Q3 2025 Allison Transmission Holdings Inc Earnings Call
Speaker #3: Good afternoon . Thank you for standing by . Welcome to Allison . Transmission's third quarter 2020 earnings conference call . My name is Molly , and I will be your conference call .
Speaker #3: Operator today . At this time , all participants are in a listen only mode . After prepared remarks , Allison transmission executives will conduct a question and session and conference call .
Speaker #3: answer
Speaker #3: Participants will be given instructions at that time . As a reminder , this conference call is being recorded . If anyone should require operator assistance during the conference , you may press Star Zero on your telephone keypad .
Speaker #3: I would now like to turn the conference call over to Jackie Bose , executive Director of Treasury and Investor Relations . Please go ahead .
Speaker #3: Jackie .
Speaker #4: Thank you . Good afternoon , and thank you for joining us for our third quarter 2020 earnings conference call . With me this afternoon are David Graziosi ,
Speaker #4: and Chief Executive Officer . Fred Bowley , our chief operating officer . And Scott Mell , our chief financial officer and treasurer . As a reminder , this call webcast and this afternoon's presentation are available on the Investor Relations section of Allison Transmission Holdings .
Speaker #4: A replay of this call will be available through November 12th . As noted on slide two of the presentation . Many of our remarks today contain forward looking statements based on current expectations .
Speaker #4: These forward looking statements are subject to known and unknown risks , including those set forth in our annual Report on Form 10-K for the year ended December 31st , 2024 , and Quarterly Report on Form 10-q for the quarter ended June 30th , 2025 .
Speaker #4: 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 we expressed today .
Speaker #4: In addition , as noted on slide three of the presentation , some of our remarks today contain non-GAAP financial measures as defined by SEC .
Speaker #4: You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached in an appendix to the presentation and to our third quarter 2020 earnings press release .
Speaker #4: Today's call is set to end at 5:45 p.m. Eastern Time . In order to maximize participation opportunities on the call will take just one question from each analyst .
Speaker #4: Please turn to slide four of the presentation for the call agenda today's call . David Graziosi will provide a business update and Fred Foley will review recent announcements across our business .
Speaker #4: During . Scott Mell will then review our third quarter 2020 financial performance and full year 2025 guidance . Update prior to commencing the Q&A .
Speaker #4: Now, I'll turn the call over to Dave.
Speaker #5: Thank you Jackie . Good afternoon and thank you for joining us throughout 2025 . Our largest end market North America on Highway has been negatively affected by extraordinary and volatile global macroeconomic factors , leading to substantial reductions in demand for commercial vehicles .
Speaker #5: External pressures related to tariffs , evolving trade policies , and upcoming emissions regulations . In addition to broader economic uncertainties , have led to more cautious purchasing decisions from end users , which has impacted visibility and predictability in terms of demand .
Speaker #5: We expect this operating environment to persist in the near term market activity likely to remain subdued until there is greater clarity around these regulatory and economic factors .
Speaker #5: A meaningful shift will depend on a clear catalyst or resolution to the aforementioned issues impacting demand . Despite these challenges , we remain focused on what we can control , including meeting our commitments to operational excellence , quality customer service , and maintaining a strong execution across all aspects of our business .
Speaker #5: Our performance during the third quarter reflects Allison's resilience with the ability to flex our operating cost structure and generate meaningful cash flow during low demand environments .
Speaker #5: For the quarter , although revenue decreased 16% year over year , we achieved an adjusted EBITDA margin of 37% and generated adjusted free cash flow of $184 million .
Speaker #5: Importantly , we remain agile and responsive to evolving market dynamics , ensuring we can quickly adapt as conditions change . As mentioned on our last earnings conference call , we see the reductions in demand in North America on highway as a deferral of purchases by end users , as opposed to a permanent change in market size .
Speaker #5: In summary , while the operating environment remains challenging , we are managing through the uncertainty with discipline , maintaining a solid balance sheet with over $900 million of cash on hand , a sequential quarterly increase of $124 million and making prudent decisions to preserve financial strength with a commitment to delivering long term value to our stakeholders .
Speaker #5: At the same time , we are working diligently to successfully close our acquisition of Dana's off highway business . I would like to thank the Allison team for their work and dedication during this period .
