Good morning and welcome to Dana, Incorporated's First Quarter 2019 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. There will be a question-and-answer period after the speakers' remarks and we will take questions from the telephone only. 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, Dennis, and good morning, everyone, on the call. Thank you for joining us today for our 2019 first quarter earnings call. You'll find this morning's press release and presentation are now posted on Dana's 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. 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 and found 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. And now it's my pleasure to turn the call over to Jim.

Good morning, and thank you for joining us for Dana's first quarter earnings call. I'm pleased to report Dana achieve record first quarter sales of $2.2 billion. This is the 10th consecutive quarter of year-over-year sales growth. Our end market demand remains strong, our backlog is strong, and we are realizing early benefits from our recent acquisitions. Our adjusted EBITDA for the quarter was $257 million, $9 million higher than the first quarter of 2018, resulting in an 11.9% margin, which is a 30-basis-point improvement over last year. Our earnings per share increased 4% over last year to $0.78 per share. We've had several key highlights this quarter. First, we're affirming our guidance ranges for the year due to conversion of our sales backlog and steady end market demand. Jonathan will provide greater detail on this later in the presentation. In March, we hosted an Investor Day at the New York Stock Exchange, where we introduced a refresh to our enterprise strategy and provided long-term financial targets. We also completed the acquisition of the Drive Systems segment of the Oerlikon Group, including the Graziano and Fairfield brands, and the acquisition of the SME Group, experts in the design and manufacture of electric motors and controllers. I will give you an update on our acquisition integration efforts in just a few moments. Dana's Spicer AdvanTEK Ultra axle system was recently honored with the 2019 Automotive News PACE Award which serves as a benchmark for innovation and recognizes light and commercial vehicle suppliers for technical advancement, innovation and dedication to excellence. This marks Dana's seventh PACE Award, including two partnerships awards with our customers and is yet another example of how we relentlessly foster a culture of innovation that has been the foundation of Dana's business for more than 115 years. Finally,…

Thank you, Jim. Good morning, everyone. I'll begin on slide 10 with an overview of our first quarter results compared with the same period last year. First quarter sales were $2.16 billion, an increase of $25 million compared to the same period last year, which is a 5% growth on a constant currency basis. Strong demand and an accretive acquisition more than offset the lower volumes on the Jeep Wrangler Program as a result of the overlap of the old and new models that occurred last year. Adjusted EBITDA for the first quarter was $257 million, a $9 million or 4% increase from the prior year for a profit margin of 11.9%, which is a 30-basis-point improvement over the first quarter of 2018. Net income was $98 million compared to $108 million in the prior year. The results for the first quarter of this year included $32 million of onetime cost related to our recent acquisitions. Diluted adjusted EPS which excludes the impact of non-recurring items was $0.78, $0.03 higher than the first quarter last year. Operating cash flow increased $12 million versus the same period last year, largely due to the growth in adjusted EBITDA. Please turn with me now to slide 11 for a closer look at the sales and profit growth in Q1. The growth in first quarter sales and adjusted EBITDA compared to last year is ascribed to four key factors. First, organic growth added a $106 million in sales from the continued conversion of our backlog as well as modest increases in end market demand. This was partially offset by a $95 million headwind due to the overlap of the Jeep Wrangler programs last year that did not recur this year. This net organic growth delivered an incremental $13 million of profit, contributing 60 basis…

At this time, we would like to begin the Q&A session. And your first question comes from the line of Aileen Smith with Bank of America Merrill Lynch. Please go ahead.

Good morning. Thanks for taking the question. If we look back at the 2019 quarterly progression chart on sales and revenue that you provided in the 4Q slide deck, you set the bar for the 1Q margin to be pretty well below the 12% level, but you clearly beat that in the quarter. However, you've maintained your full-year margin outlook for 2019 at around 12.3%. So, my question here is have your expectations around the quarterly progression you set earlier this year changed in any way after the first quarter or is this more a function of you executing much better than you originally expected?

Good morning, Aileen. This is Jonathan. Yeah, the chart that we put out indicated that we would expect the first and the fourth quarter margins to be below 12%, and then obviously the second and the third, and we still believe that that's largely how it will play out. We ended up being a little closer than 12% than we thought, and the primary driver were commodity cost increases. So, that's the one area of our full-year guidance that we've indicated on the bridge we provided that will be a little bit better than we expected, and we certainly saw some of that in Q1. It's early in the year. So, on our perspective we think we're still likely to be pretty close to the midpoint of our range on profit, but the general cadence of being slightly lower margins in the first and fourth quarter with better margins in the second and the third is how we think it will play out for the year.

