Q2 2021 Allison Transmission Holdings Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to Allison transmission second quarter 2021earnings conference call. My name is Maria.
I'll be your conference call operator today at this time all participants are in a listen only mode. After the prepared remarks management team from Allison transmission will conduct a question answer session and conference call participants will be given instructions at that time as a reminder of this conference call is being recorded.
Anyone should require operator assistance.
And on the conference. Please press Star Zero on your telephone keypad I would now like to turn the conference call over to Mr. Ray Posadas, the company's managing director of Investor Relations. Please go ahead Sir.
Thank you Maria good morning, and thank you for joining us for our second quarter of 2021 earnings Conference call with me. This morning are Dave grass Yogi.
Our chairman and Chief Executive Officer and for.
For the bully, our senior Vice President Chief Financial Officer and Treasurer.
As a reminder, this conference call webcast and this morning's presentation are available on the Investor Relations section of our website Allison transmission Dot com a replay of this call will be available through August.
As noted on.
On slide 2 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, including those set forth in our second quarter of 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 1 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.
In addition.
<unk> as noted on slide 3 of the presentation. Some of our remarks today contain non-GAAP financial measures as defined by the SEC.
You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and for our second quarter 2021 earnings press release.
Today's call.
And the 845, a M eastern time in order to maximize the patient opportunities on the call. We'll take 1 question from each analyst.
Let's turn to slide 4 of the presentation for the call agenda.
During today's call they've got the Aussie will provide you with a brief operational update Fred <unk> will then review our second quarter financials.
All of segments and reaffirm full year 2021 guidance finally day will cook.
I will conclude the prepared remarks prior to commencing the Q&A.
Now I'll turn the call over to Dave <unk>.
Thank you Rick good morning, and thank you for joining us on I'd like to begin by acknowledging the remarkable progress that has been made in combating and on.
Unprecedented global crisis at this time last year. The pandemic was in the early stages of disrupting populations on the economies around the world previously inconceivable measures were being taken to protect the health and wellbeing of our families and our communities in the midst of the global pandemic. It was difficult to foresee what the next 12 months holdings.
Hold on store today much progress has been made and we are all of the all eager to return to practical and predictable operating conditions, however, meaningful risks with the potential to disrupt the current recovery of very real with this in mind, we continue to encourage everyone to remain vigilant and if eligible.
Vaccinated.
Turning to the quarter Allison second quarter 2021 results reflect an unprecedented recovery in global markets customer customer demand is quickly nearing pre pandemic levels and despite broad challenges to global supply chain industry production is recovering.
Global supply chain constraints.
The remaining the most significant challenge for the industry and these constraints are unlikely to be resolved in 2021 limited availability of raw materials global shortages of electronic components across all industries logistics challenges, including air and Ocean freight and port delays and labor availability.
Of the issues are all limiting the industry's ability to align with the acceleration in customer demand.
Despite the industry headwinds I am extremely proud of the resilience and dedication demonstrated by the Allison team and extended family throughout this critical time as we have done since the beginning of the global pandemic we.
<unk> continue extensive and visible coordination with our suppliers customers and industry participants to ensure beyond interrupted delivery of the Allison brand promise.
Finally during the second quarter, we settled $130 million of share repurchasing.
Repurchases representing 3%.
<unk> of outstanding shares and paid a quarterly dividend of <unk> 19 per share, notably Allison has repurchased over 50% of outstanding shares since the 2012 initial public offering. This milestone is the direct result of Allison disciplined of well defined approach to capital structure and allocation.
<unk> and profitable operations.
Thank you and I'll now turn the call over to Fred.
Thank you Dave following Daves comments I will discuss the Q2.2021 performance summary.
The income statement line items and cash flow.
And then reaffirmed full year 2021 guidance before turning the call back over to Dave.
Please.
Let's turn to slide 5 of the presentation for the Q2.2021 performance summary.
Year over year net sales increased 60% to $603 million from the same period in 2020.
As the recovery in customer demand.
And the global economy continues to strengthen and despite ongoing industry production constraints.
Due to global supply chain challenges.
North America on highway and outside North America on highway end market led the increase in year over year results with net sales increases of 84% and 63% respectively.
As a result of the continuing.
Of.
Trained <unk> recovery in the global on highway customer demand service parts support equipment and other end markets net sales were up 44% from the same period in 2020, principally driven by higher demand for North America service parts aluminum die cast components and support equipment.
