Dana Inc (DAN) 2015 Q1 法說會逐字稿

Good morning and welcome to Dana Holding Corporation's first-quarter 2015 financial webcast and conference call. My name is Brent and I will be your conference facilitator. Please be advised that are meeting today both the speakers' remarks and Q&A session will be recorded for replay purposes. There will be a question-and-answer period after the speakers' remarks, and we will take questions from the telephone only.

(Operator Instructions)

To ensure that everyone has an opportunity to participate in today's Q& A we ask that callers limit themselves to one question at a time. If you like to ask an additional question, please return to the queue. At this time, I would like to begin the presentation by turning the call over to Dana's Director of Investor Relations, Craig Barber. Please go ahead, Mr. Barber

Thanks Brent, and thank you all of you for joining us today for Dana's first-quarter 2015 earnings call. Copies of our press release and presentation have been posted on Dana's investor website. Today's call is being recorded and the supporting material is the property of Dana Holding Corporation. They may not be recorded, copied or rebroadcast without our written consent. Today's call will be include a Q&A session. In order to allow as many questions as possible, please keep your questions brief.

Today's presentation includes some forward-looking statements about our expectations for Dana's future performance. Actual results could differ from those suggested by our comments here. Additional information about factors that could affect future results are summarized in our Safe Harbor statement. These risk factors are also detailed on our public filings including our annual quarterly and current reports with the SEC.

Presenting this morning will be Roger Wood President, Chief Executive Officer; Bill Quigley, Executive Vice President, Chief Financial Officer and Mark Wallace, Executive Vice President and Group President of On-Highway Driveline Technologies. I will now turn the call over to Roger Wood.

Thank you, Craig, and good morning. The first quarter of this year had its challenges with currency movements and softer markets in South America, but we continue to execute well on our plan. The quarter ended very well for us and we remain on track for the year.

Starting on slide 4, in the first quarter of 2015 we recorded sales of $1.6 billion which represents 4% organic growth compared to the first quarter of last year. Net income for the year was $63 million, an 85% increase versus last year. And diluted adjusted earnings per share were up 56% to $0.50. This quarter we improved our adjusted EBITDA and our margin. We ended the quarter at $176 million, about 6% better than last year. And we recorded a margin of 10.9%, a full 110 basis point improvement.

Once again this quarter we continued the execution on our $1.4 billion share repurchase program by returning another $63 million to our shareholders. This brings the total we've returned to shareholders to $1.15 billion since we started the program and we had $248 million remaining at the end of March.

I am very proud to announce that in addition to being named a finalist for a PACE award this year for our transmission separator plate, we also won the PACE Innovation Partnership Award for our work with Volkswagen's Audi unit on transmission technology. These achievements and our focus on product technology are showing results.

Our first quarter organic growth of 4% is faster than the rate of the global market growth. This quarter we also highlighted a few new technologies for Class A trucks at the Mid-America trucking show and we'll be showcasing other new technologies and products for different markets throughout the year.

Moving to slide 5, as I mentioned Dana was selected for the 2015 PACE Innovation Partnership Award which is presented to OEMs and shared with suppliers for exemplifying superior collaboration during the commercialization process of an innovation. We're very proud to have partnered with Audi along with Continental and FTE Automotive to develop the valve body separator plate technology for cutting edge transmissions used in the Audi A4 through A7 Sedans as well as the Audi Q5 crossover. This awards demonstrates our commitment to working with our customers to develop unique solutions that address key market drivers including fuel economy, durability and performance. We're really honored to have been recognized by the PACE judges, but being recognized by your customers is certainly one of the greatest compliments any organization can hope to achieve.

On slide 6, you can see that Dana's power technologies facility in Paris, Tennessee, recently earned Honda's Excellence in Value Award Additionally, our off Highway facility in Como, Italy, was recognized by AGCO as Supplier of the Year for outstanding quality of products. AGCO is one of the world's largest manufacturers of agricultural equipment and we're honored to be recognized as a top supplier to them. Lastly in South America, John Deere recently recognized us for continued excellence in operational and commercial performance. This is the second year that we've received this honor from John Deere.

Moving to slide 7, the new business backlog that we shared with you last quarter is being driven by the technology in growth strategy that we put in place a few years ago. We continue to gain momentum with many of our leading-edge technologies currently hitting the marketplace. This month is a very busy time for us as we are in the middle of a jam-packed Spring trade show circuit where we are showcasing many of our leading-edge technologies that will drive our growth over the next few years and beyond.

Asia, and specifically China, is a very important market for us. This week at Auto Shanghai, we are showcasing an all-wheel-drive system designed for the Chinese market that enhances overall driving performance; it improves fuel efficiency and reduces noise vibration and harshness.

