Q1 2021 Allison Transmission Holdings Inc Earnings Call
Good evening, ladies and gentlemen, and thank you for standing by and welcome to Allison transmission first quarter 'twenty 'twenty. One earnings conference call. My name is Hillary and I will be your conference call operator today.
At this time all participants are in a listen only mode. After the prepared remarks, the management team from Allison transmission and will conduct a question and answer session and conference call participants will be given instructions at that time.
This conference call is being recorded I would now like to try and to conference call over to Mr. Ray Posadas, the company's and managing director of Investor Relations. Please go ahead Sir.
Thank you Hillary good evening and thank you for joining us for our first quarter 2021 earnings Conference call with me. This evening are they've got DOZ, our president and Chief Executive Officer and.
Fred Bully, our senior Vice President and Chief Financial Officer and Treasurer.
As a reminder, this conference call webcast and this evening's presentations are available on the Investor Relations section of our website Allison transmission Dot com a.
A replay of this call will be available through makes it.
As noted on slide two of the presentation. Many of our remarks today contain forward looking statements based on current expectations.
These forward looking statements are subject to known and unknown risks.
And those set forth and our first quarter 2021 earnings press release, and our annual report on form 10-K for the year ended December 31, 2020, uncertainties related to the COVID-19, pandemic and related responses by governments customers and suppliers and other factors as well as general economic conditions.
Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect actual results may vary materially from those that we express today.
In addition, as noted on slide three of the presentation. Some of our remarks today contain non-GAAP financial measures as defined by the SEC you.
And you can find reconciliations of the non-GAAP financial measures and the most comparable GAAP measures attached as an appendix to the presentation and to our first quarter 2020 one earnings press release.
And as cost at the end at 545 P M Eastern time and in order to maximize participation opportunities on the call and we'll take one question from me channel.
Please turn to slide four of the presentation for the call agenda.
During today's call they've got deals he will provide you with a brief operational update.
And I believe will then review our first quarter financial performance and update full year 2021 guidance.
Finally, Dave will conclude the prepared remarks prior to commencing the Q&A now I'll turn the call over to Dave Banyard.
Thank you good evening and thank you for joining us and we'll begin our prepared remarks by once again expressing my appreciation to allison's employees customers suppliers and communities for their continued dedication and resilience during this critical period.
And the severe disruptions to global supply chains that are currently impacting our end market custom.
Customer demand is improving and our team continues and tireless efforts to fulfill the Allison promise I'm extremely proud of the Allison and extended family and the commitment demonstrated every day.
And much progress has been made an interesting and the effects of the pandemic and there is good reason to be optimistic the risks persist and our top priority remains the health and wellbeing of Allison's extended family and its communities.
Many safety measures and precautions that have been implemented throughout the pandemic remain in place today and all of this thing is now providing on site COVID-19 testing and vaccinations, two or two employees and our Indianapolis plants and global headquarters.
We continue to encourage everyone to get backs and aided follow recommended guidelines and look out for one another as we discussed last quarter and supply chains across the globe continue to be strained challenges include labor constraints and shortages of component materials, a global demand and surpasses capacity recovery and avail.
The ability logistics issues continue adding to freight delays and cost and certain electronic components, such as semiconductors or chips remain in short supply across many industries.
Our procurement and global supply chain team continues to work closely with our suppliers at every level to understand and mitigate constraints our suppliers understand the.
And importance of Allison as an essential critical infrastructure and manufacturer and the impact both on commercial vehicle and defense industries have and the global pandemic recovery.
Continued coordination with our suppliers customers and industry participants from order to delivery remains critical as we work collaboratively to further mitigate the ongoing risk.
Cause by the global pandemic.
These challenges the delivery of our product with minimal disruptions since the beginning of the pandemic continues and we are pleased to report that Allison first quarter results reflect the ongoing global economic recovery, thanks to improving customer demand, our resilient outlook and the efforts of the Allison.
And team to maintain operational alacrity and meet our commitments, we are raising our full year 2020, one result guidance, including our full year net sales guidance from a midpoint increase of 12% to a midpoint increase of 15% compared to net sales for 2020.
