Allison Transmission Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Allison designs and manufactures commercial, off-highway and defense vehicle propulsion systems, including automatic transmissions and hybrid and electric systems. Approximately 75% of 2023 revenue came from North America.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $789 million | $741 million | +6% |
| Gross profit / margin | $366 million / 46% | $361 million / 49% | Margin down 230 basis points |
| Operating income / margin | $234 million / 30% | $230 million / 31% | Income +2% |
| Net income | $169 million | $170 million | Down slightly |
| Diluted EPS | $1.90 | $1.85 | Up 3% |
| Operating cash flow | $173 million | $193 million | Down $20 million |
| Adjusted free cash flow (non-GAAP) | $162 million | $169 million | Down $7 million |
| Adjusted EBITDA (non-GAAP) / margin | $289 million / 36.6% | $276 million / 37.2% | EBITDA up; margin down |
Interest expense, net, declined to $25 million from $28 million. The effective tax rate fell to 17% from 20%, principally due to increased estimated U.S. federal tax deductions. Other expense was $5 million, versus $10 million of other income in the prior-year quarter.
Revenue mix and material changes
- North America on-highway sales rose 12% to $420 million, reflecting demand for vocational and medium-duty trucks and product price increases.
- Defense sales increased 78% to $48 million, principally on higher tracked-vehicle demand.
- Outside North America, on-highway sales rose 6% to $115 million; off-highway sales rose to $42 million from $23 million.
- Service parts, support equipment and other sales fell 13% to $160 million, mainly on lower North America service-parts demand. North America off-highway sales fell to $4 million from $24 million, reflecting weaker North American energy-sector demand.
- Sales growth and pricing were partly offset by higher manufacturing expense, direct material costs and $14 million of non-recurring UAW contract-signing incentives. Cost of sales increased 11%, faster than revenue growth.
Cash, debt and liquidity
Cash and cash equivalents were $551 million at March 31, 2024, compared with $555 million at year-end 2023. Current assets were $1.30 billion and current liabilities $518 million. Long-term debt, net of financing costs and current maturities, was $2.398 billion; principal debt was $2.418 billion. The company repaid $101 million of term-loan principal during the quarter.
In March, Allison amended its credit agreement: the term-loan maturity was extended from 2026 to 2031, the revolving-credit maturity from 2025 to 2029, and revolving commitments increased by $100 million to $750 million. At quarter-end, $745 million was available under the revolver, net of letters of credit; no revolving borrowings were outstanding. The term loan’s stated all-in rate was 7.07%. Interest-rate swaps hedge $500 million of variable-rate debt through September 2025.
Financing activities used $164 million, including $101 million of debt repayment, $52 million of share repurchases and $22 million of dividends. Investing activities used $12 million. Management stated cash, operating cash flow and revolver capacity should be sufficient for known and anticipated needs over the next twelve months and thereafter. The company reported compliance with debt covenants.
Outlook, risks and contingencies
- The filing provides no specific revenue, earnings or cash-flow guidance. Management noted that sales depend on commercial-vehicle production, which is correlated with macroeconomic conditions and remains affected by global supply-chain constraints.
- A new four-year UAW agreement, effective through November 2027, is expected to significantly increase labor costs. Q1 included non-recurring signing incentives.
- Risks cited include economic and industry cyclicality, supply or cost pressures for labor and materials, labor disputes, customer concentration, international and currency exposure, technological change and competition, product defects and warranty costs, defense spending, and indebtedness.
- Management estimated that a 10% movement in selected currencies could change annual after-tax earnings by about $8 million; a 10% change in aluminum and steel prices could change annual earnings by about $8 million and $13 million, respectively. These commodity sensitivities exclude customer cost-sharing arrangements.
- Ordinary-course legal claims include commercial, product-liability, personal-injury and workers’ compensation matters. The company does not expect amounts beyond recorded provisions or insurance to have a material adverse effect.
- Other notable items: a $7 million unrealized loss on marketable securities was reflected in operating cash-flow reconciliation, and other expense included marketable-security mark-to-market effects. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether demand growth in North America on-highway and defense markets offsets weakness in service parts and selected off-highway markets.
- How the new labor agreement, manufacturing costs and pricing affect gross margin after the quarter’s non-recurring incentives.
- Whether operating cash flow and working-capital trends support debt service, dividends and repurchases; repurchase authorization remaining at quarter-end was approximately $721 million.
- Floating-rate exposure and the effect of the amended credit facilities as the $500 million swap hedge expires in September 2025.
- Potential developments in supply chains, customer concentration, commodity and currency exposures, and legal or product-liability matters.