Good morning, and welcome to Dana Incorporated's Fourth Quarter and Full Year 2017 Financial Webcast and Conference Call. My name is Dennis, and I will be your conference facilitator. Please be advised that our meeting today, both the speakers' remarks and Q&A session, will be recorded for replay purposes. [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.

Thanks, Dennis, and thank you to everyone on the call for joining us today for Dana's Fourth Quarter and Full Year 2017 Earnings Call. Copies of our press release and presentation have been posted to our investor website. As always, 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. [Operator Instructions]. 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. These risk factors are also detailed in our public filings. Presenting this morning are Jim Kamsickas, President and Chief Executive Officer; and Jonathan Collins, Executive Vice President and Chief Financial Officer. Jim, I'll turn the call over to you.

Thank you, Craig. Good morning, everyone, and thank you for joining us. Last month, we announced our preliminary results for 2017 and our outlook for 2018. So today, I'd like to take a few minutes to briefly review what was an excellent year for Dana. Jonathan will take you through the numbers in detail, but I think it's important to highlight just a few of the key accomplishments of the Dana team. Dana saw a 24% increase in sales, which is $1.4 billion higher than 2016. It was an excellent year all around as market demand was higher and we had the benefit of new business and our recent acquisitions. But perhaps, the most important facilitator of our success has been the execution of our strategy. Our enterprise strategy is the blueprint for success. Over the last 2 years, we have refreshed and relaunched our 2 largest customer programs, and last year, we continued to commercialize our backlog at a rapid pace. In addition, we expanded our global footprint by greenfielding 4 key production facilities in strategic locations, continue to win new business in all of our segments to fuel our future growth, completed 2 strategic acquisitions and launched our Spicer Electrified brand for electric drivetrain products. The Dana team accomplished all this while, at the same time, successfully handling dramatic short lead time surges in demand from the commercial vehicle, mining and construction segments. A quick look at our results show that we met or exceeded our operational milestones. We finished the year where we expected, earning $835 million in adjusted EBITDA. Notably, every year since 2015, we have grown our earnings. Profit in 2017 was $175 million higher or 27% over the prior year as we we're able to capitalize on the rapid increasing demand and convert on…

Thank you, Jim. Slide 6 is an overview of the 2017 fourth quarter and full year financial results. Our numbers were in line with our guidance as well as the preliminary results we disclosed last month. For the fourth quarter, sales of $1.84 billion were up $390 million versus the same period in 2016, representing growth of 27%. On a full year basis, sales are up nearly $1.4 billion compared to 2016, driven by strong double-digit organic growth from the conversion of our backlog and higher end market demand as well as the impact of acquisitions. Adjusted EBITDA was $197 million for the fourth quarter, a $31 million increase from the prior year. For the full year, adjusted EBITDA was up $175 million over the prior year to $835 million or 11.6% of sales. This is a 30 basis-point improvement over 2016, primarily driven by conversion on the higher volume. Net income for the fourth quarter was a loss of $104 million. The fourth quarter of 2017 included $186 million onetime noncash charge due to the remeasurement of our net deferred tax assets based on the lower corporate tax rate included in the recent U.S. tax reform. Net income in the fourth quarter of 2016 included $485 million, a $426 million net benefit from the release of income tax valuation allowances and divestiture-related charges. Excluding these onetime impacts, fourth quarter net income was $82 million in 2017 and $59 million in 2016, a $26 million year-over-year improvement. For the full year, net income was $111 million compared to $640 million for the prior year. Excluding the fourth quarter onetime items from both periods, net income was $297 million in 2017 and $214 million in 2016, an $83 million improvement. The increased earnings this past year was driven by higher adjusted…

[Operator Instructions]. And your first question is from the line of Emmanuel Rosner with Guggenheim.

So first question, really on the volume conversion. So as you highlighted, there were some lower-than-usual incrementals in the fourth quarter, partly driven by launch costs. Can you maybe quantify how much of a headwind launch costs were in the fourth quarter and then for the -- in 2017 overall, and what you expect that to be in 2018?

Sure. The end of the fourth quarter, we indicated that launch costs in Q4, we expected to be about $10 million. They came in a little bit higher. They were closer to $15 million, which was slightly higher than the third quarter. We do expect that we'll have some launch costs in the first quarter, but it'll begin to taper, primarily as the Wrangler launch moves past job 1 to a more steady state. And then relative to the balance of the fourth quarter conversion, the other thing we mentioned is that we had some incremental volume. You'll note that we were at the higher end of our guidance range. And we indicated last month that part of that was due to the fact that we had to convert some of that incremental volume on premium time in the fourth quarter, which also put a little bit of pressure on fourth quarter margins. But both of those items we see as episodic, and we'll be able to move past as we step into the first and second quarter of this year.