We also continue to fund significant investments and engineering research and development and capital expenditures to further position Allison to capitalize on meaningful growth opportunities across all of our end markets. Finally during the first quarter. We continued our well defined approach to capital allocation by settling in.
Approximately $96 million of share repurchases or over 2% of outstanding shares and increasing the quarterly dividend from 17 to 19 cents per share.
Thank you and I'll now turn the call over to Fred Thank.
Thank you Dave following Daves comments I will discuss the Q1 2021 performance summary, key income statement line items and cash flow.
And update full year 2021 guidance before turning the call back over to day.
Turn to slide five of the presentation for the Q1 2021 performance summary.
Year over year net sales decreased 8%.
The $588 million compared to the same periods in 2020. However, sequential net sales increased 10% as the recovery and customer demand and the global economy that began in the second half of 2020 continued through the first quarter of 2021.
Gross margin for the quarter was 49, 5% a decrease of 170 basis points compared to 51, 2% for the same period in 2020. The decrease was principally driven by lower net sales and unfavorable material costs, partially offset by price increases on certain products.
Net income for the quarter was $120 million compared to $139 million for the same period and 2020.
The decrease was principally driven by lower gross profit, partially offset by lower interest expense as a result of debt refinancing of our long term debt and November 2020.
Adjusted EBITDA for the quarter was $222 million or 37, 8% of net sales compared to $257 million or 43% of net sales for the same period and 2020.
The decrease was principally driven by lower gross profit and increased incentive compensation expense, partially offset by lower commercial activity and spending.
A detailed overview of our net sales by end market can be found on slide six of the presentation.
Please turn to slide seven of the presentation from the Q1 and 2021 financial performance summary.
Selling general and administrative expenses decreased $2 million from the same period, and 2020, principally driven by lower commercial activity spending and lower intangible amortization expense.
Engineering and research and development expenses increased $2 million from the same period and 2020, principally driven by the intra year timing of product initiatives spending.
Please turn to slide eight of the presentation for the Q1 2021 on cash flow performance summary.
Adjusted free cash flow for the quarter was $107 million compared to $127 million for the same period and 2020. The decrease was principally driven by higher operating working capital requirements and lower gross profit, partially offset by lower cash incentive compensation expense and lower cash income taxes.
We ended the quarter with a net leverage ratio of three two times $295 million of cash and $645 million of available revolving credit facility commitments.
We continue to maintain a flexible long dated and covenant light debt structure with the earliest maturity is due in March 2026.
During the first quarter was $796 million and share repurchases and paid a dividend and 19 per share. We ended the quarter with approximately $731 million of authorized share repurchase capacity.
Our long standing commitment to prudent balance sheet management ample liquidity profitable operations and purposeful investments continues to position and Allison well to navigate the current environment and realize future opportunities.
Please turn to slide 10 on the presentation.
For the 2021 guidance update.
As Dave mentioned earlier, thanks to the improving customer demand, our resilient outlook and operational execution, we are raising our full year 2021 results guidance.
We expect net sales for 2021 to be and the range of $2 325 to 2.4 dollars $75 billion from a midpoint increase of 15% versus our prior expectation of a midpoint increase of 12% compared to net sales for 2020.
Our 2021 net sales guidance reflects higher demand and the global on highway service parts support equipment and other and North America off Highway end markets as a result of the ongoing global economic recovery and price increases on certain products.
Our full year 2021 guidance takes guidance update takes into account the continuation of supply chain challenges for the foreseeable future.
In addition to the 2021 net sales guidance update we further anticipate net income in the range of $395 million to $465 million up from our prior expectation of $375 million to $445 million.
Adjusted EBITDA in the range of $795 million to $885 million versus our prior expectation of $770 million to $860 million.
Net cash provided by operating activities and the range of $585 million to $655 million up from our prior expectations of $560 million to $630 million.
Adjusted free cash flow and the range of $415 million to $475 million versus our prior expectations of $390 million to $450 million.
And capital expenditures and the range of $170 million to $180 million, including approximately $60 million of sustainment and over $100 million for growth initiatives.
As we've often discussed consistent investments and Capex and R&D through the pandemic will enable product initiative.
We will enable product development initiatives and support of our long term growth across all of our end markets.
