Q4 2021 Allison Transmission Holdings Inc Earnings Call

February 16, 2022

Good evening, ladies and gentlemen, thank you for standing by welcome to Allison transmissions fourth quarter 2021 earnings Conference call.

Speaker 1: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to Allison transmission fourth quarter 2021 earnings conference call. My name is Hector and I will be your conference call operator.

My name is Hector and I will be your conference call operator today.

At this time all participants are in a listen only mode.

Speaker 1: At this time, all participants are in a listen-only mode. After the prepared remarks, the management team from Allison Transmission will conduct a question and answer session, and conference call participants will be given instructions at that time.

After the prepared remarks, the management team from Allison transmission will conduct a question and answer session and conference call participants will be given instructions at that time.

As a reminder, this conference call is being recorded if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I would now like to turn the conference over to Mr. Ray Posadas, the company's managing director of Investor Relations. Please go ahead Sir.

Speaker 1: As a reminder, this conference call is being recorded. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the conference over to Mr. Ray Posadas, the company's Managing Director of Investor Relations. Please go ahead.

Speaker 2: Thank you, Hector. Good evening and thank you for joining us for our fourth quarter 2021 earnings conference call. With me this evening are Dave Graziosi, our Chairman and Chief Executive Officer, and Fred Boley, our Senior Vice President, Chief Financial Officer, and Treasurer.

Thank you Hector good evening and thank you for joining us for our fourth quarter 2021 earnings Conference call with me. This evening are David <unk>, Our chairman and Chief Executive Officer, and Fred <unk>, Our senior Vice President and Chief Financial Officer and Treasurer.

Speaker 2: As a reminder, this conference call, webcast, and this evening's presentation are available on the investor relations section of our website, allisontransmission.com. A replay of this call will be available through February 23rd.

As a reminder, this conference call webcast and this evening'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 February 23.

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, including those set forth in our fourth quarter of 2021 earnings press release, our annual report on Form 10-K for the year ended December 31 2020.

Speaker 2: As noted on slide two of the presentation, many of our remarks today contain forward-looking statements based on current expectations.

Speaker 2: These forward-looking statements are subject to known and unknown risks, including those set forth in our fourth quarter 2021 earnings press release, our annual report on Form 10-K for the year ended December 31st, 2020, and our quarterly reports on Form 10-Q for the quarters ended March 30th, June 30th, and September 30th, 2021. Uncertainties related to the COVID-19 pandemic and...

And our quarterly reports on Form 10-Q for the quarters ended March 30th June 30, and September 32021, uncertainties related to the COVID-19 pandemic and.

Speaker 2: related responses by governments, customers, and suppliers, and other factors as well as general economic conditions. The

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.

Speaker 2: 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?

Speaker 2: In addition, as noted on slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the FTSE.

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 can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our fourth quarter 2021 earnings press release today's call is set to end at 5%.

Speaker 2: You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our fourth quarter 2021 earnings press.

Speaker 2: Today's call is set to end at 5.45 p.m. Eastern Time. In order to maximize participation opportunities on the call, we'll take one question from each analyst. Please turn to slide four of the presentation.

45 PM eastern time in order to maximize participation opportunities on the call. We'll take one question from each analyst.

Please turn to slide four of the presentation for the call agenda.

Speaker 2: During today's call, Dave Graziosi will review highlights from our 2021 results and provide a brief operational update. Fred Vole will then review our fourth quarter financial performance and introduce full year 2022 guidance prior to commencing the Q&A. Now I'll turn the call over to Dave Graziosi.

During today's call Dave <unk> will review highlights from our 2021 results and provide a brief operational update Fred <unk> will then review our fourth quarter financial performance and introduce full year 2022 guidance prior to commencing the Q&A now I'll turn the call over to Dave gradually.

Thank you Ray good evening and thank you for joining us during the last two years. The global pandemic has presented our industry in the world with many challenges. Despite this environment the Allison team and our partners have continued working tirelessly to support our customers' essential workers and critical infrastructure, while ensuring the uninterrupted.

Speaker 3: Thank you Ray. Good evening and thank you for joining us. During the last two years, the global pandemic has presented our industry and the world with many challenges. Despite this environment, the Allison team and our partners have continued working tirelessly to support our customers, essential workers, and critical infrastructure while ensuring the uninterrupted delivery of the Allison brand promise.

The delivery of the Allison brand promise once again I'd like to take a moment to thank the Allison team and our partners for their continued dedication and resilience during this critical period.

Speaker 3: Once again, I'd like to take a moment to thank the Allison team and our partners for their continued dedication and resilience during this critical period.

2021 was another notable year for Allison's growth objectives, Allison's net sales accelerated in the fourth quarter, largely driven by a recovery to pre pandemic levels in the outside North America on highway end market in fact fourth quarter net sales were up sequentially across all of our end markets as our global cut.

Speaker 3: 2021 was another notable year for Allison's growth objectives. Allison's net sales accelerated in the fourth quarter, largely driven by recovery to pre pandemic levels in the outside North America on highway and market. In fact, fourth quarter net sales were up sequentially across all of our end markets as our global customers and partners work diligently to meet global demand.

<unk> and partners worked diligently to meet global demand.

Speaker 3: Within the outside North America on highway and market, the Asia Pacific region achieved full record full year revenue less than two years following the severe global disruptions of the pandemic. And thanks to our team's persistent execution over the years, today we are benefiting from Allison's growth initiatives while the global economy continues to recover. Though challenges remain, we have come a long way and our success is aligned with our long term strategy of continuous global market leadership expansion.

Within the outside North America on highway end market, the Asia Pacific region achieved full record full year revenue less than two years. Following the severe global disruptions of the pandemic and thanks to our team's persistent execution over the years today, we are benefiting from allison's growth initiatives, while the global economy continues to recover.

Though challenges remain we have come a long way in our success is aligned with our long term strategy of continuous global market leadership expansion in recent weeks. We have made a number of announcements that will support allison's long term growth objectives for instance, Allison's award winning $34 14 regional haul.

Speaker 3: In recent weeks, we have made a number of announcements that will support Allison's long-term growth objectives. For instance, Allison's award-winning 3414 Regional Hall Series fully automatic transmission, designed for the heavy-duty Regional Hall and DayCab tractor market, was released by Volvo Trucks North America in its heavy-duty BNL series.

Series fully automatic transmission designed for the heavy duty regional haul and day cab tractor market was released by Volvo trucks, North America and its heavy duty P&L series. The first production orders for Volvo's $34 14, RHS equipped VNS trucks have already been built for regional haul.

Speaker 3: The first production orders for Volvo's 3414 RHS equipped VNL trucks have already been built for regional, hall, food and beverage, and distribution customers.

Food and beverage and distribution customers, but it was the third OEM to release Allison's 34 in 2014 regional haul series following releases by Navistar and Daimler trucks North America.

Speaker 3: Bo is the third OEM to release Allison's 3414 Regional Hall series, following releases by Navistar and Daimler Trucks North America.

Speaker 3: The 3414-RHS is the latest example of Allison's dedication and commitment to continued innovation. It expands our addressable market, enables the pursuit of market share growth, and represents an incremental revenue opportunity of $100 million annually for Allison in the North America heavy duty day cab tractor market.

The $34 14, IHS is the latest example of Allison's dedication and commitment to continued innovation that expands our addressable market enables the pursuit of market share growth and represents an incremental revenue opportunity of $100 million annually for Allison in the North America heavy duty day cab tractor Mark.

Next I am pleased to report that the first units of Allison's next generation hydraulic fracturing transmission frac trend have been delivered and are currently undergoing installation with multiple customers. Frac trend is the result of extensive voice of customer insights and duty cycle analysis from decades of Allison product opt.

Speaker 3: Next, I'm pleased to report that the first units of Allison's next generation hydraulic fracturing transmission, Fraktran, have been delivered and are currently undergoing installation with multiple customers.

Speaker 3: FRACTRAIN is the result of extensive voice of customer insights and duty cycle analysis from decades of Allison products operating in the hydraulic fracturing space. From dual fuel engines with the capability to run on natural gas to increasing horsepower and substantially reduced idle time, FRACTRAIN offers a unique combination of versatility, power, and efficiency.

Operating in the hydraulic fracturing space from dual fuel engines with the capability to run on natural gas to increasing horsepower and substantially reduced idle time Frac <unk> offers a unique combination of versatility power and deficiency.

Speaker 3: We are excited to see FracTran in the field and are confident that it will deliver the dependability necessary to meet the unique and continually evolving demands of this industry. FracTran represents $100 million annually in incremental revenue potential for Allison's global off-highway end market.

We are excited to see Frac train in the field and are confident that it will deliver the dependability necessary to meet the unique and continually evolving demands of this industry Frac train represents a $100 million of annually and incremental revenue potential for Allison's global off highway end markets. Our global off highway team is all.

Speaker 3: Our global off-highway team is also actively pursuing incremental penetration opportunities around the world in the energy, mining, and construction sectors.

So actively pursuing incremental penetration opportunities around the world and the energy mining and construction sectors Allison's outside North America on highway end market has not only recovered to pre pandemic levels, but it also remains positioned for further growth. Thanks to numerous initiatives around the globe for.

Speaker 3: Allison's outside North America on highway end market has not only recovered to pre-pandemic levels, but it also remains positioned for further growth thanks to numerous initiatives around the globe. For example, during our technology...

Ample during our technology event.

Speaker 3: Last October , we highlighted the success of the Allison 1000 series equipped Hyundai, Mighty in Korea having achieved 40% market share within its first year of release.

Last October we highlighted the success of the Allison 1000 series equipped Hyundai Mighty in Korea, having achieved 40% market share within its first year of release the Korean light duty truck market consists of approximately 10000 units annually and the success of this release go smaller than many other initiatives as reps.

