UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
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| Item 2.02 | Results of Operations and Financial Condition. |
On October 26, 2022, Allison Transmission Holdings, Inc. (“Allison”) published an earnings release reporting its financial results for the three months ended September 30, 2022. A copy of the earnings release is attached as Exhibit 99.1 hereto. Following the publication of the earnings release, Allison will host an earnings call on October 26, 2022 at 5:00 p.m. ET on which its financial results for the three months ended September 30, 2022 will be discussed. The investor presentation materials that will be used for the call are attached as Exhibit 99.2 hereto.
On October 26, 2022, Allison posted the materials attached as Exhibits 99.1 and 99.2 on its web site (www.allisontransmission.com).
As discussed on page 2 of Exhibit 99.2, the investor presentation contains forward-looking statements within the meaning of the federal securities laws. These statements are present expectations, and are subject to the limitations listed therein and in Allison’s other Securities and Exchange Commission filings, including that actual events or results may differ materially from those in the forward-looking statements.
The foregoing information (including the exhibits hereto) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit |
Description | |
| 99.1 | Earnings release dated October 26, 2022. | |
| 99.2 | Investor presentation materials dated October 26, 2022. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Allison Transmission Holdings, Inc. | ||||
| Date: October 26, 2022 | ||||
| By: | /s/ Eric C. Scroggins | |||
| Name: | Eric C. Scroggins | |||
| Title: | Vice President, General Counsel | |||
Exhibit 99.1
|
News Release |
Allison Transmission Announces Third Quarter 2022 Results
* Net Sales of $710 million, up 25% year over year
* Diluted EPS of $1.45, up 63% year over year
* Record quarterly net sales of $118 million in the Outside North America On-Highway end market
INDIANAPOLIS, October 26, 2022 – Allison Transmission Holdings Inc. (NYSE: ALSN), a leading designer and manufacturer of conventional and electrified vehicle propulsion solutions and the largest global manufacturer of medium- and heavy-duty fully automatic transmissions for commercial and defense vehicles, today reported net sales for the third quarter of $710 million, a 25 percent increase from the same period in 2021, driven by resilient customer demand despite persistent supply chain challenges, price increases and the continued execution of growth initiatives.
David S. Graziosi, Chairman and Chief Executive Officer of Allison Transmission commented, “Despite the broad and ongoing challenges to supply chains, our third quarter 2022 results demonstrate notable performance with net sales in five out of six end markets up twenty percent or more year over year and record quarterly net sales in our Outside North America On-Highway end market. Year over year net sales growth of 25 percent was surpassed by even stronger growth in diluted EPS, up 63 percent.”
Graziosi continued, “During the third quarter, we maintained our well-defined approach to capital allocation by repurchasing $109 million of our common stock, representing 3 percent of outstanding shares, and paying a dividend of $0.21 per share. In spite of a challenging environment, Allison’s global On- and Off-Highway end markets continue to show strength and as a result we are pleased to raise full year 2022 midpoint guidance.”
Third Quarter Financial Highlights
Net sales for the quarter were $710 million. Year over year results were led by:
| • | A 24 percent increase in net sales in the North America On-Highway end market principally driven by continued strength in customer demand for last mile delivery, regional haul and vocational trucks, |
| • | A 25 percent increase in net sales in the Service Parts, Support Equipment and Other end market principally driven by global service parts and support equipment, and aluminum die cast components, |
| • | A $26 million increase in net sales in the Global Off-Highway end markets driven by demand for hydraulic fracturing applications in the energy sector as well as higher demand in the mining and construction sectors, and |
| • | Record quarterly net sales in the Outside North America On-Highway end market, as a result of a 27 percent increase in net sales driven by the continued execution of our growth initiatives in Europe, Asia and South America |
Net income for the quarter was $139 million. Diluted EPS for the quarter was $1.45. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $245 million. Net cash provided by operating activities for the quarter was $207 million. Adjusted free cash flow, a non-GAAP financial measure, for the quarter was $182 million.
