Allison(ALSN) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Allison Transmission reported Q1 2024 net sales of $789 million (up 6%), with net income stable at $169 million and total assets at $5.06 billion Q1 2024 Key Financial Performance (vs. Q1 2023) (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $789M | $741M | | Gross Profit | $366M | $361M | | Operating Income | $234M | $230M | | Net Income | $169M | $170M | | Diluted EPS | $1.90 | $1.85 | Condensed Balance Sheet Summary (as of March 31, 2024) (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,300M | $1,250M | | Total Assets | $5,056M | $5,025M | | Total Current Liabilities | $518M | $501M | | Total Liabilities | $3,714M | $3,792M | | Total Stockholders' Equity | $1,342M | $1,233M | Condensed Cash Flow Summary (Q1 2024 vs. Q1 2023) (in millions) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $173M | $193M | | Net cash used for investing activities | ($12M) | ($22M) | | Net cash used for financing activities | ($164M) | ($59M) | | Net (decrease) increase in cash | ($4M) | $112M | Condensed Consolidated Balance Sheets Total assets grew to $5.056 billion by March 31, 2024, with liabilities decreasing due to reduced long-term debt, increasing equity - Cash and cash equivalents decreased slightly to $551 million from $555 million at the end of 2023[13] - Long-term debt decreased from $2.497 billion at year-end 2023 to $2.398 billion as of March 31, 2024[13] Condensed Consolidated Statements of Comprehensive Income Q1 2024 net sales rose 6.5% to $789 million, gross profit increased to $366 million, but net income remained flat at $169 million due to higher costs Q1 2024 Income Statement Highlights (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $789M | $741M | | Gross Profit | $366M | $361M | | Operating Income | $234M | $230M | | Net Income | $169M | $170M | | Diluted EPS | $1.90 | $1.85 | Condensed Consolidated Statements of Cash Flows Q1 2024 operating cash flow was $173 million, with increased debt repayments and stock repurchases resulting in a $4 million net cash decrease - Payments on long-term debt increased to $101 million in Q1 2024 from just $1 million in Q1 2023[18] - Repurchases of common stock increased to $52 million from $40 million in the prior-year quarter[18] - Additions of long-lived assets (capital expenditures) were reduced to $11 million from $24 million year-over-year[18] Notes to Condensed Consolidated Financial Statements Notes detail revenue by market, a March 2024 credit facility amendment extending maturities and increasing revolver commitment, and a lower effective tax rate Disaggregated Revenue by Market (Q1 2024 vs Q1 2023) (in millions) | Market | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | North America On-Highway | $420M | $376M | | North America Off-Highway | $4M | $24M | | Defense | $48M | $27M | | Outside North America On-Highway | $115M | $108M | | Outside North America Off-Highway | $42M | $23M | | Service Parts, Support Equipment and Other | $160M | $183M | | Total Net Sales | $789M | $741M | - In March 2024, the company amended its Credit Agreement, extending the term loan maturity to 2031 and the revolving credit facility to 2029, while also increasing the revolver commitment by $100 million to $750 million[47] - The effective tax rate for Q1 2024 was 17%, a decrease from 20% in Q1 2023, primarily due to increased estimated U.S. federal income tax deductions[71] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2024 revenue grew 6% driven by North America On-Highway and Defense, offset by lower service parts and off-highway demand, with gross margin declining due to UAW incentives First Quarter Net Sales by End Market Total net sales increased 6% in Q1 2024, led by strong growth in Defense and North America On-Highway, partially offset by a significant decline in North America Off-Highway Q1 Net Sales by End Market (YoY % Change) (in millions) | End Market | Q1 2024 Sales | Q1 2023 Sales | % Variance | | :--- | :--- | :--- | :--- | | North America On-Highway | $420M | $376M | 12% | | North America Off-Highway | $4M | $24M | (83%) | | Defense | $48M | $27M | 78% | | Outside North America On-Highway | $115M | $108M | 6% | | Outside North America Off-Highway | $42M | $23M | 83% | | Service Parts, Support Equipment and Other | $160M | $183M | (13%) | | Total Net Sales | $789M | $741M | 6% | Results of Operations Q1 2024 net sales increased 6% to $789 