At Intermat 2015 in Paris this week we announced the development of a new series of Spicer Axles for rough terrains as well as an axle specifically designed for forklift trucks and other medium-sized material handling equipment. In addition, we introduced an upgraded drivetrain system for wheeled excavators, for teleboom handlers and for front-end loaders. The system allows the vehicle to disengage one of the axles during high-speed operation which reduces power loss, fuel consumption and also tire wear. This is similar to the dual-range disconnect product announcement that we'll speak about in a moment in the commercial vehicle segment and is another great example of using similar advanced technology across multiple end markets and business units.

In North America we presented a new tire pressure system technology at the Fire Department Instructors' conference engineered to automatically maintain proper inflation of tires on emergency vehicles, the first internal axle system of its kind for severe-duty vehicles. It will be the only solution in the market to offer an endplay system for every tire on fire and rescue vehicles and it also features the unique ability to deflate tires where traction needs require it. This technology uses patent-pending sealing technology from our PTD business integrated with the vehicle's axles to automatically initiate periodic system and pressure checks while driving, adjusting the tires to the optimum pressure. Dana's tire optimization technology has been proven in the field on thousands of military vehicles worldwide over the past two decades.

We also had an opportunity to participate in the Institute of Scrap Recycling Industry show in Vancouver, Canada, where we featured our Spicer industrial drive shafts used for steel recycling. These drive shafts are a great example of how our technologies have capabilities beyond our traditional end markets.

Moving to slide 8, Dana shared its comprehensive lineup of driveline technologies for the commercial vehicle market at this year's Mid-America trucking show. On this slide, you will see our new Spicer AdvanTEK Dual Range Disconnect technology which we introduced at the show. Designed for tandem axles used in Class A linehaul applications, this technology enables engine down-speeding and improves powertrain efficiency from 2% to 5% over conventional tandem axles on the market today. Just to put that into perspective, for every 1% efficiency improvement, the operator of the vehicle can save approximately $730 per year in fuel costs. When you multiply that by the entire fleet it's easy to see how the technology can provide a significant economic benefit for our customers.

We also introduced a new family of single reduction drive axles for North American commercial vehicles that leverages our industry-leading AdvantTEK technology. Lighter weight than competing axles on the market today, these axles improve efficiency and enhance durability. We are very excited about this new technology and the commercial vehicle market overall.

The North American market continues its growth trend this year. We're taking up our expectations for full-year Class A production to a range of 310,000 to 330,000 trucks which should help to offset the volume headwinds that we are experiencing in Brazil. New products such as these are opening doors with new customers for us and will be the key to our long term growth strategy.

Finally on slide 9, one other notable event where Dana recently had a presence is the 2015 Easter Jeep Safari, America's largest and best-known event for recreational four-wheeling. While the other trade shows I talked about provide us valuable time to interact with OEMs, dealers, fleet owners and operators, the Easter Jeep safari gave us the opportunity to stay connected with our end-users who are extremely enthusiastic and passionate about our Spicer driveline products.

It's held in Moab, Utah. The Safari attracts enthusiasts from all over the United States and provided us a great opportunity to showcase our entire aftermarket product range, especially performance products for extreme off-roading. And to highlight the Dana brand and some of the technology that we provide to Jeep, as well as the full-frame market in general. We're very proud of our long-standing history with Jeep which is one of the longest, if not the longest, continuous OEM supplier relationships in the industry.

We've supplied Spicer driveline products for Jeep brands since the early 1940s. As you will see when Bill walks through the numbers, our Light Vehicle Driveline group had a great quarter. The full frame truck market in North America continues to be strong and we're seeing improvement in the light vehicle market in Asia and Europe which is good for our power technologies group as well.

So to wrap up, I'm really pleased that we continue to demonstrate that Dana can operate well in these rocky environments around the world. We remain on course for profitable growth with a robust new business backlog and a strong balance sheet that gives us the flexibility to grow the business and increase shareholder value. So with that, let me hand it over to Bill and he'll walk you through the financial performance and our outlook for the year. Thank you.

Thanks, Roger, and good morning everyone. Let's first start with a summary of our 2015 first-quarter financial performance in comparison to last year. Sales totaled $1.608 billion in the quarter, $80 million lower than last year reflecting the impact of currency due to the stronger US dollar as well as the divestiture of our Venezuela operations which we completed in January of this year.

These two factors alone lowered sales in the quarter by about $148 million. Adjusting for these items sales increased in the quarter by $68 million or an increase of 4% compared with last year driven by improved market demand in certain segments, new business and pricing recoveries. Adjusted EBITDA for the quarter totaled $176 million, $11 million higher than last year and provided a margin of 10.9% which is a110 basis point improvement compared with last year. Favorable conversion on increased volume and mix and net favorable performance were key factors driving the strong results in the quarter.

