Dana Inc (DAN) 2015 Q3 法說會逐字稿

Good morning and welcome to Dana Holding Corporation's third quarter 2015 financial webcast and conference call. My name is Brent 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)

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 for joining us today for Dana's third 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 materials are the property of Dana Holding Corporation. They may not be recorded, copied or rebroadcast without our written consent. Today's call will include a Q&A. 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 the factors that could affect future results are summarized in our Safe Harbor Statement. These factors are also detailed in our public filings, including our reports with the SEC.

Presenting this morning will be Bill Quigley, Executive Vice President and Chief Financial Officer, and joining us for Q&A is Mark Wallace, Executive Vice President and Group President on On-Highway Driveline Technologies. And it is my pleasure to introduce Jim Kamsickas, Dana Holding Corporation's new President and Chief Executive Officer. While today coincidentally marks the 50th business day for Jim here at Dana, he brings with him more than 26 years of industry expense. Most recently, he led International Automotive Components, where he served as President and Chief Executive Officer. IAC has expanded around the globe, going from $600 million in sales in 2006, to a nearly $6 billion mega-supplier in 2014, with more than 32,000 employees in 100 locations. So now, I'd like to turn the call over to Jim.

Thank you, Craig, and good morning. While I've had the opportunity to speak with a few of you already, this is the first chance to speak to the wider group. I'd first like to first start by congratulating and recognizing Roger Wood and the Dana team for their efforts and focus over the last several years, building a very strong and highly innovative company, positioned for long-term and profitable growth.

I'm proud to join the team and to continue to collectively drive the strategy and company forward. Since joining the Company in August, I've had a chance to meet with a number of customers and travel to a number of our facilities around the world. I am inspired by our advanced thinking and dedication to the Dana family. And I look forward to together achieving our profitable growth objectives.

Turning to slide 4, a number of people have asked what attracted me to Dana. In short, there are three key factors: Dana's people, its technology strategy and its potential for growth. I have been so impressed with the Dana team, which over the last few years developed a strategic plan for improving the business and achieved just that. More importantly, I'm proud to be associated with Dana's 23,000 women and men around the globe who work so hard for our customers and shareholders. They are the heart and soul of this company that is known throughout our industry, not only for its iconic brands, but for providing exceptional products and solutions to all of our markets. And for having a lean mindset that serves as our foundation for continuously striving for operational excellence. I continue to be excited by Dana's technology strategy, with 16 technology centers around the globe and a world-class design and engineering team, Dana is able to provide leading-edge solutions to our customers in order to help them achieve our objectives. Our recent product introductions, as well as future technologies in the pipeline, are evidence this strategy is working.

Last but not least, Dana's industry-leading geographical footprint in multi-vehicle segment product and process synergies position us well to create future growth opportunities in all geographical markets. There is no question that bolt-on acquisitions may likely be included in our growth strategy. However, I want to emphasize that our immediate focus is on organic growth. Over the past few years, we've earned new business faster than the market rate while improving margins. I believe we are well-positioned to further capitalize upon our differentiated core competencies to drive our future growth.

So with that, let's move to recap Dana's third quarter on slide 5. The results of Dana's third quarter were mixed, as all of our businesses, with the exception of Commercial Vehicle Driveline, performed very well. We recorded sales of $1.47 billion in the face of strong currency headwinds. Year-to-date, we've achieved 3% organic growth with three of our business units this quarter posting a combined 6% organic growth rate compared with the third quarter last year. However, as you know, we have some continuing challenges with end markets for heavy trucks in Brazil, which is down a staggering 49% compared with last year. We have also seen lower sales in our North American commercial vehicle business, as we have lost some share with one of our main customers.

This year's shift change commenced after our previously existing commercial agreement expired and was a latent result of the coinciding completion of our supply chain modernization projects. This shift certainly impacts sales this year and likely into next year, but we are confident that our future is bright in the commercial vehicle segment now that we have completed these difficult, but necessary, value chain actions. Notably, you will notice the performance improvement in the numbers the Bill will present in a few moments. Going forward, we expect to increase revenues with our commercial vehicle partners.

Net income for the company was $119 million, including some one-time items that Bill will discuss, and diluted adjusted earnings per share were $0.41. This quarter, adjusted EBITDA margin improved 20 basis points sequentially and ended the quarter at $167 million or 11.4% of sales. We also continue the execution of our $1.4 billion share repurchase program by returning $119 million to our shareholders. This brings the total we've returned to shareholders to over $1.3 billion since we started the program and we had about $66 million remaining in our authorization at the end of September. Also, this quarter we secured key business wins, continued to win new business, adding to our backlog beyond 2017, and we received several awards for outstanding customer service and community involvement.

Moving to slide 6, we're excited to announce that we have been sourced again for both the front and rear axles and the driveshaft for the next generation Jeep Wrangler. We are very proud of our long-standing history with Jeep which is one of the longest, if not the longest, continuous OEM supply relationships in the industry. For nearly 75 years, Dana has provided axles for the Jeep Wrangler since its predecessor was first introduced in 1941. This vehicle has a strong following around the world. Dana's advanced Spicer Drivelines will provide superior technology to maintain the Wrangler's renowned off-roading capabilities. We're also improving efficiency.

In addition, Dana has been selected to continue supplying drivelines, including the front and rear axles and rear driveshaft for the Ford Ranger Pickup in Thailand, South Africa and Argentina. The Ford Pickup Truck, sold in 180 countries, is one of the world's most popular and recognized compact pickup trucks in the world. These two programs, along with the next generation Ford Super Duty platform that we are preparing to launch, make up over half of our light vehicle driveline business.

Moving to slide 7, as our long-standing relationship with Jeep demonstrates, Dana has an extensive history of supporting the US military, dating back to World War I. Another example of this is Dana's Spicer Central tire inflation technology, which has been used on government defense vehicles for more than 20 years. Last month, Dana announced that it will supply this technology for the joint light tactical vehicles to be manufactured by Oshkosh Corporation for the US Army and Marine Corps. In addition, Dana's Power Technologies Group was selected to supply charge air cooler technology for a new BMW program in Europe.

