DAN - Earnings call transcript Q4 2018

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Operator

Good morning and welcome to Dana Incorporated, Fourth Quarter and Year End 2018 Financial Webcast and Conference Call. My name is Carmen and I will be your operator today. Please be advised that our meeting today, both the speakers’ remarks and the Q&A session will be recorded for replay purposes. There will be a question-and-answer period after the speakers’ remarks.

We will take questions from the telephone only. Instructions]. [Operator Barber. I over begin of to and Planning, time turning presentation Investor like Strategic call the Dana’s Craig would this the to by Relations At Senior Director Please go ahead, Mr. Barber.

Craig Barber

joining to Carman you, the you and morning us Thank everyone today. good call. on Thank for

our or and Dana You on copied the be without are property morning’s of supporting They consent. now this call may recorded, Today’s find Release and materials website. will are our written is Incorporated. not Presentation rebroadcast Press posted investor being recorded the

always, call from for As expectations questions with Q&A suggested those session. includes your we please questions presentation comments differ our possible, about Dana’s many by our as future a forward-looking will end statements Today’s brief. performance. our To Actual today. as keep could allow results

factors Kamsickas, and those the our filed statement could President the SEC. call morning that Safe Executive Officer. Collins, results Presenting our with is and affect Officer; in our in Vice Chief are Jim, reports President about Financial this information Chief Jim Additional Executive summarized and Harbor Jonathan public yours. including filings, future are

Jim Kamsickas

team, you that very margin. Craig. this growth. on $XXX very everyone. the organic, demand market, the and in Dana driving morning to being proud on the team business sales, grew our Thank million of thus to well and We billion growth behalf record successfully entire the to market. We high nearly profitable substantial $X Good in say, launched extremely sales organic communicate portion year this a new very a executed with XXXX of business backlog and was Needless for much I'm profit, nearly by brought

drove this $XXX launch XX% And and XX the at the basis the margin back business the execution in right when year. as success, came one profit EBITDA in free again we growth achieved and remain achieved is accomplishing for improvement double at inflation this higher priorities. feat cost we profit by point costs XXXX. small we operational generating XX% highest shareholder continue over adding best in year. where is XXXX, in Our at as same products, half considering business Strong inherent our overall to, and we the $XXX in last year, Translating million higher overcame grew value increase also a we significant of outstanding in digits new Generating time the commodity of which expected the returns of customer million, satisfaction part performance. our shareholders. will always Perhaps to the we committed flow improvement through no EPS that beginning we of technology, year adjusted cash

last and Honors As you can this see year. received significant page, over XX we Industry Customer on

communicate us Of business will is or course, over to backlog indirectly, layer directly million net new enables $XXX that our the that this three in years. next on committed

of the acquiring what and foresee fact, SME may future coming us leading year incredibly TMX an in companies, on excited of off the that the the page, this all is we In finally most successful opportunities industry e-Propulsion have Group.

of great the the will added of business the into for over Oerlikon Dana growth only quick acquisition snapshot Drive have page turn drive and future a our and three complete as years. we acquisition to world Please of markets five, We the electrification. the at and innovation end we balance evolve this exasperate further past at technology, and once people end Systems month. will this This

over presentation time. slide We well. the I've often it story in at what's Dana as So for I've outlook month this very X.X our approximately been asked years tells been now, last and used changed

was they for acquisitions, up strive continuing up we towards a at Jonathan this through XX%. EBITDA Over do and are lot diluted year up we cash to will flow and have share seven and the our were but that's team, future. time as per over appreciate more you of to no I sales grow executed nearly integrated still do task. finally strategy and now years, detail XX% morning. earnings easy the in And walk in have Thank your our and the while XX% last really three free the last some for our you outlook XXXX. performance business, XX%, outstanding

Jonathan Collins

XX XXXX Adjusted demand, sales. in and of XXXX. $XXX than were Slide last of the fourth XXXX results the you, in X%, million for helped market prior results which with for drive with improvement full final as an a of in the quarter year provided of prior is a million, million are is of quarter a overview was conversion and Jim. These in preliminary point of line to the XX.X%, growth billion year. over the period increase an sales compared seven year year strong basis EBITDA periods the a the million primarily Thank backlog XXXX margin ended same fourth we $X.XX month. rate the fourth $X.X which the our sales to of $XXX increase same due more we profit Fourth $XX from $XXX growth full for billion, compared quarter over of quarter with

