Dana Incorporated (DAN) Earnings Call Transcript & Summary

Okay. It's Joe Spak, autos analyst here at UBS. And very pleased to have with us Dana, Tim Kraus, Senior Vice President and Chief Financial Officer. And it's timely because Dana had some large news, I guess, the other week. And I think this is your sort of first public comment since then.

So Tim, maybe just for the edification of people in the room or on the webcast, maybe let's just rehash sort of the announcement and some of the strategic rationale behind the action.

Yes, sure. I mean, so a week ago Monday, we announced that our intention to divest of our Off-Highway business. And along with that, we announced a leadership change, so a change out for -- at the CEO position. And then in connection with this, we announced a plan to take $200 million of operating costs out of the business, effective in sort of run rate for 2026. So a lot of stuff in the release. But really at the core is if you look back sort of 15, 18 months ago, really a dramatic amount of growth around electric vehicles and light vehicle, commercial vehicle. For us, we were looking at growth of sort of 50% increase over a 5- or 6-year period. How do we fund it? Anyway, we took a hard look at everything and how we wanted to think about the strategy and how we're going to fund it. And what became clear is that the Off-Highway business was really undervalued within the portfolio. And so we started down the path of working on it. Did it make sense? How would it affect the businesses, how would it affect the customers, all of those sorts of things. And then while that was going on, right? The EV got really the growth prospects for EV really decreased. We've not had any of our programs canceled, but much lower volumes, delays pushed out ICE lower or EV lower for longer. And -- but at the end of the day, we're like, look, this still makes sense from a value creation perspective. And so we just decided that it was time, we're well down the path on the work around the divestiture. So given just the impact on customers and the number of people we have to have in the process, we thought it was time to put it out there. And we're very confident that we're going to be able to get to an announced transaction sort of in the next 4-plus months. And so we felt it was a good time to go ahead and put that out. Now on the cost takeout, the big issue there is once we sell -- this is our highest margin business. We recognize that we have to fundamentally change the way we're running the businesses that are going to remain with Dana. And so we looked at it and kind of the way to think about the math is we believe after we sell the Off-Highway business and we complete the $200 million in reductions, we'll have EBITDA margins that are equal to or better than where the whole company is today, including Off-Highway.

Okay. So let's unpack each of those announcements. I guess starting with the transaction Off-Highway. I mean it sounds like you just sort of expressed confidence in having this deal done in 4-plus months, let's call it, 4 to 6 months.

Yes, 4, 6 months. Right.

That's my words, not yours. Okay. Well, now it's your words, too.

Well, I mean it's signed. That's signed already -- announced.

So is that -- I mean, in terms of sort of having books or prospective buyers look at the business, like that sort of already has occurred? Or it's just at the point where that was going to occur, so you decided to sort of make...

So we have a very, very healthy list of strategic buyers that have expressed a lot of interest in the business. And some of those are a little bit further along in the process than others. But generally speaking, the interest is very high and at valuation levels that are highly attractive for the company and for our shareholders. So it was really to the point where we just -- we were going to have to bring a lot more people in sort of under the tent and it just made a lot more sense. And a few weeks ago, I don't know if it was 4 or 5 weeks ago, there was a little bit of rumors out there and customers that were inquiring, this just kind of makes it easier, and we have a lot of confidence that we're going to be able to go ahead and get that completed.

And that aside from some sort of shared corporate overhead costs or shared services, that segment was run pretty autonomously?

Yes, it's highly separable. Look, we've integrated the businesses very well that we bought principally into the Off-Highway business. Areas where there is integration or overlap are really around sort of the shared -- some of the shared corporate costs, but...

No shared facilities?

There are only 3 facilities that have some shared -- and they're generally on shared campuses, not necessarily buildings. So on a manufacturing level, they're exceedingly separable and independent. If you think about it, in axle for a front-end loader versus a Jeep, they're pretty different in size. And while they're effectively the same mechanicals. They're built differently. The volumes are different. Their sizes are different. So they are made in different facilities.

You mentioned ICE stronger for longer, I think as you put it, EV lower for longer. Was that really more of a reference to some of the other end markets you play in or also sort of in Off-Highway?