Speaker #5: Now I'll pass the call over to Fred to review recent announcements across our business . Fred . Thank you . Dave , and good afternoon , everyone .
Speaker #5: Starting with our outside North America on Highway and Market and early August , we were excited to announce that Micro-buses , equipped with Allison T1100 fully automatic transmissions , were delivered in Brazil in support of the country's student transportation Modernization initiatives .
Speaker #5: In collaboration with the National Fund for Educational Development , these vehicles represent the first school buses utilizing fully automatic transmissions in South America .
Speaker #5: Allison's fully automatic transmissions eliminate the need for manual gear shifts , simplifying operations on roads with mud , gravel , and steep inclines .
Speaker #5: Drivers report less physical strain and greater control , particularly in challenging driving conditions . In rough terrain . We're pleased to support better access to education while demonstrating the performance , reliability and efficiency of Allison's fully automatic transmissions .
Speaker #5: In addition to the social impact, this milestone reflects our strategic priorities for growth in markets outside of North America. In our North American on-highway market during the quarter, we announced that Allison's neutral stop technology has been standardized by PACCAR on their Kenworth and Peterbilt trucks equipped with Allison's 4000 Series.
Speaker #5: Hundred rugged duty series transmission . Allison's neutral stop technology is designed to improve fuel efficiency and lower operating costs by reducing engine load at stops and reducing unnecessary fuel consumption .
Speaker #5: When vehicles are at idle . Our technology ensures that fuel is used for movement , not for idling , enhancing overall fuel efficiency .
Speaker #5: We are proud to partner with Paccar to make this innovative solution standard offering for supporting fleets in their goals to reduce fuel consumption and emissions .
Speaker #5: Also , in our North American on highway end market earlier this month , we announced that Ozinga Renewable Energy Logistics has successfully deployed Kenworth's T88 tractors utilizing the Cummins X15 in natural gas engine integrated with our Allison 4500 rugged duty series transmission .
Speaker #5: The pairing sets a new standard for sustainable heavy duty transportation , delivering exceptional power and innovative technology . The integration also demonstrates how sustainability and operational excellence can go hand in hand , allowing industries to adopt cleaner fuel solutions like natural gas without compromising on performance .
Speaker #5: With these announcements , we reiterate the fuel agnostic nature of automatic transmissions . Our products pair well with all propulsion solutions , providing customers with power of choice and selecting the energy source that best suits their needs .
Speaker #5: Moving on to our defense and market this morning , we announced that Xzm , a state owned defense vehicle service provider in Poland , is now an official channel partner for tracked vehicles .
Speaker #5: Allison's propulsion Solutions power a wide range of wheeled and tracked defense vehicles that are actively deployed in more than 80 U.S. Allied and partner nations worldwide .
Speaker #5: As a result of our growing international defense presence , Allison now enables local , commercial or government service providers to become Allison authorized Channel Partners .
Speaker #5: We are excited to add . To our global network of authorized service providers to support Allison's Cross-drive transmissions for defense applications . Allison continues to enhance our global support capabilities through through strategic partnerships with local service providers , further solidifying our commitment to improving the operational readiness of defense vehicles worldwide .
Speaker #5: Also , in our defense end market , we're pleased to announce that Allison was selected by FN , FSS Defense Systems , a subsidiary of Neural Holdings , to supply our 3040 medium weight cross-drive transmissions for the Turkish Land Forces .
Speaker #5: Kirkuk program . The Kirkuk system is a mobile air defense solution developed in Turkey to protect ground forces from drones , helicopters and low flying aircraft .
Speaker #5: The system consists of two tracked vehicles , is designed to move with armored units and operate across difficult terrain , adding fast and flexible protection for defense forces .
Speaker #5: This partnership with Fnss and our participation in the Kirkuk program is a testament to the trust and confidence in Allison's capabilities to deliver high quality , reliable transmissions that meet the demanding requirements of modern defense vehicles .
Speaker #5: In addition , this partnership further solidifies Allison's presence in the Turkish defense sector , where we are supporting numerous we'll platforms and actively engaged , supplying our X-100 transmission for the Turkish Firtina self-propelled howitzer program .
