Allison Transmission (ALSN) 27 Jul 232023 Q2 Earnings call transcript

Good afternoon, and thank you for standing by. Welcome to Allison Transmission's Second Quarter 2023 Earnings Conference Call. My name is Daryl, and I will be your conference call operator today. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to Jackie Bolles, Executive Director of Treasury and Investor Relations.

Jackie. ahead, go Please

Chief Good Treasurer. second thank call. quarter are Chief Chairman this Daryl. our Fred us Vice Senior With for for afternoon President, and our Graziosi, our XXXX Officer Dave Officer; afternoon, you, and you Bohley, and and Financial joining me Executive Thank earnings conference

XX. replay available Investor Relations August section As a webcast call, available the conference call and this be allisontransmission.com. on A of reminder, this afternoon's this will presentation are of through

noted for underlying of XX, risks statements on annual prove our on or statements As other or X the well set as remarks Should our December quarter today. express today and should economic current these forward-looking incorrect, more those forth results of vary year of Slide presentation, or many those as second known XXXX on assumptions ended the general These materialize risks to contain materially XXXX, based are factors. our from earnings report one including in and unknown may press that estimates we forward-looking actual subject expectations. uncertainties Form or XX-K release

financial noted the remarks of of X on today as defined SEC. as the some contain presentation, addition, In Slide non-GAAP measures by our

reconciliations GAAP our the second XXXX You measures can quarter to find to presentation comparable measures to and of press attached non-GAAP appendix the most financial the as an earnings release.

one p.m. from at Time. the maximize end call order X:XX we'll opportunities Eastern call, each is question to set just Today's on participation In analyst. take to

agenda. the the Slide to Please X call of for turn presentation

commencing update. second Bohley and Q&A. from performance our our review quarter provide updates year prior will review then call, today's an quarter second highlights to our guidance During XXXX XXXX Graziosi financial full to the and review will results Fred operational Dave

turn to the call Dave I'll over Graziosi. Now

us. for Good Thank you you, thank and Jackie. joining afternoon,

our business $XXX to for an Our the quarter exciting to increased second billion. of XXXX first the sales first revenue $X.X trend over million opportunities as Net positioned a and to high with end for year-over-year to continued all-time leading of the success Allison demand prove markets. be growth quarter largest across results half record XX% quarterly remains year from strong

current Given results $X we year our conditions, the guidance and revenue of at to end with are market the these full pleased a midpoint. billion XXXX expectation raise

remains Allison price year-over-year to Although cost while challenged, the environment mitigate our business. realize working operating continues pressures in to our

$X.XX. along increased we XXX EPS quarter, margin our year-over-year, points growth basis second the year-over-year XX% During with of to gross of

while performance for invest strong in our fund allows and shareholders allocation through dividend to business us and long-term Allison's capital operating priorities our program. returning quarterly repurchase to growth maintaining and share our capital

$X.XX within During our expect opportunities to conference lead outstanding. quarter, of to coming earnings the $XXX share our and we end dividend which last second per of On X% of defense revenue the our shares in years. paid incremental over annual outlined we call, market, repurchased a million we

Defense defense cycle with Allison while United States our international diversifying capture our sales. through budgets to is to of continue revenue long-standing poised increasing partnership this Department growth Global by the our sources rise, in

next Department are We sales Abrams expect three current our be expected transmission cross-drive U.S. as demand main international an Defense particularly the overseas of products, in over increase due years. delivered to battle in continued the by XXXXX for XXX tanks to the

program. self-propelled OEMs. through Allison global for transmission also XXXXX relationships this our growth first defense deliver Fırtına Late will Howitzers with to their internationally realize Allison to expects Turkey summer, the

Australia, Poland. XXXXX such Norway from international Hanwha is Howitzer as variant countries equipped Further sales also their self-propelled of with Egypt, growth South and KX Aerospace an Korea's anticipated Thunder with to

medium-weight armored near new cross-drive development transmission geopolitical growth the drive increases demand will shifts vehicles way future in medium Additionally, MX combat international for with of our XXXX as dynamics. as products, in such the

