Yahoo Finance Allison Transmission Holdings, Inc. (NYSE:ALSN) Q1 2024 Earnings Call Transcript
Allison Transmission Holdings, Inc. (NYSE:ALSN) Q1 2024 Earnings Call Transcript April 25, 2024
Allison Transmission Holdings, Inc. beats earnings expectations. Reported EPS is $1.9, expectations were $1.89. Allison Transmission Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. Thank you for standing by. Welcome to Allison Transmission's First Quarter 2024 Earnings Conference Call. My name is Doug, and I will be your conference call operator today. At this time, all participants are in a listen-only mode. After prepared remarks, Allison Transmission executives will conduct a question-and-answer session and conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to turn the call over to Jackie Bolles, Executive Director of Treasury and Investor Relations. Go ahead, Jackie.
Jackie Bolles: Thank you, Doug. Good afternoon and thank you for joining us for our first quarter 2024 earnings conference call. With me this afternoon are Dave Graziosi, our Chair and Chief Executive Officer and Fred Bohley, our Senior Vice President, Chief Financial Officer and Treasurer. As a reminder, this conference call, webcast and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through May 9. As noted on Slide 2 of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward looking statements are subject to known and unknown risks, including those set forth in our first quarter 2024 earnings press release, our annual report on Form 10-K for the year ended December 31, 2023, as well as other general economic factors.
Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on Slide 3 of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our Q1 2024 earnings press release. Today's call is set to end at 5:45 pm Eastern Time. In order to maximize participation opportunities on the call, we'll take just one question from each analyst. Please turn to Slide 4 of the presentation for the call agenda. During today's call, Fred will review our first quarter 2024 financial performance and full year 2024 guidance.
Dave will then close with an update on recent announcements across our business prior to commencing the Q&A. Now I'll turn the call over to Fred Bohley.
Fred Bohley: Thank you, Jackie. Good afternoon and thank you for joining us. Building on record performance in 2023, first quarter 2024 results demonstrate the continued momentum in our business. First quarter net sales were a record $789 million an increase of 6% from the same period in 2023. Our year-over-year top-line increase was driven by robust global On-Highway demand as well as strength in our defense and outside North America Off-Highway end markets. Please turn to Slide 5 of the presentation for the Q1 2024 performance summary. Year-over-year net sales increased 6% from the same period in 2023 to a record of $789 million. The increase in year over year results was led by a 12% increase in the North American On-Highway end market, driven by strengthened in demand for Class 8 vocational and medium duty trucks and price increases on certain products.
Our defense end market net sales increased 78% from the first quarter of 2023, principally driven by higher demand for tracked vehicle applications. Year-over-year results increased 83% in our outside North America Off-Highway end market, principally driven by strength in demand from the energy, mining and construction sectors. Net sales in the outside North American On-Highway end market increased by 6% leading to record first quarter net sales, principally driven by higher demand in Asia and price increases on certain products, partially offset by lower demand in Europe. Gross profit for the quarter was $366 million an increase of $5 million from $361 million for the same period in 2023. The on certain products, partially offset by higher manufacturing expense including $13 million of non-reoccurring UAW contract signing incentives and higher direct material cost.
Net income for the quarter was $169 million a decrease of $1 million from the same period in 2023. The decrease was principally driven by higher manufacturing expense, $14 million of non-reoccurring UAW contract signing incentives, $10 million of unrealized mark-to-market adjustments for marketable securities and higher direct material costs, partially offset by increased net sales, price increases on certain products and lower income tax expense. Adjusted EBITDA for the quarter was $289 million, compared to $276 million for the same period in 2023. The increase in adjusted EBITDA was principally driven by increased net sales and price increases on certain products, partially offset by higher manufacturing expense and higher direct material cost.
Diluted earnings per share increased 3% from the same period in 2023 to $1.90, which includes a $0.13 impact from $14 million of non-recurring UAW contract signing incentives incurred in the quarter. A detailed overview of our net sales by end market and Q1 2024 financial performance can be found on Slides 6 and 7 of the presentation. Please turn to Slide 8 of the presentation for the Q1 2024 cash flow performance summary. Adjusted free cash flow for the quarter was $162 million, compared to $169 million for the same period in 2023. The decrease was principally driven by higher cash incentive compensation payments and non-reoccurring UAW contract signing incentive payments, partially offset by higher gross profit and lower capital expenditures.
During the first quarter, we paid a dividend of $0.25 per share and repurchased $52 million of our common stock. We ended the quarter with a net leverage ratio of 1.7x, $551 million of cash and $745 million of available revolving credit facility commitments. In addition, we continue to maintain a flexible long dated and covenant light debt structure. Over $2.4 billion of outstanding debt, $518 million is subject to variable interest rates, of which $500 million is hedged, resulting in nearly all of our debt being fixed through the third quarter of 2025. Please turn to Slide 9 of the presentation for the 2024 guidance. We are reaffirming our full year 2024 guidance provided to the market on February 13. Allison expects net sales to be in the range of $3.50 billion to $3.150 billion.
In addition to Allison's 2024 net sales guidance, we anticipate net income in the range of $635 million to $685 million adjusted EBITDA in the range of $1.70 billion to $1.130 billion net cash provided by operating activities in the range of $700 million to $760 million and capital expenditures in the range of $125 million to $135 million and adjusted free cash flow in the range of $575 million to $625 million. Thank you. I'll now turn the call over to Dave for an update on recent announcements.