Supplied to Mann & Hummel, Dana's water-cooled charge air cooler technology improved fuel economy without sacrificing vehicle performance by providing more power and torque at low vehicle speeds. Compared with the competing air cooler charge air coolers, Dana technology can provide up to 75% reduction in turbo lag and reduce pressure losses by as much as 50% so drivers still feel immediate response when power is required. This is the first time we'll be supplying this technology in Europe, laying the foundation for additional growth in the region and market.

We've also secured incremental business with a large Indian Tractor OEM, International Tractors LTD, also known as Sonalika, to supply portal axles for the upcoming platform. This is an exciting new customer to Dana, and one of the top three market leaders in the India Tractor industry, with a presence in approximately 72 countries and a wide network of 1,100 dealers worldwide.

Finally, we also secured incremental new business with new very important commercial vehicle OEMs that we'll be able to talk about more in the future.

Moving to slide 8, I'm pleased to announce the for the fifth consecutive year, Dana has been named a finalist for the Automotive News PACE Awards. This is especially notable because we are one of only six suppliers to be named a PACE finalist in each of the last five years. This year, Dana is being recognized for its innovative long-brand two-sided chip-cooling technology. The integrated cooling plate enables superior heat transfer, temperature management and cooling abilities and enhances the heat transfer of power inverter devices, addressing the high-heat, high-power demands of electric and hybrid vehicles. The cooling technology delivers smooth, efficient heat transfer and also an exceptional clean and clutch-free, which minimizes coolant contamination. Through its efficient attributes, the two-sided chip cooling improves the transfer of power between batteries and motors.

Moving to slide 9, two important core values to Dana is being a good corporate citizen, while also providing world-class solutions to our customers. We continuously drive those priorities. And we're honored to be recognized for both once again this quarter. In addition to being a PACE finalist, we also received several other prestigious awards this quarter, including our Lima, Ohio facility was recognized for their commitment to quality, delivery, technology, and cost performance by Daimler Truck North America with its Master Quality Award, the highest honor this commercial vehicle manufacturer bestows on its suppliers.

Also, Dana Spicer India was honored in India by Tata for an award for efficiency, our power technologies facility in Neu-Ulm Germany was a recipient of the Supplier Quality Excellence Award from the European motorcycle manufacturer KTM AG and Dana Spicer Rui Ma brand of drivetrain solutions recently received a corporate social responsibility award in Shanghai, China.

Finally, on slide 10, I would like to reiterate Dana's key objectives which demonstrate our main focus of growing the business profitably. Our new business is driving organic growth faster than the overall market. We remain diligent towards continuous improvement across the entire business to help drive margin improvement. To support our growth objective, we will continue to invest in innovation and technology that meet key market drivers for our customers today and in the future. In addition, we'll also pursue opportunities to grow the business inorganically to bolster our core competencies. Finally, we remain committed to strong free cash flow generation and a strong balance sheet as well as disciplined capital allocation approach.

With that, let me hand it over to Bill to walk you through the financial performance and our outlook for the rest of the year.

Thanks, Jim, and good morning, everyone. Before I provide a detailed review of our third quarter financial performance, I'd like to spend a moment to highlight the key considerations and factors that impacted the business during the quarter which we've outlined on slide 12.

As Jim mentioned in his comments, foreign currency again has significant impact on our quarter comparisons and masks the underlying organic sales growth of several of our businesses. In the quarter, currency lowered sales by 8% percent compared with last year, given the continued strength of the US dollar. In previous quarters of this year, almost all currencies remained weaker, with the euro and Brazil real having the most impact on our sales comparison. Light vehicle on off-highway organic sales growth in the third quarter was again strong, yet lower commercial vehicle sales reflecting significant weakness in South America end-market demand, as well as our lower share of the North American customer as a result of her first-half supply-chain difficulties, offset this growth.

Our light vehicle off-highway driveline and power technologies business units combined to provide a 6% organic sales growth rate year-over-year as well as new business gains. While commercial vehicle earnings were pressed in the quarter, given the lower sales, our other business units continued to execute, driving improvement in a total Dana-adjusted EBITDA margins on a sequential basis, a 20 basis-point improvement compared to our second quarter and a 50 basis-point improvement compared to our first quarter of this year.

Now let's move to slide 13 for our third-quarter financial comparisons. Sales totaled $1.468 billion in the quarter, $169 million lower than last year. Currency and the divestiture of our operations in Venezuela were the primary drivers of the comparison, lowering sales by a combined $158 million. Adjusted EBITDA for the quarter totaled $167 million, $31 million lower than last year, providing a margin of 11.4% or about 70 basis points lower compared with last year as well. Similar to the sales comparison, the effects of currency translation from the current quarter and the Venezuela divestiture accounted for the vast majority of the comparison.

Net income totaled $119 million compared with $90 million one year ago. Our third-quarter results included to nonrecurring items that impacted our reported net income. First, due to changes in tax regulations in the current quarter, we released an additional $100 million of our US deferred tax valuation allowance relating to planned legal structure reorganization. You'll likely recall in the fourth quarter of last year, we had a valuation allowance release as part of this planned activity as well. Partially offsetting this, we recorded a $24 million after-tax charge asset impairment charge related to an exclusive supply agreement with a third-party supplier in Brazil, which is in judicial reorganization. These non-cash items are excluded from our adjusted EBITDA and diluted adjusted EPS results.

So adjusting from these items, net income for the quarter was $43 million or about $47 million lower than last year, largely reflecting lower adjusted EBITDA in the current quarter. Further impacting comparison were nonrecurring environmental tax charges this past quarter, as well as pension adjustments that benefited our 2014 results. Diluted adjusted EPS was $0.41 per share in the quarter compared with $0.57 a year ago, reflecting lower adjusted net income in the quarter, partially offset by a lower share count related to the continued execution of our share repurchase program. And finally, free cash flow was $68 million in the quarter compared with $61 million last year.

