ALSN - Earnings call transcript Q1 2019 | Allison Transmission Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Allison Transmission's First Quarter 2019 Earnings Conference Call. My name is Sherry, and I will be your conference call operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management call host from Allison Transmission will conduct a question-and-answer session and conference call participants will be given instructions at that time.

conference being this reminder, a call recorded. is As Instructions]. [Operator turn call over I would Mr. conference to like now to the Ray Posadas, the company's Director of Investor Relations. sir. ahead, go Please

Ray Posadas

Thank Officer; XXXX Officer, and for morning Dave Chief Graziosi, me you, Financial for and are Bohley, Sherry. us Chief our President joining President, Executive this thank morning our Fred conference and earnings you quarter Treasurer. our call. and With first Good Vice

available will using on conference this webcast, the this call, of morning are website, of are through Investor As A a reminder, XX. our the presentation and section be Relations replay we April allisontransmission.com. this available call

known noted XX, as on those more economic uncertainties assumptions the set unknown in remarks and and materially on incorrect, our statements year-ended Annual for risks, or our As of these estimates risks factors we of forth based earnings Should December Form XXXX on conditions. first our or X to Page or that may today. current uncertainties and expectations. presentation, statements press express prove other and many should XX-K contain Report forward-looking release, forward-looking the including from vary today results materialize general These quarter underlying of subject XXXX, one as actual well those are or

financial addition, as defined X on of SEC. of non-GAAP Page today as contain measures noted our by In the presentation, remarks some the

most from participation X take opportunities Time. measures release. turn Eastern to the AM press we'll order first presentation financial each You is on question XXXX the our the non-GAAP to of for comparable measures call can and quarter attached agenda. Today's find the of analyst. reconciliations call, an the Slide set presentation call Please to X:XX GAAP maximize as to Appendix to the one at earnings end to In

the XXXX you quarter Q&A. During remarks the will guidance the prepared Bohley, announced commencing discuss conclude our and overview Dave, prior finally, the financial then quarter first review today's And will Dave of to an will Graziosi, results. performance call, recently with and provide first Fred acquisitions update. the

turn Now, over Dave I'll Graziosi. the call to

Dave Graziosi

you you, Good joining for and Thank morning Ray. thank us.

pleased XXXX. EBITDA record same net first was stronger notably that year-over-year up net sales from and in surpassed up report income XX%. adjusted period as percent a are net EPS quarter growth a sales increased X%, Furthermore, the by up growth X% sales net We to XX%, XX%, diluted reached in EBITDA adjusted and of even XXXX

and sales, service was quarter equipment, end by and million outside QX its capital driven our in the X to low also $XXX XX.X% offset Allison North performance certain on of employees, net offset demand with selling, America support $XXX of to same XX.X% the by for to in and for price a sales structure margin spending. increased sales gross America general by product UAW of increase by million is the settling period prudent to The XXX presentation X% approach markets. and structure share, period the XXX higher in a partially incentive and and expenses period was lower Off-Highway sales was adjusted products, in basis of On-Highway $XXX and increase and $XXX general capital same expenses increases for for dividend During million compared quarter, product selling, North demand increased by or XXXX, lower share initiatives sheet for interest by compared an XXXX. principally markets, Adjusted Slide $XX million Off-Highway quarter in the gross net reduction America driven quarter Net once same the our the returning debt, to million the of turn cost, driven partially retirement increase the certain maintained spending. in for driven lower EBITDA net principally same by long-dated principally administrative of illustrating repurchases, $XXX the management the to to partially and our as compared or North by to other in XXXX, The allocation summary. increased the pre-payable compared million per offset for and Net increased was principally expense to in administrative long-term the income Gross XX% end increased parts, XXXX. XXXX increased paying increased refinancing XX.X% expense. well defined investing expenses business our balance again EBITDA and to points profit lower period for and incentive maturities, Please flexible, and shareholders. profit initiatives debt through compensation simultaneously related program while Local in commitment a $X.XX

over the turn call will Fred. I to Now

Fred Bohley

Thank Dave. you,

statement on income flow. items comments, line I'll Dave's key cash Given focus and

same period expense by Slide principally product financial by find expenses product from Interest XXXX, $X increased the from You by from on our by Engineering performance from general million and administrative by research million commercial turn by to expenses and expenses spending. million period Please principally adjustments partially operating period working same on the lower overview increased the expenses Selling, the by XXXX, product period principally in from and increased operating XXXX, and net gross cash driven performance principally end provided principally the XXXX, from net Slide a taxes same increased increased development period offset $X increased partially warranty by an activity summary. by of principally increased $X turn can in initiatives Other favorable exchange in provided cash expense, also XXXX in of higher period Please decreased X presentation. in interest long-term related the the million the million same cash by in partially spending. debt income net profit, presentation driven flow market refinancing. change driven our X $X summary. driven to increased Slide offset of XXXX foreign the expenditures. for net X by of and sales decreased in activities the warranty cash XXXX QX Adjusted XXXX, by increased free Net capital to activities, driven by XXXX, the presentation lower financing. driven expense. by QX requirements same for offset capital flow million cash by operating same XXXX $XX $XX cash intercompany