Net income totaled $63 million compared with $34 million a year ago driven mostly by higher adjusted EBITDA and lower amortization, restructuring and income tax expenses. Net income in the quarter also included a net charge of about $4 million for previously reported non-controlling interest income and offsetting gain from the completion of the sale of our joint venture in Venezuela.

Diluted adjusted EPS increased 56% to $0.50 per share compared with $0.32 a year ago reflecting a higher adjusted net income in the quarter as well as a lower share count related to the continued execution of our share repurchase program. Free cash flow was a use in the quarter of $82 million largely a result of seasonal working capital requirements and $46 million higher than last year principally reflecting the receipt of $40 million of accrued interest in the first quarter 2014 upon the sale of an outstanding note receivable.

Now let's go into some further detail and discussion of our first quarter results starting with sales and adjusted EBITDA comparisons as highlighted in slide 12. We're going to spend a little time on this slide which provides the sales and EBITDA comparison for the first quarter of 2015 as well as the key drivers of the year-over-year change. So let's first review the regional distribution of sales in the first quarter compared with a year ago. On the upper left of the slide you'll note a significant change in our regional sales this quarter as our South America results are lower 21% compared with last year reflecting the divestiture of our Venezuelan operations, lower light and commercial vehicle demand and unfavorable currency.

North America sales increased to 52% of sales as demand was higher for both light and commercial vehicles in the region while Europe as a percent of sales fell slightly to 29% principally reflecting the result of unfavorable currency of about $87 million. Adjusting for the effects of currency, we experienced increased demand in the region of about $17 million, as all but our Off-Highway group had volume gains.

South America represented about 7% of sales compared to 12% last year as sales fell about $92 million. Currency in the Venezuela divestiture lowered sales by $20 million and $27 million, respectively, with lower end market demand primarily on the commercial vehicle front accounting for the remaining $45 million reduction.

Asia Pacific was up slightly from a year ago driven by increased demand across all of our business segments and a relatively stable currency environment. The chart to the bottom left provides the key drivers of the $80 million sales change in the quarter. As highlighted, currency was the main driver lowering sales $121 million or 7%, driven mostly by the strength of the US dollar against many currencies but most notably the euro and Brazil real which accounted for about $90 million-plus of the change. The divestiture of our Venezuelan operations reduced sales by $27 million and on a full-year basis will represent about $110 million sales reduction in our Light Vehicle Driveline business segment.

Volume and pricing drove sales $68 million higher than last year or about 4%, as we saw the expected increased demand in the light and commercial vehicle markets in North America as well as new business rolling on that overcame headwinds in both Brazil and the Off-highway equipment markets. While sales were lower in the quarter by $80 million, adjusted EBITDA increased by $11 million to $176 million in the first quarter with margins improving 110 basis points to 10.9%.

And the chart to the bottom right provides the key drivers of the increase in adjusted EBITDA for the quarter. So currency lowered adjusted EBITDA by about $25 million which does include transaction gains of about $6 million in last year's results which did not recur. The remaining $19 million principally reflects the impact of translation of about 16% which is in line with the guidance we provided in February.

You can note factors offsetting currency totaled $36 million in the quarter, driving an improvement in both absolute adjusted EBITDA as well as margin performance. And included the year-over-year impact of Venezuela, favorable conversion on higher volume and mix and positive net performance reflecting continued progress in our net cost efficiencies and productivity around the world.

On the next two slides, I will walk through the sales and segment EBITDA performance for each of our business segments starting with Light Vehicle Driveline and Commercial Vehicle Driveline on slide 13. Light Vehicle Driveline posted sales of $637 million a quarter, an increase of $19 million compared with last year. As highlighted here, currency lowered sales by $17 million with the year on South America currencies representing the majority of the impact and the divestiture of our Venezuelan operations which accounted for $27 million of the change. Adjusting for these two items, sales rose by nearly 11% compared with last year with volume and mix providing an increase of $56 million reflecting continued strength in North America and some improvement in Europe as well as new business.

Pricing recoveries further increased sales by about $7 million largely reflecting inflation recoveries in South America. Segment EBITDA was $34 million this quarter improving by $4 million compared to last year. The divesture of Venezuelan improved the comparison by about $18 million. Volume and mix contributed $11 million in increased EBITDA with net performance providing an additional $6 million in increased earnings. Segment EBITDA margin of 10% improved by 510 basis points compared with last year. And even adjusting for the impact of the Venezuela divestiture, margins still rose by almost 200 basis points in the current quarter.