Gross margin for the quarter was 47, 8%.
Of the continuous of 400 basis points compared to 43, 8% from the same period in 2020 the.
The increase was principally driven by higher net sales 2020 restructuring charges that did not recur in 2021 and price increases on certain products, partially offset by unfavorable material costs.
Net income.
And end of the quarter was $110 million compared to $23 million for the same period in 2020 <unk>.
The increase was principally driven by higher gross profit, partially offset by higher selling general and administrative expenses and increased product initiatives spending.
Adjusted EBITDA for the quarter was $213 million for.
Income from 5.3% of net sales compared to $115 million or 35% of net sales for the same period in 2020.
The increase was principally driven by higher gross profit, partially offset by increased incentive compensation expense increased product initiatives spending and higher commercial activity spur.
<unk> 30, a detailed overview of our net sales by end market can be found on slide 6 of the presentation.
Please turn to slide 7 of the presentation.
For the Q2.2021 financial performance summary.
Selling general and administrative expenses increased $11 million from the same period in 2020, principally driven by.
Lending and incentive compensation expense and higher and higher commercial activity spending partially offset by the impact of.
Of 2020 restructuring charges.
Engineering research and development expenses increased $3 million from the same period in 2020, principally driven by increased product initiatives spending partially offset.
The higher and the impact of 2020 restructuring charges.
Please turn to slide 8 of the presentation.
For the Q2.2021 cash flow performance summary.
Adjusted free cash flow for the quarter was $95 million compared to $67 million for the same period in 2020 the increase was.
Was principally.
Net by higher net cash provided by operating activities, partially offset by increased capital expenditures.
We ended the quarter with the net leverage ratio of 2.9 times $238 million of cash and $645 million of available revolving credit facility commitments we.
Driven by new to maintain of flexible long dated and covenant light debt structure with the earliest maturities due in 2026.
I'm also pleased to report the yesterday Moody's Investor Service published a comprehensive upgrade analysis of transmission Moody's upgraded its ratings on all of Allison financial obligations.
We continue the corporate family rating senior secured credit facility and senior notes.
During the quarter, we settled the $130 million on share repurchases and paid the dividend of <unk> 19 per share. We ended the quarter of approximately $600 million of authorized share repurchase capacity, notably.
We repurchased 5% of our outstanding shares in the first half of 2021 and as Dave mentioned over 50% of the outstanding shares since the 2012 IPO.
Please turn to slide 9 of the presentation for the 2021 guidance review.
As a result of the ongoing recovery.
We are reaffirming the 2021 guidance ranges released to the market on April 28.
We expect net sales in 2021 to be in the range of 2.3 to 5.
2 to $4.75 billion.
Our 2021 net sales guidance continues to reflect higher demand in the global.
The 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 also assumes the continuation of the industry production constraints and global supply chain challenges.
<unk> for the foreseeable future.
In addition to the 2 Allison's 2021 net sales guidance, we are reaffirming our guidance ranges for net income in the range of $395 million to $465 million.
Adjusted EBITDA in the range of 795 to.
<unk> $885 million.
Net cash provided by operating activities in the range of $585 million to $655 million of.
Adjusted free cash flow on the range of 415% of $475 million and capital expenditures in the range of 170 to 180.
The million dollars incurred.
Including approximately $60 million for Sustainment and over 100 million for growth initiatives.
As we've often discussed continued investments in capex and R&D through the pandemic, while simultaneously delivering strong financial results and creating value for all of our shareholders.
<unk> enabled products.
Development initiatives to support in support of long term growth initiatives across all of our end markets.
Thank you and I'll now turn the call back over to Dave.
Thank you from earlier this year during the fourth quarter 2020 earnings conference call in February we outlined some of our conventional on electrified propulsion initiatives.
Is that of driving the recent and planned increases in capex as well as R&D spending.
Last quarter, we highlighted numerous developments within our fully electric on electric hybrid product portfolio. This quarter I'd like to highlight several conventional milestones that have recently come to fruition. Despite the.
The challenging state of the global energy markets through most of 2020 Allison remains committed to its global off highway customers in fact, when other step back Allison stepped up reinforcing our commitment and promise to our customers with significant investments and increasingly capable and higher rated products that will deliver the Allison.
The <unk> brand promise for years to come.
