Good morning, ladies and gentlemen, and welcome to Dana Incorporated. Fourth Quarter and Full Year 2019 Financial Webcast and Conference Call. My name is Carmen, and I will be your conference facilitator. Please be advised that our meeting today, both the speakers' remarks and Q&A session will be recorded for replay purposes. [Operator Instructions].

Now 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, Carmen, and good morning, everyone on the call, and thank you for joining us today. You'll find this morning's press release and presentation posted on our investor website. And 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 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 found in our public filings, including our reports with the SEC. Presenting this morning are Jim Kamsickas, Chairman and Chief Executive Officer; and Jonathan Collins, Executive Vice President and Chief Financial Officer.

Now it's my pleasure to turn the call back over to Jim..

"The White House has great appreciation for the legacy and contributions that Dana has made on American manufacturing for over 116 years." We believe the passage of USMCA will provide a much needed modernizing of the 25-year old NAFTA agreement.

Like our customers, Dana relies heavily on regionally integrated supply chain, and we believe this law will further allow North America mobility production to remain competitive globally.

Before I turn it over to Jonathan, I'd like to say how much I appreciate the outstanding performance of our Dana team this past year as we have executed our strategy, including the successful integration of our acquisitions.

While we still have a lot more to do, I'm excited about the opportunities for the future and our continued dedication to driving future growth and innovation. Thank you. And I'd like to turn it over to Jonathan to cover the financials..

Agriculture, construction and mining, we anticipate a reduction of $350 million in sales. Three, the combination of these variables leads to a total reduction of $0.5 billion in sales or approximately 6% compared to last year.

Fortunately, due to our continued commercial success that Jim highlighted earlier in the call, our new business backlog is expected to temper about 70% of this market decline. Please turn with me now to Slide 22, where I will highlight these as well as other drivers of our expected sales and profit changes for this year.

As with our earlier comparisons, shown here are the 4 factors driving our expected sales and profit for 2020. First, organic growth is expected to be a net $150 million headwind to sales as our new business backlog of $350 million will offset a large portion of the slowdown in our heavy vehicle end markets that I just detailed on the previous page.

Decremental margins will be higher than ordinary due to unfavorable segment mix and normalized tax expense in Brazil. Second, inorganic growth from the Graziano and Fairfield businesses is expected to add $120 million in sales and about $25 million in profit, contributing approximately 10 basis points of margin expansion.

This represents 2 months of incremental sales as we completed the transaction at the end of February last year. As Jim mentioned, we expect to complete the remaining cost synergy projects this year, which will yield an incremental $15 million of savings.

Third, we anticipate the impact of foreign currency translation to be a headwind of $65 million to sales and about $10 million to profit with no margin impact. And finally, we expect a commodity cost tailwind of about $15 million in profit.

Since our input costs will be lower, the recoveries from customers will also be lower, representing about a $30 million sales headwind. The combination of lower sales and higher profit will generate 25 basis points of margin expansion. Slide 23 illustrates the expected seasonality of our sales and profit for this year.

The gray columns and diamonds on the chart represent last year's sales and profit margins as reference points, and the solid and dotted curves delineate our expectations for this year. We typically achieve peak margins in the middle of the year.

Last year was an exception to this rule as heavy vehicle market demand declined in second half of the year, lowering margins compared to the first half. Given we anticipate a consistently lower level of demand in the heavy vehicle markets this year, we expect a more normal distribution of our sales and profit.

Please turn with me to Slide 24 for more detail on how we expect the full year adjusted EBITDA will convert to adjusted free cash flow. Our full year outlook for adjusted free cash flow margin is in the range of 4% to 4.5%, representing about $100 million improvement over last year.

Slightly lower profit will be offset by significantly lower onetime cost, lower working capital and reduced capital spending. We believe that this year marks a meaningful inflection point in our free cash flow profile and that we will continue with higher cash generation in the coming years.

Please turn with me now to Page 25, where I'll provide some color on how we intend to use this cash in consonance with our capital allocation priorities. The pie chart at the left of the page illustrates the major uses of free cash flow we expect to generate over a 5-year period from last year through 2023.

We introduced this chart at our Investor Day last March, and since then, we've deployed capital to 3 of these areas. We have illustrated these actions and our future plans in the time line below.

