Allison Transmission Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Allison designs and manufactures vehicle propulsion solutions, including automatic transmissions and hybrid and electric systems. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance and position
- Net sales: $677 million, up 15% from $588 million in Q1 2021.
- Profitability: Gross profit was $320 million, up 10%; gross margin declined to 47% from 49%. Operating income was $202 million, up 12%, with operating margin of 30% versus 31%. Net income was $129 million versus $120 million; diluted EPS was $1.30 versus $1.07.
- Adjusted results (non-GAAP): Adjusted EBITDA was $244 million versus $222 million; its margin was 36.0% versus 37.8%. Adjusted free cash flow was $143 million versus $107 million.
- Cash flow: Operating cash flow was $163 million versus $131 million. Investing used $38 million, including $23 million for an acquisition; financing used $106 million, including $81 million of repurchases and $20 million of dividends. Cash ended at $145 million, up from $127 million at year-end 2021.
- Debt and liquidity: Debt was $2.530 billion gross ($2.503 billion net carrying value), nearly unchanged from year-end. The company had $645 million available on its revolver, no revolver borrowings at quarter-end, and a 0.56x first-lien net leverage ratio. It reported compliance with debt covenants.
- Balance sheet: Current assets were $745 million and current liabilities $489 million. Total assets were $4.527 billion and stockholders’ equity $679 million.
Changes versus Q1 2021
- Sales increased across most end markets: North America on-highway rose 8%, outside North America on-highway 30%, and service parts, support equipment and other 14%. Defense sales fell 22%.
- Gross margin declined 220 basis points. Higher sales and $20 million in product price increases were partly offset by $32 million of unfavorable material costs and $8 million of higher manufacturing expense.
- Other expense was $10 million versus $3 million of other income, primarily reflecting a $15 million unrealized loss on marketable securities, partly offset by a $6 million gain on technology-related investments.
- Weighted average diluted shares fell to 99 million from 112 million, alongside $81 million of share repurchases in the quarter.
Outlook, risks and notable items
- Management expected higher 2022 demand in global on-highway, global off-highway and service parts markets, citing economic recovery, customer demand and selected price increases. The filing gives no specific quantitative earnings or revenue guidance.
- Supply-chain component shortages constrained customers’ vehicle build schedules despite stronger demand. Management expected this constraint to continue and cited raw-material and component inflation, higher freight and logistics costs, and overtime expense related to labor shortages.
- The filing identifies COVID-19 effects, the war in Ukraine, supply and labor disruptions, commodity and currency movements, cyclical markets, customer concentration, competition, product defects, and debt-related risks. Allison suspended sales and exports to Russia and Belarus; it did not expect a material effect on 2022 sales, but noted uncertainty around longer-term impacts and possible supply-chain and cybersecurity consequences.
- On March 31, 2022, Allison acquired AVTEC off-highway transmission portfolio and component-machining assets for $23 million cash. Preliminary allocation included $14 million goodwill, $7 million intangible assets and $2 million property, plant and equipment.
- Environmental remediation liability for historical contamination at its Indianapolis facilities was $3 million. The company said other ordinary-course claims were not expected to materially affect its financial position, results or cash flows.
- The board authorized an additional $1 billion in repurchases in February, bringing total authorization to $4 billion; $1.233 billion remained available at quarter-end. Management said cash, operating cash flow and borrowing capacity should meet known and anticipated requirements for the next twelve months and thereafter.
Important facts for investors to verify
- Whether customer production schedules and component availability improve, and how persistent input, freight and labor cost pressures affect margins.
- Whether price increases offset material inflation and whether margins recover from Q1 levels.
- Cash generation, capital allocation and debt-service capacity as repurchases and dividends continue.
- The final purchase-price allocation and integration progress for the AVTEC acquisition.
- Developments in Ukraine-related sanctions, supply risks and cybersecurity exposure, as well as material changes in legal or environmental contingencies.