Good morning. And welcome to Dana Incorporated First Quarter 2018 Financial Webcast and Conference Call. My name is Tanya, 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. There will be a question-and-answer period after the speakers’ remarks and we will take questions from the telephone only [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.

Thank you, Tanya. And thanks to everyone on the call for joining us today for Dana's First Quarter 2018 Earnings Call. Copies of this morning's press release and the presentation have been posted on Dana's investor Web site. 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 including our reports with the SEC. Presenting this morning are Jim Kamsickas, President and Chief Executive Officer and Jonathan Collins, Executive Vice President and Chief Financial Officer. Now, I would like to turn the call over to Jim.

Good morning. And thank you for joining us for Dana's 2018 first quarter earnings call. In the first quarter, Dana's top line growth was one of the highest and well over a decade with sales of $2.1 billion, a 26% increase over last year, of which 17% is organic growth. This is our fifth consecutive quarter that we've achieved double-digit year-over-year organic growth. When you think about that growth, I would ask you to not only reflect on where we have been, but also to think about where Dana’s headed. A few highlights include; in light vehicle, Dana is one of the largest truck and SUV driveline suppliers, which benefits us tremendously because of the strong demand in truck and SUV sectors as we are largely not exposed to the passenger car markets; in commercial vehicle market, volume projections, including Brazil, look strong for the foreseeable future; and as you will hear in a moment, we continue to organically grow our business; in our highway business, while many of our markets have recovered from a sustained downturn. There is remaining upside for a volume perspective; hereto, we continue to grow our business organically, especially as it relates to cross-selling opportunities that were created through the Brevini acquisition; lastly, in Power Technologies, we will continue to grow with the secular hybrid and electrification trends. Why? Because many extremely high tolerance batteries, electronics and mortar cooling products require both sealing and thermal products and process technology, a significant differentiator and value creator for Dana. Our adjusted EBITDA came in at $248 million, 21% year-over-year growth; net income was $108 million, a 44%; diluted adjusted EPS increased 19% or $0.12 over last year's first quarter to $0.75 per share. This strong first quarter performance supports our outlook for the remainder of the year.…

Thank you, Jim. Slide 9 is an overview of the first quarter financial results for 2018. Our first quarter results were firmly in line with our revised full year guidance we shared with you at our investor form in March. For the quarter, sales of over $2.1 billion were up $437 million versus the first quarter last year, representing growth of 26%, driven once again by strong double-digit organic growth from the conversion of our backlog along with higher end market demand, as well as tailwinds from currency and acquisitions. Adjusted EBITDA was $248 million for the first quarter, a $43 million increase from the prior year or 11.6% of sales below last year's first quarter margin due to expected higher launch costs. Net income this quarter was $108 million, a $33 million year-over-year improvement. The increased earnings were driven by higher adjusted EBITDA, partially offset with increased depreciation expense. Diluted adjusted EPS, which excludes the impact of non-recurring items, was $0.75 per share in the first quarter, an improvement of $0.12 per share compared with the first quarter last year, primarily reflecting the higher earnings. Finally, free cash flow was a use of $93 million, $8 million higher than 2017 as working capital requirements offset the benefit of higher adjusted EBITDA to lower capital spending. Please turn with me to Slide 10 for further details regarding the first quarter sales and profit growth. First quarter sales increased by $437 million compared to the same period last year and adjusted EBITDA was higher by $43 million. The year-over-year growth is attributable to three key factors. First, organic growth added $293 million in sales as we continue to bring our backlog to market and demand in all three of our key end markets remain strong; the organic growth delivered an incremental…

At this time, we would like to begin the Q&A Session [Operator Instructions]. Your first question is from Joseph Spak with RBC Capital.

The first question I had was just to maybe if you can talk a little bit about some of the challenges also like in commercial vehicle with the incremental margins. Were there some higher costs that came back that weighted, or why it wasn’t the conversion on the higher sales, maybe as strong as otherwise would have occurred?

In CV couple of things to note, first we did have it -- as we continue to adjust to this higher production level, particularly in North America, we do have some inefficiencies that we are working on our way through. We are confident -- we've prioritize making sure that we meet deliveries on time with high-quality. But we do have confidence that through some initiatives that we've been working that that's excellent going to improve in the balance of the year. So lower conversion cost in the balance of the year will drive a better conversion in CV. It is also worth noting that Brazil is starting to come back, and we are encouraged by what we're seeing there. Brazil was profitable in the first quarter for us this year. We are very encouraged by that. We look forward to it becoming cash flow positive within the next few quarters. So those are a couple of highlights on the CV business.