Speaker #5: Thank you . And I'll now turn the call over to Scott .
Speaker #6: Thank you, Fred. I will now review our third-quarter financial performance and provide an update to our full-year 2025 guidance. Please turn to slide five of the presentation.
Speaker #6: The Q3 2025 Performance Summary: Year over year, net sales of $693 million were down 16% from the same period in 2020.
Speaker #6: For primarily due to lower demand for class eight vocational and medium duty trucks in the North American on highway and market in the defense end market , we continue to execute on our growth initiatives with third quarter net sales increasing 47% year over year .
Speaker #6: Net income for the quarter was $137 million , a decrease of $63 million from $200 million in the same period of 2020 . For the decrease was primarily driven by lower gross profit .
Speaker #6: In $14 million of expenses related to the acquisition of Dana's off highway segment . Despite a challenging operating environment , adjusted EBITDA margin was essentially flat year over year at 37% .
Speaker #6: Net cash provided by operating activities for the quarter was $228 million, a decrease of $18 million from the same period in 2020.
Speaker #6: For the decrease was primarily driven by lower gross profit $13 million of payments for acquisition related expenses , partially by lower cash income taxes lower operating working capital funding requirements .
Speaker #6: Our strong cash generation remains a key strength of our business , with adjusted free cash flow of $184 million in the third quarter .
Speaker #6: We continue to maintain solid operating cash flow , reflecting the resilience of our operations and disciplined cost management . We ended the third quarter with a net leverage ratio of 1.33 times , and $1.65 billion of liquidity , comprised of $902 million of cash and $745 million of available revolving credit facility commitments .
Speaker #6: We continue to maintain a flexible , long dated and covenant like debt structure with our earliest maturity due in October 2027 . A detailed overview of our net sales by end market in Q3 2025 .
Speaker #6: Financial performance can be found on slides six, seven, and eight of the presentation. Please turn to slide nine of the presentation for our 2025 guidance update.
Speaker #6: third quarter results and current market in pardon Me in current in-market conditions , we are revising our full year 2025 guidance provided to the market on August 4th .
Speaker #6: Allison now expects net sales to be in the range of $2,000,000,975 million to $3,000,000,025 million . In addition to Allison's 2025 net sales guidance .
Speaker #6: We anticipate net income in the range of 620 to $650 million , including over $60 million of expenses related to our acquisition of Dana's off highway business .
Speaker #6: Adjusted EBITDA in the range of 1,000,000,090 million to $1,000,000,125 million . Net cash provided by operating activities in the range of 765 to $795 million , which includes approximately $70 million of cash outlays related to our acquisition of Dana's off highway business .
Speaker #6: Capital expenditures in the range of 165 to $175 million , and adjusted free cash flow in the range of 600 to $620 million .
Speaker #6: We are maintaining the midpoint of the implied full year adjusted EBITDA margin guidance . This concludes our prepared remarks . Qemali . Please open the call for questions .
Speaker #3: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
Speaker #3: A confirmation tone will indicate your line is in the question queue . You may press star two to remove yourself from the queue for participants using speaker equipment , it may be necessary to pick up the handset before pressing the star keys .
Speaker #3: We again ask everyone in the queue to allow time for everyone to ask a question. Please limit yourself to just one question.
Speaker #3: Our first question comes from the line of Rob wertheimer with Melius Research . Please proceed with your question .
Speaker #7: Hi . Good evening , and thank you . So it's really no surprise , I guess , given truck orders that , you know , on highway sales are down .
Speaker #7: This is a little bit of a steeper decline than we modeled . And maybe we should apologize for that . But even so , it felt a little steeper than I would have thought .
Speaker #7: And I wonder if you could give . Maybe this is a little bit of a soft question , but your opinion , because there's some different factors this cycle with bodybuilders having been a big backed up .
Speaker #7: So maybe there's more channel inventory . The cycle was a bit higher than it was in recent downturns , at least . And so I wonder if you could help us disaggregate the suddenness of this fall versus channel inventory and market demand , which may or may not be as dramatic this ?
Speaker #7: Thank you .
