ALSN - Earnings call 4 2023 | Allison Transmission Holdings, Inc.

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Operator

Good afternoon, and thank you for standing by. Welcome to the Allison Transmission's Fourth Quarter 2023 Earnings Conference Call. My name is Camilla and I will be your conference call operator today. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to Jackie Bolles, Executive Director of Treasury and Investor Relations. Jackie. ahead, go Please

Jacalyn Bolles

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

XX. replay available Investor Relations February section As a webcast call available the conference call and this be allisontransmission.com. on A of reminder, this afternoon's this will presentation are of through

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

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

question reconciliations participation to is GAAP order take opportunities In our the fourth call XXXX each X:XX You measures can quarter maximize to one Today's find to presentation at call, comparable measures set to and on of press p.m. we'll attached non-GAAP to appendix analyst. the most financial just the as an end earnings the Eastern. from release.

the Slide call to X presentation turn of agenda. for Please the

guidance. our Fred then commencing will full Dave the from recent Graziosi will our with financial Q&A. update XXXX our close introduce year on highlights prior announcements review XXXX XXXX Bohley results. an business During quarter and year across to performance today's then full call, Dave will fourth review

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

David Graziosi

sequentially thank you record increases finished full for note Fourth quarter and a strong Good XXXX. XX% $X.XXX fourth Jackie. you, X% a with of year on performance an X% increase billion, XXXX quarter joining afternoon, to Thank and us. year-over-year. accelerating from line sales top boosted net

driven our performance America our as in for to of satisfied realized our On-Highway and our end increase emissions XX% other market support the a our pent-up end strength. up Also nearly Our record to demand the vocational trucks. We has and believe year market to million. year-over-year, will year $XXX and annual not strength was revenue demand contributing performance, full favorable beyond top and for by upcoming hold market, robust XXXX into equipment parts, the line outlook North support Class fully year-over-year X largest end medium-duty in medium-duty leading we in service we attributed in XXXX changes markets, XX% an

We units our expect expire. aging production service continued business and parts XXXX -- and warranties driven in XXXX with years genuine aftermarket for high-volume from fleets demand for as strength Allison by in increased

XXXX Continuing our full year with performance.

in an cost EBITDA environment million. XXX basis expanding Adjusted Net XX% income while to margin our power. XXXX. for with $XXX We increasing to inflationary increased billion earnings controlling adjusted are increased points with expanding team's our $X.XXX pleased XXXX and to from commitment margin year-over-year EBITDA

increase of our Finally, up capital XXXX, earnings through full reducing priorities. $X.XX, XX% EPS allocation diluted record count from we we share year while achieved as

share quarterly further dividend growth the shareholders and improve performance our to repurchase through our returning for while and expect We program. capital share to funding per business

with represent $XXX year in XXXX repurchase nearly to with repurchased and IPO over in shares remaining. of shares, XXXX. the of capacity share our over In we total our the fourth since worth of quarter Shares million outstanding ending outstanding shares authorized repurchased over repurchased XX% bringing million the almost XXXX $XXX our XXXX, million of X% $XXX of for

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

G. Bohley

you, Thank Dave.

year then introduce discuss cash year XXXX I'll XXXX full full XXXX results the I'll Following Dave's the XXXX comments, QX performance guidance. performance. and flow summary QX

a Slide XXXX demand North in by sales sales the in performance QX net in strength of continued results and to Class record in X wheeled market, in Year-over-year from medium-duty The presentation increase the market million. vehicle trucks, for the increased On-Highway vocational driven for same to principally X% for due XX% was end turn in to a track Defense increased XXXX Please $XXX applications. the and net American of fourth and XX% the X by quarter demand end period year-over-year summary. led increase a increase

XXXX. increases of sales Year-over-year million, period increased a XX% price certain a The by increase net in $XXX principally end outside XX% was driven was demand principally the in increase million was for higher gross The by mining results and in Net from material $XXX profit was quarter improved segment. driven off-highway XXXX. XX% American the on offset an were by for period $XXX driven million, partially for Gross sales increase principally quarter direct $XXX same net by in income by costs. in North for higher the increase profit. products, the same higher the the increase million market, also from

million the gross increase for for XXXX, income The $X.XX higher quarter driven from XXXX. shares same was the net in period total earnings driven by XX% to principally Diluted the increased million profit. share to was lower per in by same EBITDA and $XXX period Adjusted compared $XXX higher outstanding.

