Q1 2022 Allison Transmission Holdings Inc Earnings Call
Good evening, ladies and gentlemen, thank you for standing by.
To Allison transmissions first quarter 2022 earnings conference call. My name is John 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.
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 call over to Mr. Ray Posadas, the company's managing director of Investor Relations. Please go ahead Sir.
Thank you John and good evening and thank you for joining us for our first quarter 2022 earnings Conference call with me. This evening are Dave Grad, DOZ, our chairman and Chief Executive Officer, and Fred <unk>, Our senior Vice President and Chief Financial Officer and Treasurer.
As a reminder, this conference call webcast in 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 may 4th.
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 first quarter 2022 earnings press release and our annual report on Form 10-K for the year ended December 31 2021.
Uncertainties related to the war in Ukraine, the COVID-19, pandemic and related responses by governments customers and suppliers and other factors as well as general economic conditions should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect actual results may vary materially from those that we expressed today.
In addition, as noted on slide three of the presentation. Some of our remarks today contain non-GAAP financial measures as defined by the SEC you 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 first quarter 2022 earnings press release todays call.
All is set to end at 545 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 for the call agenda.
During today's call Dave gradual D will review highlights from our first quarter 2022 results and provide a brief operational update Fred Bully will then review our first quarter financial performance and a firm 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 I'd like to begin by acknowledging the tragic tragic events that have unfolded in Ukraine, and compliance and support of the actions taken by the United States and its allies. We have ceased all operations in Russia and associated regions, Russia, and Ukraine accounted for western.
What percent of Allison revenue in 2021.
We do not have any manufacturing presence in the region, nor any direct exposure as it relates to sourcing of raw or direct material turning to the quarter I'd like to thank the Allison team and our partners for their outstanding efforts in delivering the solid execution and strong performance we are reporting today.
Following a notable year in 2021 first quarter 2022 results continued to demonstrate momentum for allison's growth objectives.
Net sales accelerated to $677 million in the first quarter returning to pre pandemic levels in producing the third strongest revenue quarter in Allison's history strong customer demand in our global on highway end markets continues to drive us.
This unprecedented recovery, despite persistent and global supply chain challenges in particular, the outside North America on highway end market, which was the first end market to reach pre pandemic levels and led the recovery in 2021 achieved record quarterly revenue during the first quarter of this year.
And this end market remains positioned for further growth driven by multiple initiatives around the world Allison strong recovery in post pandemic results are largely attributable to the teams operating experience and persistent and disciplined execution through multiple cycles across all of our end markets. Today, we are realizing the benefits of Allison.
Growth objectives, and our continued success remains aligned with our long term strategy of continuous global market leadership expansion.
Last quarter, we discussed several initiatives that are supporting Allison's long term growth objectives. Among them was Allison's award winning 34 14 regional haul series fully automatic transmission for the North America heavy duty regional haul and day cab tractor market currently released with Navistar Daimler trucks North.
Erika and Volvo trucks, North America to $34 14, RHS expands our addressable market enables the pursuit of market share growth and represents an incremental revenue opportunity of $100 million annually for Allison.
Earlier this week, we announced one of the largest private fleets in North America, and a major hotel restaurant food distributor has selected the $34 14 regional haul series transmission for its fleet to 34, 2014, IHS will be integrated into Navistar as RH series trucks designed to provide customers.
What is the optimal productivity and maneuverability and represents an annual purchase of up to 450 units elsewhere in North America on highway end market. The Allison 3000 rugged duty series fully automatic transmission will now be offered in the Mack MD series. This release broadens Max medium duty product.
So to include heavier applications that require increased power and vehicle weight ratings. It also expands the MD series addressable market to vocational customers and applications such as refuse recycling propane delivery on construction.
Allison 3000 series rugged rugged duty is the third transmission option and Max medium duty product portfolio. Allison's 2500 series is currently standard on Max medium duty line and the Alice in 'twenty 500, rugged duty series is optional another growth opportunity introduced.
Last quarter was the wide body mining dump truck initiative in China. This program Leverages Allison's existing and proven 4000 series fully automatic transmission and represents more than $50 million annually and incremental revenue potential for the outside North America on highway end market.
