Allison Transmission Holdings, Inc.

Good afternoon, and thank you for standing by. Welcome to Allison Transmission's second quarter 2023 earnings conference call. My name is Daryl, 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 executive 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. I would now like to turn the conference call over to Jackie Bolt, Executive Director of Treasury and Investor Relations. Please go ahead, Jackie.

Thank you, Daryl. Good afternoon, and thank you for joining us for our second quarter 2023 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 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 2023 earnings press release, and our annual report on Form 10-K for the year ended December 31st, 2022, 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 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 2023 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 just 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 2023 results and provide an operational update. Fred Foley will then review our second quarter financial performance and review updates to our full year 2023 guidance prior to commencing the Q&A. Now, I'll turn the call over to Dave Graziosi.

Thank you, Jackie. Good afternoon, and thank you for joining us. Our second quarter results continue the trend from the first quarter to prove 2023 to be an exciting year for the business as Allison remains positioned for success with growth opportunities and strong demand across our largest end market. Net sales increased 18 percent year-over-year to a quarterly record of $783 million, leading to all-time high first-half revenue of over $1.5 billion. Given these results and the current end market, conditions, we are pleased to raise our full year 2023 guidance with a revenue expectation of $3 billion at the midpoint. Although our operating environment remains challenged, Allison continues to realize year-over-year price while working to mitigate the cost pressures in our business. During the second quarter, we increased our gross margin 190 basis points year-over-year, along with EPS growth of 52% year-over-year to $1.92. Allison's strong operating performance allows us to fund and invest in our business for long-term growth while maintaining our capital allocation priorities and returning capital to shareholders through our quarterly dividend and share repurchase program. During the second quarter, we paid a dividend of 23 cents per share and repurchased over 2% of our shares outstanding. On our last earnings conference call, we outlined opportunities within our defense and market, which we expect to lead to $100 million of incremental annual revenue in the coming years. Global defense budgets continue to rise. Allison is poised to capture growth in this cycle through our longstanding partnership with the United States Department of Defense, while diversifying our revenue sources by increasing our international sales. We expect an increase in international sales due to continued demand for our current products, particularly the X-1100 cross-drive transmission, as over 400 Abrams main battle tanks are expected to be delivered overseas by the U.S. Department of Defense in the next three years. Allison also expects to realize growth internationally through our relationships with global defense OEMs. Late this summer, Allison will deliver the first X-1100 transmission to Turkey for their Fortina self-propelled howitzer program. Further international growth is anticipated from South Korea's Hanwha Aerospace with sales of their K-9 Thunder self-propelled howitzer, also equipped with an X-1100 variant, to countries such as Egypt, Australia, Norway, and Poland. Additionally, development of new products, such as our 3040MX medium-weight cross-drive transmission, will drive international growth in the near future as the demand for medium-weight armored combat vehicles increases with shifts in geopolitical dynamics. As we have previously mentioned, the 3040MX has already been selected for India's future infantry combat vehicle, as well as Poland's Bursa Infantry fighting vehicle with further opportunities and other European infantry fighting vehicle programs Domestically Allison is involved in several programs with the US Department of Defense including track Platforms such as the US Army's mobile protected firepower MPF and the m88 a3 armored recovery vehicle during the quarter the MPF was renamed the m10 Booker light tank and with the U.S. Army funding a second production contract for the program. Allison will supply our 3040MX as the propulsion solution of choice for the program. For the M88A3 equipped with our X1100-5B, Allison has worked closely with the U.S. Army and is expecting government testing to begin on the program late this year. In addition to the $100 million of incremental annual revenue opportunity in the medium term, With our new eGenForce electric hybrid propulsion system for tracked combat vehicles, we are looking forward to even longer-term growth opportunities in our defense and market as modernization programs become a priority. As we have previously mentioned, the Allison eGenForce was selected by American Rheinmetall as the propulsion system for their optionally manned fighting vehicle or OMSV program offering. In late June, the U.S. Army designated the OMFV program the XM-30 mechanized infantry combat vehicle and down selected from five OEMs to two. We are pleased that American Rheinmetall was selected to continue into the detailed design and prototype build and testing phases and look forward to future announcements as the U.S. Army plans to start testing in 2026 with estimated start of production in 2029 for the XM-30. Allison remains committed to investing and pursuing growth in our defense and market, leveraging our asset-light business model and longstanding relationship with defense OEMs as a competitive advantage. We are enthusiastic for the upcoming programs and opportunities from the U.S. Department of Defense, as well as international OEMs and end users in both wheeled and tracked applications. Our team is focused and aligned to realize $100 million of incremental annual revenue in the coming years, and we look forward to providing updates in the near future. Moving on, I would like to highlight a few other announcements Allison made during the second quarter. In June, we released our 2022 Environmental, Social, and Governance Report. Allison and its peers are navigating an evolving commercial vehicle industry in preparation for upcoming changes to emissions standards. One of the ways we are driving the next generation of propulsion solutions is through our eGen family of fully electric and electric hybrid propulsion solutions. In previous quarters, we have announced numerous awards and partnerships with transit authorities across the United States that will utilize the eGen Flex zero-emission capable electric hybrid system. We recently announced that the Indianapolis Public Transportation Corporation, or INDIGO, is applying its recent grant from the Federal Transit Administration towards expanding its fleet of Allison eGen Flex equipped buses. This partnership is representative of our efforts to expand the market share of the eGen Flex with transit agencies across the country, advancing clean transportation and enabling a greener future with fewer emissions. Also during the quarter, we announced that our new hydraulic fracturing transmission The Fractran has been released in China. The Fractran represents an opportunity of $100 million of incremental annual revenue in our global off-highway end market. Expansion into energy markets in China signifies the strong demand we are experiencing outside of North America and reiterates our efforts in designing a clean sheet transmission specific to the needs of service operators and producers. In conclusion, Allison's second quarter results illustrate the current success of our business and operating performance, as well as our future opportunities for growth. We remain diligent in our investments in order to achieve our growth initiatives while returning capital to shareholders and delivering on our brand promise to improve the way the world works. Thank you, and I'll now turn the call over to Fred.