Allison Transmission (NYSE:ALSN) Q4 2025 Earnings call February 23, 2026 05:00 PM ET Company ParticipantsAngel Castillo - Executive DirectorCraig Price - President and Business Unit Leader of Off-Highway Drive & Motion SystemsDave Graziosi - Chair, President, and CEOFred Bohley - COO and Transmission Business Unit LeaderJackie Bolles - Executive Director of Treasury and Investor RelationsJerry Revich - Managing DirectorScott Mell - CFO and TreasurerTami Zakaria - Executive DirectorConference Call Participan ...

Allison Transmission (NYSE:ALSN) Q4 2025 Earnings call February 23, 2026 05:00 PM ET Company ParticipantsAngel Castillo - Executive DirectorCraig Price - President and Business Unit Leader of Off-Highway Drive & Motion SystemsDave Graziosi - Chair, President, and CEOFred Bohley - COO and Transmission Business Unit LeaderJackie Bolles - Executive Director of Treasury and Investor RelationsJerry Revich - Managing DirectorScott Mell - CFO and TreasurerTami Zakaria - Executive DirectorConference Call Participan ...

Allison Transmission (NYSE:ALSN) Q4 2025 Earnings call February 23, 2026 05:00 PM ET Speaker9Good afternoon. Thank you for standing by. Welcome to Allison's fourth quarter 2025 earnings conference call. My name is Paul, I will be your conference call operator today. At this time, all participants are in a listen-only mode. After prepared remarks, Allison executives will conduct a question-and-answer session, conference call participants will be given instructions at that time. As a reminder, this conference ...

Performance beat in Q4 was driven by accelerated cost-reduction initiatives and a richer product mix within the Light Vehicle Systems segment. Management noted a significant pivot in business pursuit activity, shifting from 80% EV-focused to a heavy mix of traditional ICE and hybrid powertrains to align with shifting consumer demand. The company successfully delivered $248 million in cost savings during 2025, entering 2026 with a higher-than-expected run rate of $325 million. The divestiture of the ...

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Core Insights - The acquisition of Dana's Off-Highway Drive & Motion Systems business for approximately $2.7 billion positions Allison Transmission to form a global enterprise with projected revenues of $5.5 billion, enhancing its capabilities in high-performance mobility and work solutions across various sectors [1][2] Company Overview - Allison Transmission Holdings, Inc. is a global leader in high-performance mobility and work solutions, operating through two business units: Allison Transmission and Allison Off-Highway Drive & Motion Systems [4] - The company has a strong presence in critical sectors such as infrastructure, energy, agriculture, construction, and national security, with operations in over 150 countries [4] Leadership and Structure - The combined company will be headquartered in Indianapolis, Indiana, and will be led by David Graziosi as Chair, President, and CEO [2] - The business units will be managed by Fred Bohley and Craig Price, ensuring a global operational structure that leverages local insights [2] Strategic Goals - The merger aims to create a broader portfolio of high-quality products and expand market reach, enabling the company to capitalize on global megatrends in the industrial sector [2] - The integration of Dana's business is expected to enhance Allison's financial performance through both organic and inorganic growth strategies [2]

Core Points - Allison Transmission Holdings, Inc. announced a private placement of $500 million in 5.875% Senior Notes due 2033 and a $1,200 million senior secured incremental term loan facility [1][2] - The proceeds from these offerings will be used to finance the acquisition of Dana Incorporated's off-highway business and cover related expenses [1] - The Notes Offering is expected to close around November 21, 2025, while the Incremental Term Loan Facility will close concurrently with the Dana Business Acquisition [1] Financial Details - The Notes will bear an interest rate of 5.875% and the Incremental Term Loan Facility will have an interest rate of Term SOFR plus 1.75% [1] - The total amount of the Incremental Term Loan Facility is $1,200 million [1] Company Overview - Allison Transmission 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 [5] - The company operates in over 150 countries and has manufacturing facilities in the USA, Hungary, and India [5] - Founded in 1915, Allison Transmission is headquartered in Indianapolis, Indiana [5]

