Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Allison Transmission Holdings Inc | d867299d8k.htm |
| EX-99.1 - EX-99.1 - Allison Transmission Holdings Inc | d867299dex991.htm |
 1
Q4 2014 Earnings Release
Published February 9, 2015 (Earnings Conference Call February 10, 2015)
Lawrence Dewey, Chairman, President & Chief Executive Officer
David Graziosi, Executive Vice President & Chief Financial Officer
Exhibit 99.2 |
 2
Safe Harbor Statement
The
following
information
contains,
or
may
be
deemed
to
contain,
“forward-looking
statements”
(as
defined
in
the
U.S.
Private
Securities
Litigation
Reform
Act
of
1995).
The
words
“believe,”
“expect,”
“anticipate,”
“intend,”
“estimate”
and
other
expressions
that
are
predictions
of
or
indicate
future
events
and
trends
and
that
do
not
relate
to
historical
matters
identify
forward-looking
statements.
You
should
not
place
undue
reliance
on
these
forward-looking
statements.
Although
forward-looking
statements
reflect
management’s
good
faith
beliefs,
reliance
should
not
be
placed
on
forward-looking
statements
because
they
involve
known
and
unknown
risks,
uncertainties
and
other
factors,
which
may
cause
the
actual
results,
performance
or
achievements
to
differ
materially
from
anticipated
future
results,
performance
or
achievements
expressed
or
implied
by
such
forward-looking
statements.
Forward-looking
statements
speak
only
as
of
the
date
the
statements
are
made.
We
undertake
no
obligation
to
publicly
update
or
revise
any
forward-looking
statement,
whether
as
a
result
of
new
information,
future
events,
changed
circumstances
or
otherwise.
These
forward-looking
statements
are
subject
to
numerous
risks
and
uncertainties,
including,
but
not
limited
to:
risks
related
to
our
substantial
indebtedness;
our
participation
in
markets
that
are
competitive;
the
highly
cyclical
industries
in
which
certain
of
our
end
users
operate;
the
failure
of
markets
outside
North
America
to
increase
adoption
of
fully-automatic
transmissions;
the
concentration
of
our
net
sales
in
our
top
five
customers
and
the
loss
of
any
one
of
these;
future
reductions
or
changes
in
government
subsidies
for
hybrid
vehicles;
U.S.
defense
spending;
general
economic
and
industry
conditions;
the
discovery
of
defects
in
our
products,
resulting
in
delays
in
new
model
launches,
recall
campaigns
and/or
increased
warranty
costs
and
reduction
in
future
sales
or
damage
to
our
brand
and
reputation;
our
ability
to
prepare
for,
respond
to
and
successfully
achieve
our
objectives
relating
to
technological
and
market
developments
and
changing
customer
needs;
risks
associated
with
our
international
operations;
and
labor
strikes,
work
stoppages
or
similar
labor
disputes,
which
could
significantly
disrupt
our
operations
or
those
of
our
principal
customers.
Allison
Transmission
cannot
assure
you
that
the
assumptions
made
in
preparing
any
of
the
forward-
looking
statements
will
prove
accurate
or
that
any
long-term
financial
goals
will
be
realized.
All
forward-looking
statements
included
in
this
presentation
speak
only
as
of
the
date
made,
and
Allison
Transmission
undertakes
no
obligation
to
update
or
revise
publicly
any
such
forward-looking
statements,
whether
as
a
result
of
new
information,
future
events,
or
otherwise.
In
particular,
Allison
Transmission
cautions
you
not
to
place
undue
weight
on
certain
forward-looking
statements
pertaining
to
potential
growth
opportunities,
long-term
financial
goals
or
the
value
we
currently
ascribe
to
certain
tax
attributes
set
forth
herein.
Actual
results
may
vary
significantly
from
these
statements.
Allison
Transmission’s
business
is
subject
to
numerous
risks
and
uncertainties,
which
may
cause
future
results
of
operations
to
vary
significantly
from
those
presented
herein.
Important
factors
that
could
cause
actual
results
to
differ
materially
are
discussed
in
Allison
Transmission’s
Annual
Report
on
Form
10-K
for
the
year
ended
December
31,
2013. |
 3
Non-GAAP Financial Information
We
use
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses,
adjusted
free
cash
flow
and
free
cash
flow
to
evaluate
our
performance
relative
to
that
of
our
peers.