As we fighting well European infantry infantry as Poland's selected been combat have fighting India's Borsuk future already vehicle previously programs. XXXX vehicle other has opportunities as inventory in for MX vehicle the mentioned, with further

involved Mobile Allison U.S. Department such the as is the vehicle. including in armored MPF programs Defense, several Firepower the U.S. Protected of platforms recovery MXXAX with Domestically, and Army's

renamed the the solution our Booker the the contract funding the the propulsion MX program. will During production quarter, MPF Light supply of with for second was the tank XXXX MXX Allison Army as a for U.S. choice program.

closely our begin the testing with government Army worked to U.S. For is Allison XXXXX-XB, the expecting program this and year. with MXXAX, equipped army has late

the for million tracked the medium in incremental as term, growth market we opportunities to become defense end combat longer-term even of revenue programs electric new addition hybrid opportunity modernization forward our Force in a are vehicles, In priority. with $XXX eGen annual our to system propulsion looking

the the mentioned, program, eGen we As In Allison for inventory system two. combat from U.S. the optionally designated have their American to vehicle vehicle selected previously was propulsion or selected by the XXX June, Rheinmetall and the OEMs OMFV Force OMFV program Army offering. fighting as down mechanized late five manned

selected the XXXX the American XMXX. look start testing that detailed to XXXX with of announcements future Army forward Rheinmetall and plans for prototype into and pleased was to production phases the as to are in estimated continue testing and design start in We U.S. build

defense growth business in relationship and committed market, our leveraging our a model as defense asset-light to investing pursuing remains competitive Allison OEMs with long-standing and end advantage.

the of OEMs tracked for applications. well programs and opportunities Department in the enthusiastic wheeled and Defense, both upcoming as U.S. are We international as and users end from

focused coming near the we Our is to in of forward realize to team updates providing in the and future. $XXX million revenue look aligned and incremental years, annual

other its I vehicle Moving and for June, In to social emission second to released industry XXXX Allison our and commercial few upcoming an preparation environmental, are standards. would made quarter. we announcements changes report. in highlight a during governance Allison like navigating on, evolving the peers

electric the and electric of our fully generation hybrid of of driving through propulsion is family we ways One propulsion are next solutions. the solutions eGen

Corporation, authorities have will that of Public United Allison States the its with eGen or In that utilize expanding Transit is and applying Transportation grant announced the equipped Flex buses. announced across quarters, system. Indigo eGen Flex We Administration fleet the hybrid capable we electric its Federal previous from the numerous zero-emission towards transit partnerships awards recent Indianapolis recently

efforts fewer representative the partnership the Flex This with enabling of market the expand a share is transit of to our clean with across eGen and transportation advancing greener country future emissions. agencies

of frac transmission, off-highway The $XXX Also annual hydraulic that trend China. million during the the new in of quarter, incremental has released our been we an end our announced represents opportunity frac and global reiterates in of a strong fracturing America in revenue sheet trend our the markets operators needs energy signifies experiencing in transmission designing demand bus efforts into expansion producers. market China outside to clean and the we specific are North of

results in our quarter success operating as brand while capital order improve current business well In achieve way illustrate the on diligent performance, returning conclusion, to in of the our to shareholders future as our remain the and works. world promise We Allison's our growth growth. investments our opportunities second to for delivering initiatives and

I'll Fred. the and you, Thank now to turn call over

Thank you, Dave.

Dave's I'll statement and the guidance. key I'll year Following to income provide discuss QX flow. then summary, XXXX performance the XXXX full XXXX updates cash line items comments, second quarter

X Slide summary. to Please for performance QX of the the XXXX turn presentation

in results certain period the increases by end the in $XX XXXX XX% customer in and was increased million to by increase on sales principally of On-Highway sales North million. net demand products. a The record a in for X vocational strength led $XXX American and same from trucks market, net in quarter year-over-year Second increase medium-duty driven Class price

principally parts strength support equipment end customer Asia, service in increase parts, million A price the an America increase higher $XX Europe support net execution our were and by improved increases. increases. initiatives driven demand principally by in and outside and results in global North driven the $XX service in for Year-over-year million also end in the continued of sales and market, equipment price On-Highway other growth by market, and demand

profit Gross principally offset was and million The certain was the by period the in XX% increased from price $XXX higher increases for net XXXX. $XXX increase by products expense. same driven partially million, sales, for the manufacturing increase a quarter on