Speaker #5: Rob . Thank you for the question , Dave . So just quick reference back to our August call when we talked about I mentioned what we were starting to see in terms of revisions to build rates .
Speaker #5: You know , getting to your question with the OEM announcements that were we we referenced at the time , lay offs , etc. , that just , you know , was early Q3 .
Speaker #5: There was certainly an expectation that those build rates would at some level start to normalize . To your point , about steeper than , you know , we thought , so to speak .
Speaker #5: We all of us , those those reductions continued , frankly . So as we looked at getting by the end of third quarter , or certainly earlier this quarter , you started to you've started to see some level of normalization at those those lower levels .
Speaker #5: So to your question , in terms of how everybody is reading the market right now , no question that bodybuilders continue to in many cases sit with quite a few chassis .
Speaker #5: There . It really does depend on the end users , you know , in terms of overall inventory levels that are out there .
Speaker #5: I think that's starting to improve in most cases . But the reality is that inventories needed to be further rationalized . I think , you know , OEM comments about even third quarter results that are pretty fresh here .
Speaker #5: All support that point . So as you know , again , we talked about in . Medium duty being a very tough year .
Speaker #5: Vocational certainly starting to soften . And I think the the comments that we referenced in our prepared scripts , certainly there is no doubt that the level of uncertainty is extremely high .
Speaker #5: So it makes anybody's job at this point relatively difficult to forecast . And I think , frankly , even the ranges that the OEMs have provided for the balance of this year and even thinking about 26 are pretty wide , as you know .
Speaker #5: So we've had a very strong cycle coming out of Covid as as you mentioned , I think that's certainly filled some of the gap that was there .
Speaker #5: Having said all that, equipment is being utilized. So, to our prepared comments, we don't really view this as a change in market size.
Speaker #5: It's more a deferral and you can't blame , frankly , the end users with the amount of uncertainty that they're all facing , capital costs more .
Speaker #5: There's a higher risk premium . So you from our perspective , anybody that's making investment decisions right now is likely looking for a more attractive risk reward balance .
Speaker #5: And that's very difficult to come by . Until we all have more certainty around , whether it be emissions , interest rates , trade , etc.
Speaker #5: . So there's a lot out there at this point for all of us to digest . We feel very good about our market position as we continue to have very strong share , strong pull in terms of end users and our positioning to respond to whatever demand the market presents to us .
Speaker #5: So , you know , with our structure , as we talked about , whether it be cost , labor , etc. , the investments that we've made in capacity , we've we feel very well placed to , to respond to whatever the market conditions are .
Speaker #5: But , you know , we're going to , as I said , focus on the things we can control at this point . And the revenue .
Speaker #5: When you look at the revenue reduction on a year over year basis , I think , again , supports the idea that we are flexible organization .
Speaker #5: We respond accordingly . And the margin performance really speaks to that .
Speaker #7: And then , I mean , you're seeing some , you know , mixed trends . Let's say in construction equipment , which may be overlaps a little bit on the heavy side on vocational was vocational is bad as medium duty .
Speaker #7: And then if you have any way to quantify how much inventory was in the channel versus prior cycles , that just helped a little bit .
Speaker #7: Understand where we are . But the answer was comprehensive , and I appreciate it . Thank you .
Speaker #5: Yeah, I would just offer on the, you know, medium duty, by far, much tougher sledding right now in terms of overall market.
Speaker #5: We don't necessarily view vocational as nearly as that has been challenged. And I would just point out that the OEM comments, which do have meaningful share in the vocational space, continue to support that very overtly.
Speaker #5: And , you know , we're we believe given all the infrastructure investment that's underway with AI data centers , etc. , that that certainly bodes well for the utilization of those relevant fleets .
Speaker #5: And as I said , that equipment is certainly being used right now .
Speaker #7: Thank you .
Speaker #3: Thank you . Our next question comes from the line of Tim Thyne with Raymond James . Please proceed with your question .
Speaker #8: Thank you . Good evening . Just a quick one . It's just on the implied revenues for the fourth quarter . The full year guide implies something like a 5% sequential improvement .
Speaker #8: And we just spent plenty of time talking about the challenges in North America on highway . And , you know , fewer build days and OEM build plans .