Okay. That's helpful. Second question, focusing in on the Power Tech business, that's been somewhat of an underperformer in terms of growth in decremental margins. Can you remind us what the issues – the key issues are within that business? Is it just a function of FX and commodities? And if we look at your two other – two of your other segments, Commercial Vehicle and Off-Highway, where you were able to rationalize costs and drive margins despite choppy revenues in 2015 and 2016, is there an opportunity to take some of the best practices you applied to those businesses and gear them towards Power Tech and maybe improve the margin trajectory?

Yeah, you certainly touched on the two factors that were the primary drivers of Q1's performance. We do a meaningful amount of our business in the Power Technologies segment in Europe. So, when the euro is soft, it's a bit of a hit to the top line and has some profit impact as well too. Commodities has been the biggest issue that we've talked about in this business. So, with all four of our business segments, we have our lowest recovery ratios in the Power Technologies segment. So, certainly that's been a significant driver. The other factor that we've talked about has been product mix. So, our Power Technologies business has a good presence in the Light Vehicle market both in Europe and in Asia, and some of the softening that we've seen there in the first quarter certainly had an impact as well too. We do believe that this business is going to see margin improvement through the balance of this year based on some actions that we've taken. You did touch on some of those. There are some things that we can do in our manufacturing processes to become more efficient at these volume levels, but we see that Q1 is largely attributable to those facts and we'll see some improvement through the balance of the year.

Yeah, I would only add to that. Good morning, Aileen. This is Jim. I'd just only add to that, your question was really good question and on mark in terms of driving synergies across our overall businesses. But I would say we do that, and we do it consistently, but I'd also add to this, this is largely what Jonathan said, it's really more of a commodities issue. This is a very well-run business. If you look at the margins over time and progression, we're just hit by a little bit of a firestorm there on commodities, as well as some softening sales in some key markets for PT, what we call PT, Power Technologies, but very excited about where that business is going. So, I feel good. Thanks for the question.

Great. And one last one, if I may. On the Commercial Vehicle segment, some of the suppliers in the space as well as sources like ACT (00:25:50) have struck a bit more conservative tone on volumes as we head into the fourth quarter, which sounds like you largely endorsed as we're lapping tough year-over-year comps. However, one of your key customers in CV had a bit more constructive tone yesterday in terms of the order books through the end of the year and into 2020. As you look at your discussions with automakers, particularly into 2020, is there any reason to suggest that 4Q might be a little bit stronger than the industry sources suggest?

I think we're seeing some of the same things that you've seen in the last couple of days and it's early in the year for us to take a different perspective. But, certainly, if demand remains constant through the balance of the year, there'd be a bit of opportunity for us on the top line. But I think we're cautious at this point in the year to make a change to our full-year outlook.

Great. Thank you very much. That's very helpful.

Sure.

Your next question is from the line of James Picariello with KeyBanc Capital Markets. Please go ahead.

Hey. Good morning, guys.

Good morning.

Good morning.

Just wanted to focus on the Commercial Vehicle segment to start. It looks like your incrementals continue to be pretty solid there, whereas a lot of other folks are showing a lower drop there just due to the industry's elevated volume. So, curious what might be driving that for you. And then, given the expectation for the North America market to turn over next year, also curious what your thoughts are for the decrementals potentially in that business for next year. Thanks.

Thank you for the question, James. Appreciate it very much. This is Jim. I would tell you it's kind of been steady as you go, overall operating focus and improvement would be the biggest thing for us in terms of your first part of the question. We've been able to leverage – actually off of Aileen's question a few moments ago, we've been able to leverage that we're in three driveline businesses around the world, and over the course of the last couple of years or so, driving in operational best practices, better supply chain choices and locations, and multiple other things associated with, as you know a very up and down business and more often than not more difficult to predict where volumes are. But we put a lot of structure around the business over the last three to four years, and by doing so, we got great stability and ability to perform very, very well for our customers, which is obviously the second part of it tied into continuing to get growth. So it's just is a steady-as-you-go process in terms of operational excellence which has driven more of it and we expect more good things to come. Jonathan, perhaps, you'll take the second question.

Sure. Related to the decrementals, the thing that we continue to point to within the Commercial Vehicle segment is that of the three business lines, the Class 8, the medium-duty and the aftermarket, the Class 8 business is the least profitable from a contribution margin perspective. So, when we gave our guide for next year, we indicated that we'd still be able to expand margins in spite of the fact that we would expect the Class 8 market to be down, particularly in North America.