No let's go into some further detail, starting with our sales and adjusted EBITDA comparisons which we've highlighted on slide 14. So as I mentioned in my opening comments, our light vehicle, off-highway and power technologies business units executed very well in the quarter, posting a combined organic sales growth rate of 6% over last year. And as we've highlighted here, commercial vehicle driveline sales were lower year-to-year by about 25% reflecting both unfavorable currency and lower demand. And while I provide a little more detail on the coming slide, continued end-market headwinds in Brazil alone lowered commercial vehicle driveline sales by $55 million in the quarter. And on a consolidated Dana basis, South America sales in the quarter were lower than last year by $115 million, reflecting unfavorable currency, weak end-market demand and the Venezuela divestiture and accounted for almost 70% of the comparison for the quarter.

Now let's turn to the drivers of the sales and adjusted EBITDA comparisons which are presented to the left and right hand of the slide. On the sales front, currency was again the main driver of the comparison lowering sales by $136 million, with the euro and Brazil real accounting almost $90 million of the change. In the third quarter of last year, our Venezuela operations generated $22 million in sales for our light vehicle driveline business unit and on a full-year basis, this divesture will represent a year-to-year sales reduction of about $110 million. Finally, volume/mix and pricing lowered sales about $2 million compared with last year with lower commercial vehicle sales nearly offset by solid growth in all our other business units.

Moving to adjusted EBITDA, currency was a headwind of $24 million with conversion a bit higher than our overall margin, given the regional distribution of our higher-margin businesses. On a comparative basis, Venezuela generated [$6 million] in adjusted EBITDA on last quarter, largely representing currency devaluation recoveries. As we discussed in the second quarter, comparisons for the remainder of the year will include a headwind for recovery as we achieved in 2014, which ultimately drove full-year breakeven results for this operation.

As highlighted in the next couple slides, on the volume/mix front, light vehicle, off-highway and power technology businesses generated about [$60 million] in earnings on higher volumes, which was offset by the impact in commercial vehicle lower sales. Now, rounding out the comparison was positive performance of about $2 million for the quarter.

The next two slides outline the sales in segment EBITDA performance of each of our business segments starting with light vehicle driveline and commercial vehicle driveline on slide 15. Light vehicle driveline posted sales of $605 million in the quarter, largely in line with last year even though the Venezuela divestiture and currency provided a headwind of $51 million. Adjusting for these two items, sales rose by almost 8% compared with last year, with volume and mix providing an increase of $57 million, reflecting the impact of new business gains, and continued strength in North America, as well as a stable European market.

Segment EBITDA with $63 million this quarter lower by about $7 million compared to last year. The Venezuela divestiture and currency provided a combined headwind of $13 million. Volume and mix was favorable $9 million, while performance was slightly lower than last year, reflecting both the timing of cost recoveries in 2014 as well as some incremental costs in the current quarter to support new business launches in the coming year. While margin performance was 130 basis points lower than last year, the timing of currency and cost recoveries largely in our South American operations during last year's quarter represented almost all of the margin comparison.

Moving to commercial vehicle driveline, sales totaled $367 million in the quarter, $120 million lower than last year, with currency representing about $40 million of the comparison, due principally to a weaker Brazilian real, euro and Mexican peso. Volume was significantly weaker due to lower demand in Brazil, which was a headwind of about $55 million with Brazil truck production lower in the quarter by almost 50%. As outlined previously, sales in North America were impacted by our loss of share with a customer as a result of our now-remedied supply constraints we experienced through the first half of the year. And finally, pricing and recoveries increased sales by $5 million in the quarter. Segment EBITDA was $31 million for the quarter, or 8.4% of sales. Currency lowered EBITDA by $5 million and a decline in South America market demand further impacted earnings by $11 million. The decline in North America sales results in the headwind of $8 million with a higher margin impact driven by the pace of the decline in sales we experienced in the second half of this quarter. Net performance for the quarter was a positive $8 million, largely reflecting lower material related costs from our now-completed supply chain initiative as well as recovery benefits.

Now let's review the performance of off-highway driveline and power tech for the quarter on slide 16. Off-highway driveline sales totalled $246 million for the second quarter, $37 million lower than last year, with the weaker euro accounting for almost all of the change. Volume and mix was up slightly compared to last year as new business and positive market mix more than offset the impact of growing weakness in global ag and construction demand experienced in the quarter. Off-highway posted segment EBITDA of $35 million, $5 million less than last year, yet margin improved by 10 basis points to 14.2%. Currency was a main driver lowering earnings by $7 million compared with last year, and positive mix in new business and net cost efficiencies added $2 million to the comparison.

For power technologies, sales for the quarter were $250 million, $9 million lower than a year ago. Currency was again the main major driver here, lowering sales by about $30 million reflecting principally a weaker euro as well as the Canadian dollar. Increased light vehicle demand in both Europe and North America increased sales by $24 million and, combined with performance, provided in organic growth rate of 8% over last year. Segment EBITDA was $40 million, $3 million better than last year as the impact of currency was certainly offset with favorable volume and mix as well as performance. Margin improved 170 basis points compared with last year, rising to 16%.

Now let's take a quick look at our year-to-date sales and adjusted EBITDA results, which we've highlighted on slide 17. On a year-to-date basis, 2015 sales totaled $4.685 billion, $350 million lower than last year and as we've highlighted on the lower left of the slide, currency effects more than accounted for this change reducing sales by $413 million. The euro alone lowered sales by about $260 million. The Venezuela divestiture accounted for another $69 million of the year-to-date comparison. Volume and mix added $123 million which, combined with pricing recoveries, provided and organic sales growth rate of about 3%. This is an impressive rate given the fact that it's net of lower sales in South America of more than $120 million given the significant weak demand environment which has certainly impacted all of our businesses. Adjusted EBITDA was lower by about $45 million with currency accounting for $73 million offset by $24 million due to conversion on the volume as well as performance improvements. And despite a number of challenges, we've continued to maintain a strong margin profile of 11.2% with three of our four businesses posting increases over last year.

