Q1 2025 Allison Transmission Holdings Inc Earnings Call
Matt: Good afternoon. Thank you for standing by. Welcome to the Allison Transmissions first quarter 2025 earnings My name is Matt and I'll be your conference operator. At this time, all participants are in a listen only mode.
Good afternoon, Thank you for standing by and welcome to the Allison transmissions first quarter 2025 earnings Conference call.
Matt: My name is Matt and I'll be your conference operator today at this time all participants are in a listen only mode.
Matt: After prepared remarks, Allison Transmission Executives will conduct a question and answer session, and the conference call participants will be given instructions As a reminder, this conference call is Conference over to Jackie Bolles, Executive Director of Treasury and Investor Relations.
Matt: After prepared remarks, Allison transmission executives, we will conduct a question and answer session and the conference call participants will be given instructions at that time.
Matt: As a reminder, this conference call is being recorded.
Speaker Change: To turn the conference over to Jackie Bowls Executive director of Treasury and Investor Relations. Please go ahead.
Jackie Bolles: Please go ahead. Thank you, Matt.
Speaker Change: Thank you Matt Good afternoon, and thank you for joining us for our first quarter 2025 earnings Conference call with me. This afternoon are they've got a V O E. Our chair and Chief Executive Officer, Fred Bully, our Chief operating officer.
Jackie Bolles: Good afternoon, and thank you for joining us for our first quarter 2025 Earnings Conference Call. With me this afternoon are Dave Graziosi, our Chair and Chief Executive Officer, Fred Bolle, our Chief Operating Officer, and Scott Mell, our newly appointed Chief Financial Officer and Treasurer. As a reminder, this conference call, webcast, and this afternoon's presentation are available on the Investor Relations section of AllisonTransmission.com.
Scott: Scott now our newly appointed Chief Financial Officer and Treasurer.
Scott: As a reminder, this conference call webcast and this afternoon's presentation are available on the Investor Relations section of Allison transmission Dot com.
Jackie Bolles: A replay of this call will be available through May 15th.
Scott: A replay of this call will be available through May 15.
Jackie Bolles: 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 2025 earnings press release and our annual report on Form 10-K for the year ended December 31st, 2024. 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.
Scott: As noted on slide two of the presentation. Many of our remarks today contain forward looking statements based on current expectations.
Scott: These forward looking statements are subject to known and unknown risks, including those set forth in our first quarter 2025 earnings press release and our annual report on Form 10-K for the year ended December 31 2020 for.
Scott: Should one or more of these brisk orange certainties materialize or should underlying assumptions or estimates prove incorrect actual results may vary materially from those that we express today.
Jackie Bolles: In addition, as noted on slide 3 of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our first quarter 2025 earnings press release.
Scott: 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.
Scott: 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 2025 earnings press release.
Matt: Today's call is set to end at 5.45 PM Eastern time.
Scott: Today's call is set to end at 545 P. M. Eastern time in order to maximize participation opportunities on the call. We'll take just one question from each analyst.
Jackie Bolles: In order to maximize participation opportunities on the call, we'll take just one question from each analyst. Please turn to slide 4 of the presentation for the call agenda. During today's call, Dave Graziosi will provide an update on recent announcements across our business, including a brief introduction and remarks from Scott Mell. Fred Bowley will then review our first quarter 2025 financial performance and full year 2025 guidance prior to commencing the Q&A.
Scott: Please turn to slide four of the presentation for the call agenda.
Scott: During today's call, Dave <unk> will provide an update on recent announcements across our business, including a brief introduction and remarks from Scott now Fred.
Scott: <unk> will then review our first quarter 2025 financial performance and full year 2025 guidance prior to commencing the Q&A now I'll turn the call over to Dave. Thank you Jackie and good afternoon, and thank you for joining US first I would like to welcome Scott milk to the Allison executive team, serving as our newly appointed Chief.
Dave Graziosi: Now, I'll turn the call over to Dave. Thank you, Jackie. Good afternoon, and thank you for joining us.
Dave Graziosi: First, I would like to welcome Scott Mell to the Allison executive team. Serving as our newly appointed chief financial officer and treasurer, Scott joins us with almost 30 years of diverse experience, providing strategic and financial leadership with an established and impressive track record. We are excited to welcome Scott and look forward to working with him as we continue to drive our vision and values and realize new opportunities that lie ahead.
Scott: Officer, and Treasurer, Scott joins us with almost 30 years of diverse experience, providing strategic and financial leadership puts and established an impressive track record. We are excited to welcome Scott and look forward to working with him as we continue to drive our vision and values and realize new opportunities that lie ahead, Scott she'd like to say a few word.
Scott Mell: Scott, if you'd like to say a few words. Thank you, Dave. Good afternoon, everyone. I am thrilled to be stepping into the role of Chief Financial Officer and Treasurer here at Allison and delighted to be working with such an experienced management team led by Dave and Fred. Needless to say, it is a very interesting time for the company, given current in-market dynamics, but I am highly energized by the opportunity to help shape the future of our business. Strategically guiding Allison through the next phase of our growth and development while continuing to deliver exceptional financial results for our shareholders.
Scott: <unk>.
Scott: Thank you Dave Good afternoon, everyone I'm thrilled to be stepping into the role of Chief Financial Officer, and Treasurer here at Allison and delighted to be working with such an experienced management team led by Dave and Brad.
Scott: Needless to say it is a very interesting time for the company given current end market dynamics, but I am highly energized by the opportunity to help shape the future of our business.
Scott: Strategically guiding Allison through the next phase of our growth and development, while continuing to deliver exceptional financial results for our shareholders.