In June Allison introduced the Frac train on our next generation of hydraulic fracturing transmission from dual fuel engines with the capability to run on natural gas to increasing horsepower and substantially reduced idle time the high.
<unk> fracturing industry demands of the.
The transmission that can deliver the dependability necessary to maximize uptime and handle any unexpected operational challenge.
The designed to meet the unique and continually evolving demands of this industry Frac trend is the result of extensive voice of customer sites as well as an analysis of duty cycling.
The information from decades of Allison product opera.
And the application.
This robust hydraulic fracturing transmission aims to deliver unparalleled performance and high pressure of duty cycles within the harshest operating environments.
The benefits of specification of the Frac to include high reliability with the service.
The 25000 hours and an overhaul of them provides the second line of without harming the parts replacement, resulting in a total.
Cost of ownership at a low level. In addition, <unk> offers filter and fluid life prognostic.
Transmission mounted control module towards.
Measuring diagnostics and in on rig telematics gateway as hydraulic fracturing fleets and operators move toward higher horsepower of smaller spreads to reduce their environmental footprint and seek shorter times to reach depth in search of improved sustainability efficiency and profitability Allison.
Service on innovating with them to remain the partner of choice for the energy market.
Additionally, last week, Allison and introduce Terry.
Our latest innovation innovative propulsion solutions purpose built for the global construction and mining markets a variant of Allison's proven for thousand series transmission the Allison.
<unk>.
Is designed for unique demands of off highway applications, including mobile crane articulated dump truck and wide body mining dump trucks with enough application of flexibility to target additional on highway opportunities as well similar to the Frac try on tire Trans development.
It is also based on voice of customer input, which indicated a need for the proven reliability and durability of Allison for thousands of series transmission, but with increased horsepower torque and growth vehicle weight capability combined with the enhanced drive ability great ability and maneuverability under demanding operating.
<unk> conditions.
We are excited to launch Terry Chan with ex Gmg, the largest manufacturer of.
Construction of equipment in China, It will be launched on <unk> all terrain Crane application. This collaboration is the latest example of Allison working closely with our OEM partners to develop innovative solutions.
Some of that deliver unparalleled performance and productivity to end user customers.
Finally late last week, the U S Army announced that the parties chosen to design the optionally manned fighting vehicle includes <unk>.
American <unk> vehicles, and February Allison announced the strategic partners.
Solution with American Mittal to provide Allison next generation of electrified transmission propulsion system for the links vehicle that is competing for the Oems the program the new.
Next generation of electrified transmission is the newest product of allison's extensive tactical vehicle portfolio.
Share of enable electric hybrid propulsion as well as the electric only silent maneuverability and provide exportable power provisions for on and off Board systems. The next generation of electrified transmission is also designed to meet the requirements across a broad spectrum of applications, including the heavy Inc.
<unk> fighting vehicle in future main battle tank market.
This U S Army <unk> program as a priority ground monetization initiatives that could include replacing nearly 3800 Bradley infantry fighting vehicles. The program begins with the designer.
The design phases that continue through early 2023, followed by the development of a prototype vehicles in 2024 and government testing beginning in early 2026.
As we have often discussed conventional propulsion does not have the luxury of standing still while we wait for the electric commercial vehicle.
And its corresponding infrastructure to be ready.
Global markets seek increasingly efficient cleaner and more reliable propulsion solutions and global emissions regulations continue to become more stringent and demanding Allison is ready to deliver the solutions that improve the way of the world works today.
And we will continue to.
To develop the next generation of propulsion solutions that will improve the way the world works for years to come.
This concludes our prepared remarks Mario please open the call for questions.
Yeah.
Yeah.
[noise].
At this time of the conduct we will be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star 2 if he would like to remove your question from the queue for.
For participants using speaker equipment.
It would be necessary to pick up your handset before pressing the star 1 moment please poll for questions.
It may our first question is from Rob for.
Timer with.
Melius Research. Please proceed with your question.
Powertrain side, and just asking the obvious.
Obviously, we're all aware it's very early days.
There are a number of E axle on similar promotion providers out there.
Just wanted to feel of what it feels like the human it feels like for you competitively. When you go to when you go to look at platforms you tend to have a pretty good win rate on the platform as youre looking at maybe.
For the for that I'm not sure.
The INO in these very early day, just how you see the competitive environment.
The Boulder and text.
Rob Good morning, Amit.
Yes, the day not hear the the first part of your question.
