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Q4 2018 Earnings Call Transcript

Published: 14 Mar 2019

[Operator:]

Good morning ladies and gentlemen, and welcome to the Tenneco Inc. Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the conference over to Linae Golla, Vice President of Investor Relations. Please go ahead, ma'am.

[Linae Golla:]

Thank you. This morning, we released our fourth quarter and full year 2018 earnings results and related financial information. On today’s call to discuss our results are Brian Kesseler, and Roger Wood, Co-Chief Executive Officers; Jason Hollar, Chief Financial Officer; and Ron Hundzinski, EVP, Finance. A presentation corresponding to our prepared remarks is available on the Investors Section of our website. After our comments this morning, we will open the line for questions. Before we begin, please be aware that our discussion today will include information on non-GAAP financial measures, all of which are reconciled with GAAP measures in our press release attachments. The earnings release and attachments are available on our website. Additionally, some of our comments will include forward-looking statements. Please keep in mind that our actual results could differ materially from those projected in any of our forward-looking statements. In addition, since closing the acquisition of Federal-Mogul we have taken the opportunity to review and align the accounting policies of the two remarkably similar companies we indentified in historical error in their capitalization of expenditures and inventory which we have revised within our prior period financial statements. The impact was not material for any individual period. For details on the revision will be provided in our Form 10-K. With that, I will now turn the call over to Brian.

[Brian Kesseler:]

Thanks Linae. Good morning, and thanks for joining the call today. I am pleased to be joined by my Co-CEO, Roger Wood, and I will start off with highlights from the quarter. Ron and Jason will cover the reporting segments and financial details and then Roger will take you through the outlook and we will all participate in the Q&A. Just about 11 months ago, we announced our plans to create two standalone publicly traded companies through the transformational acquisition of Federal-Mogul. Since that time, we’ve continued to execute our growth plans and set strategies of motion that are preparing us for an exciting new chapter for this great company. In the fourth quarter, we reached several significant milestones in our transformation. We completed the Federal-Mogul acquisition and continued to accelerate the transformation of our combined business. With company cultures that are far more alike than different, the teams have aligned very quickly and are focused on getting the most value from the new combined organization. Most of the senior leadership for both future companies is now in place and we continue to make excellent progress in the integration process and have high confidence that we will achieve our synergy targets. In the fourth quarter, we announced our plans to acquire Ohlins Racing and the acquisition was completed in January. Ohlins premium technology and brand reputation will strengthen our OEM aftermarket portfolios while enhancing our position in the global advanced suspension systems space. This transaction is an example of our strategy to leverage key technologies that will better position the company to take advantage of secular trends and intelligent suspension, autonomous driving and mobility. We also look for strategic opportunities to optimize our product portfolio, to help to grow leaner and stronger and we found such an opportunity in the drive business. This month, we completed the sale of our wiper's business, the wiper’s product category represented a very small portion of our portfolio and the sale of this business will help strengthen our focus on our core product offerings related to chassis and suspension systems and engine and Powertrain aftermarket. Continuing now with financial highlights on Page 4. We delivered another strong quarter with revenue increasing to $4.3 billion. This increase reflects the completion of the Federal-Mogul transaction, as well as continued strong organic growth. In fact excluding the acquisition, revenue for the fourth quarter was up 4% in constant currency outpacing the industry production by 10 percentage points. Our outperformance continues to be supported by the favorable mix of SUVs and pickups that we have in our light vehicle business and strength in both our commercial truck and off-highway business which was up 12% in the quarter and our light vehicle business which was up 3%. Value-added adjusted EBITDA margin in the quarter was 10.9%, and adjusted EPS was $1.30 per diluted share. As expected we entered the year with a pro forma leverage ratio of 3.0 times following the closing of the acquisition and we are on track to achieve the acquisition synergy goals. Turning to Page 5, walking our fourth quarter revenue to the $4.3 billion which is consistent with our previous expectations. We had 4% organic growth despite global light vehicle production that was down 6% in the quarter year-over-year. Currency had a negative 4% impact and two Federal-Mogul segments generated $1.9 billion of revenue. Value-add revenues shown on Page 6 was up over 100% in the quarter to $3.6 billion. The right side of the page lists the value add revenue in each of the five reporting segments for this quarter, as well as the year-over-year comparison. For the two new segments we included a pro forma comparison that reflects year-over-year performance as if the business was owned by Tenneco in the prior period. Our solid revenue this quarter demonstrates the fundamental strengths of our business that fueled our consistent growth including our diversified profile in terms of product applications with well-balanced revenue streams from only light vehicle, commercial truck, off-highway and industrial in the setting countercyclical aftermarket businesses. The strong and positive mix trend in North America with pickup trucks and SUVs was account for more than 80% of our light vehicle revenue, and our strength in commercial truck, off-highway and industrial applications that position us well to capture global growth opportunities which continued to drive higher revenue in the quarter. Earnings for the quarter on Page 7, adjusted EBITDA was $399 million for a value add adjusted EBITDA margin of 10.9%. In the quarter EBITDA margin was impacted by unfavorable market mix due to lower volumes in our higher margin China business and the aftermarket and the related impact on manufacturing efficiencies. We also continued to face headwinds from tariffs steel and other material economics. Adjusted EPS for the fourth quarter was $1.30 per share with the diluted share count of 80.7 million shares. Before I turn the call over to Ron and Jason, let me take a minute to recognize the global Tenneco team for their hard work delivering the quarter and the results in the fourth quarter in 2018 reflect a high level of commitment, passion, and a focus on always improving our business. Thank you to the entire team for everything you are doing to make tomorrow better than today. With that, I'll now turn the call over to Ron Hundzinski and Jason Hollar, who will take us through the segment results in more detail.