Off-highway is probably the least -- was the furthest behind, I mean, behind probably not the right word, but the least developed in terms of it. And if you think about the places where the Off-Highway business sits, it's not highly attractive or doesn't make a lot of sense to have electrification if you're out in the middle of a field or in a mine where there isn't outside where there isn't access to charging type facilities. There are aspects of the business that make a lot of sense, right? Where you think about small compact type machinery that operates inside of a city limit, that was well on the path of electrifying. But we're also talking about much smaller markets, much smaller volumes where it's just not as big. A lot of it's low voltage versus high voltage in light vehicle and commercial vehicles. So that is relatively modest in terms of where Off-Highway fit into the electrification story anyway.

So if we turn over to sort of the remaining Dana business and the cost savings you're sort of targeting here, the $200 million, how much of that is actually just reduced spend on electrification for the remaining end markets? Because over the past couple of years, right? There definitely has been an increase in the investment. You sort of see it -- you've sort of seen it in some of the numbers. I don't know if -- I don't know that we could sort of get a total number invested sort of to date. But I guess what I'm wondering is, or even sort of a current run rate of investments in, or spending on electrification, but how much can be undone and what percentage of the $200 million is...

Yes. I mean I don't want to go into specifics, but a significant portion of it is related to reduced spending in EV. And there's a couple of reasons for that. One, we spent the last number of years really building a base of technologies and capabilities around electrification that can be used in light vehicle or commercial vehicle. That's principally finished. I mean we have those capabilities today. We have the products that are on the shelf that can be applied. So that spending naturally was going to start to come out. The other part of this is we're -- all of these programs were going to be coming on at the same time or overlapping and had high volumes, that led to a very large anticipated and buildup in those costs. And now that those -- a lot of those programs are now delayed, pushed out, lower, we're able to actually moderate the amount of resources we need at any given time and still manage the development of those programs that are now over a much longer period of time.

So I mean, just sort of piecing all together, though, it sounds like irrespective of an Off-Highway sale, that was likely to occur anyway. So this $200 million in savings, unless there's a piece I'm missing, was probably in the cards anyway?

Some would be. I think the other thing here is when you think about over the last 5, 6, 7 years, a lot of start-ups. There's a lot of excitement, new programs, new entrants. A lot of that has died down. And look, we didn't know where the winners and losers were going to be, and we actively pursued a lot of this business with a lot of these different OEMs. If you take a step back now and we think about what the way our strategy is, we're going to really focus our efforts not on trying to win as many programs as we can or with the different -- sort of really stick to our -- the core programs where we're currently the incumbent. We're going to be the supplier of choice, we believe, for our customers for the electrified version of those products. And then if there is any type of conquest business or a new entrant, and that looks like an attractive investment opportunity, we'll look at those on a very selective basis and make sure that we're spending the money and making the investments where, one, the returns are there and the risk profile for those programs are acceptable from a returns and capital deployed perspective.

So sorry, just to be clear, what you're sort of implying is that the proceeds from the sale will allow you to sort of pursue those opportunities or...

No, not that...

Because to me like the proceeds from the sales are probably more just sort of delever..

No, no. The proceeds will delever and we'll return to some of the shares. No, what I'm saying is some of what we're not going -- we don't have to spend money on or won't be spending money is going after large numbers of programs where it might be conquest business or business with a new entrant, whereas historically, we have a lot of people working on developing program and design concepts to go after many of these programs all at the same time. And we're really going to be focused on the ICE business we have that's going to be electrifying, however that's going to work, and we'll make sure we're the supplier of choice for those drivetrains. And then if there is something that would be incremental business for us, we're going to be very, very selective and make sure that the risk return profile on those businesses meets what we expect and only invest in those where we are highly confident we can get the returns out of it.

From a -- assuming the sale goes through and is completed and you receive the proceeds, and you use that to sort of delever. Can you just sort of remind us how -- is that all sort of prepayable? Like how...

Yes. The -- from a cap structure perspective, we don't think there's any significant breakage costs within the cap structure that we have today. Most of the bonds are either in a call period or under the asset sale provision would be able to be basically repaid at par. So very little breakage. Given where we think the leverage profile of the business will be, which is kind of 0.5 turn to a turn over the business cycle, any of the bonds that are out there that might carry some of those costs are economically not going to be incentivized to take the offer to repay and will likely be the debt that remains outstanding. So just a very efficient way of being able to repay and skinny down the debt profile of the company.

For the remaining Dana, you would target a half turn to turn?

Yes. Over the business cycle, correct -- of net leverage.

Right, right. And then so the $200 million, if I'm hearing you correctly, it sounds like that could start coming out in relatively short order...