Scott Mell: As a longtime resident of Greater Detroit, I am eager to get back to my roots of operating within the always interesting commercial vehicle industry. specifically working with an icon of the industry, Allison Transmission. As I get up to speed, I look forward to further engagement with the broader investment community in helping guide Allison through the next phase of our growth and development. As we continue to see significant growth in the preference for fully automatic transmissions outside North America, strengthening our service network is key to supporting our growing global customer base.
Scott: As a longtime resident of greater Detroit I'm eager to get back to my roots of operating within the always interesting commercial vehicle industry, and specifically working with an icon of the industry Allison transmission.
Scott: As I get up to speed I look forward to further engagement with the broader investment community and helping Guy Allison through the next phase of our growth and development.
Speaker Change: Thank you Scott moving on with other announcements during the quarter late last month, we were pleased to announce that Allison's 30, 40, Amex medium weight Cross drive transmission was selected as the propulsion solution of choice across all Oems competing for India's future infantry combat vehicle or.
Scott: F I see the prototype.
Scott: C V program aimed to modernize the Indian Army fleet of aging infantry fighting vehicles with intention to procure approximately 1750 F. I C vs. The total revenue opportunity for Allison could represent several hundred million dollars over the next two decades being selected.
All Oems competing in the F. I C. V program is a testament to the superior durability reliability and performance of our 30, 40, amex transmission and underscores allison's commitment to growth in international defense markets.
Scott: March we announced that Daimler truck North America or D. T. N E has standardized allison's fuel since 2.0 neutral at stop technology for their Freightliner and Western Star trucks, Allison's neutral at stop technology reduces engine engine load it stops and reduces unnecessary fuel.
Scott: Option when vehicles are at idle car technology ensures that fuel is used for movement not idling enhancing overall fuel efficiency. We are pleased to partner with D. T N. A to make this innovative solution a standard offering for our customers supporting fleets and their goals to reduce fuel consumption and vehicle.
Scott: Emissions during the quarter, we also announced the expansion of our global service network across Japan, and West Africa.
Scott: During our current network comprised of 1600 independent dealer and distributor locations and underscoring allison's commitment to delivering global customer support and service accessibility. We have entered into service dealer agreements informed strategic partnerships to strengthen service capabilities in <unk>.
Scott: Key regions.
Scott: We continue to see significant growth and a preference for fully automatic transmissions outside North America strengthening our service network is key to supporting our growing global customer base before passing it to Fred for a review of our financial performance I would like to take a moment to share some perspective on the broader environment in which we are.
Scott Mell: Before passing it to Fred for review of our financial performance, I would like to take a moment to share some perspective on the broader environment in which we are currently operating. Although ongoing geopolitical tensions and shifting trade policies are creating uncertainty across our end markets, Allison's strategic advantages provide us with the flexibility to tolerate the current environment. Utilizing our global footprint, Allison can provide our North American customers with made-in-the-USA products and supply our outside North American customers with on-highway products produced outside North America. In addition, over 85 percent of our direct material spend is with suppliers based in North America.
Fred: Currently operating although ongoing geopolitical tensions and shifting trade policies are creating uncertainty across our end markets Allison's strategic advantages provide us with the flexibility to tolerate the current environment.
Fred: Utilizing our global footprint Alison can provide our north American customers with made in USA products and supplier outside North American customers with on highway products produced outside North America. In addition over 85% of our direct material spend is with suppliers based in North America.
Scott Mell: A majority are located in the United States, with those located in Canada and Mexico currently under USMCA exemptions. Importantly, Allison's sourcing from China is minimal regarding the number of components and spend. Also, through our long-term supply agreements with customers, we pass through approximately two-thirds of steel and 80 percent of aluminum cost. Finally, 30 to 40 percent of our North America on-highway business is with municipal customers. As we have demonstrated through previous economic cycles, this portion of our business is insulated from the macroenvironment, with municipalities continuing to buy amidst uncertainty. When taken together, we believe Allison is well positioned to continue to supply our end markets while maintaining strong financial performance while remaining focused on our growth initiatives and operational efficiency, executing on both our near-term and longer-term strategic initiatives, and proactively addressing changing market dynamics.
Fred: The majority are located in the United States with those located in Canada, and Mexico currently under U S. MCA exemptions importantly, Allison sourcing from China is minimal regarding the number of components and spend.
Fred: So through our long term supply agreements with customers, we pass through approximately two thirds of steel and 80% of aluminum cost.
Fred: Finally, 30% to 40% of our North America on highway businesses with your municipal customers as we have demonstrated through previous economic cycles. This portion of our business is insulated from the macro environment with municipalities continuing to buy amidst uncertainty when taken together, we believe Allison is well.
Fred: To continue our two supplier end markets, while maintaining strong financial performance, while remaining focused on our growth initiatives and operational efficiency executing on both our near term and longer term strategic initiatives and proactively addressing changing market dynamics.
Scott Mell: We appreciate your support as we move through this period with resilience, maintaining our commitment to delivering long-term sustainable growth.
Fred: We appreciate your support as we move through this period with resilience, maintaining our commitment to delivering long term sustainable growth. Thank you and I'll now turn the call over to Fred. Thank you David following Dave's business update I'll review, our first quarter financial performance and our full year 2025 guidance.
Fred Bolle: Thank you, and I'll now turn the call over to Fred. Thank you, Dave. Following Dave's business update, I'll review our first quarter financial performance and our full year 2025 guidance. Please turn to slide 5 of the presentation for the Q1 2025 Performance Summary. Year-over-year net sales decreased 3% from the same period in 2024 to $766 million. Year-over-year results were driven by a 4% increase in the North American on-highway end market, principally driven by price increases on certain products. and Continued Strength in Class 8 Vocational Trucks Partially Offset by Lower Demand for Medium Duty Trucks. Year-over-year net sales were also driven by a 10% increase in net sales in the defense end market, principally driven by price increases on certain products.