During the first quarter multiple awards were announced in support of this initiative. These awards included domestic opportunities with Hey, Sean fleet, a renowned mining and infrastructure company.
Based in change on China, and Bugong binding machinery company in support of the Chinese export market.
During the first quarter, we also announced the start of production for Allison's next generation electronic controls platform built on decades of technology evolution and application experience and combined with a state of the art microprocessor and software operating system. This next generation platform features advanced.
<unk> functional safety cyber security and over the air programming capability Oems such as Freightliner custom chassis.
Back trucks pre vo and M and are leading the transition to this next generation of Allison electronic controls in an effort to realize the state of the art capabilities enabled by this platform.
Next we are excited to unveil Allison's New innovation Center in March located on the campus of headquarters and primary manufacturing complex in Indianapolis.
And all New Engineering Center of Excellence will promote innovation and collaboration and features enhanced product and technology development and validation capabilities to support Allison's customers industry partners and suppliers Allison's Innovation Center. We're further the evolution of next generation commercial vehicle.
Paulson. This includes allison's Aegean flex electric hybrid propulsion system, which received its inaugural certification from the California Air Resources Board earlier. This year introduced into revenue service in 2021, Allison's EJ and flex has demonstrated the ability to operate in full engine.
<unk> mode for more than 50% of its time in operation across multiple routes within one of North America's largest transit fleets.
In the United Kingdom, Allison was recently selected to provide the propulsion system for the country's first hydrogen fuel cell electric powered refuse collection vehicle.
The vehicle will be built on a Mercedes Benz economy hydrogen chassis and is the latest development in Aberdeen cities.
IGN, Aberdeen initiative, which aims to bring about a hydrogen economy and the cities region in 2018, the Aberdeen City Council deployed the Uk's first hydrogen powered sweeper vehicle, which also features an Allison propulsion solution.
And in two weeks at the advanced clean Transportation Expo in long Beach, California, we will be announcing an exciting new strategic partnership featuring Allison's Aegean power family of electric axles. As we have often said there are more growth and technology initiatives happening at Allison today than at any other time in our history.
We look forward to sharing this news along with more of our team's accomplishments in the coming months and quarters.
To the supply chain, we continue to.
To anticipate broad challenges that will impact the commercial vehicle industry's ability to align with customer demand for the foreseeable future. Despite these persistent challenges as well as uncertainties surrounding various macroeconomic and geopolitical factors and user demand remains strong production remains limited by input.
Constraints and the Allison team will continue to monitor the environment and take actions to address and mitigate production challenges.
And I'll now turn the call over to Fred.
Thank you Dave following Daves comments I will discuss the Q1 2022 performance summary.
Key income statement line items and cash flow.
Affirm the full year 2022 guidance. Please turn to slide five of the presentation for the Q1 2022 performance summary.
Year over year, net sales increased 15% to $677 million from the same.
From the same period in 2021, resulting in the third strongest revenue quarter in Allison's history as production continues to accelerate to meet resilient customer demand.
The increase in year over year results was led by an 8% increase in the North American on highway end market, principally driven by continued strength in customer demand for last mile delivery regional haul and vocational trucks.
Year over year over year results were further led by a 30% increase in net sales and record quarterly revenue and outside North America on highway end market driven by improving demand across all regions and the continued execution of growth initiatives.
A 14% increase in net sales in the service parts support equipment and other end markets, principally driven by increased demand for North American service parts and global support equipment and a $30 million increase in net sales in the global off highway end markets driven by improving demand for hydraulic fracturing applications.
In the energy sector as well as higher demand in the mining and construction sector.
Gross profit for the quarter was $320 million, a 10% increase from the $291 million for the same period in 2021 the.
The increase was principally driven by higher net sales and price increases on certain products, partially offset by unfavorable material costs and higher manufacturing expense commensurate with increased net sales.
Net income for the quarter was $129 million compared to $120 million for the same period in 2021. The increase was principally driven by higher gross profit, partially offset by a $15 million unrealized $15 million unrealized loss on marketable securities.
<unk> EBITDA for the quarter was $244 million compared to $222 million for the same period in 2021. The increase was principally driven by higher gross profit, partially offset by increased product initiatives spending.
Diluted earnings per share increased 21% to.