Net offset selling, Adjusted gross by $XXX profit, partially gross the million period to same million compared compared period to XXXX. The increased in the expense. XXXX. the million general million for partially by and and $XXX administrative income higher $XXX selling, by was driven increase same driven the in principally quarter profit, EBITDA for by increased was higher for $XXX principally offset general quarter The for increase expenses. was administrative was

same in share period from XXXX. Diluted earnings the increased per XX%

be was of A overview detailed quarter our driven market the shares total net by end Slide of income outstanding. found $X.XX, EPS by lower on and net sales Second of X presentation. can higher

general expense and the product expense. with XXXX. in expenses driven commercial and were expenses X the Slide to period by for QX financial $XX flat the XXXX performance Selling, same principally for and million the same Please research presentation turn spending, quarter summary. Engineering in development activity essentially increased the of period incentive compensation XXXX, increased warranty from administrative

income period free $XXX capital the the quarter by The cash expenditures, for was offset XXXX $XX XXXX. profit, working was lower capital for the partially and flow Slide presentation higher same increase to turn summary. X performance for gross QX cash driven of in cash Please flow requirements to Adjusted million lower higher million the principally by compared operating taxes.

and shareholders through $XX our we dividend During of repurchasing stock. $X.XX our returned the share million quarter, to quarterly second common per capital of

XX% our this For shares shares outstanding repurchased represented the since over in X% Allison's our outstanding with of quarter, XXXX. of nearly IPO

net facility commitments. of X.Xx, ended revolving quarter available a We $XXX and with million $XXX leverage of million of credit the ratio cash

a with In debt and maturity the XXXX. maintain addition, due covenant-light we earliest continue to long-dated structure flexible, in

is outstanding XX% which is quarter debt hedged, XXXX. being in variable through the third of debt, million $XXX million to interest fixed rates, billion $X.X subject of of our resulting $XXX of Over

to to of update guidance. turn our for the Please XXXX the X Slide presentation

and our results half for we of billion conditions, first full guidance cash are current sales to the year Given in net end $X.XX net billion. of earnings XXXX $X.XX Allison raising to range be market sales, expects XXXX flow. and

demand certain continued end over of our sales and products midpoint, growth this leading the our increases the on strength growth based continued initiatives record in year. price At markets, on another represents net X% execution anticipated year-over-year the to in

$X.XX sales the to income range $XXX net million operating net cash activities adjusted of free $XXX to million the capital anticipate million $XXX of in in we $XXX billion, in $XXX by billion EBITDA range $X.XX Allison's million adjusted the $XXX flow to million, and million, in $XXX of range cash XXXX million. to addition net of expenditures to $XXX provided range to guidance, in In the the of range million

the remarks. our Daryl, concludes questions. call prepared please open for This

[Operator the proceed question. with Melius Research. Instructions] Wertheimer line Our of Rob first from your questions Please come with

the I neutral or if wonder truck you see moving about not I as negative ask or not. And litany assume good So because to positive acceptable make regulatory think for diesel a list. Europe say your you can moved combustion fully trucks if in sort of news, of generally in positive that am was hydrogen Regulators U.S. medium-duty it's same in in zero-emission potentially in automations world. hydrogen have on is I Thanks. an And maybe unfortunately, assume persons. too. would news. And you I that's the is transmission the making direction, strategy. comment combustion that a good it's combustion progress versus going use just to I if hydrogen even

a there afternoon. and for hearing is Dave. Thank many answer others - short hydrogen. It's we things are positive I'd the certainly that the say it's you you good Rob, we hear about believe question. of the

been many know, that conventional well assets be for investments given it's existing deployed, can you in a ways. subject the just discussion think long I in hydrogen of as

you as So it's a think a perspective, from certainly as supporter an one - number overall industry know. of alternatives I being many all-of-the-above think as of strategy. an the of different well frankly, We're I available,

continues given everybody the you'll because will trying work Europe. guess can that around My think in of fair to be it question I to is as development tell, number is missions the in of constraints see there elsewhere is or U.S. number a you your our developments through. the more - guess that of to

you getting they constraints, As the technology, right infrastructure getting with at a the number just know, whether out of given the et of really be right of solutions bit a our appears realities to be the time. stretched the maturity cetera. strategy, Time

regulatory So to those look to on particular further side. and the topics we're close staying certainly forward developments