Speaker #8: Certainly not being revised higher . So what what what's the offset there ? Again , just what I don't know if defense or other segments that you .
Speaker #5: Add that down versus Q3 . But you need to take into consideration the significant amount of down days . And you you also saw defense ramp pretty aggressively off of Q2 into Q3 .
Speaker #5: And we expect that to continue into Q4 .
Speaker #8: Very good . Thank you Fred .
Speaker #3: Thank you . And just a reminder to please limit yourself to only one question per analyst . Our next question comes from the line of Ian Zaffino with Oppenheimer and Company .
Speaker #3: Please proceed with your question .
Speaker #9: Hey , great . Thank you very much . Just understand , maybe when you guys started to to to notice the weakness and how did it look ?
Speaker #9: Maybe by month throughout the quarter . And I guess what I'm trying to get at here is you guys do a great job of kind of curtailing SG&A .
Speaker #9: Some of the R&D . So , you know , was that kind of a reaction to what you had seen or was this kind of pre-planned and then how do we think about kind of going forward in this environment ?
Speaker #9: Thanks , Ian .
Speaker #5: It's Dave , appreciate the questions there . So , you know , as we mentioned on the Q4 or the August 4th call , we really started to this weakness in build and reductions in build rates really started to manifest itself early .
Speaker #5: Q3 what to Fred's comments ? You know , there was certainly an expectation , at least what we were being provided with from a build rate or forecast perspective at that stage was really , really focused on Q3 at that point , in terms of adjustments .
Speaker #5: So what what has since transpired is some level of adjustment . We would we would certainly look at it from a bit of a normalization from Q3 into Q4 .
Speaker #5: So I think it's appears to be starting to settle out simply because adjustments have been made to Fred's comments around inventory . Also , importantly , just bill rate capabilities once you start taking out your head count , you know it very much .
Speaker #5: Does restrict output . Obviously . So we see that , you know , some level of balance from Q3 into Q4 . Our cost approach is , as you know , you've covered us for a number of years , is pretty consistent .
Speaker #5: As we entered the year and certainly focused on the macro environment . And frankly , the volatility , the uncertainty we would view as almost unprecedented other than Covid to a level , because you many things coming into the market that became clear to us that that was going to have the impact .
Speaker #5: We believe that the time is really uncertain, inserting a tremendous amount of uncertainty into the end market for end users. So that implies that if they have the ability to defer, which they in fact have done, then we needed to better align ourselves accordingly.
Speaker #5: So , you know what we've done has really been throughout the year . It wasn't , you know , we arrived in Q3 and decided to do certain things .
Speaker #5: It's been more of a full year approach . And , you know , again , thank the the Allison team for their managing that situation in a way that , you know , certainly consistent with our view , which is what we can control really looking at the broader markets in terms of feedback to take whatever advantage we can .
Speaker #5: But also , I think understanding the voice of the market in terms of what's , you know , what's needed , absolutely needed at this stage .
Speaker #5: And that's what's been reflected in our activity level .
Speaker #9: Okay . Thank you very much .
Speaker #3: Thank you . Our next question comes from the line of Tammy Zaccaria with J.P. Morgan . Please proceed with your question .
Speaker #10: Hi . Good afternoon . Thank you so much . I wanted to ask about tariffs , given the latest section . 232 announcement , how should we think about your tariff impacts ?
Speaker #10: If there was any at all before this ? And also the ability to offset some of these tariffs given your US based manufacturing .
Speaker #10: So any any color on the latest about tariffs would be helpful .
Speaker #5: Sure . Tammy . This is this is Fred I think first maybe just stepping back . Big picture . You know our guide is you know $3 billion in revenue .
Speaker #5: That's down 250 million year over year . So down 7% Dave talked through you know certainly driver is our largest in market . You know North America on highway primarily class six seven class eight straight which are 80% of that total in market .
Speaker #5: And the builds just being down . But operationally we're performing at a at a very high level , you know , 7% revenue down and EBITDA margin were guiding to being 80 basis points up .
Speaker #5: So certainly we're we're able to perform well in this challenging environment . Specific to to tariffs . It's really important to continue to to highlight that 85% of our components are purchased in the US , Mexico and Canada with the majority of those being in the US .
