Third Quarter Earnings Conference Call/media/Files/T/Tenneco-IR/...Q3 2018 EARNINGS 1 Safe Harbor 2...

NYSE: TENOctober 26, 2018

Third Quarter Earnings Conference Call

1T E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Safe Harbor

2

This communication contains forward-looking statements. These forward-looking statements include, but are not limited to, (i) all statements,other than statements of historical fact, included in this communication that address activities, events or developments that we expect oranticipate will or may occur in the future or that depend on future events and (ii) statements about our future business plans and strategy andother statements that describe Tenneco’s outlook, objectives, plans, intentions or goals, and any discussion of future operating or financialperformance. These forward-looking statements are included in various sections of this communication and the words “may,” “will,”“believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof) are intended toidentify forward-looking statements. Forward-looking statements included in this communication concern, among other things, benefits of theFederal-Mogul acquisition; the combined company’s plans, objectives and expectations; future financial and operating results; and otherstatements that are not historical facts. Forward-looking statements are subject to a number of risks and uncertainties that could cause actualresults to materially differ from those described in the forward-looking statements, including the outcome of any legal proceeding that may beinstituted against Tenneco and others following the announcement of the transaction; the possibility that the combined company may notcomplete the spin-off of the Aftermarket & Ride Performance business from the Powertrain Technology business (or achieve some or all ofthe anticipated benefits of such a spin-off); the possibility that the transaction may have an adverse impact on existing arrangements withTenneco, including those related to transition, manufacturing and supply services and tax matters; the ability to retain and hire key personneland maintain relationships with customers, suppliers or other business partners; the risk that the benefits of the transaction, includingsynergies, may not be fully realized or may take longer to realize than expected; the risk that the transaction may not advance the combinedcompany’s business strategy; the risk that the combined company may experience difficulty integrating or separating all employees oroperations; the potential diversion of Tenneco management’s attention resulting from the transaction; as well as the risk factors andcautionary statements included in Tenneco’s periodic and current reports (Forms 10-K, 10-Q and 8-K) filed from time to time with the SEC.Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.Unless otherwise indicated, the forward-looking statements in this release are made as of the date of this communication, and, except asrequired by law, Tenneco does not undertake any obligation, and disclaims any obligation, to publicly disclose revisions or updates to anyforward-looking statements.

In addition, please see Tenneco’s financial results press release for factors that could cause Tenneco’s future performance to vary from theexpectations expressed or implied by the forward-looking statements herein.

Forward-Looking Statements

T E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Third Quarter Highlights Brian KesselerCo-Chief Executive Officer

Segment Results & Financial Overview Jason HollarChief Financial Officer

OutlookBrian KesselerRoger WoodCo-Chief Executive Officer

Q&ABrian KesselerRoger Wood Jason Hollar

Agenda


Non-GAAP Results: Please see the tables that reconcile GAAP results with non-GAAP results at the end of this presentation and in Tenneco’s financial results press release, which is incorporated herein by reference.

Third Quarter Highlights

4

Delivered a solid Q3 with strong organic* revenue growth across all product applications

• Record revenue of $2.4B, up 4% YoY, in constant currency up 7% --outpacing industry production** by 9 percentage points– Commercial truck and off-highway revenue up 27%– Light vehicle industry production down 2% globally

• Value-Add Revenue up 1%, constant currency up 5%

• Q3 VA adjusted EBIT margin of 8.4% -- consistent with outlook

• Record adjusted EPS of $1.70

Strong organic growth outpaced industry production by 9 percentage pointsT E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S **IHS light vehicle production forecast and Tenneco estimates

* Organic revenue growth is measured at constant currency rates and excludes acquisitions and divestitures.

Industry Q3 Revenue Drivers

5

Strength of our diversified portfolio helps mitigate industry challengesT E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Macro Drivers TEN Q3 Position

• China light vehicle slowdown; certain domestic Chinese OEMs underperforming LV production

• China exposure weighted towards global OEM JVs and select domestic OEMs

• Europe light vehicle WLTP production disruptions and diesel declines

• Impact from WLTP and diesel declines on our platform mix is relatively neutral

• Europe Clean Air ~85% VA revenue unaffected by passenger car diesel mix

• NA light vehicle production: ‒ passenger cars weak with YoY declines‒ light trucks strong YoY growth

• NA light vehicle revenue levered to strong mix trend with > 80% pickups and SUVs

• Commercial truck and off-highway volume strength

• CT volumes up in Europe, India and NA• OH volumes up in NA, Europe and Japan

Q3 Value-add Revenue

6

Organic growth in all product applications; strong growth in commercial truck and off-highway