I think me. that was not

is Fred. this Rob,

transmission. I Just little know broader a will that. you're on it, just the quick hydrogen a aware conventional that your from follow-up use for of combustion question, engine audience, the

you'll adopted internal an able the to path that's that's engine, be but back conventional of question, your the also So assets transmissions. broadly to certainly, use, obviously, combustion

for So obviously favorable that's certainly, us.

Perfect.

stop line. I'll so Thank question, get the back in one you. there and said You

you. Thank

of with from come questions next Ian Our question. the proceed Oppenheimer. Please Zaffino your line with

much. guess, differentiating Hi understand yourselves, I would defense Great. us where be, what's help the all Question you winning Maybe you're very Thank on success. this all business?

Hi with [technical terms as Ian. in I think success, when technology difficulty]. of years. our evolved The automatic start of the over advantage solutions Dave. guess afternoon, it's Good out fully you about you they've

we position with a wheel with the tactical transmissions U.S. significant On side, certainly for on have side. their automatic very military fleet fully wheeled the the

performance, a track developments. in automatic about same I commercial so the all frankly, product, has think know, side transmissions, age the and to uptime as The the of manual and the said the as on issues the training, the significant over advantages of with think challenges and terms on be could you continue side the tear. wear amount fully you labor of availability,

cross-drive the over come Our many differentiation capability beyond but XX-plus what's to the platform the technology assets to down when - reliable installed a particular you from point, think year the highly about there in is are this deployed Abrams at standpoint. incumbency also base solution deliver does as the time, a an been that advances and experience for well And accumulated the there those solutions.

a on a be as as engineering requires capital-intensive skill, It and very manufacturing. can technical level one of side fairly process that well high the both

have low of supplier typically think when or a fabricating a very goes challenges period it of product, sustaining a when is think relatively you whether that measure, So, about number And complex partners. of on-highway does you low level volumes, time. about production type we which over are by that of

is fairly launch really we channel, cetera, to a that actually have propulsion the that on global add critical our and complex us think fashion. but the that that we which in et deploying a is it's organization reach whether our differentiator But for you to able be are other technical systems particular those team, be would solutions to marketing, into sales, about also cross-functionally service I basis when need leverage, global to timely a service able market.

very you Okay. much. Thank

you. Thank

Thein Our with next proceed question comes the from your Tim Please line Citi. of question. with

or calling, Great. question straight to segment. Class curious, Class forecast or And They're the medium guess, in duty from the consultancy you that lesser North - extend you B) that of pattern you you're - OEM the messaging guidance, I'm follows your But out curious, to your terms as is sequential it in especially down as out And significant good market a pretty one if there. just to Thank extent, your it curious look I I'm is or, that of would And more just X seems really and quarter. the from step as that the that Because that the messaging And America getting be On-Highway sorry, afternoon. you. the customers? X OEM Fred, truck step assuming quarter the then is Dave - falloff. market, that independent something from in seems well. assume does just on kind the at this the ACT fourth just a to certain different? curious, I'm in fourth some customers is down today, not laid of is what the of be

guidance spirit or assumes? you. not? So Is is it the basically, the what Thank falloff of question your that

Tim, Good Dave. afternoon. it's

trees now expecting that - OEM the our that would developing into and as see frankly, one becomes to partners, and over have forecaster don't we we're sky, the in grow QX. you, year. really as the that further we tell I things you So, of not thing would would get say phrase think clear the just I we I feedback kind as goes, things mentioned I right result, last from coping

expect getting normalized I more run we're of normal would certainly we're to a rate.