Last year, we made the most of an attractive opportunity to fund and terminate a pension plan in the U.S., effectively eliminating a $165 million net liability with a $60 million cash contribution. This action improved the quality of our balance sheet by extinguishing a long-term variable debt-like item.

We also deployed capital by executing a series of disciplined acquisitions that yielded new technologies and capabilities necessary to move the company forward into electrified mobility.

We did both of these while maintaining our commitment to our attractive dividend payments, which are generating a yield of nearly 2.5% based on recent trading levels. As we look forward to this year, you can expect us to remain committed to the dividend. The remainder of our free cash flow will be directed towards delevering.

We have turned loans in our senior secured credit facility that can be repaid immediately without incurring call premiums. We'll take advantage of this feature later this year as we progress towards our net leverage target of approximately 1 turn. The term loans and the rest of our debt structure is illustrated on the right-hand side of the page.

In November of last year, we refinanced our 2023 unsecured notes, extending the maturity by four years and reducing the interest rate by 5/8 of a point. It's also worth noting we have no significant debt maturities for the next four years.

The combined improvement in our free cash flow and leverage profiles should help us to achieve investment-grade credit metrics in the next couple of years.

A fortress balance sheet enhances our appeal as an investment, but it also signals to our customers that we're a stable partner with the financial strength required to maintain commitments to product technology through demand cycles. I'd like to thank all of you for listening in this morning.

I'll now turn the call back over to Carmen so that we can take your questions..

[Operator Instructions]. Your first question is from the line of Aileen Smith with Bank of America..

First question on the backlog.

As a point of clarity, what do the shaded versus nonshaded boxes in this chart on Slide 12 for 2021 represent? Is that business that you'd actually booked versus expect to book? And then relative to your prior backlog estimate, 2020 roll on is a little bit lower, which would make sense given the end market trends, but the total 2021 is relatively similar.

Is that reflective perhaps of lower end market demand, but Dana is seeing better traction for its product and customers?.

Sure. Aileen, this is Jonathan. Relative to how to read the chart, the blue portion of the chart represents the incremental portion for that year, which just carries over into the following years. And then as you get to the right, you get the cumulation of all 3 for the 3-year backlog amount.

Relative to the changes in each of those pieces of the backlog, the 2020 number is actually about $150 million higher than what we previously put out. The 2021 number is slightly higher. And then the 2022 number is a new number, and that's flat based on the dynamics we indicated.

A couple of things that have driven up the numbers from where we were, at least the first 2 tranches from the prior numbers we had out there. The first is we've incorporated the acquisition. So previously, the Graziano and Fairfield backlog were not included in the numbers when they came out early last year.

Second, we have up to 15% of the backlog now that's coming from electrified vehicle sales. That was a very small number in the prior year. And then the third number we've indicated before, particularly in the 2020 tranche that's coming on, we had used some pretty conservative volumes in the compact pickup truck segment for this year.

We have a couple of key programs that are driving that, the Jeep Gladiator, the Ford Ranger, and we wanted to make sure that there was plenty of room for those vehicles in the segment. And we've seen strong build rates and sales of those vehicles. So we're more comfortable with the projections that we have going forward.

So hopefully, that gives you a little bit of color on what's driving the chart and what some of the changes were compared to last year..

Yes, that's very helpful commentary. A second question around free cash flow. You noted on Slide 21 that you're looking for an adjusted free cash flow margin of 4% to 5% for the next 3 years. 5% free cash flow as a percent of sales is kind of in the target number from you guys for the past several years.

So when you think about some pretty choppy end markets and other external macro factors versus what you can execute on from an internal perspective with acquisitions and integrations, what does the bridge from 4% to 4.5% this year to that 5% target look like?.

Sure. I think the most significant factor we would expect beyond 2020 is a contribution, I think, so incremental profit. So we said, we believe this will be a $10 billion business by 2023, a combination of backlog coming online, but also getting some market recovery. So we don't believe that the heavy vehicle end markets will be compressed much longer.

We think we'll see a softer year next year, but we would expect that to pick up in 2021 and beyond. That, combined with continued discipline on working capital and on capital expenditures, gravitating more towards the 4% level is what gets us to the high end of the range that you just referenced and closer to our long-term target..

Great. And one last question, if I may. Following on commentary with your capital allocation priorities and paying down the term loan. Is that a comment at all on what you're seeing in the M&A pipeline? We've seen some pretty big deals in the market recently.