And then just on light vehicle, I guess I think I heard you say the launch costs in the quarter were similar to the fourth quarter, or I think you said I think last two quarter it was about $15 million, which if true -- I mean the underlying conversion is mid-teens. And so is that the right rate to think about for that segment going forward down to the launch cost will subside?

We've indicated that we think light vehicle will convert in the higher teens. We still believe that be true throughout the balance of the year. The launch costs associated with the new Wrangler were the primary driver in the first quarter. There were a couple of other items. Steel jumped very significantly in the latter part of the quarter. We did get caught with just a little bit of a lag issue, which we will recover on the balance of the year that certainly affected light vehicle. And there were some other inefficiencies, not necessarily related to the new Wrangler, but in the overlap of the old Wrangler and the new Wrangler were running at a very high run rate in Q1, so there is some inefficiencies there that we believe will improve upon in the balance of the year. So rely the confluence of those three factors are what got us to the conversion in Q1. But we think we’ll be high teens in that business going forward.

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

I want to start with a more strategic question and then a couple of housekeeping. After since you’re not going to be at least near term tying with GKN. Could you remind us where you are in your electrification path and what your plans are now independently to go after that marketplace?

First and foremost as it relates to the GKN situation, I think everybody is aware of this, but that was the definition of opportunistic. It wasn’t really even on the radar. The team, the Dana team wasn’t as capable and talented as they were, they wouldn’t -- we wouldn’t have been able to react as fast as we did once we learned that the profit warnings over in the UK et cetera et cetera. So that really was the purpose that fit. Our strategy really just stays back to where it was in the first place. There is essentially no situation where we’re in right now, because we’re largely truck and SUV, and its further out in the cycle that we’re not in a position already to be able to answer RFQs, RFI so on and so forth organically. As most people on this call realize, we've been very strong in electrified products in the off-highway region in segment for over a decade. Those skill sets have been transformed over into light vehicle, commercial vehicle our products are being developed. We’re launching the bus axles in China right now. You heard about the Mecalac product earlier today. So we’re just going to continue to do what we’re doing. I mean the customers, if you saw the number, 17% growth organic this quarter alone, we’re just going to continue to have the products ready as the RFQs come through the system. And we believe we’re going to get our fair share.

Second question, as you look at the segments it seems like very strong growth, which you talked about a bunch of them except for Power Tech, was the one at least vis-à-vis our model wasn't significantly ahead. Could you give us a sense of how that’s going to look through the year? Is there some cadence there? Are there launches coming up in terms of how the backlog is going to flow through?

Just of couple comments on Power Tech. If you look at that business over the last five to six years on a currency adjusted basis, it has outperformed the light vehicle engine market by about a factor of 1.5x, so we are really encouraged by the growth that we’ve seen in that business on the top line. And again the reminder is as internal combustion engine becomes more efficient, there is greater heat, greater pressure within the engine that are managed by our sealing and thermal solutions, and there is opportunity for content increases, which we’ve absolutely seen there. Also during that same period, you’ll note that that business has improved its margins by about 20 basis points per annum on average. We continue to see that as an opportunity for this business, and we think that that will have attractive margin growth there as well too. In the first quarter, we were comping against a very difficult really strong first quarter of last year. We had a few small items that went our way, few small items that didn't go our way first quarter this year. That’s what's driving the unfavorable conversion within that business. But on balance, we continue to think that the business will perform well and will beat the market on the top line and expand margins.

And final housekeeping question, launch costs for the JL obviously ramped down as it ramps up, but you had a volume impact from the run out of the JK. So how does that play out through the remaining quarters?

That’s the primary reason that you can't annualize Q1 sales and get to our full year guidance. So we had about $100 million of sales associated with the old Wrangler in the first quarter. We built some in April but for the most part we’re done with that program in the second quarter. So it’s about $100 million of the $2.1 million of sales that we had in Q1 that you won't see through the balance of the year adjusted for that, pretty much in line with our guidance range for full year.

Your next question comes from Emmanuel Rosner with Guggenheim.

So I realize GKN opportunistic but at the same time I think, I guess Dana was prepared to spend a decent amount of money as well obviously issue shares for it. So I guess looking ahead what is your appetite for other acquisitions and maybe even near-term, could you use some of the cash you were use for the acquisitions and allocate it towards faster or more aggressive buybacks?