1
Third Quarter Net Sales by End Market
| End Market |
Q3 2022 Net Sales ($M) |
Q3 2021 Net Sales ($M) |
% Variance | |||||||||
| North America On-Highway |
$ | 340 | $ | 275 | 24 | % | ||||||
| North America Off-Highway |
$ | 24 | $ | 20 | 20 | % | ||||||
| Defense |
$ | 35 | $ | 39 | (10 | %) | ||||||
| Outside North America On-Highway |
$ | 118 | $ | 93 | 27 | % | ||||||
| Outside North America Off-Highway |
$ | 36 | $ | 14 | 157 | % | ||||||
| Service Parts, Support Equipment & Other |
$ | 157 | $ | 126 | 25 | % | ||||||
| Total Net Sales |
$ | 710 | $ | 567 | 25 | % | ||||||
Third Quarter Financial Results
Gross profit for the quarter was $328 million, an increase of 26 percent from $261 million for the same period in 2021. The increase in gross profit was principally driven by increased net sales and price increases on certain products partially offset by higher direct material costs.
Selling, general and administrative expenses for the quarter were $78 million, an increase of $5 million from $73 million for the same period in 2021. The increase was principally driven by higher commercial activities spending.
Engineering – research and development expenses for the quarter were $47 million, an increase of $5 million from $42 million for the same period in 2021. The increase was principally driven by increased product initiatives spending.
Net income for the quarter was $139 million, an increase of $45 million from $94 million for the same period in 2021. The increase was principally driven by higher gross profit partially offset by an unrealized loss on marketable securities and increased product initiatives and commercial activities spending.
Net cash provided by operating activities was $207 million, an increase of $11 million from $196 million for the same period in 2021. The increase was principally driven by higher gross profit partially offset by fluctuations in operating working capital funding requirements and higher cash income taxes.
Third Quarter Non-GAAP Financial Measures
Adjusted EBITDA for the quarter was $245 million, an increase of $56 million from $189 million for the same period in 2021. The increase in Adjusted EBITDA was principally driven by higher gross profit partially offset by increased product initiatives and commercial activities spending.
Adjusted free cash flow for the quarter was $182 million, an increase of $29 million from $153 million for the same period in 2021. The increase was driven by lower capital expenditures and higher net cash provided by operating activities.
2022 Guidance Update
Given third quarter 2022 results and current end markets conditions, we are raising our full year 2022 guidance midpoints and narrowing ranges. Allison expects 2022 Net Sales in the range of $2,690 to $2,740 million, Net Income in the range of $490 to $510 million, Adjusted EBITDA in the range of $915 to $945 million, Net Cash Provided by Operating Activities in the range of $620 to $650 million, Capital Expenditures in the range of $160 to $170 million, and Adjusted Free Cash Flow in the range of $460 to $480 million.
Our 2022 net sales guidance reflects higher customer demand in the Global On-Highway, Global Off-Highway and Service Parts, Support Equipment & Other end markets, price increases on certain products and the continued execution of growth initiatives.
2
Conference Call and Webcast
The company will host a conference call at 5:00 p.m. ET on Wednesday, October 26 to discuss its third quarter 2022 results. The dial-in phone number for the conference call is 1-877-425-9470 and the international dial-in number is 1-201-389-0878. A live webcast of the conference call will also be available online at http://ir.allisontransmission.com.
For those unable to participate in the conference call, a replay will be available from 8:00 p.m. ET on October 26 until 11:59 p.m. ET on November 2. The replay dial-in phone number is 1-844-512-2921 and the international replay dial-in number is 1-412-317-6671. The replay passcode is 13733359.