VALUE-ADD REVENUE $1,776M, up 5%*

Clean Air 6%*

Ride Performance 5%*

Aftermarket 1%*

* In constant currencyT E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

RECORD

VA REVENUE YOY comparison

Light Vehicle 2%*

Commercial Truck 23%*

Off-Highway 25%*

Aftermarket 1%*

VA REVENUE by product application

CA LV47%

RP LV22%

CT 6%

OH 7%

AM 18%

Q3 2018

- Q3 light vehicle production down 2%** YoY

**IHS light vehicle production forecast and Tenneco estimates

Q3 Earnings

7

Q3 ADJUSTED EBIT $149M

Q3 adjusted EBIT margin consistent with outlook; record EPS of $1.70 T E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

• Revenue growth outpacing industry production, with growth in all product applications (constant currency)

• VA adjusted EBIT margin of 8.4% -- consistent with outlook

• Adjusted EBIT / margin impacts– Steel economics and tariff costs increased, 30bps impact on YoY margins– Currency a negative 20bps impact on YoY margins, primarily Argentina transactional Fx

ADJUSTED DILUTED EPS $1.70, up 3-cents• Q3 diluted share count of 51.4M

RECORD

Q3 Commercial Highlights

• 16 platform wins in China (majority incremental), with leading global and domestic OEMs

• 7 platform wins in India, including 4 BSVI commercial truck programs

• Won 2 hybrid programs in APAC in Q3 for a YTD 2018 total of 9 hybrid program awards

Q3 Clean Air


Light Vehicle

83%

OH12%

CT 5%


Q3 2018

Light Vehicle + 2%* VA Revenue $831M

Americas + 7%* • North America +7%, outpace production of +2%• South America down slightly

EMEA + 3%*• Outpacing LV production of -5%• New content on recent launches with Daimler, BMW

and Ford.

APAC - 8%*• China -4%, in-line with production• India double-digit growth, outpacing production +7%• Australia end of OE production impact -500bps

CTOH + 25%* VA Revenue $175M

Americas + 35%*• New CT business with Daimler Truck in North America• Off-highway up over 30% on higher volumes with CAT

and John Deere

EMEA + 33%* • MAN and Deutz business launched late Q3 last year• Higher volumes with CAT and Daimler Truck

APAC flat* • India ramp-up on BS IV reg.; China CT volumes -18%• Kubota volumes up over 10%

VA REVENUE $1,006M, up 6%*

Adj. EBIT $108M; VA Adj. EBIT Margin 10.7%

* In constant currency

Q3 Ride Performance

9

Light Vehicle + 3%* VA Revenue $394M

Americas + 7%*• Outpacing Americas LV production of +2%• Higher volumes on new programs with VW & FCA • NVH content growth on new BEV program

EMEA - 4%* • In-line with LV production of -5%

APAC + 5%* • China +1%, outpacing production of -4%• India +16%, outpacing production of +7% LV Conventional

78%

CTOH 15%

CTOH + 21%* VA Revenue $67M

Americas + 21%* • Higher volumes with Paccar, Daimler Truck and Hendrickson

EMEA + 16%* • Higher volumes including with Volvo Truck, Paccar and Scania


VA REVENUE $461M, up 5%*



Q3 2018

LV Intelligent Suspension 7%

• Announced intention to realign North America manufacturing footprint and close 2 plants -- expect savings of $20M to $25M by end of 2020

• Increased steel economics and tariff costs, 90bps impact on YoY margins



• 2 program wins for intelligent suspension, 1 incremental

• In Q3, 2 intelligent suspension launches, 1 incremental

• New program launches in China and India continue to drive revenue growth above production growth


• China added 18 new customers, 430 new Monroe Installers, and expanded coverage with 120 new SKUs launched

• North America continues expanding coverage with 160 ride control SKUs launched

• Winning new business in all regions, including key distribution gains in South America and North America

Americas74%

EMEA21%

Q3 Aftermarket

10

VA REVENUE $309M, up 1%*


VA REVENUE by region

Q3 2018

AP5%

Americas + 2%*

• North America revenue about even YoY• North America out the door retail sales

continue to trend up through Q3• Double digit growth in South America

EMEA - 4%*

• Customer warehouse consolidation continues in established markets (Germany); Turkey economic issues weigh down revenue

APAC + 9%* • Double digit growth in both China and India



Q3 Adjustments

11

• Restructuring and related expense of $12M pre-tax, or 17-cents per diluted share including

– Clean Air $1M– Ride Performance $10M, primarily related to the accelerated move of our Beijing Ride

Performance plant and North America cost reductions– Aftermarket $1M

• Costs related to Federal-Mogul acquisition of $16M pre-tax, or 22-cents per diluted share

– $12M acquisition advisory costs– $4M structural cost reductions in advance of closing, primarily for salaried headcount

reduction

• Costs associated with litigation resolution of $10M pre-tax, or 15-cents per diluted share