[Ron Hundzinski:]

Thank you, Brian. I’ll be starting with clean air and Powertrain results and a reminder that all revenue numbers are value add with year-over-year performance calculated in constant currency. Beginning with clean air on Page 8, value added revenue was up 1% in the quarter. Some of the highlights include 41 program wins and about half new business and half replacement including 16 awards with light vehicle and CTOH customers in Asia Pacific region, 16 hybrid program awards in the quarter with 11 in Europe and five in Asia Pacific. In light vehicles Tenneco's global clean air revenue growth outpaced global industry production by four percentage points in the fourth quarter declining 2% while industry production fell 6%. Our light vehicle revenue growth outpaced industry production in all regions except for North America due to the timing of new program launches and platform replacements. Light vehicle revenue in EMEA outpaced industry production by five percentage points driven mainly by the ramp up of new content and recent launches for Daimler, BMW and Ford. We continue to benefit from hybrid Powertrain growth as we launched six hybrid programs in the quarter for a total of nine hybrid launches in 2018. In commercial truck and off-highway strong revenue growth continue driven by the Americas and EMEA regions with higher volumes new program launches and regulatory driven content all contributed 15% revenue growth versus last year. CTOH revenue in the Americas was up more than 30% with higher volumes on our medium duty on-road truck program with Daimler and strong increases with CAT and Deeres. In EMEA, similar to last quarter new programs and volume strength our existing programs with Daimler, MAN and CAT drove higher revenues. The Asia Pacific region was down slightly with lower commercial truck volumes in China offsetting double-digit growth in India a new on-road commercial truck business and off-highway applications with Deere. Clean air adjusted EBITDA was 151 million in the quarter and value-added adjusted EBITDA margin was 14.7%. Now turning to Powertrain segment on Slide 9, Powertrain value-added revenue in the quarter was 1.1 billion which was basically flat year-over-year on a pro forma basis. Global light vehicle revenue performed slightly better with industry production down 5% in the quarter. Content launching in North America unlike truck and SUV platforms included pistons, bearing, seals, gaskets, and heat shields. CTOH and industrial revenues was up 10% versus last year driven by strong demand in commercial truck, off-highway and industrial applications as well as growth in three geographic regions. In the Americas stronger volumes with Daimler, Cummins, Paccar and Volvo drove growth in commercial truck business while revenues with Deere and Rolls-Royce were higher on off-highway and industrial applications. During the quarter, the Powertrain GROUP received two filings nominations for the Automotive News PACE Award, the industry's highest recognition of renovations for suppliers. We received a product nomination for our DuraForm piston and a process nomination for software that helps reduce component development time. Powertrain adjusted EBITDA was 134 million in the quarter and value added adjusted EBITDA margin was 12.1%. Now for a look at right performance aftermarket in Motorparts segment results I’ll turn the call over to Jason.