About Allison Transmission
Allison Transmission (NYSE: ALSN) is a leading designer and manufacturer of propulsion solutions for commercial and defense vehicles and the largest global manufacturer of medium- and heavy-duty fully automatic transmissions that Improve the Way the World Works. Allison products are used in a wide variety of applications, including on-highway trucks (distribution, refuse, construction, fire and emergency), buses (school, transit and coach), motorhomes, off-highway vehicles and equipment (energy, mining and construction applications) and defense vehicles (tactical wheeled and tracked). Founded in 1915, the company is headquartered in Indianapolis, Indiana, USA. With a presence in more than 150 countries, Allison has regional headquarters in the Netherlands, China and Brazil, manufacturing facilities in the USA, Hungary and India, as well as global engineering resources, including electrification engineering centers in Indianapolis, Indiana, Auburn Hills, Michigan and London in the United Kingdom. Allison also has more than 1,400 independent distributor and dealer locations worldwide. For more information, visit allisontransmission.com.
Forward-Looking Statements
This press release contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: increases in cost, disruption of supply or shortage of labor, freight, raw materials, energy or components used to manufacture or transport our products or those of our customers or suppliers, including as a result of the war in Ukraine and the COVID-19 pandemic; global economic volatility; the duration and spread of the COVID-19 pandemic, including new variants of the virus and the pace and availability of vaccines and boosters, mitigating efforts deployed by government agencies and the public at large, and the overall impact from such outbreak on economic conditions, financial market volatility and our business, including but not limited to the operations of our manufacturing and other facilities, the availability of labor, our supply chain, our distribution processes and demand for our products and the corresponding impacts to our net sales and cash flow; our participation in markets that are competitive; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments, competitive threats and changing customer needs, including with respect to electric hybrid and fully electric commercial vehicles; the highly cyclical industries in which certain of our end users operate; uncertainty in the global regulatory and business environments in which we operate; the concentration of our net sales in our top five customers and the loss of any one of these; the failure of markets outside North America to increase adoption of fully automatic transmissions; the success of our research and development efforts, the outcome of which is uncertain; U.S. and foreign defense spending; risks associated with our international operations, including acts of war and increased trade protectionism; general economic and industry conditions including the risk of recession; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to identify, consummate and effectively integrate acquisitions and collaborations; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers or suppliers; risks related to our indebtedness; and other risks and uncertainties associated with our business described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. All information is as of the date of this press release, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in expectations and risks related to our indebtedness.
3
Use of Non-GAAP Financial Measures
This press release contains information about Allison’s financial results and forward-looking estimates of financial results which are not presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. Non-GAAP financial measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures of other companies.
We use Adjusted EBITDA and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted EBITDA is Net income. The most directly comparable GAAP measure to Adjusted EBITDA as a percent of net sales is Net Income as a percent of net sales. Adjusted EBITDA is calculated as the earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by Allison Transmission, Inc.’s, the Company’s wholly-owned subsidiary, Second Amended and Restated Credit Agreement. Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales.
We use Adjusted Free Cash Flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business and certain mandatory debt service requirements, can be used for the repayment of debt, stockholder distributions and strategic opportunities, including investing in our business. We believe that Adjusted Free Cash Flow enhances the understanding of the cash flows of our business for management, investors and creditors. Adjusted Free Cash Flow is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted Free Cash Flow is Net cash provided by operating activities. Adjusted Free Cash Flow is calculated as Net cash provided by operating activities, after additions of long-lived assets.
