Allison Transmission Holdings, Inc. Q4 FY2025 earnings call

Dave Graziosi announced the completion of acquiring Dana's Off-Highway business and welcomed new colleagues. He presented Allison Transmission's 2025 performance highlights, noting the impact of macroeconomic factors, growth in the defense market, and capital allocation. Fred Bohley reviewed recent announcements in India, including signing a memorandum of understanding with Armoured Vehicles Nigam Limited, business expansion in the mining sector, and the expansion of the state-of-art facility in Chennai.

Allison Transmission: In 2025, full-year revenue decreased by 7% year-over-year. However, the full-year adjusted EBITDA margin increased by 140 basis points year-over-year to 37.5%. The defense end market saw revenue increase by 26% to $267 million for the year. In the fourth quarter of 2025, the outside North American On-Highway end market achieved record revenue, and the defense end market had fourth quarter net sales of $73 million, up 7% year-over-year. Allison Off-Highway: With the completion of the acquisition of Dana's Off-Highway business, it enters a new phase. For 2026, the net sales guidance for the Allison Off-Highway Drive and Motion Systems segment is in the range of $2.550 billion to $2.750 billion.

For 2026, consolidated net sales are expected to be in the range of $5.575 billion to $5.925 billion, with the Allison Transmission segment's net sales ranging from $3.025 billion to $3.175 billion. Consolidated net income is forecasted to be between $600 million and $750 million, subject to purchase price accounting. Consolidated adjusted EBITDA is anticipated to be in the range of $1.365 billion to $1.515 billion. Consolidated net cash provided by operating activities is expected to be from $970 million to $1.100 billion, capital expenditures from $295 million to $315 million, and adjusted free cash flow from $655 million to $805 million. No synergies are assumed in the 2026 guidance.

Forward-looking statements are subject to known and unknown risks, including those set forth in the annual report on Form 10-K for the year ended December 31, 2024, and quarterly report on Form 10-Q for the quarter ended September 30, 2025. If these risks or uncertainties materialize or underlying assumptions prove incorrect, actual results may differ materially from those expressed.

Q: Rob Wertheimer inquired about pricing expectations, rate of inflation, tariff situation and segment data disclosure.

A: Scott Mell stated that meaningful year-over-year pricing is expected, likely between 250 - 400 basis points, facing inflationary pressure, and expecting to recover some tariff through pricing but it would be a net drag on margins. Fred Bohley added on pricing for the Allison Transmission business unit.

Q: Tim Thein asked about the midpoint EBITDA estimate and the implied EBITDA of the acquired business.

A: Scott Mell said one should consider the different mix in end markets, and Fred Bohley mentioned that the North America On-Highway forecast is soft with no meaningful recovery in Class 8 vocational trucks, and it was challenging to get segment margins at that point due to ongoing work on corporate cost allocation.

Q: Ian Zaffino asked about acquisition synergies.

A: Dave Graziosi said there is a $120 million annual run rate of synergies as announced, the team is engaged in analyzing synergies in operations, procurement, engineering and SG&A, and no synergies are assumed in the 2026 guidance with further updates expected in the future.

Q: Jerry Revich asked about the margin profile of the legacy Allison business and Craig Price's priorities.

A: Fred Bohley said 40% EBITDA margins were feasible with efforts on cost, quality and growth outside North America. David Graziosi said Craig Price's top priorities were meeting customer commitments, seamless integration, and execution.

Q: Tami Zakaria asked about the Off-Highway segment guide and seasonality.

A: Dave Graziosi said the midpoint net sales growth of the Off-Highway segment was mid-plus single-digit year-over-year. Scott Mell said the 2026 guide had relatively even quarter-to-quarter sales and was cautiously optimistic about medium-duty demand improvement in the second half.

Q: Angel Castillo asked about the end market guidance.

A: Fred Bohley said the North America On-Highway was soft with unit volumes down but defense and outside North America were growing. David Graziosi said Off-Highway end markets had various conditions such as steady construction material handling but weak residential, material handling affected by trade, agriculture with many moving pieces, industrial expecting benefits from large projects, and mining with some growth assumptions.

Q: Luke Junk asked about Off-Highway business pricing.

A: David Graziosi said 2026 pricing for the Off-Highway business was relatively neutral year-over-year except for tariff impact, with the priority being meeting customer commitments.

Q: Kyle Menges asked about cost synergies.

A: Dave Graziosi said confident in the $120 million annual run rate of synergies, the team was undertaking deliberate work across functions, and no synergies were assumed in the 2026 guidance with further updates expected in 2027.