Financial Data and Key Metrics Changes - The company reported a solid Q2 beat with double-digit margins and accelerating free cash flow [6] - Sales from continuing operations were $2,052 million lower than last year due to lower end market demand, while adjusted EBITDA was $145 million with a profit margin of 7.5%, which is 210 basis points higher than last year [20][26] - The company raised its profit guidance for the year by $35 million for new Dana, while the overall company guidance increased by $15 million due to a decrease in Off Highway operations [11][26] Business Line Data and Key Metrics Changes - Continuing operations saw a sales increase of $250 million, while Off Highway sales decreased by $125 million [14] - Cost savings contributed $59 million in profit through various actions taken, bringing the total to $110 million to date, with a target of $225 million in savings for the current year [22][26] - The company anticipates a significant split between commercial and light vehicle segments, with a strong aftermarket business in commercial vehicles [12] Market Data and Key Metrics Changes - The company observed strong schedules in the light vehicle sector, but some softening in North American commercial vehicles, partially offset by better volumes from South America and Europe [11][64] - Tariff impacts were noted, with an expectation of over 80% recovery for the year despite an 80 basis point headwind in Q2 [10][28] - The company expects a decrease in sales due to lower demand across both light vehicle and commercial vehicle markets, with a decremental margin of about 20% anticipated for the full year [27] Company Strategy and Development Direction - The company plans to return approximately $600 million to shareholders and reduce overall debt by a couple of billion dollars following the sale of the Off Highway business [7][31] - The focus for 2026 includes a cost reduction savings plan with a target of $310 million, which is expected to provide a strong tailwind for the next fiscal year [35][38] - The company aims to drive organic growth while being selective with capital expenditures, and will aggressively lower debt to achieve a one-time net leverage target [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver on margin targets for 2026, with expectations of a 10% margin driven by cost savings and operational performance [34][39] - The outlook for the North American commercial vehicle market remains pessimistic, with significant softness noted in orders and demand [66] - Management highlighted the importance of mitigating tariff impacts and maintaining customer relationships to support vehicle demand [10][64] Other Important Information - The company expects to close the Off Highway sale in the fourth quarter, with net cash proceeds anticipated to be about $2.4 billion [6][31] - The company has ample liquidity of about $1.35 billion at the end of Q2, which supports its capital return strategy [30][31] - Adjusted free cash flow for 2025 is anticipated at $275 million, which is approximately $50 million higher than previously expected [29] Q&A Session Summary Question: Can you provide color on the new business wins and where they are coming from? - Management noted significant programs with JLR and Ford, contributing to the backlog and driving new business wins [41][43] Question: How much room is there for incremental cost savings? - Most cost-saving programs are above the plants, with a focus on operating improvements and stranded costs for future savings [45][46] Question: Will the Off Highway guidance cut impact deal closing timing? - Management confirmed that the guidance cut will not impact deal closing timing, as margins have been maintained despite lower top-line revenue [52][54] Question: What are the current conditions in the light vehicle and commercial vehicle markets? - Light vehicle demand remains stable, while commercial vehicle sales are softening in North America but showing strength in South America and Europe [63][64] Question: Can you clarify the expected improvement in working capital? - The improvement is attributed to the normalization of working capital requirements and efficiency gains expected in the back half of the year [101][104]

Financial Data and Key Metrics Changes - Year-over-year net sales for Q2 2025 were flat at $814 million compared to the same period in 2024 [23] - Gross profit increased to $402 million, up $8 million from $394 million in Q2 2024 [25] - Net income for the quarter rose to $195 million, an increase of $8 million from $187 million in Q2 2024 [25] - Adjusted EBITDA for the quarter was $313 million, reflecting a 4% year-over-year increase [25] - Diluted earnings per share increased by 8% year-over-year to a record $2.29 [26] Business Line Data and Key Metrics Changes - Defense end market net sales increased by 47% year-over-year [23] - Outside North America on-highway end market achieved record quarterly net sales of $142 million, an 11% increase year-over-year, driven by higher demand in South America and Europe [23] - Service parts, support equipment, and other end market net sales increased by 6% year-over-year, primarily due to higher demand for service parts and price increases [24] - Global off-highway end market net sales decreased by 30%, and North America on-highway end market net sales decreased by 9% [24] Market Data and Key Metrics Changes - The company noted a significant increase in demand in South America and Europe, contributing to the growth in the outside North America on-highway end market [23] - The North American on-highway market is experiencing layoffs and production adjustments due to elevated dealer inventories and reduced demand [39][40] Company Strategy and Development Direction - The acquisition of Dana's off-highway business for approximately $2.7 billion is expected to enhance Allison's global footprint and operational capabilities [17][19] - The company anticipates $120 million in annual run rate synergies from the acquisition, primarily through operational efficiencies and procurement [18][21] - Allison aims to leverage Dana's technology centers for local development and cost synergies, enhancing product innovation and engineering capabilities [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed that current market conditions are viewed as a deferral of demand rather than a permanent decline, with expectations of improved conditions in 2026 [70] - The company is closely monitoring regulatory changes, including EPA emissions regulations, which may impact customer purchasing behavior [70] - Management remains optimistic about the defense market and expects continued growth in that segment [55] Other Important Information - The company revised its full-year 2025 guidance, expecting net sales to be in the range of $3.75 billion to $3.175 billion [28] - Capital expenditures are anticipated to be between $165 million and $175 million, with adjusted free cash flow expected in the range of $620 million to $660 million [28] Q&A Session Summary Question: Can you expand on the potential for inorganic growth post-acquisition? - Management indicated that the acquisition provides opportunities for bolt-on acquisitions and organic growth due to a larger global footprint and enhanced capabilities [30][31] Question: What areas are driving the guidance change? - Management noted significant revisions in North America on-highway build rates and OEM responses to market demand conditions as key factors influencing the guidance change [37][39] Question: Can you discuss margin guidance and pricing expectations? - Management highlighted that pricing was strong in the quarter, with expectations for continued positive pricing tailwinds, although volume deterioration is anticipated [48][50] Question: What is the outlook for the service parts business in the second half? - Management expects stable trends in service requirements, although demand for support equipment may decrease due to lower volumes [72]