It already is. So if you would have noticed we took a small charge in the third quarter. So we had a lot of this already in flight really around just starting to be able to really turn the screws and get more efficient. So that was already in flight. We'll take an additional charge here in the fourth quarter. We're not able to say exactly how large is because we're still finalizing the plans. And then those costs will have already started coming out in the fourth quarter. We'll get a little bit of benefit. It will be small in the fourth quarter. And then that will ramp up as we move into the first half and into the third quarter of next year.

Right. So when you say $200 million run rate by '26, that means it's sort of at some point in the -- towards the end of '26, you hit that $200 million annualized...

Yes. Look, I think that when we get out -- we should -- assuming the Off-Highway sale gets completed late in '25, some of the costs are around stranded costs that need to come out that will need to come out after we close on the transaction. But I believe that when you get to '26, we're looking at -- we should be have a $200 million savings in '23 absolutely for the remaining business that we own. And I'm highly confident that we're going to be able to get those costs out and get those costs out very, very quickly as we move through 2025.

Right? Because again, if part of this is sort of like reduced spend or reduce activity on the EV side, like it seems like that part should be relatively -- or it could come out in relatively short order.

Exactly. And it will. And we're moving around. Obviously, we've got a lot of people, and can come out at relatively low cost because as we ramped up, we brought on a lot of contract, engineering and program management that can go out at basically no cost versus taking employees out where you have some severance and whatnot. But we are planning to get a lot of these costs out over what amounts to the next 6 or 8 months.

So if we think about remaining Dana and if it's too early, I fully understand this. But what is the right level of R&D going forward for that entity? And what is the right level of CapEx for that entity?

Yes. So CapEx should be -- we think our CapEx versus where we've been running is going to be lower. We think CapEx next year is lower than where we're at currently for 2024. In terms of the right level, I mean, we'll still spend more on R&D than we had historically prior to electrification because electrification just has more development work in it. Most of these programs, this is the first-generation program. So obviously, a lot more than redoing the Super Duty or the Wrangler where there's a lot of carryover. So it'll still be elevated, but not to the level that it is today. And certainly, we'll be very disciplined around how we deploy those resources. Given that the development time for some of these is now going to be lengthened, we'll be able to manage those resources I think, far more efficiently than perhaps it had been possible in the past as you were just really trying to running to try to keep up with what the customer was trying to get to.

With the announcement, you also reiterated your 2024 guidance, but I won't let you completely escape the sort of guidance question because based on sort of our prior conversation, it does sound like, again, some of these savings should hit in relatively short order. Was that already contemplated in when you sort of issued the guidance and you just weren't able to sort of talk about it...

Yes, some of that's built into the guide. It's a small number. I mean we took the charge at the end of the third quarter and started working on a lot of these actions into the fourth. So there's a bit of it in there for '24. The majority of this is really going to come through in the first half of 2025 and then follow on into the third quarter.

Okay.

But we are confident we're going to be able to hit our $875 million and our $100 million free cash flow target for next year -- for this year, excuse me.

If you want to go ahead and give some '25...

No, I...

We're not going to stop you... But let's sort of -- and recognized that you won't do it, and you're not going to that here today, and you'll sort of wait early next year. But I guess, I want to start when you do report fourth quarter earnings, and you give sort of a year ahead look, is the plan to still talk about the business as it will be? Or are you still going to have to sort of talk about it as it is?

We'll certainly give guidance as if nothing changes so that it's comparable and it's easy for people like you to sort of get through your models. We'll have to see...

BUT does that happen -- but presumably that would also be helpful to also to give a specific Off-Highway revenue or margin numbers...

Yes. I think some of this is -- we'll think certainly about that. We have to give some guidance around kind of what the quarters might look like. But yes, to your point, I think we'll probably provide a bit more information given what we -- by segment as we go through. We're still working through that. But it seems natural given what we're contemplating with the Off-Highway business.

So I guess just again and recognizing we're not doing '25 guidance here today, but just as you're clearly planning the budget for '25 at this point with -- or maybe it's already done with a couple of weeks left in the year, at an industry level or end market level, right? How are you sort of thinking about, I guess, LVD and commercial vehicle at this point? Because it seems like in Light Vehicle Driveline, right? Obviously, you had a couple of customers that have had some challenges or at least one customer that has had some challenges this year. And maybe that sort of persists a little bit into the first half, but then it does seem like there's some maybe easier comparables. And then commercial vehicle, right? There's, I think, a lot of different opinions out there about magnitude or if a prebuy sort of occurs. So how are you sort of planning?