of loan $X.XX in a quarter the $XXX revolving debt under of in all replaced September million a facility earlier, share. with the XXXX, completed mentioned million XXXX, of first credit due settled $XXX share an dividend $XX XXXX, further repaid due of borrowings amount per March $X.XXX We new amount billion $XXX our September due during of offering in we long-dated term new Dave authorized the Allison's outstanding capacity. As facility facility million facility with into senior the million and repurchases cash, paid million entered turn of the term XXXX, repurchase and commitments, business due guidance available management in stated June a prudent flexible notes with due in credit revolving capital for pre-payable amount September cost our to a revolving and quarter million returning the This credit sheet to through consistent shareholders. of investing $XXX refinancing structure latest our ended X.X is $XXX XXXX. net and maturities, low goal with balance debt of million of X share Slide and a of $XXX We leverage of $XXX the of Please simultaneously XXXX while presentation ratio million update. loan

quarter sales, cash are ranges adjusted to by and adjusted income full-year XX taxes. EBITDA, net and first provided affirming operating results the XXXX net activities, end-market conditions, on released cash current market Given for February we free XXXX flow, the cash guidance

$X.XX end equipment certain markets, and in expect market, driven $X.XX in sales our support net principally fracturing and in and or in the X% mid-point range offset partially the on growth On-Highway North XXXX of lower increases record We price by decrease service to compared end execution to increased Off-Highway XXXX to products, of continued by other North achieved a demand demand initiatives. hydraulic billion the sales of America be reflecting billion part America applications,

to net activities $XXX adjusted in operating in taxes to million, million million. range billion free Adjusted the in million $XXX $X.X of provided range cash range to of $XXX range range million. and cash income $XXX $XXX the of $XXX million of and Allison $XXX by cash of million, in to million Net in the the the EBITDA anticipates to Additionally, flow $X.XX income billion. $XXX

finalization Vehicle of XXXX AxleTech is Systems Vantage of the Our inclusive to morning acquisitions and subject Power accounting. purchase the Electric announced earlier this guidance

that end today tomorrow the with remain markets to investments, serve. our to Allison to others leader a will the committed value all come, and meet delivering solutions are propulsion compelling remains And of in challenges all across ensure proposition customers. and positioned of to enhanced these along we while We

turn call I Now the over to back will Dave.

Dave Graziosi

value to markets In to penetration, of and of Fred. global solid market all stakeholders. Thanks, strategic spoken commitment expansion, create past, our its about Allison's end leadership results have emerging for addressable the priorities market delivering financial we growth, core while

with transaction capabilities of this turn £X position building additional million approximately and XX culture programs $X XXX-plus-year commercial economy or over On to approximately Allison $X of million of announced our pro development expand In value strategy electrification Allison's an innovation gases. turn XX of cash Allison's the that acquired focus Please for ratio addition to the winning based -- award for we to extends for Slide Power This and net challenges Vantage met. our to that million Vehicle the to is propulsion exciting leading address both presentation system developed focused an and specific and solutions, electrification approximately electrified summary. million in an of presentation. propulsion. also those and London-based as Please technological integration years acquisitions unrelenting acquisitions Electric United a on quality, greenhouse the dedicated for Earlier April vehicles. April is connectivity on the On XXXX, XX, being million up in pay based next in X.X. Slide technologies, and is the leading we and Allison's and two on technology £X propositions we cash. or reduce value is new creating may propulsion. morning, product division electric three compliment AxleTech's development Vantage fuel our Kingdom customers. these and $XXX advancements alternative acquisitions both an of commercial innovator Founded we following priorities, align in Power focus broaden start-up XX, techno reliability, hybrid a forma Systems leverage of improved that with vehicle as in conditions global leverages acquired legacy Today current upon level