[Jason Hollar:]

Thanks Ron. Turning now to Ride Performance on Page 10, revenue in the fourth quarter was up 3%. Some of the highlights from the quarter include, ongoing secured revenue growth from Intelligent Suspension Systems, including a new incremental system win in Europe. Our NVH performance materials team was recognized at one of our largest commercial truck customers, and we announced the acquisition of Ohlins, which significantly enhances our technology position as a developer and supplier of advanced suspension systems. Light vehicle call revenue was up 1% globally, with each region outpacing industry production. Revenue from Advanced Suspension Systems was up 8% with three launches in the fourth quarter, two of which were incremental program. In China, industry production was down 15%. But our team delivered a strong quarter, holding revenues flat versus last year, supported by our strong platform positions with leading global OEs. Similar to last quarter, CTOH revenue increased by double-digits, up 17%, powered mainly by growth with commercial truck customers in the Americas. Ride Performance adjusted EBITDA was $38 million and value added adjusted EBITDA margin was 8.1%. Steel cost have impacted margins particularly in Ride Performance, and we made good progress throughout the year on recovery mechanisms. As of the third quarter, we had agreements in place with all but one customer, and we completed that agreement during the fourth quarter. We're investing and restructuring actions to optimize the footprint of our conventional shock and strut operations in North America, strengthening our competitiveness in this critically important region. We expect those actions will lower our fixed cost structure, resulting in annual run rate savings between $20 million and $25 million, which we would expect to be realized by the end of 2020. The aftermarket results for the quarter are on Page 11. As a reminder, the segment represents the legacy Tenneco aftermarket business. Global aftermarket revenue for the quarter was flat versus last year. After market continues to win new business and expand product coverage. Some fourth quarter highlights include

[Roger Wood:]

Thanks Jason. The full year summary on Page 19 highlights another year of strong growth with total revenue of $11.8 billion including the Federal-Mogul acquisition since October 1. Excluding the acquisition, we delivered organic revenue growth of 6% outperforming industry production by seven percentage points with organic revenue growth of 5% for light vehicle and 24% for CTOH revenue. We've included full year revenue pro forma on Page 20 showing what the combined businesses would look like on a full-year basis. The key takeaways here is the strength of our diversified profile both by product application which is shown on the upper pie chart and by geographic region which shown on the lower chart. The full year 2019 revenue outlook is on Page 21, the pro forma revenue growth as measured at 2018 constant currency rates and includes Federal-Mogul acquisition revenues in prior periods. On a pro forma basis, we expect full year revenue growth of 4% to 5% for the combined company outpacing light vehicle industry production by 6 to 7 percentage points. Production is expected to be down 2% in 2019. Revenue in 2019 is expected in the range of $18.2 billion to $18.4 billion. For new Tenneco we expect pro forma revenue growth of 6% to 7% and for drive we anticipate revenue growth of 1% a 3% outpace. Brian already mentioned the drive portfolio rebalancing and I'll just add that as we prepare for the spin later this year we're always keeping our eyes open for opportunities to strengthen the new Tenneco portfolio as we work to make each business ready to succeed as a standalone company. We expect currency rates to have about 2% year-over-year negative impact on 2019 revenue. On Page 22, you’ll find guidance details on value-added adjusted EBITDA margin and other key financial metrics. The outlook for the first quarter is on Page 23, we expect revenue in the range of $4.4 billion to $4.5 billion as a result of pro forma revenue growth of about flat. With light vehicle industry production expected to be down 6% in the quarter we anticipate growth over market of around six percentage points. In the first quarter, we continue to expect unfavorable market mix in earnings due to lower volumes and higher margin China business and the aftermarket. An update on the leverage and financing is on page 24, the expectation for combined Tenneco net leverage is approximately three times by the end of 2019. For the future companies after separation are mid to long-term net leverage goal for drive is to be around 1.5 to 2 times and for the new Tenneco around one 1 to 1.5 times. Regarding financing for drive, as a reminder the current credit facility and bonds will remain with new Tenneco. Proceeds from new financing for drive will be primarily used to reduce debt on new Tenneco. We expect the financing activities for drive to begin in the third quarter and will likely include a bank facility consisting of a revolver and term loan as well as a bond. Turning to Page 25 to wrap up, since closing the acquisition in October, we’ve been realigning the combined organization to prepare for the spinoff and we're on schedule to spin in the second half of this year. The left side of the page summarizes some of the next steps along the way and the right side shows the SpinCo and new branding for both companies. This month Brian and I have begun rolling out the new identities for both companies with our employees and we look forward to telling you much more about the opportunities we see ahead for each business in the coming months at our Investor Day that will be scheduled before the spin. Before we get to the Q&A, let me close by adding my thanks to our employees around the world for delivering another strong quarter and working hard always to make our customers and Tenneco successful. Thank you for your continued interest in Tenneco and for joining us this morning. And with that we’re ready to take your questions.