In
addition,
the
Senior
Secured
Credit
Facility
has
certain
covenants
that
incorporate
Adjusted
EBITDA.
However,
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses,
adjusted
free
cash
flow
and
free
cash
flow
are
not
measurements
of
financial
performance
under
GAAP,
and
these
metrics
may
not
be
comparable
to
similarly
titled
measures
of
other
companies.
Adjusted
net
income
is
calculated
as
the
sum
of
net
income,
interest
expense,
net,
income
tax
expense
(benefit),
trade
name
impairment
and
amortization
of
intangible
assets,
less
cash
interest,
net
and
cash
income
taxes,
and
adjusted
for
certain
non-recurring
items.
Adjusted
EBITDA
is
calculated
as
the
sum
of
Adjusted
net
income,
cash
interest,
net,
cash
income
taxes,
depreciation
of
property,
plant
and
equipment
and
other
adjustments
as
defined
by
the
Senior
Secured
Credit
Facility
and
as
further
described
below.
Adjusted
EBITDA
excluding
technology-related
license
expenses
is
calculated
as
Adjusted
EBITDA
less
technology-related
license
expenses.
Adjusted
EBITDA
margin
is
calculated
as
Adjusted
EBITDA
divided
by
net
sales.
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses
is
calculated
as
Adjusted
EBITDA
excluding
technology-related
license
expenses
divided
by
net
sales.
Free
cash
flow
is
calculated
as
net
cash
provided
by
operating
activities
less
capital
expenditures.
Adjusted
free
cash
flow
is
free
cash
flow
adjusted
for
non-
recurring
items.
We
use
Adjusted
net
income
to
measure
our
overall
profitability
because
it
better
reflects
our
cash
flow
generation
by
capturing
the
actual
cash
interest
paid
and
cash
taxes
paid
rather
than
our
interest
expense
and
tax
expense
as
calculated
under
GAAP
and
excludes
the
impact
of
the
non-cash
annual
amortization
of
certain
intangible
assets
that
were
created
at
the
time
of
the
Acquisition
Transaction.
We
use
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin
and
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses
to
evaluate
and
control
our
cash
operating
costs
and
to
measure
our
operating
profitability.
We
use
adjusted
free
cash
flow
and
free
cash
flow
to
evaluate
the
amount
of
cash
generated
by
the
business
that,
after
the
capital
investment
needed
to
maintain
and
grow
our
business,
can
be
used
for
strategic
opportunities,
including
investing
in
our
business
and
strengthening
our
balance
sheet.
We
believe
the
presentation
of
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding technology-
related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses
and
adjusted
free
cash
flow
enhances
our
investors'
overall
understanding
of
the
financial
performance
and
cash
flow
of
our
business.
You
should
not
consider
Adjusted
net
income,
Adjusted
EBITDA,
Adjusted
EBITDA
excluding
technology-related
license
expenses,
Adjusted
EBITDA
margin,
Adjusted
EBITDA
margin
excluding
technology-related
license
expenses,
adjusted
free
cash
flow
and
free
cash
flow
as
an
alternative
to
net
income,
determined
in
accordance
with
GAAP,
as
an
indicator
of
operating
performance,
or
as
an
alternative
to
net
cash
provided
by
operating
activities,
determined
in
accordance
with
GAAP,
as
an
indicator
of
Allison’s
cash
flow. |
 4
Call Agenda
Q4 2014 Performance
2015 Guidance |
 5
Q4 2014 Performance Summary
($ in millions)
Q4 2014
Q4 2013
% Variance
Net Sales
$544
$491
10.9%
Gross Margin %
47.0%
43.1%
+390 bps
Adjusted
Net
Income
(1)
$117
$78
50.7%
Adjusted
Free
Cash
Flow
(1)
$129
$109
18.0%
Commentary
Net
Sales:
the
increase
was
principally
driven
by
the
continued
recoveries
in
the
North
America
On-Highway
and
Off-
Highway
end
markets,
and
higher
demand
in
the
Service
Parts,
Support
Equipment
&
Other
end
market,
partially
offset
by
lower
demand
in
the
Outside
North
America
On-Highway
and
North
America
Hybrid-Propulsion
Systems
for
Transit
Bus
end
markets.
Gross
Margin:
the
increase
was
principally
driven
by
increased
net
sales
and
price
increases
on
certain
products.