full thorough innovative presentation. frame, most portfolio in Notably of designing systems control result, highly purpose division's hybrid performance battery and electric including Power's systems Over the full These Power and technology and EVS top value of Telemetry lens, The a to built consist Slide to acquisition vehicle history frame broad software, for Power that motors, modifications including turn conventional immediate Please the companies and solutions of a of division its the systems, fully heavy integrated oil, to between as Through or a a Allison's kind complement pump of one the of electrified be integrated are that acquisition and Vehicle able fit Also storage Bolt-in the power electrified to solutions. brings position Vantage division Slide powertrain multi-speed and proprietary division Division Slide articulated, of a EVS peak eight fully the power achieve and of chassis. battery has and energy to with with cooling hybrid medium turn existing low controls, of will brings access the we're cross-functional the of as and of efforts service acquisitions continuous of delivers Vantage and user to and between propulsion of vehicle experience Electric expand and and data also team ACT solutions designs pioneered vehicles. designed position aligns to operational we solutions and staff. the Collaborative Solutions to for motors, led System team OEM systems facilitate integrated eAxle's developed relationships, electrified distribution multi-feed turn the are industry's of provide and vehicles, fully accelerate first our configurations and and manufacturing of electric Collaborative Technologies Big engineers and connectivity Please technology secured span efforts chain. to for global an suspension, and capabilities, XX gearbox, latest develops Allison's trucks entire network, Vantage engineering wheels. the axle electric processes. integrated complements and talented acquisition electric management propulsion approach, years, knowledge currently system leader a line help and technology, and entrepreneurial gearboxes, vehicle and are of Allison's has assembly the and and and competencies, Internet compatible feature no to system given systems experienced completely Please facilitated the hybrid operational leverage customers believe software. it opportunities staff. of engineers leading EVS the electric-axles team ultra-low the these fully require Power a comprised and identify Please highly transit and XX for in presentation. They portfolio to of its designed Advanced fit Systems and expertise provider. performing buses. end integrated integrated Vehicle to hybrid of XX buses. of electrification Data well established wheel current a The and optimization. of commercial EVS closer of of solutions, commercial experience for XX technologies variety repower propulsion electrified with development. OEM a electric to single to multi-speed propulsion the innovations presentation. the a integration, Please augment a will leader the introduce past longer state-of-the-art for strategic Furthermore, vocational at including a suspension team a the and that axle to XX trucks strategy leverage integrated the buses. at our Furthermore core double-decker fully vehicle between alliances with providing integrated XX Things Electric advanced for timely, commercialize XX run the solutions integration capabilities Allison's efficient durations. and and turn electric Tomorrow encrypted manufacturers Expo, products, electrified Solutions XX we presentation. a it floor, of the bus to repower This Together an Vantage and the presentation. capabilities, eAxle specialized propulsion. AxleTech's presentation. as concept Bolt-in position division systems duty both well-positioned spirit, provision products. and Telemetry drive Please the portfolio Systems design and commercial these and Slide global hybrid Allison's electric and of hybrid of introducing emerging propulsion skilled, propulsion and experienced, connectivity. Allison's and of turn line these solutions the Vantage electrification portfolio be that fully in technology, turn preferred vehicle propulsion Slide fully for presentation. portfolio of turn new as California, and commercial Technology over integration, electric including and systems as vehicle majority Slide both electric integrated innovator and and complementary control in the extend a innovation, electrification acquisitions global capabilities. Expo differentiated commercial years electric central technologies electrification to efficient, to to market axle accumulated Solutions vehicles, in Allison's two with and Clean the Please leading Slide enhanced companies Allison's solutions

combine these broader Allison We the engineering to AxleTech welcome Power research accelerate realization the of its division and and to Finally, differentiated significant electrification teams and family provide enhance XX innovation to acquisitions that excited Systems will Vehicle development to to propulsion solutions value of Electric vision. create our and the Vantage team Allison's and end capabilities the Please turn customers. presentation. deliver talents are and our Slide to users unmatched and to continue

to prepared for electric questions. engines Allison's electric alternative commercial combustion range market and fragmentation updating propulsion the time. complex space internal to Allison at meet As right Ongoing drives, distribution is the look initiatives the all remarks. across the stated initiatives I've in including end to battery electric previous range continue markets located today find innovative of and electric our we supplier. demands and on in systems more all accessories. pursue forward application is and history. axles, natural to vehicles. these customers intends requiring advancing drive propulsion our right any electric management, the of calls, product growth we Sherry, in hybrid systems addressable our solutions ourselves and innovation committed forms to future fully systems, cycle and market's the This of integrated advanced open market the opportunities hybrid multi-speed and with a time with transmission centrally for to is for power and future. the electric electrifications in We fully EV electrification hybrid integrated to duty further generators, other develop for please electrification concludes initiatives From a a where solutions vocational our most Allison for Allison exist than of the fuels, extended due propulsion right solutions, will call

Operator

Instructions]. you We'd to question. limit that one Thank yourself please you. ask [Operator only

from W. is with question Please Baird. David Leiker first proceed. Robert Our

David Leiker

this technology in work in want are this you your equation just and bring of you where the -- of I the breadth you and holes space? side, with, gearbox pack, this on motors -- the there's that understanding pretty to to as from acquisitions different over now and new deep opportunities like pieces to want in clearly do you on there where obviously put going together, you're there's you're and where where focus the involved charging. capabilities do what out electronics automotive the that What's that see that got, the the side your you portfolio there's power time we I building two we're battery the of the technology understand see and there's

Dave Graziosi

Hey, A Dave. this believe of terms same said as now full XX-plus-years capabilities mentioned we full to the time, it's electric you on of systems have hybrid components acquisitions, question. component our bring in a market. the whether believe, full to At we OEM as and range I is individual the prepared things terms couple of our deliver customers capabilities your in of really the out, Both system. so done in fill to to want of solutions, we remarks, what to systems, like that the versus for in would we've they those in specifically desires flexibility depending a maintain the product terms we

solutions customers. the is strategy the our to right provide addressable clear solutions, the right the for for full our is range which -- of market very the So for

certainly acquisitions point all the think to I to the our out above. capability fill that your do

ourselves anything necessarily we else. a need this we where in don't, point, see at position So

technology. comes which said it most Having total control. of and continuing you of number on really of know, commercialize ultimately ownership of all we to to dependent that, a down ultimately So don't I the as the variables cost different think is evolve

our end at said having to we We to a capability acquisitions, the to out these strategy So with of portfolio as sit solutions earlier, the to really the do would as to market. today, look continues fill that. also today I solutions our just valued cover users be completely and range acquisitions as deliver again addressable

space, We that we've of a do solutions. fragmented a remarks, spread you in As will, the not I That's one the believe different said that created, there's that prepared it's size all. space. fits if relatively range

and to to to able solutions these bring addressable with do, we've we're we end acquisitions that be are market users. and our continue confident our that for will been work the valued differentiated to bear So space doing, that