Yes. So I think -- look, I do think in the Light Vehicle and the Commercial Vehicle businesses, we probably expect there to be still some continued softness in both of those markets. The prebuy is a good question. I mean, I think if you ask 10 people, you get 10 different answers. So we're obviously making sure that we're going to be prepared to meet what the demands are from the customers and making sure that we're in a position to really capitalize and convert if those sales do come through. But I think the likelihood that we're going to have any material better outlook in terms of the backdrop, I think it's still going to be a -- it's going to be a tough backdrop in which to operate in, in both of those segments.

Yes. You mentioned EV lower for longer. And I think as it pertains to the Light Vehicle market, actually, the segment that really sort of shows up and for you, I think, is sort of Power Technologies. And I think irrespective of how this election in the U.S. sort of played out, it was clear that EV penetration was lower anyway. But are you -- and I know you have to sort of respond to sort of what your customers are ultimately going to want to do. But I am curious and recognizing maybe it's still sort of early days, how are they beginning to sort of think about the path forward on electrification in the U.S.? And how does that dictate your planning for that business?

I think the customers -- and this isn't true just for Light Vehicle. But I think overall, I think they're approaching it much more from a much lower demand level and looking to make sure that they can provide the vehicles that the customers really do want versus just a huge number of vehicles that are somehow incentivized and forced upon the general public. Look, I don't believe -- look, I think electrification, the trend is not going to stop. It's just going to be a little bit slower to adopt. And I think that's certainly fine. From our perspective, we believe we're going to be able to provide the high-quality, highly efficient 4-in-1 systems that when you think about hard parts, motor inverter and then the thermal management properties to really maximize the efficiency on those axles is giving us a strong competitive advantage around being able to give them better range, better -- a better experience for their end customer, which should help them in terms of being able to get more interest and deliver more vehicles.

Yes. The other topic that's really come up a lot among investors of late post the election is trade. And I don't know if you want to call it a threat, but the idea of the tariffs on Mexico. You have a good amount of facilities in the U.S. You also have some in Mexico. Can you just sort of, again, remind us of the footprint? And it might be helpful to also understand what that footprint looks like on a prospective go-forward basis as -- with the remaining businesses. Like does getting rid of Off-Highway change your sort of North American footprint...

So I'll answer that one first. It doesn't really. The smallest footprint we have in the Off-Highway business is in North America. It's primarily an European and Asian business, primarily European really. There's only a handful of facilities in the U.S. or one major facility in the U.S. that currently exists. I mean you think about the tariffs, so obviously, it's a concern we're looking at. We tend to produce our -- assemble axles close to the customer in the same region. Most of the light trucks that we supply into are made in the U.S. So those facilities will take Jeep Wrangler, right? We produce that in a facility that's literally 5 minutes from Stellantis' production facility. Now we do produce gears and other input items in Mexico and elsewhere that then get brought in. So obviously, the threat of tariffs is and could be impactful. For us, the big thing is we typically operate in maquila in Mexico. So it's a little hard yet to know really what's the true tariff impact is going on the value add because the material is already owned by the U.S. and just gets brought in. So there's a lot of what ifs. But I think the main view from our standpoint is if these things do come to fruition, we're going to be in with our customer explaining to them that this is -- here's your price increase because this obviously was not priced into the product when we agreed to the program price. So that will be a whole other discussion that the -- whether it's the commercial vehicle or the light vehicle customers that we're going to have to have because, I mean, at the rates of some of the tariffs they're talking about, it's going to be really impactful.

Yes. It just based on the previous exercise, I'm sure you guys did when in 2017 with border adjusted taxes and you mentioned sort of maquiladora on value. Is your understanding that the tariff would be just on the value-added portion?

Well, I mean, that would seem the most logical because technically, the material enters in bond, but I mean we don't really know anything at this point. It would seem to make the most sense because that's what's going on there, but we'll have to wait and see.

Does the -- are you at all concerned about -- because you mentioned Off-Highway is primarily a European business, but we know a lot of that product actually ends up back in the U.S. Is there a threat over tariffs from Europe into North America, which I think has sort of been put in as more at a 10% level, is that at all sort of a consideration?