Adjusted
Net
Income:
the
increase
was
principally
driven
by
increased
net
sales,
price
increases
on
certain
products,
decreased
cash
interest
expense
and
favorable
product
warranty
expense
adjustments
partially
offset
by
increased
global
commercial
spending
activities
and
product
initiatives
spending,
and
a
$3
million
increase
in
technology-related
license
expenses.
Adjusted
Free
Cash
Flow:
the
increase
was
principally
driven
by
increased
net
cash
provided
by
operating
activities,
decreased
capital
expenditures,
increased
excess
tax
benefit
from
stock-based
compensation
and
a
$3
million
increase
in
technology-related
license
expenses.
(1)
See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash
Flow. |
 6
Q4 2014 Sales Performance
($ in millions)
End Markets
Q4 2014
Q4 2013
% Variance
Commentary
North America On-Hwy
$256
$210
22%
Principally
driven
by
higher
demand
for
Rugged
Duty
Series
models
North America Hybrid-
Propulsion Systems for
Transit Bus
$17
$32
(47%)
Principally
driven
by
intra-year
movement
in
the
timing
of
orders
and
lower
demand
due
to
engine
emissions
improvements
and
non-hybrid
alternatives
that
generally
require
a
fully-automatic
transmission
(e.g.
xNG)
North America Off-Hwy
$36
$14
157%
Principally
driven
by
higher
demand
from
hydraulic
fracturing
applications
Defense
$38
$35
9%
Principally
driven
by
revenue
deferred
in
the
prior
year
period
for
certain
tracked
transmissions
that
were
not
shipped
at
the
request
of
the
U.S.
government
partially
offset
by
previously
considered
reductions
in
U.S.
defense
spending
to
longer
term
averages
experienced
during
periods
without
active
conflicts
Outside North America
On-Hwy
$65
$86
(24%)
Principally
driven
by
weakness
in
China
Bus
and
Europe
Truck
Outside North America
Off-Hwy
$19
$14
36%
Principally
driven
by
improved
demand
in
the
China
energy
sector
partially
offset
by
lower
demand
in
the
global
mining
sector
Service Parts, Support
Equipment & Other
$113
$100
13%
Principally
driven
by
higher
demand
for
North
America
Off-
Highway
service
parts
Total
$544
$491
11% |
 7
Q4 2014 Financial Performance
($ in millions, except share data)
Q4 2014
Q4 2013
$ Var
% Var
Commentary
Net Sales
$544.4
$491.0
$53.4
10.9%
Increase
principally
driven
by
the
continued
recoveries
in
the
North
America
On-Highway
and
Off-Highway
end
markets,
and
higher
demand
in
the
Service
Parts,
Support
Equipment
&
Other
end
market
partially
offset
by
lower
demand
in
the
Outside
North
America
On-Highway
and
North
America
Hybrid-Propulsion
Systems
for
Transit
Bus
end
markets
Cost of Sales
$288.8
$279.6
($9.2)
(3.3%)
Gross Profit
$255.6
$211.4
$44.2
20.9%
Increase
principally
driven
by
increased
net
sales
and
price
increases
on
certain
products
Operating Expenses
Selling, General and Administrative Expenses
$88.8
$87.4
($1.4)
(1.6%)
Increase
principally
driven
by
increased
global
commercial
spending
activities
partially
offset
by
favorable
product
warranty
expense
adjustments
Engineering –
Research and Development
$33.6
$24.4
($9.2)
(37.7%)
Increase
principally
driven
by
increased
product
initiatives
spending
and
a
$3
million
increase
in
technology-related
license
expenses
Impairment
Loss
(1)
$15.4
$0.0
($15.4)
N/A
Total Operating Expenses
$137.8
$111.8
($26.0)
(23.3%)
Operating Income
$117.8
$99.6
$18.2
18.3%
Interest Expense, net
($37.4)
($28.4)
($9.0)
(31.7%)
Increase
principally
driven
by
less
favorable
mark-to-market
adjustments
for
LIBOR
swaps
partially
offset
by
the
expiration
of
certain
LIBOR
swaps,
lower
amortization
of
deferred
financing
charges
and
debt
repayments
Other Expense, net
($2.6)
($3.7)
$1.1
29.7%
Income Before Income Taxes
$77.8
$67.5
$10.3
15.3%
Income Tax Expense
($27.3)
($24.6)
($2.7)
(11.0%)
Effective tax rates: 2014 35%; 2013 36%
Net Income
$50.5
$42.9
$7.6
17.7%
Diluted Earnings Per Share
$0.28
$0.23
$0.05
21.7%
2014: 182.3M shares; 2013: 187.9M shares
Adjusted
Net
Income
(2)
$117.1
$77.7
$39.4
50.7%
Adjusted
EBITDA
(2)
$185.3
$152.7
$32.6
21.3%
Adjusted EBITDA excluding technology-related
license
expenses
(2)
$188.1
$152.7
$35.4
23.2%
(1)
Long-lived assets and accrued expenses related to the production of the H3000 and
H4000 hybrid-propulsion systems. (2)
See Appendix for a reconciliation from Net Income. |
 8
Q4 2014 Cash Flow Performance
(1)
See Appendix for a reconciliation of Adjusted Free Cash Flow.