The one thing I hope you -- the entire group would take away from whole GKN situation is that never once to consistent at least since I've been here, never once did we come across just having any deal fever. We were very clear that we were not willing to overpay. We were not willing lever up our balance sheet. So we made a run at the asset, it didn't work out. Ultimately to GKN shareholders it wasn’t -- didn’t take us, they decided they wanted to sell the entire company it's just what it is. And my point in bringing all that back up again is we don't have these like incredibly tight goal posts to what an asset could be as we want the inorganic approach to it. But I would -- we do have tight goal post on is how we would go about it, and stay within our very strict guidelines as it relates to that. So we keep our eyes open in that regard, but we are very much in a position of strength that we do not -- we're not in a deep need of having to have an organically play. Again, being in the transmission business, which I know you’re aware of Emmanuel but maybe other people aren’t, what that has brought tremendous amount of software and controls management capabilities, which are tied into many of the electrified products we've already developed and continue to develop. As it relates to the share buyback, Jonathan, I’ll let you take the wheel.

It's been a couple of years, Emmanuel, since we've really bought back stock. We did announced earlier this year that we had an authorization this year and next to buy back 100 million. We did also announced that we've doubled the size of that program a month and a half ago. And we intend to be active here in the second quarter given where our stock price is trading compared to where it has been, and our conviction of value we do intend to reenter under that authorization. Relative to the size and scale of what you indicated on GKN, that's not our intention to make that any meaningfully larger. From a buyback perspective, we do think it is really important for us to maintain a strong balance sheet. We see a really good opportunity this year and next to further strengthen the quality of our balance sheet and our credit profile.

And then I guess the follow-up is on you expected organic growth for the year. So as part of your improved guidance, you brought that up to $500 million, $200 million of which are market conditions. It seems like in the first quarter you had some very, very strong market growth. Can you give an update on I guess where you’re tracking through Q1 on these $500 million and in particular in terms of the $200 million from market contribution?

On a year-over-year basis, most of the market growth that we expect to see came in the first quarter, just given where production levels were last year compared to the prior year. We had very strong demand in the balance of the year. And then we also have that anomaly that I mentioned as well where we have the -- both programs of the Wrangler running at that time period. So we do expect to see modest growth in our end markets in the second through fourth quarter, but a large piece of it did come in Q1 and that's unique one-time benefit was a contributor. It's also worth noting that of the $300 million of backlog, we did see the expected amount or a meaningful amount of that come on line in Q1. We expect that to be a significant driver on a year-over-year basis in the balance of the year, largely as the new Wrangler gets up to its production levels and able to deliver the incremental content that we expect to see on that platform.

Your next question comes from Colin Langan with UBS.

Just a follow up on the last question. What is the assumption for commercial vehicle growth for the rest of the year at this point since you said most the market was already in Q1? Is it for the rest of the year?

We are expecting from a North America perspective that the commercial vehicle will be up slightly. But particularly in the second half of the year, we were already producing at the run rates that we were producing in the first quarter. So see a little bit of a bump in the second quarter but we largely expect to be in line by the time you come into second half of next year for commercial vehicle for North America. We are expecting growth in the large truck and bus markets in Brazil and the balance of the year. So we do expect that to be a contributor to growth as we move through the remainder of 2018.

And on the off-highway side, are you expecting that also to some more level out or?

We are expecting that construction and mining will remain strong with some level of growth probably a little more conservative on the ag market, which has held reasonably well but we do expect to see little bit of a lift in the balance of the year in the off-highway markets, but they’ve been coming back pretty strong for over a year now.

And you highlighted deal was a little bit of an issue in Q1 maybe just remind us your hedging policy. I mean, any size of the axel headwind and do you think you’ll wash all of that out by the end of the year with your pass through agreements?

We do -- our commercial agreements will take care of most of it. But as I mentioned, we have other supply arrangements that we work to offset them with, as well as operational strategies to be able to address that. But it was mostly an impact in the quarter just because the prices started going up late in the quarter and the recoveries lagged that. So on a full year basis, we do not expect commodities to be a meaningful impact to profit but within the quarter, we did see bit of an impact.