Fred: Please turn to slide five of the presentation for the Q1 2025 performance summary.
Fred: Year over year net sales decreased 3% from the same period in 2024, two $766 million.
Fred: Year over year results were driven by a 4% increase in the North American on highway end market, principally driven by price increases on certain products.
Fred: And continued strength in class eight vocational trucks, partially offset by lower demand for medium duty trucks.
Fred: Year over year net sales were also driven by a 10% increase in net sales in the defense end market, principally driven by price increases on certain products.
Fred Bolle: Gross profit for the quarter was $378 million, an increase of $12 million from $366 million. for the same period in 2024. The increase in gross profit was principally driven by price increases on certain products. and UAW contract signing incendies recognized in the first quarter of 2024 that it did not reoccur in 2025. Net income for the quarter was $192 million, an increase of $23 million from $169 million for the same period in 2024. The increase was principally driven by higher gross profit and unrealized mark-to-market adjustments for marketable securities. Diluted earnings per share increased 17% year-over-year to $2.23.
Fred: Gross profit for the quarter was $378 million, an increase of $12 million from $366 million.
Fred: For the same period in 2024, the increase in gross profit was principally driven by price increases on certain products and.
Fred: And UAW contract signing in Sydney is recognized in the first quarter of 2024 that did not reoccur in 2025.
Fred: Net income for the quarter was $192 million, an increase of $23 million from $169 million for the same periods. In 2024. The increase was principally driven by higher gross profit and unrealized mark to market adjustments for marketable securities.
Fred: Diluted earnings per share increased 17% year over year to $2 23, since the increase was principally driven by higher net income and lower total diluted shares outstanding.
Fred Bolle: The increase was principally driven by higher net income and lower total diluted shares outstanding. Adjusted EBITDA margin for the quarter was 37.5%, an increase of 90 basis points year-over-year. A detailed overview of our net sales by end market and Q1 2025 financial performance can be found on slides six and seven of the presentation.
Fred: Adjusted EBITDA margin for the quarter was 37, 5% an increase of 90 basis points year over year.
Fred: A detailed overview of our net sales by end market in Q1 2025 financial performance can be found on slides six and seven of the presentation. Please turn to slide eight of the presentation for the Q1 2025 cash flow performance summary.
Fred Bolle: Please turn to slide eight of the presentation for the Q1 2025 cash flow performance summary. Net cash provided by operating activities for the quarter was $181 million compared to $173 million for the same period in 2024. The increase was principally driven by UAW contract signing incentives paid in the first quarter of 2024 that did not reoccur in 2025. We ended the first quarter with a net leverage ratio of 1.43 times. $753 million of cash and $744 million of available revolving credit facility commitments. We continue to maintain a flexible, long-dated, and covenant-like debt structure with our earliest maturity due in October 2027.
Fred: Net cash provided by operating activities for the quarter was $181 million compared to $173 million for the same period in 2024. The increase was principally driven by UAW contract signing incentives paid in the first quarter 2024 that did not reoccur in 2025.
Fred: We ended the first quarter with a net leverage ratio of 143 times.
Fred: $750 million to $53 million of cash and $744 million of available revolving credit facility commitments. We continued to maintain a flexible long dated and covenant light debt structure with our earliest maturity due in October 2027.
Fred Bolle: Allison remains committed to prudent balance sheet management and shareholder-friendly capital allocation priorities, as demonstrated by the sixth consecutive annual increase to our quarterly dividend. Our quarterly dividend has increased over 80% since 2019. Also in the quarter, we announced a $1 billion increase in our authorization under our stock repurchase program. During the first quarter, we repurchased over $150 million of our common stock, representing nearly 2% of outstanding shares. We ended the first quarter with nearly $1.4 billion of authorization remaining.
Fred: Allison remains committed to prudent balance sheet management and shareholder friendly capital allocation priorities as demonstrated by the sixth consecutive annual increase to our quarterly dividend our quarterly dividend has increased over 80% since 2019.
Fred: Also in the quarter, we announced a $1 billion increase in our authorization under our stock repurchase program. During the first quarter, we repurchased over $150 million of our common stock representing nearly 2% of outstanding shares. We ended the first quarter with nearly $1 4 billion of authorization remaining.
Fred Bolle: Please turn to slide 9 of the presentation for our 2025 guidance. While our supply chain and manufacturing footprint minimizes our exposure to global trade uncertainties, we continue to monitor the tariff environment and plan to offset the impact. Consistent with our previous assumptions, including continued strength in demand for Class 8 vocational trucks and defense vehicles, we are reaffirming our full year 2025 guidance provided to the market on February 11th. Allison expects net sales to be in the range of $3.2 billion to $3.3 billion. In addition to Allison's 2025 net sales guidance, we anticipate net income in the range of $735 to $785 million, adjusted EBITDA in the range of $1,170,000,000 to $1,230,000,000, net cash provided by operating activities in the range of $800 to $860 million.
Fred: Please turn to slide nine of the presentation for our 2025 guidance.
Fred: While our supply chain and manufacturing footprint minimizes our exposure to global trade uncertainties, we continue to monitor the tariff environment.
Fred: And plan to offset the impact consistent with our previous assumptions included contingent strength in demand for class eight vocational trucks and defense vehicles, we are reaffirming our full year 2025 guidance provided to the market on February 11th.
Fred: Allison expects net sales to be in the range of $3.200 billion to $3.300 billion.
Fred: In addition to Allison's 2025, net sales guidance, we anticipate net income in the range of $735 million to $785 million adjusted EBITDA in the range of $1 billion $170 million to $1 billion $230 million net cash provided by operating activities in the <unk>.
Fred: <unk> of $800 million to $860 million.
Fred Bolle: capital expenditures in the range of $165 to $175 million and adjusted free cash flow in the range of $635 to $685 million.