Attachments
| • | Condensed Consolidated Statements of Operations |
| • | Condensed Consolidated Balance Sheets |
| • | Condensed Consolidated Statements of Cash Flows |
| • | Reconciliation of GAAP to Non-GAAP Financial Measures |
| • | Reconciliation of GAAP to Non-GAAP Financial Measures for Full Year Guidance |
Contacts
Investor Relations
ir@allisontransmission.com
(317) 242-3078
Media Relations
media@allisontransmission.com
(317) 694-2065
4
Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, dollars in millions, except per share data)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales |
$ | 710 | $ | 567 | $ | 2,051 | $ | 1,758 | ||||||||
| Cost of sales |
382 | 306 | 1,092 | 918 | ||||||||||||
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| Gross profit |
328 | 261 | 959 | 840 | ||||||||||||
| Selling, general and administrative |
78 | 73 | 231 | 226 | ||||||||||||
| Engineering - research and development |
47 | 42 | 136 | 121 | ||||||||||||
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| Operating income |
203 | 146 | 592 | 493 | ||||||||||||
| Interest expense, net |
(29 | ) | (28 | ) | (88 | ) | (87 | ) | ||||||||
| Other (expense) income, net |
(15 | ) | 6 | (28 | ) | 12 | ||||||||||
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| Income before income taxes |
159 | 124 | 476 | 418 | ||||||||||||
| Income tax expense |
(20 | ) | (30 | ) | (86 | ) | (94 | ) | ||||||||
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| Net income |
$ | 139 | $ | 94 | $ | 390 | $ | 324 | ||||||||
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| Basic earnings per share attributable to common stockholders |
$ | 1.46 | $ | 0.89 | $ | 4.02 | $ | 2.97 | ||||||||
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| Diluted earnings per share attributable to common stockholders |
$ | 1.45 | $ | 0.89 | $ | 4.02 | $ | 2.97 | ||||||||
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Allison Transmission Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, dollars in millions)
| September 30, 2022 |
December 31, 2021 |
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| ASSETS |
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| Current Assets |
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| Cash and Cash Equivalents |
$ | 180 | $ | 127 | ||||
| Accounts receivable, net |
374 | 301 | ||||||
| Inventories |
223 | 204 | ||||||
| Other current assets |
61 | 39 | ||||||
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| Total Current Assets |
838 | 671 | ||||||
| Property, plant and equipment, net |
711 | 706 | ||||||
| Intangible assets, net |
889 | 917 | ||||||
| Goodwill |
2,074 | 2,064 | ||||||
| Other non-current assets |
81 | 99 | ||||||
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| TOTAL ASSETS |
$ | 4,593 | $ | 4,457 | ||||
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| LIABILITIES |
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| Current Liabilities |
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| Accounts payable |
$ | 227 | $ | 179 | ||||
| Product warranty liability |
26 | 33 | ||||||
| Current portion of long-term debt |
6 | 6 | ||||||
| Deferred revenue |
39 | 37 | ||||||
| Other current liabilities |
189 | 204 | ||||||
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| Total Current Liabilities |
487 | 459 | ||||||
| Product warranty liability |
20 | 20 | ||||||
| Deferred revenue |
95 | 99 | ||||||
| Long-term debt |
2,502 | 2,504 | ||||||
| Deferred income taxes |
525 | 514 | ||||||
| Other non-current liabilities |
202 | 227 | ||||||
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| TOTAL LIABILITIES |
3,831 | 3,823 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY |
762 | 634 | ||||||
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| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY |
$ | 4,593 | $ | 4,457 | ||||
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Allison Transmission Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in millions)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net cash provided by operating activities |
$ | 207 | $ | 196 | $ | 433 | $ | 467 | ||||||||
| Net cash used for investing activities (a) (b) |
(25 | ) | (50 | ) | (93 | ) | (119 | ) | ||||||||
| Net cash used for financing activities |
(123 | ) | (122 | ) | (285 | ) | (396 | ) | ||||||||
| Effect of exchange rate changes on cash |
(1 | ) | (1 | ) | (2 | ) | (1 | ) | ||||||||