Now let's turn to our cash metrics for the third quarter which are highlighted in slide 18. We generated about $68 million of free cash from the quarter, $7 million higher compared to last year. As you note here, working capital has a benefit of about $40 million in the quarter, $54 million higher than last year, reflecting the timing, largely of receivables collections in the current quarter. Net interest was $18 million higher in the quarter compared to last year due to timing of semiannual interest payments on our current outstanding unsecured notes. Cash taxes of $36 million in the quarter were higher compared to last year, largely reflecting the timing of estimated tax payments and jurisdictional profitability. And capital spending was $70 million, $27 million higher than last year, largely driven by our light vehicle driveline business as we continue to make investments to support the launch of new programs. At the end of the quarter, cash and marketable securities totalled $974 million and total liquidity stood at $1.312 billion, including $349 million of availability under our US credit facility.

Now let's move to our expectations for the rest of 2015 on slide 19. We certainly expect currency to remain volatile and most likely a headwind as we close the year out, with South America currencies likely leading the way. While North America and Europe light vehicle markets remain largely in line with our previous expectations, we experienced further softening in South America during the course of the third quarter, due to the continued economic downturn in Brazil and we expect that trend to now continue through the end of the year. We've also slightly lowered our light vehicle expectations for Asia, in particular softer demand that we're experiencing in Thailand. On the commercial vehicle front, we're adjusting our rest-of-year sales expectations for a number of factors including a weaker North America Class 8 build, softer specialty equipment and replacement demand, as well as a lower share position. And finally, we are lowering our rest-of-year expectations for off-highway business, reflecting demand weakness in both construction and ag equipment. We certainly will continue our disciplined focus, though, on aligning our cost structure to the expected year-term demand environment as we move through the rest of the year.

We've adjusted our full-year financial targets to take into account these lower expectations, which we've highlighted on slide 20. As highlighted here, we expect 2015 full-year sales now to be about $6.05 billion compared to our previous range of $6.2 billion to $6.3 billion. Reflecting lower demand environment in several of our served end markets as I just highlighted. Reflecting our full-year sales expectations, we've also adjusted our expected adjusted EBITDA to about $675 million for the year providing a margin of 11.2% and diluted adjusted EPS of $1.85 per share. On the cash front, we do [expect capital spend] to be about $280 million and free cash flow of about $170 million.

So with that, this concludes our presentation. We appreciate your attention and certainly we'll turn the call over to the operator for any questions. Thanks.

(Operator Instructions)

Brett Hoselton, KeyBanc.

Good morning, everyone. This is Irina Hodakovsky for Brett Hoselton. How are you this morning?

Very good. How are you?

I'm good, thank you. The one question I wanted to ask, if you can talk a little bit more to the lost market share. You are not providing the customers and that's understandable. But where are you now with this 40-year expectations going forward? Do you expect to recoup this market share? How do we model this and how do we think about this going forward?

Hi, Irina. It's Mark Wallace. With the lost market share, number one as we talked about a little bit earlier in the dialogue, number one, we've gotten through our supply chain modernization activity, but during that period of time, it was a major undertaking on our part to get, obviously, a better cost structure as well as more flexibly in our supply chain, in the highest commercial vehicle market we'd seen in the long time.

So through that period of time, one of our customers decided to make some adjustments in their take rates, in order to mitigate any risk they felt they may have going forward. The good news is, we're through that initiative with our supply chain modernization activity. We feel comfortable that we're competitive moving forward. We're comfortable with our technology moving forward. And whatever share losses that we may experience in one area, I'm comfortable that we have other avenues with other customers as well to look at revenue there as well.

Would you be able to quantify the impact of the lost market share on the topline this quarter and the EBITDA?

Yes. This is Bill Quigley. If you think about on a class 8 production, right, class 8 production in North America was about equal to last year, right, about 80,000 units.

So, as we've highlighted on the commercial vehicle slide that highlights the changing drivers for sales and EBITDA, you'll know we're down by about $30 million on a year-over-year basis in North America. I would attribute that largely to the share movement we experienced from the course of the quarter, which accelerated obviously as we exited the quarter.

Thank you very much for that, Bill.

Yes, and Irina, also on the EBITDA front, we provide those changes if you will and you can see the movement with respect to the margin flow on that lower sales environment, but what's important to note, as Mark indicated as well, and why certainly there were ramifications from our supply chain initiative as we move forward, you'll note that we've seen improved cost efficiencies in commercial vehicle driveline, largely attributable to in fact that supply chain initiative.

Got you. And on the power technologies, sales down and the margins continue to increase, very strong margin 16%, how are we to think about this going forward? Is there more? What's driving this improvement? Is there more than we can anticipate from this segment?

Yes, I mean -- it's Bill again. Certainly power tech has executed really all year long, with respect to favorable conversion on volume. And quite frankly the third quarter was no different.

You'll note here on the slides that we provide, they converted at about a 25% rate on the incremental volume, which certainly is a rate that we've talked about all along that, at a blended rate, you would expect Dana at about a 15 % to 20%, but certain of our higher-margin businesses would probably be north of that 20% and power tech is certainly one of those businesses.

So you're exactly right. They posted a great margin at 16%. It's not the first 16%, but I think as we move forward through the course of this year, we're going to continue to have a good move on the margin front, and certainly we wouldn't put any floor or ceiling on that type of improvement. But again, we've spent a lot of time with the business over the last several years, improved the business, and we would expect that margin to move forward, especially in a higher-volume environment.

Thank you. I appreciate that. Looking forward to your guidance in Detroit.

Brian Sponheimer, Gabelli and Company.

Just going to the market share issue with one of your customers, given that you've got the excess capacity here, I guess this question's more for Mark Wallace. How long do you think it will take you to find the customer platforms that you can then utilize this excess capacity? Are we looking maybe now six months down the road, nine months down the road?

Hey, Brian. It's Mark Wallace. Good question. But a couple things to keep in mind that even as you look from this year into next year, not sure yet where the numbers will settle in, but next year is still going to be a very strong commercial vehicle market.

So when you think about capacity, for someone like Dana, most of that really revolves around assembly capacity. So we flex our variable cost lines with volume as they move to say, even from 250,000 units to 300,000 units going forward.

So, I don't see any significant changes in our capacity from actually making changes there, but we'll continue flexing our variable cost to stay inline with the sales decline if we see any additional. But going forward, we're working with all of our customers.