Fred: Capital expenditures in the range of $165 million to $175 million and adjusted free cash flow in the range of $635 million to $685 million.
Fred Bolle: This concludes our prepared remarks.
Fred: This concludes our prepared remarks, Matt Please open the call for questions.
Matt: Matt, please open the call for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation phone will indicate your line is in the question. You may press star 2 to remove yourself.
Fred: Great. Thank you, we'll now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Fred: Confirmation tone will indicate your line is in the question queue.
Fred: You May press star two to remove yourself from the queue, we're testing to using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Matt: We're just going to be using speaker equipment, it may be necessary to pick up your headset before pressing.
Matt: One moment, please.
Fred: One moment, please pull for questions.
Fred: Yes.
Kyle Menges: Next question here is from Kyle Menges from Citigroup, please go ahead. Thank you. I thought it was nice margin performance in the quarter. I mean, margins increased 270 basis points year over year in the quarter versus the full year guide implying 80 basis points, at least for the full year margin expansion. So just could we unpack that a little bit and what drove the really solid margin results in the quarter? I mean, especially considering that the higher margin parts business was down about seven and a half percent year over year.
Carlo: First question here is from Carlo mentioned from Citigroup. Please go ahead.
Fred: Yeah.
Carlo: Thank you I thought it was a nice margin performance in the quarter I mean margins increased 270 basis points year over year in the quarter versus the full year guide imply 80 basis points at least for the full year margin expansion. So just can we unpack that a little bit and what drove the really solid margin results in the.
Carlo: Quarter, especially considering that the higher margin parts business was down about seven 5% year over year.
Fred Bolle: Yeah, Kyle. Thank you.
Carlo: Yeah, Kyle. Thank you this is Fred.
Fred Bolle: This is Fred. I'm really looking at the margins on a year-over-year basis, as you mentioned, certainly expanded. is specifically looking at you know, at gross margins. you know, and walking that through, you know, first quarter of last year, we were at 46.4%, you know, coming in at 49.3%, and then dropping down to EBITDA margins, as you mentioned, you know, 90 basis points of expansion, you know, relative to the gross margin expansion, you know, price was meaningful, $39 million in price in the quarter. We did have The one-time UAW signing incentives in gross profit last year, that was excluded from EBITDA.
Carlo: I'm really looking at the in the margins on a year over year basis, Yeah. As you mentioned certainly expanded.
Carlo: And specifically looking at.
Carlo: You know our gross margins.
Carlo: You know in walking that through you know first quarter of last year were 46, 4% coming in at a 49, 3% and then dropping down to EBITDA margins. As you mentioned, you know 90 basis points of expansion.
Carlo: Relative to the gross margin expansion price was meaningful a $39 million in price in the quarter.
Carlo: We did have a.
Carlo: You know the onetime UAW signing incentives in gross profit last year that was excluded from EBITDA, but you know relative to gross profit.
Fred Bolle: But relative to gross profit, $13 million and lower expense there. And then obviously net sales was down after price, which impacted us $37 million with material costs unfavorable, $6 million. So that will basically bridge you to the $12 million.
Carlo: $13 million and lower expense there and then obviously net sales was down after price, which impacted us a $37 million with material costs unfavorable 6 million. So that's basically a bridge you to the the $12 million.
Fred Bolle: from a gross profit standpoint, and that will all be disclosed when we publish the Q tomorrow. relative to EBITDA margin. You know, that 90 basis points. Net sales down $20 million, unfavorable vol mix, really offset by the price, $39 million in price or roughly 500 basic points of price recognized on a year-over-year basis.
From a gross profit standpoint, and that will all be disclosed when we publish the Q tomorrow.
Carlo: You know relative to EBITDA margin.
Carlo: You know that 90 basis points.
Carlo: Net sales down $20 million unfavorable vol mix, you know really offset by the price of $39 million in price roughly 500 basis points, a price recognized on a year over year basis.
Carlo: Okay.
Kyle Menges: Thank you. That's helpful.
Carlo: Thank you that's helpful.
Isaac Salas: Our next question is from Ian Zaffino from Oppenheimer, please go ahead. Hey, good afternoon.
Speaker Change: Our next question is from Ian Zaffino from Oppenheimer. Please go ahead.
Carlo: Yes.
Charles: Hey, Good afternoon. This is Charles on the author Ian Thanks for taking the question.
Isaac Salas: This is Isaac Salas, I'm on for Ian. Thanks for taking the question. I just have one. Could you provide some high level thoughts on just any vocational demand environment, maybe where specifically strength is coming from? And are you not seeing any weakness at all from customers or within the useful spending or funding, etc? Thanks very much.
Charles: One could you just provide some high level thoughts on just the vocational demand environment, maybe where specifically shrank this coming from.
Charles: And are you seeing any weakness at all from customers or within the useful spending or funding et cetera. Thanks.
Dave: Hi, This is Dave a couple of things there so as we talked about and I'm sure you recall back both most of our calls last year and followed by our call in February in terms of North America.
Charles: Vocational.
Charles: Continues to be our expectation was entering this year continued to be a relatively robust and strong market I would certainly point you to the comments of certainly the North America Oems and what they're seeing from a vocational perspective again, not I would not disagree with their their com.
Charles: We continue to enjoy.
Charles: Significant market position there.
Charles: Demand for our product as you know we've made some investments over the last number of years to increase capacity so where.
Charles: Certainly well positioned to supply the level of this market, which you know more or less a relatively flat over any over on a year over year basis consistent with what we had mentioned in February so you.
Charles: As we discussed or mentioned in the prepared comments you know again with the underlying fundamentals, even with our portfolio around municipalities. They continued to be very.
Charles: Very present in the market for vocational vehicles, and I'm sure you're aware of other the.