performance QX X X by presentation. Slides the sales of of A and end detailed on and overview financial our found market can be XXXX net

requirements. X $XXX to flow funding capital flow period lower free cash operating for million increase presentation summary. profit of principally quarter driven turn XXXX. compared QX by higher Slide performance gross XXXX capital for Adjusted in cash $XXX lower now million the same the the I'll was for the was expenditures, The working and to

share the quarter leverage dividend ended credit We commitments. net common fourth a million facility of of we of $XXX $XXX million X.Xx, paid revolving of with the and and per available our quarter, $XXX ratio During stock. of cash million $X.XX a repurchased

to In structure, of debt variable outstanding maintain XXXX. hedged, billion a in to debt, being debt rates, million subject third XX% addition, continue long-dated $XXX resulting and of of flexible, through is covenant-light over of interest quarter which million $X.X is our we $XXX fixed the

to Slide turn the Please guidance. for XXXX the X of presentation

to $X.XX For range be XXXX, billion. Allison billion the to expects in net sales of $X.XX

year. are We sales record another to guiding net

in in addition cash billion In $XXX million to $X.XXX Allison's guidance, of range the net anticipate adjusted in million $XXX by and capital sales to million, the adjusted in $XXX of $XXX range to the of we flow of $XXX net operating million cash $XXX expenditures million, range the income million million. XXXX to $XXX the $X.XX to free range EBITDA net in of provided activities billion, range $XXX to million,

Dave recent I'll call Thank update back over to now for on an turn the announcements. you. And

David Graziosi

you, North continue Thank for announcements X support outlook X vocational Fred. demand. infrastructure Last XXXX related Class made America The is we market expected month, end On-Highway end to this our as remains market. to spending robust to notable

progress the the propulsion Allison's solution of delivery and $XXX that day to revenue cab continues as the Regional we logistics specified and to choice. The million Haul one in companies global logistics opportunity First, annual for pleased global fleet. RHS of agnostic X CNG haul of largest tractors year, Class as has incremental the XXXX our regional our announce released nature market were Series Freightliner with fuel Cascadia Freightliner equipped paired their with Cascadia purchasing and XXXX engine is Allison's company Last delivery highlighting new a into product transmissions. Daimler day our cab benefits and Allison's CNG conventional tractor RHS of their XXXX the

North Corporation's waste electric were announce for specifically eGen collection Second, been new order into to minimize the fully Oshkosh's supplier integrated designed in reduce On-Highway pleased refuse vocational our vehicle. in was market, Allison's impact Oshkosh end as America XXXS truck noise. we industry selected that for axle electric management environmental and Power the exclusive has to integrated Allison

leader position The North axles quieter delivering electric market, tandem the where to eGen refuse look configuration air we refuse vehicle the future. leadership now the maintaining and in established propulsion will Allison is cleaner in utilize collection while Allison XXXS ERCB, into America Power deployed. forward our and already operation or and X

outside Last partnership, strength of is initiatives. our record partnership driven year a XXXX SANY, the a month, growth announced year-over-year markets. for revenue we On-Highway to in After with with Through widebody guidance million will revenue by XX% integration equipment transmissions family Series next-generation America vehicles, support heavy wide-body annual mining mining off-road North and market mining year at its manufacturer $XXX in record expected SKT-XXX part supply a including series we continued the XXXX, into Outside of incremental the Allison the in share Our have This will partnership and SANY agreement midpoint. South opportunity Allison's strategic aligns for another in North of end and growth execution global to Asia as market construction grow initiatives. with anticipate the our Africa, America America and efforts our On-Highway dump strategically mining of

decade end achieving year was of with revenue a For our start million XXXX initiative. was million. our solid the a growth high XX% increase $XXX revenue fourth an $XX quarter quarter million, toward Full Defense of market, $XXX of from

