Allison Transmission Holdings, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission's second quarter 2022 earnings conference call. My name is Kyle and I will be your conference call operator today. At this time, all participants are in a listen only mode. After the prepared remarks, the management team from Allison Transmission 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the conference call over to Mr. Ray Posadas, the company's managing director of investor relations. Please go ahead, sir.

Thank you, Kyle. Good afternoon, and thank you for joining us for our second quarter 2022 earnings conference call. With me this afternoon are Dave Graziosi, our chairman and chief executive officer, and Fred Boley, 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 our website, allisontransmission.com. A replay of this call will be available through August 10th. As noted on slide two 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 second quarter 2022 earnings press release, our annual report on Form 10-K for the year ended December 31, 2021, and our quarterly report on Form 10-Q for the quarter ended March 30, 2022. Uncertainties related to the war in Ukraine, the COVID-19 pandemic, and related responses by governments, customers, and suppliers, and other factors as well as general economic conditions. 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 expressed today. In addition, as noted on slide three 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 second quarter 2022 earnings press release. Today's call is set to end at 545 p.m. Eastern time. In order to maximize participation opportunities on the call, we'll take one question from each analyst. Please turn to slide four of the presentation for the call agenda. During today's call, Dave Graziosi will review highlights from our second quarter 2022 results and provide a brief operational update. Fred Boley will then review our second quarter financial performance and the full year 2022 guidance prior to commencing the Q&A. Now I'll turn the call over to Dave Graziosi.

Thank you, Ray. Good afternoon, and thank you for joining us. We are pleased to report solid performance for the second quarter of 2022, including a 25% increase in diluted EPS. Following the strong start to the year, second quarter results demonstrate the resiliency of customer demand and continued year-over-year growth. And in spite of the challenging environment, the Allison team continues to deliver balanced execution while driving multi-year growth initiatives across all of our end markets. Net sales for the quarter were $664 million. Notably, net sales growth of 10% was once again surpassed by diluted EPS growth of 25% as Allison's disciplined and well-defined approach to capital allocation continues to support per share returns in excess of net sales and net income growth. As a result of the ongoing strength in Allison's global on-highway and off-highway end markets, We are pleased to reaffirm the full year guidance midpoints while narrowing the guidance ranges provided to the market on February 16th. Despite concerns of a slowdown in economic activity, customer demand remains robust with industry production limited primarily by persistent supply chain constraints. We anticipate the current complex and uncertain operating environment will continue for the foreseeable future. Those supply chains have not uniformly improved end-user demand remains strong, and the Allison team continues to take actions that address and mitigate production challenges. In prior quarters, we have discussed several initiatives that are supporting Allison's long-term growth objectives. Among them is Allison's award-winning 3414 regional haul series fully automatic transmission for the North America heavy-duty regional haul and day cab tractor market. Currently released with Navistar, Daimler Trucks North America, and Volvo Trucks North America, the 3414 RHS expands our addressable market, enables the pursuit of market share growth, and represents an incremental revenue opportunity of $100 million annually. Following the initial launch during the summer of 2020, the Allison 3414 RHS has surpassed expectations, realizing meaningful success in a short amount of time. The 3414 RHS is now operating in three of the top five largest private fleets in North America, which collectively operate approximately 25,000 regional haul tractors. Another growth opportunity is Allison's next generation hydraulic fracturing transmission, Fractran, purpose-built to meet the unique demands of the hydraulic fracturing industry. This new offering represents another incremental growth opportunity of $100 million in annual revenue. Following the delivery of the first Fractran units to several industry partners during the first quarter, last month we announced that Calfrac Well Services, one of the largest hydraulic fracturing companies in the world, had introduced Fractran into their field operations beginning in April. Calfrac employees have been impressed and noted an improvement in the productivity of the Fractran-equipped hydraulic fracturing equipment. Fractran's