Charles: The OEM comments that have vocational exposure.
Charles: A number of the sub segments. There. So we're benefiting from that as well from the support perspective as we've discussed.
Charles: We're a bit of investments happening out in the marketplace that dates back several years.
Charles: I would also mention the more recent announcements with the new administration in Washington continue.
Charles: It continues to be supportive of investment and in the U S. So the team here is well positioned.
Charles: Supply market demand and meet customer expectations.
Charles: Thanks very much.
Charles: Yeah.
Tim Thein: Next question is from Tim Thein from Raymond James, please go ahead. Great. Thank you. Good afternoon.
Tim Thein: Next question is from Tim Thein from Raymond James. Please go ahead.
Speaker Change: Great. Thank you good afternoon, Scott welcome.
Tim Thein: And, Scott, welcome.
Tim Thein: We get to work with you.
Dave.
Tim Thein: With respect to.
Tim Thein: Looking at the cash balance.
Tim Thein: Looks to be another strong year of cash generation for our usual.
Dave Graziosi: David Graziosi, Robert Wertheimer, Kyle Menges, Sherif Abdul, Jacalyn Bolles, Tami Zakaria, Angel Castillo, Jerry Revich, Timothy Thein, David Graziosi, Robert Wertheimer, Kyle Menges, Sherif Abdul, Jacalyn Bolles, Tami Zakaria, Angel Castillo, Jerry Revich, Timothy Thein, David Graziosi, Robert Wertheimer, Kyle Menges, You're welcome, Tim. Thank you for that question.
Tim Thein: How youre thinking about.
Tim Thein: Capital outlay capital allocation.
Tim Thein: Especially with respect to M&A.
Tim Thein: Obviously it hasn't been.
Tim Thein: The central part of it.
Tim Thein: Strategy historically, but just curious if you had any updated thoughts in terms of how youre thinking about.
Tim Thein: M&A and other potential avenues to deploy capital. Thank you.
Tim Thein: Youre welcome Tim and thank you for that question I'll start and then Fred will finish here, but I would just say consistent with our shareholder friendly position with capital allocation, we increased our dividend earlier this year.
Dave Graziosi: I'll start and then Fred will finish here. But I would just say, you know, consistent with our shareholder-friendly position with capital allocation, you know, we increased our dividend earlier this year. We continued on the path of share repurchases, I'm sure you noticed from our results. And most importantly, beyond the two items that I mentioned, you know, we're certainly fully funding our business at this point from an organic growth perspective, as well as product variants, as well as new products, completely new products. I think the team is executing well there overall and really driving towards that.
Tim Thein: We continued on the path of share repurchases I'm sure you are.
Tim Thein: Notice from our results.
Tim Thein: Most importantly.
Tim Thein: Beyond the two items that I mentioned, where we're certainly fully funding our business at this point from a organic growth perspective, as well as product variance as well as new products completely new products I think the team is executing well there overall.
Tim Thein: Really driving towards that so beyond that as we've talked about a number of different.
Fred Bolle: So beyond that, as we've talked about, a number of different options out there for growth, and I'll let Fred comment on that. Sure. Thanks, Dave. As Dave walked through, I mean, definitely we are sticking to our capital allocation priorities. First and foremost, funding the business, organic revenue growth, capacity, the activities we're taking in India. But we're always looking at what could be better inside of Allison than out. So we're certainly... You know, spending time, you know, proactively looking at different, different opportunities. Obviously, you know, a little bit of a tough market back right now, but.
Tim Thein: Options out there for growth and I'll, let Fred comment on that.
Fred: Sure. Thanks, Dave.
Fred: As Dave walk through I mean, definitely we are sticking to our capital allocation priorities first and foremost funding the business.
Fred: Organic revenue growth.
Fred: Capacity the activities were taken in India.
Fred: But we're always looking at what could be better inside of allison's in out.
Fred: So we're certainly.
Fred: Spending time proactively looking at different.
Fred: Different opportunities, obviously, you know a little bit of a tough market back right now but.
Fred Bolle: You know, we obviously sit here, you know, in a position of strength, strong balance sheet and, you know, a company that, you know, is able to generate, you know, you know, meaningful cash in just about any market environment, you know, we've actively mitigated the risk, you know, really proactively relative to our footprint and supply chain. So what we're seeing right now, while everybody's exposed to tariffs, you know, the impact to tariffs, you know, we feel very confident we can offset. So sitting here from a strong, you know, financial profile, we'll continue to proactively look at what might be out there that would be a good fit, as you would expect.
Fred: Yeah.
Fred: We obviously sit here in a position of strength strong balance sheet.
Fred: And a company that is able to generate.
Fred: Meaningful cash in just about any market environment.
Fred: Actively mitigated the risk.
Fred: You know really proactively relative to our footprint and supply chain. So what we're seeing right now.
Fred: Well everybody is exposed to tariffs.
Fred: The impact to us.
Fred: We feel very confident we can offset so sitting here from a strong financial profile will continue to proactively look at what might be out there that would be a good fit.
Fred: As you would expect.
Fred: Yeah.
Robert Wertheimer: If you have any questions for Robert Wertheimer or Milius, please go ahead. Thanks. There's a Trump administration-led Section 232 investigation into sort of truck supply chains and so forth. And I'm not fully up to speed on where everybody makes transmissions. I know you guys have, obviously, extraordinarily high share in fully automatic transmission.
Speaker Change: Next question is from Rob Wertheimer familiar. Please go ahead.
Fred: Okay.
Fred: Thanks.
Fred: As a.
Speaker Change: Trump administration led section 232 investigation into sort of truck supply chains, and so forth and I am not fully up to speed on where everybody makes transmissions. I know you guys have obviously extraordinarily high share in fully automatic transmission transmissions.