Speaker 3: The Korean light duty truck market consists of approximately 10,000 units annually, and the success of this release, though smaller than many other initiatives, is representative of the growth potential that exists for Allison globally. In China, Allison's widebody mining dump truck growth initiative includes both domestic and export opportunities and leverages Allison's existing and proven 4,000 series fully automatic transmission.

Presented as the growth potential that exist for Allison globally, and China Allison's wide body mining dump truck growth initiatives includes both domestic and export opportunities and Leverages Allison existing and proven 4000 series fully automatic transmission. These allison equipped vehicles can carry more low.

Speaker 3: These Allison equipped vehicles can carry more loads per day thanks to powerful performance, faster acceleration and ease of operation resulting in an estimated 10% increase in productivity.

<unk> per day, thanks to powerful performance.

Acceleration and ease of operation, resulting in an estimated 10% increase in productivity.

Speaker 3: This program alone represents more than $50 million annually in incremental revenue potential for the outside North America on highway and market.

This program alone represents more than $50 million annually and incremental revenue potential for the outside North America on highway end market.

These initiatives along with many others highlighted during our technology day last year are delivering tangible results and positioning Allison for growth, while we simultaneously invest in the next generation of propulsion technology to facilitate the transition to zero emission.

Speaker 3: These initiatives, along with many others highlighted during our Technology Day last year, are delivering tangible results and positioning Allison for growth, while we simultaneously invest in the next generation of propulsion technology to facilitate the transition to zero emissions.

Speaker 3: Turning to the supply chain, we anticipate broad challenges will remain for the foreseeable future. The availability and utilization of labor, global shortages of electronic components, logistics disruptions including air and ocean freight and port delays, as well as the availability of raw materials are all expected to continue to impact the commercial vehicle industry's ability to align with customer demand.

Turning to the supply chain, we anticipate broad challenges will remain for the foreseeable future the availability and utilization of labor global shortages of electronic components logistics disruptions, including air and Ocean freight and port delays as well as the availability of raw materials are all expected to continue to impact the commercial.

Vehicle industry's ability to align with customer demand.

Speaker 3: Though uncertainty persists, global customer and end user demand remains robust and the Allison team has taken and will continue to take actions that address and mitigate production challenges.

Uncertainty persists global customer and end user demand remains robust in the Allison team has taken and will continue to take actions that address and mitigate production challenges lastly, I'd like to briefly comment on our well defined approach to capital allocation, which continues to drive earnings per share growth.

Speaker 3: Lastly, I'd like to briefly comment on our well-defined approach to capital allocation, which continues to drive earnings per share growth well in excess of net income growth.

Well in excess of net income growth.

Speaker 3: In 2021, we settled over half a billion dollars of share repurchases representing 12% of shares outstanding as of December 31st, 2020. Notably, during each of the last five years, we have repurchased on average 10% of our outstanding shares annually while simultaneously increasing EPS by more than 200% in aggregate.

2021, we settled over half half of $1 billion of share repurchases, representing 12% of shares outstanding as of December 31, 2020, notably during each of the last five years, we have repurchased on average 10% of our outstanding shares annually while simultaneously.

Increasing EPS by more than 200% in aggregate two.

Speaker 3: 2022 marks another milestone for Allison transmission. It's been 10 years since our initial public offering took place in March of 2012. As a customer and as a team, we have come very far. Through the years, we have worked diligently to strengthen our enterprise, support our customers.

<unk> 2022 marks another milestone for Allison transmission, it's been 10 years since our initial public offering took place in March of 2012, as a customer and as a team we have come very far.

Through the years, we have worked diligently to strengthen our enterprise support our customers.

Speaker 3: deliver the YALIS and BRAND promise and serve our communities. We've invested across the organization driving world-class performance in manufacturing and product development. We've also invested in and developed innovative solutions that are helping to reduce emissions, enhance productivity, and improve the way we serve our communities.

Deliver the Allison brand promise and serve our communities we've invested across the organization driving world class performance in manufacturing and product development. We've also invested in and developed innovative solutions that are helping to reduce emissions.

Enhanced productivity and improve the way the world works.

Speaker 3: and our unwavering commitment to prudent balance sheet management and opportunistic approach to the capital markets combined with the team's persistent execution of growth initiatives and investments across all of our end markets, our positioning Allison to drive growth and returns for all of our stakeholders for years to come. Thank you and I'll now turn the.

And our unwavering commitment to prudent balance sheet management and opportunistic approach to the capital markets combined with the team's persistent execution of growth initiatives and investments across all of our end markets are positioning Allison to drive growth and returns for all of our stakeholders for years to come.

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

Speaker 4: Thank you, Dave. Following Dave's comments, I'll discuss the Q4 2021 Performance Summary, Key Income Statement Line Items, and Cash Flow. I'll then introduce full year 2022 guidance before commencing the Q&A. Please turn to slide 5 of the presentation for the Q4 2021 Performance Summary.

Thank you Dave following Daves comments I will discuss the Q4 2021 performance summary, key income statement line items and cash flow. Although then introduce full year 2022 guidance before commencing the Q&A.

Please turn to slide five of the presentation for the Q4 2021 performance summary.

Speaker 4: Year-over-year net sales increased 20% to $644 million from the same period in 2020.

Year over year net sales increased 20% to $644 million from the same period in 2020.

Speaker 4: and increased 14% sequentially, resulting in the strongest revenue quarter of the year as production accelerated to meet robust customer demand despite continuing commercial vehicle industry production constraints due to supply chain challenges.

And increased 14% sequentially.

Resulting in the strongest revenue quarter of the year as production accelerated to meet robust customer demand. Despite continuing commercial vehicle industry production constraints due to supply chain challenges.

The increase in year over year results was led by a 38% increase.

Speaker 4: The increase in year-over-year results was led by a 38% increase in the number of cases

Speaker 4: in the outside North America on highway and market, principally driven by strong customer demand in Asia and the continued execution of growth initiatives.

In the outside North America on highway end markets, principally driven by strong customer demand in Asia, and the continued execution of growth initiatives.

Speaker 4: Year over year results were further led by a 26M dollar increase. In the North American off highway in market driven by improving demand for hydraulic fracturing applications. A 24M dollar increase in the outside North America off highway in market driven by higher demand in the energy mining and construction sectors.

Year over year results were further led by a $26 million increase in the North American off highway end market driven by improving demand for hydraulic fracturing applications, a $24 million increase in the outside North America off highway end market driven by higher demand in the energy mining and construction sectors and.

Speaker 4: and a 19% increase in the service part support equipment and other in-market principally driven by increased demand for North American on-highway service parts and global support equipment and price increases on certain products.

A 19% increase in the service parts support equipment and other end market, principally driven by increased demand for North American on highway service parts and global support equipment and price increases on certain products.

Speaker 4: Gross margin for the quarter was 47.4%, an increase of 10 basis points compared to 47.3% for the same period in 2020. The increase was principally driven by higher net sales and price increases on certain products, partially offset by unfavorable material costs.

Gross margin for the quarter was 47, 4% an increase of 10 basis points compared to 47, 3% for the same period in 2020. The increase was principally driven by higher net sales and price increases on certain products, partially offset by unfavorable material cost.

Speaker 4: Net income for the quarter was $118 million compared to $60 million for the same period in 2020. The increase was principally driven by higher gross profit and expenses related to long-term debt refinancing in November 2020 that did not reoccur in 2021, partially offset by increased product initiatives spending.

Net income for the quarter was $118 million compared to $60 million for the same period in 2020.

The increase was principally driven by higher gross profit and expenses related to long term debt refinancing in November 2020 that did not reoccur in 2021, partially offset by increased product initiatives spending.

Speaker 4: Adjusted EBITDA for the quarter was $220 million, compared to $186 million for the same period in 2020. The increase was principally driven by higher gross profit, partially offset by increased product initiative spending.

Adjusted EBITDA for the quarter was $220 million compared to $186 million for the same period in 2020. The increase was principally driven by higher gross profit, partially offset by increased product initiatives spending.

Speaker 4: A detailed overview of our net sales by end market can be found on slide six of the presentation.

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 for the Q4 2021 financial performance summary.

Speaker 4: Selling general and administrative expenses decreased $1 million from the same period in 2020, principally driven by unfavorable 2020 product warranty adjustments that did not reoccur in 2021, partially offset by higher commercial-acidity spending.

Selling general and administrative expenses decreased $1 million from the same period in 2020, principally driven by unfavorable 2020 product warranty adjustments that did not reoccur in 2021, partially offset by higher commercial activity spending.

Speaker 4: Engineering research and development expenses increased 10 million dollars from the same period in 2020, principally driven by increased product initiative spending. Please turn to slide 8 of the presentation for the Q4 2021 cash flow performance summary.

Engineering research and development expenses increased $10 million from the same period in 2020, principally driven by increased product initiatives spending.

Please turn to slide eight of the presentation for the Q4 2021 cash flow performance summary.

Adjusted free cash flow for the quarter was $105 million compared to $128 million for the same period in 2020. The decrease was principally driven by increased capital expenditures, partially offset by higher net cash provided by operating activities.

Speaker 4: Adjusted free cash flow for the quarter was $105 million, compared to $128 million for the same period in 2020. The decrease was principally driven by increased capital expenditures, partially offset by higher net cash provided by operating activities.

Speaker 4: During the fourth quarter, we repurchased $187 million of our outstanding shares at an average price of $35.62 and paid a dividend of 19 cents per share. We ended the quarter with a net leverage ratio of 2.8 times, $127 million of cash, $645 million of available revolving credit facility commitments, and approximately $314 million of authorized share repurchase capacity.

During the fourth quarter, we repurchased $187 million of our outstanding shares at an average price of $35 62.

And paid a dividend of <unk> 19 per share.

We ended the quarter with a net leverage ratio of two eight times, a $127 million of cash $645 million of available revolving credit facility commitments and approximately $314 million of authorized share repurchase capacity.