To $1 30 from the same period in 2021, driven by higher net income and lower total shares outstanding.
The 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 Q1 2022 financial performance summary.
Selling general and administrative expenses increased $2 million from the same period in 2021, principally driven by higher commercial activity spending.
Engineering research and development expenses increased $5 million from the same period in 2021, principally driven by increased product initiatives spending.
Please turn to slide eight of the presentation for the Q1 2022 cash flow performance summary.
Adjusted free cash flow for the quarter was $143 million compared to $107 million for the same period in 2021 the.
The increase was driven by higher net cash provided by operating activities and lower capital expenditures.
Consistent with Allison's prudent and well defined approach to capital allocation, we settled $81 million of share repurchases during the first quarter or over 2% of outstanding shares. We also increased the quarterly dividend for the third consecutive year from 19 cents to.
To <unk> 21 per share we ended the quarter with a net leverage ratio of two eight times, a $145 million of cash and $645 million of available revolving credit facility commitments.
And we continue to maintain a flexible long dated and covenant light debt structure with the earliest maturity due in 2026.
In February the board of directors approved a $1 billion increase to stock repurchase authorization, bringing the total amount authorized under the program to $4 billion as a.
We ended the quarter with approximately $1 2 billion of authorized share repurchase capacity.
Please turn to slide nine of the presentation for the full year 2022 guidance.
We are affirming the full year 2022 guidance ranges released to the market on February 16, we expect net sales for 2022 to be in the range of $2 six to five.
Two to $7 $75 billion or 2022 net sales guidance reflects higher demand in the global on highway global off highway.
In the 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 in.
In addition to the Allison's 2022 net sales guidance, we continue to anticipate net net income in the range of $430 million to $520 million.
Adjusted EBITDA in the range of $865 million to $975 million net.
Net cash provided by operating activities in the range of $570 to $680 million.
Adjusted free cash flow in the range of $400 million to $500 million and capital expenditures in the range of $170 million to $180 million.
Thank you. This concludes our prepared remarks, John Please open the call for questions.
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 one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
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One moment, please we poll for questions.
Our first question.
Our first question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.
Hi, good evening everybody.
Boy, there's a lot going on this quarter, you guys have announced a bunch of stuff and so its hard to limit to one question I guess, maybe since we've seen off highway come back. So strongly you know weather outside North America, or whether we can do the whole thing you've got a bunch of OEM wins that you maybe didn't have in years past I don't know if you can help us understand how.
They've got the Tam is versus where you were sitting in prior peaks.
And maybe just comment on the duration and the momentum of the sales you can see thank you.
Hey, Rob good afternoon or evening, it's Dave So I think your question really focused on off highway.
Terms of what's happening in that space you know, it's certainly been a strong recovery as you know oils into an ATM.
Plus run at this stage. So if you just take it by region North America is as we look at the market near terms tight supply is being maintained capital discipline is there.
We'd expect those conditions to carry.
You would expect I think the public comments by a number of the larger <unk>.
Fleets out there would certainly support that.
Think about.
Outside North America combination of mining construction and energy.
Certainly continue to see.
Strong market conditions, although I would say.
Some of the the disruptions that you saw and you heard about in first quarter in terms of some of the regional challenges.
Or having some level of impact in terms of supply chain. There. So I would say in general a lower volume.
Volume markets appear to be struggling at some level more than some of the higher volume markets. So.
We assume that that condition continues for the balance of the year relative to where we've seen in prior cycles go.
We view this is relatively early days.
For those markets when you look at our under supplied they've been as well as just broader.
Demand conditions in terms of the last peak that we had I think we are well on the other side of on an annual basis, including.
Parts in excess of three or $400 million as a total run rate to give you a measure there. So we think there's certainly some room to run from here.
Okay.
Perfect. Thank you.
Our next question comes from the line of Jamie Cook with Credit Suisse. You May proceed with your question.
Hi, good evening.
And nice quarter.
I guess question for you Fred just in terms of how we're thinking about the cadence of revenue and EBITDA.
And margins are relative to what you said last quarter I think last quarter. You said, you expected Q2, and Q2 revenues and EBITDA to grow from the first quarter and I'm, just wondering where we stand given the better than expected first quarter and does that sort of imply.