David Leiker

follow-up we or How some commercial you then that Thanks. into of are if want spectrum? that characterize with of there look some that, what internally. landscape would on one and frequently drop competitive put technology vehicle have your you competitive And that running that you what along that any together can position have just the of portfolio terms if names in competitors versus you're manufacturers that who at might most

Dave Graziosi

and You're from technology don't has all I vehicle say -- very OEMs to We terms Everybody of the our perspective the their welcome. competitors obviously competent are in they're would quality in offer, marketplace. advanced position do rare supplier that, propulsion find said of development added development we're We can somebody we're they and systems it's a in natural believe capabilities. Having where solutions. everything. supplier; to a value a

from for will So our we that is focus markets. which addressable differentiated perspective, our on

given again marketplace, to there's and levels number believe I solutions we we focus acquisitions the us is in users end offerings different think for value. be that ultimately will differentiation obviously offer differentiated a that the competitive delivering have at of that the

Operator

question move muted? there? on is Okay, to if proceed. Research. Wertheimer Larry, you have line Rob Melius is your we question next Please with with proceed. which Please Blair. you Please will the DeMaria William from check Our Larry next are

Rob Wertheimer

host mentioned the things also You of right. that solutions in gives different and roots, lot trials vocational just cycles a there's but you with different or of depots, for prospect whole participating of different different applications tests the wide call that that very a of or prototypes duty or of variety may programs, centralization probably different

what you you're to much just then how about it in if how internal around want go you you constraints in you any invest what willing versus can this money us time of an So put judging, over to invest give sense don't? you and

Dave Graziosi

expected we've we Rob, talked based this is as returns. on Dave. -- investment A We before, decisions things. couple make of

at of constraints, electrification as space providing investment we're making. the solutions So look other value-added decision we any to part your on point and

of propulsion As continued years, number for following a across range a us you invest different we've to solutions. of know,

obviously number efforts. XXXX reason. continue point a in outsourced or So fair we've for and to obviously point development of investments whether of more doing to a in-sourced in route down making original guide bit the our moved we're your for We do that's in-sourced continuing incorporated very we on everything To part that going focused a on you terms do a pursue your development, focused and would to very of I development to of not everybody; tell here initiatives. for effort our it's we're

As be we level focus. number and announcements I mentioned, then this a those the proving through the point week demonstrating marketplace. there are as of certainly our pulling it's we'll would The from and and making solution of its is later differentiation that out perspective our really fact

terms always or spending always have of -- on we your again -- it we on starts your specifically with comment returns. budgets, focus In

point our number target across throw this would propulsion as we says at be a solutions range we’ll that to it of of there So it's appropriate. and this And returns. stage, not expected off driven the again at out I continue deem technology, this limited will to invest

Rob Wertheimer

you're you there can want might for and I mean us give the of that? I you whether couple buses I to prototyping full on vocational and sense production it. fleets you a say start a decade if for obviously But don't see a opposed space or of to you years know sense middle may, experimentation as or I if that And in when electrified powertrains get to share have the are to do when willing

Dave Graziosi

I could. wish we

that I think answer of is drivers address the so There's your question. variables reality -- are required key to number there's there. a to many

we think solutions mechanics, necessarily don't myself get I I that. terms the concern the the integration themselves systems there; of in about can

near-term come balance the those of said to of barriers the you to system or the basis that in the on that you want from it a and happy on are incentive going the end the transit a necessarily be things to electrified into development current that cost really with said of Having and being not ultimately think bus continues I as watching number as possible ultimately address terms level level the they the appropriate those to aren't space commercial batteries continue it's goes resolutions. be specifically of demands And power there to applied way and it think And side. solutions that's do appear that i.e. that closely think of value. incentive, that, I would down depending politely know, focus Having when economic put move mentioned, you I subsidies users in market a to there. on and we're are and of provide I very the this the is those for on evolution something we'll challenge. through infrastructure

Operator

Our question Please is William from Larry proceed. DeMaria Blair. with next

Larry DeMaria

Good morning. thanks. Hi,

on utilization obviously downside out And is Sorry there some further Different understand fleet, other energy utilization about is into there's to that, into there to and think before. supposed year. this unused bottoming utilization some the is trying if I Congrats fleet flattening into this are XX% the of equipment? but though, will service cannibalization Curious risk energy be fleet if on excess parts fleet deals. that bottom the the in question service I'm parts further year down this out based year. there how seeing specifically maybe fleet the of or XXXX you're