million the XXXX than The for than adjusted $XXX sales our full eight in year of for $X.XX XX%. end led $XXX impact $X.XX, in included quarter, by the in the $XXX to than items the a XXXX U.S. fourth results income of than The with points EBITDA for the million generated EBITDA charge, continued we was in higher higher full with related four were Net a cash in prior quarter million million this remained our profit and organic year for on strong. capital required XX $XXX year adjusted than Strong growth. and flow Reform. markets EBITDA and generation year. the $X.XX working million $XX income Please earnings $X.XX EPS higher million in fourth in margin XXXX XX% to growth. XX.X% $XXX year and EPS record to the me offset For added million, XXXX. full higher prior year. margin expansion. compared which of non-recurring net Higher to quarter flow fourth the in the and a full lower compared was $XX a million that’s turn quarter and sales basis conversion margin; for the full higher Fourth million an now organic was and the XXXX. XXXX First, cash was $XXX as spending demand growth capital for Diluted support $XXX we adjusted Adjusting of year higher of sales delivered charge the was excludes Tax quarter XXXX, million for year, driven loss $XXX the $XXX free for the growth of adjusted than growth an organic prior slide more profit and details fourth backlog, to million to incremental convert factors: profit sales to

cost continued inorganic margins synergies acquisition. growth as Brevini realized Second, from we to expand the

of sales to $XX Latin the the American primarily quarter Third, international and U.S. at in that by lowering continued million the weaken due in EBITDA rates, dollar. adjusted a million results $X countries headwind foreign by translation against currency currency was to

Finally to prior by Raw same fourth margins material commodity pressure in period the prices the cost costs million increases continued year. the increased over quarter. $XX in

$XXX same virtually flow out. $XXX the year, in approximately prices flow higher $XX million working a we nine, of to margins lower selling by fourth the look turned for last flow expenditures. in million We cash quarter. turn million. of due all slide capital of to of the cash impact Please recovered generated during closer QX quarter fourth the form the in higher than the However, with basis for capital to prior seasonality $XX XX a year in cash and free free period points. million how profit of primarily free This lowered at me net our The was

spending As this as working quarter XX of for $XXX Capital program typically slide now same Jeep the period is full in on details than year Wrangler expenditures our source $XXX turn with million. cash significantly quarter the were fourth and higher the as in last now to XXXX a full by inventory capital on me call, time behind last year sales sales we by EBITDA the year fourth million lower us. growth. was the year. Please XXXX receivable and at subside highlighted on adjusted is increased of profit balances and

and rate growth typical million we demand organic XX%. the through in strong meet million this demand growth we conversion cost remainder is at our of attributable forward continue than incremental significant and all delivered the convert four was our We’ve our our incurred result expect elevated $XXX to The for year of backlog to fourth conversion be conversion rates added organic lower comparison, markets to full the with to high the streamline growth the and costing numerous factors: an XX%, year. as going taken The a structure year. the premium actions sales $XXX remained As quarter in a environment our First, demand. of operating profit improve of to as

Brevini a and full as year of US-MX cost plant acquisitions expansion margin points and associated drove the of transaction. growth sales the Brevini inorganic Second, with both recognized significant achieved XX synergies for basis we

was full year offset. the of quarterly the on negligible currency foreign Third, changes a as impact basis

the call. line scale increases the cost with of were Finally, the on quarter we in third the expectations presented commodity

to with selling XX, million we month in by compared by The by our $XX million, million typical $XXX a margin XXXX XXXX of the million said, with to Please profit how to we’ve half XX recover flow. inflation margin. generated XXXX customers XXXX, We We of $XX prices. now $XXX reduced margins commodity net recovered lowing slide million material impact a of in $XXX three X% back free In accelerating full year. increased cash raw turn points. over for prices a converted in form one our basis approximately to higher of cash for X% As detailed just a the the the for profits majority over look in at free flow lag. year increases from

expectations our cash year. higher cash jurisdictions, $XXX spending Elevated an launches, Our with was XXXX last below offset taxes Jeep Wrangler. capital a the were completed related this turn of look of XX timing year in restructuring than slide in more the to tax profit and and of for million earlier use of last increased taxes income now requirements. cash namely capital Please capital prior growth the organic Capital spending entity Working program sales payments, working as result elevated paying lower year for we to a support growth. at the had expenditures to year. in were new me significant

as We XXXX are year financial you our we and affirming it to offering month range our you with last ways. we discussed are two guidance showing full

the a couple The Oerlikon business before base we close of is weeks. it Drive in first exists the acquisition as Systems today

The of second XX includes the business. expected impact that activity for worth of months’

base range. the guidance our For billion $X.X on be the of business at expect at about we sales to left the midpoint

We at $X EBITDA a the over at billion of XX.X% midpoint be approximately billion expect our of that profit margin range. $X.XXX and adjusted to implies

that the cash XXX continues to over begins capital as business We base by as subside. to year sales to flow the grow to expect adjusted EBITDA the level in on of last free we years our higher deliver and couple adjusted points working last as our invested basis expand

of We at Drive million $XXX to Oerlikon business million million a the adjusted includes of sales, guidance EBITDA, $X.XX adds Systems EPS The $X.XX. cost this year also the synergies. which $XX with to accrete million expect another $XX of of expected $XXX adjusted ending

our achieved We year the acquisition $XX of million sales, be acquisition with to a slide year. and use flow next flow in this will approximately profit synergies costs All consecutive and We of with free the to which free integration year. balance of expecting implied to XX line we cash cost digit cash to flow me double third margin to Primarily cash dime Please sales, EPS is turn we in, do due accrete growth. are deliver to about our to the for the expect and incur, the regarding sales last also expected we factors and the X% adjusted of profit profit The of last free are primary four to transaction a leading details this be the further year. in most sales growth will year's same XXXX, drivers growth. the for of expect expect lowering growth XXXX year.