You know we could be more towards the mid towards the high end of the range or am I missing something.
Thanks, Thanks, Jamie this is Fred.
It was a.
The strong revenue quarter.
North America on highway up eight.
8% certainly if you look at the industry production numbers would suggest that.
We outperformed there Dave already talked about the strength in <unk>.
And global off highway.
So thinking about it from a cadence standpoint.
We are.
We do expect Q2, and Q3 to be up from a revenue standpoint, slightly but again I'd say that that slight.
And then Q4 to be.
Lower you know normal nor normal sort of seasonal fourth quarter is our expectation.
And really.
From a from an EBITDA margin standpoint.
Really the only outlier quarter would be Q4.
Sorry from an absolute EBITDA standpoint, not from a margin standpoint, the outlier quarter would be would be Q4 with the softer revenue. So you know.
Most of the commentary that we provided relative to the you know the rest of the income statement on.
The initial guide still stands.
No.
SG&A up slightly but spend pretty evenly cadence and still anticipating engineering R&D up 10% on a year over year basis.
Okay. Thank you.
Our next question comes from the line of Larry de Maria with William Blair. You May proceed with your question.
Thanks.
Good afternoon everybody.
Questions here first on.
Obviously, you asked a bunch of wins.
And now you're alluding to partnerships oncoming.
Can you just talk a little about what to expect with requests partnerships. So these solutions with other suppliers are they going to be with Oems and more importantly, I'm trying understand is how it might affect margins going forward and then to follow up on the last point that you just made on R&D up 10% just curious about your ability to flex that if next year for example, softens with recession your ability to flex R&D.
Up and down.
Thanks.
Okay.
Larry It's Dave Good evening, So I guess wanted to be clear in terms of your.
Your comment on or question around partnerships.
We've Allison has been fortunate over the years to have partnerships at multiple levels. You know as we think about our strategic relationships whatever term you want to use and I would say.
The team here.
Despite some pretty challenging conditions over the last few years has really invested a lot of time and effort.
Supporting.
Our customers frankly, as well as our suppliers. So I think we feel well placed in that regard.
There are always opportunities to work together frankly, I think the amount of interaction that we've had for a lot of different reasons over that period of time.
Has served both parties' interests, so as we sit today.
Frankly, we think more broadly about that than we did several years ago so to your.
Your question there are more directly.
We don't rule anything out I think we have a tremendous amount of optionality around how.
How we think about our different end markets what the what the future holds we've also.
Maintained a fairly high level of Optionality with our <unk>.
Financial capability over the years.
B.
At some level opportunistic at the same time be supportive along the way of various situations. So I think the growth initiatives as we refer to them.
We require a fairly.
Heavy level of interaction.
And I would say throughout whether its customers suppliers other.
Technology relationships as well.
As well as continued to serve us.
Reasonably well the last couple of years and I would expect more of that here.
Going forward to your R&D.
Question here in terms of cadence you know I'll go back to we invest in R&D based on opportunity sets.
As we see our opportunities they're relatively high right now.
The amount of announcements that you have.
Yeah, certainly heard from Allison over the last.
Few years really supports that point, which as you know we're spending for good reasons, it's really very much market driven to the extent that there are opportunities there.
We will continue.
Our plan is to continue to invest at the same time.
We've had experienced in prior years prior cycles what.
Some level of adjustment in the market the team here as well heeled in that.
<unk> process, and we will certainly adjust accordingly, so I wouldn't say anything at this stage is absolute.
With our business and will take appropriate actions to mitigate manage towards whatever those market conditions are but I think the big takeaway here is maintaining a very high level of optionality as we think about our business and our end markets going forward.
Okay. Thanks, Dave.
Our next question comes from the line of Tami Zakaria with JP Morgan. Please proceed with your question.
Hi, everyone. Thank you so much for taking my questions I have a couple if I may.
First question is.
Is the higher than expected first quarter revenue.
Related to any timing of shipment and if not at timing related what's driving a conservative one.
And not to raising the lower end of the revenue guide for the year.
Sure sure Tami this is Fred.
Timing is always challenging in these uncertain environments, you know certainly as I mentioned.
Our revenue would look to.