Yes. I mean, again, I think for the most part, our sales are out of Europe to OEM customers in the U.S. versus on an intercompany basis. Typically, either if we're the importer of record or the OEM is, that -- again, that would just have to be passed along. I mean if you think about our Off-Highway business over the last few years, you think about inflation and supply chain, it's been the most resilient from a margin perspective, which indicates that we are generally able to pass along those types of costs. European energy with the Ukraine conflict really drove a lot of costs, and we worked with our customers to make sure that we were getting recovery for the vast majority of that. So I think we'll have to go through that same process if the tariffs end up coming to fruition.

Yes. Going back to the business and some of the performance we've seen year-to-date, right? In a really tough market, right? Is -- and I know we've had a version of this conversation before is you sort of get higher margins on flat to down sales, and I think that's some of the work you've done combined with some customer recoveries and other factors. How would you sort of, I guess, a, describe or bucket some of those benefits that you've seen year-to-date? And maybe more importantly, what's sort of the go-forward outlook for some of those buckets? And really what I want to focus on like recoveries, like that obviously occurs, right? But what I'm curious to learn more about is how much more do you think you have internally to control on costs?

So I think when you think about it, right? Yes, I mean we -- customers' order patterns have improved dramatically, which has really allowed us to run the plants at a level that we know we can run the plants at. So that's been a big help. So just getting those order patterns, not having all the changeover costs that we've had over the last 2, 3 years, you're starting to see that show up in the conversion rates within the plant, even like you said, on lower sales. Look, I think we're a culture where it's a continuous process to continue to improve the operations, whether it's through automation or better quality or leading to lower warranty and other costs. We still have -- I think we still have some runway to go, and we still have more of those types of costs that can come out and improve margins. Now the other thing you have to realize is that continuous improvement in terms of cost also help offset natural inflation, other things that customer has historically not paid us for. So there's a bit of an offset there. But I think in the short term, there's still some more operating sort of plant floor improvements that we can continue to go after and get flowed through the P&L as we move forward.

And I know labor at times has sort of been an issue. What's sort of the latest there?

Labor, if you're thinking -- I mean, I'll think about the U.S., which is where most of the labor issues historically were post COVID. I think we're in a very good position. Plants needed to operate are very, very high, high 90s. I mean we do not have the same issues around getting labor into the plant and making sure that it's efficient, a lot less temps in the plants, which makes the ability to operate the plants efficiently much easier. So much, much different than, say, 2 or 3 years ago.

Okay. Anything in the audience for Dana? So let's operate under the assumption that the sale goes through, you get the proceeds, you delever down to the 0.5 turn to 1 turn net leverage you sort of talked about. I think in the release, you also mentioned free cash flow. I know you mentioned margins could be similar to what they were post the savings, what they were with the Off-Highway business. I think you also made an allusion to free cash flow as well.

Oh, no, we said free cash flow. I said free cash flow.

Okay, fine.

So if you really want to think about it right...

So yes, earlier we talked about the margin, right? Let's talk about the...

Yes, but so let's just walk, right? So you think about it, it's a lower top line at a margin that is the same or better than we're at today. So if we just think about that. So you're going to have the higher EBITDA on those 3 business units that we still have. We'll have a significantly lower amount of debt. So a significant increase in free cash flow related to the avoidance of a significant portion of our current cash interest expense. The Off-Highway business is obviously the most profitable business and carries an outsized portion of our cash taxes. So more than the 25-ish percent of the of the business, the top line business that the Off-Highway business represents will come out of taxes. So we'll get a big benefit from a tax perspective in terms of the walk. And then Off-Highway tends to be our highest working capital usage business. So obviously, that won't happen. So those -- that combination, when you add it all together, should allow us to convert free cash flow at a much, much better rate than we have been over the last 3, 4 years. And I think somewhere between 3% to 5% as we start moving out. So we're talking $200 million to $300 million of free cash flow over the -- on a post-transaction basis over the -- consistently as we go forward is something that we're really striving to, and we think we can deliver that. And that gives us a lot of capital to look at returning to shareholders or looking at being opportunistic in other ways. But we're excited to get -- and I think the market has spoken, right? The market wants to see us generate free cash flow, and we're going to reorder the business and take the cost out and skinny down the debt structure and deliver that free cash flow back into the shareholder, back into the business.

And so yes, recognizing it's still early, and that is something that I think the shareholder base wanted. How do you sort of preliminarily think about that spending or using that cash?