Dave Graziosi: But maybe it'd be a good moment to check in on Regional Hall as well just to see if, I don't know if there's any mismatch basically in the supply base that could advantage you if things come down in that direction. Thank you.
Speaker Change: But maybe it would be a good moment checking on regional haul as well just to see if I don't know if theres any mismatch basically in the supply base that could advantage you if things come down in that direction.
Dave Graziosi: Hi, Rob. It's Dave. Thank you for that question. So, you know, back to our prepared remarks, you know, as we laid out, I think we're well-positioned, given our footprint in North America, more specifically the U.S., to supply the North American on-highway market with a high level of localized content, if you will, at the same time relatively well-aligned with our outside North America on-highway customers and demand by region.
Speaker Change: Hey, Brian It's Dave. Thank you for that question so back to our prepared remarks. So you know as we've laid out I think we're well positioned given our footprint in North America more specifically the U S to supply.
Speaker Change: The North American on highway market with with a high level of localized content. If you will at the same time.
Speaker Change: Relatively well align with our outside North America on highway.
Speaker Change: Customers in demand by region.
Dave Graziosi: To your point on regional, the whole series or the, you know, basically the daycab tractor market, as I'm sure you're aware, that forecasts or forecasts that are out there for that particular market are relatively soft this year. So we're, you know, pursuing our market share position there in terms of our regional haul series product. We don't at this point anticipate significant dislocation issues if you're, you know, to your question on other suppliers' positions there. I think it's a market that's very well-established.
Speaker Change: To your point on regional.
Speaker Change: The whole series or the basically the day cab tractor market as I am.
Speaker Change: Sure Youre aware that forecast or forecast that are out there for that particular market are relatively.
Speaker Change: Soft this year so we're pursuing.
Speaker Change: Our market share position there in terms of our regional haul series product.
Speaker Change: We don't at this point anticipate significant dislocation issues, if you're to your question on other suppliers positions. There I think it's.
A market that is very well established.
Dave Graziosi: Having said that, you know, I would say the tariff issue in general, as everybody knows, still remains highly uncertain. I would also offer, you know, there can be and I would expect will be intended and unintended consequences of those that everybody is still trying to digest and understand. So that's how we see things currently given what's been communicated.
Speaker Change: Having said that I would say the tariff issue in general is as everybody knows still it remains highly uncertain.
Speaker Change: I would also offer there can be and I would expect will be intended and unintended consequences of those that everybody is still trying to digest and understand so.
Speaker Change: That's how we see things currently given what's been communicated.
Speaker Change: Communicated your comments in terms of the.
Dave Graziosi: Your comment in terms of this 232 investigation, I guess public comments are due on that I believe the middle of this month-ish. So it'll be, again, something we'll keep an eye on and be responsive to. I look forward to reading comments. Perfect.
Speaker Change: 232 investigation I guess public comments are due on that.
Speaker Change: I believe the middle of this month ish, so it'll be again, something we'll keep an eye on and be responsive to.
Speaker Change: Look forward to reading comments.
Dave Graziosi: And then you mentioned the kind of stability in Class VIII.
Speaker Change: Perfect and then you mentioned the kind of stability in <unk>.
Speaker Change: Class eight.
Dave Graziosi: Any comments on medium duty and the dynamics in that market? It's already corrected somewhat. I wonder where you see it and what the drivers up and down are. Sure. The medium-duty North America, I believe, is your question. As we had mentioned back on February 11th, call our expectation, and I believe the broader market was medium-duty to be down on a year-over-year basis. The market has, in fact, played out that way. I would say the most recent OEM comments are consistent with that as well. As we talked about in February, we saw the medium-duty market well-supplied from an inventory perspective, and I do not believe at this stage we're expecting anything different than consistency with the guide that we had back in February.
Speaker Change: Any comments on medium duty and the dynamics in that market, it's already corrected somewhat I wonder where you see it and what the drivers up and down our and I'll stop there. Thank you.
Speaker Change: Sure.
Speaker Change: Medium duty North America believes your question is we.
Speaker Change: We had mentioned back of February 11th call, our expectation and I believe the broader market was medium duty to be down on a year over year basis. The market has in fact played played out that way I would say the most recent OEM comments are consistent with that as well as we talked about in February.
Speaker Change: We saw the medium duty market well supplied from our.
Speaker Change: Inventory perspective.
Speaker Change: I do not believe at this stage, we're expecting anything different than consistency with the guide that we had back.
Speaker Change: In February.
Dave Graziosi: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Tami Zakaria: Our next question is from Tami Zakaria from J.P. Morgan, please go ahead. Hey, good afternoon. Thank you so much. So, it seems like pricing was up about 4.9 percent-ish in the quarter, which stepped up from about 3 in the fourth quarter. So, is a mid-single-digit percent price realization a good proxy for the rest of the year, or could it accelerate as the year progresses?
Speaker Change: Our next question is from Tami Zakaria from Jpmorgan. Please go ahead.
Tami Zakaria: Hey, good afternoon, and thank you so much.
Speaker Change: And so it seems like pricing was up about four 9% ish in the quarter.
Speaker Change: Stepped up from about three in the first quarter. So is it mid single digit percent price realization a good proxy for the rest of the AR or.
Speaker Change: Could it accelerate.
Speaker Change: They are progressing.
Fred Bolle: Hi Tami, this is Fred. Your numbers are fairly accurate. So we initially guided, we talked about 400 basis points of price. We secured a little more price in the first quarter, closer to 500 basis points. We look for. You know, the balance of the year. I think at this point, we'll probably come in a little north of the 400 basis points. So to your point, is a mid-single digit possible? I think the answer is yes. Understood. Thank you.
Speaker Change: Hi, Tami this is Fred.
Speaker Change: Your numbers are.