Dave Graziosi: Thank you, Fred. We continue to make investments and realize initiatives to in order to grow our business in new markets and regions where automatic transmission penetration remains low. Today, I would like to highlight a few recent announcements relating to our outside North America On-Highway end market. In 2022, we highlighted our growing presence in the South American agriculture sector since our entrance in 2015. At the time, we noted that leading OEMs in Argentina selected the Allison 2000 and 3000 series transmissions for use in their agricultural sprayers due to the enhanced performance in soft soil, which is critical in this application. Today in Argentina, most ag sprayers are now equipped with Allison fully automatic transmissions where traditionally hydrostatic or manual transmissions were used.
During the first quarter, we announced that the first Allison equipped agricultural sprayer built in Brazil was showcased at an industry trade show in the region. After adoption in Argentina, our successful entry into the Brazilian ag sprayer market is in our strategic initiatives as we target growth in new markets and applications around the world. We look forward to expanding our global presence as we enter a new application in South America's largest agricultural economy. Also in our outside North America On-Highway end market, we recently highlighted our collaboration with Yutong, a leading Chinese bus OEM in their delivery of transit buses to Rwanda. Rwanda‘s capital city will once again upgrade its fleet with Allison equipped buses.
Yutong buses utilizing Allison fully automatic transmissions have been in service in Rwanda since 2014, enabling easy and efficient operation while optimizing a driver and rider experience. We are pleased to collaborate with global OEMs and customers showcasing Allison's commitment and initiatives towards growth in global export markets. Continuing in our outside North America On-Highway end market. Last week, we announced the expansion of our partnership with SANY to provide our 4000 series specialty transmissions for integration into their 500-ton all-terrain cranes. Our partnership with SANY spans several construction and mining applications, including SANY's 60-ton crane and wide-body mining dump trucks. Our proven performance and severe duty cycles and harsh conditions will provide increased productivity and maneuverability for cranes operating in remote areas of China, including Desert and mountain terrain.
We are pleased to expand this partnership and look forward to continued success with our products across SANY's portfolio. For our defense end market, we maintain our outlook and target for realization of $100 million of incremental annual revenue as we capitalize on the defense up-cycle, both internationally through increased defense investments globally amidst geopolitical uncertainties and domestically through opportunities with the United States modernization programs as well as increased international sales through the U.S. Department of Defense. In support of our international defense growth and our $100 million incremental annual revenue opportunity, last week, we announced delivery of the first X1100 cross-drive transmissions to Turkey for their Firtina self-propelled howitzer program, partnering with HST Automotive Allison's licensed manufacturer in Turkey, Allison's X1100 transmission will be utilized by the Turkish armed forces in their next generation tracked vehicle.
As part of the initial delivery ten transmissions have been successfully provided to Turkey with several already installed in vehicles. Full production of the new vehicle is scheduled for mid-2024, with a total of 140 Firtina Howitzer expected to be delivered to the Turkish armed forces. Finally, in our North America On-Highway end market. In the last few years, we have made numerous announcements of transit properties across the United States selecting the Allison eGen Flex electric hybrid system for their city buses. During the first quarter, we added the New Orleans Regional Transit Authority or RTA to the list. Emergency preparedness is critical for the New Orleans RTA and during a natural disaster access to the electrical grade can be disrupted, leaving fully electric vehicles, no ability to charge.
The eGen Flex hybrid system does not face the same limitations and can continue to operate using diesel fuel in situations where grid accessibility may not be available as well as the battery system for fully electric engine-off propulsion. We were pleased to add the New Orleans RTA to our list of transit properties in states such as Indiana, Wisconsin, Nevada, California and Texas that recently selected the eGen Flex as their propulsion solution of choice. We are excited for this partnership and remain committed to collaborating with transit agencies nationwide to support them in both emissions reduction goals and emergency preparedness plans. Just this week, also in our North America On-Highway end market, we announced that the Allison 3414 Regional Haul Series and 4000 series are available to order as the exclusive fully automatic transmission in Navistar International's RH and HX Series trucks, respectively.
We previously launched the 3414 RHS with Navistar in 2020 paired with the A26 engine and have seen adoption by some of the largest fleets in North America, including leading wholesale food distributors. We are proud to collaborate with International Truck to further release both the 3414 RHS and 4000 Series transmissions and the new Navistar S13 engine, and we look forward to further success and adoption across the regional haul market. Also during the first quarter, we completed a refinancing of our revolving credit facility and term loan. As part of the refinancing, we increased commitments under our revolving credit facility to $750 million, extending the maturity date to 2029 and refinanced $518 million of term loan debt paying down $101 million of existing term loan debt and extending the maturity to 2031.
We maintain our long-standing commitment to prudent balance sheet management and our focus on a low-cost, flexible and prepayable debt structure with long-dated maturities. In addition to our commitment to prudent balance sheet management, we remain committed to returning capital to shareholders through our share repurchase program and quarterly dividend. During the first quarter, we repurchased nearly 1% of our outstanding shares and increased our quarterly dividend by 9% to $0.25 per share, the fifth consecutive annual increase to our quarterly dividend. In summary, Allison's first quarter results demonstrate not only the current strong performance of our business, but the notable growth opportunities to come. We continue to invest in our business in order to achieve our growth ambitions, while returning capital to shareholders and delivering on our brand promise to improve the way the world works.
This concludes our prepared remarks. Doug, please open the call for questions.
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