Let's move to Commercial Vehicle Driveline. Sales totaled $433 million in the quarter, $24 million lower than last year. As highlighted here as well, currency lowered sales by about $30 million with a weaker Brazil real and euro accounting for most of the impact. On the volume mix front, significantly weaker demand in South America provided a $43 million headwind which was mostly offset by a stronger North America demand environment. Finally, pricing recovery increased sales by about $7 million in the quarter.

Segment EBITDA was $35 million for the quarter or 8.1% of sales Currency reduced EBITDA by $2 million and the decline of South American market demand further impacted earnings by $8 million.

Rest of world demand increases and principally a strong environment in North America provided a $5 million offset. Net performance in the quarter was lower by $4 million compared with last year as we did incur premium costs to meet increased production demand in North America as we moved to completion of our supply chain improvement initiative in the current quarter.

Now let's review the performance of Off-Highway Driveline and Power Technologies for the quarter. Off-Highway Driveline sales totaled $284 million for the first quarter, $57 million lower than last year with the weaker euro accounting for almost all of the headwind. Volume and mix was down only $12 million compared to last year as new business in the North American construction market muted the impact of global ag equipment demand weakness. Off-Highway posted segment EBITDA of $39 million, about $3 million less than last year, yet margins improved again by 140 basis points to 13.7%. As highlighted here, currency was a main driver lowering earnings by about $10 million compared to last year with strong performance from material savings and cost efficiencies added $90 million to the comparison, tempering the impact of currency as well as the market impacts which further drove the improved margin performance.

Moving to Power Technologies, sales for the quarter were $254 million, $18 million lower than a year ago. And similar to Off-Highway, currency was a major driver lowering sales by about $28 million, principally reflecting a weaker euro and Canadian dollar. Increased light vehicle demand in both North America and Europe increased sales by $10 million or almost 4% compared with a year ago. Segment EBITDA of $38 million was $6 million lower than a year ago reflecting the impact of currency with favorable volume and mix, targeted to increase in new product development and engineering.

Now let's turn to our cash metrics for the first quarter which are highlighted in slide 15. Free cash flow was the use of $82 million compared to a use of $36 million last year. And, as highlighted here, the principal difference overall relates to a nonrecurring receipt of about $40 million in interest on a note receivable in the first quarter of last year.

Working capital this quarter was a use of about $139 million compared to use of $79 million a year ago largely reflecting seasonal movements, higher demand in certain end markets and to support our supply chain initiatives. Cash interest was lower $19 million in the quarter compared with last year, a result of the unsecured debt refinancing we executed in the fourth quarter and the timing of our semiannual interest payments on our current outstanding unsecured notes. Going forward this year, our net cash interest payments will be about $12 million in the second quarter, $33 million in the third quarter and $11 million in the fourth. Cash taxes were $14 million, $13 million lower than a year ago, largely reflecting the timing of our estimated tax payments as well as jurisdictional profitability.

Capital spending was $62 million, slightly lower than last year. But we do expect capital spending to increase over the remaining course of the year principally driven by Light Vehicle Driveline investment to operationalize new business launches in 2015 as well as 2016. At the end of the quarter cash and marketable securities totaled $1.05 billion. In addition to free cash flow for the quarter, we executed $63 million in share repurchases as Roger highlighted and completed the reduction of our remaining 2019 unsecured notes for about $55 million. Lastly, currency lowered cash balances by about $53 million in the quarter compared to our year-end 2014 balances.

Outstanding debt was $1.65 billion at the end of the quarter and resulted in a net debt position of about $575 million. And, finally total liquidity stood at $1.414 billion at the end of March of this year, including $384 million of availability under our US credit facility.

Now, let's move to our full year 2015 financial targets which are highlighted on page 16. As we experienced in the first quarter, we certainly expect currency movements to further impact sales for the remainder of the year. In particular our expectation of further weakening of the euro and the Brazil real compared to our previous expectations.

Our full year 2015 sales guidance now reflects the euro at 1.05 compared to our previous expectation of 1.1 and the Brazil real at 3 compared to our previous expectation of 2.5. The translation impact of these currency changes results in Dana's full-year expected sales now to be in the range of $6.3 billion to $6.4 billion compared to our prior range of $6.4 billion to $6.5 billion. As highlighted here, we are tightening our adjusted EBITDA range to $740 million to $750 million and increasing our margin target to about 11.7% for the full year.

