Financial Data and Key Metrics Changes - Year-over-year net sales decreased by 3% to $766 million, driven by a 4% increase in the North American on-highway end market and a 10% increase in the defense end market [17][18] - Gross profit for the quarter was $378 million, an increase of $12 million from $366 million in the same period in 2024, primarily due to price increases on certain products [18] - Net income increased by $23 million to $192 million, with diluted earnings per share rising 17% year-over-year to $2.23 [18][20] - Adjusted EBITDA margin increased by 90 basis points year-over-year to 37.5% [19] Business Line Data and Key Metrics Changes - North American on-highway end market saw a 4% increase, mainly due to price increases and strength in Class 8 vocational trucks, partially offset by lower demand for medium-duty trucks [17] - Defense end market net sales increased by 10%, driven by price increases [17] Market Data and Key Metrics Changes - The company reported ongoing geopolitical tensions and shifting policies affecting end markets, but maintained a strong position due to its North American manufacturing capabilities [14] - Over 85% of direct material spend is with North American suppliers, minimizing exposure to global trade uncertainties [14] Company Strategy and Development Direction - The company is focusing on growth in the international defense market, highlighted by the selection of its 3040MX transmission for India's Future Infantry Combat Vehicle program [12] - Expansion of the global service network in Japan and West Africa to support the growing preference for fully automatic transmissions outside North America [13] - The company is committed to maintaining strong financial performance while focusing on growth initiatives and operational efficiency [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate current geopolitical uncertainties and supply chain challenges, emphasizing a strong financial profile [14][20] - The company reaffirmed its full-year 2025 guidance, expecting net sales between $3.2 billion and $3.3 billion, with net income projected between $735 million and $785 million [21] Other Important Information - The company announced a $1 billion increase in its stock repurchase program, repurchasing over $150 million of common stock in the first quarter [20] - The quarterly dividend has increased over 80% since 2019, reflecting a commitment to shareholder-friendly capital allocation [20] Q&A Session Summary Question: Margin performance in the quarter - Management noted that gross margins expanded from 46.4% to 49.3%, driven by price increases and lower expenses [25][26] Question: Vocational demand environment - Management indicated that the North American vocational market remains robust, with significant demand for their products [30][32] Question: Capital allocation and M&A strategy - Management confirmed a focus on organic growth and share repurchases, while remaining open to potential M&A opportunities [36][40] Question: Impact of supply chain investigations - Management stated that the company is well-positioned to supply the North American market with localized content, despite uncertainties surrounding tariffs [44][46] Question: Medium-duty market dynamics - Management confirmed expectations of a year-over-year decline in the medium-duty market, consistent with previous guidance [48][49] Question: Pricing realization for the year - Management indicated that mid-single-digit price realization is a reasonable expectation for the remainder of the year [52][53] Question: Regulatory dynamics and emissions regulations - Management is monitoring potential changes to emissions regulations but believes their products are well-aligned with upcoming standards [57][59] Question: Parts business performance - Management noted a general weakness in the global service parts market but did not highlight any specific issues [63][65] Question: Production plans and inventory levels - Management stated that they have room to reduce production if demand slows, and that elevated inventories are primarily to support defense volume ramp-up [70]

Financial Data and Key Metrics Changes - Year-over-year net sales decreased by 3% to $766 million, driven by a 4% increase in the North American on-highway end market and a 10% increase in the defense end market [15][16] - Gross profit for the quarter was $378 million, an increase of $12 million from $366 million in the same period in 2024, primarily due to price increases on certain products [16] - Net income increased by $23 million to $192 million, with diluted earnings per share rising 17% year-over-year to $2.23 [16][18] - Adjusted EBITDA margin increased by 90 basis points year-over-year to 37.5% [17] Business Line Data and Key Metrics Changes - North American on-highway end market sales were driven by price increases and strength in Class 8 vocational trucks, partially offset by lower demand for medium-duty trucks [15] - The defense end market saw a 10% increase in net sales, primarily due to price increases [15] Market Data and Key Metrics Changes - The company noted ongoing geopolitical tensions and shifting policies creating uncertainty across end markets, but emphasized its strategic advantages in tolerating the current environment [12] - Over 85% of direct material spend is with North American suppliers, minimizing exposure to global trade uncertainties [12] Company Strategy and Development Direction - The company is focused on expanding its global service network and enhancing service capabilities in key regions, particularly in Japan and West Africa [11] - The selection of Allison's 3040MX transmission for India's Future Infantry Combat Vehicle program represents a significant growth opportunity in the international defense market [10] - The company is committed to maintaining strong financial performance while focusing on growth initiatives and operational efficiency [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate current market dynamics and maintain strong financial performance [12] - The company reaffirmed its full-year 2025 guidance, expecting net sales between $3.2 billion and $3.3 billion, and net income between $735 million and $785 million [19] Other Important Information - The company announced a $1 billion increase in its stock repurchase program and repurchased over $150 million of common stock in the first quarter [18] - The quarterly dividend has increased over 80% since 2019, reflecting the company's commitment to shareholder-friendly capital allocation [18] Q&A Session Summary Question: Can you unpack the margin performance in the quarter? - Management noted that gross margins increased from 46.4% to 49.3%, driven by price increases and the absence of one-time UAW signing incentives from the previous year [22][24] Question: What are the dynamics in the vocational demand environment? - Management indicated that the North American vocational market remains robust, with significant demand for their products, particularly from municipalities [28][30] Question: How is the company thinking about capital allocation, especially regarding M&A? - Management emphasized a focus on organic growth and shareholder returns, while remaining open to potential M&A opportunities [35][39] Question: What is the company's position regarding the truck supply chain and tariffs? - Management expressed confidence in their localized supply chain and ability to offset tariff impacts, while monitoring ongoing investigations [41][43] Question: What are the implications of the EPA regulations on the business? - Management stated that their products do not require significant modifications to comply with new emissions regulations, positioning them well in the market [55][57] Question: Can you comment on the step down in the parts business? - Management noted general weakness in global service parts but attributed it to a normalization after two strong years, with no specific issues highlighted [62]