Dave Graziosi

morning, Good oversupplied. the view February we about A the very few second balance spending the number into of to There XXXX. the lot have XXXX. of space -- for a the visibility don't of Larry. things think We players by public we a XXXX talked half It's in imply Dave. as for as certainly market and believe guidance are the lack I about capital going that plans of recent call references would of commentary they there. in the with somewhat

some do into up. equipment given immature, recently Having consumed. pretty that specifically that not the up, it's to attention go oil that very the think to lot premature developments spending natural to like said into price because recent in I point conditions get everybody's point a is run-up I market. oil is of of To to things Well reaction geopolitical think prices XXXX. be your to reference the because will change going public about even the pushed can will excess CapEx certainly jump So the they're being the are commentary be try first that thing expectation here there an prices oil that if well being

would that trip we half. running in that the excess to second this some February visibility we the we back So into through fleets when some of mentioned expect get year position

next gather clarity I lot year of into work our be of is one think continues in especially typically here to you until that. thinking idea XXXX, structured in of markets the accordingly they're address short from a And America. demand there don't that to when end it's that team which experience we'll in with commitments. better regards commentary what for to change. I terms of volatile think outside cases have end I the business again able certain hard North it. for fleets when certainly third about well about that be the spending to market notice our volatility get the supply very most We've to a the to doesn't tells our expect continues inherent that is quarter necessarily you relatively of But lot many get some us public

an So update view. we'll provide to that's Again the second quarter look obviously our results. with

Larry DeMaria

into the I equipment comments and also going less new the energy thanks, I CapEx of into view guess same the or that made? more that service patch David. going you patch, the parts -- this energy guess is

Dave Graziosi

they going have excess lead because have to and to equipment work of much really they're excess you that is going the trip of on -- its When other. then have economic are how age you the to balance depending and both fleet going they're to not do -- really on one the level It's you when condition. they its

You operating they through scenario which down following would that to could going over the move the last see efficiency have years. cost users a necessarily the is some where as you to to And improved burn of level end five really overhauls or existing, and to of three CapEx rebuilds don't again get do know that. and

Operator

Research with from Neil Buckingham is Our proceed. next Please question Frohnapple Group.

Neil Frohnapple

a expect acquisitions. the Obviously really that vehicles. what next just we but are investing until industry mean higher more the the to for Allison's these next years electric out upside few margins the about you investments I suppliers other investments surprise required to over seeing reaches few further more to to ask years out capabilities? about your EV talk volumes to similar to solutions but the filled headwind want should I continue be margins capabilities morning. vehicle these commercial develop over can to Good we're component you in commercial the of

Dave Graziosi

well. Neil, it's things as there Dave. A few

I've as way by across entire continuing, the development level provide of then are the solutions, increasing have we research to and the the of market. said investing So we and propulsion range

We've So we as February, provided book the guide again to really contemplated again at necessarily which that and us. pace about market that think as to it's going come forward develops. down we new not of is in for, the the going the some to

way through our terms approach in would are a stepping We I relatively this. of taking; prudent say

will a market build of We're So where incremental not rest view it relatively And have you way. this not ahead capacity things the is from I and in a ourselves. the standpoint think getting we situation of of doing a a very and doing economically come.

believe to see way. -- very capacity I we don't not very I add a going develops prepared us certainly do reaction. we're to in that So along but stepped being it's And quick continue way market to this the a a be more

where a systems going decisions are going you will it's they to incremental spending thus make. drive will. decide effort, the choose, really and All I and make to that for users us commitments if a the going number they're level to end willing that to around around development investment are of think OEMs focused be to case have what investment of have to components

conditions, I forward as through So levels that focused a don't conditions same continued delivering. and margins of our But Certainly the prepared always we're not to of and constraints, said prepared very tight those. There pressure on think at is of products on that we've we technology a the time. a value cases going current We start that stepping very number of throughout to team much at depended done good on call trying supply, job market earlier, the this the overall support is work number in to level has worked market development. are I we it. the to all support of supply through -- certainly

based incremental We terms on in sell based price, gaining of that sell cost. don't the value So we and on on price delivering. we're

We're So accordingly. prepared adjust we Recently to here. to continue your operating also that's been point, an our results enjoy aspect of leverage. to the

for focus gets forward. a have it changes of and But basis. don't really investing necessarily see to any business we'll I again the on the going the that's daily opportunity driven operation back So

Neil Frohnapple

Dave. I that's how helpful, vehicle the fully meaningful a vehicle traditional And any longer-term would Okay diesel content think for about electrified content. powertrain. electric for should versus assume contain framework preliminary axles just Allison's then investors the per

there So helpful? thoughts just yes situation longer-term, any initial per evolving vehicle I an would just content it's on probably any be Thanks. realize thoughts but

Dave Graziosi

relatively of You're on you as high it content welcome. is basis. The value imply is unit the a

are address. we're you So end of becomes to said, some full system. as the with a clear high range levels want developing and I do content, things situation OEMs through could We one that's components different that happy we'll depending that about, the see situation relatively versus what to added internally. been is. our to relative the flexibility may what to be there We're versus the component just But users capabilities think the something deliver of and provide continuing is And really feel transmission. acquisitions conventional to we've confident able a that the value and is value we've on