growth remains major performance. organic First, a contributor our to

We While million with and backlog last non-recurring products $XXX line expected in old we our the our result to market sales of $XXX for is a first as over last strong programs additional year, sales. expect Wrangler the in generate remain in half demand in new to overlapping. Jeep and million of had year,

the However offset than the negligible be program. year-over-year costs on loss of the launch by profit contribution non-recurrence margin as be impact more will will the

growth We last cost the a year, that structural expect higher as our to the we be result will overall on conversion of took lower organic year are as operating improvements we making as actions conversion costs. well this

from Drive $XXX profit. million in add sales will million growth Oerlikon and acquisition Second, about Systems the inorganic in $XXX

and beginning year, we slide Fourth, higher level this Please to recovery continues for year. the slide no this detail commodity foreign the year’s out. of with to and the our quarterly that relative as but currency of the year on the year value expect of middle turn to of the to we more profits. margins commodity and $XX sales be intended in we Third, headwind primarily inflation Typically net pressure commodity impact move costs the this about will will and and headwind, through euro expansion, on albeit profits continue progression phasing to of The the dollar. is signs a sales year. peak to to due sales a U.S. improve exception. of we through million to expect see This are slight of as $XX the our profit profit margin with costs about million illustrate put the rate XX, a be me

year flow. anticipate slide margin and year only Please turn to We with as expect the the We Oerlikon backlog one month in convert the converts worth more as the sales profit lowest we business. to improving will accretion profits the contribution will first quarter the and expect and to our of we Systems Drive balance me cash from have recognize the of sales profit for of details sales the how on the acquisition. from free XX have

we on as The acquisition. free expected reasons. highlighting the we've of the flow cash discrete as made and adjusted our well $XX flow margin XXX of the business, by few last is As guidance, the free overall Drive for expand the be drivers The business Drive Systems cash Systems points base is free impacted grows use to basis adjusted Oerlikon our providing profit in business about the Oerlikon are working capital of will as subsides. two of years investment a flow cash base million

First, transaction we with will cost integration a the deal. associated and incur

this the due for of than normal to spending capital the business Second, launch programs. certain is year cycle the higher

to these of significantly both next expect year. We moderate

a we merely supports the our using of Jim and are action cash to plan Slide start that sheet. to discretionary free we of highlights new This call. excludes measures. that to note XX, fund of our balance at later pension the terminate reinforces plan. our contribution year this You’ll quality objectives improve the a frozen adjusted measure some flow make This pension mentioned continue the to

years is it's XXX growth them and XXX are by margins are the We've Over topline also converting year. adjusted year points poised on by deliver few the the by and basis year, double we profit expect next points the to sales billion the a The of five another substantial basis putting add last we've this CAGR. past $X to another expand us by digit $X of years and our in end delivering grown nearly cash. business few to to EBITDA track of billion expanded

in only X% X% margin generated the business deploy flow free of year, to friendly a ago and to generate flow a are shareholder years free of we cash a in be on two cash position and a next trajectory Just cash margin a this manner. will

Stock exciting years Enterprise over provide that profitable year focused past Time update our Carman Exchange now Eastern the AM New around this March and and on X:XX financial will listening an next. Electrified the to implication team your new grow an coming portfolio growth diluted of I’m at on trajectory our to continuing adjusted and continue more these. take Dana turn by than back Monday, Investor our Products to Strategy, remains expanded Day pleased information be York over Finally at of of I’d both announce on morning all morning $X.XX this entire this excellent also and few call of XX years. more thank we of to to The the the future poised is EPS in I'll hosting like to for this questions. is the in your the

Operator

you. Thank Instructions]. [Operator

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

Aileen Smith

taking morning. for the question. Good Thanks

slide which in XXXX to your around that [ph], flat market underlying accuracy assumptions, been and at forecasts. Looking it’s around your of XX questions industry appendix market generally there's appear certain no some the stronger secret for

if financial any broadly now? do assumptions, how markets conservatism your more regional and most So end and you what baked XXXX you or markets right into market think into much have have concerned you these outlook

Jonathan Collins

Aileen. morning good Thanks is for question. Jonathan. Hey, the This

number be from in clear months are their get we look patterns, and industry results of we with line the pretty look that of corroborate do at looking One we of of independent our we out sources and plans at, of see. beyond our are we a at, the what consistent generally research, also customer most with different pieces we are things that and think markets operating comfortable customers we build few and end they that what the We best and about try we to is look our the releases information. to at and do a our

we reference, those best and to our put as but do we a are we in pretty comparable. think they corroborate them So

markets, look markets think of it remaining very think with be the critical and but we continue that basis us. class one North think say for us end of significant see a strong is market through X in a this at each to there year those continues that’s there to at North look I would I on for to regards and that most other that and frame we full that’s us, we then, market continue to the obviously truck year, America, end there. year going to I American as this the to closely is be a good and important strength market we And