And on the tax rate, I know when you started at the Detroit Auto Show you indicated that it would be a help of about $0.10 for the year. But the guidance right now is I think on a 30% adjusted tax rate. Why is the rate so high with the U.S. tax reform and should that -- we think of that going down over time?

The bigger issue in the effective tax rate is jurisdictional mix it’s an issue of where we are earning our profits and the rate at which they are taxed. So you’re seeing our profit projections include profitability at a higher rate in higher tax jurisdictions. From a longer-term perspective, we would expect as the U.S. continues to become more profitable that that would help the overall effective rate, so yes to both accounts.

So it should come down over time here?

Yes, we would expect a modest improvement over time.

Your next question comes from Justin Long with Stephens.

So to start, I was wondering if you could talk about the cross-selling opportunities you’ve seen, particularly related to Brevini, you mentioned that a couple of times. Any way to help us understand how much of a tailwind that’s been, and how you're thinking about that cross-selling opportunities going forward?

I will make this commitment for you, we will provide you some of that information down the road relative to the specific numericals on that, not really prepared to give that to you, so I’d rather not do -- provide it out there for you. But I will give you a visual for as where the cross-selling opportunities are coming from. So you can dimension it before I get you some of that down the line. But if you think about, for example, aerial work platforms, in aerial work platforms you see that Home Depot or Low’s or something like that, those can often have a full axle cross, which would be something that we would have supplied historically. Now that you also can get those in more of a planetary which is motor-on-wheel technology, with the Brevini acquisition, we have that capability for motor-on-wheel so we're seeing that. And then the cross-selling opportunity is where Brevini had many, I would call it, more boutique small customers, albeit important customers around the world, as well as a very strong distribution network of what we call service and assembly centers spread out across the world. Those smaller folks are now pulling through Dana for more of our products vice versa is where we did not have the product line up in Dana, because again as you know we were not in truck vehicles and planetary so on so forth. We're able to pull those through and with the Brevini acquisition, it comes with and many people may not be aware of this, because we don't spend a lot of time on it. But with it comes with hydraulics and there is a strong demand for hydraulics out there is quite a bit of shortage of that type of capacity in market around the world, as well as electronics smaller piece of the overall package but unbeknownst to many, because we don’t want to oversell something that we shouldn’t over sell when it comes that. So we're getting a lot of opportunity associated with former Dana customers in the electronics, which could be, for example, joystick controls, sensing controls and a bunch of other things, as it relates to tipping functions on off highway type of the equipment. But hopefully that helps frame up the answer to the question with the commitment to give you some numbers down the road.

I think second question I had was on Brazil. So I was wondering if you could talk about the EBITDA contribution you're assuming from Brazil within the 2018 , and how that compares to what you are expected heading into this year and longer-term. What do you see as the potential EBITDA opportunity in Brazil as that geography continues to recover?

So we are absolutely encouraged by the increased demand that we've been seeing over the course of the past few quarters, and certainly returning to profitability in the first quarter. And Brazil was very encouraging to us. We have indicated we've not given the dollar amount for the profit nor the specific contribution margin. But we have indicated through a series of actions there that we expect our incremental margins in Brazil to be considerably higher than some of the other aspects of the business, and that's principally due to a couple of factors. First, we made the SIFCO acquisition in Brazil as a vertical integration play largely on the forging side that will create higher incrementals on a go forward basis. Second, we worked very hard on the fixed cost structure during the downturn to make sure that we were reducing fixed costs and becoming as efficient as we could to make sure that we can capitalize on the upswing, while securing enough capacity to meet demand, which we did and we're encourage about that. And then the third factor is, it was a little bit difficult to see during the downturn, because the numbers are so small. But the competitive landscape became much more beneficial for us during the downturn. We had a number of competitors that ceased to exist during the downturn, which help us to win some business and have a better competitive position within the local markets. So we’re encouraged by all three of those factors. And we do expect that Brazil will be the difference maker in moving our commercial vehicle business from a single-digit EBITDA margin to a double digit EBITDA margins business. So we have said with Brazil returning to a more reasonable historical level of demand for heavy truck and bus, the commercial vehicle business will be better than 10% business or double-digit on a go forward basis.

Your next question comes from Brian Sponheimer with Gabelli.

So within the commercial business, you’ve had some market share gains over time absent the one customer couple of years ago. Can you just give some idea just the market dynamics in North America as we’ve seen trucking companies come back more maybe than the owner-operators and how you go to market there?