Is there any opportunity that you want to keep some dry powder on the balance sheet for? Or is this more an internal refocusing and integrating the acquisitions you've already made?.

Yes, it has a bit more to do with the fact that the transactions that we've completed in the last couple of years have given us the key pieces that we need, particularly to complete in the electric vehicle propulsion segment. So we believe we're at a place where we have the core components in the portfolio.

We're going to focus on delivering that technology, and we think it's the right time to continue to further strengthen the balance sheet..

Our next question is from the line of Dan Levy with Crédit Suisse..

A couple of questions on Off-Highway, please. Just first, if I look at Slide 21, you note that the core Off-Highway end markets are going to drive revenue down $350 million [indiscernible]. That's a 15% drag on Off-Highway revenue. That's quite a bit.

But as you break down the sub end market outlook, ex-Europe mining, you don't flag any of these end markets being down more than 10%. Some of them actually have flat.

So recognize there's probably some mix that's going on here, but could you just talk to the underlying mix dynamics, which are driving the magnitude of this decline versus sort of the overall end markets not being down as much?.

The numbers show the total units, which includes everything, and obviously we're more concentrated on some specific applications. So the first I'll give you, on agriculture is -- obviously, we're not a major player in large open field tractors and combines, but we're a larger player in smaller tractors.

So we see more softness in that proportionately compared to the larger. Another example would be within construction. So remember, we're a major player in material handling, and that's a segment that we see now being down more than some of the other categories that we see.

So those are just a couple of the examples why while the market may be down mid- to high single digits, we're down on a double-digit basis..

I understood. Great. And then the second question on Off-Highway. In the past, you've talked about the ability to flex costs in that segment and maybe it's a 1 to 2 quarter lag. But you've actually done pretty well especially during, I think, the tough years of '14, '15.

You mentioned on Slide 22, that part of the high decrementals on segment mix, and presumably that just reflects weaker Off-Highway.

How should we consider the opportunity to flex costs? Is that additive to the guide potentially? Or how should we be thinking about Off-Highway margin and the opportunity to flex back costs to mitigate some of those declines that you have?.

Sure. I think you touched on a couple of salient points. The first is the timing associated with it. So we think that the cost flex within Off-Highway will continue to improve. We can do better than we did in even the third and fourth quarter where we saw a pretty rapid drops in demand, in both the third and fourth quarter.

We had to guide towards the lower end of our range late in the year. Moving into this year, we've taken a pretty conservative look. We're assuming the Off-Highway markets are going to stay relatively depressed for the full year, which gives us opportunity to take actions and see those effects on a couple to a few months' lag.

So we think we'll do better this year. Relative to the opportunity, we think that's largely reflected in our guidance.

And really, the reference to the segment mix is the fact that the backlog is coming in, in our -- largely in our light vehicle segment, which you can see on the backlog slide, and that typically comes in, in a contribution margin, pretty close to 20%.

But given the Off-Highway business is a more profitable business, we will typically see conversion margins or downward contribution margins north of 20%, even with a strong cost flex. So that's really what we were referencing in the segment mix..

And to the extent that there is cost flex, there's no cash restructuring that's associated with that, that would threaten your free cash guide.

Is that correct?.

No. Those costs are relatively small..

Your next question comes from the line of Noah Kaye with Oppenheimer..

Obviously, you highlighted the PACCAR e-powertrain win and EV at 15% of backlog.

Can you talk about the mix of EV and hybrid and the new program opportunities you're seeing and quoting on? And which segments do you see most potential for EV to be a greater contributor to future backlog?.

Sure. We've highlighted before, if you go back to some of the things that we laid out in our Investor Day almost a year ago, the commercial vehicle space is leading in this area. And in particular, the Medium-Duty segment. So our first major win came from there.

And I would say that it's fair to a meaningful portion of our quoting activity within that part of the commercial vehicle business is electrified, and we would expect to see further growth towards our $0.5 billion electrified sales target in '23 coming from the Medium-Duty segment, thinking urban delivery and then maybe some more heavier applications in urban transportation where we see opportunities.

As far as our other segments are concerned, we are seeing some growth, but it's still at a relatively small percentage in both the Off-Highway segments or multiple Off-Highway segments. Construction applications, small excavators, we're certainly seeing some ramp-up in activity.