Speaker #5: The bigger impact on tariffs and then section 232 tariffs becomes , I think , vehicle pricing total uncertainty and how that impacts demand .
Speaker #5: But when you think about section 232 , you know , our OEMs are certainly going to , you know , increase their prioritization on us .
Speaker #5: Made content and components and that really well positions us as everything that we're providing to to the OEMs in , in the US is manufactured here in Indianapolis .
Speaker #5: So I think we're well positioned there as far as you know , additional cost to us . I think you can see in disclosures , our material cost has been up very minimal because of the just the footprint we have from a supply chain standpoint .
Speaker #5: And as we talked about , we've always intended to offset that . And and even in , you know , a challenging top line revenue , you see that we are doing that .
Speaker #3: Thank you . Our next question comes from the line of Angel Castillo with Morgan Stanley . Please proceed with your question .
Speaker #11: Hi . Good evening . Thanks for taking my question . Just Dave , Fred , I guess as you roll everything up , you know that we kind of have in place all the puts and takes exiting 2025 .
Speaker #11: I know it's still early , but , you know , if we do assume everything stays as is today , Dana , acquisition aside and assuming you continue to focus on , you know , what costs or what you can control on your end , as you noted , do you believe that ?
Speaker #11: I guess ultimately you can grow earnings next year , or do we need to see volume recovery in order for earnings to grow next year ?
Speaker #11: How should we kind of think about that ?
Speaker #5: That's a that's a tough one . We'll provide you know , our guidance February . You know what we have talked about publicly is you know , we've gotten meaningful price this year .
Speaker #5: You know , we'll end up for the year with over $130 million in price north of 450 basis points of price and , you know , we also talked about the long term agreements that we've signed .
Speaker #5: We didn't take all that price in year one . So we have some visibility on , you know , on pricing going into 2026 .
Speaker #5: Clearly good visibility on cost structure . I think what everybody's still really trying to get their arms around is going to be in user demand .
Speaker #5: And Dave talked to it . The uncertainty with tariffs . Do people feel a little bit better with 232 with some I guess some level of of of more clarity now emissions change , is there going to be any sort of meaningful pre-buy in 2026 .
Speaker #5: the
Speaker #5: So, fortunately, we have a couple of months to continue to gather data points and really try to model the top line.
Speaker #5: And we'll provide our viewpoint in , in February of 26 .
Speaker #11: Understood . just I guess given the part that you have visibility into that price with the
Speaker #11: 450 that you did this year , the long term agreements you have in place and the pass through of kind of the tariffs that are have already kind of rolled through , what's kind of the price increase .
Speaker #11: You know , we should expect next year .
Speaker #5: If you go back to , to , you know , pre-pandemic we would pick up 50 to 100 basis points of price . And as we've got things modeled out , it's going to certainly be quite a bit higher than that .
Speaker #11: Got it . Thank you .
Speaker #3: Thank you. Next question comes from the line of Luke Young with Baird. Please proceed with your question.
Speaker #12: Good afternoon sir . Take question . Maybe tricky question to answer , but I'm just wondering maybe what your gut says in terms of how much more leeway there is in the model to maintain a similar margins , or at least to prevent decremental margins from getting closer , I think 60% maybe is the historical threshold .
Speaker #12: I know inefficiencies that were in the PNL last year because of the huge surge in production . You clearly are on the front foot in terms of taking tactical actions .
Speaker #12: Plus the incremental price into next year . Just how do you think through those permutations and sort of the level of buffer that's left in the business right now ?
Speaker #12: .
Speaker #5: Luke . It's Dave , appreciate the the question there . So certainly our approach , our history is that , you know , we focus a fair bit as we should on margins .
Speaker #5: I think to your question on Incrementals and thinking about
Speaker #5: that , you the biggest unknown for us right now is we think about the future is just what what there's this overall demand picture is going to look like .
Speaker #5: You know , we've made , I think , good progress on our growth initiatives . The investments have been made in terms of capacity will be winding up the balance of those by the end of next year , certainly early 27 .