Speaker 4: We continue to maintain a flexible, long-dated, and covenant-like debt structure with the earliest maturity due in 2026.

We continue to maintain a flexible long dated and covenant light debt structure with the earliest maturity due in 2026.

Speaker 4: As Dave touched on earlier, in 2021, we repurchased $513 million of our outstanding shares, or the equivalent of over 13 million shares. Indeed, over the past 10 years, we have substantially and opportunistically reduced our shares outstanding from over 180 million shares at the time of the IPO in March of 2012 to less than 100 million shares today.

As Dave touched on earlier in 2021, we repurchased $513 million of our outstanding shares or the equivalent of over 13 million shares. Indeed over the past 10 years, we have substantially and opportunistically reduced our shares outstanding from over 180 million shares at the time of the IPO in March.

2012 to less than 100 million shares today.

Speaker 4: Please turn to slide 9 of the presentation for the 2022 guidance.

Please turn to slide nine of the presentation for the 2022 guidance.

Speaker 4: We expect net sales for 2022 to be in the range of 2.625 to 2.775Billion dollars. Our 2022 net sales guidance reflects higher demand in the global on-highway, global off-highway, and global on-highway.

We expect net sales for 2022 to be in the range of 2625 to $2 $7 $75 billion or.

Our 2022 net sales guidance reflects higher demand in the global on highway global off highway.

Speaker 4: and service parts support equipment and other in markets as a result of the ongoing global economic recovery, continued strength in customer demand, and price increases on certain products.

And service parts support equipment and other end markets as a result of the ongoing global economic recovery continued strength in customer demand and price increases on certain products.

Speaker 4: In addition to Allison's 2022 net sales guidance, we anticipate net income in the range of $430 to $520 million.

In addition to Allison's 2022, net sales guidance, we anticipate net income in the range of $430 million to $520 million.

Speaker 4: Adjust in the range of 865 to 975M dollars.

Adjusted EBITDA in the range of $865 million to $975 million.

Speaker 4: And net cash provided by operating activities in the range of $570 to $680 million. Capital expenditures in the range of $170 to $180 million. And adjusted free cash flow in the range of $400 to $500 million.

Net cash provided by operating activities in the range of $570 to $680 million capital expenditures in the range of $170 million to $180 million.

And adjusted free cash flow in the range of $400 million to $500 million.

Speaker 4: Allison's 2022 net sales guidance plan market can be found on slide 10 of the presentation.

Allison's 2022, net sales guidance by end market can be found on slide 10 of the presentation.

Speaker 4: And finally, our full year 2022 guidance also reflects the 10% increase in engineering research and development expenses.

And finally, our full year 2022 guidance also reflects a 10% increase in engineering research and development expenses.

Speaker 4: to fund product development initiatives in support of organic growth across all of our end markets.

To fund product development development initiatives in support of organic growth across all of our end markets.

Thank you and this concludes our prepared remarks Hector please open the call for questions.

Speaker 4: Thank you and this concludes our prepared remarks. Hector, please open the call for questions.

Speaker 1: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue. Please limit to one question only for participants using speaker.

Speaker 1: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull.

Equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker 1: Our first question comes from the line of Tim Thien with Citigroup. Please proceed with your question.

Our first question comes from the line of Tim Thein with Citigroup. Please proceed with your question.

Yes, hi, good evening, how are you guys doing.

Speaker 5: Yes, hi, good evening. How you guys doing?

Speaker 5: Can you hear me? Yeah. We can hear you fine. Sorry. Sorry. Yeah.

Can you hear me okay.

Alright, Alright, yes, Fred maybe just.

Speaker 5: You know, think about the different drivers here from an end market perspective. One that stands out is just how the behavior of the market, specifically within the energy patch.

If you think about the different drivers here from an end market perspective.

That stands out is just that.

How they are.

Behavior of the market, which specifically within the energy patch.

Speaker 5: uh, you know, it historically where, you know, the leads and the lags in terms of

Historically.

The leads and lags in terms of.

Speaker 5: that aftermarket and refurb work typically leading, uh, whole goods demand it based just on the guidance. And obviously there's other components within that service parts and support equipment line that will be impacting it, but you're just trying to tease out the how those individual categories are, are kind of, um, performing in terms of, are you seeing that normal?

That aftermarket and refurb work.

<unk> leading.

Whole goods demand based just on the guidance and obviously, there's other components within that service parts and support equipment line that will be impacting it but just trying to tease out how those individual category there are kind of.

Performing in terms of are you seeing that normal.

Speaker 5: relationship with the refurb activity leading new unit demand or not? There's some kind of different signals out in the market. So maybe you can just talk about that market in particular. Thank you.

Relationship with <unk> activity, leading.

New unit demand or not.

Not.

There is some kind of different signals out in the market. So maybe you can just talk about that market in particular, thank you.

Speaker 3: Tim, it's good evening. So to your question on energy, as we've talked before, and I think we touched this a few times last year, just given the position of the market coming into the downturn and then the reaction, of course, to energy prices starting to increase around November of 2020. You had that first leg and then the second leg.

Tim.

Good evening so to.

To your question on energy.

As we've talked before and I think we touch.

This a few times last year, just given the position of the market coming into the.

The downturn and then the reaction of course to energy prices starting to increase around November of 2020, and you have that first leg and then the second leg.

Speaker 3: you could certainly see the level of utilization specifically picking up in in North America which is our largest energy market.

You could certainly see the level of utilization specifically picking up in North America, which is our largest energy market.

Speaker 3: picking up, but as you know, the capital discipline that's being exhibited by those in that industry is probably different than it's been in prior cycles. So to your point about

Picking up but as you know the capital discipline thats being exhibited by those in that industry is probably different than it's been in prior cycles. So to your point about.

Speaker 3: uh... lead lag uh... did the position of the fleet coming in uh... returning that a reactivating it if you will that that process is obviously well underway

Lead lag.

The position of the fleet coming in.

Returning now to reactivating. It if you will that process is obviously well underway.

Speaker 3: What we also have talked to is this point about moving fleets back into utilization, but the idea that given the capital discipline and those plans to keep a relatively tightly supplied market.

What we also have talked to is this point about moving fleets back into utilization, but the idea that given the capital discipline in those plans to keep a relatively tightly supplied market.

Speaker 3: Our expectation was you would first see some level of refurbs taking place of components.

Our expectation was you would first see some level of <unk> taking place of components.

Speaker 3: then those components ultimately being replaced on existing rigs and then the next point to be had would be potentially new rig build.

And then those then those components ultimately being replaced on existing rigs and then the next point to be had would be potentially new rig builds so that sequence is well underway in terms of what I would say its were in the second.

Speaker 3: So that sequence is well underway in terms of what I would say is we're in the second

Speaker 3: step there, which is the replacement of components rather than refurb and then soon to be followed, we would think at some point, with new rate builds, assuming the same level of utilization and consumption of equipment. But obviously, as you know, with the elevated level of both demand and pricing right now, the returns are attractive. The cash flow is available.

Step there, which is the replacement of components rather than refurb and then soon to be followed we would think at some point with new rig builds assuming the same level of utilization and consumption.

Equipment, but.

Obviously as you know with the.

Elevated level of both demand and pricing right now the returns are attractive.

Cash flow is available.

Speaker 3: But I think the thing to really watch out for is maintaining the capital discipline of what the industry has shown to date. And that, in my mind, should support the sequencing that I just laid out.

But I think the thing to really watch out for is maintaining the capital discipline of what the industry has shown to date.

That my mind will should support the sequencing that I just laid out.

Speaker 4: One thing that might be a little different about this cycle is we've seen a lot of people, when they're refurbing, choose to use new transmission.

Yes, one thing that might be a little different about this cycle is we've seen a lot of people when they're refurbishing choose to use new transmissions.

Speaker 4: or before and maybe overhauling because the situation with this, the quality of the, you know, the number of times a product out there has already been overhauled. A lot of times they're, you know.

Where before maybe overhauling because of the situation with the quality of the.

The number of times a product out there has already been an overhaul it a lot of times there.

Speaker 4: Procuring a brand new transmission in that case. You see that roll through our North America off-highway and market and You saw that, you know ramp up in the second half of 2021

Procuring a brand new transmission in that case, you see that roll through our North America off highway end market and.

We saw that ramp up in the second half of 2021.

Speaker 1: Our next question comes from Jamie Cook with Credit Suisse.

Our next question comes from Jamie Cook with Credit Suisse. Please proceed with your question.

Speaker 6: Hi, good morning and nice quarter. I guess my question just on the North American on highway guide, you know, the up 18% that seems to be sort of better than what industry experts are the industry forecasts are and you guys tend to be conservative. So I'm sort of wondering what's lumped in there in your top line guide in terms of like volume price.

Hi, good morning, a nice quarter.

I guess my question just on the North American on Highway guide.

Up 18% that seems to be sort of better than industry experts or the industry forecasts are and you guys tend to be conservative some sort of wondering what's lumped in there and in your top line guide in terms of like volume price.

Speaker 6: you know, versus or market share growth. And then Fred, any color on how to think about sort of the margin progression throughout the year, just with price rolling in. Thank you.

Or market share growth and then Fred any color on how to think about sort of the margin progression throughout the year just with price rolling in thank you.

Okay.

I would say there are.

Speaker 4: Starting, Jamie, with our guide for North America on-highway, being up 18% year-over-year, certainly there's an element of price across all of our end markets. Our guide assumes...

Starting Jamie with the.

With our guide for North America on highway.

Being up 18% year over year, certainly there's an element of price.

Sure.

Across all of our end markets.

Our guide assumes.

About 275 basis points of price.

Speaker 4: about 275 basis points of price, 125 basis points of that being the commodity pass-throughs that we've spoken to that lag six to 12 months, and the balance, 150 basis points being just commercial pricing. So there's an element of it there. You know, when we look at the various classes, obviously the drivers for us are 6-7, school bus, class H straight.

