Allison Transmission Holdings, Inc.

Good afternoon. Thank you for standing by. Welcome to Allison Transmission's third quarter 2024 earnings conference call. My name is Kevin, and I'll be your conference call operator today. At this time, all participants are in 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. I would now like to turn the conference call over to Jackie Bowles, Executive Director of Treasury and Investor Relations. Please go ahead, Jackie.

Thank you, Kevin. Good afternoon, and thank you for joining us for our third quarter 2024 earnings conference call. With me this afternoon are Dave Graziosi, our Chair and Chief Executive Officer, and Fred Bowley, our Chief Operating Officer, 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 alicentransmission.com. A replay of this call will be available through November 12th. 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 third quarter 2024 earnings press release and our annual report on Form 10-K for the year ended December 31st, 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 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 third quarter 2024 earnings press release. Today's call is set to end at 5.45 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, Fred Foley will review our third quarter 2024 financial performance and review updates to our full year 2024 guidance. Dave will 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.

Thank you, Jackie. Good afternoon, and thank you for joining us. As we progress through 2024, demand for Class 8 vocational vehicles continues to drive notable performance in Allison's North America on-highway and market, leading to record results for the business as a whole. I would like to take a moment to thank our team for their combined efforts, working diligently to meet the unprecedented demand we are seeing for our 3000 and 4000 series products in North America. while continuing to work toward the realization of our $100 million incremental annual revenue opportunity in our defense end market, as well as drive our growth objectives outside North America to capitalize on increased adoption of automatic transmissions. Please turn to slide five of the presentation for the Q3 2024 performance summary. Year-over-year net sales increased 12 percent from the same period in 2023 to a record of $824 million. The increase in year-over-year results was led by a 22 percent increase in the North American on-highway-end market, principally driven by strength in demand for Class 8 vocational vehicles and medium-duty trucks, and price increases on certain products. Year-over-year net sales were further improved by a 23 percent increase in our defense-end market, The increase was principally driven by increased demand for track vehicle applications. And finally, year-over-year results were improved by a record third quarter in our outside North American on-highway-end market. The increase in net sales in the outside North America on-highway-end market was 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 $396 million, an increase of $39 million from $357 million for the same period in 2023. The increase in gross profit was principally driven by increased net sales and price increases on certain products, partially offset by higher manufacturing expense. Net income for the quarter was $200 million, an increase of $42 million or 27 percent from the same period in 2023. The increase was principally driven by higher gross profit and lower interest expense net. Adjusted EBITDA for the quarter was $305 million compared to $267 million for the same period in 2023. The increase in adjusted EBITDA was principally driven by higher gross profit. Diluted earnings per share increased 29% year-over-year to an all-time quarterly record of $2.27. The increase was driven by higher net income and lower total shares outstanding. A detailed overview of our net sales by end market in Q3 2024 financial performance can be found on slide six and seven of the presentation. Please turn to slide eight of the presentation for the Q3 2024 cash flow performance summary. Adjusted free cash flow for the quarter was $210 million compared to $182 million for the same period in 2023. The increase was principally driven by higher gross profit, partially offset by higher operating working capital funding requirements, and increased cash taxes and capital expenditures. During the third quarter, we paid a dividend of 25 cents per share and repurchased over $50 million of our common stock. We ended the quarter with a net leverage ratio of 1.4 times, $788 million of cash, and $745 million of available revolving credit facility commitments. In addition, we continue to maintain a flexible, long-dated, and covenant-like debt structure. Please turn to slide nine of the presentation for the update to our 2024 guidance. As a result of the ongoing strength in the North American on-highway and market, we are raising our full-year guidance midpoints for revenue, earnings, and cash flow. Allison expects net sales to be in the range of $3,135,000,000 to $3,215,000,000. In addition to Allison's 2024 net sales guidance, we anticipate net income in the range of $675,000,000 to $725,000,000. Adjusted EBITDA in the range of $1,115,000,000 to $1,175,000,000. Net cash provided by operating activities in the range of $740,000,000 to $800,000,000. Capital expenditures in the range of $135,000,000 to $145,000,000. And adjusted free cash flow in the range of $605,000,000 to $655,000,000. Thank you, and I'll now turn the call over to Dave for an update on recent announcements across our business.