Financial Data and Key Metrics Changes - Year-over-year net sales for Q2 2025 were $814 million, flat compared to the same period in 2024 [20] - Gross profit increased to $402 million, up $8 million from $394 million in Q2 2024 [22] - Net income for the quarter was $195 million, an increase of $8 million from $187 million in Q2 2024 [22] - Adjusted EBITDA for the quarter was $313 million, a 4% increase year over year [22] - Diluted earnings per share increased 8% year over year to a record $2.29 [23] Business Line Data and Key Metrics Changes - Defense end market net sales increased 47% year over year [20] - Outside North America on-highway end market net sales reached $142 million, an 11% increase year over year, driven by higher demand in South America and Europe [20] - Service parts, support equipment, and other end market net sales increased 6% year over year, driven by higher demand for service parts and price increases [21] - Global off-highway end market net sales decreased by 30% [21] - North America on-highway end market net sales decreased by 9% [21] Market Data and Key Metrics Changes - The company noted a significant decrease in North America on-highway build rates, with OEMs responding to near-term market demand conditions [39] - The defense market continues to show growth, with expectations for improvement in both wheeled and tracked vehicles in the second half of the year [55] - The service parts business is expected to remain stable, although demand for support equipment may decrease due to lower volumes [72] Company Strategy and Development Direction - The acquisition of Dana's off-highway business for approximately $2.7 billion is expected to enhance Allison's global footprint and operational capabilities [15] - The company anticipates $120 million in annual run rate synergies from the acquisition, primarily through operational efficiencies [15] - Allison aims to leverage Dana's global technology centers for local development and cost synergies [18] - The focus post-acquisition will be on combining the two businesses while maintaining solid financial performance [19] Management's Comments on Operating Environment and Future Outlook - Management expressed that current market conditions are viewed as a deferral of demand rather than a permanent decline [40] - The company is closely monitoring the impact of tariffs and regulatory changes, particularly regarding emissions regulations [70] - Management remains optimistic about the defense market and expects continued growth in that segment [55] Other Important Information - The company ended Q2 2025 with a net leverage ratio of 1.38 times and $778 million in cash [25] - Full year 2025 guidance was revised to net sales in the range of $3.75 billion to $3.175 billion [26] - The company plans to maintain its capital allocation strategy, balancing share buybacks and debt repayment [62] Q&A Session Summary Question: Can you expand on the potential for inorganic growth post-acquisition? - Management indicated that the acquisition provides opportunities for bolt-on acquisitions and organic growth due to a larger global footprint [29] Question: What areas are driving the guidance change? - Management noted significant revisions in North America on-highway build rates and OEM responses to market demand [39] Question: Can you discuss margin guidance and pricing expectations? - Management expects pricing to remain strong, with anticipated impacts from tariffs but limited exposure due to North American sourcing [51] Question: What is the outlook for the service parts business in the second half? - Management expects stable trends in service requirements, although demand for support equipment may decrease [72]