We remain steadfast and our commitment to fund initiatives that will drive growth and the expansion of.
Our end markets, while simultaneously delivering strong financial results and creating value for all of our stakeholders.
And I'll now turn the call back over to Dave.
Thank you Fred last summer, we launched Dallas since each and brand of fully electric and electric hybrid propulsion solutions positioning Allison to lead the charge into the future of commercial vehicle electric propulsion.
Shortly after we launched the EJ and flex Allison New zero emission capable electric hybrid system.
And subsequently, we launched EJ and power Allison is new line and fully electric and fully integrated zero emission electric axles for medium and heavy duty commercial trucks.
Since we've announced since then we've announced several milestones for both you and flags and EJ empower beginning with last summers announcement from Indigo the Indianapolis Public Transportation Corporation.
And it will be the lead fleet.
Fleet partner for Allison's Revolutionary New EJ and flex.
Electric hybrid system, demonstrating the trends transit properties commitment to reducing its independents on fossil fuels enhancing the quality of life and their community and protecting the environment, while minimizing the total cost of ownership last fall you know trucks and hexagon purest showcase a fully electric each empower 100.
D equipped you know X L. Seven truck during he knows project Z announcement, he knows zero emission vehicle development program.
The new fully electric E. Gen power 100 D is the most powerful and fully integrated electric axle system and the world and Allison first electric axle variant within the each and powers series of products.
And February Gillig announced that it will begin offering allison's EJ and flex electric hybrid propulsion system. Later this year, providing bus fleets with up to 10 miles and full electric propulsion for zero emission zone.
With no additional infrastructure investment required and.
And last week, we announced the introduction of the EJ and flex by the New York City Transit authority to enhance the quality of life and help the environment.
This latest development with the nation's largest transit authority follows the successful evaluation and subsequent 50 order.
Unit order last year by and New York City Transit Authority for Allison H 40, EP electric hybrid propulsion system, the predecessor to the E M Flex and last week, we announced the strategic memorandum of understanding with emergency won the market leader and the United Kingdom, and the manufacturer service and <unk>.
Port fire and rescue vehicles emergency wine and Allison will integrate DJ and power 100 day electric axle into emergency ones fire rescue and emergency vehicle platform.
This development is another critical step and our collaborative drive to reduce emissions and carbon footprint, while improving vehicle performance and delivering them the proven reliability and durability of our mutual customers that our mutual customers expect DJ and power 100 day architecture is tuned for high grade ability and high tops.
Speed without sacrificing efficiency this insurers emergency ones fire and rescue trucks will continue to deliver exceptional performance and reliability fast acceleration and maneuverability and and application where failure is not an option and every second counts.
We are pleased to continue our long standing partnership with emergency wanted to deliver innovative solutions to our mutual customers, including many fire brigades and rescue teams across Europe.
And 3000 and series fully automatic transmission is the standard transmission offering and emergency ones conventional diesel powered fire and rescue vehicles. So it's natural to expect emergency one and and Allison to partner and bring the same proven performance reliability and durability to emergency ones electric fire and rescue trucks.
As I've previously stated we maintain our global focus as it relates to our electrified propulsion initiatives and North America. We continue to work on fully electric vehicle initiatives with OEM partners, representing over 70% of our North America on highway revenue outside of North America, we are actively working.
With our global partners on full EV initiatives throughout Europe, and Asia, Allison understands vocational demands and is applying that knowledge to electric propulsion, we hold ourselves to a very high standard and we will deliver a fully electric solutions that meet or exceed conventional expectations are conventional and products have been.
Delivering the Allison and brand promise of quality reliability and durability for decades, and our customers and trust that our fully electric solutions, we will continue to build on this legacy.
Finally last week, we released our first environmental social and governance report Allison's 2020, ESG reported is designed to provide transparent data on allison's environmental performance and social impact since its inception, and 19% and 15 Allison has been committed to being a responsible.
We'll and passionate and corporate citizen, our founder James Allison recognize the power of community education, and innovation, he instilled philanthropy and strengthening communities and to Allison's culture and today. This culture is personified bar company Maxam quietly do good work Allison has.