We feel confident in our abilities, our supply chain modernization is going to be another strong point for us, but also technologically, we continue to bring new products to market and focused really around greenhouse gas emissions and also around fuel economy. That's still a big demand and we feel comfortable that we have the right technology and the right footprint to support the customers moving forward.

Thank you. And I guess, Jim congratulations again. You met with a number of us a couple of months ago. In the interim, any new thoughts on maybe what you have at Dana and maybe some ideas as to what issues you think you can address given your history at IAC?

Thank you, Brian. It's nice to talk to you again as well.

I would say I would reinforce the initial views that I had that I do see it as a huge opportunity for growth. Now where does growth come from? Obviously it comes from your footprint, your technology, your operating performance, all those type of things.

I've been to, as I said in my initial comments here today, I've been around the world a couple of times now and I continue to see a reoccurring theme of being able to separate maybe from some of our competition, but certainly provide strong value proposition to all of our customers.

You know by now having met me, I feel very comfortable with all of our customers around the world from prior lives if that's in the commercial vehicle world are light vehicle world. So I would only tell you that I feel strongly about everything I said then and of course everything I said earlier today.

All right, well best of luck.

Thank you.

Brian Johnson, Barclays.

Yes, good morning. A few questions. First, just on the issue of the day. Do you have any sense of whether the customer, who because of the supply chain reasons you talked in the (inaudible), do you think it went to a competitor or do you think it was in-sourced in-house?

Yes. Hi, Brian. It's Mark Wallace. It went to a competitor.

Okay. Okay. And continuing with the North American class 8 market, a couple questions: do you see any firming in pricing around it given where both the entire industry is running fairly strong? And then secondly, as you look at the order books, as you look into 2016, any direction that you see for that class 8 customer market?

Brian, it's Mark Wallace again. A couple things. We feel comfortable about our position in the market. Market demands are still strong from historical perspectives, so I don't really see any change there from landscape.

However, we have seen some pressure in Q3 and Q4, with demand we think that we'll continue in through Q4, but most of the input I'm getting directly from our customers is they do still expect that 2016 will remain a fairly strong year from a production output moving forward.

So I think overall we're fairly confident at this stage that next year will be a good market, probably not what we've seen in 2015, but still a relatively strong market for commercial vehicle class 8.

Okay, great. Couple other quick questions. You announced a program last quarter with Volkswagen, start production 2017. I could guess and maybe it's the Mexican building of some CUVs, but maybe not. Any update or risk on that given all the issues going on at that customer.

Hi, Brian. It's Mark Wallace again. This is in the passenger car arena. It's a specific vehicle, the Volkswagen Crafter, we don't expect any impact from that going forward.

Okay. So it's not, and that's not meant for the American market?

No.

Okay, so it's not. And then finally, just given where the stock is, where are you on the share buyback, any thoughts of up-sizing that to take advantage of this entry point and just the cash regenerating?

Yes, Brian, it's Bill. Now obviously, you saw an uptick in execution on our share repurchase in the third quarter. We drove it up to about $119 million. Our run rate had about $60 million per quarter and pursuant to our previous commitments, we have been always quite frankly focused on completing the execution of that program by year-end 2015. So through that year-end, we will have deployed, in returned capital to our shareholders, about $1.4 billion.

Certainly as we move forward, the cash flow generation and profile of the business looks strong, we're going to continue to allocate capital to investments within the business to grow the top line. We see that in our light vehicle driveline business, but at the same time also we have to take a look at the best and highest use of capital so as we generate excess cash, we certainly have the opportunity to move forward with respect to channels that we've already quite frankly developed, be it incremental share repurchases, be it incremental dividends, so on and so forth.

So, just as we kind of round the year, as we get a view on 2016 as we move forward, obviously we'll make those decisions in concert with senior management as well as the Board in the next year.

Okay, thanks.

Patrick Nolan, Deutsche Bank.

Good morning, everyone. Two questions. First, noted the CapEx guidance came down below the low end of the prior range. Can you discuss that a bit more in relation to your backlog for next year? How are you feeling about the number? What are the pluses and minuses you are thinking about? Is it just a matter of that backlog is going to be coming down, it's a matter of how much? Or are you still feeling okay about that number that you put out last year?

Yes, I think with respect to the movement on capital spending, Pat, this is Bill, sorry, that's largely around our light vehicle driveline business. I mean, really, it's just timing of equipment install and certainly runoffs and certifications, if you will.

So I don't really think that clouds any of our visibility into the backlog and light vehicle driveline as we move forward. So as we do move forward, I think it's just kind of a move into next year.

Also though, I think we're also being much were disciplined and continue to be disciplined, as you know, on making sure we're spending the right dollars for the right installs. So, I think it's a combination of both.

But on the light vehicle driveline front, certainly even with the two platforms we talked about today, that's a very strong business for us, backlog is continuing to evolve, and we feel very confident about the light vehicle driveline business moving into 2016.

And the backlog in the other parts of the businesses, do see a downside risk there?

If you think about the backlog overall, our 2017 backlog, certainly it's got expectations with respect to currency, volume, so on, so forth. My comments on light vehicle driveline remains. I think it's a strong piece of the puzzle there and as you know is the most significant piece of our backlog, our 2017 backlog.

We'll give update, obviously, in January, so with respect to our 2018 backlog. It will take into account any wins and/or losses that we may have experienced during the course of 2015, updated for FX assumptions, so on, so forth. But I think on a number of the business fronts, we feel pretty good about the backlog. Certainly we've got some work to do in commercial vehicle driveline.

Got it. And if I could just sneak in one more for Mark. Mark can you just discuss what you're hearing from your customers in the off-highway side? Is the mindset to get most of the necessary inventory reduction done by year-end or are you expect they're kind of trickle into next year?

Well, I mean, Patrick, I think after the 2008, 2009 timeframe, most of the customers learned a pretty difficult lesson with inventory. So I think they're being much more disciplined than what we've seen in the past. So I think they'll continue to shrink inventory as we move into the end of 2015.