So first I think I better touch on a reference point, and I hope I don’t do too much of this. But I really have to give a shout to our commercial vehicle team and supporting functions, purchasing another, because we haven't seen the CV market that as we haven’t seen this type of demand consistently in very, very long time. And in 2014, as you know we were on the struggle bus getting through that stressor. We have not had any of that issue in terms of supply whatsoever across all of the geographies around the world, because the teams really operating it in a very, very high level. To your specific question in terms of customer approach and how to continue to gain new business winds and more revenue for that matter, it’s really a combination of both. Our team is just doing a tremendous job providing our OEM customers with new products and frankly services and so on and so forth. They are having more interest in it and we’ve announced a few of awards that we’ve got there. But at the same time, we have to help them with the fleets and I think any of our OEs customers would tell you, Dana has done a tremendous job making sure that the fleets know, the new product offering that we’re providing, how it can help them win in the market and making sure more than anything in this market that we’re going to be able to satisfy demand. So hopefully that answer your question but it is definitely a different commercial vehicle than it was three or four years ago and our customers are repeatedly displaying that through the new business awards and other.

And then separately can you talk about enterprise strategy and the ability to cross sell. Last week Ford gave some plans as to how to electrify their powertrain, and given how important they are to you. How do you take the light vehicle driveline opportunities that you have and say bring along some battery cooling opportunity as a package? So let’s say a Ford is looking to add to its electrified capabilities and the SUV and in truck platforms?

There’s been lot of things in anybody’s business, your business, our business whatever everything starts at the relationship level. And fortunately for us, the Power Technologies group is in really two main category product categories with across our OEMs, that being thermal and that being sealing. And we’re looking for solutions for battery cooling electronics cooling so on and so forth, we have those relationships. So we’re being pulled under the tent per se with most everyone of major customers out there, and they're asking us what the solutions of future are. You may recall from the conference back in January where we chose different concepts and products relative to that, relative to battery cooling, electronics cooling, even enclosures for full batteries that seeming to getting a lot of traction behind that. So it starts at the relationship level. And so when we’re in there and then what's actually interesting now is because with electric, let’s it E-axle so on and so forth, you still have to cool those type of things as well. And now there is a much tighter, in my view, anyway there is a much tighter bridge between the groups not only within the OEMs but within Dana as well. So we're giving them more of a comprehensive solution for cooling across those electrified vehicles.

Your last question comes from Ryan Brinkman with JP Morgan.

I understand you’re raising your full-year guidance today despite the incremental headwinds from commodities. Can you help to quantify that at all, and also just remind us of what your primary commodity exposures are, the degree to which you’re indexed with customers relative to the spot prices for those commodities? And then what some of the suppliers, the suppliers we cover we've heard this running season and last but there tends to be maybe some less price protection for example on the aftermarket or with domestic Chinese automakers on average as you look across your operations globally. Are there any geographic areas business lines or customers, which you might be less indexed that perhaps we should be mindful of?

So just from a commodity perspectives steel for example is the largest impact for us various types. There was a sharp rise in the -- towards the end of the first quarter. We have indicated before publicly that the majority of our commodity exposures are covered commercially, and the majority the part that we cover commercially is contractual as a piece that's negotiated. So we continue to partner with our customers for opportunities to reduce the cost of the systems that we provide. But from a commodity exposure perspective, it is not typically something that you hear us talk about from sales or from a profit perspective, because it is largely covered. The reason we raised it in the first quarter is because of the steep rise that we saw right at the end of the quarter, which causes a short-period of time where there is a lag impact for us between when our customer POs are changed and when the supplier end up getting the higher costs or prices.

Great. Very helpful, thank you.

Okay, with that -- this is Jim. I just wanted to close. Thank you again for joining the call today and allowing us to have your -- privilege of your time to take you through the Q1 highlights. I would only close with -- obviously, this is a fantastic quarter for us, top line at 26%, 17% of which is organic. Those are outstanding numbers. But also like as I said upfront, do not underestimate more of where the go forward is. Our customers are particularly excited about partnering with us. We talked about new growth and new business with JLR. We talked about it with Mecalac. We talked about it with numerous off-highway customers, numerous commercial vehicle customers. Obviously, we only update the backlog once a year and that's what we have to do again this year to stay on cadence. But we are taking care of the customers and we’re going to manage the growth profitably and effectively that we have. So thank you very much for your time.

This concludes our conference. You many now disconnect.