Speaker Change: Fairly accurate so.
Speaker Change: And we initially guided we talked about 400 basis points of price, we secured a little more price in the first quarter.
Speaker Change: Closer to 500 basis points as we look for.
Speaker Change: The balance of the year.
Speaker Change: Yes, I think at this point will probably come in a little north of the 400 basis points.
Speaker Change: To your point is a mid single digit possible.
Speaker Change: Yes.
Speaker Change: Understood. Thank you.
Speaker Change: Yeah.
Angel Castillo: Next question is from Angel Castillo from Morgan Stanley, please go ahead. Hi. Thanks for taking my question. Just maybe wanted to go back to some of the regulatory or administration-related dynamics. There's also the EPA 27 regulation being kind of under review and then some recent votes in the House kind of targeting CARB a little bit more. Just curious if there's any implications on your broader business as you think about, you know, what's kind of embedded in your outlook and what you're seeing in terms of as some of these emissions regulations maybe come under pressure or maybe get pushed out.
Speaker Change: Next question is from Angel Castillo from Morgan Stanley. Please go ahead.
Angel Castillo: Hi, Thanks for taking my question just maybe wanted to go back to some of the regulatory or administration related.
Angel Castillo: Dynamics, there's also the EPA 27 regulation being kind of an overview and some recent.
Angel Castillo: It's in the house.
Angel Castillo: Kind of targeting car, but a little bit more just curious if there's any implications on your broader business as you think about whats kind of embedded in your in your outlook and what Youre seeing in terms of demand as some of these emissions regulations, maybe come under pressure or maybe get pushed out.
Dave Graziosi: Thank you for that question. So, you know, we certainly continue to monitor discussions of modifications to APA 27 from the new administration and the executive orders, etc. Also, responses from the individual states. You know, as we've talked about, I believe, before, our product does not require significant modification in order to pair with these new engines. And so with the proposed emissions regs, the short story there is largely our work is done. We've also announced a number of changes with our product lineup to align with the new engines and their ratings. That being said, you know, there's quite a bit of uncertainty surrounding what could happen, what will happen.
Angel Castillo: Sure. Thank you for that question. So we certainly continue to monitor discussions of modifications to EPA 27 from the New administration and the executive orders et cetera also.
Angel Castillo: Responses from.
Angel Castillo: The individual states.
Speaker Change: As we've talked about I believe before our product does not require significant mod modification in order to pair with these new engine. So.
Speaker Change: With the proposed emissions regs. So the short story there is largely our work is done.
Speaker Change: We've also announced a number of chain.
Speaker Change: Changes to our with our product lineup to align with the new engines in their ratings.
Speaker Change: That being said there is quite a bit of uncertainty surrounding what what could happen what will happen.
Dave Graziosi: In that regard, you can then get to the next. question around potential impact on pre-buys, etc. I believe, we believe, the industry is largely pivoted from a supply-based perspective to align with the new emissions regulations that would be effective for 2027. The real question there is what the overall final regs, we believe, will drive requirements and thus the cost of the vehicle. So that's really the underlying issue, we believe, at this stage relative to any type of outsized demand or non-normal demand. I would also offer, given These announcements by the new administration, there continues to be a fairly high level of interest from OEMs in our conventional fuel efficiency features.
Speaker Change: In that regard you can then get to the next.
Speaker Change: Question around potential impact on on pre buys et cetera.
Speaker Change: I believe we believe the industry is largely pivoted from a supply base perspective to align with the new.
Speaker Change: Emissions regulations that would be effective for 2027.
Speaker Change: The real question there is what the overall final regs, we believe will drive our requirements and thus the cost of the vehicle. So.
Speaker Change: That's really the underlying issue we believe at this stage relative to any type of.
Speaker Change: Outside demand or non normal demand.
Speaker Change: Demand I would also offer.
Speaker Change: Given.
Speaker Change: These announcements by the New administration, there continues to be a fairly high level of interest.
Speaker Change: <unk> from Oems and our conventional fuel efficiency features and as we mentioned in prepared remarks with the <unk> adoption of fuel sense.
Dave Graziosi: As we mentioned in prepared remarks with DTNA's adoption of FuelSense and Neutral at Stop amongst a number of other technologies we deployed, we feel very well positioned in terms of the new emissions, the push for more efficient, more fuel efficiency as well as alternate fuels across the board. So we're pretty confident in terms of where we sit. I think now it's just a question back to your question, which is what are the final answers going to be there? And that's something we're staying close to and we'll maintain very focused on as we get further into the year.
Speaker Change: And neutral at stop amongst a number of other technologies we deployed.
Speaker Change: We feel very well positioned in terms of.
Speaker Change: The new emissions the push for more efficient.
Speaker Change: More fuel.
Speaker Change: Fuel efficiency as well as alternate fuels across the board. So we're pretty confident in terms of where we sit I think now it's just a question back to your question, which is what are the final.
Speaker Change: The answer is going to be there and thats something worse, we're staying close to and we will maintain very focused on as we get further into the year.
Speaker Change: Thank you.
Okay.
Luke Junk: My next question is from Luke Junk from Baird. Please go ahead. Yeah, maybe just a quick one for me.
Speaker Change: Our next question is from Luke junk from Baird. Please go ahead.
Speaker Change: Maybe just a quick one for me, hoping you just comment on the step down in the parts business sequentially just anything in there that would be sticky or Conversely, onetime in nature and just trying to square it with the full year view, which was I think flattish. Thank you.
Fred Bolle: Hoping you'd just comment on the step down in the parts business sequentially, just anything in there that would be sticky or conversely one time in nature and just trying to square it with the full year view, which was, I think, flat-ish. Thank you.