Tax Expense

12

Continuing focus on global tax planningT E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Reported Q3 tax expense of $21M, includes

• Tax benefits for adjusted items:

– $6M for acquisition-related costs

– $2M for litigation settlement

• Other discrete tax items (net expense) of $1M

Before those Q3 items, adjusted tax expense is $28M• Adjusted effective tax rate of 22% in the quarter and 23% year to date

– China high-tech designation secured in Q3 and benefitted the ETR in the quarter

Cash tax payments of $23M in Q3

Expectations for Q4 – combined with Federal-Mogul• Adjusted effective tax rate of 25% to 28%• Cash taxes in the range of $45M to $55M

Cash Flow

13

• Cash used in operations of $41M– Q3 results reflect investment in working capital to support revenue growth and

cash payments for transaction costs

• Capital expenditures of $77M in the quarter– Q3 spending $15M lower compared to last year

• Paid $14M in dividends, at $0.25/share in Q3– Board of Directors approved Q4 dividend of $0.25/share to be paid in

December for $20M ($0.25 x 81M shares outstanding)– Will evaluate future return of capital to shareholders via share repurchases

vs. dividends based on share price

Evaluating best allocation of capital to enhance shareholder valueT E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Debt and Cash Position

14

• Interest expense of $21M in the quarter

• Net debt / Adjusted LTM EBITDA* ratio of 1.5x

$ Millions September 30,

2018 2017

Total Debt $1,544 $1,681

Cash Balances(1) 203 279

Net Debt $1,341 $1,402

T E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S * Including noncontrolling interests.

(1) Includes restricted cash

Q4 2018 Outlook

15

* Organic revenue growth is measured at 2017 constant currency rates and excludes acquisitions and divestitures.

▲ At 9/30/2018 currency rates for Q4 ** IHS October 2018 global light vehicle production and Tenneco estimates.

*** Excluding discrete tax items† Including noncontrolling interests

See slide 23 for Tenneco Projections


VA adjusted EBITDA† margin 11.0% - 11.4%

Capital expenditures $260M - $280M

Interest expense $72M - $76M

Effective tax rate*** 25% - 28%

Cash tax payments $45M - $55M

Noncontrolling interests $18M - $22M

Organic revenue growth expected to outpace industry production

Revenue Walk – Q4 Outlook

$2.4B +3%

-3%

~$1.9B

~$4.3B

Q4 2017TEN

Q4 2018TENCurrency▲

Organic*Growth

• Organic* revenue growth expected to outpace industry production by 2 percentage points

‒ Organic* revenue growth +3%‒ Industry production +1%**

Federal-Mogul

Acquisition

TEN and FM Combined – Q4 Outlook

Full Year 2018 Outlook


Raising 2018 organic revenue growth guidance to +6%

Revenue Walk – 2018 Outlook

$9.3B +6%

Currency ~ neutral

~$1.9B

~$11.8B

2017 TEN

2018TEN

Federal-Mogul

Acquisition Currency▲Organic*Growth

• Now expect organic* revenue growth to outpace industry production by 5% (previous +3%)

‒ Organic* revenue growth +6%‒ Industry production +1%**

• Combined 2018 VA adjusted EBITDA† margin of 11.3% - 11.5%

‒ Legacy TEN VA adjusted EBIT margin at ~8.5%, which is within the previous guidance range

* Organic revenue growth is measured at 2017 constant currency rates and excludes acquisitions and divestitures.

▲ At 9/30/2018 currency rates for Q4 ** IHS October 2018 global light vehicle production and Tenneco estimates.

† Including noncontrolling interests See slide 23 for Tenneco Projections

Financial Reporting Expectations

17

• For the remainder of 2018, we will measure our results of operations under the existing segmentation (adding the 2 FM businesses)

• As part of our transition towards the spin, as of Q1 2019 we expect to revise our segments to reflect how the business will be managed going forward

– Clean Air– Ride Performance– Aftermarket– FM Powertrain– FM Motorparts

• Expect to give 2019 full year guidance as part of Q4 earnings in February

Establishing expectations for reporting new companies during the transition periodT E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

– Clean Air– Powertrain

– Aftermarket– Original Equipment

Legacy TEN

Legacy FM SpinCo

New Tenneco

Q4 2018 Reporting Q1 2019 Reporting

Key Spin Milestones

18

• Working towards spin to create two focused, industry-leading, publicly traded companies

– Integration update – on track to achieve forecasted earnings and working capital synergies

– Preliminary Form 10– Financing for SpinCo

• SpinCo – Aftermarket & Ride Performance company– Brian Kesseler, Chairman & CEO– Senior leadership team established and named– SpinCo should be named by early 2019

• New Tenneco – Powertrain Technologies company– Roger Wood, Chairman & CEO– Both division leaders and HR leader named– Remaining leadership to be named by early 2019