[Operator:]

[Operator Instructions] And the first question will be from Armintas Sinkevicius of Morgan Stanley. Please go ahead.

[Armintas Sinkevicius:]

When I look at the growth above market, it's been impressive year practically given the uncertain macro environment we've been in. Can you discuss some of the drivers that allowed you to deliver on the revenue growth despite some of these headwinds?

[Brian Kesseler:]

Yes, this is Brian. So really four key factors on the outperformance. The mix of our revenue in light vehicles across the regions contributed about two points. We won a lot of business over the last couple of years so new business and content on those platforms contributed about half of it say five points. And CTOH revenue was two points worth and because there was such a drop off in production, the aftermarket was relatively flat. And so that was a 1% - drove 1% improvement to that.

[Armintas Sinkevicius:]

And then separately when I look at the leverage guidance that's about three times by the end of the year, I think at the spin announcement you are targeting 2.5 times by the time of the spin. Can you talk about the delta there where the free cash flow going in 2019 and then how do we think about the timing of the leverage targets you outlined for each business?

[Brian Kesseler:]

Maybe I'll hit maybe couple of the drivers and then rest of the team will jump in. So obviously the light vehicle production market is lot different than what we thought last year it’s down five points from when we talked in the beginning of the first quarter of last year when we made the announcement. So that’s the big driver and obviously it's coming out of some pretty profitable areas for us so they are relative to others in China. And so that's the primary driver I mean we’ve been doing better as we talked about on the working capital synergies and so that allowed us to get to 3X and we’re going to continue to work to get those as fast as possible and get to that goal and better if everything moves along as we hope.

[Jason Hollar:]

Yes, so everything as Brian highlighted in terms of the of working capital synergies has been accelerated a little bit what we have in the 3X target within the year 2019 is at the same level. So we accelerated that we’re targeting the same level there. So everything in the balance sheet is largely the same. The volume effect flowing through from original assumptions that is the key driver of the EBITDA that impacts of course both the net debt level, as well as the actual EBITDA level and the calculation. So those are definitely the key drivers.

[Armintas Sinkevicius:]

And then just given where you are with working capital synergies any likelihood there that we could see some upside going forward?

[Brian Kesseler:]

Probably it's still a little bit too early but as combined entity and we have about five months but we like the pace that we are on from the inventory reduction, you will need to make sure we flex down hard with the light vehicle production moving away from the industry. So we’re always going to be trying to get as fast as we can and make the improvement as large we can.

[Operator:]

The next questions will be from David Tamberrino of Goldman Sachs. Please go ahead.