<unk> consistently integrated sound environmental practices into our business decisions and activities and strives to create an inclusive workplace, where people have all genders races face and backgrounds can reach their full potential and on behalf of the Allison team. We are delighted to present, the 2020 Allison transmission.
<unk> report highlighting our commitment to the ideals and corporate citizenship and to protecting human health and wellbeing, our natural resources and the local and global environment, we and bite everyone to download and review the report from our Investor Relations website.
This concludes our prepared remarks Hilary please open the call for questions.
At this time, we'll be conducting a question and answer session. As a reminder, we ask that you limit yourself to one question per person and he would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star two if he would like to try and move your question from the cash spare parts.
Disappoints using speaker equipment may be necessary to pick up your handset before pressing and stack here one.
One of them and sales, while we poll for questions.
Our first question is from Jamie Cook of Credit Suisse.
Please state your question.
Hi, Good evening I guess, just first a question on the margins for 2021 and is there any change on your assumptions with regards to R&D and you talked about 30 or 30% increase here.
That changes with with supply chain costs are free and then how to think about margins longer term given some of the investments we need and EV can we not Kim is it impossible to get back to sort of prior peak rate or exceed thanks.
Sure.
Jamie.
As far as assumptions relative.
<unk> margins I mean, we continue.
Continue to see the elevation of our raw material.
And when we talked about on the first quarter call.
And I expect them to be price cost neutral.
And what you saw and and the first quarter and.
Was that $10 million and price and $7 million of unfavorable material performance. So so slightly favorable.
Yeah, as we look through the year I think are still and that Oh.
You know cost price are you know neutral range is there kind of depends on the pace at which our raw materials maintain as you know our pass throughs on aluminum or aluminum.
Aluminum die cast are manufacturing those are more real time and the quarter.
On the commodity pass throughs, we have with our long term on highway supply agreements tend to lag a little bit.
At this point.
And once your way and the pass throughs that will happen because of the elevated.
Material cost, we expect to get more price and we've talked about 50% to 75 basis points.
Are we closer to a 100 basis points for the full year as we're modeling it right now.
You know relative to engineers engineering spend.
And the up 30% year over year.
So our expectation you know, it's looking like it's going to break a little heavier and the second half.
So probably 45% spend and the first half and maybe 55 and the second half from an R&D standpoint.
You know relative to you know.
Our longer term margins beyond 2021, and I think and all of us and manufacturing right now our are dealing with inefficiencies.
You know, whether it's expedited cost our freight.
So I think as the supply chain gets back up are you know some.
Some of those costs will.
We'll come out.
And out of investments and investment we spend on R&D will really be determined by the opportunities in front of us and really the as you know from.
Watching us for a number of years, Jamie I mean, thats, a theres a significant amount of operating leverage and the business.
And you know assuming you know revenues continue to improve.
The drop through should be attractive.
Our next question is from Larry de Maria of William Blair. Please state your question.
Hi, Thanks, good afternoon, good evening everybody.
Dave Thanks for the.
And our discussion on Aegean and some of the.
And when do you guys got but I was wondering if you take a little bit further.
And just kind of thinking around timing and economics and I know, it's obviously early so it probably doesn't really hit the income statement for a while.
And as you're getting these these wins I just wanted to try to understand what kind of value Allison is getting if you're supplying EJ and.
The integrator and take us through that three to 10 X cost differs.
You talked about before just so we can kind of think about how this evolves from where we are now thank you.
Sure.
Good afternoon zone.
And I handle the first part of that and then I'll kick it over to Fred on the.
The EV certainly appreciating the.
Our announcements that we made I think team continues to be very engaged and as I mentioned in the prepared remarks globally and that's important. So we're not just focused on one one market I would say timing wise.
As I think we've probably mentioned over the last few.
Quarterly calls.
What we're receiving in terms of initial.
Inbounds about potential timelines and volume seem to be pushing to the.
And the right on the calendar and the volumes.
Tend to wind up and moving to the lower end of the range. When all is said and done so timing I I expect that it'll continue to be a stretch.
Stretched out here a bit so I'm you know pick your your specialist or your.
On your so called <unk>.
Forecast expert, but the reality is things continue to be.
Challenged out there from a timing perspective, so what we're doing is we've as we've said before is really focused on.