Despite the impact of currency translation on our expected full-year results, we're able to maintain our adjusted EBITDA and improve our margin. And improving market mix and cost performance tempered the impact of translation. While we expect a low demand environment in South America to continue, largely impacting our Commercial Vehicle Driveline business, we're seeing an increased light and commercial vehicle demand in North America and Europe that's providing an offset. Our diluted adjusted EPS guidance of $2.05 to $2.15 per share, capital spending of $300 million to $320 million and our free cash flow target range of $190 million to $220 million remain unchanged.

So this concludes our presentation. We'll now turn the call over to the operator for any questions. Thank you.

(Operator Instructions)

Brett Hoselton, KeyBanc.

Good morning gentlemen. Two quick questions. First of all just from a clarification standpoint-- slide 13, the volume and mix in the Brazil markets, what's the difference between those two?

This is Bill. You're speaking to commercial vehicle driveline, obviously.

Correct.

To look at the volume mix it's basically rest of world demand but most notably North America. So we separated the two to highlight what's going on in North America vis-a-vis what we're seeing in the Brazil market currently. So as to separate the two and you'll note here about the net impact being a slight sales under call, if you will, about $1 million. But certainly different regions are contributing to that change in sales so we wanted to highlight that for the audience.

Okay and so the Brazil market is simply volume mix-- it's not necessarily incorporating a currency or anything along those lines?

Correct, the currency line as highlighted here, Brett, the $30 million, that is all currency impacts with respect to operations around the world for commercial vehicle.

Okay perfect. And then, with regards to again slide 13, so10% margins in the light vehicle driveline, 8.1% margins in the commercial vehicle driveline, obviously below your corporate average margins and your longer-term margin expectations. Can you talk about as we look to the next year or two, how do we think about margin progression in each of those two segments? What might that look like and what might be some of the key drivers of margin improvement in those segments?

Sure, it's Bill. I will take a stab at this and certainly Roger or Mark will jump in as well. Let's talk a bit about Light Vehicle Driveline. I think you can see the performance here in the quarter at 10% margin, a very good performance. And as we move forward, as we've spoken to many of you in the past, we certainly expect light vehicle driveline to churn to our overall exit target margins that we have talked about with respect to near-term performance 2016 and post. So they are certainly on the path there.

The drivers of that margin performance, I think continue one, to be the cost efficiency being driven in the business but probably most notably is the net business that's coming online from a sales backlog perspective. And I think to some extent you're seeing that impact already in our first quarter on the volume mix line which the contribution margin of about 20% in like vehicle driveline. So certainly we expect Light Vehicle Driveline to contribute to our overall margin move forward in the coming, say, medium-term.

On the commercial vehicle front, and I'll let Mark talk a bit to this as well, from my perspective though, obviously going from a margin perspective, the impact of the supply chain initiative that we embarked upon last year and have just completed, if you will, with respect to execution-- that certainly has been somewhat of a headwind to us that, but by default it turns into a tailwind and probably most notably it provides us additional flexibility and competitiveness moving forward. So certainly we would expect that margin to move up as we move into the intermediate term. It certainly dependent on what happens from a demand perspective but an 8% margin certainly is not our expectation for the business and, quite frankly, by year end of 2015 our expectation would still remain at about a 10% margin for the business with opportunity moving forward.

Brett, Mark Wallace. On the commercial vehicle business with our supply chain initiative -- again, as Bill mentioned, it's about capacity, flexibility, and competitiveness. If we exclude our premium and cost that we've been incurring to fill the pipeline at these elevated market levels, we're definitely seeing a contribution margin improvement already in our North American business. We definitely would need some help from Brazil. As you can see, very low levels. We're back at 10-year-ago levels in 2004, 2005 levels so definitely we would like to see some improvement in the revenue in Brazil that would definitely be part of our exit rates in 2016.

Back over to the lot vehicle driveline. As Bill mentioned, we have new programs that are coming on, and as we've committed they're coming on at better margins than our run rate has shown in the past. And, as we've also articulated, we have new businesses launching later this year and into 2016 that will definitely be supporting our 2016 exit rates. So, we're positive on both these businesses driving our exit rates in 2016.

Thank you, gentlemen.

Patrick Nolan, Deutsche Bank.

Good morning, everyone. Just a couple of questions. I wanted to follow up on the last one about the commercial vehicle driveline business. Mark, how are you thinking about -- next year, we're probably looking at probably a better market in South America, but there could be some headwinds in North America. I know today the decrementals in South America are worse than incrementals you're seeing in North America. So, North America you're getting, even before these startup costs, seems like it's close to a 10% incremental, and Brazil seems like it's almost twice that on the down side. When it flipflops and Brazil starts going up, are you going to get the same type of incrementals in Brazil are going to be twice that of the decremental you will see in North America? Or -- and that's why you can offset the North American headwinds? Am I thinking about it right in that context?