[David Tamberrino:]

Can we just go through what you're seeing from original production standpoint and what’s basically embedded within your guidance for the 18.2 to 18.4?

[Jason Hollar:]

So I am going to talk to one of the appendix pages and in the presentation. For 2019 we're looking at North America down about 1% same with Europe and we know IHS - I think there's new numbers coming out here shortly. But we know that IHS thought 1% or so up year-over-year in China and like a lot of our peers over the last few weeks we're not sure we see the same thing and so we've embedded a minus 8% production growth for China and so that math thing gets us down to that minus 2% overall year-over-year.

[David Tamberrino:]

And maybe you can help me just confirm if I am doing this correctly looking at your value add or value added adjusted EBITDA margin for 2019. Essentially you're saying it should be flat at that 10.4%. I think that implies something like maybe total EBITDA margin of maybe 8.8% to 9% over your total revenues. That sounds directionally correct looking at the substrate revenue?

[Jason Hollar:]

Total revenue. Yes, directionally. And then if you take a look at the way we broke out the revenue, David, you can see what our assumptions are for value add revenue and substrate revenue. For 2019, I think it's 2.8 in the substrate revenue. That will float a little bit depending on CTOH mix and some of the other big drivers of substrate content.

[David Tamberrino:]

And then maybe just lastly because looking through this walk here from the gross synergies to some of the dis-syenergies, as we get past 2019, is there going to be an opportunity for more cost takeout to lean both the businesses as you go through the split? How do you think about some of that incremental costs ultimately or separation costs dissipating? We've seen a couple of auto spins over the last few years and - a couple of them, actually all four so far have had some issues. So just trying to get an understanding of how you're thinking about incremental cost and then you burn through them as you get past 2019 to 2020, 2021?

[Ron Hundzinski:]

This is Ron, I can speak for the Powertrain side of the business. And I think as we get past 2019 and into 2020, obviously we'll further refine the business model if you will. The synergies that we've accomplished and will be accomplishing so far, are generated just as a basis of the units coming together and us being able to take the obvious synergies as we're putting these things together. There's no question that as we move forward, we'll be able to control these incremental costs that we had put in to establish the separate organization and embed those into the improvements that we're going to make going forward and we anticipate that we'll be on a continuous improvement path, it'll be pretty beneficial for the organization.

[Jason Hollar:]

Yes, we highlight the $30 million to $40 million of dis-synergies in 2019, a lot of that is related to getting set to spend. It's getting the two senior leadership teams in place, a lot of the IT work that needs to be done, they'll be able to get the system separated and obviously those would dissipate as we spend because we get all that worked on and then once we spend we don't need to do that works, so there's a little G&A costs that are going to come there. And remember, when we kind of put out that $200 million target, we wanted to make sure

[Operator:]

The next question will be from James Picariello of KeyBanc. Please go ahead.

[James Picariello:]

Just starting with aftermarket, can you just talk about the margin performance in the quarter? It looks like there was a pretty notable step down in profitability. But maybe I just want to confirm my numbers on that. And then I know you called that manufacturing inefficiencies, some currency headwind, can you maybe quantify what the magnitude of those headwinds were and how you guys thinking about this year?

[Ron Hundzinski:]

Yes, I'll let Jason get into the magnitude, but the drivers are really - we had a change in the functional currency in Argentina. With all the volatility down there, and that was a pretty big driver for some year-over-year comparison, and hopefully that dissipates and we can get to a little bit better comp comparison. We have been moving and we'll continue to move more-and-more product into our low cost footprint in pound for our aftermarket shock and strut business in Europe. And so it's just a little bit of bringing those things up online and getting that transfer done correctly. So, those are the major drivers, obviously a little softer than we would like to have seen in the North American market, like, for those of you who follow the aftermarket, one of our larger customers continues to work to right size their inventory position to get it to where they want it to be. And that gives us some bumps in the road with them. We're working really closely with them to make sure that we see what they're -- what they're trying to get accomplished and partner with them to get there. So, a little bit of that softness reflects in pretty good, getting at that in real time is a little bit more difficult.