And so on the full year basis, 2018 versus 2017, how much of a tailwind is -- are you getting from launch costs?

Yes. We haven't provided the number exactly, but we would expect there to be a pretty significant improvement as we go from 2017 to 2018.

Okay, that's helpful. And then the second question is really around the revenue guidance for 2018. So you're making $100 million of benefit from markets in volume growth. That seems a little low to us in light of continued strength in light trucks and off-highway and commercial. Can you please give a little bit more color on the puts and takes within that guidance? And in particular, on Slide 17, I was a little surprised to see that your assumption for North American light trucks to be down in 2018 versus 2017 and maybe just talk about what goes into that $100 million revenue benefit from the market.

Sure. So I'll just touch on it based on each of our end markets. So we do expect the commercial vehicle market to be quite strong. There are some people that are calling from North America to be well over $300 million. We've called the market at $300 million. I think the difference there is we have seen very strong build rate in the fourth quarter, moving to the first quarter. And our visibility into the order book is very good. I think we have a little bit more of a conservative perspective on the second half of the year. So to the extent that the build rate remains strong throughout the entire year, we could see some opportunity. But based on our past experience, we're a little bit cautious on the second half of the year. But that's certainly a meaningful driver of the $100 million. The second market that's a meaningful input is off-highway. We do see meaningful growth across the market in off-highway, so we expect that to be a -- that market to remain strong and to be a significant contributor. I think as far as the global light truck market, we've probably been a little more cautious than most on the North American truck market, which has a small impact on our top line as we look at it. The other factor that we noted last month as well too is that as we move into the second year of producing the Ford Super Duty program, we think it's possible that the rich -- that the mix on those vehicles in the second year, even though volumes remain strong, could be a little bit softer. In our experience, you typically, in the inaugural year, have a very rich content mix, so that's another thing that we've provisioned for in our guidance for 2018.

Your next question is from the line of Joe Spak with RBC Capital Markets.

Just one quick one, a clarification. The $15 million in launch costs, was that for the entire company? Or is that just related to light vehicle and the Wrangler launch?

Yes. It was primarily on the light vehicle segment, which is what we had called out previously. So we had indicated light vehicle, which is the vast majority, was going to be about $10 million, ended up coming in at about $15 million.

Okay. And just going to the slides and the walks by segment, the inorganic number in Power Technologies, what exactly is in that number?

Yes. We had divested the Nippon Reinz JV last year, so we had announced that. And it was not a meaningful impact on a full year basis. However, there was a few million dollars of profit in the fourth quarter that didn't recur this year. So that was the driver, and it put a little bit of pressure on Power Tech margins.

Okay. And then last question for me, and I guess following up on Emmanuel. I understand you took sort of a more conservative approach to Class 8s and -- or just commercial trucks, and that's probably prudent. But if it were to sort of still trend, keep at current levels and trend higher in the back half of the year, and you have like Class 8 equivalents, probably something north of $320 million, would there need be incremental costs that come in? Or your capacitizing would be able to handle that?

Joe, this is Jim. Thanks for the question, and good morning. We've been running at a pretty high rate, maybe close to that for, I don't know, 3 months now, ish, plus, minus. So I don't see any significant major cost to it. I'm quite proud of the team. As you know, it's really difficult for any supplier, not just Dana, to go through some pretty significant short-term surge of volume. And I think we're in really good shape if that were to happen.

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

I want to continue on that theme, and I have a couple more strategic questions. So can you give us the margin, or at least color on the margin outlook by segment and the incrementals by segment? If I back out of those $15 million launch costs from LVD or most of them, I do get to the 20% incremental there. You had mid-teens on commercial -- mid- to low-teens on commercial and off-highway. Your major competitor there also had mid-teens off of big volume increases. So how are you kind of thinking about incrementals and hence, margin direction in each of the segments?

Yes, Brian, this is Jonathan. Broadly speaking, we think that light vehicle is approaching the 20% range. It's probably a little bit higher than what we've indicated in the past, but we have a lot of confidence in the strength of the programs that are coming online and the demand for those, the ability to meet demand. Commercial vehicle is typically going to convert at a little bit less than that. And I think as we continue, if you look at just the off-highway business, excluding Brevini and not taking into account the benefit of the synergy recognition, we think off-highway is probably a bit better than that. So across the markets on blend, you get to about 20% with the light vehicle anchoring in the middle, commercial vehicle a little bit lower and the off-highway a bit higher.