Yes. I think on the Brazil market -- clearly, with the volumes at the levels they are at, we've gotten closer and closer to our breakeven point. Although we're still profitable in Brazil, it is definitely -- the decrementals are flowing through at a higher rate than we would typically see at a normal market. I think as volumes get back to Brazil at a closer rate, they'll be back to the normal incremental levels. However, in North America even if we see some volume subsiding, we do expect margin improvement in our North American business due to our supply chain initiative as we've mentioned. So, we should see overall market -- margin improvement in 2016 moving forward.

Got it. If we could switch gears a little bit to the Off-Highway business. It looks like you're actually tracking ahead of your plan for margins for 2015 in that business. I think you were guiding to around 13%. You were at 13.7% in Q1. But, my question is, you are doing really strong margins in that Off-Highway business, arguably at the trough of the cycle. How do you think about what the long-term potential of that business is as margins improve? Can this be a mid-double-digit EBITDA margin business or even higher going forward?

Pat, this is Roger. The Off-Highway group has done a really nice job even in light of the very, very difficult market conditions around the world in that segment. But, as you recall, maybe three or four years ago, we separated that group out to be run independently with a separate management team just like the rest of the business units so that they could focus their energies and effort on just that market and just that business. Taking advantage of the global strength synergies that we have across the four different business units that we have, but thus facing that market for the customers and so forth.

By doing that, they were able to very quickly over the last two or three years make some tremendous efficiency gains in what they're doing because it wasn't embedded in another business unit, if you will. It was out there on their own, and they've done a really nice job with that. In addition to that, by focusing on the customers and utilizing the technologies that we have throughout the organization across the four business units, have been able to apply specific technology to specific applications, and those are now coming on board in light of the trough of the market. So, we are not just riding the trough of the market, we are also being able to penetrate a little bit some new customers with new technology. And, just exactly what Mark had just mentioned about CV and LV. The new technologies coming on board with expanded margins from the older products that we were shipping.

So, the combination of all that is allowing that group to do very well at the low part of the trough in the market/ And I've said many, many times before one of the things that we're really excited about with that business is because we've been able to get the business in a position that it's in, similar to the other businesses when this market turns up, we can take advantage of the increased volumes, if you will, with the efficiencies that we now have in place.

In terms of the last part of your questions of where this could ultimately go? Ultimately, we think that there is room for improvement in the business, but as we've mentioned for the overall aggregate of Dana, when we get into the 13% to 14% range, that does not mean that we couldn't make those margins go higher because we certainly could. But our focus is really going to be transitioned over to optimizing our growth potential of the business with great margins in the business as opposed to continuing to narrow the focus on more and more and more and more profitability with the business that we have.

We think that the great way to produce the best shareholder value, and this was a few years ago that we'd come up with this, was to get the entire business in the profitability profile that we wanted in, and then focus on the growth potential that we have in the business. So, we have products above that range, certainly, but that range is probably a great range for this business to start optimizing the growth potential. We're really excited about that. Not only in Off-Highway, but the rest of our businesses as well.

Thanks very much. I will get back in the queue.

Justin Long, Stephens.

Thanks. Good morning. First question I wanted to ask. The divestiture in Venezuela was about an $18 million benefit to adjusted EBITDA in the quarter. But, I was curious if you had any update to the impact that divestiture would have for the full year? I think last quarter you talked about it being about breakeven in terms of the EBITDA impact in 2015. Has that view changed at all?

Justin, it's Bill. Not at all right now. Obviously, our sales last year were about $110 million for the business, and all of that obviously included in our Light Vehicle Driveline business. And, your point, we ended up at a breakeven position in 2014 on the business. What you will see obviously as quarters roll on here during the course of 2015, we have got an $18 million charge, if you will. A loss, if you will, on an EBITDA basis a year ago which certainly we avoided given the elegant solution that we executed for the business. But, a year ago then we started recoveries, right, and mechanisms that we are working through. So, we're going to get a little volatility in a year-over-year basis with respect to the ups and downs of Venezuela from a quarterly perspective. But, from your comment, you are exactly right. Annual basis $110 million sales reduction for Light Vehicle Driveline year-over-year with no impact from an EBITDA perspective

Okay, great. That's helpful. Secondly, as you think about the multiyear backlog you discussed at the beginning of the year, do you see any potential for the timing of that revenue changing at all? Whether it's the market dynamics you are seeing today or product launch changes? Just curious if there are any major swing factors on the horizon? Or, if that cadence of revenue over the next couple of years is pretty firm at this point?