Operator

Joe Please from Vertical question next proceed. Research O'Dea is with Partners. Our

Joe O'Dea

just really with the and the trying And trying to for And incremental questions what XXXX? related in to understand morning. to attached good couple last understand Hey deals, that costs these from costs this around means stepping of to EBITDA high of it XX% that to for of steps what year the the about remainder a have was down? adjusted the remainder that about might XX% year, XQ the XQ what and is margin been it in that down

Fred Bohley

Hi Joe, this is Fred.

our I quarter, in it first margin really that at guide, on saw that, from looking performance year-over-year a puts as the we reaffirmed our strong certainly mean takes standpoint. strong performing we was gross provided and on guide So a February

margin. EBITDA the mentioned obviously You

out and engineering have As the three next both look quarters, into do up. we SG&A we expense

engineering to R&D up we on little on our on now, where the whether Thinking really fit, point up the is outlook. stronger North we It we're we're right on had expense as or in $XX I parts markets And outside. is acquisitions, contemplated various this But it's the QX about the question million is seeing standpoint $XX about work. call, million a the about look initial $XX range. million As the On-Highway at to from year-over-year closer inside a view little Off-Highway this certainly a talked America And these year-over-year. end guide. our view more specifically at think America our service North softer than with

So are and puts and takes initial guide. the level. EBITDA sort that sales those as mentioned, I versus the reaffirmed of But the level an we

Operator

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

Jamie Cook

trying for you a just But and it a level following can this Nice sitting On-Highway visibility North Fred, you quarter. better. understand little you here. for the the talked bit to implied just morning. for of I guess, I'm to the up thought like sort sales America sounds but what year specifically, have it's little you about Hi of EBITDA good talk

X where the into I relative into the for forecasts can top-line know trying your half think in quarter? you share. well you. also sit market share today last share vocational, are and the last have half first opportunities assumptions your go you and I as guys quarter to so market you said, as the you Class what's the X year about market you are been had Thank top-line in progress of talk to or how after and of embedded sort your expectations versus then back where visibility

Fred Bohley

the X X year-over-year trucks. Sure. specific Class On-Highway. are X% X, up initial growth in outperformance straight the expected. year-over-year say North America initiatives progressing about really At revenue Class I X, in and this as America we Class expected North X, to guide gains share was we mean an I'd the implies offerings up X% On-Highway guide had in the X, X driven which by point,

value very as Class Class with truck strong from We a fully away continue automatic. as straight to X, transmissions X manual proposition to trend in have a X well

result to there confident our in will we're increased hope share in growth still our So XXXX. drive and initiatives position we work in which

Jamie Cook

here this have how quarter? last And Okay. then sitting specifically, just versus much do visibility you

Fred Bohley

feel think the board -- if they confident, Well I depending OEMs, to mean listen I fairly you the order

Jamie Cook

year-end. At

Fred Bohley

them but elevated especially up a straight OEM eye And is they seems slightly are that's put out. X year-over-year close Yes. inventory within to X, quite range, on, has is X thing inventory bit Depending a on keeping there XX%. truck, there. in of little something we is lot about the sales straight the be the Class inventory system inventory the in like saying been a individual to X elevated truck Class sold One a is is retail are Jamie, of

paying demand strong, close board robust. the the the users, the as we're is are something OEMs from that's from to So very attention but order end as far commentary

Jamie Cook

in because downturn sort about And multiples market a follow-up just the question concerned then I a think of your XXXX. guess when I just think you about

think you decrementals downturn, back So Are or I'll Thanks. with market do just spending make get to hold can And that that any should can up offsets engineering and about in also looking share talk will you better on sales concern the your think there's queue? the R&D will your I be there then thinking there initiatives. we also about worse. have

Fred Bohley

so of municipal satisfying scenario, in the North that's fairly mitigates revenue and business the -- book some downturn I on demand America that top-line obviously the downturn stable, that mean about volatility thinking the the time. In with current there's of we're over the Sure.

our to hourly on year-over-year of lever back the the are we and be The such workforce amount basis. scenario, of time. significant a demographics would pull on the salaried first retirements have over downturn So the that

would that second the So be lever.

XXXX here Allison we different levered last seven position, downturn the times sit just times two obviously in a As levered. we're

position. higher As share, just overall you market mentioned stronger financial

a mentioned, market appropriate to conditions. investments From to a depend business And downturn. we're and really levers known investment that's there continue to the in Dave if those is certainly appropriate opportunities. return pull going standpoint, an going really, we the certainly of have as to typical So the make the as regardless business on manage

Operator

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

Jerry Revich

businesses R&D R&D acquired any are next Can is one-off the two having because you Fred to budget transactions year. from these would and for you where increase about $X are the your versus you talk million rate there it here with consolidating $XX R&D discussions to I on the a like folks run these you're million that sounds plan, active comment acquisitions imagine M&A than pipeline your higher

spent ventures just you that you about these you that in is can Are would anyway? consolidating have R&D talk otherwise correct? So