Okay. Second question. Is your customer on track in Toledo for the launch of the JLR? Are the volumes up? Is there any, what, another automaker call production hell going on? Or is it pretty smooth, and the expectations?

Brian, this is Jim. Good morning. For our perspective, good. I mean, they're very much on a good trajectory. And since we're on the topic, things are going very well for us. It's a very high complexity. You may not think so thinking Wrangler, but it actually is a very high-complexity product, a highly engineered product. Things are going well as we were launching, not just at our new facility in Toledo, but across 15 plants. The other quick aside or -- I'd also mentioned to some of the other conversations we were just having with the group, I'd like to remind everybody that we have the Ranger and we have the Bronco going, coming up and some of them going into the same facility. So there's a little bit of a blending in the Q4 to get some stuff done there, not a lot but some, and there may just be a Chrysler/G products that's going to be produced in a similar plant. So I just want to put -- point that out here, so you guys can model and do what you do for a living.

And this isn't my third question, but could you comment on the Super Bowl ad with the Wrangler with the Dana 44s going up a waterfall?

Well, my parents always tell me never answer a question with a question. But I would put it in that phrase -- wasn't that pretty spectacular? We believe it was.

So the next question, on the e-axle. You've mentioned, and the competitors mentioned as well, that some of the e-axle drive that you've developed for the bus market is very similar to the requirements in the medium-duty truck market. So kind of where are you both on the bus effort and then how you're thinking about taking that over on medium-duty trucks? And are you in pipeline discussions, quoting? And when can we expect that to start hitting the P&L?

Yes. That's a kind of a brave, big, big question. I know you that, even asking it, but I'll do my best to answer it. We've already, with multiple kind of boutique different customers, we're already doing other different types of electric -- or e-axle type of products, but that's what -- because it's only been on the pull-through so far for the markets in which we participate, which you said, buses, trucks, et cetera, et cetera. I would tell you that there's not one end market that we're not in some form of conversation, product development, launch, you name it, as it relates to -- and I'm not just staying with light vertical or commercial vehicle. That could be mining, construction, forklifts, glass material handling. Every single one of them, we're managing through by type of stuff and working with our customers relative to full system integration and engineering. So it really goes across the board. We are very, very fortunate that our lessons learned and our people, everything that we're doing in one segment, that completely blends over into our other segments, and we don't have to kind of pick up from scratch. So things are going well is the bottom line.

Yes. And related to your question on the P&L, Brian, just given the volume projections for those segments, it's still going to be a few years before the sales are material or significant.

Okay, final question. The trade, obviously, you disclosed would be on the Silverado Class 45, which, I believe, is going to be made by -- at a Navistar plant. Do you have any more color? Is that in the '18 backlog? It's sort of promised late this year. Is it more of a 2019 event?

Yes. Thank you for the disclaimer that I've got to be little bit careful. As I said a couple of weeks back, I do not want to get in front of my customers on this. For those of you that didn't know, the General Motors has been very public that they'll make their announcement with more detail on the truck, the Work Truck Show in Indianapolis next month, so stay tuned for that. It branch to your specific question, it is in our backlog starting this year at lower volumes, and there'd be more to come after -- or later this year for you.

Your next question is from the line of Brian Sponheimer with Gabelli.

A quick question on the capital allocation. Given that 2018 setup is maybe not exactly what your goal is for free cash. What's your comfort in looking outward for acquisitions versus maybe just another year of continuing to integrate what you've done from a portfolio standpoint for the last couple?

Brian, I hate to -- at the risk of sounding like a broken record, I'd hate to say that we were completely locked in on any one specific thing. We've been pretty clear on our capital allocation priorities. We are very comfortable, as you've been able to figure out, over the last 2 to 3 years since working together with me and Jonathan, et cetera, that we look at all opportunities kind of coming and going on the organic -- inorganic side, if that's the right play. In the meantime, we're very focused on the organic side. That is priority 1, and it continues to pull through. I think the -- kind of if you take, for example, we always talk about the high kind of marquee type of programs, the Bronco, the Ranger, the Wrangler, you name it, and more recently, the Chevy Silverado. But even PTG last year was over 60 launches. You just don't hear about them because they're smaller in nature. So we're focused on there, but again, we are -- we also don't have our head in the sand. If any right opportunity comes our way, we'll do the right thing for our shareholders.