Aerial work platforms, which are fully electrified or another area where we see more and more activity for opportunity and growth in planetary hub drives under the Fairfield brand that are being electrified by Ashwoods Motors. And then also within the mining segment.

So as that segment grows and new mines are being dug, there's a cost benefit to putting in electrified vehicles to not have to make the investment and put the exhaust systems in the mine. So those are a couple of areas that we're seeing increased activity in Off-Highway.

And then in the light vehicle, there's a lot that we're working on with our customers. Not a lot that's public out there, but we continue to work on our core segments, more full-size SUVs and pickup trucks working on applications and solutions for those customers that we should see in the coming years..

That's a very helpful roundup. Then I guess, just on the market outlook assumptions for 2020. Certainly, these are all reasonable, and looking and run rates over the past several months, it makes sense.

But just given that we're starting to see some modest improvement in forward industrial indicators, are there areas where you feel like there may be some more upside here where you're may be relatively conservative? Any kind of color that your customers are giving you that would inform that perspective?.

Sure. Maybe I can touch on the numbers and our assumptions, and Jim might be able to add some color on what you're seeing in the market. But we've taken a view for 2020 that demand in Off-Highway is going to be relatively depressed for the balance of the year. Certainly, some of the indicators with trade deals could help.

We've also got other concerns, obviously, with the coronavirus in China that could have a near-term impact. So when we weigh all those together, we'll be carefully looking at sentiment with our customers in upcoming trade shows in the next couple of months to get a sense of where they see demand.

But if things were to pick up a little bit from where they are, that would represent some modest opportunity to the numbers that we've guided to..

Yes. Not really a lot to add to that. This is Jim. Like Jonathan said, CONEXPO is coming up, Construction Expo up at Las Vegas, and kind of working the earth and the customer base, we feel pretty good about the volumes of where they're at especially in the platforms, which we're on considering, as we all know, by now being in truck and up.

And we have the peaks and troughs of Off-Highway, but with some more stabilization at least what we saw at the end of last year..

Our next question is from the line of Emmanuel Rosner with Deutsche Bank..

So I wanted to drill a little bit down on your outlook for 2020, starting really with margins. So sort of flattish guidance overall.

Any puts and takes that you can highlight for us by segment? Is it sort of like flattish in general? Or are there any sort of like big variations within that?.

Sure. I think probably the most careful thing we'll be watching is heavy vehicle demand, probably more in the Off-Highway segment. So that's a market that tends to move up or down a bit quicker than we'd expected. So we'll be carefully looking at that.

And when that does come back, whether that's later in the year or early next year, we'll look to see really strong contribution margins on those incremental sales that could provide a little bit of wind in the sales to expand our margins. The second thing we continue to watch carefully are commodities.

So we've seen commodity prices continue to fall in the second half of this year. We broke positive in the fourth quarter. And we're looking at those to the extent that the commodities continue to move down, there could be a little bit more opportunity there.

But I would say those are two of the variables that we're watching more closely, is demand and input costs as meaningful drivers to our full year performance..

That's helpful.

And in your base case scenario, can you provide some directional outlook by segment for the margins?.

Sure. Because margins are flat, we'd expect relatively flat margins in most of our segments. I'll start with light vehicle. They've got some backlog coming on, so we should expect to see just a little bit of improvement in the light vehicle segment.

Commercial vehicle is going to be a little bit under pressure next year, not particularly because of the volume declines. We've indicated before that the Class 8 over-the-road applications are not our most profitable segment. So we think we'll manage that well, but it's really a step-up in investment in the electrified programs.

So in order to deliver those programs that Jim talked about earlier in the call, we're going to be making some pretty meaningful investments, and that will put a little bit of pressure on the CV margins.

We think Off-Highway is going to do a pretty good job of managing the volume downturn, and we think they can keep their margins pretty close, but they have a little bit of pressure due to lower volumes. And then we see a little bit of opportunity for our power tech segment to improve modestly.

The drivers there have been lower volumes outside of the U.S., and while we expect those to remain relatively soft, we see an opportunity to improve our cost in that business as we move past some of the major launches that occurred last year in a couple of our key thermal products.

And that, combined with a little bit of alleviation of commodity prices, should help to give a little bit of opportunity there. So these aren't big movements, but maybe tens of basis points either direction in each of these businesses that kind of get us to a pretty flat margin profile in 2020..

That's extremely helpful. And then just maybe finally, so when I look at your solid backlog in 2020, 2021, potentially what could have been 2022 ex-roll offs.