Justin, it's Mark Wallace. Actually, it is pretty firm at this point. We're actually seeing our light vehicle driveline business continues to improve in their backlog, but I don't see anything else in the rest of the business units would have any dramatic impact to it. So, we're still very optimistic and supportive of what we put out in the backlog, and hopefully, we have more upside.

Justin, it's Bill as well. I just probably maybe a little finer touch on it as we progress as well. Certainly distribution of the business, and we're talking -- everyone is talking about FX, right? Certainly, there'll be an impact of FX on the backlog. But, I think, to Mark's point, what we're seeing is obviously opportunities that we're executing upon even in the current environment, in fact, probably being offsets. But, we'll give an update to the market, obviously, later part of this year, early next year with respect to an updated backlog. But, to date, very firm.

Great. That's a helpful update. I appreciate the time.

Thank you.

Ryan Brinkman, JPMorgan.

This is Samik on behalf of Ryan. The first question I had was just to clarify on the revenue guidance. You did take down your revenue guidance by $100 million. I was wondering is that entirely just due to currency? Or, are there other moving parts in terms of the underlying market? Or, for example, backlog. Are you seeing any pushout on that? Is there any other components of that that we need to keep in mind here, just outside currency?

I think if you -- excellent question. That $100 million net down, if you will, on the top line is almost 100%, obviously, currency. And, in fact, probably a touch higher on the currency level. We're seeing offsets, and as part of our margin maintenance, if you will, with respect -- or actually improvement in our adjusted EBITDA maintenance -- opportunities for the upside on end market demand. I think as reflected in our first-quarter results as well as what were seeing a bit on the new business front. The actual -- I would say, the actual realization of sales versus what our expectation was at the beginning of the year.

So, you are exactly right. I think that headwind from a currency perspective about $140 million being offset by about $40 million net that we see today with respect to upside on demand as well as new business being launched during the course of the year. As well as new business that has already been launched late last year that's operating at a higher level than our expectations. So, it's a little mix of both, but largely, FX.

So, just to follow up on that. Outlook on margins. You're raising your margin guidance here, and you mentioned your [base on business ex] coming in at better margin rate. But, is there any raw material benefit here that you're looking at? Maybe remind us if there's any outlook for -- that you've given for what benefit from raw materials do you get during -- in 2015, as well?

Yes, it's Mark Wallace. On raw material. Basically, especially in our light vehicle and commercial vehicle driveline businesses, most of those are pass-through issues with our customers. So, mainly whatever favorability we pick up in the near term will be passed back to the customer and vice versa. So, right now, there is really no significant impact for materials in 2015.

Okay, great. Just my last question here. You mentioned that utilization levels in your North America facility are running quite high, and maybe there's some premium costs that you're incurring. But, just thinking about probably what one of your competitors mentioned here that they have on the Class 8 side that capacity is more at the 320 level. What is the sort of capacity you have currently? Or, what level -- up to which level will you be able to comfortably support? And, are you open to putting in more capacity if required if the market has more upside here?

Sure, good question. Again, it's Mark Wallace. Actually, the rates recently have been running around 340,000 units so definitely a strong market. We've actually been putting in capacity at our supply network. Our assembly plants -- we have the capacity and obviously are supporting the current run rates today. And, we do expect in the future to be able to support these higher rates that we're seeing today. So, we're confident as we move forward into 2015 and beyond that we can support rates at this current run rate we're at today.

Okay, great. Thank you for taking our questions. Thank you.

David Tamberrino, Goldman Sachs. David, please make sure that your line is not on mute.

Thanks, it actually was on mute. Rookie mistakes over here. (laughter) Piggybacking off of that last question. The net performance drag that you saw in the first quarter in commercial vehicle driveline, is that expected to continue into the second quarter of this year? Or, is that pretty much -- I think you said that it was completed this quarter. But, should we see the benefit start to hit the P&L now? Or, is that more second half?

Dave, it's Mark Wallace. A couple of things. One, you've already seen sequential improvement from Q4 to Q1 related to premium. We will still experience some premium cost in Q2, but it will be actually on the declining basis. So, we should see margin progression throughout the rest of the year. And, as I already mentioned, we should approximate our 10% EBITDA target we had for full-year.

Okay, that's helpful. And then, I guess we were a little bit caught off guard on the light vehicle driveline in the Venezuela divestiture. You have spoken to exactly what you think there. But, for the rest of the business, when we strip it out year-over-year and take a look at it, is it fully just a content growth from incremental new business? Is there some additional benefit from mix shift? From smaller cars, medium cars, and to light truck that's helping you at least outperform where we were expecting?