Got it. That's helpful. And then just thinking about your new business backlog, just wondering where is the most exciting quoting activity that you're seeing for Dana now to continue to generate strong new business backlog contribution going forward. Is there an opportunity in Off-Highway that you're seeing as you continue to expand your addressable market there? Yeah. Just curious what your high-level thoughts are. Thanks.

Great question. Thank you for the question. This is Jim again. I'd say it's a little bit of tongue-in-cheek fun if you don't mind me saying that's how you define exciting. Exciting from kind of new technology and those type of things, as I mentioned earlier, all the all-wheel-drive new products that we believe are – not believe – we know are cutting edge in the Light Vehicle business is exciting. All the electrification we fill out the platform, as we said before, we essentially define it as we're energy source agnostic. We're okay when our customers knock on the door and they said we want to do IC, we want to do hybrids, we want to do full electric, whatever you prefer to do so that – in that form or fashion. And then even off of your point a second ago, it's really exciting particularly in the Off-Highway side of the business because we brought in so many new products and capabilities and global footprint with the acquisitions, especially between Brevini and Oerlikon which are largely speaking are in the Off-Highway piece of it. And as we bolted on back to – and you may or may not even recognize, a lot of people probably have not, even our Off-Highway, we don't even just call it Off-Highway Driveline anymore. We call it Drive and Motion, and that's because we're doing so many products that are still to our core, i.e. to the gear. But when you think about it, we're now in the winch business, we're in the slew drive business which is obviously the turning apparatus for major cranes and so on and so forth. I mean it's really exciting for us and customers certainly in the Off-Highway business, look at us, and say, wow, they get it – we get global, we get sophisticated, we get 115 years, and so, there's a lot of excitement around that. And by the way, all of those type of products are getting electrified too. So it kind of fits with all of our motors, inverters, and overall software and control strategy that we've enacted over the last couple of years. So I hope that's – I hope that – I get pretty excited about it, right, for obvious reasons. That's what we do for a living. But thanks for the question. Hopefully that helps.

Much appreciated.

So, our next question is from the line of Ryan Brinkman with JPMorgan. Please go ahead.

Hi. Thanks for taking my question.

Good morning, Ryan.

Can you hear me?

Hi, Ryan.

Hi. Good morning. Could you please elaborate a bit more on some of the market outlook observations on slide 9? In particular, what do you think has driven the maybe stronger-than-expected start to commercial truck production in North America this year and then also the tapering toward year-end? Meritor yesterday increased market expectations, but I think hard to compare because they have a September 30 fiscal year-end, so wouldn't reflect this tapering that you see. And how should we think about the expected tapering potentially impacting the trend in 2020? Is this a soft spot you think or the start of a longer-term normalization toward lower volume that continues into next year?

I'll take first swing at that, Ryan. Thanks for the question. Good morning. I would tell you, maybe if you think back on Dana, the way we think about Commercial Vehicle and arguably the same thing for Off-Highway, we probably are a little bit more cautious than others, don't really want to get out in front of our skis than others. And that doesn't make our approach right or wrong. That's not at all what I'm suggesting. I'm just saying if you look for cyclical changes or you look for the ability to protect the consumers or fleets or whatever that is in terms of their buying preferences or timing and all that stuff, just Commercial Vehicle and Off-Highway are more apt to change than perhaps our Passenger Car/Light Vehicle. So we're pretty much in line largely speaking this year with where our competitors are at. We just think that Q1 is a little bit early in the day if you want to call it that to start making a lot of changes. We just – let's just play this thing out a little bit more. 2020, I don't think we can really give you that. We've been pretty consistent over the years of not trying to get out beyond our skis again into the next year. Certainly, we love the order book situation where it's at this year. That's a good sign that there's still plenty of demand out there. There's a lot of good reasons from a fundamental standpoint to believe that 2020 could be yet another really solid year because ultimately we all know the reasons it's been up for a period of time how it's been, but I really can't give you any more than that as it relates to 2020.

Okay. Thanks. And then the commercial vehicle electrification opportunity, it's seemingly getting a lot more increased attention in the media by investors, by some of the more established players, Allison, Cummins, et cetera. I think making your TM4 investment all the more prescient in the sort of earlier than pure organic investments you made. With that being said, are you seeing increased competition in this area, likely some of the larger players that can – disintermediation? Do they have a large appetite to pour resources into this area ahead of returns, et cetera? How would you say – I know you want to get away from talking about like prototype market share and stuff like that, but without revenue to compare, how would you say that the competitive environment is shaping up for this market that's attracting more and more investment?