Is there like a larger or longer-term framework that you think about in terms of your potential growth above market when you're thinking about your technology and sort of like the adoption of it, the work that you're doing on electrification? Is there a longer-term framework where we can think, okay, this is -- Dana is targeting to grow x points above its underlying markets?.

I think the best thing I could point you to, Emmanuel, is the growth profile of the electrified business compared to the traditional business. So we remain convicted from our early program wins that electrified propulsion systems are going to come at a content at least double of what a traditional system is.

So it's really going to be applying that to our share of the market that we win and the adoption within each of those segments. So we think in the near term, as I mentioned. We think it presents a really attractive growth profile for the commercial vehicle business to grow above the market.

But then we're also going to see it come in our light vehicle and our Off-Highway segments as well, too. So that's probably the most significant driver of our longer-term growth beyond even this few year period that we highlighted in the backlog..

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

I want to go back to Dan Levy's question about some of the decrementals and the corresponding Off-Highway market assumptions.

Is part of that large decremental also because I think historically, in mining, you've got a decent aftermarket business, and that is expected to be down as well?.

Yes. Certainly, aftermarket in both the commercial vehicle and Off-Highway segments are a meaningful part of those businesses. I wouldn't say that the rate of decline for aftermarket is as high as the OE that we're looking at it next year, but because of the profit profile, it does put some pressure on that.

But really, the segment mix is just about the profitability difference between the Off-Highway business that's declining meaningfully and the light vehicle business that is growing with backlog at lower margins.

And then we also highlight the fact that we'll have a more normalized tax expense in Brazil next year, which is a part of that organic conversion that makes the decrementals a bit higher. So it's really more of those latter factors than the aftermarket decline in 2020..

Sorry.

Why does the tax change impact the decremental on the EBITDA side?.

Yes. It was just -- the recovery that we achieved in 2019 was a benefit that we won't see again in 2020, and that was a part -- was lumped in with the organic change. And just to be clear, it's an indirect tax, not the income tax..

Okay. And so just -- if we could shift gears to the free cash flow in, I guess, Slide 25, like if we just roll on your backlog, assume sort of middle market recovery and then say you can sort of achieve somewhere in that 4% to 5% sales, you're talking about -- it looks like over $1.5 billion of free cash flow over that period.

I know you're talking -- you're saying some deleveraging this year. But if I look at the chart on 25, it doesn't look like large amounts of that term loan.

I mean, are you -- I guess, one, are you saying you're going to spend -- you're going to repay more than just the $15 million that sort of matures in '20? And I guess, even beyond '20, should we really think about beyond the deleveraging that you expect to occur this year, the focus will then really shift more towards share repurchases? It sounds like you think you have what you need from an M&A perspective..

Yes. I think what we were trying to illustrate, Joe, with that time line on the bottom is that of the $375 million of cash flow, we'll pay our dividend, which we would expect to be about $60 million. And the balance, which is around $300 million, would be available to delever.

And what's reflected on the debt maturity profile is just what's due that year, but we tried to highlight that there's -- those tranches of the term loan, both the A and the B and '24 and '26, respectively, can be prepaid without any call premium. So we would intend to prepay some of that this year.

And then looking next year, there's still plenty of opportunity to prepay debt efficiently. And then as you know, maybe by the time we get to the 2022 time frame, our leverage is closer to the 1 turn that we would be expecting.

And then at that point, we can look towards reevaluating opportunities for more aggressive share repurchase or M&A opportunities. But we're really trying to signal that in the near term, there's an attractive opportunity for us to use some of this cash to continue to strengthen the quality of the balance sheet..

So I see. So in '20, you're expected to repay some of that '24 or '26 term loans.

And should we think about sort of the balance of the free cash flow after the dividend is sort of roughly the magnitude of that prepayment?.

Yes, yes. That's what we were trying to illustrate on that bottom time line there, is the dividend will take a piece. And then the rest will be available for delevering..

Question from the line of James Picariello with KeyBanc..

Just on the electrification spend, it's within the bullet of your capital spending on the free cash flow slide. But Jonathan, your commentary on Off-Highway margins -- I'm sorry, on commercial vehicle margins, it sounded as though that discretionary spend is going to hit the P&L.

So just curious what actually is hitting where?.