Understood. And then I'm just -- when thinking about kind of the broader automotive landscape on a global basis. We've seen some automakers, I guess, most notably GM this morning, start to pull out some unprofitable areas. How are you thinking about that relative to your own customer base? And what sort of shakeup you think that, that could cause long-term if your customer base starts to pull out of areas that they deem unprofitable?

Yes. Let me answer that kind of in two parts. Again, you folks can do your job. That specific announcement is not impacting, if you're curious on that, the plant closure over there, number one. Number two, I mean, it is the benefit for Dana that, yes, we have a very global platform. We're in very -- every market that's out there. We have the benefit of cascading across from one market to another to another as it relates to our products. We can essentially produce any of our products in the other plant, if need be. And so we've always found that should -- we can certainly derisk that in a blended approach of how we -- our manufacturing strategy will get us through the day. So I'm not overly concerned about that on that front. And the other thing is I don't see a tremendous amount of groundswell of a lot of other OEMs taking that approach at this point. I'm sure there could always be something, but I don't think it's going to be anything significant or material that we would be overly concerned about.

Your next question is from the line of Justin Long with Stephens.

So I wanted to start with a question on the quarterly cadence of EBITDA. I'm just curious what you're expecting over the course of 2018. And from a margin perspective, I was also wondering where you're expecting to end the year. I know you gave the guidance for 12.3% margins for all of 2018, but do you think you'll be north of that number at year-end once you lap all the launch costs and get the benefit of additional synergies?

Sure. So Justin, when you think about our business, if you look at the sales and profit and margin distribution on a quarterly basis over the last few years, I would say what's more typical is that the second and third quarter are higher from the sales profit and margin perspective. And typically, due to build patterns of our major markets, the first and fourth quarter are typically a little softer. There have been some anomalies with the significant Super Duty launch in 2016 and the Wrangler launch at the end of this year, but I think as we move into 2018, you're going to see more of a normal pattern where first quarter margins and fourth quarter margins are a little lower than the second and third quarter. So I wouldn't necessarily look at where we expect fourth quarter margins next year to be and extrapolate that for the full year of '19. But certainly, the higher margin quarters this year, we think will start to exceed 12.3% and move us close to that 12.8% in 2019.

Okay, great. That's helpful. And secondly, I wanted to ask about the $20 million of EBITDA contribution from inorganic growth that you're expecting this year. Could you talk about how much of that is coming from the divestiture you've mentioned in Brazil and synergies? I just wanted to put some numbers around those 2 items and get a better sense for the underlying incremental margin from those acquisitions.

Sure. The profit impact of the disposal of the noncore underperforming Brazilian asset is negligible. So virtually, all of the $20 million, there's a few million dollars of contribution on the incremental sales on a base case, and then the balance of that are the incremental synergies from Brevini. You'll note that we indicated we were a little bit ahead of schedule on the synergies last year, but this represents the most significant step-up to get us real close to that $30 million by the end of this year.

Okay. Thanks, everybody. I kept it relatively short as you could tell early on in the discussion or presentation because I was -- we were just in front of you back 3 or 4 weeks ago, whatever it may be. But I'm going to close out with a little bit more maybe than usual, not a lot, but as you can see on the page in front of you. Let me just start kind of candidly off the top. I can honestly tell you that now more than probably ever since I've been here and rolling up on 3 years, I couldn't be more excited in the prospects of our business from a sales perspective, from a products -- profit expansion perspective, so on and so forth, really because the team has done a tremendous job. And probably the thing I'm most proud of, I guess, is that everything we said we we're going to do, we've done up to this point. 2017 was really a great year. I think the proof is in the pudding there. 2018 is shaping up to be even better. We're extra great that we've executed our synergy plan as it relates to all of the acquisitions we've done without a glitch. The team is doing a fantastic job. And on top of that, we're progressing on a great trajectory to achieve our 2019 targets. From a new business growth perspective, we've been adding business consistently over the past several years. I spent a lot of time, as you guys know, it's part of my job, like maybe it's part of yours, but part of my job to be out in front of the customers, making sure I have a good voice for the customer. And frankly, I couldn't be more proud of the team…

Ladies and gentlemen, this does conclude the Dana Incorporated's Fourth Quarter and Full Year 2017 Financial Webcast and Conference Call. Thank you for your participation. You may now disconnect.