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| Net increase (decrease) in cash and cash equivalents |
58 | 23 | 53 | (49 | ) | |||||||||||
| Cash and cash equivalents at beginning of period |
122 | 238 | 127 | 310 | ||||||||||||
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| Cash and cash equivalents at end of period |
$ | 180 | $ | 261 | $ | 180 | $ | 261 | ||||||||
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| Supplemental disclosures: |
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| Income taxes paid |
$ | 26 | $ | 3 | $ | 85 | $ | 48 | ||||||||
| Interest paid |
$ | 27 | $ | 34 | $ | 84 | $ | 72 | ||||||||
| (a) Additions of long-lived assets |
$ | (25 | ) | $ | (43 | ) | $ | (75 | ) | $ | (112 | ) | ||||
| (b) Business acquisitions |
$ | — | $ | — | $ | (23 | ) | $ | — | |||||||
7
Allison Transmission Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited, dollars in millions)
| Three months ended September 30, |
Nine months ended September 30, |
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| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net income (GAAP) |
$ | 139 | $ | 94 | $ | 390 | $ | 324 | ||||||||
| plus: |
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| Interest expense, net |
29 | 28 | 88 | 87 | ||||||||||||
| Income tax expense |
20 | 30 | 86 | 94 | ||||||||||||
| Depreciation of property, plant and equipment |
29 | 26 | 82 | 77 | ||||||||||||
| Amortization of intangible assets |
12 | 12 | 35 | 35 | ||||||||||||
| Unrealized loss on marketable securities (a) |
9 | — | 20 | — | ||||||||||||
| Stock-based compensation expense (b) |
5 | 3 | 14 | 11 | ||||||||||||
| Technology-related investments gain (c) |
— | (3 | ) | (6 | ) | (3 | ) | |||||||||
| Unrealized loss (gain) on foreign exchange (d) |
2 | (1 | ) | 5 | (1 | ) | ||||||||||
| Acquisition-related earnouts (e) |
— | 1 | 2 | 1 | ||||||||||||
| UAW Local 933 retirement incentive (f) |
— | (1 | ) | — | (1 | ) | ||||||||||
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| Adjusted EBITDA (Non-GAAP) |
$ | 245 | $ | 189 | $ | 716 | $ | 624 | ||||||||
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| Net sales (GAAP) |
$ | 710 | $ | 567 | $ | 2,051 | $ | 1,758 | ||||||||
| Net income as a percent of net sales (GAAP) |
19.6 | % | 16.6 | % | 19.0 | % | 18.4 | % | ||||||||
| Adjusted EBITDA as a percent of net sales (Non-GAAP) |
34.5 | % | 33.3 | % | 34.9 | % | 35.5 | % | ||||||||
| Net cash provided by operating activities (GAAP) |
$ | 207 | $ | 196 | $ | 433 | $ | 467 | ||||||||
| Deductions to Reconcile to Adjusted Free Cash Flow: |
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| Additions of long-lived assets |
(25 | ) | (43 | ) | (75 | ) | (112 | ) | ||||||||
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| Adjusted free cash flow (Non-GAAP) |
$ | 182 | $ | 153 | $ | 358 | $ | 355 | ||||||||
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| (a) | Represents a loss (recorded in Other (expense) income, net) related to an investment in the common stock of Jing-Jin Electric Technologies Co. Ltd. |
| (b) | Represents stock-based compensation expense (recorded in Cost of sales, Selling, general and administrative, and Engineering – research and development). |
| (c) | Represents a gain (recorded in Other (expense) income, net) related to investments in co-development agreements to expand our position in propulsion solution technologies. |
| (d) | Represents losses (gains) (recorded in Other (expense) income, net) on intercompany financing transactions related to investments in plant assets for our India facility. |
| (e) | Represents expenses (recorded in Selling, general and administrative, Engineering—research and development and Other (expense) income, net) for earnouts related to our acquisition of Vantage Power Limited. |
| (f) | Represents adjustments (recorded in Cost of sales) related to a retirement incentive program for certain employees represented by the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (“UAW”) pursuant to the UAW Local 933 collective bargaining agreement effective through November 2023. |
8
Allison Transmission Holdings, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures for Full Year Guidance
(Unaudited, dollars in millions)
| Guidance Year Ending December 31, 2022 |
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| Low | High | |||||||
| Net Income (GAAP) |
$ | 490 | $ | 510 | ||||
| plus: |
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| Depreciation and amortization |
155 | 155 | ||||||