certainly been it months resolved, was or they're a year improving. better was it resolved it constraints you some As many than have six are wouldn't say than supply better I ago. but was know, ago, all

mindset is playing improving. to some but the I that into variable, everybody ultimately of be reality, it's continues this adjusting new think more to which of

impact catching straight to the very you the X OEMs I with pent-up has fundamentals know, underlying that level Class so demand. replaced. know, Vehicles Medium big need see and say aging, are tooth in going are to you up duty, medium as would as is been part fleets medium-duty lease as long pretty a they're undersupplied duty. of we still in the rental those getting are be of market, that

say pretty number we drivers that vocational, as medium support the market. be of strong. been not infrastructure terms a would there continue again, such vocational strong So, of to relatively the to I certainly see be produced duty, spending, have underlying continues in trucks,

dynamics the clearly, of we normalization at half the into in But overall, see should So second this, relative favorable point. this 'XX into continuing be anticipated demand second half. to some performance our level

given I demand, our not as any to the But as to would are our bigger said, of that that, year with down been industry backlogs, higher into of I frankly, the a constraints all produce entire strong And burn been into the being you - concerns able is well. think levels. and resolved have at have well expected as very Having carryover know, 'XX assume said move this bit. some you

and that this by yet of of some get books frankly, further as of think end this clarity number the opened a year, are I OEMs certainly focus order will So, by quarter.

for So the is we're be on. that's whatever demand next meantime, prepared focused to supply required. to In to thing the us

Thank good. Very you, Dave.

Thank you.

Maria your proceed with De the William question with comes line next Larry question. Blair. of Our from Please

big sustainability And you've service this growth, price? deconstruct parts. had there growth? kind on nationally, wanted supply of even not sustainability, just year you what's overall, for - everybody. going catch-up on easy to increase talk specifically? XX% challenges? even Can Is on can I'm chain it Good and price going a and talk deconstructed nice in from volume mostly parts it Hi, you thanks. But and what's about know, of the I the please? service Is strong about us don't the maybe comps. I afternoon, some, seeing

very There's it North strong American everything Larry. to our Sure, the up element business break of is North the when with This driving - service our on quarter, America you sold and OEMs an But volumes of to of - support half We're for year-over-year out about down, a certainly is uplift. the business Die relative basis, equipment there's coming up you mentioned. Fred. - then outside pricing. higher the up, Cast Walker

of I the in in mean, price, parts also getting across we and are quarter, total all in end category in the million a well, price markets. price providing basis had that's we XXX our $XX lift points significant over but as

Okay. you very That's helpful. Thank much.

Thank you.

next Zakaria question. line Our from Please Tami with proceed of question the comes JPMorgan. your with

Hi, I so to questions. thank you two was much. ask hoping

think Like million headwind? And what's was first my pricing X%. trying then I'm for it's back the question cost mentioned you $XX a half? What your is, than I so the more sense outlook of So cost? was the pricing to price get

year-over-year $XX on the points basis, million Sure, This price quarter, in QX. in Fred. XXX basis is was of of points a over XXX basis in off Tami. that Yes, price

multiple we aware, year. did pricing As last you're inter-year

in total move do as difficult and QX. a you from price QX more comps the get So, into

February, back we the be costs of points expecting a to of prices to about XXX we're In point, coming XXX material price. should guide in basis year-over-year get benefited quarter, off. provided closer Initially, a price this on commodity basis At when points basis. from we

did year-over-year million material basis of So $XX basically manufacturing was a total neutral. about We our costs. cost incur additional on

out associated some Obviously, getting the on guide door increasing in volume guide that and initial based our of then increase guide QX again, in more with in QX.

manufacturing expenses are is up. driving incentive as some of We comp which accruing higher well, expense that

may more I question. one ask Got it. If

your pretty As been they've margin, gross you at year. strong look this

flattish say, So in gross margins a hold look you Do year, should in how environment margin, let's here? a we or about flat if flattish. volumes let's on-highway expect say, let's think are, next we gross say, to volume to