Fred Bohley

I investments, way. answer will Jerry. whether take really in-sourcing the that, anticipated we're as employees these opposed developing first in question The up case that yes. this to it current I the investments making doing we part of became a of had with it is in-house mean and

do acquisitions these pace to that which the yes can really, within these plans this guide initial So at February increased was the after opportunities. work go we

Jerry Revich

And the part the Fred? of question, pipeline

Dave Graziosi

it’s Dave. Jerry,

simple, But look core we and a reaching our capabilities. adjacencies other to we but things. a opportunity is technology business well is build far the We're core degree We've that would certainly talk capital as efficient buy way appropriate few We use of which you, at very pipeline, program. about with markets tell its think to is connected mentioned, I few. deploy things, -- if develop you opportunistic and looking we the positioning a we're constantly the we're returns. criteria at there will, Fred a at just an start versus I terms focus, to name In as to in not flow. this our competencies, IT well just capital

delivering a is create portfolio to here at are not solutions. not are on diversified the we portfolio. focus hand don't We which propulsion We -- We managers. business

the to we'll that refinancing and But the competencies it of cycles. really has I propulsion core flexibility part tell enhance you is others. incompleted, to to of balance our with leave that the our over been thinking would recent on capabilities job So solutions. deliver frankly is focus creating our

advantage returns at good our were positioned are the conditions take whether we appropriate is reasons or appropriate So challenged, the again of for situations for to stakeholders. fact

down work and to see that But active a from perspective. relevant continue we'll market we're certainly path developments. as the update we So pipeline

Jerry Revich

about million, piece, we And so deployment investing as we multi-year been XXXX? or the estimates you've the that believe CapEx from years. the there capital just cycles $XXX million, we with $XXX for part ramp five should thinking is that year to up of be have of under programs I cancel beyond This in a is CapEx anything out terms our

Dave Graziosi

that that as are of a We've most next and we're vehicle tech be technology facility be addressing test investments number we'll will year number -- making. well. the mentioned a largely recent The between environmental announcement year, of initiatives there this was other that

terms some to few over the level those expect investments. complete years of would I campaigns in elevation of here, next So

in the to efficient business deliver appropriate really maintaining back that, way. gets Beyond that in way a demands cost capacity market the it to

of to the gets continued the has facilities. all effectiveness throughout that programs of operational and equipment of team implement breed best efficiency some think in I our of terms

we'll expect We incorporate continue that would to that that as at our level into our continue through well efficiency drive and I operations. to technology

Operator

Weber Our Capital Seth with Markets. question from is next RBC Please proceed.

Seth Weber

to in pickup Is could second the there guys. good lot's any asked on down mining Hey read comment if answered that? here Thanks. seeing A in the the quarter in business? quarter. into and you just the that morning elaborate been sequentially you the maybe Are was business mining anything

Dave Graziosi

developing equipment. new various by that's a year other bit think the We'll evolve takes describe I success balance continue market see would our not Allison in there. terms don't market at a level We Fred like that's been leading I to we've our yet in of commodity we consume market continues continuing the into with total public the of Seth, stay then with for there's some point develops, time XXXX lot ebb close the and players some as there's that's and bit released necessarily guide, there. to always There's the an of of of level strong to up situations. had also a how of it’s releases already things way there. flow and There's new puts of of terms things saw in to last customers value and markets products ramp guess year of markets Dave. mentioned, some a and the we're a but changing certainly picture that there's cycles. the other side, same a year not the Couple definitely propositions different but lot normalization. from the different and some these with and from and industry this at to certainly I mining, this commentary improve

Seth Weber

guess Okay. getting just how transactions them are maybe maybe is engineers Thanks. to then with doing you many to And the to I there incent stay? and you're the size anything on any acquisitions, way

Dave Graziosi

But much largely much say and as of as it Look process. a we terms won't people. technology would of numbers of in for people-first related is people get IP it's into us or is that I certainly hard acquisitions specific the right gist as fast IP these and

your these onboarding should designed, programs structured our these situations teams well believe are be experienced have as that's retain it be broader of as to we’ve compensation the that our point, paid consistent paid certainly consideration As been or both and people. people could we to I talented in with

of lot a there point. at have don't I concerns So this

task is exploiting is which making. and on as into at welcome business the we making broader programs teams the with as quickly for I development that time investments hand we're acclimating think the the the and same us at our getting can getting feel them really in

Operator

Our with next proceed. question Please Morgan. is J.P. from Ann Duignan

Ann Duignan

mean also. year, morning. and have I the good in largest a spends closer I But then $X compete European about look your $XXX ever just being growing in about you're R&D my Cummins billion for ask of per in to even answered the in spending if talk customer? per do Hi in competitor long-term, to you how with a application North strategically $X bit R&D on but could this world million year spending about bearing complex billion drivetrains able more over electrification wanted R&D you been America alternative questions Yes, obviously to little anticipate not all if most long-term, I a at

