thanks.

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes, good point, James. Just as a point of clarification on that slide, that $400 million number is a look back through the last 3 years. So it includes the acquisitions that we made of the original TM4 business, the SME business, also Nordresa, Ashwood. So all of these assets are included in that number as well as post acquisition the organic investment that we've been making. So that number includes a lot of those upfront costs kind of to Brian's point just a moment ago what it took to get electrodynamics in-house. Moving forward, that annual run rate, we expect it will continue to step up to support new business. And we'll continue to provide updates moving forward as we continue to make these investments.

James Picariello -- KeyBanc Capital Markets -- Analyst

Okay. All right. Yes, because that would kind of indicate the high teens incrementals might be more conservative, but it will depend on the quantification of that, this additional spend. Okay. So just to clarify, the capital allocation plan over the next 3 years, the company doesn't have any debt maturities until 2024, but will likely deploy another, what, $650 million or so toward debt repayment before then. Is that right? And then just from an M&A pipeline standpoint, as you think about Dana's electrification portfolio, are there any areas that make the most strategic sense to explore? Any color there would be helpful.

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Sure. Those two go hand-in-hand. So, obviously, that pie excludes any opportunistic M&A. And as we've demonstrated, even in the last year, we'll continue to be on the lookout for really attractive values like in the Modine case to create value for shareholders that way or like in the case of the investment we made in Pi Innovo to build out further our electrodynamic capabilities, particularly in the area of software. So we've continued to highlight that.

We have an opportunity to differentiate our systems from a performance perspective based on the software that controls them. So we'll continue to look at those. But to your point, in the absence of that, there's quite a bit available for debt paydown. Obviously, the term loan we have is prepayable without any penalties. And then the first tranche of bonds here will become callable pretty soon in a pretty small cost. So there's plenty of opportunity in the debt stack to be able to delever in a very efficient way.

James Picariello -- KeyBanc Capital Markets -- Analyst

Thanks.

Operator

Your next question comes from the line of Joseph Spak with RBC Capital Markets.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Thanks. God morning. This is actually Garrett Klumpar on for Joe. Just going back to the backlog, all rolling on by 2022. So I understand Colorado Canyon weighs on 2023, but given kind of the increased content of some of the EV wins and those just ramping up as we get into 2023, I guess, a little surprised that that came in flat. So just any color on what the potential is for some upside just based on sourcing activity?

And then, I guess, more of a clarification question. So you said you'd be on the entire Ultium platform but is it only the Hummer included in that backlog number? Or also some of the other Ultium nameplates that have been announced also included in that backlog?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. I'll take the second part first. The answer is the backlog includes the platform not just the individual vehicle badge that we highlighted today. To the first part of your question as it relates to the backlog, I guess the best thing to point to in that case is what happened with the 2021 tranche of our backlog, which last year when we reported, we expected to be about $350 million and now it's $0.5 billion.

So our backlog is pretty conservative in that, the business has to be awarded with production volumes during the period. So there is ample time, particularly in the electrification landscape to win business that launches in a shorter window than you might normally expect for our program life cycle. So that's the thing I would point to on the second and third years of our backlog, and we tried to indicate that there's some opportunity there for that number to improve as we drive toward that $10 billion sales target.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Got it. Thank you. And then I guess just on CV margins as we think about next year. I mean, I think kind of historically the sweet spot for the commercial vehicle margins has been kind of with North America Class 8 kind of in that 250,000 unit range. I think ACT has it well above that for next year. So I understand that medium view is a little more important than the Class 8. But how are you thinking about the potential for premium cost to come in as Class 8s get above that replacement level?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. It's a great point. If it works out on paper or as it is on paper right now, I think you're right, it's real close to that sweet spot, and we've said that the traditional business within commercial vehicle is going to hone in on that double-digit margin with that. The thing that will pull that back a little bit next year is the investment in electrification. As I mentioned a few minutes ago, a lot of the new wins coming in the medium-duty and now starting in the heavy-duty space are coming through, and there's going to be some spending there to bring those online. So that combination -- the combination of those two will probably pull it back a bit, but we would expect certainly margins to improve compared to last year.

Garrett Klumpar -- RBC Capital Markets -- Analyst

Thank you very much,

Operator

Your final question will come from the line of Ryan Brinkman with JPMorgan.

Ryan Brinkman -- JPMorgan -- Analyst

Hi. Thanks for taking my questions. I just wanted to check in with you with regard to your latest thoughts of the attractiveness and normalized growth of the Power Technologies business in light of the new e-thermal award and electrification generally. Can you remind us of what your average traditional thermal versus e-thermal content per vehicle is? How much headwind there might be from the transition away from internal combustion? How much tailwind there might be from the move to battery electric? And any thoughts on sort of where hybrid fits in, if that might be a sweet spot, et cetera?