Dave, it's Mark Wallace again. When you look at our Light Vehicle Driveline business, we've obviously had strong demand with Jeep and the Ford super duty. We have very strong demand with Jaguar, Land Rover in England as well as we see a recovering market in Thailand. But, on top of that, as mentioned before, we're seeing the expansion of the Colorado Canyon hitting us full year at better than we expected. So, kind of a good news across the board. We're seeing definitely some improvement in the current base of business, but as well as our new business coming on at the better margin rates.

Understood. That all makes sense. Just lastly, the US GAAP tax rate. I think that was moved up from 24% to 31%. Anything there we should be aware of?

We touched that up a bit. This is Bill. You're exactly right. We touched up to about 31%. What you'll note here is we're seeing some incremental tax expense largely around our US operations. You will recall in the fourth quarter of last year, we released or had a benefit on the income statement of about $179 million of our deferred tax valuation allowance. What we're seeing is under the accounting rules we now have to book a tax expense at basically the US rate even though we haven't completed the planning action that we undertook to realize a benefit a year ago.

So, basically what you're seeing is a neck up on that tax expense. And, as we proceed the rest of the year as we look also at our valuation allowance and our deferred tax asset positions, that probably will be a fourth-quarter discussion item as well. There's no cash impact to this. Obviously, with respect to utilization of our NOLs, it's just more of the timing of expense recognition via the accounting rules versus what we had expected when we put our guidance out at 23%.

Understood. That's all for me, thanks. Congratulations on the quarter.

Thank you.

Brian Johnson, Barclays Capital.

Good morning. It's actually Steven Hempel on for Brian Johnson. I just wanted to touch base on a couple of things that are interrelated here. Related to new business launching 2015, I believe in the Q here you lay out that some of the offsets from higher market volumes and weaker currencies are being offset by contributions from new business programs launching in 2015. I believe that's likely related to the GM's new midsize truck program. But, before you noted that the net backlog is actually firm at this point. So, is basically the net backlog coming in from that program higher than expected but being offset by currencies -- euro and other programs that might -- the net backlog might be lower? Or, I guess if you could just help us clarify what it is you meant by higher contribution of new business programs?

Let me take a first shot, Mark, and you can follow up on this. If you think about the backlog, and we had the progression and how it was going to increment 2015 forward. There was an incremental increase of about $140 million expected for 2015 as we progress through the year. I think it's two-old actually. One was that was based on an assumption of production, and we'll use one particular platform, being the GM platform, that we launched late last year. It had an assumption with respect to demand.

So, twofold. One is we're certainly meeting that assumption if not exceeding it, but I think the more important piece of the puzzle as well is that we are seeing the margins that we expected on that business. And, obviously from a volume perspective, we're seeing an uptick in our contribution margin. So, you're exactly right. It's the best of the best, if you will. It's a great program for us. Hopefully, a great program for GM as we are seeing. Reasonable and good returns on that business in excess of our base business. And, you're right. We are seeing some upside on the production environment as we head through not only the first quarter but the rest of the year.

Okay. Is there any offsets that are offsetting that additional -- I would assume that should be grouped in net backlog then. Or, is there a potential upside to that net backlog for 2015?

I would suggest there was really no offsets to that -- other than set aside FX, right. But, from a pure volume perspective probably in the current year, might be some positive there.

Okay, and then just related question here. Volume mix for LVD was roughly 20% on an incremental margin basis. I would assume that's largely related to the new businesses rolling in. Should we expect similar type of incremental margins here for that business moving forward through 2016 and 2017? I believe historically you have indicated 2015 percentage-type incremental margins so just trying to gauge what we should be expecting as new business starts to ramp?

Steven, just on the margin for Q1, definitely the new business is driving the higher -- major portion of the margin but also we continue to work on our cost improvement initiatives inside. So, we do expect that the LVD business will continue to have stronger margins than historically and will be, again, part of our margin expansion into 2016 as well.

Okay, great. And then, just one quick follow-up, a housekeeping. Are you still expecting pricing recoveries to be a $75 million to $100 million tailwind in 2015?

Steven, this is Bill. No, not at all because much of that if you think about it was what we were experiencing largely in South America, largely around Venezuela. What the expectation was, obviously as we discussed in early January pre-the disposition was that was going to be the same situation. Certainly, with the solution that we came up with, Venezuela -- that's going to neck down significantly. I would suggest it's going to be more of a normal course. Inflation recoveries that we have around the world with respect to certain countries that we operate in that are well-worn paths with the customers. I think the exception a year ago and really two years ago is largely around Venezuela.

Right. Great. Thanks for taking the questions.

This is Roger. I just want to thank everyone for joining the call today. We'll see you the next time. Thank you very much.

Thank you. This concludes today's conference call. You may now disconnect.