| Interest expense, net |
118 | 118 | ||||||
| Income tax expense |
114 | 124 | ||||||
| Unrealized loss on marketable securities (a) |
20 | 20 | ||||||
| Stock-based compensation expense (b) |
17 | 17 | ||||||
| Unrealized loss on foreign exchange (c) |
5 | 5 | ||||||
| Acquisition-related earnouts (d) |
2 | 2 | ||||||
| Technology-related investments gain (e) |
(6 | ) | (6 | ) | ||||
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| Adjusted EBITDA (Non-GAAP) |
$ | 915 | $ | 945 | ||||
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| Net Cash Provided by Operating Activities (GAAP) |
$ | 620 | $ | 650 | ||||
| (Deductions) to Reconcile to Adjusted Free Cash Flow: |
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| Additions of long-live assets |
$ | (160 | ) | $ | (170 | ) | ||
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| Adjusted Free Cash Flow (Non-GAAP) |
$ | 460 | $ | 480 | ||||
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| (a) | Represents a loss (recorded in Other (expense) income, net) related to an investment in the common stock of Jing-Jin Electric Technologies Co. Ltd. |
| (b) | Represents stock-based compensation expense (recorded in Cost of sales, Selling, general and administrative, and Engineering – research and development). |
| (c) | Represents losses (recorded in Other (expense) income, net) on intercompany financing transactions related to investments in plant assets for our India facility. |
| (d) | Represents expenses (recorded in Selling, general and administrative, Engineering—research and development and Other (expense) income, net) for earnouts related to our acquisition of Vantage Power Limited. |
| (e) | Represents a gain (recorded in Other (expense) income, net) related to investments in co-development agreements to expand our position in propulsion solution technologies. |
9
Q3 2022 Earnings Release October 26th, 2022 Dave Graziosi, Chairman & Chief Executive Officer Fred Bohley, Senior Vice President & Chief Financial Officer Exhibit 99.2
Safe Harbor Statement The following information contains, or may be deemed to contain, “forward-looking statements” (as defined in the U.S. Private Securities Litigation Reform Act of 1995). The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: increases in cost, disruption of supply or shortage of labor, freight, raw materials, energy or components used to manufacture or transport our products or those of our customers or suppliers, including as a result of the war in Ukraine and the COVID-19 pandemic; global economic conditions; the duration and spread of the COVID-19 pandemic, including new variants of the virus and the pace and availability of vaccines and boosters, mitigating efforts deployed by government agencies and the public at large, and the overall impact from such outbreak on economic conditions, financial market volatility and our business, including but not limited to the operations of our manufacturing and other facilities, the availability of labor, our supply chain, our distribution processes and demand for our products and the corresponding impacts to our net sales and cash flow; our participation in markets that are competitive; our ability to prepare for, respond to and successfully achieve our objectives relating to technological and market developments, competitive threats and changing customer needs, including with respect to electric hybrid and fully electric commercial vehicles; the highly cyclical industries in which certain of our end users operate; uncertainty in the global regulatory and business environments in which we operate; the concentration of our net sales in our top five customers and the loss of any one of these; the failure of markets outside North America to increase adoption of fully automatic transmissions; the success of our research and development efforts, the outcome of which is uncertain; U.S. and foreign defense spending; risks associated with our international operations, including acts of war and increased trade protectionism; general economic and industry conditions, including the risk of recession; the discovery of defects in our products, resulting in delays in new model launches, recall campaigns and/or increased warranty costs and reduction in future sales or damage to our brand and reputation; our ability to identify, consummate and effectively integrate acquisitions and collaborations; labor strikes, work stoppages or similar labor disputes, which could significantly