Aileen Smith

that’s Great, was a costs the you the for was Wrangler that front very up. And launch helpful. had obviously, in last really huge year, hit production and half as guys ramping you

those think even in about be that some be launch already have we new you of ramps programs. incurred the costs those assuming still have time cost of coming, should significant terms As And will that should some hit around associated and the of up? XXXX into about you or you and those timing, same thinking XXXX product production we as launches headwinds with

Jonathan Collins

So will some in million much that Jeep launch $XXX the multiple that's of with System coming those bringing on, North are backlog costs program online Disconnecting Ranger we've by to Jeep compared is Truck the smaller. Wrangler Rear is the the The Ford so just of those, magnitude Ford coming America. but have so associated we with regions, launched that we to we principally to new are back the grow, continuing that's driven year this

have a launches smaller. So, we these have perspective, seasonality some the and Wrangler we on highlighted of other going the platform the result scale impact largest We’ll company, and expect and second out was that that Jeep a be the activity but significantly as do the From balance in of of the because just size the just we year, launch programs. are to now. activity called muted through launch the financial

Aileen Smith

that's very Great, helpful. questions. for Thanks the

Jim Kamsickas

Sure.

Operator

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

Brian Johnson

Good morning.

few questions. Just a

about the their and transition you on just Wrangler are making You know, pickup to first comments their up following truck.

think version to inventories factored seems high to for both fully – Wrangler, Manley not at to part around correct in the Mike kind Wrangler. – be Is ready a of forecast. kind some of the consensus and that downtime of there you the addition Is I those looked for when you that get that know, out inventories couple is LV Is your you dealer factor questions. you the forecasts, production in? IHS of called do of it guide that clear year, and have In PHE then cadence? a guess that’s if and into do

Jim Kamsickas

Hey, pretty little I for not it referring can Jim. What come baked a releases everything good and tell our this if get answering plan individual to it's you bit I'm overall our sure we on was in kind that we releases our specific baked – Thanks pretty Brian, I’ll in. you of and our long question we our exactly is, and so take the guidance and first. earlier, right morning in question. those is so plants a releases on that Jon runway to provided that's have to forth, that now in you. provided good, throughout, we

Jonathan Collins

look when on well close out are comfortable downtime, we Brian, for think as It the pretty we at we little bit accommodates what too. putting with we number it's know. based and we're a Yeah, of IHS

Jim Kamsickas

offered as to it the give collective will just I you since say little bit, a an though update. What audience

is Gladiator it it indications relates which from probably the it to as and and I of looks it pull excitement. truck leads whatever, saw different launched, know, very at promising the all think many you through You consumer being or shows

that. So pretty excited are we about

for and We will system that come start start we’ll on up are curve the QX, coming that. and to that prepping the right into through our now,

Brian Johnson

is or I drive plants because launch follow-on And worry lines guess impact question that’s deminimus? similar and to there any just a it there, cost about

Jim Kamsickas

astute are very this. at You

to it’s share really carryover in minute JL the of JK, Johnson launch have it capital it one, – we guidance. the was typical year don’t between you more for so circumstance, of it this kind You church a ago. the have this was talked year. baked and build and unfortunately on our like difficult Last -- a that cadence I -- and Easter double had the we said Sunday, past in that it's that and so We to made can't the

Brian Johnson

next question. Okay,

know closer get Was just so, if in You or margin XX% cost driven other are a commodity that know we to you that you should expecting came you to XX% margin aware in and can really in were X%. of. by be CV, headwinds headwinds ‘XX there

Jim Kamsickas

There are actually headwinds. a other bit little

So you last knows was sure, on one touched for in commodity were costs. at, of those Everybody where which them of the second year. half

other our share more. the own before, as pulled I’ve demand the The was end for especially around last synchronized of was the demand incremental one it getting getting we demand was overall our demand our through of at that biggest world being had channel as customers, the but plants, wasn’t incredible, well pull from out and said the market The as year.

bases deploying So more online a through as that the and not supply that capital base, came good it, news we’ve and but a continues having lot come our lot it supply online. is ourselves, installing been of to

of guide, put feel up digits. year. as that we out it I the balance coming good the in the And into So here will throughout back and double we QX yes expect into about our

reach year. will Group our CV double We in digits this

Brian Johnson

you. Okay, thank

Jonathan Collins

Brian. you, Thank

Jim Kamsickas

Thanks Brian.