Probable outcomes.
Better that are frankly within our addressable markets at the same time looking to expand upon our.
Existing conventional.
Addressable market. So as you think about space and we've talked before about moving.
Into some different applications that that's part of the conversations and the development work, we're doing but I would say.
At this point and anything that were hearing about initial volumes and timing is.
On a relatively low and there is good reason for that because as we've discussed before.
The customer demand side of this process will take some time to evolve and as we also mentioned on the February call Theres, certainly a lot of them.
Expectations around funding stimulus, if you will or other programs that could potentially accelerate.
Electrification, having said that the numbers of rather large as you well know in terms of trying to make a real impact there and and moved the timeline and set up for the right to left so.
With that let me turn it over to Fred in terms of your content question sure Larry.
And as you mentioned, 3% to 10 assets.
And that's our expectation.
The price will get relative to you know classic seven average selling price, which is approximately 5000 so on.
On the low and there are.
Yes content would be just a base E axle and you know on the higher and Youre looking at a content all the way up to inclusive of the battery system. So you know.
And those are still our expectations.
Yeah, as we as we move forward.
Our next question is from Tim Thein of Citi. Please state your question.
Oh, great. Thank you good evening, Dave Thanks for the comments there maybe just to piggyback on the last.
Thread there just in terms of your discussions with with.
Oems and <unk>.
On the call debit and maybe the timing is more delayed and the volumes are lower than what maybe gets picked up can you just maybe on <unk>.
A lot of the end markets or not a lot, but some of the key end markets for Allison.
Perceived to be where electrification is first and we've talked about this for several years, but.
And so you presumably have a really good lens and the dose could you is it is it just a function of.
And just who is who is going to pay for it and.
And probably at a litany of reasons, but maybe.
What what and.
And again, it's a little counter to maybe what what some of the sentiment is publicly so maybe you could expand on that a bit in terms of your discussions with with some of the customers in terms of what what's.
Influencing that thank you.
Youre welcome Tim So a couple of things.
I think we've touched upon and some of it is from more recent calls.
The fact is I think it's all you know I don't question any of the intentions and the broader task of we want zero emissions at some level and all the all the associated benefits with it and that's why we supported both on our operations and and our product and you know over the years, we've worked and the conventional side as well.
In terms of.
Fuel efficiency and emissions reduction so having having said all that the intentions are all good I think the challenge, though is as you point out as you know bluntly stated who's going to pay for it and and I would take a step back from that and say that the answer to that is a number of different potential parties, but you know history is.
<unk> proven that.
And the adoption is on the front and extremely key.
Lastly, and.
And you're also dealing unlike the automotive space commercial vehicle and users are very conservative and the idea of trying things is one thing the idea of converting and entire fleet.
And under and I think what what is being discovered along the way and we do have access as you can appreciate to both.
Our team with our debt level of engagement and network. We have is not only to Oems to end users and when you talk to end users. Many will tell you.
They're really not seeing much necessary near term demand, but what they're really looking for and I and I harp on this for a reason is.
We perform as an industry within commercial vehicle and a very high level extraordinarily.
The extraordinarily high reliability, I think a very predictable total cost of ownership.
That's the expectation thats been set right that that is the ask.
So when you you would naturally expect the ask them to translate over to EV and very simply say well, that's what we'd like to see and EV solutions, while Mike. Our response to that is we couldnt agree more having said that you know where is the technology solutions to make all of that happened and that includes by the way.
And on standardization and ultimately being able to deal with the industry's desire for a minimal amount of proliferation as we've talked about and as best we can tell there are still many open switches about how that all comes together ultimately.
We still believe there will be EV adoption I think to your comment on.
And the addressable space and certainly much of it is and Allison wheelhouse I would also observe that.
There isn't one we do not expect at this point there is a one solution set for that space. So there will be different.
Solutions required and that.
And that's really what it's going to come down to your point is who's going to pay for it how long is it going to take two to ultimately meet the requirements of the commercial vehicle and users.
That's going to take some time. So is it is it better than it was years ago as they are moving faster than many expected, yes, having said that there's still a tremendous amount of work to be done and we're certainly confident we're on a path to be able to.