It was it was of English.
It's even on a comment on conventional powertrain and it was good to hear the assets they're petrol.
On fire I guess here I guess to your question on <unk>.
Competitive EV solutions.
In terms of of what's out there.
We said before E systems.
Yes.
Early updates.
As you know in terms of what's actually available and frankly production ready or or I should say a regular production ready.
Of that being said a number of different providers that are out there both I would say traditional powertrain suppliers as well as new.
Entrants.
That being said as.
As we see the landscape continues to develop.
As we've said before a number of solutions in our view will be required to serve the commercial vehicle market in other words. There is no 1 size fits all with that in mind.
Our approach given our understanding of the addressable space multiple locations globally et cetera.
That's really the strategy that we're pursuing as the number of different solutions to capture and cover of the vast majority of the market.
Our understanding in terms of what's out there I would say there are a limited number of parties that appeared to be capable of providing what I would consider to be more.
For some portfolio of solutions.
That being said you know again, it's the focus that a number of parties are collaborating on including us about.
That is continues to be our strategy, which is our portfolio working.
Closely with other.
Suppliers and frankly O.
O M. So I think that is the landscape. That's in front of us that will continue to evolve and against something where we're staying very close to.
Yes.
Okay. Thanks, and then on the conventional side just in China, how broad is the Idaho scope of conversations with your having the people on different machine form.
Factors and you know higher volume.
On the potential of machines in the lower and so forth I don't know if that.
And then the nascent you made as an indicator of more work behind the scenes. Thank you I'll stop there.
No that's fine.
We continue to work with multiple parties.
In China as you know very large commercial vehicle market there.
They continue to really advance.
Their technology and their users are demanding more capability, which is certainly consistent with our product offering and is this recent announcement indicates we are taking.
The invoices of customer to hard as we always have done in applying our technology across a number of different <unk>.
The markets and applications and that's an indication of what we would expect to be a number of developments as we continue to work with the.
The Chinese Oems and frankly, the end users as I said I think.
Net sales are.
Increasing there.
There are demands an app on requirements ultimately, it's really going to be a combination of working with the Oems as well as.
The end users to come up with better solutions.
Thank you.
The onion.
Our next question is with Ian Zaffino with Oppenheimer. Please proceed with your question.
Alright, great and I know you guys touched upon this a little bit in the prepared comments, but can you can you dig a little bit deeper and give us an update on sort of the questions does your.
Supply chain.
Inflation I know you guys are typically able to pass that through but.
And maybe touch upon that a little bit chip shortage and that of a follow up thanks.
Let me add good morning, It's Dave Let me, let me start and then I'll hand, it over to to Fred on the supply changes I'm sure you're well aware with some of them most.
Recent public reporting from a number of.
Oems and other other industries, we are seeing much of what you've heard already and frankly, what we've I believe started talking about an hour of third quarter 2020 call, which is some supply chain constraints.
Constraints developing its.
In our view if you asked me what it looks like now versus a year ago I would tell you. It's obviously much worse.
It's created a tremendous amount of work throughout the industry at all levels to try to react to it but it.
It's across the board of its hard not to think about things that arent a challenge right now.
Whether it be logistics as I mentioned in the prepared remarks electronics everybody's heard about those but it's starting to make its way into the.
A number of other supply issues as well.
The challenge there is trying to keep.
Keep up and ultimately have better visibility into what's going to be.
Available as you think about the balance of this year and setting up for 2022.
We're staying close to both at the OEM level customers suppliers throughout the tiers that is taking a tremendous amount of.
The time from our team, which is also I think very stressful across.
Board for the industry and I think as I mentioned in the prepared remarks.
There are things happening that frankly were inconceivable prior to the pandemic and the industry I don't see that being resolved.
Near term I think if you take that of all of that sets up for I think of very strong.
Cross the line going into 2020.
I would also offer from our perspective.
I think it's going to be very difficult to be deferring things at this point from a build perspective in China as.
Slot those in for the balance of the year. That's just not for the industry is going to run out of time in the especially when you start thinking.
About getting.
Outside North America markets.
If you are not really pushing product into the channel at this point beyond the end of this quarter.
I would say youre, probably timing out on things. So you have that dynamic working in North America, We believe that's kind of time out.
<unk> referrals and then you have I think some of the same issues starting to evolve for the outside North America, and that's with the context of.