Fred incremental of Tami, again. on up certainly up you quarter, definitely EPS as a points; I'd the the is so thinking net mean strong, strong up mean basis very this XX%, the EBITDA start income revenue XXX I the strong quarter. with, drop-throughs it's in just gross XX%; margins very up performing I quarter. margin I revenues mentioned, is XX%, mean,

like, obviously, guide what think is providing for we're XXXX. we look As XXXX going not to

look of But the one been out cost inflating. - as everything we there - has

situation the more of think get make to cost point run fleets a from where going that we you of going parts what if is So the is going have your maintenance vehicle you up, B don't up, cost fewer to cost the going deliver labor generated get can size really A about vehicles you Ultimately, vehicle the can downtime, repair products up, quicker, smaller the maintenance drivers. and that to efficiently. you up,

already really proposition, increases improvement the is driven our strong. which very cost for a in obviously So, has us significant value

So manage price. further we as price from to have it us -- greater well to increase but as go proposition costs cost as value positions to definitely more market a a both with continue delivering share get standpoint them up,

about where sit now. So right we're we as thinking

we're there, XXXX conversations part chain freight begins whether the need as to not out for a be supply continue plant always that inefficiencies you understand expectations we having to But we're still normalize, the trying well productivity positioned that we're - with don't product. to then pricing, And we're operating the get get our price. are what are our going measures, cost. on customers every to after or really We're to produce expedited have to

which parts. overtime, unnecessary really on if times, you is all had at And you're running

out, pressures drive to the and be cost continue that's and business cost expect going some we that get do So to the definitely is to going opportunities challenged labor industry. but across there's to

Got it. Thank That's very helpful you. color.

you. Thank

with the your line Revich Goldman of Sachs. from next Please comes Our question. proceed Jerry question with

you you for if of the everyone. automatic you're upcoming on talk whether the your terms attachment and in powered that to gas particular, wondering come on to in hi. gas mean views landfill rates? I'm what comment engines could new be specifically And would XX months? natural natural the an Thanks. opportunities specked out next XX-liter engines, for are gas set that can Yes, over evening, going XX to Good about

Hi, Dave. Jerry, of hydrogen. natural to Relative question evening. attributes terms on about Good interesting gas this Fred it's and gas, earlier density. mentioned some power has Nat the in

that it So one things the of requires of increase you can terms actually in power the is that RPM ways at the end lower performance.

So, have what hesitation overcomes the sense you transmission, that try automatic in a analysis requires lag fully fully of a that when is automatic, that's of would right? this to if advantage you accelerate,

natural certainly with gas, So on an position advantaged to solutions your natural relative pair gas. to point in to view transmission ourselves we

and for certainly around situation reasons, that your there question their to engines. we're think timing. product preferred allow So, perspective gas in OEMs introduction to natural But with their a number terms the suffice a will maps to releases, ultimately evolve from the engine continues the say, get of transmission engine of and I providers solution

you. Thank

you. Thank

Please Wertheimer next from your Our with the line of Rob Melius question. comes question with Research. proceed

guys. the for Hi follow-up. Thanks

back in structurally your peak margin and over a time end as that sure a margin? volume you but that's to call anything What down Is win in it has catch something shifted up? pre-COVID hope for price Or markets. there of you grounding. is it's kind I'll I'm high very changed for the structure from not one Just levels, just in quick peak,

that, that I would sales our - business. and parts. Cast balance business mean, probably a XX% Walker Rob, only be we've is that's that's have in of you that's represented the of think problem Die parts the lower-margin structurally really, acquisition Yes, roughly high-class business portion the than beyond and That's the outside in - not had of a thing But changed been the margin. I

margin to get, out order every Clearly, in think from and that when basis the you even unit, hundred we're on door you peak. a per in for to gross goes making the we're or positive, margins cost everything of making -- more we're dollar got gross is maintain So seen price. margin about you points those couple though profit margins gross you've get price/cost $X of down more,

certainly, much And is talked now more the focused we're something the we're we out that's real proxy is good focus we is, door a on with pricing there what's cash I generating the is news But as But opportunity out certainly relative on. really and for for always are earlier us, was generate. what cash the to how cash going can EBITDA pre-COVID.

you. Okay. Thank

you. Thank

We Graziosi closing back over have to of like I call to the session. reached the our would question-and-answer now hand David for end comments.

Thank Thank today's you, Daryl. continued your for Enjoy evening. participating on and you call. for your interest Allison in

teleconference. your Thank you. participation. We This does conclude today's appreciate

time. Enjoy disconnect may lines rest your at You of this the your day.