125 basis points of that being the commodity pass throughs that we've spoken to that lag six to 12 months and the balance.

150 basis points being just commercial pricing. So there is an element of it there.

When we look at.

The various classes obviously the drivers for US are 67 school bus class eight straight.

Speaker 4: You know, our view is, you know, class six, seven school bus are going to be up close to 25% year over year, you know, with class eight, you know, closer to probably 12%. So those are what drive, you know, our outlook there. And I think your second question was, you know, relative to The margin. So, you know, as we

Our view is the key.

Class six seven school bus are going to be up.

Close to 25% year over year.

Eight.

Closer to probably 12%.

So those are what drive.

Our outlook there.

And I think your second question was relative to.

To margins.

Speaker 4: As I mentioned, we have significant price in the plan, but commodities have continued to elevate. So, as we have it modeled right now for 2022, we are slightly favorable on a price cost standpoint.

We.

As I mentioned, we have significant price in the plan, but commodities have continued to elevate.

So.

As we haven't modeled right now for 2022, we are.

Slightly favorable on a price cost standpoint.

Speaker 4: But when you really look at adding significant price and cost, unfortunately, coming very close to that, it obviously impacts your drop-throughs, and that on its own, adding that price cost in is negatively impacting our margins by about 100 basis points.

But when you really look at adding significant price and.

And costs, Unfortunately, coming very close to that yes. It obviously impacts your drop throughs in that.

That on its own.

Adding that price cost is negatively impacting our margins by about 100 basis points.

Speaker 4: And then as we mentioned in the pre-prepared remarks, we do have engineering R&D up about 10 percent. So that impacts us about another 70 basis points in margin on a year-over-year basis.

And then as we mentioned in the pre.

Our prepared remarks, we do have the engineering R&D up.

And about 10% so.

That impacts us about another 70 basis points.

And margin on a year over year basis.

Okay. Thank you.

Our next question comes from Tami Zakaria with Jpmorgan. Please proceed with your question.

Speaker 1: Our next question comes from Tammy Zakaria with J.P. Morgan.

Speaker 7: Hi, thank you for taking my question. So your EBITDA guide for the year sort of has a wide range. So could you comment on what's embedded in the low end versus the high end?

Hi, Thank you for taking my question.

So your EBIT guide for the year.

Sort of has a wide range.

So could you comment on what's embedded in the low end question is the high end.

Speaker 4: Yeah, I would say in general, as you know, as you know, you enter into this year, there's a tremendous amount of uncertainty, you know, relative to the, to the supply chain.

Yes, I would say in general as you know.

As you enter into this year.

Tremendous amount of uncertainty relative to the.

To the supply chain.

Speaker 4: So, you know, the low end and the high end, you know, our ability to hit that is really going to be driven by the OEM's ability to produce vehicles.

So the low end and the high end in our ability to hit that is really going to be driven by the oem's ability to produce vehicles.

Speaker 4: uh... and therefore meeting our transmission uh... you know and then you know that we have pretty attractive incremental drop-throughs on on those volumes and uh... so that's the biggest uh... variable but uh... there's also you know

And therefore meeting our transmissions.

And then obviously, we are pretty attractive incremental drop throughs on those volumes.

So thats the biggest variable, but theres also.

Speaker 4: still a tremendous amount of uncertainty around input costs. We have modeled steel and aluminum to be up year over year.

Still a tremendous amount of uncertainty around.

Input cost.

We do and we have modeled steel and aluminum to be up year over year.

Speaker 4: So that's certainly a variable we're paying very close attention to.

So thats certainly a variable we're paying very close attention to.

Speaker 4: You know, I talked to, you know, the pricing in the plan, the 275 basis points.

I talk to the pricing and the planned 275 basis points.

Speaker 4: I would say we're still also actively looking at where there might be some other opportunities based on the value add of our product to potentially gain some additional pricing as well.

I would say we're still also actively looking at.

Where there might be some other opportunities.

Based on the value add of our product to.

To potentially gain some additional pricing as well.

Speaker 1: Our next question comes from Felix Boshen with Raymond James. Please proceed with your question.

Our next question comes from Felix motion with Raymond James. Please proceed with your question.

Hey, good afternoon everybody.

Speaker 8: Hey, I was curious if you could talk a little bit more about the traction of the regional hall series. You mentioned the three OEM launches and the recent announcement there, the $100 million market opportunity, and I'm really curious if you could speak to the $100 million. Just curious how quickly you think you might chip away at that opportunity, and specifically, you mentioned you have some orders already in the backlog. That's what's baked in for FY22, if you care to share that, Fred.

Good afternoon, Hey, I was after.

Hey, I was curious if you could talk a little bit more about the traction of the regional haul series, you mentioned that to be OEM launches in the recent announcement there.

$100 million market opportunity.

And I'm really curious if you could speak to the $100 million.

Just curious how quickly you think you might chip away at that opportunity and specifically you mentioned you have some orders already in the backlog I'm curious what's baked in for FY 'twenty, two if you're curious share that Fred.

Yes.

Speaker 4: So when we look at that regional haul market, it's not all addressable for us with the 3414, but we look at about 25 to 30 percent of that market being addressable.

So the when we.

When we look at that.

Regional haul market.

Not all addressable for us with the with the 34 2014.

But we look at the about 25% to 30% of that market being an addressable.

Speaker 4: You know, when we think of a hundred million opportunity, it's, uh, it's really driving our share from where it is today to, uh, what we'd consider sort of Allison S type of share.

When we think of the $100 million opportunity it's.

It is really driving our share from where it is today too.

We would consider sort of Allison that type of share.

Speaker 4: You think about where we sit in class 6, 7, class 8 straight. So that share assumption assumes we get somewhere up in the 60% range. We're really just launching that product. So our share today is around 5%. So there's significant opportunity.

When you think about where we sit in class six seven class eight straight so that share assumption assumes we get somewhere up in the 60% range.

We're really just launching that product. So our share today is is around 5%. So there is significant opportunity people.

Speaker 4: You know, they understand the product. It's proven it's a variant of our 3000 series.

They understand the product it's proven it's a variant of our 3000 series.

Speaker 4: It's being used in day-cab tractors today, it's just we're now extending the ratings of horsepower and torque in order to achieve a...

It is being used in day cab tractors today, it's just we're now extending the.

The ratings the horsepower and torque in order to achieve.

Speaker 4: you know, a wider addressable market, you know, the hundred million, wish it would come day one, but, you know, that's a, that's a number that we believe is going to take us something in the neighborhood of three to five years to, to achieve.

A wider addressable market.

The $100 million.

It will come day, one but.

That's a number that we believe is going to take us something in the neighborhood of three to five years to achieve.

Our next question comes from Courtney <unk> I apologize Courtney Jaco bonus with Morgan Stanley . Please proceed with your question.

Speaker 9: Hi, good afternoon, guys. Thanks for the question. I was just wondering, can you give us an update on where your market share is on the key North America on highway and markets? And I think it was asked earlier, but, you know, can you give us any sense of how you're thinking about your market share in these specific classes in the 2022 guidance?

Hi, Good afternoon, guys. Thanks for the question.

I was just wondering can you give us an update on where your market share is on the key North America on highway end markets and I think it was Australia here, but can you give us any sense of how youre thinking about your market share in these.

Specific classes in the 2022 guidance.

Speaker 3: Courtney, it's Dave, good evening. To answer your question, again, we'll be publishing some material here shortly in terms of updating. But for 2021, again, our current estimates, if you will, we're more or less flat in class four or five at around 14%.

Coordinated.

Good evening to answer your question again, we will be.

Publishing some material here shortly in terms of updating but for 2021 and our current estimates if you will.

More or less flat in class four five it around.

14%.

Speaker 3: Motorhome is up slightly year over year to the 49% high 40s. School bus reasonably close to 20 20 in the mid 80s range.

Motor home is up slightly year over year.

49% high <unk>.

School bus reasonably close to 2020 in the mid 80 <unk> range.

Range.

Speaker 3: Class 6-7 in the mid 70s to higher 70 call it 77% on classic seven class eight straight truck

Class six seven.

In the mid seventies to hire 70 call it 77% on class six seven.

Class eight straight truck.

Speaker 3: more or less flat year over year, it's a high 70% range. And again, still looking at the numbers, but more or less in those range. And Fred just talked about our thoughts in terms of where we're at with this so-called Class 8.

More or less flat year over year, it's a high high 70% range and again, so looking at the numbers but.

More or less in those range and Fred just talked about in our thoughts in terms of where we're at with this so called class eight.

Speaker 3: Day tractor market and starting to penetrate with the 3414 RHS

<unk> tractor market and starting to penetrate with the $34 14 IHS.

Speaker 9: Okay, great. That's helpful. And then if you can just, you know, help us think about, you know, I think you had mentioned that you're modeling steel and aluminum to be up year over year, which is part of, you know, the EVA guidance, but any additional color you can help us as we're thinking about, you know, modeling the margin cadence through the quarters.

Okay, Great. That's helpful. And then if you could just.

Help us think about I think you had mentioned that youre modeling steel and aluminum to be up year over year, which is part of the EBITDA guidance, but any additional color you can help us as were thinking about it.

Modeling the margin cadence through the quarters.

Sure Courtney this is.

This is Fred.

Speaker 4: You know, SG&A, you know, we have, you know, just slightly up year over year, and currently.

SG&A we have.

Slightly up year over year.

<unk>.

Currently.

Yes.

Speaker 4: a relatively straight line sort of cadence there. You know, the engineering R&D, as we talked to on the prepared remarks, up 10%. Expect that spend again to be relatively even throughout the quarters.

A relatively straight line sort of cadence there.

The engineering R&D as we talked to in the prepared remarks.

10%.

Expect that spend again to be.

Relatively even throughout the quarters.