million, but gross margin declined 230 basis points due to higher manufacturing costs and UAW incentives, keeping net income flat - Gross profit increase of $5 million was driven by higher net sales ($20 million) and price increases ($14 million), but offset by higher manufacturing expense ($13 million), non-recurring UAW incentives ($13 million), and higher material costs ($4 million)[100] - Other expense was $5 million in Q1 2024 compared to other income of $10 million in Q1 2023, a change driven by unrealized losses on marketable securities and unfavorable foreign exchange[105] Liquidity and Capital Resources The company maintains strong liquidity with $551 million cash and $745 million revolver availability, using $101 million for debt and $52 million for stock repurchases in Q1 2024 - Total available liquidity as of March 31, 2024, was approximately $1.3 billion, consisting of $551 million in cash and $745 million in revolver availability[107][112][116] - Cash from operating activities decreased by $20 million YoY, primarily due to higher cash incentive compensation payments and non-recurring UAW contract signing incentive payments[117] - Financing activities used $164 million, a significant increase from $59 million YoY, driven by a $100 million increase in debt payments and $12 million more in stock repurchases[119] Non-GAAP Financial Measures Q1 2024 Adjusted EBITDA increased to $289 million, with margin slightly decreasing, while Adjusted Free Cash Flow was $162 million Reconciliation of Non-GAAP Measures (Q1 2024 vs Q1 2023) (in millions) | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income (GAAP) | $169 | $170 | | Adjusted EBITDA (Non-GAAP) | $289 | $276 | | Net cash from operating activities (GAAP) | $173 | $193 | | Adjusted free cash flow (Non-GAAP) | $162 | $169 | - Adjustments to calculate Adjusted EBITDA include adding back items such as $14 million for UAW contract signing incentives and a $7 million unrealized loss on marketable securities[92][94] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate fluctuations, foreign currency volatility, and commodity price changes, with sensitivity analyses provided - Interest Rate Risk: A 0.125% change in interest rates on the fully drawn Senior Secured Credit Facility would impact annual interest expense by approximately $1 million; the company hedges $500 million of its variable-rate term loan[126] - Exchange Rate Risk: A 10% aggregate change in the Chinese Yuan, Euro, Indian Rupee, and Japanese Yen would change net earnings by an estimated $8 million per year[127] - Commodity Price Risk: A 10% change in the price of aluminum and steel would impact annual earnings by approximately $8 million and $13 million, respectively[128] Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[130] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[131] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal actions not expected to materially affect its financial position, results, or cash flows - The company is party to various legal actions in the normal course of business, which are not expected to have a material adverse effect[133] Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes from the risk factors reported in the Annual Report on Form 10-K for the year ended December 31, 2023[134] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 819,812 shares for $52 million in Q1 2024, with $721 million remaining under the repurchase program Common Stock Repurchases in Q1 2024 (in millions) | Period | Total Shares Purchased | Average Price Paid | Approx. Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Jan 2024 | 425,645 | $57.50 | $748.2M | | Feb 2024 | 264,189 | $66.24 | $730.7M | | Mar 2024 | 129,978 | $76.92 | $720.7M | | Total Q1 | 819,812 | $63.40 | $720.7M | - The stock repurchase program, with an aggregate authorization of $4 billion, has no termination date[79][136] Other Information Two company officers adopted Rule 10b5-1 trading arrangements for securities sales during Q1 2024 - Two officers adopted Rule 10b5-1 trading plans in Q1 2024: Ryan A. Milburn for 5,231 shares and Rafael Basso for 12,624 shares[139] Exhibits The report includes Amendment No. 4 to the Credit Agreement, updated equity incentive forms, and required CEO and CFO certifications - Filed Amendment No. 4 to the Credit Agreement, dated March 13, 2024[140] - Filed required CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[144][145][146]