Some level of certainty around what's happening with the disruptions, which as I'm sure you're well aware over the last few weeks.
That seems to be throwing yet another variable into the equation.
Again from our view going to be challenging and thats, resulting in the number of.
Inefficiencies relative to labor and cost debt as far as I can tell everybody in the industry is starting to.
Experience with that I'll turn it over to Fred to your cost question and inflation share in it.
Yes.
On the tender is certainly on the inefficiencies due to the supply chain constraints freight labor expedited cost higher overtime rates.
The the inflationary pressures are elevated commodity cost for us, that's primarily steel and aluminum continue.
Based on the timing.
The statement of our commodity pass throughs.
With our customers.
The majority of these pass throughs to occur in early 2022.
And looking at the first half.
We were favorable price of about 110 basis points of price.
We've taken other pricing actions throughout the year.
And really expect year over year pricing to be closer on a full year basis to 150 basis points and this is the increase from what we talked about on the April call of.
Of an expectation of a 100 basis points.
But really prior to the early 2022 commodity pass throughs.
To our customers, we do anticipate the and slightly.
Price cost negative.
Okay.
Okay, Great and then.
Just on another topic, it looks like you're kind of increasing a lot of capex, but that seems to be primarily on the conventional side of it sounded like.
M.
How are you thinking on on the east side.
The about increasing the Capex is there a need maybe to go out and add something additional inorganically into the portfolio.
Or sort of where you're thinking on on the electrical side. Thanks for exercise.
Ian It's Dave again.
On a tiered to your question or comment there I understand that our increased capital spending in R&D is covering both.
Conventional and.
Electric vehicle components so.
As you know with the announcements of our both our E. Gen power in each zone of flex.
Products that is requiring R&D as well as capex. So we are spending.
Capex funds as well at this point on EV, there's there's certainly more to come as we.
Further evolve the portfolio and start commercialization.
Can imagine there'll be various stages.
Whether you are you taking it from.
The low rate production and ultimately to full rate production that will in our view of occur over several years, having said that we are making upfront foundational investments in terms of developing.
The development capabilities as well as production capabilities.
When you think about.
The investments we've made.
Debt launched our vehicle test center of last year that included conventional as well as electric vehicle testing capability. We also have.
Stood up.
Testing capability now in Auburn Hills, Michigan, as well as increasing our other facilities in the Indianapolis.
Alice areas. So there is broad based spending going on for for EV as well as conventional.
Tier.
Comment in terms of in organic as we as we've mentioned before.
We're always looking for opportunities to augment our capabilities as an organization.
Globally so.
So that continues to be featured in our.
Activities as at the team here that.
That can happen through a number of different avenues as we know from our 2019 activity in terms of outright Act.
Acquisitions, but there are a number of opportunities that we're looking.
Continue to assess in terms of building out our capabilities.
Alright, Thank you very much.
Our next question is of Jamie Cook from Credit Suisse. Please proceed with your question Hi, Good morning, 2 questions I guess, 1 Fred just.
As you think about the incremental costs that are coming into 2021 related to supply chain freight you know material cost et cetera is there any way you can help us understand potentially what costs are in 'twenty 'twenty..1 that are elevated that could you get you know go away you know in 2022 setting up incrementals, Okay for 2022.
And then I guess just you know my my other question is obviously with concerns on you know weighing on your stock in terms of E V and how that positions Allison longer term is there any way you can help us understand as you think about like your topline growth or your margins you know over the next you know over the long term.
Do you see sales or margins you know the you at.
At lower levels relative to where we've seen them historically on because I think that's 1 of the issues sort of weighing on your stock that R&D structurally higher. So your margins are lower or that you have some you know our top line headwinds and.
How do you think.
Thanks, Jamie on a big.
To.
The the incremental cost that we're seeing in 2021 and in the R&D and let Dave talk a about the.
Topline revenue in in the out periods.
As we mentioned in our prepared remarks I mean.
The significant amount of inefficiencies.
Expedited freight.
Enabling suppliers to actually produce product in.
Of the house elevated overtime being run.
I think really broadly across the industry you know the significant amount.
There's the spin efficiencies that should be relatively easy.
To get out once the supply chain catches up.
From a from an engineering R&D standpoint, we.
We see the same constraints there.
You know with third party providers are having difficulty oh.
The providing us what the what we want on the timeline that we want you know of originally.
