Allison Transmission Holdings, Inc. Q1 FY2026 earnings call

• Dave Graziosi recognized and thanked the global employee base for their work, noting integration and value capture efforts within business units, with synergy realization beginning to take shape. - Scott Mell discussed segment reporting structure, first quarter financial performance including net income, diluted EPS, and adjusted EBITDA, and capital allocation priorities like debt reduction, dividend increase, and share repurchases. - Dave Graziosi provided a business update, mentioning progress in integration, synergy realization, and positive outlook for sales growth through business unit combination, localized production, and cost reductions.

Legacy Allison Transmission business: First quarter net sales were $733 million, a year-over-year decline of 4%. Defense market had revenue up 64% year over year. Allison Off-Highway business unit: Generated $673 million of sales in the first quarter. Mining and construction markets showed growth. Allison Central Group is a centralized cost center. First quarter net income decreased year-over-year due to acquisition-related costs, but adjusted diluted EPS was $2.57, up 6% year-over-year. Adjusted EBITDA for the first quarter was $362 million, increasing 22% year-over-year with a 26% margin.

• Reaffirmed full year 2026 guidance: Consolidated net sales in the range of $5,575,000,000 to $5,925,000,000. Allison Transmission Business Unit net sales in range of $3,025,000,000 to $3,175,000,000. Allison Off-Highway Business Unit net sales in range of $2,550,000,000 to $2,750,000,000. Consolidated net income in range of $600,000,000 to $750,000,000. Consolidated adjusted EBITDA in range of $1,365,000,000 to $1,515,000,000. Consolidated net cash provided by operating activities in range of $970 million to $1,100,000,000. Consolidated capital expenditures in range of $295 to $315 million. Consolidated adjusted free cash flow in range of $655 to $805 million.

• Forward-looking statements are subject to known and unknown risks, including those set forth in the annual report on Form 10-K. - Potential for indirect impacts across supply chains, energy markets, and broader macroeconomic conditions due to the conflict in the Middle East, with uncertain duration and impact. - Geopolitical impacts including tariffs and emissions regulations hindering end users' new vehicle purchasing decisions.

Q: There's been a lot that's changed in the world since the deal was announced and closed, talk about what's changed most positive and negative.

A: Dave said they're very pleased with the acquisition, exceeding expectations in capabilities and operational footprint flexibility. Trade developments and regional realignment are more beneficial.

Q: On target for adjusted EBITDA margins of 27 to 29%, when to expect realization and if timeline changed.

A: Dave said very comfortable with the target range, timing still attainable within a few years, with value capture work pointing out other areas.

Q: On medium duty side, when it starts bottoming out and improving, and capital allocation priority.

A: Fred said first quarter was soft but starting to see signs, unknown on medium-duty engines. Scott said prioritizing de-leveraging and share repurchases, continuing to assess inorganic opportunities.

Q: Expectations for sequential performance and synergy capture.

A: Fred said transmission side expected to step up sequentially, Craig said off-highway side has step up in Q2. Scott said expectations on synergy opportunity and timing haven't changed.

Q: $673 million of off-highway revenue compared to last year and price realization.

A: Fred said off-highway revenue up over 10% year-over-year, price for Allison Transmission about 325 basis points, price for Allison Off-Highway neutral year over year.

Q: End market views, particular pockets of better performance.

A: Fred said defense was amazing quarter, North America on highway had some better than expected, things softer outside but stepping up sequentially.

Q: Interplay between defense and North America on highways.

A: Fred said defense growth driven by non-U.S. government outside North America, not much connectivity back to North America on-highway end market.

Q: Pricing comments and price vs cost for business units.

A: Scott said Allison Transmission price expected to cover cost factors, Craig said off-highway business pretty neutral with minor price givebacks offset by operational structure.

Q: Seasonality of working capital for new business and free cash flow profile.

A: Scott said cash flow profile similar to prior, first quarter off-highway business unit a user of cash, expected quarterly trends as before.