[Jason Hollar:]

Yes, in terms of the order of magnitude there, the Argentina functional currency issue is about 100 basis points year-over-year. The inefficiencies, Brian, described are 200 to 300 basis points, and then the balance is just timing associated with certain costs that kind of go quarter-to-quarter.

[James Picariello:]

And then those inefficiencies today go away by the middle part of this year or any line-of-sight to their improvement?

[Jason Hollar:]

I think from an overall standpoint of moving product in and out, I think by the middle of the year those will balance out. As we continue to watch the aftermarket in all regions, as we flex with any movement there, I think there's generally a little bit of softness in the aftermarket even this quarter as we go through in certain spots. And so it's - we'll just have to make sure it reflects that as hard as we can and then we're always looking for the opportunity to take our fixed costs to a better, call, breakeven point as we go.

[James Picariello:]

And then just on the on the remain-co side, what's driving the 6% to 7% growth for the combined businesses in 2019, clean air and Powertrain, I mean, similar to a lot of other folks based on your 1Q guide, it does look like there's a second-half weighted ramp to the year. Just wondering what's the level of visibility that gives you the confidence in the step up? Can you speak to any particular programs or end markets that drive that?

[Roger Wood:]

We can kind of delineate between the two pieces. Clean air is continuing to launch the business that have been won over the past years. And as Brian, had mentioned in his talk, they continue to win new business in that segment. And so clean air is driving a predominant portion of that. Powertrain is growing as well. It's offset a little bit by some of the China and diesel, the Diesel issues in Europe and a little bit of China. So, they're growing but that's a bit offset. Clean air is making up the predominant portion of the growth that we're talking about.

[Jason Hollar:]

And that was consistent with what we talked about. When we gave guidance last year in 2018, we started talking about the kind of that range of 5% to 7% and the one it was just the clean air and the old Tenneco side. So, we're right in the ballpark where we thought we were and that was all driven off in new program wins and replacements with better content.

[Operator:]

[Operator Instructions] The next question will be from Joseph Spak of RBC Capital Markets. Please go ahead.

[Joseph Spak:]

The first question is just over the past few days that we saw this FCA recalling catalytic converters, how does that impact you at all if at all? And is there an opportunity for replacement businesses? Is any of that considered in guidance?

[Roger Wood:]

So, no, it really doesn't - that doesn't impact. As we saw that with - we don't have the hot end components on those vehicles that are affected. So, time will tell if - obviously we'll try to see if we can help in any way that we can. But that's not an issue that affects our business currently.

[Joseph Spak:]

On Slide 8, it looks like there's a good amount of new business that's on the hybrid side. Can you just give us a little bit more color on the profile of that business because - and correct me if I'm wrong but I always thought the rule of thumb was that content was pretty linear with horsepower and I would assume that the hybrids have smaller engines. So, is there a CPV headwind, and then how does the profitability of those programs look? And I guess if there is a content headwind, is there an opportunity to gain some of it back on those programs from the Federal-Mogul portfolio?

[Roger Wood:]

Actually, the hybrid programs are really good for us actually. As we've talked a number of times, they provide an opportunity for us going out into the future because the systems have to be engineered in a different way obviously with the vehicle platform and hybrid application versus a traditional to central and combustible engine propulsion system. The same amount of work has to be done in a much, much, much reduced space on vehicle platform. So the system has to be engineered in such a way that we're able to accomplish the objectives and it provides us a bit more content to put into the vehicle. So it's not a negative issue for sure and we see that it’s a real positive development as we look out into the future over the next 10 years with a significant amount of hybrid applications it will be coming out and it’s coming to fruition in these business awards that we’re seeing.

[Joseph Spak:]

I guess last one maybe for Brian. I think last quarter you talked about on the aftermarket side potentially reopening some U.S. capacity. I was wondering if there is update there. And I think you also talked about what you viewed as a couple $100 million revenue opportunity from regaining some of that customer leakage from Federal-Mogul. Is there any update on either of those initiatives?