Respond to that and those attributes and those requirements consistent with our brand promise as we've always done but.
There are a number of technical hurdles and challenges and there will be overcome and addition to the economics that you mentioned.
Okay.
Our next question is from Rob Wertheimer with Nomura.
And I'll ask research. Please state your question.
Hi, Dave you've talked a lot I know about the future powertrains and I appreciate that a lot of this and as always and the future. Nonetheless, and in addition to the sort of content per truck you have and opportunity to go up on the potential low to broaden out your end markets a bit I suppose and I.
I'm just curious if you can characterize the projects youre working on looking at whether it would be and different segments in North America, or whether it would be and different Oems or customers globally.
And whether youre seeing any tangible evidence of that broadening out.
And happened versus and hope to happen and I don't know if this is a fair to tack on a question or not but it seems like there's a little bit of positive news out of that.
China.
Net sales this quarter I don't know if you have any comments on that thanks.
You're welcome Rob.
Cover the questions and then.
What.
And Frank cover off on China sales, though.
Briefly in terms of the comments, we've made about future solutions alternative.
Propulsion.
Energy et cetera. So.
You know over the years we've.
Certainly applied our technology to a number of different energy sources being somewhat energy agnostic. If you will as we think about the future with EV is not only.
The electrification if you will that can make its way into fuel cell electric et cetera. So we.
As we've discussed before taking an approach that we believe will allow us to.
And our markets as you mentioned so the discussions we're having with a number of Oems and end users. It covers a very broad.
Slice of the market. So as you think about not only our addressable space third discussions that impact beyond our addressable space. There's also frankly other potential applications outside of beyond highway and markets that we have so.
We're able to apply conventional technology, where we have the same thought process around that.
Electrified solutions across all of our end markets. So I think that's the key point here is it's global it's across multiple segments.
It continues to be focused on broadening our footprint.
But the key the and objective to all of that is being able to meet or exceed the conventional experience and deliver.
On the Allison promise, let me turn it over to Fred to your China sales question sure Rob relative to China and.
And and really outside North America and total.
Yes.
Year over year, 17% up sequentially, 9%.
On the on the year over year I mean, we did start to see and in Q1 and 2020, some softening and the tailwind of the quarter relative.
Two COVID-19, specifically in China, but.
But it was.
Again, China has rebounded really nicely for us.
Year over year up 12 million outside North America, and $9 million of that driven by.
By China.
But.
As we look out.
All of those regions outside North America.
And I really well positioned for a three year on year over year growth.
And.
Kind of leading the way, but Japan.
Europe as well as Latin America, we're expecting.
Really good forward momentum off where we sit today.
Our next question is from Ian Zaffino of Oppenheimer. Please state your question.
Hi, guys. Thank you very much on for taking my question.
I wanted to ask just on the guidance. Obviously it does not include anything from any potential infrastructure Bill I imagine and what you've been able to see those price discussions and kind of what's in there.
What do you think the benefit to you guys with day, maybe what areas you would see a day, where you would see it and then any type of color you can give us would be would be helpful. Thanks.
And it's Dave.
Good afternoon, and I appreciate the question there so our guidance doesn't and does not in fact assume anything relative to.
And infrastructure Bill if you would I would just you know.
Kind of level, setting expectations, and and I'm sure you're well aware of some of the OEM reporting net 30.
Taken place.
But you know.
The idea of infrastructure coming through in terms of driving more demand and 2021 and is certainly a possibility.
And we've not included in our guidance.
That being said I would offer that given where the industry. Currently sits as we understand it with and a relatively.
Full order boards and extended vehicle build times.
And our view I think that starts to really create.
I think I mentioned this on the February call relative to the question about cycle being I think at peak.
We talked at that stage about expectations that the market was really set up to be.
Stronger for longer and so to speak I think your point in terms of any additional infrastructure spending.
Create further tailwind to that process because again, it's just I don't believe the day.
The industry at this point is in a position that they can really significantly.
Picked up beyond what you've already heard about in terms of guidance on just there's too many.
Our view opinion at least too many issues out there.
Whether it's supply chain issues, and then you get into labor availability and of course labor affects a number of different things as we've talked about before but.