The.

Speaker 4: The pricing, the vast majority of that pricing was recognized on 1-1.

The pricing the vast majority of that pricings.

Was was recognized on one one.

Speaker 4: you know, as we have a lot to shake out throughout the year. But

As we.

It has a lot to shake out throughout the year, but.

Speaker 4: You know, primarily on the top line and. You know, how will revenue come in relative to the supply chain challenges? Um, you know, but as we sit here, you know, 1st quarter. You know, the demand is certainly there, you know, it's the daily challenges. Right now, the demand seems to haveaptop 10 plus 45 times something. But you know, because that's where continue to the breed. You know, as long as the 2021 system is near at this point, it's going to be a huge impact and full of his. But there's more globally being done. You know,

Primarily on the top line and.

How will revenue come in relative to the supply chain challenges.

But as we sit here.

First quarter.

The demand is certainly there.

The daily challenges.

Speaker 4: you know, from a supply chain, but the team here is managing through it. And, you know, as I mentioned earlier, we do have a little wider range on the guide just because of the uncertainty out there primarily from the top line.

From a supply chain, but the team here is managing through it.

As I mentioned earlier, we do have a little wider range on the guide just because of the uncertainty out there primarily from the topline.

Okay. Thank you.

Speaker 1: Our next question comes from Jerry Revich with Goldman Sachs. Please proceed with your question.

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

Speaker 10: Hi. Good afternoon. Fred, normally on a seasonal basis, your first quarter EBITDA tends to be up about 10 to 15% sequentially off of fourth quarter levels. I'm wondering, given all of the moving pieces around seasonality, is that still the right way to think about it? In other words, what's the margin cadence that you folks are anticipating over the course of the year versus in normal seasonality? Thanks.

Hi, good afternoon.

Fred normally on a seasonal basis, your first quarter EBITDA it tends to be up about 10% to 15% sequentially also fourth quarter levels and I'm wondering given all the moving pieces around seasonality is that still the right way to think about it in other words whats the margin cadence that you folks are anticipated over the course of the year.

Versus normal seasonality.

Sure Jerry.

Speaker 4: You know, it's interesting because as we highlighted, I mean, Q4, highest revenue quarter of the year, you know.

It's interesting because as we.

It highlighted I mean Q4 highest revenue.

Quarter of the year.

Speaker 4: 220 million in EBITDA. So, you know, 2021, a little bit of an anomaly in how we would normally see the markets work. You know, we usually expect Q4 to be our softest quarter.

$220 million in EBITDA, So 2021 little bit of an anomaly and how we would normally see the markets work, we usually expect Q4 to be our softest quarter.

Speaker 4: As we have modeled the total bottom line, the $920 million, we do have things picking up in Q2 and Q3, off of Q1, on the expectation that you'll see some small improvements in the supply chain.

As we have.

<unk> modeled the total bottom line the $920 million.

We do have things picking up in Q2 and Q3 off of Q1.

On the expectation that.

Sure.

You will see some small improvements in the supply chain.

Speaker 4: That's our preliminary view, but as I mentioned earlier, expenses are modeled relatively flat for the year, so it's really going to be a determination on how top line ends up. As we have it right now, we do have Q2 and Q3 modeled above Q1.

That's our preliminary view, but as I mentioned earlier.

Expenses are modeled relatively flat for the year. So it's really going to be a determination on how top line ends up in.

As we have it right now we do have Q2 and Q3.

Modeled above Q1 from a revenue standpoint.

Speaker 10: And Fred, just to make sure I'm in line with you, so it sounds like you're thinking about top line is similar 1Q as 4Q, so therefore, EBITDA margin's more or less similar 1Q as 4Q. But I understand you're right.

And Fred just to make sure we are aligned with you so it sounds like you're.

You're thinking about topline similar <unk>. So therefore.

EBITA margins more or less similar <unk>.

Did I understand you right.

Yes, yes.

Speaker 4: It's just what I would not...Normally you'd expect Q1 to jump up off of Q4, but with such a strong Q4 modeling Q1 relative to Q4 pretty flat on a sequential basis with some more strength in Q2 and Q3. And then Q4 being typically a little softer just due to the number of holidays at the OEMs.

It's just what it would not normally you would expect Q1 to jump up off of Q4, but with such a strong Q4.

Yes.

Q1 relative to Q4.

Pretty flat on a sequential basis.

With some more strength in Q2, and Q3 and then Q4.

Typically a little softer just due to the number of holidays at the Oems.

Okay got it appreciate it thanks.

Speaker 1: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. David Graziosi for closing.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. David <unk> for closing remarks.

Speaker 3: Thank you, Hector. Thank you for your continued interest in Allison and for participating on today's call. Enjoy your evening.

Thank you Hector.

For your continued interest in Allison and for participating on today's call enjoy your evening.

Speaker 1: This concludes today's conference. You may disconnect your lines at this time. Thank you all for your.

This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.

Speaker 11: The.

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Speaker 11: I.

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Good evening, ladies and gentlemen, thank you for standing by welcome to Allison transmissions fourth quarter 2021 earnings Conference call. My name is Hector and I'll 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 will conduct a question and answer session and conference call participants will be given instructions at that time as.

Thank you Hector and good evening and thank you for joining us for our fourth quarter 2021 earnings Conference call with me. This evening are David <unk>, Our chairman and Chief Executive Officer, and Fred <unk>, Our senior Vice President and Chief Financial Officer and Treasurer.

Speaker 2: As a reminder, this conference call, webcast, and this evening's presentation are available on the Investor Relations section of our website, allisontransmission.com. A replay of this call will be available through February 23rd.

As a reminder, this conference call webcast and this evening'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 February 23.

Speaker 2: As noted on slide two of the presentation, many of our remarks today contain forward-looking statements based on current expectations.

And our quarterly reports on Form 10-Q for the quarters ended March 30th June 30th at September 32021, uncertainties related to the COVID-19 pandemic and.

Speaker 2: related responses by governments, customers, and suppliers, and other factors as well as general economic conditions.

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.

Speaker 2: In addition, as noted on slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SBA.

45 PM eastern time in order to maximize participation opportunities on the call. We'll take one question from each analyst.

Please turn to slide four of the presentation for the call agenda.

Speaker 2: During today's call, Dave Graziosi will review highlights from our 2021 results and provide a brief operational update. Fred Bolle will then review our fourth quarter financial performance and introduce full year 2022 guidance prior to commencing the Q&A. Now I'll turn the call over to Dave Graziosi.

During today's call Dave <unk> will review highlights from our 2021 results and provide a brief operational update Fred Boehler will then review our fourth quarter financial performance and introduce full year 2022 guidance prior to commencing the Q&A now I'll turn the call over to Dave gradually.

Speaker 3: Thank you, Ray, good evening, and thank you for joining us. During the last two years, the global pandemic has presented our industry and the world with many challenges. Despite this environment, the Allison team and our partners have continued working tirelessly to support our customers, essential workers, and critical infrastructure while ensuring the uninterrupted delivery of the Allison brand promise.

Thank you Ray good evening and thank you for joining us during the last two years. The global pandemic has presented our industry in the world with many challenges.

Might this environment, the Allison team and our partners have continued working tirelessly to support our customers' essential workers and critical infrastructure, while ensuring the uninterrupted delivery of the Allison brand promise once again I'd like to take a moment to thank the Allison team and our partners for their continued dedication and resilience during.

Speaker 3: Once again, I'd like to take a moment to thank the Allison team and our partners for their continued dedication and resilience during this critical period.

This critical period.

Speaker 3: 2021 was another notable year for Allison's growth objectives. Allison's net sales accelerated in the fourth quarter, largely driven by recovery to pre-pandemic levels in the outside North America on-highway end market. In fact, fourth-quarter net sales were up sequentially across all of our end markets, as our global customers and partners worked diligently to meet global demand.

<unk> and partners worked diligently to meet global demand.

Speaker 3: Within the outside North America on-highway end market, the Asia-Pacific region achieved record full-year revenue less than two years following the severe global disruptions of the pandemic. And thanks to our team's persistent execution over the years, today we are benefiting from Allison's growth initiatives while the global economy continues to recover. Though challenges remain, we have come a long way and our success is aligned with our long-term strategy of continuous global market leadership expansion.

Within the outside North America on highway end market, the Asia Pacific region achieved full record full year revenue less than two years following the severe global disruption of the pandemic and thanks to our team's persistent execution over the years today, we are benefiting from allison's growth initiatives, while the global economy continues to recover.

Series fully automatic transmission designed for the heavy duty regional haul and day cab tractor market was released by Volvo trucks, North America and its heavy duty P&L series. The first production orders for <unk> 30 for 2014, our Hs equipped trucks have already been built for regional haul.

Speaker 3: The first production orders for Volvo's 3414 RHS equipped VNL trucks have already been built for regional, hall, food and beverage, and distribution customers.

Food and beverage and distribution customers, but it was the third OEM to release Allison <unk> 34 in 2014 regional haul series following releases by Navistar and Daimler trucks North America.

Speaker 3: Bo is the third OEM to release Allison's 3414 Regional Hall series, following releases by Navistar and Daimler Trucks North America.

Speaker 3: The 3414 RHS is the latest example of Allison's dedication and commitment to continued innovation. It expands our addressable market, enables the pursuit of market share growth, and represents an incremental revenue opportunity of $100 million annually for Allison in the North America heavy-duty day cab tractor market.

Speaker 3: FRACTRAN is the result of extensive voice of customer insights and duty cycle analysis from decades of Allison products operating in the hydraulic fracturing space. From dual fuel engines with the capability to run on natural gas to increasing horsepower and substantially reduced idle time, FRACTRAN offers a unique combination of versatility, power and efficiency.

<unk> and the hydraulic fracturing space from dual fuel engines with the capability to run on natural gas.