No. The guidance, we've provided from an engineering R&D standpoint was up 30% year over year last call I talked about the spin being about 45 per cent H, 1 and then 55 per cent in H 240.
45% for 55% of ratios still.
Still there but.
Really driven by some of the supply chain constraints at this point, we expect the engineering R&D to be closer to the up about 20% versus the original estimate of.
The 30%.
I'll, let Dave comment on.
Out period the sale.
The bulk sales and margins thanks.
Long term.
Good morning, Jeremy So a couple of things in terms of top.
Top line.
As we've talked before the our concept of of our content on a per vehicle basis. When you look at the.
Yeah tools and other solutions.
At least initially are several times, what conventional content looks to be so from a top line perspective, I think it really gets back to.
Ultimately, what we view our share of the market to the versus what it is today to ultimately answer your top.
Top line question.
That being said I think we're certainly not in a position of the comment I would say on the longer term view there because I think it's.
Frankly far too early to even think about when and where and how much.
What we are focused on as you know.
Frankly the.
The meaningful programs that we can actually execute against the developed solutions that can be broadly applied from a modular perspective, so as.
As you know the industry has created a very high level of conventional expectation in terms of performance and reliability total cost of ownership. That's that's what we.
We focus on and we believe.
From a value perspective, that's ultimately what will win the day in terms of the market. So you know I understand so the earlier question. There was a number of players out there.
But we're talking about providing.
Managing power within the vehicle is a lot different than.
Taking a portion of that ultimate system and trying to manage it for.
For that reason the content when you think about top line is really going to come down to a volume answer on the margin side.
We didn't.
<unk> the margins that we have today on conventional overnight that's occurred over several decades.
<unk>.
The disruptive nature of the V. As you think about ultimately where the land it's going to take in our view years to get there just.
Just to get a market position, let alone what's the mature cost look like net.
Of course, what the value of the solution is which is the way that we ultimately.
Price our products.
Theres not a unfortunately I think of tremendous amount of answers.
To your questions other than delivering what we believe will be differentiated products that attract an appropriate value.
From end users I would also add.
Add on to that comment we're working on a tremendous amount of technology.
So on <unk>.
Product initiatives, as we said whether that be electric electrified vehicles and conventional.
We're obviously, we're looking forward to demonstrating that to the investment community and I know, there's a lot of interest in that so were.
Certainly pleased to share with.
Technology organizing of virtual.
Technology data showcased some of our latest innovations in both conventional and electrified propulsion. So we expect that event will be held early fourth quarter, and we will be providing the market with additional details in the coming weeks.
We're currently I appreciate that thanks, so much.
Sure.
Our next question is from Ross Gilardi with Bank of America. Please proceed with your question.
Good morning, guys.
Good morning, you hear me, Okay, Hey, yeah.
Yeah, it looks it several quarters ago, you seem to convey.
A good degree of confidence that they have the announcement to make with 1 of the major truck Oems on the axle and perhaps just on broader systems integration you certainly talked about some interesting developments in the in the off highway space, but we haven't.
<unk> heard much on the on highway side aside from what you've been saying for a number of years and I'm wondering should we assume that some type of formalized collaboration with 1 of the major Oems is unlikely to be announced over the balance of 'twenty 1.
And then just sort of that kind of related to the last question. How do you compete on the axle with with the conventional acts of the suppliers, who are who seem.
We can tend to do accept low double low double digit EBITDA margins. When you yourself are coming from position of where you you've got EBITDA margins, obviously substantially higher than that.
Right.
The thing so.
I would I would tell you.
We're expecting a relatively busy balance of the year.
From an announcement standpoint, so I would just offer that as an answer to your first question there on the teams despite.
I think some very challenging market conditions that we're all very familiar with.
I can tell you the.
U S.
Extremely engaged at this point and busy on multiple fronts and I would expect the as I said, a pretty active balance of the year in terms of.
Announcements to your question on.
Competition at least on <unk> I think ultimately it does get back to the value of the solution that is.
<unk> provided and with due respect to.
Others in the marketplace.
I'll have our approaches to the solutions for customers and I would say Allison as a for.
Preferred and natural supplier in terms of powertrain our capabilities on what we believe.
Being bring to customers ultimately end users total cost of ownership support.
That process of understanding how to manage power integrate the vehicle with all of the controls and the safety requirements.
Those are not to be underestimated and you can certainly do some of that but to do all of them.