And hopefully, we actually get some good news in the markets, be it in the commodities markets or construction markets, et cetera that can actually give us some upside going forward.

Okay. Thanks guys. I'll get back in the queue.

Joe Spak, RBC Capital Markets.

Hi, good morning. I wanted to follow up on backlog a little bit, and I appreciate the color on LVD. But for off-highway, it's definitely not the largest part, but I think that was still also a quarter of the backlog and it does seem like that's getting a little bit more challenged by the day and certainly versus 9 months, 10 months ago.

I think we can make some assumption about volume, but I guess the question is are you seeing any sort of changes or cancellations or push-outs of planned backlog launches?

Yes, Joe. It's Bill. Certainly in our off-highway business, I think if you were to look at the year-to-date results, many of the markets that are operating certainly are not at an increasing demand level. And quite frankly, they've mitigated that in the volume front, and that mitigation is coming from new business that they're putting into the [market] currently. So, I think you're right. As you look forward, part of the backlog is always going to be based on market.

I think our off-highway business has had very good performance with respect to new business awards and really it's mitigating the impact of some of the markets today in 2015.

So again we'll do an update on that. You're right, there's a lot of programs in off-highway, there's a lot of customers. It's certainly not a light vehicle driveline platform with respect to volume. But to date, we've seen some movement around our programs. But I would say nothing really in and of significance. But again, as we end the rest of the year and update next year, we'll certainly provide guidance on that in early 2016.

Okay. Thanks for that. And then Mark, I appreciate some of the commentary on class 8s. I just want to better understand some of your earlier commenting. What level of class 8s would you say you are currently capacitized to? Because what I'm wondering if it's something a little bit below the 300,000 some odd vehicles done this year, is that actually -- if that does step down next year, is it actually not at that much of a drag to the profit levels?

Yes, Joe. A little clarity. I think once you get above 300,000, and clearly the supply chain gets under duress and it's kind of a natural trend we've seen for the last several upcycles in commercial vehicle. However one of the things we've been working on is the supply chain modernization activity, which actually is going to improve our flexibility as it comes to the ups and downs of commercial vehicle.

So as we move into next year, if it's a number of 280,000 or 290,000 or 270,000, I think we feel comfortable where we're capacitized to at that stage and we feel comfortable that we'll be able to service our customers on any need throughout next year. But I don't see anything significantly changing next year from a capacity perspective.

Okay. And then, Mark, I just wanted to better understand that Brazil line item in the walk and your relationship down there because if I go through your slides and some past disclosure as well, I think South America is, call it, 13%, 15% of commercial vehicle.

And then you're saying you had at a 55% headwind from volume there, which would imply that your Brazil business is down like 80% as opposed to the 50% you quoted, so is there something specific about the customers you are on there or I guess I just want to better understand that relationship.

Yes, Joe. It's Bill. I think if you think about our presence, it's largely to your point, a commercial vehicle presence in Brazil, on a year-over-year basis alone, we're down by about $115 million or so, just year-over-year. Now certainly that's going to have currency in it as well as a weakened environment.

But if you just take a look as we're moving forward here, that demand environment is sitting at percent down on a year-to-date basis on South America truck, write up Brazil truck, if you will. So really I think the volume impact and the associated margins really around our people that are doing [yearman's] work with respect to aligning the cost structure to that current environment, and that's obviously having some margin impact as we get almost in the fixed cost absorption issue. I'm hoping that's what you're asking for.

Yes, I guess, it seems like maybe your Brazil business is down, from a volume perspective, from more the production, unless I misunderstood. In that 55%, is there also Brazilian currency? Because I thought you said the Brazilian real was in the $40 million in the currency line.

No. Certainly the real is in the FX line.

Okay. Is it something with the programs or the customers you have business with that you sort of underperformed even the market there?

Hi, Joe. It's Mark Wallace. Just for clarity, overall the market is down about 50% year-over-year. So, that's what we're showing in reflecting in these numbers. So I don't think we're any worse off or any better off than anyone else in the marketplace. I think we're pretty much, unfortunately, right on the trend line.

Okay. I will follow up later. Thanks.

Colin Langan, UBS.

Oh, great. Thanks for taking my question. Your guidance for Q4 seems to imply something like down 13%, which would be worse than your year-to-date of down 7%, and you list a lot of reasons of weakness.

I just wanted to make sure I understood. What are the key drivers? Is it the North American truck share issue? It sounds like you think that's mostly addressed, ending the quarter. Is it the off-highway markets that are really going to get a lot worse, because in the slides, it actually shows your volume slightly up in off-highway this quarter, which was actually kind of surprising. What are the big steps in the weak Q4 related to (inaudible) overall?

Yes, Colin. It's Bill. I think if you look at there's a number of factors moving through that. First, I want to just point out with respect to share position, certainly we now expect a lower share position to persist through the fourth quarter. So that certainly is coloring guidance down, with respect to our previous guidance.

What we're seeing with respect to the off-highway markets obviously is continued weakening in the construction and ag. So we've kind of marked that to our expectations moving into the fourth quarter, and then even on a light vehicle front, they area performed very well during the course of this year.

I don't know if this is headline news. I don't get is at all with respect to what it's going on in Asia, and certainly we're seeing some demand softening, not only in Thailand, but now we're seeing toggle effect even moving into South America with respect to operations we have in Argentina, being impacted by Brazil.

So I think overall if you kind of look all those factors, as well as then from a class 8 perspective, back to commercial vehicle, we're seeing some softening in production. And our previous guidance was it 320,000 to 330,000. With respect to full-year, we've kind of nicked that down a bit to reflect that we're seeing, at least currently, in that particular market.

So all-in-all, there are a number of factors moving through that. But I just wanted to highlight that from a market share perspective in commercial vehicle side, we have lower expectations in the fourth quarter for that business.

Okay. And can you remind us, on the off-highway side, what are the key end markets in terms of ag, construction, mining, and which of those should we be focused on in terms of trying to understand the downside of, hearing all the some of those (multiple speakers).