Yes. It's a little bit of both. So the engineering spend and the program spend to deliver programs, a lot of that is operating expenses that'll run through adjusted EBITDA, but we're also making some investments in capital expenditures.

What we're trying to highlight on Page 24, with the capital spending, is that we believe in the long run we can still get closer to about 4%.

We're guiding a little bit higher than that this year because we're making some discretionary investment ahead of program wins to build out some of that capability in internal production of electrodynamic components.

So it is a combination of both, as you noted, but a little bit of pressure on the CV margins, but also we're making some expenses -- or we're making some investment in capital expenditures as well..

Got it. Okay. So a little bit of both. And just thinking about your electrification business today, if we go back to your 2018 Analyst Day, you sized the revenue, the revenue pie, of like $100 million.

Just wondering what's that number as of year-end 2019? And can you -- would you be willing to talk about the margin profile of that business today?.

Yes, sure. I can give just a little bit of an update, but it's going to be pretty consistent with what we shared last year. We said that 2018 sales for electrified products were about $100 million. We expected them to grow to about $0.5 billion by 2023, and that the progression over that period would be pretty linear.

I would say that's continued to be the case. We saw growth in electrified products in 2019. We expect nice growth in 2020. We'll get a little bit of an inflection in 2021 as we see the Peterbilt and the Kenworth programs that Jim highlighted really start to ramp up.

And then relative to profitability, we're still 1 year or 2 away from starting to see healthier margins in that segment and get to a more critical mass, but we did indicate at our Analyst Day last year that we expected that to have a healthy margin contribution by the time we get a few years out..

Got it. Okay. And then just within light vehicle, if I scrub 1Q '19's Wrangler program impact, then I'd have to go all the way back to 2014 to find an organic decline for that business. So just wondering what played into the fourth quarter. Was it mainly strike-related? Just wondering what the key dynamics were..

Yes. The only meaningful factor for that business was some of the demand outside of the U.S. So the North American market for full frame trucks was pretty strong. We saw a little bit of softness in other regions. The impact for us on the GM strike was pretty small, but it was more of a geographic mix in the quarter that drove light vehicle's top line..

Okay. And just last one on Power Technologies.

Are launch costs fully out of the way? And is the mix backdrop pretty favorable for 2020 at this point?.

Yes. I'll jump in on that one -- I can jump in on that. This is Jim. As you recall and you're on it -- I mean, as you recall, there was really 3 variables that associated with a little bit tougher times than what we're used to with that. Most of it was low volumes in some of the key markets and secondarily commodity costs.

So only the third variable in that was launches and taking on a lot more higher content per vehicle. We are certainly through that for now. Now we just got to let the volumes kind of come back to the other side. And as I mentioned in my prepared statements, we see commodities, hopefully anyway, being a tailwind for us in the next year..

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

First, roughly how many trucks and, in particular, is this a prototype for test fleets or actually a scale-up of line production? Second, kind of want to get a sense of how all the acquisitions on the right-hand side of Page 6 kind of came together for the integrated content that you're able to bring the PACCAR and kind of where that positions you going forward?.

Sure. Brian, it's Jonathan. I'll just touch on the PACCAR program to try to dimension it for you the best we can. And then Jim can talk a bit about the acquisitions. As it relates to the PACCAR program, we've mentioned that it's a three year program that starts at the end of this year. Most of the sales will really ramp up in 2021 through 2023.

It's a $200 million program is what we're targeting. We're not going to disclose the content per vehicle at this point. But suffice to say, it's a dramatic increase over what you would typically see on a medium-duty program, where we provide the driveline.

We're going to be providing the full e-Propulsion system, which will be an electrified driveline as well as the e-Power system, which is going to be the battery cells, modules and packs. But then more importantly, we're providing the entire vehicle systems controls, the embedded software to operate the propulsion of that vehicle.

So a full electrified powertrain. But what we can give you is it's $200 million program over the three year period and is a pretty sizable increase from where we are. And then maybe Jim can touch on the acquisitions..

Brian, it's Jonathan. Just to add to Jim. So just kind of some background there. Over the last 18 months-ish, we'll get it exactly right. As you recall, we started the process -- or I should back up. Just slightly before that was the -- we're being power electronics, was a part of that, kind of stealthily that was integrated in the company.