We bill.
And be able to to support that over the life of commercial vehicles is a real challenge I don't dismiss other's capabilities for potentially do that.
It's a relatively high hurdle so for us.
We're very comfortable in terms of competing.
With.
The traditional so-called axle suppliers that are out there, but that's really not the only thing that we're doing so.
Also offer.
The capabilities can be deployed and will be deployed across a number of different propulsion architectures.
And I think ultimately.
The Oems current experience with conventional when you think about.
The the disdain for proliferation the requirements of the standardized to have efficient vehicle production all of the things that they enjoy today I don't believe go away or going to be suspended for electric vehicles.
Quite the opposite in that from our experience to date appears to be the case, where.
<unk> views on <unk>.
E V specs and ultimately performance continued to.
Move to conventional or above conventional at this point, we've noticed in some cases so.
The idea that that's going to be met and you have the capabilities from a technology perspective to deliver all of that is a relatively challenging ask so I think we're as I said very comfortable with our position and welcome. The competition, we believe customers should have options that.
It makes everybody better but in the context of at least our history and capabilities, we feel very well placed in terms of competing.
Thanks very much.
Our next question is from Jerry Revich with Goldman Sachs. Please proceed with your question.
<unk>.
Yes, hi, good morning, everyone.
Dave I'm wondering if I could just ask you to look at your supply chain conversations and.
Your suppliers' capacity expansion plans do you have a rough sense of when you expect the additional supply for some of the critical components.
<unk>.
Semiconductors.
Ramp up.
When do you think we could see.
A meaningful supply additions based on those conversations and then separately.
On the electric vehicle side, we've had an update from <unk> about their orders for electric vehicles.
So far over the past quarter and I'm wondering if you can provide a similar update in terms of the number of.
Sure.
Orders that you have for your systems on electric vehicles, given the pickup in the order trends this quarter. Thanks.
Good morning, Jerry.
On the.
Quickly on the supply chain capacity.
Issues I guess tier where you are going is when does all of us get better.
From our perspective, we don't see this being resolved near term.
We expect there'll be a number of challenges.
Through the second half and into 2022 hopefully.
We're pessimistic and things will be better, but we don't.
We don't plan the business on hope we.
Our expecting debt some of our challenges will certainly be resolved.
In the second half.
Frankly, you can't comment on everybody else the situation.
I would say.
Just to highlight the obvious it takes all of the parts to make the vehicle and I would say the Oems just given what you've heard publicly already in terms of the amount of parts.
Nicholas and the effort that it takes to manage that particular situation from.
From a process.
Perspective of amongst other things is pretty challenging.
They have and will continue to have I think some challenges from electronics just in general everything we're hearing would say.
That 1 is not going away I think even the public comments by some of the semiconductor.
The manufacturing.
Factors would tell you that but relative to Allison specific issues, we see some of those.
Improving certainly in the second half I would also offer as busy as <unk> 18, and 19, where.
In many cases, the supply chain was running hard the only to come to a rather abrupt stop because of the pandemic.
And then of very abrupt restart that's not the way the.
The industry has used the operating frankly and I think that's created some challenges with the ramp back up to your question how quickly.
That can be ultimately resolved and improved that would imply that you have.
What you need in terms of components.
As well as the manpower to make those things happen I am not sure.
That's really readily available as our experience with lead times on machinery and such continue to be rather.
Having said that we are planning to certainly be in a position to supply.
What the market demands.
We are staying.
America customers, probably I would say closer than we ever have in terms of forecasting to your EV question in terms of some of the the.
The initial feedback I think from from what we know that's pretty consistent with what everybody has been saying relative to.
Orders in relatively low numbers.
<unk>.
That's the kind of thing that we're hearing and continue to hear I would also.
Offer that in our comments around timing of programs. They don't appear to be moving to the left on the calendar and there's a fair bit of work thats going into trying to manage to initial views on timelines.
<unk>.
Some slippage to the right.
That's really been our experience as well as volume numbers continuing to come in at the low end of range is at least initially so.
I don't I have not heard of any anything from the 2 parties that you mentioned that would be.
The significantly.
The different from what we're hearing from the market in general.
Okay. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Dave.
For closing remarks.
Thank you Maria.
Thank.
Continued interest in Allison and for participating on today's call enjoy the rest of your day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Uh huh.
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Thank you for you.
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Okay.
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