Operator

Lache Research. next a Your line question Wolfe from Rod with of comes

Rod Lache

couple a got questions. everybody. Good morning I of

are sounding us expectations vehicle it's of your First, sense on both, products and Gladiator terms what you the volume. there’s about give Obviously can very and a but what big Dana in Ranger how promising like could be? would for some the the per content of be debate

Jonathan Collins

are we we the the driveline to the on do similar what so Yes, Wrangler on supplying program. full Jeep

been not incomparable lot you do It's a equipment have that are vehicles. the included those well. and a a we to perspective, say bit this that vehicle, of From conservative sources other some vehicle. external discreetly, think mentioned, we number if we’ve would that But I conservative number we might while new for volume going been well on do at we're common as of a a the Jim in even as As it design know we does giving assumed And looking on we've it's better. new the very year.

back the is to excited product product. We to think we pickups the Ford are the about America in well, year, Ranger do are comparable segment. a also going about this growth so that coming really of that Compact we're excited to North continue launching that

Rod Lache

you things like originally on accommodate? to know is call planned that something gets XXX. this XXX,XXX XXX,XXX for Colorado like could like pushing obviously Ranger already most to you GM's XXX,XXX Canyon Ford units, So, and had something units and like something If thing

Jonathan Collins

what volume based Yes, support segment what with work on on that. think on took believe our we build, a We we our But calibrated collectively right line capacitized so other expectations are are looked in can can customers the that. they to path. down customers I the perspective think the you we going the and at segment do and

Rod Lache

to one Obviously was just production some given on you can point XXXX you in ask wanted cost that premium you made. was. inefficiency just I and elaborate there also if how strong Okay, incurred

address some of comment the just the changes a there's suggesting to made what's You magnitude that elaborate what on that. made that and Could you is opportunity? you've

Jim Kamsickas

know the I the the enough of so of it business, that, you're refer X and wasn’t X out high process was just the on. thanks high, Tier Jim. and we anyway there was every demand start The significant, is aware X, our Tier to didn't bringing commercial to capacity just particularly I this But is there. Most demand so Rod, trying on was of Yeah out side arguably really Tier was vehicle that there.

just of for You were type on put it November are the start for did don’t or good of That bring coming year should last thing capacity that most and or significant comments. or we in That’s going supply to looking just fortunately. up things the for now We thing the demand things most that last fully supply take year planning in you that the we and its from and of type last that in – January we the October. you was year, those of year. lot on early parts most a board this important of February doing in

Rod Lache

what does frayed be an just that mean of from elimination should expecting financially, premium or What we that?

Jim Kamsickas

Exactly! a significant, had commercial it. not quite where were But That’s assembly year them in needed us their supporting that and probably able their sure because get to the from cost when around predicting of running. it bit that and they’ve overcooking a say word rewarded I vehicle premium parts we the to us to and that. lines make be most transportation I'm world our enabled customers spectacular we a keep had spectacular to for to money year we We lines

Jonathan Collins

And also P&L areas we though affects example, efficiency. the for in labor like it

the amount standing waiting when parts of premium we efficient. were for as not around So have time, people

the more efficient So well. areas to the supply help make addresses in other as will in chain us

Rod Lache

like significant that guys give it's know you a incurred sense number you us a Can means, of sounds what you that that just number. you what It the address? can is

Jim Kamsickas

on the year-over-year Yeah, watch schedule. is rate reflected conversion the difference

So we XX% last converted it just under year.

We year. convert about expect XX% to it this

to is that difference those improvements. attributable So conversion efficiency largely

a in too That take mention we fact the tens of is will that also benefit as cost that structural some tune of actions millions that us did year did the at there. encompassed your thing month is ago other well conference of The we last dollars.

that improvement So of driving sales two those things the growth. are conversion the on organic are what combination the in

Rod Lache

Great, thank very you. helpful. That's

Jim Kamsickas

you, Rod. Thank Sure.

Operator

with comes Deutsche question line Bank. the next of Emmanuel Your from Rosner

Emmanuel Rosner

everybody. morning, Good

Jim Kamsickas

Emmanuel. morning Good

Emmanuel Rosner

would the margins know rates on down the just volumes the deployed of conversion result put you so the actions at you know this flex follow where put about on you've point know it margins we see or year. capital be some reduction in once curious would as down So some commercial you served you'd or a I'm some the at be you that some more the and will as considered of in these about know up you actually and cost at you know vehicle this do really well. structural a higher on pressure like be detrimental of way thinking there, you how XX% looking to point cycle,

Jim Kamsickas

point largely key the to strategy. of question for take the Jonathan let our more also the will do in I’ll not want but Sunday – Yeah, I business the base, church with detrimental I in that reinforce Jonathan We're one. specifically, brought audience I’ll capacity, you and know in the was let take that we second that Easter supply you our capacity on the building the for so

Jonathan Collins

Sure.

have of focused we fixed last we prepared what on heavily the are are make detrimentals. cost mean our that down, we I year that the manage one of sure took actions So driving examples doing to been to we're the

in the significant would X other for we've last highlight commercial off in I market. run of example. the seen volume is The The class vehicle years couple thing is most that take

attractive have margins businesses, aftermarket in the also are and the significant more duty in aftermarket We know presence duty the heavy in the both medium medium the vehicle than and a and the you of road. those over

what a detrimental opportunity conversion the have that So comfortable an see up from way think that's to you'll and even we're we standpoint better. comparable a on do with saw we we