Two increasing horsepower and substantially reduced idle time Frac <unk> offers a unique combination of versatility power and efficiency.

Speaker 3: Our global off-highway team is also actively pursuing incremental penetration opportunities around the world in the energy, mining, and construction sectors.

Apple during our technology event.

Speaker 3: Last October , we highlighted the success of the Allison 1000 series equipped Hyundai Mighty in Korea, having achieved 40% market share within its first year of release.

Presented as the growth potential that exists for Allison globally, and China, Allison's widebody mining dump truck growth initiatives includes both domestic and export opportunities and Leverages Allison existing and proven 4000 series fully automatic transmission. These allison equipped vehicles can carry more.

Speaker 3: In China, Allison's wide-body mining dump truck growth initiative includes both domestic and export opportunities and leverages Allison's existing and proven 4000 series fully automatic transmission.

Speaker 3: These Allison-equipped vehicles can carry more loads per day thanks to powerful performance, faster acceleration, and ease of operation, resulting in an estimated 10% increase in productivity.

<unk> per day, thanks to powerful performance.

The acceleration in ease of operation, resulting in an estimated 10% increase in productivity.

Speaker 3: This program alone represents more than $50 million annually in incremental revenue potential for the outside North America on-highway end market.

This program alone represents more than $50 million annually and incremental revenue potential for the outside North America on highway end market.

Speaker 3: Turning to the supply chain, we anticipate broad challenges will remain for the foreseeable future. The availability and utilization of labor, global shortages of electronic components, logistics disruptions, including air and ocean freight and port delays, as well as the availability of raw materials are all expected to continue to impact the commercial vehicle industry's ability to align with customer demand.

Vehicle industry's ability to align with customer demand.

So uncertainty persist global customer and end user demand remains robust in the Allison team has taken and will continue to take actions that address and mitigate production challenges lastly, I'd like to briefly comment on our well defined approach to capital allocation, which continues to drive earnings per share growth.

Speaker 3: Lastly, I'd like to briefly comment on our well-defined approach to capital allocation, which continues to drive earnings per share growth while in excess of net income growth.

<unk> well in excess of net income growth.

Increasing EPS by more than 200% in aggregate.

2022 marks another milestone for Allison transmission, it's been 10 years since our initial public offering took place in March of 2012, as a customer and as a team we have come very far.

Through the years, we have worked diligently to strengthen our enterprise support our customers.

Speaker 3: deliver the Allison brand promise, and serve our communities. We've invested across the organization, driving world-class performance in manufacturing and product development. We've also invested in and developed innovative solutions that are helping to reduce emissions, enhance productivity, and improve the way

Deliver the Allison brand promise and serve our communities we've invested across the organization driving world class performance in manufacturing and product development. We have also invested in and developed innovative solutions that are helping to reduce emissions.

Enhanced productivity and improve the way the world works.

Speaker 3: and our unwavering commitment to prudent balance sheet management and opportunistic approach to the capital markets combined with the team's persistent execution of growth initiatives and investments across all of our end markets are positioning Allison to drive growth and returns for all of our stakeholders for years to come. Thank you and I'll now turn the call to the next speaker.

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

Speaker 2: Thank you, Dave. Following Dave's comments, I'll discuss the Q4 2021 Performance Summary, Key Income Statement Line Items, and Cash Flow. I'll then introduce full year 2022 guidance before commencing the Q&A. Please turn to slide five of the presentation for the Q4 2021 Performance Summary.

Thank you Dave following Daves comments I will discuss the Q4 2021 performance summary, key income statement line items and cash flow. Although then introduced full year 2022 guidance before commencing the Q&A.

Please turn to slide five of the presentation for the Q4 2021 performance summary.

Speaker 4: Year over year net sales increased 20% to 644M dollars from the same period in 2020.

Year over year net sales increased 20% to $644 million from the same period in 2020.

And increased 14% sequentially.

Speaker 4: The increase in year-over-year results was led by a 38% increase in the number of cases

The increase in year over year result was led by a 38% increase.

Speaker 4: in the outside North America on-highway end market, principally driven by strong customer demand in Asia, and the continued execution of growth initiatives.

In the outside North America on highway end market, principally driven by strong customer demand in Asia, and the continued execution of growth initiatives.

Speaker 4: Year-over-year results were further led by a $26 million increase in the North American off-highway end market driven by improving demand for hydraulic fracturing applications, a $24 million increase in the outside North America off-highway end market driven by higher demand in the energy, mining, and construction sectors.

Speaker 4: And a 19% increase in the service parts support equipment and other in market principally driven by increased demand for North American on-highway service parts and global support equipment and price increases on certain products.

A 19% increase in the service parts support equipment and other end markets, principally driven by increased demand for North American on highway service parts and global support equipment and price increases on certain products.

Speaker 4: Net income for the quarter was $118 million, compared to $60 million for the same period in 2020. The increase was principally driven by higher gross profit and expenses related to long-term debt refinancing in November 2020 that did not reoccur in 2021, partially offset by increased product initiative spending.

Net income for the quarter was $118 million compared to $60 million for the same period in 2020.

Speaker 4: A detailed overview of our net sales by end market can be found on slide six of the presentation.

A detailed overview of our net sales by end market can be found on slide six of the presentation.

Speaker 4: Please turn to slide 7 of the presentation for the Q4 2021 Financial Performance Summary.

Please turn to slide seven of the presentation for the Q4 2021 financial performance summary.

Speaker 4: Engineering, research, and development expenses increased $10 million from the same period in 2020, principally driven by increased product initiative spending. Please turn to slide eight of the presentation for the Q4 2021 cash flow performance summary.

Engineering research and development expenses increased $10 million from the same period in 2020, principally driven by increased product initiatives spending.

Please turn to slide eight of the presentation for the Q4 2021 cash flow performance summary.

Speaker 4: Adjusted free cash flow for the quarter was $105 million compared to $128 million for the same period in 2020. The decrease was principally driven by increased capital expenditures partially offset by higher net cash provided by operating activities.

Speaker 4: During the fourth quarter, we repurchased $187 million of our outstanding shares at an average price of $35.62 and paid a dividend of $0.19 per share. We ended the quarter with a net leverage ratio of 2.8 times, $127 million of cash, $645 million of available revolving credit facility commitments, and approximately $314 million of authorized share repurchase capacity.

During the fourth quarter, we repurchased $187 million of our outstanding shares at an average price of $35 62.

And paid a dividend of <unk> 19 per share we ended the quarter with a net leverage ratio of two eight times, a $127 million of cash $645 million of available revolving credit facility commitments and approximately $314 million of authorized share repurchase capacity we.

Speaker 4: We continue to maintain a flexible, long-dated, and covenant-like debt structure with the earliest maturity due in 2026.

We continue to maintain a flexible long dated and covenant light debt structure with the earliest maturity due in 2026.

Speaker 4: As Dave touched on earlier in 2021, we repurchase $513 million of our outstanding shares, or the equivalent of over 13 million shares. Indeed, over the past 10 years, we have substantially and opportunistically reduced our shares outstanding from over 180 million shares. At the time of the IPO in March of 2012 to less than 100 million shares today.

2012 to less than 100 million shares today.

Speaker 2: Please turn to slide 9 of the presentation for the 2022 guidance.

Please turn to slide nine of the presentation for the 2022 guidance.

Speaker 2: We expect net sales for 2022 to be in the range of 2.625 to 2.775 billion dollars. Our 2022 net sales guidance reflects higher demand in the global on highway global off highway.

We expect net sales for 2022 to be in the range of 2625 to $2 $775 billion.

Our 2022 net sales guidance reflects higher demand in the global on highway global off highway.

Speaker 2: and service parts support equipment and other in markets as a result of the ongoing global economic recovery, continued strength in customer demand, and price increases on certain products.

And service parts support equipment and other end markets as a result of the ongoing global economic recovery continued strength in customer demand and price increases on certain products.

Speaker 2: In addition to Allison's 2022 net sales guidance, we anticipate net income in the range of $430 to $520 million.

In addition to Allison's 2022, net sales guidance, we anticipate net income in the range of $430 million to $520 million.

Speaker 4: adjusted EBITDA in the range of $865 to $975 million.

Adjusted EBITDA in the range of $865 million to $975 million.

Speaker 4: And net cash provided by operating activities in the range of $570 to $680 million, capital expenditures in the range of $170 to $180 million, and adjusted free cash flow in the range of $400 to $500 million.

And net cash provided by operating activities in the range of $570 to $680 million capital.

<unk> in the range of $170 million to $180 million.

And adjusted free cash flow in the range of $400 million to $500 million.

Speaker 2: Allison's 2022 Net Sales Guidance by End Market can be found on slide 10 of the presentation.

Allison's 2022, net sales guidance by end market can be found on slide 10 of the presentation.

Speaker 4: And finally, our full year 2022 guidance also reflects the 10% increase in engineering research and development expenses.

And finally, our full year 2022 guidance also reflects a 10% increase in engineering research and development expenses.

Speaker 4: to fund product development initiatives in support of organic growth across all of our end markets.

To fund product development development initiatives in support of organic growth across all of our end markets.

Speaker 4: Thank you and this concludes our prepared remarks. Hector, please open the call for questions.

Thank you and this concludes our prepared remarks Hector please open the call for questions.

Speaker 1: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone.

Speaker 1: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Please press star 2 if you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull.

<unk> may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker 1: Our first question comes from the line of Tim Thien with Citigroup. Please proceed with your question.

Our first question comes from the line of Tim Thein with Citigroup. Please proceed with your question.

Speaker 5: Yes, hi, good evening. How you guys doing?

Yes, hi, good evening, how are you guys doing.

Speaker 5: Can you hear me? Yeah. We can hear you fine. Sorry. Sorry. Yeah.

Can you hear me okay.

Alright, alright, yeah, Fred maybe just.

Speaker 5: You know, think about the different drivers here from an end market perspective. One that stands out is just how the behavior of the market, specifically within the energy patch.