As if we've outperformed industry builds.
I think if you did a weighted average of industry builds you would expect our revenue to be flat certainly we have some price in there. This is all relative to the North America on highway.
There could be an element of timing there like I said it is a.
You still have situations, where Oems are red tagging trucks and stuff.
Relative to the to the total guide.
You know our initial guide was broader than normal just due to the the global uncertainties and you know as we sit here today.
I would say uncertainty is elevated.
With the with the war in Ukraine.
The supply chain is still very challenged.
The pandemic shutdowns youre seeing in Asia.
So as we looked at.
All of the variables felt that it was prudent to to affirm our initial guide.
Got it.
Thank you and if I can ask another one.
The buyback cadence, we should expect this year it should it be similar to last year.
Yeah, Jamie this is Fred again.
Last year, we bought back.
12% of our outstanding shares.
Over a half a billion dollars of share repurchases settled.
For the first quarter as we said in our prepared remarks.
Over $80 million of repurchases.
About 2% of shares outstanding you know really from a capital allocation standpoint, you know our priorities remain the same.
Fund, you know organic revenue and earnings growth.
New product and technology development and you see us doing that you know our midpoint guide on Capex of $175 million.
$190 million planned spend on engineering R&D.
And it's you know strategic acquisitions and return of capital to shareholders in a prudent balance sheet management and maintaining the optionality with a low cost flexible pre payable debt structure. So that optionality is very important to us.
We're fortunate that.
We generate this business generates more cash than it needs.
We have raised the dividend three consecutive years.
Our intention to the to.
To fund our capital allocation priorities and that's going to include returning capital to shareholders. We will do that in an opportunistic way. So we certainly don't don't lay out the cadence public.
Publicly and which we plan to do that but I think our past history.
<unk>.
It provides a really good example, and I think we have a very shareholder friendly capital allocation policy.
Got it thank you so much.
Our next question comes from the line of Tim Thein with Citigroup. Please proceed with your question.
Thanks, Good afternoon, Fred maybe just curious as you think about the guidance.
What it what it assumes in terms of.
Price cost.
Obviously, the commodity environment looks a bit different than it did.
The last time, we spoke so has there been any change there I know there was also some potential for some additional pricing actions. So just maybe how those those two R. R.
And it's settling out is how are you.
You think about the balance of the year.
Sure Ken.
Yeah, as we as I mentioned with the initial guide.
You know definitely seeing cost cost pressure still coming in and.
While we had talked about 275 basis points in price.
Okay.
Certainly still.
Commented that we were out looking for additional opportunities. So as we think about price.
Yeah.
Fuel is more expensive the total cost of vehicles more expensive or transmissions.
They save fuel you know.
They get more work done in a day so when the price of the vehicle goes up our transmission is worth more.
Yes.
With our current roll up we do have more pricing there.
Roughly 375 basis points, so about another 100 basis points of price on a year over year standpoint.
That's all really commercial pricing.
The initial guide was 150 basis points. We're now at 250 basis points and then we have the commodity pass throughs, which youre going to pick up about 125 basis points to get to the 375 to the extent that the commodities are elevating most of those pass throughs.
Our to our customers will happen.
<unk> 23.
So as we sit here, we're really in a similar similar spots slightly you know price cost favorable.
And so.
So we're going to realize about 100 additional basis points of price, but we've continued to see cost inflation. So.
Our cost is elevated versus what we had in the initial in the initial guide.
Hopefully that's helpful.
It is thanks Brad.
Our next question comes from the line of Courtney <unk> with Morgan Stanley . Please proceed with your question.
Hi, Thanks, good afternoon guys.
I appreciate the update and a price cost maybe if you can also just give us an update on the supply chain I think last quarter you characterized it very much is impacting.
Impacting the industry production and not necessarily you specifically is that is that still the case and.
Acknowledging that you haven't raised.
Raised the consolidated sales guidance.
Any comment about the changes if maybe some of the makeup of them.
The the guidance by end market that you were targeting especially given that you're outperforming.
On highway in the first quarter.
The coordinated Steve good afternoon.
Yes, let me start with the supply chain.
I think I mentioned on the last call you know the process continues to take an extraordinary amount of time.