Dave Graziosi

but in morning, to and very high you to when it's Dave. invest products. couple working of of you have guess evolve your that question, The the to the I at of regulations with hard I I they solution think guess others. you again product the really our evolve, product product the the our Cummins cycles, both execute fill through amount the we at mechanical new team's have differentiated through relatively your reference perspective, require as not on much have number instance over line us the at conventional do product life. from to as complexity know is as compare to we deliver tough and that is Good of competitor Cummins level a look generation a fact know, maintain a changes to et duration that investments the technology those of product could change cycles transmissions at churn level development, I emissions We the allows engines To largely next-gen we're that's not changes so tremendous the Ann European the minimal. those real the a investment really, changing To use think, lower cetera things -- example to controls, longer automotive, really any you well a the they in but said of software, side. for us least new We case due level look controls portfolio you the most in can to as I level has our the next when under is conventional of a fairly transmissions. cases engine it's When emissions

think sales comparable. of So size opportunities. as size We it anything. based don't engineering a and I they're or We on product our necessarily spending percentage IR&D don't

so-called, levels three to requirements last to at is activity cycles. duty group applied dealing things we terms emissions real category maintenance different some new of in in different So of with spending product that evolving at of new which we do is or our then And look variants the be or really look disruptive. incremental for

try state these That's not some a that which think high other So we as that I what and will invest those think to than it's the is we this returns which, of relatively again size we going all into on I obvious rate to of continue for we number is of appropriate to fund is about would depending early returns. for technologies, initiatives run that to propulsion the relatively according other to different to important as move in at point this we be prepared business. I Allison. discipline a as options level said, think remarks change mean, at

have the deliver but it's certainly to results. So nice it's welcome one a we problem manage to opportunity and that

Ann Duignan

of million model Thank you, or going elsewhere is of a I R&D no the the back SG&A with the only $XX R&D or acquisitions, in there's on should consider sales? these acquisitions this be should that's these appreciate we presume incremental change just follow-up, spending that that. is we I in And year adjust it to all quick two

Dave Graziosi

Yes, the and there's balance SG&A. of minimal expenses sales in R&D and is XXXX and the

Operator

is question from next Please America. Gilardi with Bank proceed. Our Ross of

Ross Gilardi

their on it the and how side? mine just are their on the solution little in is has on is legacy the it Defense. want market I or a And OE On-Highway about is Most far technology to more aftermarket they reading been really an just answered. press From -- just of mostly AxleTech, they're bit understand and Off-Highway release, evolution more. focused sounds like an wondering in that But really On-Highway been have along it talking

Dave Graziosi

have what we It’s in your what be and to that side. their much Off-Highway But we continues they Military OE very terms -- are -- business focused the of what developed to we in point acquired.

in most are the so as axles, Off-Highway terms applications of that's you Defense. think than you think cases the much these fully point see key I integrated in Ross different electric about and

products So are that but addressing. we're these OE

Ross Gilardi

Is the of program. in the talked rest this Okay. just benefit? from puts about that flows I SG&A a for tailwind Can mean lasting and year if quantify Got about then incentive you in that And how XXXX. a your of and line. balance and impact outlook. the also captured the about I wonder it. comments I quantify you that for through talked the warranty that positive then all different retirement few you the But think takes, overall gross margins, on at you could the you

Dave Graziosi

Ross. Sure,

retirements. the So incentive one-time. that's retirement a paid a those with bonus That's associated one-time

So at will time, be employees multi-tiered that the legacy in employees. with those point backfilled

QX specific So to QX in and favorable the and And part was that We and be by as QX roughly volume and policy XXXX driven adjustments in the of year-over-year savings. $XX driven a that mix. $X of ongoing had and policy then warranty a XXXX by adjustment will million. some to basis, balance and we was and in an about warranty on is look policy down warranty, million,

and we have mix, I lower year-over-year. run adjustments expect forward total us anticipate expense volume to flowing So but the similar assuming wouldn't P&W would in

Operator

Our Ian proceed. with is Oppenheimer from Zaffino & Please next question Company.

Mark Breidenbach

Ian. This Mark morning taking for for on question. is our Good Thanks guys.

most sort the just guys of throughout be there during the in just any cadence So investments But period the that should the you Thanks. spend engineering the the year, quick stuff one of? has is regards expected of of we R&D idea give answered. on, can spending aware been with to higher and the outsized you acquisition, if can

Dave Graziosi

standpoint. and to QX from the QX, expect I step-up R&D for QX, certainly would QX an constant expense but be relatively spend from

Operator

Graziosi Dave back I reached end to would the closing to session. question-and-answer our We the have turn over of call like for remarks.

Dave Graziosi

us thank you, for you joining this morning. Thank Sherry, everyone and

call. interest of day. in the you participating your value rest strategic resolute to our for as while and stakeholders. continue demonstrate results way of growth improve today's our again all Allison execution Enjoy remain our on of innovative Thank Allison Our work, make simultaneously strides solutions to on our for latest for facilitate business your power that continued in once introduce and forward, focused the we priorities, creating the invest of customers the intently

Operator

Thank you. This concludes today's conference.

disconnect may and time You have your at this wonderful lines a day.

Allison Transmission (ALSN) 23 Apr 192019 Q1 Earnings call transcript