It certainly provides I think a and even better setup and exists today and are ready for 2022.
Our next question is from Jerry Revich of Goldman Sachs. Please state your questions.
Yes, hi, good evening.
Evening Dave.
Can you talk about.
And how your transmission and compares to the HV transmission and obviously the <unk> announcement yesterday on the private label side.
Offering the debt off option as the default option going forward and I'm wondering if you could just weighted on this specification.
And when performance of Allison.
Product versus debt. Thanks.
Sure you're welcome.
Couple of things, obviously and where.
Of that announcement.
On the T X 58.
As you may or May not know is based is based on and automotive solution. So and I would note similar to offerings from others over the last decade.
And that Youre well aware of.
And we certainly would.
Recognize that that's a very capable organization.
And certainly have a lot of respect for that team that being said specifically with the TX eight.
It really offers a single solution one ratio set and only one PTO options. So as you compare and contrast, I think to your question.
Our.
Our 2003 thousand and series transmissions are released.
With over 350, global Oems, including Peterbilt, and Kenworth and every other major North American OEM.
That being said you know our our product.
Have a bulletproof reputation and that wasn't.
Easily earned and it and it was really done over many decades and over what is total now of 100 billion miles globally. So it's a very proven.
Solution to your question and as I mentioned earlier on the call.
Commercial vehicle users a very conservative bunch.
And they don't take risk lightly to their businesses or to this will put at risk the superior residual values that the Allison products have and I can certainly point out again to the history of that I mentioned with several other <unk>.
Similar offers within the last decade.
We understand the experience was not a good one and.
In terms of the number of the end users.
Both the utilization of that particular solution or the impact on residuals, so as we see it.
We're certainly.
Very.
Confident and.
Our product improvements that we've made over the years that we continue to invest and as I mentioned with fuel economy durability.
On safety, new requirements that are coming out relative to safety and overall value to our customers. So in summary, I think we're certainly confident and our products and capabilities.
We believe our customers are better.
Better served with more options and with that and mines certainly welcome the opportunity to meet.
And in the highly competitive.
OEM medium duty market.
Our next question is from Brett Linzey of vertical research partners. Please state your question.
Good evening everyone.
Hey.
Was hoping you could provide an update on and just the state and Muni funding environment and Utilizations and some of those fleets, obviously reopening should drive utilization and better activity, but.
Any sense by the you know the metrics you track age of the fleets conversations Youre having.
How that deferral process looks and I guess the question too and the follow on is.
Are you potentially going to see further delays.
Reboot and some.
And the replacement as they reevaluate some of the alternative technologies and just curious what the messaging is from that channel. Thanks.
Okay.
Youre welcome Brad Dave.
On a few points to hit there. So as we've discussed on a number of other calls and as I'm sure you're well aware municipal fleets at least from a transit perspective, and I've been very much underutilized.
Due to the pandemic.
That's now starting to change its improving.
The fact is I think the as you know many of the.
Properties are having budget challenges because of the lack of revenue.
That was certainly the case, probably a quarter ago.
I think what youre, what youre starting to sense, we're starting to be aware of is a fair bit of optimism concerning statutory stimulus funding and what that ultimately means.
Means to provide some level of relief.
<unk> is it will be.
We're seeing signs of slowly improving utilization rates and the optimism attached to the statutory.
Funding.
So you should start seeing here sooner rather than later pickup and aftermarket for that particular.
Segment, the other thing, though to be aware of as you do have labor constraints and the service channel so as.
And as much as we're seeing it and other areas of our business.
Labor availability is also an issue.
In terms of the service end of things. So I think it's the bottom line is its improving slowly.
From a impact on renewing fleets or otherwise I think thats largely the impact will largely depend on.
How the stimulus funds are ultimately.
Earmarked if there is requirements or otherwise I would say.
On the transit properties and general wants to see very well.
And our proven if you will solutions with predictable outcome. So.
The small.
Scale tests that are going on we would expect those would certainly continue but I do not believe any are in a position where they're necessarily beyond I think a select amount of.
Fleets and a position where that's going to allow them to accelerate EV I think theirs.
Many more innings.
Innings to play in terms of how they think about EV solutions ultimately and.