For our team and our partners to manage so I don't I would not say that unfortunately.
Improved significantly in terms of.
The resources that are that are being required to manage it.
We've seen some limited amounts of improvement in a few areas I don't think chips are getting.
The type of.
Attention that they were which is which is good it's more spur.
Sporadic in an obviously very much application dependent so I think we we feel better positioned there.
That being said.
If you the words I used earlier in terms of inputs constraints.
That's a much broader topic, because youre getting into not only.
<unk>.
Actually finished components or sub components, but we're now talking about labor logistics.
Lead times for raw materials et cetera.
I would.
Submit not.
Not a tremendous amount of improvement.
Broadly there and I think it's something that we're continuing to monitor very closely and put effort into it really comes back to when you look at the Oems I think they have a pretty high level of certainty around what their order books look like the challenge of course, as we've said many times as it takes.
All of us to have the complete set of components to complete our product and that continues to be a.
A challenge throughout the industry with that I would say, it's safe to assume for certain regions North America being one of them there is.
Continues to be a trend towards making sure the higher margin.
Vehicles trucks are getting out the door. So you can see that in some of the mix.
In the broader market and I think that will continue to be the case until there is more availability.
Terms of certainty around production, but the issues are there as I mentioned earlier.
At times lower volume.
Models, if you will can be more problematic because they're typically are done in smaller batches. So you're you're having to do trade offs with your supply base et cetera. So.
<unk> is working extraordinarily hard.
With our partners to make all of that happen, but the key takeaway is it's I would say slightly improve but still taking an outsized amount of time and attention to to manage on the sales guide by.
And market.
Given fred's comments and you can see in the press release affirming.
The full year guide if you.
To your question. If you can talk about puts and takes I would not.
I'd say theyre really dramatically different what we assumed the overall full year guide to be by end market that puts.
Puts and takes I would probably place us in.
A little bit better shape global on highway.
And I would say beyond that certainly to the pricing opportunities. We mentioned on the February call an hour. We're certainly talking about here again continue to provide us with.
Some opportunities, but I would say broadly by end market.
Consistent view of where.
Where we were back in February .
Great. Thank you.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Good evening and nice quarter.
Dave you've spoken about working with the bulk of your current customer base on electric vehicle products. I'm wondering if you could just talk about when do you expect major platform decisions or major milestones in the evaluation process and.
We look at the R&D that you're devoting to those efforts your R&D to sales was up to two 5% of sales over the past five years is it fair to view that as how much youre investing and developing those new products. Thanks.
Jerry I appreciate the question. So we continue to have a high level of interest in.
In our electrified products I would say the efforts continue broadly.
From a from a timing perspective.
That really point you towards what.
What the Oems are forecasting, which as I understand it are in.
Full of hundreds in many cases.
That's not even a low rate initial production by industry standards. So I think it'll be to answer your question directly a very slow ramp here.
I would also tied to the earlier question on supply chain.
It's not just limited to the conventional business.
When you look at <unk>.
Electrification and supply base, there is having its challenges as well, especially given some of the.
The lower volumes that I just referred to so.
It's a compounded problem of what the real underlying demand is how ready the market is for products Theres clearly some demand, but I would say it's at extreme.
Extremely low level right now and we'll let the Oems continue to progress their.
Programs, we feel good about our overall positioning.
But as we've also said taking the time.
For us to do it right.
With the right parties with the right outcomes is really what ultimately our focus is free.
Free on your spending comment as you know we've mentioned out of the 2020 to guide a significant portion of.
The R&D spend is committed to EV its opportunity driven as I said earlier.
And we continue to see significant opportunity in that space to ultimately expand our addressable market, having said all of that.
We're still in a position of.
Relatively slow ramp rates here, which is why I think you're continuing to get some feedback from at least the commercial vehicle side of our expectations about what this is going to look like over the.
The near to medium.
Term, but we're happy with the progress, we're making and.
Continue to engage at a high level with <unk>.
With our customers.
Thanks.
At this time, we have reached the end of the question and answer session. I will now turn the call back over to Dave quasi Yossi for any closing remarks.
Thank you John Thank.
Thank you for your continued interest in Allison and for participating on today's call and enjoy your evening.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Okay.
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