Speaker #5: So the efforts that we've also put into resourcing as well , and optimizing our footprint and again , pre pre the Dana acquisition , but you know we feel very good about our ability to certainly come in within a reasonable range of of maintaining margins .
Speaker #5: So we will size our continue to size our investments and initiatives with market opportunities . But as to Fred's point , you know , certainly have some some initiatives around price and cost line going into 26 .
Speaker #5: And we'll we'll take whatever appropriate actions there are consistent with that market conditions , which you would you would certainly view today in terms of North America on highway being a bit of a question mark .
Speaker #5: But when you look at our business in terms of whether it's parts , support , equipment , etc. , defense , off highway relatively , I think stabilized at a lower level .
Speaker #5: Right now . You know , we feel very good about positioning overall in terms of approaching market needs . But margins are right at the top of our list in terms of focus .
Speaker #5: And , you know , we continue to work through our plans and , you know , feel relatively good about what we're seeing , at least from an initial pass .
Speaker #5: And we'll provide our guidance . Come February .
Speaker #12: Got it. Thank you very much.
Speaker #3: Thank you. Our next question comes from the line of Kyle Minguez with Citigroup. Please proceed with your question.
Speaker #13: Thank you . Good evening guys . I understand you're not wanting to give too much guidance on 2026 yet , but I would love to hear your thoughts on what you need to see for International on Highway to hit your double digit growth target next year , and then perhaps it would be good to hear an update on how you think the data acquisition positions you to win in international markets .
Speaker #13: Thank you .
Speaker #5: Yeah , the it's Dave Kyle . So on the overall I would say international on highway . Continues to be a very significant opportunity for our team .
Speaker #5: You know we're actually in this time of year involved in a number of regional meetings to look at the status of our growth initiatives .
Speaker #5: I believe the team there is doing a great job identifying a number of different opportunities for us . I think our relationships are where they need to be from an OEM and release plan perspective , there's always been a tremendous amount of opportunity out there .
Speaker #5: I think the team has become very focused on that , adjusting for some regional differences . You know , the Japanese market last year moved around a fair bit because of emissions and safety regs and a number of things coming into the market that that's a softer market this year .
Speaker #5: We expect that certainly to improve next year . And again , their ability to sell into the balance of Asia and relevant markets .
Speaker #5: We're excited about , you know , the team has done a very good job looking at applications for our product that certainly make the most sense .
Speaker #5: But we're you know , we sell based on value . As you know , versus cost . So I think on highway outside North America continues to be a relatively large opportunity for us with with very low penetration .
Speaker #5: So as you think about , you know , what that means over the longer term , all the investments that we've made in regional production , etc.
Speaker #5: , and the investments specifically in China . Now to really be able to support Asia from the Asian region is important to us .
Speaker #5: It also reduces costs in a number of other areas . So I think all of that fits together in terms of the Dana acquisition .
Speaker #5: You know , we continue to work diligently towards closing that . We're pleased with the progress to date . You know , as we mentioned on the the calls around the announcement as well as the the August earnings call , you know , there the attributes are very attractive to us .
Speaker #5: It's an accomplished team . It's a high quality business . It really does allow us as as a legacy . Allison business to have a global footprint that starts to address some of the macro issues that I mentioned earlier .
Speaker #5: It's clear with tariffs and trade developments that there is much more of a focus from a number in a number of different regions for local , for local content .
Speaker #5: The Dana footprint certainly fits well with that . Overall outcome . And you could look at that across all of our end markets .
Speaker #5: So for us it's it's very attractive to to have access to that type of footprint . It also allows us to further analyze make versus buy in a number of areas for our our products as well .
Speaker #5: And ultimately really start to to leverage . Although we've not quantified revenue synergies , we do have common customers in a number of different end markets .
Speaker #5: But also allowing our our teams access to new customers , new markets . So overall , I think it's an exciting time for both respective teams .
Speaker #5: And we look forward to getting the acquisition closed and getting on with the business .
Speaker #3: Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to CEO David Graziosi for closing remarks.
Speaker #5: Thank you . Shamali , and thank you for your continued interest in Allison and for participating on today's call . Enjoy your evening .
Speaker #3: Thank you . And this concludes today's conference , and you may disconnect your lines at this time . Thank you for your participation .