And how theyre going to be able to budget for those those particular solution.
Even given frankly duty cycles that theyre running the equipment through and.
So and that that gets back to as I mentioned with the advances that we're making with our hybrid transit solution, that's really viewed for the ability and many of properties to address.
<unk>.
Loans, so to speak without the requirement for full EV because it really is a significant infrastructure requirement.
Beyond that.
The other thing I would say is outside of transit with.
Roads and highway departments again, some of that equipment utilization has been deferred as we mentioned on the February call, a very tough winter and so.
For the for those.
Fleets that are exposed to that type of market or whether there was a pretty high consumption rates and so youre starting to see some of that.
Having said all of that relative to truck. They are facing the same issues everybody else does in terms of on the truck market right now with.
Vehicle availability and long lead times.
Our next question is from Ross Gilardi of Bank of America. Please state your question.
Hi, guys. Thanks for squeezing me in.
I just wanted to piggyback off of Jeremy's question a bit just on this.
The pack of our announcement is most of allison's business with <unk> on the.
The medium duty line and I'm, just trying to and.
<unk>, what's just happened I mean is this.
Kind of a status quo development or does it represent potential share loss for Allison.
The new standard option on those vehicles as a fully automatic solution.
And Ross, it's Dave I mean.
Obviously I think the.
Debt F has is in the markets globally.
Certainly a new.
Enter into North America and medium duty.
We're obviously still available.
Two.
Peterbilt and kenworth customers I think there is.
<unk> strong existing.
Preference for Allison I think there with debt F.
I do not believe anybody can make the statement at this point that they won't have some impact in terms of.
The medium duty business that being said as you know we continue to.
Grow our position and medium duty and and have for for many years. So to the extent I think there there are standard offering I would expect that certainly will have some volume that comes with that that being said, we enjoy continued to enjoy.
Very strong strategic relationship with the pack, our team and support their business and in many ways.
And we have across the board releases, whether its our 123 or 4000 and series products. So were on <unk>.
Certainly again confident that the market will.
Assess the technology as it is done with similar offerings over the last decade, and I think the.
History, although certainly not indicators of the future.
We're confident and the performance of our product and frankly, the preference of our and.
And users.
Our next question is from Ann Duignan of Jpmorgan. Please state your question.
Yeah, Hi.
My questions have been answered, but I did want to circle back to your competitive position on.
The electric axle, and particular and and and recently, we saw an announcement from Danfoss and meritor with them and.
And electric commercial vehicles in Europe, and they are collaborating on a fully integrated E axle and I'm, just curious where where does Allison stand in terms of collaborating with others. It does seem like you're going to get left behind because you're doing it all on your own and others are.
And developing partnerships and growing their businesses in Europe, and then suddenly wake up and we have a similar situation, where North America Oems are bringing all of our European suppliers, just like they've done with debt.
And it's Dave so.
And maybe where we've given the market and mistaken impression, but the idea that were going at.
Hello, and is really not our approach as we mentioned on prior calls.
Part of our process here is collaboration as I think we've said several times, we view EV just by the nature of.
The solutions that are going to be required and the integration of the technology. It will require collaboration so.
We are working with a number of different parties.
And I don't see that changing frankly, I think the idea of going it alone is interesting but that is not.
Allison's approach I would also note that there are many.
Call collaborations that are ascribed to grants or certain.
Statutory <unk>.
Programs.
That's not unusual we've been involved with those and a number of different areas, but I would certainly tell you the interaction that we're having with the market.
And across the globe really looks at not only and users Oems.
But a number of different industry players. So I think we're very confident in terms of how we're.
Go on about the process and and I would offer from a capital allocation perspective, it seems to us to be.
Probably the most prudent way to go through that process right now just given.
And the relative positioning and immaturity of the overall market. So those things and we'll continue to evolve as you know, but our process I think we're very comfortable in terms of where we're currently aligned with a number of different parties.
We have reached the end of the question and answer session I will now turn the call over to Dave <unk> for closing remarks.
Thank you Hillary.
And I'd like to thank everybody again for your continued interest and Allison and <unk> and for participating on today's call I Hope you enjoy the rest of your evening.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
Yeah.