increased States our we the investments domestically We through sales international uncertainties expect as of through in continued the modernization up-cycle, Department globally end growth well capitalize geopolitical both this the amidst on through XXXX as Defense Defense. as our in market programs with increased Defense internationally U.S. United and opportunities

advantage. our leveraging long-standing a defense Allison competitive business remains and pursuing committed growth OEMs model end to our market, relationships Defense with asset-light investing in and as in

of be forward and was to partnerships are defense $XX We used battle close a Allison foreign I and in the XXXXX as sales tank. decades demands supported is would Allison and premier new transmission to needs the We Today, poised U.S. to the supporting to awarded military main announcement our customers recent world's highlight partners Abrams with the FMS continuing success or well-rounded Army, tank come. products long support in investments the portfolio of are like realizing over main our variants as Army has that customers. million well to and global to part for upgraded and provide by of look of battle the proud its U.S. customers. these satisfy

future, time pipeline made the updating look These in particularly wheeled Defense we near our over announcements we to end last looking end programs programs we our the in in are applications. to addition further in years, as have will a global forward advance. market, market growth you defense few lines the forward to of and drive In

we global foster our Ventures companies mobility solutions. expanding work and way in advancements and our in technology pipeline our and Allison our world on, of in Allison stage forward of growth startup is in look partner The Ventures to will January, strategically with investing late mission on Moving announced focused arm. capital to our mobility to We innovation Ventures and and to duty increasing Allison new venture launch improve invest commercial the evolving in technologies further our strategy the support works. the and industry advancement grow the portfolio market. team

while In expansion a shareholders. top line closing, was returning of solid margin capital records to XXXX and year

We of continue across the development growth. products technologies to order end in drive and to our new invest of markets all in

Allison Our propulsion tomorrow and outlook meet demonstrate challenges next our for strides growth forward sustainable initiatives and of business. the solutions our of continue generation as we to growth of XXXX results realize to and future ensure develop make that the the power

prepared open questions. the our concludes Camilla, remarks. call please for This

Operator

the Research. first of with comes Our line from question Instructions] Rob [Operator Melius Wertheimer

Robert Wertheimer

you're start half North on look production, those of with. did. you be X in in straight. with your have a medium-duty to acceleration great America down or On-Highway, in And I'm the we going with think current was We book? with outlook that X%, line to line builds current from how so saw or to it on Class whether just sort I Cummins you what question don't order flat line assumes my what guide is and deceleration about first seeing whether markets in just curious an see in So

David Graziosi

it's Rob, Dave.

there. a of So things couple

to strong result start with, medium we a 'XX. had duty in certainly So

catch-up what we we prepared that mentioned and to space as to in mode. it's refer the continues a As remarks, be

straight would continues it be X overall, healthy That's fairly Some others. vocational demand. unsupplied. we fleets market a truck been shape to. are a But better Class say, as I or talk in We relatively than about that referred to has the

constraints on a as think number hearing I with OEMs, by -- you're the them think, know, public consistent from relatively the what that's well. I as based of you comments

year -- be will seasonally latter 'XX. also for many that think for the I into 'XX anyway. So vocational is point strong certainly, a the And of focal a part starting. of was as typically coming portion It's a

carry to expected that for 'XX. emphasis think I So of through a is good portion

all timing, the on the largely for trucks. To to the to your I dependent that's be availability again, question on components think make going

attribute all of think of is about, As the you I we've to delivering. that's to really And where about think to vehicle. it deliver capable the a talked year understand takes play them performing out, particular how as is ultimately supply and going one complete base trying

-- certainly of demand, X OEMs So demand. said, strong we're everything the hearing Class that vocational intentions with I as is to supply for

So do to and the prepared we we that ready certainly support as to best stand can. industry

Operator

Our next line comes from of question Oppenheimer. with Zaffino the Ian

Isaac Sellhausen

sort the start maybe This is do implied price strong Ian. Where quarter the for Could Yes, stand year? and of help year. we your as year Isaac pricing expectations we mix expectations for really North volume and you guidance? understand on Sellhausen this congrats a on and for On-Highway us in on America in

G. Bohley

to with $XXX basis was points on a initial realized Relative I from really price And million. is really was up start that We of price. assumption, mean XXX year-over-year basis, which This $XXX Fred. to our actually of pricing. And XXXX. million guidance

to we've price realized as of and that take you progress through couple XX did basis months, of we if XXXX, pursue price. -- what Really points with in So 'XX we $XXX you in price. we to that million or X,XXX continue

points at are XXX of currently approximately basis looking we XXXX, As anticipating we're price.