Yeah.

As you think about the different drivers here from an end market perspective.

That stands out is just that.

How they.

Behavior of the market specifically within the energy patch.

Speaker 5: uh, you know, it historically where, you know, the leads and the lags in terms of

Historically.

The leads and lags in terms of.

Speaker 5: that aftermarket and refurb work typically leading whole goods demand. It's based just on the guidance, and obviously, there's other components within that service parts and support equipment line that will be impacting it. But just trying to tease out how those individual categories are kind of performing in terms of are you seeing that normal?

Net aftermarket and refurb work typically leading.

Whole goods demand.

Just on the guidance and obviously, there's other components within that service parts and support.

Shipment line that will be impacting it but just trying to tease out how those individual category here are kind of.

Performing in terms of.

Are you seeing that normal.

<unk> chip with the refurb activity leading.

New unit demand or not.

<unk>.

There is some kind of different signals out in the market. So maybe you can just talk about that market in particular, thank you.

Speaker 3: Tim, it's Dave. Good evening. So to your question on energy, as we've talked before, and I think we touched this a few times last year, just given the position of the market coming into the downturn and then the reaction, of course, to energy prices starting to increase around November of 2020, and you had that first leg and then the second leg.

Tim.

Good evening so.

To your question on energy.

As we've talked before and I think we touched this a few times last year, just given the position of the market coming into the.

The downturn and then the reaction of course to energy prices starting to increase around November of 2020, and you have that first leg and then the second leg.

Speaker 3: you could certainly see the level of utilization specifically picking up in in North America which is our largest energy market.

You could certainly see the level of utilization specifically picking up in North America, which is our largest energy market.

Speaker 3: picking up but as you know the capital discipline that's being exhibited by those in that industry is probably different than it's been in prior cycles so to your point about

Picking up but as you know the capital discipline thats being exhibited by those in that industry is probably different than it's been in prior cycles. So to your point about.

Speaker 3: uh... lead lag uh... did the position of the fleet coming in uh... returning that a reactivating it if you will that that process is obviously well underway

Lead lag.

The position of the fleet coming in.

Returning that are reactivating. It if you will that process is obviously well underway.

What we also have talked to is this point about moving fleets back into utilization, but the idea that given the capital discipline in those plans to keep a relatively tightly supplied market.

Speaker 3: Our expectation was you would first see some level of refurbs taking place of components.

Our expectation was you would first see some level of <unk>, taking place of components than those than those components ultimately being replaced on existing rigs and then the next point to be had would be potentially new rig builds so that sequence is well underway in terms of what I would say, it's we're in that.

Speaker 3: then those components ultimately being replaced on existing rigs and then the next point to be had would be potentially new rig build.

Speaker 3: So that sequence is well underway in terms of what I would say is we're in the second.

The second.

Equipment, but.

Obviously as you know with the.

Elevated level of both demand and pricing right now the returns are attractive.

Cash flow is available.

Speaker 3: But I think the thing to really watch out for is maintaining the capital discipline of what the industry has shown to date, and that, in my mind, should support the sequencing that I just laid out.

But I think the thing to really watch out for is maintaining the capital discipline of what the industry has shown to date.

And that that my mind well should.

Port the sequencing that I just laid out.

Speaker 2: Yeah, 1 thing that might be a little different about this cycle is we've seen a lot of people when they're referring choose to use new transmission.

Yes, one thing that might be a little different about this cycle is we've seen a lot of people when they're refurbishing choose to use new transmissions.

Speaker 2: Where before it may be overhauling because the situation with this, the quality of the, you know, the number of times a product out, there's already been overhauled. A lot of times they're, you know.

Where before maybe overhauling because of the situation with the quality of the.

The number of times a product out there has already been an overhaul it a lot of times they are.

Speaker 2: procuring a brand new transmission in that case, you see that roll through our North America. Off highway in market and you saw that ramp up in the second half of 2021.

Procuring a brand new transmission in that case, you see that roll through our North America off highway end market and you saw that ramp up in the second half of 2021.

Speaker 1: Our next question comes from Jamie Cook with Credit Suisse.

Our next question comes from Jamie Cook with Credit Suisse. Please proceed with your question.

Speaker 6: Hi, good morning, a nice quarter. I guess my question just on the North American on highway guide, you know, the up 18% that seems to be sort of better than what industry experts are the industry forecasts are and you guys tend to be conservative. So I'm sort of wondering what's lumped in there in your top line guide in terms of like volume, price.

Hi, good morning, a nice quarter.

I guess my question just on the North American on Highway guide the up 18% that seems to be sort of better than industry experts. The industry forecasts are and you guys tend to be conservative some sort of wondering what's lumped in there and in your top line guide in terms of like volume price.

Speaker 6: you know, versus, or market share growth. And then Fred, any color on how to think about sort of the margin progression throughout the year, just with price rolling in. Thank you.

Versus or market share growth and then Fred any color on how to think about sort of the margin progression throughout the year.

With price rolling in thank you.

Okay.

I would say that our.

Speaker 2: Starting Jamie with the with our guide for North America on highway, you know, being up 18% year over year. Certainly there's there's an element of price. You know, across all of our end markets. You know, our guide assumes

Starting that Jamie with the.

With our guide for North America on Highway BNS.

Being up 18% year over year certainly there is there is an element of price.

Sure.

Across all of our end markets.

Our guide assumes.

Speaker 2: About 275 basis points of price, 125 basis points of that being the commodity pass-throughs that we've spoken to that lag six to 12 months. And the balance, 150 basis points being just commercial pricing. So there's an element of it there. When we look at the various classes, obviously the drivers for us are 6-7, school bus, Class H straight.

About 275 basis points of price.

125 basis points of that being the commodity pass throughs that we've spoken to that lag six to 12 months and the balance.

150 basis points being just commercial pricing. So there is an element of it there.

When we look at.

The various classes obviously the drivers for US are 67 school bus class eight straight.

Speaker 2: You know, our view is, you know, class six, seven school bus are going to be up close to 25% year over year, you know, with class eight, you know, closer to probably 12%. So those are what drive, you know, our outlook there. And I think your second question was, you know, relative to the margin. So, you know, as we.

Our view is.

Six seven school bus are going to be up.

Most of the 25% year over year with class eight.

Closer to probably 12%.

So those are what drive.

Our outlook there.

And I think your second question was relative to.

To margins so as we.

Speaker 2: As I mentioned, we have significant price in the plan, but commodities have continued to elevate. So, as we have it modeled right now for 2022, we are slightly favorable on a price cost standpoint.

As I mentioned, we have significant price in the plan, but commodities have continued to elevate.

So.

As we haven't modeled right now for 2022, we are.

Slightly favorable on a price cost standpoint.

Speaker 2: You know, but when you really look at, you know, adding significant price and, uh, and, and, and cost, you know, unfortunately coming very close to that, it obviously impacts your drop throughs, you know, and that, uh, um, you know, that on its own, uh, you know, adding that price cost in is negatively impacting our margins by about 100 basis points.

But when you really look at adding significant price and.

And costs, Unfortunately, coming very close to that.

Impacts your drop throughs in that.

That on its own.

Adding that price cost is negatively impacting our margins by about 100 basis points.

Speaker 2: And then, as we mentioned in the pre-prepared remarks, we do have engineering R&D up about 10%, so that impacts us about another 70 basis points in margin on a year-over-year basis.

And then as we mentioned in the pre prepay.

<unk> prepared remarks, we do have the engineering R&D up.

About 10%, so that impacts us about another 70 basis points.

And margin on a year over year basis.

Okay. Thank you.

Speaker 1: Our next question comes from Tammy Zakaria with JP Morgan.

Okay.

Our next question comes from Tami Zakaria with Jpmorgan. Please proceed with your question.

Speaker 7: Hi, thank you for taking my question. So your EBITDA guide for the year sort of has a wide range. So could you comment on what's embedded in the low end versus the high end?

Hi, Thank you for taking my question.

So your EBIT guide for the year.

<unk> has a wide range.

So could you comment on what's embedded in the low end question is the high end.

Speaker 2: Yeah, I would say in general, you know, as you know, you enter into this year, there's a tremendous amount of uncertainty, you know, relative to the to the supply chain.

Yes, I would say in general is.

As you enter into this year, there is a tremendous amount of uncertainty relative to the.

To the supply chain.

Speaker 2: So, you know, the low end and the high end, you know, our ability to hit that is really going to be driven by the OEM's ability to produce vehicles.

So the low end and the high end.

Our ability to hit that is really going to be driven by the oem's ability to produce vehicles.

Speaker 2: uh... and therefore meeting our transmission uh... you know and then you know i was we have pretty attractive incremental drop-throughs on on those volumes and uh... that the biggest uh... variable but uh... there's also you know

And therefore needing our transmissions.

And then obviously a pretty attractive incremental drop throughs on those volumes.

So thats the biggest variable, but theres also.

Speaker 2: There's still a tremendous amount of uncertainty around input costs. We do and we have modeled steel and aluminum to be up year over year.

Still a tremendous amount of uncertainty around.

Input cost.

We do and we have modeled steel and aluminum to be up year over year. So.

So thats certainly a variable we're paying very close attention to.

Speaker 2: I talked to the pricing in the plan, the 275 basis points.

I talk to the pricing and the planned 275 basis points.

Speaker 2: I would say we're still also actively looking at where there might be some other opportunities based on the value out of our product to potentially gain some additional pricing as well.

I would say we're still also actively looking at.

Where there might be some other opportunities.

Based on the value add of our products too.

To potentially gain some additional pricing as well.

Our next question comes from Felix <unk> with Raymond James. Please proceed with your question.

Hey, good afternoon everybody.

Good afternoon.

Hey, I was curious if you could talk a little bit more about the traction of the regional haul series, you mentioned that to be OEM launches in the recent announcement there.