disrupt our operations or those of our principal customers or suppliers; and risks related to our indebtedness. Allison Transmission cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial goals will be realized. All forward-looking statements included in this presentation speak only as of the date made, and Allison Transmission undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise. In particular, Allison Transmission cautions you not to place undue weight on certain forward-looking statements pertaining to potential growth opportunities or long-term financial goals set forth herein. Actual results may vary significantly from these statements. Allison Transmission’s business is subject to numerous risks and uncertainties, which may cause future results of operations to vary significantly from those presented herein. Important factors that could cause actual results to differ materially are discussed in Allison Transmission’s Annual Report on Form 10-K for the year ended December 31, 2021 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
Non-GAAP Financial Information We use Adjusted EBITDA and Adjusted EBITDA as a percent of net sales to measure our operating profitability. We believe that Adjusted EBITDA and Adjusted EBITDA as a percent of net sales provide management, investors and creditors with useful measures of the operational results of our business and increase the period-to-period comparability of our operating profitability and comparability with other companies. Adjusted EBITDA as a percent of net sales is also used in the calculation of management’s incentive compensation program. The most directly comparable U.S. generally accepted accounting principles (“GAAP”) measure to Adjusted EBITDA and Adjusted EBITDA as a percent of net sales is Net income and Net income as a percent of net sales, respectively. Adjusted EBITDA is calculated as the earnings before interest expense, net, income tax expense, amortization of intangible assets, depreciation of property, plant and equipment and other adjustments as defined by Allison Transmission, Inc.’s, the Company’s wholly-owned subsidiary, Second Amended and Restated Credit Agreement. Adjusted EBITDA as a percent of net sales is calculated as Adjusted EBITDA divided by net sales. We use Adjusted Free Cash Flow to evaluate the amount of cash generated by our business that, after the capital investment needed to maintain and grow our business and certain mandatory debt service requirements, can be used for repayment of debt, stockholder distributions and strategic opportunities, including investing in our business. We believe that Adjusted Free Cash Flow enhances the understanding of the cash flows of our business for management, investors and creditors. Adjusted Free Cash Flow is also used in the calculation of management’s incentive compensation program. The most directly comparable GAAP measure to Adjusted Free Cash Flow is Net cash provided by operating activities. Adjusted Free Cash Flow is calculated as Net cash provided by operating activities, excluding non-recurring restructuring charges, after additions of long-lived assets.
Call Agenda Q3 2022 Performance 2022 Guidance Update
Q3 2022 Performance Summary ($ in millions, except per share data) Q3 2022 Q3 2021 % Variance Net Sales $710 $567 25% Gross Profit $328 $261 26% Net Income $139 $94 48% Adjusted EBITDA(1) $245 $189 30% Diluted Earnings Per Share $1.45 $0.89 63% See Appendix for the reconciliation from Net Income. Net Sales: increase principally driven by: 24 percent increase in net sales in the North America On-Highway end market 25 percent increase in net sales in the Service Parts, Support Equipment & Other end market $26 million increase in net sales in the Global Off-Highway end markets 27 percent increase in net sales in the Outside North America On-Highway end market Gross Profit: increase was principally driven by increased net sales and price increases on certain products partially offset by higher direct material costs. Net Income: increase was principally driven by higher gross profit partially offset by an unrealized loss on marketable securities and increased product initiatives and commercial activities spending. Adjusted EBITDA: increase was principally driven by higher gross profit partially offset by increased product initiatives and commercial activities spending. Diluted Earnings Per Share: increase was principally driven by higher net income and lower total shares outstanding.