Emmanuel Rosner

little a you're you slide beyond Okay, bit targets look revenue give that's could beyond turning expected. know color what looks set nice a It the and we please? of thinking is puts more as helpful. go you takes in margin very XXXX very you curious if you we’ve got how And some some Can just we us look as growth, XXXX. into the over I'm Obviously improvement. and like about then additional on XX, to maybe assumptions up back

Jonathan Collins

two a Sure, Investor few weeks EBITDA go last basis couple give acquisition an things that we of highlights. here, you a we're know margin Day, to perspective, points more going is full XX/X. one and one, the being year to of detail those to XX/X attributable to at in XX a achieve Number expansion but to expect that factors: margin adjusted that that this to synergies Oerlikon a would into of able I'll be From be is having see you the of going couple piece a to going significant on improving the of but from of things is

intoned earlier is in commodity we The are materials are beginning seeing other today's expect costs we down. that signs thing we to come that that

the point cost this likely margin the for have our are nice customers as that peaked transaction included it the cash even tailwind we cash back will some So be and get will at will From comes flow past flow business to is and a primary that us. be a will down, of improvements they our cash free year profit of the next perspective, margin. after Oerlikon adjusted the expenses, flow we drivers costs Those in the integration view the give though the attractive that generate in this year.

that'll fact to the a top grow but also subside meaningful will expect in to consistent capital, going through next would to flow be we think two flow, improve see to business contributor. also next not the years. due relatively investment reasons: expect we’ve to year, And which profits into last line basically year, a that'll be business the a expect for so working cash to in we We one, normal continue that more CapEx Number and the is in going we had few the base level the that

of drive And those flow. those factors more think color talk So mentioned then a that about to I will and more in there. going are as higher to the few free the little a both I a combination of we're get also highlights, help weeks cash and

Emmanuel Rosner

this know for in seasonality that's is then And slide clarification; you of very, more get it on destocking in page saying, of there helpful. therefore very the acquisition there on you or trucks. a the anything very for look, know of the is you U.S. the March quick little essentially either else contribution some or just production a is closing you post time down XX, the timing Yeah, and X

Jim Kamsickas

to fourth first absolutely to everyone from the it the typically also us XX that make and from the that are perspective. sales just but and a lower No, perspective noticed the other, for quarter lower is sure highlight months, margin trying a

just peak the So the business, usually those normal largely middle business, quarter, and demand make intended and schedule. curve either margins sure the any follows even profit as of intone that the quarters. to third the second changes without It's in base not to that the in in Oerlikon wanting of sales it year production significant of where recognizes everyone a result

Emmanuel Rosner

thank Perfect, you.

Jim Kamsickas

Sure.

Operator

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

Joseph Spak

everyone. Good morning

Jim Kamsickas

Good morning Joe.

Joseph Spak

but and little we look through on like So thought bit bunch certainly at commercial weaker of looks past margins volume than It if on I I also quarters. off the highway, of the versus couple are time strong. a is vehicle, spent it maybe a flow still like looks

segment. is So we in with drove commodities the performances, also the terms the in of that what talked issues of and of some sort that off-highway about

Jim Kamsickas

of actually from business the highest the recovery No, more our little Joe. a have our perspective. former We, it's ratios are a segments commodity in in vehicle

experience commercial space note present So we but even margin if make pressure, was There we to mentioning needs recover on of and continues that Jim bit phenomenons most, I the delivering in do incur sure we're if that there we the that of would customer's meeting lot some cost a within is vehicle highway. to be also a off delivering were that of time. the and that

in that Those of from business I the not say the those combination performance, seasonality the drivers highway. both factors end normal that of would are a of see it's year. the you really of the would So and

going largely expansion, the from said think obviously to market opportunity As remain coming Oerlikon margin and benefit further continue we we acquisition. that that next we is for there's of strong to year, look the to

Joseph Spak

Jim and And participate vehicles. and and about to of There's talked talk it see electrifying time made of acquisitions lot what evolving at more pick-up on heavier industry customers lot business how your you I'm I the this you side. about been on, just and sure some light good hear of sort of in figured Okay. of a off-highway do of pick-ups increased the the see also that duty ask the a Analyst with and a going electrication be some you discussions the machines to guess I’ll given you on commercial the would Day, but what and sort are like

Jim Kamsickas

you question the punch Yeah, nail talk one line our for conference segments the you thank the very, is thank you you it know, there's not and you this for will because that more to Joe up. well. of we But setting in very coming the know about up know

up mining. to that in the recreational go XX directionally our participating vehicle, There form would from our of we the another or that could is underground different segments our largest just not one smallest segments There’s segments. know one electrification. be and definition we're not one not You of by in

are are on a that area. activity, in there keep of the to but of specifically kind just two, way. of it light plenty it you kind broad I suffice that there's stalking a So level, put let's say Yes, duty