There's lots of headlines with respect to ag and construction. I think if you'll look, it's just kind of a mix out, if you will. Our construction business maybe accounts for about 50% or so of our off-highway business in third, and ag's probably about 25% or so and then you've underground mining material handling everything else, making up the remainder of the business. Topically, it would be construction first. Ag would be second.

Thank you very much for time and for taking my question.

Justin Long, Stephens.

Hey, good morning, guys. This is Brian Colley on the line for Justin today. Thanks for taking the question. So, just a high-level question here. If you look across your end markets today, where do you see the biggest opportunity in terms of increasing your content per vehicle? And is there anything you can do to frame up the magnitude of that opportunity?

Yes, I will take a shot at it and I'll let my colleagues here jump in as well. I think if you take a look around our core competencies, off-highway continues, I believe, to be clearly an opportunity for us.

If you think about the China market, while certainly there has been a neck down in demand, our penetration with respect to our capability in the market is not to a level that we think is something that we can't overachieve on. We've got a number of different brand and tier levels for that market, for the local producers in the market, and really during the course of the year, we have seen some opportunity there. So I think that off-highway business, in China for example, in Asia, continues to be an opportunity for us.

With respect to light vehicle driveline, I certainly am not the expert with respect to the product side of the house, but think quite frankly, where we've been to date continues to provide us opportunities for the future with respect to new platforms and new programs as we extend into all-wheel drive opportunities, so on and so forth. So there's certainly a lot of effort going on by our technology people with respect to differentiating our position in that market.

I will circle back to commercial vehicle. I mean certainly, as we said today, we've got a different position with one customer, but there's certainly opportunities with a lot of other customers including the current customer that we suffered some share position with.

As we move forward, I think that remains a good strong market. And year-over-year, I mean South America, at some point in time, Brazil, is going to come back. Is it a 2016 event? Potentially. But certainly, at that low level that they're operating at, that's not a level that we've seen probably go on for multiple years. I think there's lots of different opportunities around the business.

This is Jim. Just add to that real quick, as fresh eyes to it, obviously, when you look at opportunities for growth and you pull yourself away from it, there's certainly new customer opportunities. No question that our technology could be accretive to customers being able to expand their portfolio with their end customer.

You look at this from a balance on geographical standpoint, there's some markets that we're in but we could be much stronger in. And then I pull back, I look at the technology that's in the pipeline, that our customers are now aware of and talking to us about. I really see that as another opportunity in terms of growing, again, not only existing customers, but new customers. No question about it.

All right. Thanks for the color there. And then my second question was just on the market growth assumption that you guys have in each business for the multi-year backlog.

Based on how things have transpired year-to-date, could you kind of walk through each of the three end markets and provide some just high-level thoughts on how your longer-term expectations have evolved since the beginning of this year?

Yes, I'll take a shot at that for you. There were certainly, in our process now with respect to your forward-year projections, I think you can look at three, I'll call them the three business. I think that's what you're asking about. On the light vehicle driveline, we'd say we're kind of near turn. North America continues to be a good market. We don't expect for that the tail off into 2016.

Europe has been a reasonable market. It certainly hasn't been a move to the high, with respect to recovery, but certainly it's been a reasonable market.

I think as we look to some of the end markets with respect to South America as well as Asia, I think those are going to temper. And those will have an impact on our backlog ultimately, but the distribution of that backlog was weighted towards Europe, it was weighted toward Asia, but that Asia piece of the puzzle was largely around our light vehicle driveline business with new customers.

So from that perspective, while that market may be down, or tempered, it most certainly has been moving up and we would expect the market to continue to move up because that's all new business for us.

We're not a big player in light vehicle driveline, as you know, in that particular market. We certainly have been successful gaining new business in that market. For now, that's kind of the temperament or the color that we'd provide, but we will certainly be giving an update first of the year as we move forward.

All right. Thanks for the time, guys.

Emmanuel Rosner, CLSA.

Hi. Good morning, everybody. I wanted to ask you a couple of questions regarding guidance and maybe focusing specifically on the margin side of it. My understanding, I guess before today, was that you had a lot of cost actions, operational performance actions in the bag in the second half to sort of like essentially help you bridge to the higher margin, and maybe some recoveries as well.

Are these still even playing out and are they just offset by the weak macro or the weak (inaudible) or are there any issues with the cost performance?

Yes, Emmanuel. This is Bill. I think you're exactly right. We talked about this in our second quarter with respect to second half looks with respect to cost recoveries, our recoveries in general, we talked a bit about light vehicle driveline. Those remained intact.

As we've talked about in our second quarter, with respect to quite frankly our supply chain benefits and commercial vehicle, we have tempered those obviously, given the volume move. But certainly, we are seeing and realizing those benefits and I think it's indicative on the year-over-year side that we showed for commercial vehicle, which obviously offset, or negated, if you will, the volume drop we saw.

So, in a nutshell, the specific actions that we're taking are still in place. What we are moving with respect to our earnings performance for the fourth quarter, and obviously, the full year, is the impact on lower volumes.

Okay. And then looking at this impact from lower volumes, looking at your guidance, are you taking down the revenue guidance for this year in the midpoint by $200 million and then EBITDA at the previous midpoint by $50 million so that's a 25% conversion rate. Why is it so high?

Well, I think it goes back to a number of markets and how quickly their moving. Certainly I would say markets, I would say also positioning you've got, for example in commercial vehicle. So this happened very quickly in the third quarter. We're moving through the cost structure into the fourth quarter. It's having some impact obviously in the margin in the near-term.

I think you could look at some of higher-margin businesses, for example our off-highway business, we're getting some mix issue there. So as we look at rest-of-year demand, certainly it's a higher-margin business. Those guys are doing a great job working through those environments, but in general, it's a very good margin business so we are getting some mix there as well.

But overall as we move through, back to original question, the specific cost recoveries and cost improvements that we had highlighted remain intact. We're working through the volume environment as we move through 2015.

Thank you. That's good too. And then final one on guidance on 20 -- any initial thoughts on the likelihood of achieving your 2016 exit rates, a margin of certainty. I mean, obviously you will not be starting the year from a lower base than had previously contemplated, and with some markets maybe weakening more, do you have any sort of initial thoughts you want to share on the ability to actually get there?