Q3 2022 Net Sales Performance ($ in millions) End Markets Q3 2022 Q3 2021 % Variance Commentary North America On-Hwy $340 $275 24% Principally driven by continued strength in customer demand for last mile delivery, regional haul and vocational trucks North America Off-Hwy $24 $20 20% Principally driven by demand for hydraulic fracturing applications Defense $35 $39 -10% Principally driven by lower demand for Wheeled vehicle applications Outside North America On-Hwy $118 $93 27% Principally driven by the continued execution of our growth initiatives in Europe, Asia and South America Outside North America Off-Hwy $36 $14 157% Principally driven by higher demand in the mining, construction and energy sectors Service Parts, Support Equipment & Other $157 $126 25% Principally driven by higher demand for global service parts and support equipment and aluminum die cast components Total $710 $567 25%
Q3 2022 Financial Performance ($ in millions, except per share data) Q3 2022 Q3 2021 $ Var % Var Commentary Net Sales $710 $567 $143 25% Increase was principally driven by higher demand in the NA On-Highway, Service Parts, Support Equipment & Other, Global Off-Highway, and ONA On-Highway end markets, the continued execution of our growth initiatives and price increases on certain products Cost of Sales $382 $306 ($76) -25% Increase was principally driven by increased direct material and manufacturing expense commensurate with increased net sales and higher direct material costs Gross Profit $328 $261 $67 26% Increase was principally driven by increased net sales and price increases on certain products partially offset by higher direct material costs Operating Expenses Selling, General and Administrative $78 $73 ($5) -7% Increase was principally driven by higher commercial activities spending Engineering – Research and Development $47 $42 ($5) -12% Increase was principally driven by increased product initiatives spending Total Operating Expenses $125 $115 ($10) -9% Operating Income $203 $146 $57 39% Interest Expense, net ($29) ($28) ($1) -4% Other (Expense) Income, net ($15) $6 ($21) -350% Decrease was principally driven by unrealized loss on marketable securities, unfavorable foreign exchange and a prior year, one-time gain related to technology-related investments Income Before Income Taxes $159 $124 $35 28% Income Tax Expense ($20) ($30) $10 33% Decrease was principally driven by enacted state tax rate legislation resulting in a deferred tax benefit, partially offset by increased taxable income Net Income $139 $94 $45 48% Increase was principally driven by higher gross profit partially offset by an unrealized loss on marketable securities and increased product initiatives and commercial activities spending Diluted Earnings Per Share $1.45 $0.89 $0.56 63% Increase was principally driven by higher net income and lower total shares outstanding (Q3 2022: 96m shares, Q3 2021: 106m shares) Adjusted EBITDA(1) $245 $189 $56 30% See Appendix for the reconciliation from Net Income.
Q3 2022 Cash Flow Performance ($ in millions) Q3 2022 Q3 2021 $ Variance % Variance Commentary Net Cash Provided by Operating Activities $207 $196 $11 6% Principally driven by higher gross profit partially offset by fluctuations in operating working capital funding requirements and higher cash taxes CapEx $25 $43 ($18) (42%) Principally driven by intra-year timing Adjusted Free Cash Flow(1) $182 $153 $29 19% Principally driven by lower capital expenditures and higher net cash provided by operating activities ($ in millions) Q3 2022 Q3 2021 $ Variance % Variance Commentary Operating Working Capital(2) Percentage of LTM Sales 14.5% 14.0% N/A 50 Bps Increased operating working capital partially offset by higher levels of net sales Cash Paid for Interest $27 $34 ($7) (21%) Principally driven by prior year interest payments timing Cash Paid for Income Taxes $26 $3 $23 767% Principally driven by increased taxable income and prior year income tax payments timing See Appendix for a reconciliation from Net Cash Provided by Operating Activities. Operating Working Capital = A/R + Inventory – A/P.
2022 Guidance Update ($ in millions) Guidance Net Sales $2,690 to $2,740 Net Income $490 to $510 Adjusted EBITDA1 $915 to $945 Net Cash Provided by Operating Activities $620 to $650 Capital Expenditures $160 to $170 Adjusted Free Cash Flow1 $460 to $480 Guidance reflects higher customer demand in the Global On-Highway, Global Off-Highway and Service Parts, Support Equipment & Other end markets, price increases on certain products and the continued execution of our growth initiatives We are raising our full year 2022 guidance midpoints and narrowing ranges provided to the market on August 3. See Appendix for the Guidance Reconciliation.
APPENDIX Non-GAAP Financial Information
Non-GAAP Reconciliations (1 of 3) Adjusted EBITDA Reconciliation
Non-GAAP Reconciliations (2 of 3) Adjusted Free Cash Flow Reconciliation
Non-GAAP Reconciliations (3 of 3) Guidance Reconciliation