Joseph Spak

of an I those look know what sort sort exploratory of – indicators. are guess terms the would terms of you as overall it your is in like we what in And mean classify could how I just like program talks mean you are, of or normal where in capabilities I

Jim Kamsickas

doing that you future with about a are but they talking I time, you could that in I'd certainly bit OEMs of is that. question. companies that of be more for companies, say, been the for pretty if think some of may about a would for they’ve exploratory of throughs kind ready going the those, I know little the demand like you to it in these the of example, some argue I are a company mean will. all of coming good Workhorse is think and there's a consumer ensure say that it's beyond and There's the type as bit pull and boutique that other they segment.

for So to we often as ready are like I say. it

know we You year company be agnostic. the positioned last source energy to

plenty do But there’s you know if always out they it they So between. okay or with they of activity, in with full electric internal yeah, further combustion go go said, – is engine, but the hybrid we've certainly they go we're if like cycle. the it's in

Joseph Spak

thanks. Okay,

Jim Kamsickas

Thank you.

Operator

with Your next line Colin UBS. question a of comes Langan from

Colin Langan

it Any we’ve are my for as only the one question. for margins The forward? What far. taking we is about it think I thanks haven’t was think should how we great, so going drifting outlook Oh, on power inflecting been of and there think I it we the color for that segments there, about down. that technology, talked

Jim Kamsickas

technologies power systems. one, in perspective segment particularly further in half It the than a principally two commodities from is a lowest margin year soft chain less reasons. with for are Colin. ratio a the that down morning on of was supply the they Good recovery those as number Number recovering Sure.

relates diesel are factor gate phenomenon that to the we second The Europe. in seeing

We and when for occurred products we engines to to take for orders and the had fill sacrifice on capacity of diesel and went those diesels thermal are gate the predominately OE supplying our aftermarket. gasoline solutions at down, the of lot ceiling of demand a more

deteriorated, business we function of OE product a margins year was into caused an our a select versus a in some well bit better. get get the the see add But it So time really But we we've we getting like opportunity the We lower to better margins better commodity the in the remain product recognized earlier for position that as mix think a improve margins feel year to as as to that high, that past. we there. proportional mix moving mix but product still some issue, the and fill cost into in took we're a closer of capacity the to and that places aftermarket. will last mix to because on sales actions basis supplied more demand this and

Colin Langan

or Got it. this think be of year. of Oerlikon XXXX some into know about you million synergies. in them to $XX three I baked guided I mean those originally you On quarters of all are going

Jim Kamsickas

as where for Obviously $XX of – million Yeah, the cost did in is we as road and Brevini get the found included quickly as will this the year, in $XXX for that's number million, identify million we opportunities so year. we $XX to the possible. this with

contributor that meaningful the we’re be year Now XXXX, up that just next is will ends the of overall $XX year. next or million expansion and next majority a now being in margin balance right recognized to for what the calling

Colin Langan

like like I I’m rate. XX% tax a Got $XX still lastly, down any at think bring and high ended tax? any getting to that it. year it a looks Is there on right, more your fairly sure potential a that And I’m then just think not color percent? is and it’s this rate. guidance I

Jim Kamsickas

we're rates taxpayer more in mix be where a function Yeah, a this year jurisdictional really I we're saw are may bit we think regions? recognizing and where those It's where normal and a what profits, of the moving forward.

Colin Langan

XX% So be rate? normal the would

Jim Kamsickas

in be forward when think give weeks to years. then on few a and of next about we moving we’ll the color that some that I probably talk closer probably we’ll couple

Colin Langan

very Got it. you much. Alright, thank

Operator

And James, your line open. is

James Picariello

good morning Oh, guys.

just and next targets. their So million year. there, can Brevini to success acquisition you by current backlog the on discuss actions mean maybe of $XX just the had you the mean I get those revisit end Oerlikon raising going the with you back synergy that clearly I

You parallels are know there Oerlikon. some with

So just curious what your perspective is there. Thanks.

Jim Kamsickas

we synergy Sure. a when mention announced we in cost areas. transaction, the a the we From perspective that opportunities see few

chain. the supply First is within

So our purchasing leverage when increases significantly are the businesses combined.

piece We’re buying so same see the as we machine origins is, cost that big true operations that’s The there. the was same business opportunity Oerlikon many our for of cappings a Brevini with acquisition. and the the of

around areas provides in are duplicative in be be efficient the these to to that efficient have back And then the obviously our to able potential an as more finally is The make office address more our equipment is the us area that manufacturing we’ll opportunity across This opportunities there equipment of utilize are areas utilized fungible, well more that business, and some us operations. more too. the efficiently. clearly to be to second

drivers. primary the of kind are those So

see certainly very be as only possibly that together, get you reflect backlog an years mentioned I clearly have to the the that well-run that perspective, growing for by continue tell to we and business backlog to we the continuing From have been into $XX of do past you they and we and our Oerlikon, know the on growth they've likely being content are look typically excited backlog couple in accomplished. that achieved I start to annual programs our putting we a we see adjust and can. have won to You they basis. business that the will and augmented we them much new of of as increment hope have can will have business it, the should we million but what they what this we’ll combination costs strive by get delivering they a in as more that operate a are than as know new but today, as that to so we is