early success in the field along with customer feedback reinforces our expectations. Allison's Fractran is the only purpose-built hydraulic fracturing transmission in the market and offers a unique combination of versatility, power, and efficiency to maximize customer productivity with high reliability and powerful performance under pressure. Allison's defense and market is also positioned to drive long-term growth. In recent months, We've announced multiple initiatives in support of our defense customers, including the U.S. Army's newest tactical wheeled vehicle program, the Common Tactical Truck, or CTT. Allison will support multiple customers, leveraging our 4,000 series fully automatic transmission. CTT has the potential to replace more than 7,000 heavy duty trucks within the Army's tactical wheeled vehicle fleet. representing over $150 million in aggregate revenue for Allison. Prototype vehicle testing will begin in late 2023 with an award decision expected to occur as early as 2025. Allison has also been selected to provide the X1100-5B propulsion solution for the US Army's new M88A3 Hercules heavy tracked recovery prototype vehicle that is expected to upgrade and replace the M88A2. This initiative is consistent with the Army's continued investments in combat readiness and fleet modernization. Following the prototype stage of the M88A3 Hercules, a decision by the Army to transition to production is expected as early as 2024. Currently, There are more than 900 M88 vehicles in the U.S. Army. If the Army were to modernize the entire fleet, the total revenue opportunity for Allison could represent nearly $500 million over the next two decades. And last week, we announced that Allison's 3040MX cross-drive transmission will be featured in the U.S. Army's newest tactical armored combat vehicle, the Mobile Protected Firepower MPF program. The MPF program is one of the Army's highest priority modernization initiatives. The Army is expected to purchase more than 500 MPF vehicles through 2035, collectively representing approximately $250 million in revenue for Allison's defense and market. Allison is proud to team up with General Dynamics Land Systems on the MPF program and to provide the Army with the transformational technology necessary for future battlefields. Allison has consistently been at the forefront of transformational technology. In June, in partnership with Gillig and Cummins, we announced the delivery of the first transit buses equipped with Allison's next generation electric hybrid propulsion system, eGen Flex, to the Indianapolis Public Transportation Corporation. The eGen Flex continues to make inroads throughout the Midwest with multiple transit properties, selecting eGen Flex equipped buses for their fleets, including recent announcements with Evansville and Muncie, Indiana, and Oshkosh, Wisconsin. Introduced in 2020, Allison's eGen Flex has demonstrated the ability to operate in full engine-off mode for more than 50% of its time. in operation across multiple routes within one of North America's largest transit fleets. Allison is proud to partner with public transit agencies across the Midwest to support their efforts to reduce carbon footprints and dependence on fossil fuels, protect the environment, and enhance the quality of life for their passengers as fleets move to electric hybrid or full EV technology to support sustainability goals, Allison will continue to be a partner of choice supported by our track record of delivering innovative and reliable technology specifically designed to meet the needs of the transit industry. Earlier in the second quarter at the Advanced Clean Transportation Expo in Long Beach, California, we were proud to announce a new strategic partnership with Exos, a leading manufacturer and services provider of Class V through Class VIII battery electric vehicles, powertrains, charging infrastructure, and fleet management software to jointly develop heavy-duty Class VII and VIII commercial electric vehicles. Allison's 100S and 100D eGen power electric axles will be integrated into Exos battery electric commercial trucks. And finally, during the quarter, Emergency One unveiled their fully electric EV0 fire engine equipped with the EGEN power 100D electric axle. This first of its kind vehicle was released at intershoes 2022 in late June and already has orders from the Scottish Fire and Rescue Service with an expectation to enter service in early 2023. Emergency One is the United Kingdom's largest manufacturer of fire and rescue vehicles, and we are proud to play a key role and their next generation electric vehicle platform. Thanks to the Allison team's relentless execution over the years and through multiple cycles, we are realizing the benefit of our growth objectives. Our success remains aligned with our long-term strategy of continuous global market expansion. And coupled with continuous product and technology innovation and the Allison brand promise of quality, reliability, and durability, we remain positioned to improve the way the world works for years to come. Thank you, and I'll now turn the call over to Fred.