That was a starting point. Besides the fact that, as I said in my prepared comments, we truly had had retained for approximately 50 years, some development, in one form or fashion, on electrified vehicles. Anyway, moving forward on the Brevini, then we hit the TM4 piece, which was probably July of '18, thereabouts.

And then we did the yellow brick road for the rest of them, a couple of them integrated within the Oerlikon acquisition. For example, the Vocis piece, the Ashwoods piece, et cetera.

And then of course, SME, which is again on your low voltage synchronized motor capabilities and inverters that was headquartered out of Italy, and an address that was kind of a linchpin to putting a lot of it together providing -- which is just outside of Montreal, which allows us the full capability of pulling the vehicle dynamics together, software, controls, et cetera, et cetera.

So that's the background to it, and that's how it all comes together.

We've, therefore, no different than Dana, what we call more the classical products where we had a distributed technology model around the world kind of benefiting from where the capabilities of people are, that's exactly what we've done with our e-Propulsion full system and organization.

Because that organization supports all of our business units, we don't report it as such. We wouldn't be able to do that. Be assured that we're structured as such to be able to ensure that we have the operational efficiencies, the engineering efficiencies and all the other things that go along with it.

So hopefully, I answered your question there, but that's kind of the background.

I think that's what you were looking for?.

Yes, yes. And in particular, just a follow-up question around software and sort of ongoing data collection. One thing Tesla -- we acknowledge [indiscernible] as a bear, sometimes would -- what seems to do well is to get data on the battery management, the power electronics and so forth, and use that to update control algorithms.

With Nordresa, do you have that capability with the PACCAR program? Will you be able to harvest data from the fleets that are out there and use that to refine your control algorithms in that?.

Yes. What you're describing is certainly....

[Indiscernible]..

Sure. Sorry, Brian, to cut out there. Sorry, thought you're finished. But certainly, that capability that you described is going to be an important part of the software systems in electric vehicles.

We will be partnering with our customers and fleet operators to ensure that they get the full experience and capabilities of the software controls in an electrified vehicle system..

The key piece to us is that....

[Indiscernible] product?.

Yes, I think that's something that we'll continue to emerge in the coming years. But the near-term focus is going to be on making sure that we support our customers and fleets in having the best experience with that vehicle on an ongoing basis..

Your next question comes from the line of Ryan Brinkman with JPMorgan..

A couple more on electrification.

Firstly, how do you see the 15% mix of your backlog, the EV mix evolving in coming years? And what market share do you expect to command in electrification content versus in your more traditional business, understanding of course that content per vehicle is much larger so maybe it doesn't need to be as high? And then finally, in electrification, when you bid for these programs, do you find yourself bumping up more against your traditional light and commercial vehicle driveline competitors like American Axle, BorgWarner, Meritor, et cetera, versus maybe more less levered technology-type companies you've not traditionally competed with?.

Sure. To the first part of that, relative to the proportional impact of electrified versus internal combustion in the backlog, based on the growth that we expect to see in electrified products in the next few years, I would expect that to increase.

We certainly don't think it's going to be a majority here within the next couple of years, but you can see it continue to move up in order for us to get to that $0.5 billion number that we have out there for 2023 on electrified sales.

The last part relative to the perspective on electrified sales and how quickly that will grow, I can just reemphasize that we see the greatest opportunities in the commercial vehicle space in the near term, particularly in Medium-Duty. A lot of focus and attention there.

Other work that's going on for development is probably coming a little bit further out. And then on the competitive landscape, I would say that we are seeing more competitors. There's a lot of focus right now on cementing wins in this category, and we see a meaningful set of competitors across each of the spaces.

Maybe there's something Jim would like to add to that..

Yes. I would actually just add there may be different competitors, but the way we look at our business, and I think it's important to reinforce, we have never said we were going to get beyond our skis, jump into the passenger car business, do something that we don't do before -- we haven't done before.

We're going to continue to leverage the experience and capabilities we have in high torque and propulsion in the markets in which we participate. And I always like to say that I think there's going to be -- to make it a reasonable kind of environment for everybody to be healthy, we're going to have 2 competitors like we have in the past.

And we expect to look at it like we always have, which is we just want 1/3 of our business, do a great job for them and move forward. And based on our 116 years, largely, anywhere from with many of our customers, the Ford Motor Company, 116 years; General Motors, 115 years; they'll disclose right down, John Deere, tell me when to stop.

I think we're going to be in a nice position to continue to do what we've always done. It wouldn't just be e-propelled versus just ICE-propelled..