I think the thoughts that we would at this time is, you know, that margin move, if you will, the plus 13% (inaudible) rate predicated on three factors. One being obviously the sales backlog coming online at the margins we expected. Second one being because of the largest contributor, quite frankly, being a volume environment that we can capitalize upon across all the businesses.

And I would say the last 25% or so it's just about the base productivity that we would expect from the business. Certainly things have changed with respect to market. Just look at South America for example and the extended downturn that we've seen through 2015, most likely probably going to go through 2016.

The off-highway markets, while our guys have done a great job moving their margins up, we need the volume that they can really capitalize upon to move that up. So it certainly remains an objective to move the margin profile up for all of businesses and Dana as total. Again, Emmanuel, we'll give an update once we get our firm view on product consumption, effects assumptions, and most notably, market assumptions, as we move to early 2016.

All right, great. Thank you.

Ryan Brinkman, JPMorgan.

Great. Thanks for squeezing me in. You cited the lower customer share position for 2016 through the remainder of the year as one of the reasons for lower-revenue guidance. I know you're not talking about 2016 per se, but I'm just curious if the comment persists through year-end is because you aren't commenting on 2016 or it's because you expect the share to be normal at the end of the year headed into 2016?

Brian, I guess a couple points of transparency. Number one, even the current data we have with our customers, there are no share guarantees.

So I think we felt comfortable that we are a good competitive supplier with the right footprint, the right technology to be able to take care of all of our customers. By no means are we giving any guidance in the 2016, but just to let you know that we don't have any share guarantees and so we just have to continue to deliver best quality, best technology products to our customers going forward.

Okay, thanks. And then, most my questions have been answered, but I did have one housekeeping, just going on the walk. I noticed that the impact of EBITDA from currency was $24 million versus revenue $136 million, so that's an 18% conversion, which seems pretty high for currency translation, given that your overall margin level is below that.

So is there anything else to call out there relative to hedges or special transaction exposure or something that occurred during the quarter? Then what kind of decremental should we think about applying going forward to lower sales as a result of softer currency? I'm guessing something less than 18%, but don't know.

Yes, it's probably less than 18% and you'll note, you're exactly right, it's a little higher, one being just obviously the mix of businesses from a margin perspective line. But I think also if you just kind of look at, and it was highlighted a bit, you know, light vehicle driveline, a little richer mix in the quarter actually and largely around because we've got some transaction losses and gains as well.

That may not be the purest line on just translation, but it's most largely translation. But certainly, the mix of businesses, if you think about our off-highway business and/or our power tech business, movements on those currencies that they operate in, they're larger currency, certainly have a bigger impact from a mix perspective than maybe a light vehicle driveline operating in Argentina.

Okay. That's very helpful. Thank you.

Okay, Brent, I think we have time for one more question.

Matt Stover, SIG.

Thank you very much. Two questions. One to follow-on to that. Were there any recoveries in the PT business?

Yes, Matt. This is Bill. You mean like cost recoveries or so? No. If you take a look at page 16, our power tech business, that performance line, it's probably one of the few businesses that had normal price movements, if you will, with respect to commitments to customers. Really no recoveries in power tech.

Okay and then two more questions. One, if I look at your commercial vehicle business and I know you're not talking about next year, but if the market is down 10%, let's say, which is conceivable, ACT somewhere around there, and it looks like that's sort of an $80 million headwind in North America, a couple more quarters of the customer issues, another $60 million. So, there is a potential revenue headwind of about $40 million and a conversion of 15% to 20% and up to $20 million to $30 million headwind.

Are there things that you can do on the margin to anticipate and move your cost structure to accommodate a weaker market?

Hi, Matt. It's Mark Wallace. We won't talk anything yet about next year from a actual revenue perspective at this stage, but clearly we continue flexing our cost structures, as I mentioned a few minutes ago, on the variable side.

Two, you've seen the performance improvements that we've had relative to our supply chain initiatives moving forward. So we do think that while we can continue to have good margins going forward and to be quite honest we're okay with our margins right now in North America so we feel comfortable there.

But it will be nice to see some recoveries in Brazil because at this stage we are down basically below breakeven, and so that has been a much larger impact to us then we would normally have in a normal year.

So, hopefully we can see some recovery there, but our team, as Bill mentioned already, has been doing a tremendous amount of work to lower the fixed cost base in that particular market, but it still remains a major challenge into next year.

Okay. And then, last question, is just in terms of leverage, right now you're running at about 0.9%, 0.8% net-debt-to-EBITDA. What's the ceiling on your leverage for this business as you think about [things] over the course of the cycle?

Just normal course run rate you're talking, Matt, right?

Just what's the proven level to operate, given the probably that something could sneak up on you at any given time?

I think we've been fairly open with respect to certainly we're managing very well the current leverage environment, but certainly certain of the markets are performing well. Would we be looking at something two, three or four times? We'd size and say hey we'd be very comfortable at two.

But that would only be just on a run rate. Now obviously if inorganic opportunities come up, I think if we can capitalize upon those and provide a good return to our shareholders, we could have position or a period of time where we might neck up higher than that.

But just kind of on a run rate, if you will, or normal operating, we would certainly operate in a cyclical markets. North of where we're at, probably not too uncomfortable with, but certainly we're not looking at a higher-leverage market, or higher-leverage company just for the sake of leverage.

I appreciate that. Thank you very much.

Well, thank you, everyone. This is Jim Kamsickas again. Thank you, everyone. I'm very much looking forward to getting to know and working with each of you. Thanks for calling in today.

Just a quick recap. Probably won't do this in the future, but being my first call, just a quick recap. It's obvious that three of the four segments at Dana are performing exceptionally well. Yes, we have had FX and systemic issues on the CV side, of which we moved past, but at the end of the day, this is a great Company.

And it's a great Company because it starts with great people. That's not a sales pitch. That is just the facts as I see it. And I've been doing this for a while now. I've been a CEO for almost a decade in this business. So, I'm extremely excited about this Company. I'm excited about working with you and thank you for your support.

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