Yes. I think we got to get it first, right? That's what you think about it, look, I think having the ability to make meaningful returns of that capital to the shareholder, I think, is probably number one.

Some combination of dividends and buybacks.

Yes, something -- I mean, we'll see how the market reacts. If the stock continues to be undervalued, then that makes a lot of sense. So we'll -- but I do believe that, that excess cash flow will first be an increase in terms of what we're returning to the shareholders. And then we'll see what other opportunities might be out there. But as we look at it today, I think we're thinking about it in terms of return of capital. So we do believe we'll have excess capital in the business.

I don't think you explicitly sort of answered the question earlier about sort of what has sort of in total invested in electrification of the business but...

I guess I didn't hear that question.

But well, now you have another chance to answer it. But I guess maybe just ask said differently, of the $200 million savings that you expect, how should we think about that by the remaining segments, where that -- how to allocate that?

It's a good question. I think that if you look at it, generally, I think it's generally sort of pro rata based on sales. It might be a little bit high...

It might be an investment program for commercial vehicles...

Yes. I was going to say this. Like -- and then with probably a bit more coming through commercial vehicle, given the amount that we have around electrification, that's in that segment. So if you allocate it and said, all right, some of that's probably a little bit higher comes out of the other 2 segments. But predominantly, that's probably going to be in light vehicle and commercial vehicle more so than in Power Tech.

I guess just on the truck side and sort of what you had already been done or were planning to do on electrification, geographically, was that more Europe versus U.S. or...

For commercial vehicles?

The CV electrification efforts?

It's both. I mean we've got active programs on both continents for major OEMs. I think that will continue. I mean our business is predominantly a North American and South American business today. I think that probably remains more like that, although we are seeing a lot of interest in some of the products we have developed for the North American market being of interest in Europe. But again, there's been a lot of slowdown even in the CV market, think about -- I mean, you look at it like long line-haul truck is kind of a difficult use case right now given the limitations on some of the infrastructure. I think last mile delivery still is -- and it has been our view as being one of the most interesting and worthwhile places to really electrify because I mean, these -- the trucks start and end at the same endpoint. They don't have to worry about infrastructure. They have a known duty cycle. They know the math that's on the vehicle. So you can calculate and make sure that you're not going to have a range issue in these trucks. And a lot of them drive around in cities either that have or plan to have restrictive emissions, and they can make their rounds and not worry about trying to find a charging station. So we still think that's where a lot of this ends up early. I think he had a question.

Sorry, I'm blind.

I only thought like vaguely.

I just want to clarify, the $200 million cost cuts, that's all in Power Tech, commercial and light or some of that...

Yes, some of it comes out of the stranded costs from Off-Highway, but the predominant of it is in the other 3.

Okay. And then just talk a little bit more about the strategic interest and I'm sort of thinking back to Cummins taking out Meritor. I know it was a couple of years back. I haven't followed that, but sort of maybe some -- any thoughts or any insights on how that deal progressed, the synergies and just sort of how a strategic buyer...

I don't run Cummins, so I can't really...

No, I am trying to think sort of like the -- where this -- I mean, we see where you're trading at, just sort of thinking about some of the strategic rationale for integration? Or is this more other buyers beyond? I'm just trying to think who the buyer interest has come from specifically?

Yes. I mean I don't want to comment on any buyers, but we have a pretty broad range of interested strategic buyers for the business.

We have one over here.

Have you commented on what you think the tax leakage would be from the deal?

It's -- I haven't said specifically, but it's highly tax efficient on a cash sale. So we wouldn't expect there to be a significant amount of leakage coming out that would require us to do some sort of RMT or other equity or spin transaction. It's highly, high efficient. It will be, I'd say, less than $100 million.

Okay. And then the $200 million of savings, I mean, we should think that there's stranded costs eat into that, correct? Or...

Some of it's in there, yes. That's correct. There's -- some of that will come out after we sell the Off-Highway business and have to skinny the rest of the cost structure down.

Sorry, I guess what I'm asking is, is the $200 million a net number? Or should we think that it's $200 million and then stranded costs eat into that $200 million?

No, it's $200 million. Just think of it as all in $200 million is what we should come out of the business.

I think we're just about at time. So I want to give you 10 seconds to answer one more question. Well, I guess, let's see where do we want to go here. Let's just call it. I think we're good.

All right. Sure.

I'm out of questions. Thank you.

Great, thank you, I appreciate it.