Separation into two publicly traded companies expected to be complete late 2019T E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Appendix:Industry Production – YoY% Change

19

Global 2018 light vehicle production now forecast up 1% YoY; largest 3 regions flat

Major Regions Q3’ 18 Q4’ 18 FY’ 18

North America 2% 3% 0%

South America 2% 7% 7%

Europe -5% 0% 0%

China -4% -3% 0%

India 7% 3% 8%

Global LV Industry Production -2% 1% 1%

Source: IHS Automotive October 2018 global light vehicle production forecast and Tenneco estimates. T E N N E C O I N C . Q 3 2 0 1 8 E A R N I N G S

Appendix: Summary of Notes & New Credit Facility


(Amounts in $millions) Coupon/Spread Maturity Date

$1,500 Revolving Credit Facility* (New) LIB + 175 bps 10/01/2023

$1,700 Term Loan A (New) LIB + 175 bps 10/01/2023

$1,700 Term Loan B (New) LIB + 275 bps 10/01/2025

€415 Notes due 2022 (FM) 4.875% 04/15/2022

€300 Floating Notes due 2024 (FM) 4.875% 04/15/2024

€350 Notes due 2024 (FM) 5% 07/15/2024

$225 Notes due 2024 5.375% 12/15/2024

$500 Notes due 2026 5% 07/15/2026

$102 $102 $145

$685

$1,250 $1,022

$1,598

$500

0

400

800

1,200

1,600

2,000

2,400

2019 2020 2021 2022 2023 2024 2025 2026

$mm

TLA TLB Notes due 2022 (FM) Floating Notes due 2024 (FM) Notes due 2024 (FM) Notes due 2024 (TEN) Notes due 2026 (TEN)

*Available revolver

As of October 1, 2018

• $1.5 billion undrawn revolver as of October 1, 2018 (Federal-Mogul acquisition close)

• Ample liquidity available to the combined company under new credit facility

Appendix:Pension and OPEB

21

Pension Q3’ 18Tenneco only

Q4’ 18Combined

Defined Benefit Expense* $4 $7

Defined Benefit Contributions $3 $16

OPEB Q3’ 18Tenneco only

Q4’ 18Combined

Expense $4 $6

Cash Payments $2 $9

* Does not include settlement or curtailment amounts..

$ Millions


Appendix:Financial Overview – Q3

22

Q3’ 18 Q3’ 17 Change

Total Revenue 2,372 2,274 4%

Value-add Revenue Δ 1,776 1,752 1%

Adjusted EBIT † 149 154 -3%

Adjusted EBIT † (% of VA Revenue) 8.4% 8.8% -40 bps

Adjusted EBITDA *† 207 211 -2%

Adjusted Net Income † 88 88 flat

Adjusted EPS ($) † $1.70 $1.67 2%

Cash Flow From Operations -41 25 NM

Net Debt / Adjusted LTM EBITDA*† 1.5x 1.7x -0.2x

Δ Value-add Revenue is total revenue less substrate sales. * Including noncontrolling interests. † See the tables that reconcile GAAP results with non-GAAP results in Tenneco’s financial results press release.

$ Millions, except as noted


Appendix:Tenneco Projections

23

Tenneco’s revenue outlook for Q4 2018 is as of October 2018. Revenue assumptions are based on projected customer production schedules, IHS Automotive October 2018 forecasts, Power Systems Research October 2018 forecasts and Tenneco estimates.

In addition to the information set forth on slides 15 and 16, Tenneco’s projections are based on the type of information set forth under “Outlook” in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as set forth in Tenneco’s Annual Report on Form 10-K for the year ended December 31, 2017. Please see that disclosure for further information. Key additional assumptions and limitations described in that disclosure include:

• Projections are based on original equipment manufacturers’ programs that have been formally awarded to the company; programs where the company is highly confident that it will be awarded business based on informal customer indications consistent withpast practices; and Tenneco’s status as supplier for the existing program and its relationship with the customer.

• Projections are based on the anticipated pricing of each program over its life.

• Except as otherwise indicated, projections assume a fixed foreign currency value. This value is used to translate foreign business to the U.S. dollar.

• Projections are subject to increase or decrease due to changes in customer requirements, customer and consumer preferences, the number of vehicles actually produced by our customers, and pricing.

Certain elements of the restructuring and related expenses, legal settlements and other unusual charges we incur from time to time cannot be forecasted accurately. In this respect, we are not able to forecast EBIT or EBITDA (and the related margins) on a forward-looking basis without unreasonable efforts on account of these factors and the difficulty in predicting GAAP revenues (for purposes of a margin calculation) due to variability in production rates and volatility of precious metal pricing in the substrates that we pass through to our customers.


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