I as American defined covered most aware, you over On-Highway market long-term largest by market, end our are end of our think North agreements pricing. is with of XX%

But these looking be XXXX, will to On-Highway certainly those available through XX% progress the over price. market of out we've North we honored America high as agreements. times, inflationary So end to really

to prices outside moving features. earnings curve emissions continue the safety the proposition mentioned that's pressure increase, in calls, America increase. continues previous increase, inflationary our to North prices to we've as So adding OEM as cost end and vehicle Whether value the up user

pricing take of from both are standpoint. this to We really but share well advantage from market positioned also a standpoint, a

Operator

of Tami JPMorgan. comes Our question line from next the Zakaria with

Tami Zakaria

question is my market. around the off-highway So

the for positive, in wide, different think is outside America one expectations growth pretty I America North North versus market the negative. one

So markets? just those end wanted for expectations driving what's those of understand, to each

David Graziosi

Tami, appreciate the it's question I Dave. there.

the regions. largely first, North you America a know, is Off-Highway energy America So North as take market.

end supportive. the energy certainly I what returns. second continued markets view with And continued generally, As we seeing which would mentioned, high very capital we level discipline and cash prices capital think, consider are half discipline, of regulatory a it Commodity year last I capital as is you by the are -- to users. much is obviously maximize think and space flow

market relatively As conventional we least at on the we the at very capacitized, talked this about, view limited well and builds, rig point. side, equipped as new

talked with And is market. look expecting us. refurbs, of still But half refurb particular So we some in not seeing a much frankly, backdrop, which medium very components equipment into last of there really again, of consumed, as But new terms at level our front as from that a some a you're in type replacement in well supplied. largely going term, level increased about perspective, year, second this of market. higher of until demand that's there's of that

out North there and and by the for is quarter, of et there in a construction, some energy some the of year Outside into cetera. market. last mining, executing continues of America were Coming busy to certainly second against combination be challenges us half a tenders That fourth relatively terms OEMs. hauling,

you terms demand level So market, the of what's in happened up about trying think underlying to with catch if of in actually that some there.

relatively And Off-Highway outside for continue we overall as America North think 'XX general business of our I the can strong. aspect an macro to year. market again, start that's be conditions the So

best our do we'll to again supply. So

think broader back terms of perspective. that, ultimately gets total though, component time in capability a to some of I meeting industry's from the supply demand

see do again, So strong still that a we'll our relatively we best, market. as but

Operator

Our next line Stanley. Angel of Castillo question from Morgan comes the with

Angel Castillo Malpica

Just little want bit a to more color. get

could anticipate that follow the that to through just of walk If maybe of what more price. of And standpoint? statements. You margin through basis from and of sort a you price/cost and dynamic the points continuing talked the XXX we maybe about kind financial kind

You lower at net year-over-year. level, comes seems and a sales have cash down free growth but bit ultimately, income flow the little

just help of only impacting each kind and So of that us the you are those pieces? can understand puts takes

G. Bohley

guide labor Angel, result the being supply a agreement a chain. Sure. supply really new from we the standpoint, increased bargain XXXX. standpoint, our Fred. XXXX material reflect costs the the by material is incurred with cost cost that's add those are this anticipating our value with associated collective associated of UAW incremental principally increased of as does in From And Also costs a increased costs costs, driven agreement, with our in chain. labor higher new within majority

So those X are the cost from a standpoint. drivers primary

of on couple EBITDA As a modeling have of you a hundred price, price basis. basis we're mentioned, points flat and basically year-over-year

