Allison Transmission Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports annual results; it does not provide a clear standalone fourth-quarter financial summary. Allison designs and manufactures automatic transmissions and hybrid and fully electric propulsion systems. Approximately 74% of 2022 revenue came from North America.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $2,769 million | $2,402 million | +15% |
| Gross profit / margin | $1,297 million / 46.8% | $1,145 million / 47.7% | Profit +13%; margin down about 0.9 percentage points |
| Operating income / margin | $784 million / 28.3% | $669 million / 27.9% | Income +17% |
| Net income / margin | $531 million / 19.2% | $442 million / 18.4% | Income +20% |
| Diluted earnings per share | $5.53 | $4.13 | +$1.40 |
| Adjusted EBITDA (non-GAAP) / margin | $961 million / 34.7% | $844 million / 35.1% | EBITDA +14%; margin down 0.4 percentage points |
| Operating cash flow | $657 million | $635 million | +$22 million |
| Capital expenditures | $167 million | $175 million | Down $8 million |
| Adjusted free cash flow (non-GAAP) | $490 million | $460 million | +$30 million |
All amounts are U.S. dollars. Adjusted EBITDA and adjusted free cash flow are non-GAAP measures as defined by the company.
Revenue mix and operating changes
- North America on-highway sales rose 15% to $1,359 million, driven chiefly by last-mile delivery, regional-haul and vocational truck demand.
- Outside North America on-highway sales increased 22% to $463 million; global off-highway sales rose 51% to $213 million, led by energy, mining and construction demand.
- Service parts, support equipment and other sales increased 14% to $588 million. Defense sales declined 22% to $146 million, principally on lower tracked- and wheeled-vehicle demand.
- Cost of sales grew 17%, faster than revenue. Higher direct material and manufacturing costs contributed to lower gross margin; product price increases partly offset those costs. SG&A rose 8%, including higher warranty expense, and research and development expense rose 8%.
- The effective tax rate fell to 18% from 23%, mainly due to enacted state tax-rate legislation and a resulting deferred tax benefit.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $232 million, versus $127 million in 2021. Current assets were $866 million and current liabilities $480 million.
- Total debt was $2,525 million before deferred financing costs and current maturities; reported net long-term debt was $2,501 million. Debt included a $625 million variable-rate term loan and fixed-rate notes of $400 million at 4.75%, $500 million at 5.875%, and $1,000 million at 3.75%.
- No revolving-credit borrowings were outstanding at year-end; $644 million was available, net of letters of credit. First-lien net leverage was 0.41x, and the company reported compliance with debt covenants.
- Financing cash outflow was $367 million. The company repurchased $278 million of shares and paid $80 million in dividends during 2022. Approximately $1,035 million remained authorized for repurchases at year-end.
- Management said cash, operating cash flow and revolver capacity should meet known and anticipated needs for the next 12 months and thereafter.
Outlook, risks and notable items
- Management expected higher 2023 net sales, citing price increases and continued growth initiatives. It also expected 2023 commercial-vehicle build schedules to remain constrained by component availability, capital expenditures to be lower than in 2022, and cash income taxes to increase as deductions related to intangible assets decline.
- Key operating pressures in 2022 included supply-chain and labor constraints, inflation in materials, freight, logistics and wages, and foreign-exchange volatility. Customers’ inability to obtain components reduced vehicle build schedules and constrained Allison sales despite demand.
- Risks include cyclical end markets, dependence on major OEMs, concentrated manufacturing (about 90% of transmissions produced near Indianapolis), single-source suppliers, labor negotiations, competition and the pace of adoption of electric propulsion. The five largest OEM customers accounted for about 51% of 2022 sales; Daimler accounted for 20%.
- Approximately 46% of U.S. employees were represented by the UAW; the collective bargaining agreement was due to expire in November 2023.
- The $57 million year-end product warranty liability was a critical audit matter. The filing describes adjustments related to warranty estimates and field actions. A $22 million unrealized loss on marketable securities contributed to the swing in other income/expense, from $19 million income in 2021 to $21 million expense in 2022.
- The company acquired AVTEC off-highway assets in India for $23 million. It reported no goodwill or indefinite-lived intangible impairment in its 2022 annual tests. Routine legal matters and environmental remediation were not expected by management to have a material adverse effect; the recorded liability for Indianapolis remediation was $3 million.
- Management and the auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether component supply, labor availability and cost inflation improve or continue to limit 2023 vehicle production, sales and margins.
- Whether pricing actions continue to offset materials, freight, labor and other cost increases, and how gross margin develops.
- Debt-service needs and exposure to variable rates, including the term loan’s 2026 maturity and the scheduled note maturities.
- Warranty claims and field actions: review the $57 million reserve, its assumptions and any subsequent changes.
- OEM concentration and customer production plans, particularly given the top-five customers’ share of sales.
- Progress and returns from electric-propulsion products and international growth initiatives, alongside the company’s outlook and non-GAAP reconciliations.