100 million market opportunity.

And I'm really curious if you could speak to the $100 million.

Just curious how quickly you think you might chip away at that opportunity and specifically you mentioned you have some orders already in the backlog curious what's baked in for FY 'twenty, two if you care to share that Fred.

Speaker 4: So the, when we look at that, you know, that regional haul market, it's not all addressable for us with the 3414, but, you know, we look at the, you know, about 25 to 30 percent of that market being addressable.

Yes.

So the when we.

When we look at that.

Regional haul market.

Not all addressable for us with the with the 34 2014.

But when we look at the.

The 25% to 30% of that market being an addressable.

Speaker 2: You know, when we think of a $100 million opportunity, it's really driving our share from where it is today to what we consider sort of an Alice and F type of share.

When we think of the $100 million opportunity.

It's really driving our share from where it is today too.

We would consider sort of Allison esque type of share.

Speaker 2: You think about where we sit in class 6-7, class 8-straight, you know, so, you know, that share assumption assumes we get somewhere up in the 60% range. You know, we're really just launching that product, so, you know, our share today is around 5%, so there's significant opportunity. People...

When you think about where we sit in class six seven class eight straight so.

Sure assumption assumes we get somewhere up in the 60% range.

We're really just launching that product. So our share today is is around 5%. So there is significant opportunity people.

Speaker 4: You know, they understand the product, it's proven, it's a variant of our 3000 series.

They understand the product it's proven it's a variant of our 3000 series.

Speaker 2: It's being used in daycab tractors today, it's just we're now extending the ratings of horsepower and torque in order to achieve a...

It's being used in day cab tractors today, it's just we're now extending that.

The ratings the horsepower and torque in order to achieve.

Speaker 2: you know, a wider addressable market, you know, the hundred million, which will come day one, but, you know, that's a that's a number that we believe is going to take us something in the neighborhood of three to five years to achieve.

Sure.

A wider addressable market.

The $100 million.

Wish it will come day, one but.

That's a number that we believe is going to take us something in the neighborhood of three to five years to achieve.

Our next question comes from Courtney <unk>.

I apologize Courtney <unk> with Morgan Stanley . Please proceed with your question.

Speaker 9: Hi, good afternoon, guys. Thanks for the question. I was just wondering, can you give us an update on where your market share is on the key North America on highway and markets? And I think it was asked earlier, but, you know, can you give us any sense of, you know, how you're thinking about your market share in these, you know, specific classes in the 2022 guidance?

Hi, Good afternoon, guys. Thanks for the question.

Specific.

<unk> in the 2022 guidance.

Speaker 3: Courtney, it's Dave. Good evening. To answer your question, again, we'll be publishing some material here shortly in terms of updating. But for 2021, again, our current estimates, if you will, we're more or less flat in class four or five at around 14%.

Coordinated.

Good evening.

Answer your question again, it will be.

Publishing some material here shortly in terms of updating but for 2021 again our current.

Estimates if you will.

We are more or less flat in class four five at around.

14%.

Speaker 3: Motorhome is up slightly year over year to the, you know, 49% high 40s school bus reasonably close to 2020 in the the mid 80s range

Motor home is up slightly year over year.

49% high <unk>.

School bus reasonably close to 2020 in the mid 80 <unk> range.

Speaker 3: Class 6-7 in the mid-70s to higher 70s, call it 77% on Class 6-7. Class 8 straight truck.

Range.

Class six seven.

In the mid seventies to hire 70 call it 77% on class six seven.

Class eight straight truck.

Speaker 3: more or less flat year over year. It's a high 70% range. And again, still looking at the numbers, but more or less in those range. And Fred just talked about our thoughts in terms of where we're at with this so-called class eight.

More or less flat year over year, it's a high high 70% range and again, so looking at the numbers but.

More or less in those range and Fred just talked about in our thoughts in terms of where we're at with this.

Speaker 3: day tractor market and starting to penetrate with the 3414 RHS.

So called class eight.

De tractor market and starting to penetrate with the $34 14 IHS.

Speaker 9: Okay, great. That's helpful. And then if you can just, you know, help us think about, you know, I think you had mentioned that you're modeling steel and aluminum to be up year over year, which is part of, you know, the EBITDA guidance, but any additional color you can help us as we're thinking about, you know, modeling the margin cadence through the quarters.

Okay, Great. That's helpful. And then if you can just.

Help us think about I.

I think you had mentioned that youre modeling steel and aluminum to be up year over year, which is part of that.

The EBITDA guidance, but any additional color you can help us as were thinking about.

Modeling the margin cadence through the quarters.

Sure coordinator.

This is Fred.

Speaker 4: You know, SG&A, you know, we have, you know, just slightly up year over year, and currently.

SG&A we have.

Slightly up year over year.

And currently.

Speaker 2: a relatively straight line sort of cadence there. You know, the engineering R&D, as we talked to you on the prepared remarks, up 10%. Expect that spend again to be relatively even throughout the quarters.

Yes.

A relatively straight line sort of cadence there.

The engineering R&D as we talked to you in the prepared remarks.

Up 10%.

Expect that spend again to be.

Relatively even throughout the quarters.

The.

Speaker 4: The pricing, the vast majority of that pricing was recognized on 1.1.

The pricing the vast majority of that pricings.

Was was recognized on one one so.

Speaker 2: you know, as we, you know, there's obviously a lot to shake out throughout the year, but

As we.

So a lot to shake out throughout the year, but.

Speaker 2: You know, primarily on the top line and, you know, how will revenue come in relative to the supply chain challenges, you know, but as we, you know, sit here, you know, first quarter, you know, the demand is certainly there, you know, it's the daily challenges.

Primarily on the top line and.

How will revenue come in relative to the supply chain challenges.

But as we sit here.

First quarter.

The demand is certainly there.

The daily challenges.

Speaker 2: you know, from a supply chain, but the team here is managing through it and, you know, as I mentioned earlier, we do have a little wider range on the guide just because of the uncertainty out there primarily from the top line.

From a supply chain, but the team here is managing through it.

As I mentioned earlier, we do have a little wider range on the guide just because of the uncertainty out there primarily from the top line.

Okay. Thank you.

Speaker 1: Our next question comes from Jerry Revich with Goldman Sachs. Please proceed with your question.

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

Speaker 10: Hi, good afternoon. Fred, normally on a seasonal basis, your first quarter EVA dot tends to be up about 10% to 15% sequentially off of fourth quarter levels. And I'm wondering, given all of the moving piece around seasonalities, that's still the right way to think about it? In other words, what's the margin cadence that you folks are anticipating over the course of the year versus in normal seasonality? Thanks. Sure.

Hi, good afternoon.

Normally on a seasonal basis, your first quarter EBITDA tends to be up about 10% to 15% sequentially also fourth quarter levels and I'm wondering given all the moving pieces around seasonality is that still the right way to think about it in other words whats the margin cadence that you folks are anticipating over the course of the year.

Versus normal seasonality.

Sure Jerry.

Speaker 2: You know, it's interesting because as we highlighted, I mean Q4, highest revenue quarter of the year.

It's interesting because as we.

It highlighted I mean Q4 highest revenue.

Quarter of the year.

Speaker 2: $220 million in EBITDA. So, you know, 2021, a little bit of an anomaly in how we would normally see the markets work. You know, we usually expect Q4 to be our softest quarter.

$220 million in EBITDA, so 2021 little bit of anomaly and how we would normally see the markets work, we usually expect Q4 to be our softest quarter.

Speaker 2: As we have modeled the total bottom line, the $920 million, we do have things picking up in Q2 and Q3, off of Q1, on the expectation that you'll see some small improvements in the supply chain.

As we have.

You model the total bottom line the $920 million.

We do have things picking up in Q2 and Q3 off of Q1.

On the expectation that.

Sure.

Youll see some small improvements in the supply chain.

Speaker 4: You know, that's our preliminary view, but as I mentioned earlier, you know. Exenses are modeled relatively flat for the year, so it's really going to be determination on how top line ends up and. You know, as we have it right now, we do have Q2 and Q3. Modeled above Q1.

That's our preliminary view, but as I mentioned earlier.

Expenses are modeled relatively flat for the year. So it is really going to be a determination on how top line ends up in.

As we have right now we do have Q2 and Q3.

Modeled above Q1 from a revenue standpoint.

Speaker 10: Fred, just to make sure I'm in line with you, it sounds like you're thinking about top line is similar 1Q as 4Q, so therefore EBITDA margin is more or less similar 1Q as 4Q, but I understand you're right. Yes.

And Fred just to make sure we're aligned with you so it sounds like you're.

Youre thinking about topline similar <unk>. So therefore.

EBITDA margins more or less similar <unk>.

I understand you right.

Yes, yes.

Speaker 2: you know, it's just what I would not, you know, normally you'd expect Q1 to jump up off of Q4, but with such a strong Q4, you know, modeling, you know, Q1 relative to Q4, you know, pretty flat on a sequential basis with some more strength in Q2 and Q3. And then Q4 you know, being typically a little softer just due to the number of holidays at the OEMs.

It's just what it would not normally you would expect Q1 to jump up off of Q4, but with such a strong Q4.

Modeling Q1 relative to Q4.

Pretty flat on a sequential basis.

With some more strength in Q2, and Q3 and then Q4.

Typically a little softer just due to the number of holidays at the Oems.

Okay got it appreciate it thanks.

Speaker 1: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. David Graziosi for closing the session.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. David <unk> for closing remarks.

Speaker 3: Thank you, Hector. Thank you for your continued interest in Allison and for participating on today's call. Enjoy your evening.

Thank you Hector.

For your continued interest in Allison and for participating on today's call and enjoy your evening.

Speaker 1: This concludes today's conference. You may disconnect your lines at this time. Thank you all for your.

This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.

Q4 2021 Allison Transmission Holdings Inc Earnings Call

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