Operator

the comes question Thein from with next of Our Citi. line Tim

Timothy Thein

just to to the said I from a percentage when much I come to for wanted LTSA than North -- think the tend the earlier up go about of Fred, I that's American also increase leading comment you XX% you recall the made is it's one bigger costs a I timing memory, what back -- will terms that renewal. of end just be the it's of emissions. But larger coming up in percentage on given the perspective, to are staggered. increases or more potentially the set to front from vehicle interesting

your guess, significantly. to just being set your you're into pretty I increase are how are is that, transmissions approaching and what So vehicles put

approach how I So guess, negotiations? how might that increase those or influence kind those, of you

G. Bohley

is this Tim, Yes, Fred.

did you hear correctly. me So

staggered, to end nature. largest the in X available XXXX. of consistent revenue of typically negotiated I So out. be Over a market. pricing On-Highway will which way of they've relatively called our second for -- years been over of there's been obviously America our in reason price. business XXXX obviously And is for the the they've market, North more book that that are X while transmission XX% market a end in It's we will X be price they're There are -- -- It's value as market. in that for I half up. something your deliver on in in vehicles certainly highlighted, is run where And or to efficiently. because attention that relative think the our cost the the value we are. the the our where it more calls the as that delivers for pay significantly is, up To those earnings Ultimately, of vehicles product that vehicles price comments we And X row we products make of close to. XX%

You get more work done in day. a

You get from point B. A to

You drivers the maintenance but tough so in in lot vehicles market. retain have to costs, can labor size you on downtime. you fewer maintenance train cost, the you Ultimately, have drivers, It's don't your a save don't easier fleet. a

of amount we definitely a a position where and that have So long-term that we're significant power, consideration be will pricing as negotiate we believe taken we into new in agreements.

Operator

from Our Jerry line Goldman next question comes Revich Sachs. the of with

Jerry Revich

you margin for looking EBITDA if sales the the say outlook about for just close you're generally could and Fred, pretty outlook more XXXX wondering, at of midpoint flattish I'm margins. to

Can to the look You other those spoke like? pieces? moving the folks price surprise were about upside, what out you if just would flesh assumptions. the you And levers

G. Bohley

engineering is from walking up slightly This with again. just flat to the some Jerry. pressures. SG&A Sure, inflationary standpoint, Fred through Really

supply fortunate they less core middle building the Clearly, think entire right vehicle us We're the truck. demand strong. market, situation which strong the demand, in earlier, where proper get for I is medium-duty parts of is in they're over-the-road is X where have on building gets the can and tractors chain, the Class upside, comments straight build. addressable focused Dave's it think are our really still and I the to to to OEMs this to

think be top very attractive margins as line margins. you I the will So upside we stronger revenue. And know, to very, incremental have

the entirely positioned products. today. -- -- We'll in what in we we'll to in front So will our that's That's not of can, guide you control But drive control. be supply put that's the unfortunately biggest guys upside. that what and the upside we our

Operator

of the from Citi. next line with question comes Thein Tim Our

Timothy Thein

customers. Maybe be the vary here. that outsized All right. The with I on seeing ask Fred, just, Defense dynamics can whether business standpoint to product margin selling of X quite I'll DoD depending to had just for one or year, international can mix growth another carry.

of So in just track about a a that, impact the terms in overall that wheel guess, side margins. on impact on the maybe in just implications headwind or are be just so the big on that and -- from Defense of of a how more word terms thinking how this would the I But mix? growth is historically lot the we to

G. Bohley

Thanks. is Yes, This Fred. Tim.

Defense As you government And have mentioned, margin XX%. our Defense has track guided the up to our especially we do Defense midpoint, business, business, a our historically, been at U.S. lowest really as fee. fixed over track negotiation. that North we've being driven half continued But where to plus commercial by business expand is sales, business, cost a American of the it's outside

So to as we be that expect I increased drag look negative a margins. certainly XX%, don't it on at EBITDA

Operator

floor There are turn to I'd questions time. closing the like comments. at no this Graziosi And Dave CEO, to Chairman and for over back further

David Graziosi

Thank continued in Camilla. Allison for today's you, interest evening. your participating your call. Thank Enjoy and for you on

Operator

This teleconference. you. concludes Thank today's

lines your for at disconnect participation. may time. Thank your this you You

Allison Transmission (ALSN) 13 Feb 242023 Q4 Earnings call transcript