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Yes. It's a good point, Ryan. We have indicated before that hybrid is the sweet spot because you have the thermal content in the combustion engine that's cooling the fluids as well as the sealing products and insulating products, the thermal acoustic protective shield. So all of those. And then when you add the potential on the battery cooling side and even potentially battery enclosures, that becomes really the most attractive space. We've not specifically dimensioned in the Power Technologies business the content upsized from ICE to EV as we have with our three drive systems business. But certainly, based on what we're seeing in early programs for the battery cooling, there is a content uplift opportunity as we move from ICE to EV.

Ryan Brinkman -- JPMorgan -- Analyst

Okay. Thanks. And then maybe a little bit of a related note. Would you say that there are any kind of go-to-market advantages as a result of having electrification capabilities from both a thermal and a driveline perspective? I mean, if nothing else, I guess it allows you to have content on Ultium batteries, whereas Ultium drive might be more vertically integrated. But just curious if a thermal offering can enhance driveline or vice versa in your view?

James Kamsickas -- Chairman and Chief Executive Officer

Great question, by the way. Outstanding question, and not because I like being able to give you the answer to it because it's just very in-depth. And the reality is there is or I'll use a different word. There's a lot of synergies. Let's talk -- what do we talk about when we think about synergies, think about commercial synergies, commercial synergies you're talking to the same customers that are right in front of the forefront of the electrification movement and how we can help them in the full system approach to their vehicles. So maybe we're talking about them to the e-drive type of product over here, and it helps on the cooling and thermal management over there or vice versa. So it's a very big deal as it associates with that.

The other part of it is, as you go talk to any electrification engineer at any OEM that's out there, I'll guarantee you that you won't get past the second paragraph or the second sentence, whatever you want to use, and they're not talking about the criticality of thermal management around the full e-propulsion system. So just the pure fact that we have the associates that have been doing it for decades in-house to be able to help us manage through the e-propulsion system and being able to do the trade-offs for integration and capabilities to be able to support our customers, I can't even put it into words. So great question.

Ryan Brinkman -- JPMorgan -- Analyst

Okay. Thanks. And then just finally, are you seeing that the commercial vehicle industry is not being impacted by the semiconductor shortage issue? I mean, we've heard as much about, I guess, commercial on-highway trucks that maybe they're using like one generation older of chips, which aren't as short of supply. But you serve a number of other end markets as well and just curious what you're seeing if there's any impact on other parts of the business?

James Kamsickas -- Chairman and Chief Executive Officer

I would use the word very low compared to the balance of the end markets that we participate is the simple answer.

Ryan Brinkman -- JPMorgan -- Analyst

Okay. Very helpful. Thank you.

James Kamsickas -- Chairman and Chief Executive Officer

Okay. Just real quick. I'll give you a quick summary, if that's OK. Thank you very much for your -- the privilege of your time and your continued support. It really helps. Just real quick, if today didn't resonate with you or it hasn't resonated with you before that Dana doesn't provide components and systems for light vehicle, commercial vehicle or off-highway, but instead we provide solutions for customers, I would think that that's the key point. Why do I say that? It's not by accident when you think about our enterprise strategy and what we all talked about together 5 years ago, 4 years ago, et cetera, that the starting -- the tip of the spear was what we did is we went and balanced our business to be 50% heavy and 50% light across the board. And then on top of that, we parlayed in the solutions that we can cascade across all of our end markets. We are going to be successful in all three of the markets. There is no question about that. There's no -- I have no concern to that in the slightest, but then we're just going to continue to proceed as the markets come our way.

Last but not least, like I like to say it all the time, we are not perfect. Oh, by the way, companies may tell you that they're perfect, but nobody is and they're not real. We're going to continue to work on continuous improvement and driving performance and doing all the things that we've been trying to do for quite some time now. And you should continue to expect that out of Dana. But I will say this before we leave. And as I said in my prepared remarks, it's all about springing forward, and I'm very excited about where we go from here. Last but not least, I conclude with -- we already are close to the business and the priorities of the business, and it is. Everybody, please be safe because it's still out there, and we're going to get past COVID together. Thank you very much, everybody.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Craig Barber -- Head of Investor Relations

James Kamsickas -- Chairman and Chief Executive Officer

Jonathan Collins -- Executive Vice President and Chief Financial Officer

Noah Kaye -- Oppenheimer -- Analyst

Aileen Smith -- Bank of America Securities -- Analyst

Dan Levy -- Credit Suisse -- Analyst

Brian Johnson -- Barclays -- Analyst

James Picariello -- KeyBanc Capital Markets -- Analyst

Garrett Klumpar -- RBC Capital Markets -- Analyst

Ryan Brinkman -- JPMorgan -- Analyst

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