James Picariello

the you then are I this can you on leveraging completely and month, How And Yeah. house. things prototype on imagined in applications right this there? in programs key electrification, just address you'll that full talk are Okay, but are now. you you business, How TMX progress progressing have next working know yeah what's thanks. now that or about the you

Jim Kamsickas

the is excellent going wheel know electrodynamics we're to and a a walk integration the that opportunities everyone one well to both, end a these talk you weeks. opportunity, we business the We completed whether join as years big month of electric systems, it's few see as inviting TMX well. drive coming acquisition are In customers. components about as weeks mean getting growth integrate through inside dimension the what opportunity the lot reasons I in us to we to some our for technology. there's axles the think a SME that Yeah, that last of we of preview of of drive help in e-Propulsion and the going is units, those a lot preview, few or of are just But everybody, very

we'll what to too weeks of don't I a do few have here. So to out want in far get

James Picariello

a it just strength and housekeeping out point your involved just or is income to of timing JV Understood, there? there in was equity the the question, DDAC some the which with higher quarter,

Jonathan Collins

while driver, the business joint primary the that which was earnings venture that DDAC flat drove improved earnings out in of structure cost the improved, Yeah, remain that relatively sales higher the China. in and

James Picariello

Thanks guys.

Operator

final And JP question Gupta Morgan. the with your of Rajat lien comes from

Rajat Gupta

much assuming or This with expansion taking just baked what On conservative in how of in in the the mean some prices for $XX thanks for your know is XXXX, trying Ryan. is you question. commodity cost terms there expected repurchase is for to what’s of that? is it I you spot Rajat Hey, assumption – in kind there price. expecting there current there is understand million it for year my calling headwind an or is are

Jonathan Collins

Yeah, it’s of a combination both.

I say in move have, So that for closely certainly they if there of continue we’ll forward. But an so six year where on we’ll enough the could be the some also We’ll monitor the things balance we've us year. in we this of the at look first look for recalibrate the weeks the the end of commodities at overall opportunity that first indicated how far would we an and the quarter to continue to update at progress. But direction that's that have year. basis. on provide come

Rajat Gupta

of margin. cash question free another flow Just

about talked X% in You potential XXXX. the

trending, You how to you higher as but you us to and that going more beyond? capital, and expansion EBITDA margin some give CapEx color you working XXXX could know maybe have do on see

Jonathan Collins

I those all pretty percentage a go with expect to other Yeah, as are clear on to that mentioned, able basis. At we’ve level that things we CapEx been sales target. around that we operate a to of get X% forward

cash So that’s you X%, get would the to can assume X% from be be operations and X% would CapEx we about basically we're expecting. that about that how

Rajat Gupta

think going production your of I decent ground you are for something one outlook, have third get from IHS me, to little conservative seeing the last line it. Got you a One more a sense I Is that parties XX, visibility of you have and just think be ’XX. there? on on know a because APAC or trying size outlook, fairly that into

Jonathan Collins

have go be. expected where to indicated doesn’t we a look. Yeah, I’ll to that sound take right now. In APAC general we

to to markets the So are more which that we expect heavy next that section, us, the are year. down important duty

trucks duty single heavy and got down medium digits. So we've high it

relevant us. markets light vehicle So as up like for the being less other

where be say really to next affected we would I So we are down expect year.

Rajat Gupta

Thanks a lot.

Jonathan Collins

No problem.

Jim Kamsickas

Thank spend with just to taking is Jim; this Okay, close. some time that with you us. everybody for time I’ll the again

flow a from the sure I you in a entire while thank the scoreboard for margins, record recap cash entire team, think such the increased lie, XX%. of I'm And to you position as profits, know say at well able minute. front, my want and about it CEO's free know record the mean you sales, doesn't for You The everything you hope to as so I while things you and as be our a team year are end do customer to our record know customers. done, for you they've on over to that chair, plan

while the nearly growth do like We the $X with forward completely thinking filled high motors out it same at we'll be voltage XXXX continue of little mentioned of and consecutive revenue will new this voltage electrification it our I and source portfolio organic being with billion else low third associated even to over for looks and in or E-Propulsion the time a agnostic years new inverters motors, everything and bit as and earlier. we the all go energy

fill acquisition, space white what appreciate said ago, a said running a were all boutique to As We say business we going the we grow we then ago this, execute acquisitions. few and going business, the on though through it. all can you bolt-on a appropriate years about were that it’s years and few go to we go in do

month forward We each today. your exciting to XXXX, at a hopefully much to forward next you continue really do We look seeing time conference and investor look thank the that. for to you very of

Operator

This for call. again today's concludes you joining today's Thank webcast.

may disconnect. You now

Dana (DAN) 15 Feb 192018 Q4 Earnings call transcript