Fred Bolle: Yeah, Luke, this is Fred. There really isn't anything I'd say specifically I would call out, it was... You know, year-over-year unit sales were down, so you had to lower support equipment for the initial installation of those units. But we also saw just, I'd say, general weakness across the global service part. So, you know, nothing that I'd necessarily highlight. We are, we're coming off of two really strong years. in, you know, 23 and 24, you know, fairly robust out there, but, you know, I do think a lot of vehicles have been replaced. You know, we're also We've got vehicles that are coming into service during some low volume years.
Fred: Yes, Luke this is Fred.
Fred: There really isn't anything I would say, specifically I would call it out it was.
Fred: Year over year unit sales were down.
Fred: Down so you had lower support equipment for the initial installation of those units, but we also saw just I'd say general weakness across the global service parts.
Fred: So.
Fred: Nothing that I would necessarily highlight we're coming off of two really strong years.
Fred: In 'twenty, three and 'twenty four fairly robust out there.
Fred: But I do think that.
Fred: A lot of vehicles had been replaced.
Fred: And.
Fred: We're also.
Fred: You know.
Fred: We've got vehicles that are coming into service during some low volume years, when I say that think about 2020 vehicles. When volumes were down are now coming out of warranty and going into.
Fred Bolle: When I say that, think about 2020 vehicles when volumes were down are now coming out of warranty and going into availability for retail sale of parts. So they're displaced in some higher volume years, which is why our initial guide on that end market was I think 1% down. Thank you for that, Fred.
Fred: Availability for retail sell parts.
Fred: So they are displacing some higher volume years, which as you know.
Fred: Why our initial guide on that end market was I think 1% down.
Fred: Got it thank you for that brand.
Jerry Revich: Our next question is from Jerry Revich from Goldman Sachs, please go ahead. Yes, hi. Good afternoon, everyone. And, Scott, congratulations.
Speaker Change: Our next question is from Jerry Revich from Goldman Sachs. Please go ahead.
Yes, hi, good afternoon, everyone and then Scott congratulations.
Fred Bolle: I want to ask, in terms of the production plan over the next couple of quarters, you know, if truck demand does slow on the vocational side, as we've seen in medium duty and on the sleeper side, how much room do you have to reduce over time? I know you folks have been sprinting hard. So, presumably, whenever that does happen, that first production cut, I believe, can likely be not super painful for margins, but maybe you can expand on that. And can you also comment on the level of inventories that you folks are at? Did you bring up inventories because of the uncertainty around tariffs or any other moving pieces we should be aware of?
Speaker Change: I wanted to ask you in terms of the production plan over the next couple of quarters.
Speaker Change: If truck demand does slow on the vocational side as we've seen.
Speaker Change: Medium duty and.
Speaker Change: On the sleeper side.
Speaker Change: How much room do you have to reduce overtime I know you folks have been sprinting hard so presumably that whenever that does happen that first production cut.
Speaker Change: I believe can likely be.
Speaker Change: Not super painful for margins, but maybe you can expand on that.
Speaker Change: Can you also comment on the level of inventories that you folks are at did you bring up inventories because of the uncertainty around <unk>.
Speaker Change: Tariffs or any other moving pieces.
Fred Bolle: Thank you.
Speaker Change: We should be aware of thank you.
Fred Bolle: Hi, Jerry. It's Fred. You know, relative to, you know, overtime and thinking about how we run our manufacturing facilities. For the medium duty demand, we run that in a separate plant than we do for the severe service. So we're already in a situation with the softening of the medium duty demand, where we've taken down some overtime, done reset line rates. Relative to our larger on-highway products, they're still running very robust. But to your question, if there was to be softening, yes, that's the first lever that we would pull, which is to roll back that significant overtime that we've been running.
Fred: Hi, Jerry it's Fred.
Speaker Change: Relative to overtime and.
Speaker Change: Thinking about how we run our manufacturing facilities.
Speaker Change: For the medium duty demand.
Speaker Change: We run that in a separate plant than we do for this severe service. So we're already in a situation with the softening of the medium duty demand where we are.
Speaker Change: Taken down some over time.
Speaker Change: <unk> reset line rates.
Speaker Change: Relative to our larger on highway products, there is still running very robust.
Speaker Change: But to your question if there was to be softening, yes, thats. The first lever that we would pool, which is two <unk>.
Speaker Change: Rollback that significant overtime that.
Speaker Change: That we've been running and then.
Fred Bolle: And then, on inventories. A lot of the inventory that we've ramped up, as you've seen, it's elevated, is really to support the ramp up of our defense. volume, and we've got the second half ramping up pretty aggressively off of first half. So we've got, you know, a lot of parts in and in process relative to that. You know, looking at just the general on-highway plants, you know, the inventories are at, I'd say, you know, fairly optimal levels there.
Speaker Change: On inventories.
Speaker Change: A lot of the inventory that we've ramped up.
Speaker Change: As you've seen elevated is really to support the ramp up of our defense.
Speaker Change: Volume and we've got the second half ramping up pretty aggressively off of our first half.
Speaker Change: So we've got a lot of parts in an in process relative to that.
Speaker Change:
Speaker Change: Looking at just the general on highway.
Speaker Change: <unk> <unk>.
Speaker Change: Inventories are at I'd say fairly optimal levels there.
Fred Bolle: Thank you.
Speaker Change: Thank you.
Matt: This concludes the question and answer session.
Speaker Change: This concludes the question and answer session I would like to turn the floor back to management for any closing comments.
Matt: I'd like to turn the floor back to management for any...
Dave Graziosi: Thank you, Matt. Thank you for your continued interest in Allison and for participating on today's call.
Speaker Change: Thank you Matt. Thank you for your continued interest in Allison and for participating on today's call and enjoy your evening.
Matt: Enjoy your evening.
Speaker Change: Okay.
Matt: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your...
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Speaker Change: [music].