And your next question comes from the line of Rod Lache with Wolfe Research..

I had a couple of remaining things. Just first of all, you've had a really impressive set of wins in light vehicle driveline in the past couple of years, and this Colorado is the first loss or nonrenewal that I've seen in a while.

Could you just maybe just address what happened there? And was it something that just didn't meet your criteria or some other reasons?.

No. I would just say this -- Thanks for the question, Rod. Nice to hear your voice. I would just say that when CEOs get on these calls and they come up with a cheap suit answer or somebody else stick with price and all the garbage, I think that's ridiculous.

So I'm not going to go into any positioning like that because what do I know? I don't have some crystal ball. I can only tell you that by our track record to your inference when you just launched the Wrangler and the Gladiator, the Ranger and the Escape, that we're going to launch the Defender, the new Defender coming up.

Bronco's happening at the end of the year. And we just won GM supplier of the year for driveline. I don't worry about it at all from a business capabilities creating outstanding value. It's just sometimes programs move around, and they move around. In the meantime, we have to deploy capital, and we're in a pretty good position.

Obviously, deploy capital for all these electrification wins we have as well as the other opportunities throughout our business. So we just keep doing our job. There's no question that our customers are completely satisfied with us based on speaking with data, not opinion. .

And just maybe just picking on this Off-Highway decremental, which you said is going to improve this year. Q4, I believe the decrementals were about 50%.

On this $350 million decline that you're talking about for next year, could you just give us some sense of how much you can will that down to? What are some of the actions you're taking? And where could that go?.

Yes. The primary focus in the cost flex for 2020 is obviously going to be in the heavy vehicle segments. The margin profile for Class 8 is such that we think we can do a pretty good job there to limit the decrementals below 20%. A lot of work to do in Off-Highway, but that really started in the second half of last year.

So the team has done a very nice job of flexing the cost structure all the way down through the P&L. So we see those benefits coming out of the gate in the first quarter. So I think the guidance we put out for this year is reflective of that, and that's the plan that we're executing against.

And I think there's a good level of confidence in the ability to deliver the numbers for 2020..

So just to clarify, do you think that the Off-Highway decrementals can kind of moderate to the 30% range where I believe you had been targeting in the past?.

We do, yes. And the only reason they've been around that and higher in the second half of the year is just the timing issue. In the near term, once we see the schedules really starting to fall, which is in the third quarter and came down even more in the fourth quarter, it takes some time to get these actions into place.

And we feel quite confident that those are in place, and we'll see those benefits in the first half of this year..

Okay. And just lastly, Jim, I was hoping you might talk about Power Tech and how you think about that strategically just relative to all the focus that you have on electrification making -- putting in the right places -- the right assets to grow the business going forward.

Any updated views on that part of it and how it fits in and how you continue to assess it?.

Don't underestimate, for sure, the value of which the -- especially the thermal management, and thermal management is not only that being the cooler capability, but also the sealing capability. Outside of the business, what that's doing to help us accelerate our capabilities. Take the PACCAR program, take all the other programs.

So we will look -- we will be a very disciplined organization and not close our minds to opportunities to -- for assets in or out. But in the meantime, I can tell you that's been a great asset for us for a long period of time, and we are going to continue to utilize it in that front. So thanks for the question.

I know that's not a direct answer maybe, but it's because, guess what, we're just going to run the business, and we're really happy with that team and everything they've done for us over the years. Okay. With that front, I'll just close -- and a couple of things. Thank you all for your participation today. We always appreciate that.

The other thing I don't have an opportunity to do very often is to thank the team that puts our deck together. I'm going to take that opportunity this time, because it's the first one of the year where we're providing the full year guidance and all the other stuff.

They must did something, right, because almost all the questions were -- helped the audience answer a lot of questions on how they should think about us financially. And there were other questions, but really you folks did a really good job on that.

Last but not least, I would close by saying, I tell the team this all the time, it's easy to tell a great story when you have a great story to tell. Fortunately, they've done a great job with our customer support on electrification and growth.

Think about it, the launch success, you haven't heard anything about launches, and we've -- the business has grown since 2016, over 50%. So I mean, you could go on and on. And now the focus is especially we're doing even more on sustainability and those types of things. The company is focused. The team is focused. Thank you for all your support.

We look forward to talking to you the next time around..

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