[Brian Kesseler:]

Yes, we're on track for bringing in back some of that spare capacity that we had in China and obviously the tariffs have a great headwind but also opens up an opportunity for us to bring that back. And we're on schedule to get that up and running here later this quarter into next. And so that team has done nice job of getting that up in line. As far as the couple $100 million it seems it making good progress, and I’ll update the group here with first quarter results, but you know we're having good conversations and there is a customer or two here that we already have or going to be real close to entering some new agreements for business that's coming back. So I think the team is doing a very good job of regaining that and re-earnings that business.

[Operator:]

The next question will be from Ryan Brinkman of JPMorgan. Please go ahead.

[Ryan Brinkman:]

I think we can pretty readily monitor the trend in new vehicle production in China which is experiencing some obvious cyclical headwinds. But can you help us understand the trend in the China aftermarket which you've commented before should be subject to significant structural tailwinds. I presume you are just as optimistic as before regarding the long-term aftermarket growth in China, but how do you sort of see those structural tailwinds netting out against the cyclical headwinds over there for the China aftermarket in 2019?

[Brian Kesseler:]

Yes, well for the aftermarket perspective it was really probably going to be in the early 2020s into the mid 2020s where we're going to see that step up. If we use miles and an age kind of in tandem miles driven and an age, you will grow from a average vehicle age today in the four and a half years old age, remember that compares to 11 to 12 years of age in Western Europe and North America by 2025. And then just gets to be linear math that that age averages goes to eight and half years which is as we cross over that five, six year old vehicle and miles driven or kilometers driven on it that's when we start to see a lot of our product lines kick in for their first replacements. And yes we're actively involved with the leaders that are materializing over there from an installer base in the service space. So yes, we're very, very optimistic and bullish and we think our portfolio with its number of different product lines and with the brands, because the brand importance in China's is even more sought out than even some of the markets that we currently serve. So absolutely one of the great growth opportunities for us.

[Ryan Brinkman:]

And can you discuss the rationale for the Ohlins acquisition including after I think you've divested fairly similar [indiscernible] business. Is this an example of a portfolio move that you know maybe you wouldn't have done under the old Tenneco structure but which makes more sense for the separate drive business. And how should we think about capital allocation at drive, is this acquisition relatively indicative of how you might look to allocate your cash flows?

[Brian Kesseler:]

Yes I think we’ll have very if not identical very similar capital allocation priorities. First we're going to make sure we get organic growth and our core competitiveness funded improvement and stability funded then we'll get our debt down where we wanted to be which is in that 1.5 to 2 range as fast as possible. And then we'll be looking at kind of the tradeoff between strategic opportunities if they're there versus shareholder returns. With the Ohlins acquisition is really a consummation of a 20-year partnership that we've had with maybe great technology partners for us on the intelligent suspension side of the businesses. They do the electronic valve and they’ve developed and we co-developed that over the last 20 years. So bringing that technology under the roof completely is a great opportunity plus their presence in certain markets especially around Racing where that high performance, high precision technology is really on that cutting edge is a great input to our product planning for intelligent suspension which as you know is one of the great growth opportunities we have on our OE side of business. And now that we have that kind of whole round the corner capability in chassis and the age solution plus and now we’re bringing more and more technology to the intelligent suspension that is where our interest will lie in continuing to build that technology portfolio to the place to be, to take a market leading position.

[Ryan Brinkman:]

And then just very last from me and sticking with capital allocation. I think previously there were some discussion of potentially reallocating the cash that's currently been allocated to dividend to share repurchase. What's the latest thought on that?

[Brian Kesseler:]

Yes, so in the first quarter after the Board meeting, at the Board meeting the Board approved another dividend - we’re going to continue to look at that every quarter. And then we’ll make each of the Board and each of the leadership teams will make the decisions on what that’s going to look like post spin.

[Operator:]

And ladies and gentlemen this will conclude our question-and-answer session and will also conclude our conference call for today. We thank you for attending today's presentation. And at this time, you may disconnect your lines.