Yeah. I mean, it's in the press. It's free. It's out there, right? There are some of those people that you mentioned or companies that you mentioned that are pushing back into the space to some degree potentially. Obviously, we feel very good about our position. Our customers, I don't know if it's PACCAR that we've been with for 90 years or whoever it may be. I think they have a lot of confidence in us and they'll continue to bet on us over a period of time. I don't stay up at night worrying about competition. We just worry about performing. We also aren't worried about having a lot of competitors or more competitors. In our Off-Highway business, if you take it as a surrogate example, I don't have enough time in the day to tell you about the fragmented space there and the competitors you deal with in that business. We've got it down pretty darn well. And so, whatever competition comes at us, that's okay. Competition is good. It makes you work harder, focus more and have a better strategy in place. And like you said, when having TM4, we didn't jump into the electrified Commercial Vehicle market in July last year when we acquired that. We essentially bought into it 20 years ago because they've been in that space that long. So, they certainly have all the road miles. They certainly have all of the durability, experience, everything that customers (00:35:35), these Commercial Vehicle customers are extremely intelligent and they're not going to let their customers down out in the field without proven product with people that have done it before. So, we feel very, very good about our position in the Commercial Vehicle market.

Great. Thank you.

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

Hi. This is Jason Stuhldreher on for Brian. Just a few quick questions, one on the acquisition impact in Q1. The benefit to margin was better in Q1 than I think it's forecasted for the whole year. I think the flow-through is at about 15% (00:36:26) or so, versus the full-year guidance of 13%. Is there anything we should read into that or think about through the rest of the quarters in the year?

Yeah, I mean I wouldn't read too much into it primarily because you typically don't see our results on a monthly basis. March has more workdays than the other days in the month as well. So, it's typically better for most of our business. I will note to the fact that after we've been in the business for almost two months now, we did get a really good jump on the cost synergies. The PMI planning we did in advance of closing helped us to really hit the ground running. So, we see opportunity, and we'll continue to drive towards exceeding the $10 million cost synergy target for the year. But it's still early days and we'll have a better update in July.

Thank you. That's helpful. One other just financial question. Regarding the $10 million of EBITDA that was taken out of the organic growth, I think you covered that and we're going to see about 30% conversion-ish. I apologize if I missed it, but can you just go over the factors giving you confidence to hit 30% conversion in the last three quarters after sort of the lower conversion in 1Q?

Yeah, sure. So, I mean one of the factors is that the sales decline related to the old and new Jeep programs overlapping last year won't cost us an impact on the bottom line because the loss contribution margin will be offset by the launch cost not being here in 2019. We've also highlighted the fact that we took some structural cost actions in the second half of 2018 to improve the cost structure of the business. We expect to get a full year of benefit of those in 2019, which is helping to improve. And then the third factor is the – what Jim characterized as the steady state operational improvements, volumes moved up on us very quickly last year. We did an exceptional job of taking care of the customer and delivering on time, sometimes at the expense of efficiency. Now that we've been operating for that level a little bit, we've been able to make some adjustments in our operations and more importantly in our supply chain to make sure that we can improve the efficiency. So, it's really a combination of those factors that give us the confidence that we'll get to that level on a full-year basis.

Okay. Thank you very much for the color.

Sure.

Okay. With that – this is Jim, I'll just take a second to close out. I want to thank everyone again for your attendance in today's call. We really do appreciate your interest in Dana. Hopefully, your takeaways from this call and frankly for that matter recurring calls that we give you – we provide you updates over time is that the Dana team is doing an outstanding job operating the business, including but certainly not limited to growing the business on the top and the bottom line, to incubating and innovating new technology in both our traditional businesses as well as in the e-Propulsion product lineup, acquiring and integrating very targeted and selective bolt-on acquisitions, or if you'd like, differentiating ourselves through operational excellence which we talked about earlier in some of the question-and-answer phase. So, we're going to continue to do what we're doing. Our enterprise strategy that we rolled out a month ago, as you may have noticed by now, was not a major pivot. In fact, it was a very minor pivot. That to me tells, at least from my standpoint, is it tells us we probably got it right or close to right when we rolled it out in late 2016. So, what our objective is now that we have the assets in place, we have certainly the great team in place, we're just going to continue to go execute. Thank you very much for your time today. We look forward to seeing you or talking to you later.

Ladies and gentlemen, this concludes the Dana, Incorporated's First Quarter 2019 Financial Webcast and Conference Call. Thank you for your participation. You may now disconnect.