Allison Transmission Holdings Inc Q1 FY2025 earnings call

• David Graziosi welcomed Scott Mell as the new Chief Financial Officer and Treasurer. - Announcements included Allison's 3040 MX medium weight cross-drive transmission selected for India's FICV program, Daimler Truck North America partnering for FuelSense 2.0 neutral at stop technology, and expansion of global service network. - Dave Graziosi discussed strategic advantages like global footprint, North American sourcing, and insulation of municipal business from macro environment. - Fred Bohley reviewed first quarter financial performance and 2025 guidance, including net sales, gross profit, net income, and dividend increase/stock repurchase program.

Year-over-year net sales decreased 3% to $766 million. North American on highway end market saw a 4% increase, driven by price increases and strength in Class 8 vocational trucks, partially offset by medium duty declines. Defense end market had a 10% increase. Gross profit for the quarter was $378 million, an increase of $12 million from the same period in 2024. Net income was $192 million, an increase of $23 million. Diluted earnings per share increased 17% to $2.23. Adjusted EBITDA margin for the quarter was 37.5%, an increase of 90 basis points year-over-year.

• Reaffirmed full year 2025 guidance with net sales expected to be in the range of $3.2 billion to $3.3 billion. - Anticipates net income in the range of $735 million to $785 million, adjusted EBITDA in the range of $1.17 billion to $1.23 billion, net cash provided by operating activities in the range of $800 million to $860 million, capital expenditures in the range of $165 million to $175 million, and adjusted free cash flow in the range of $635 million to $685 million. - Continues to monitor tariff environment and plans to offset impact. - 6th consecutive annual increase to quarterly dividend, and $1 billion increase in stock repurchase program authorization.

• Geopolitical tensions and shifting trade policies creating uncertainty. - Tariff environment and potential impact on supply chain. - Uncertainty around EPA regulations and administration actions affecting emissions standards.

Q: Nice margin performance in the quarter, can we unpack what drove the solid margin results?

A: Price was meaningful, with $39 million in price for the quarter; onetime UAW signing incentives excluded from EBITDA last year; net sales down, material costs unfavorable, but price offset some negatives.

Q: Thoughts on vocational demand environment?

A: North America vocational continues to be robust, consistent with OEM comments; medium-duty market down as expected.

Q: Thoughts on capital allocation, especially M&A?

A: Stick to capital allocation priorities, funding the business and organic growth; always looking at potential M&A opportunities but focusing on internal growth first.

Q: Impact of Section 232 investigation and regional haul?

A: Well-positioned with North American footprint; regional haul market soft, but no significant dislocation expected; monitor tariff issues.

Q: Pricing outlook for the rest of the year?

A: Likely to come in a little north of initial 400 basis points guidance, mid single-digits possible.

Q: Implications of EPA regulations and administration actions?

A: Product doesn't require significant modification for new engines; industry pivoted to align with 2027 emissions regs, but uncertainty remains on final regs.

Q: Step down in parts business?

A: Year-over-year unit sales down, general weakness in global service parts; vehicles coming out of warranty displacing higher volume years.

Q: Production plan and inventories?

A: For medium-duty, taken down overtime and reset line rates; inventories elevated to support defense volume ramp, on-highway inventories at optimal levels.