(2)
Operating
Working
Capital
=
A/R
+
Inventory
–
A/P.
($ in millions)
Q4 2014
Q4 2013
$ Variance
% Variance
Commentary
Net Cash Provided by
Operating Activities
$141
$138
$3
2.0%
Principally driven by increased net
sales
and
price
increases
on
certain
products partially offset by
increased SG&A, product initiatives
spending, technology-related
license expenses and excess tax
benefit from stock-based
compensation
CapEx
$27
$33
($6)
(20.2%)
Reduced maintenance and new
product initiatives spending
Adjusted Free Cash
Flow
(1)
$129
$109
$20
18.0%
Principally driven by increased cash
provided by operating activities,
decreased capital expenditures,
increased excess tax benefit from
stock-based compensation and
increased technology-related
license expenses
($ in millions)
Q4
2014
Q4
2013
$
Variance
%
Variance
Commentary
Operating Working
Capital
(2)
Percentage
of LTM Sales
9.4%
9.6%
N/A
(20 bps)
In line with prior period
Cash Paid for Interest
$37
$46
($9)
(20.7%)
Principally driven by expiration of
certain LIBOR swaps and debt
repayments
Cash Paid for Income
Taxes
$1
$0
$1
-
In line with prior period |
 9
2015 Guidance –
End Markets Net Sales Commentary
Allison expects first quarter net sales to be higher than the same period in 2014.
The anticipated year-over-year increase in first quarter net sales is
principally driven by higher demand in the North America On-Highway and Off-
Highway end markets, partially offset by previously considered reductions in Defense
net sales and lower demand in the North America Hybrid-Propulsion Systems
for Transit Bus end market. End Market
2014
Net Sales
2015
Midpoint
Commentary
North America On-Hwy
$988
+8%
Principally driven by continued market recovery
North America Hybrid-
Propulsion Systems for
Transit Bus
$93
(13%)
Principally driven by engine emissions improvements and non-hybrid alternative
technologies that generally require a fully-automatic transmission
(e.g. xNG) North America Off-Hwy
$100
(30%)
Principally driven by decreased demand from hydraulic fracturing
applications
Defense
$157
(34%)
Principally driven by continued reductions in U.S. defense spending to longer term
averages experienced during periods without active conflicts
Outside North America
On-Hwy
$264
0%
Principally driven by increased fully-automatic penetration offset by
continued challenging market demand conditions
Outside North America
Off-Hwy
$81
(20%)
Principally driven by continued weakness in the energy and mining sectors
Service Parts, Support
Equipment & Other
$444
(5%)
Principally driven by decreased demand for North America Off-Highway service
parts
($ in millions) |
 10
2015 Guidance -
Summary
Guidance
Commentary
Net Sales Change from 2014
0 to (5) percent
Guidance
reflects
a
cautious
approach
given
the
heightened
level
of
uncertainty
and
the
lack
of
near
term
visibility
and
confidence
in
the
global
Off-Highway
end
markets.
Our
net
sales
outlook
also
assumes
a
continued
recovery
in
the
North
America
On-Highway
end
market,
previously
considered
reductions
in
the
U.S.
defense
spending,
continued
weakness
in
the
Outside
North
America
On-Highway
end
market
and
lower
demand
for
North
America
Hybrid-Propulsion
Systems
for
Transit
Bus.
Adjusted EBITDA Margin
34.0 to 35.5
percent
Principally driven by sales mix and volume timing
Adjusted Free Cash Flow ($ in millions)
$475 to $525
$2.60 to $2.90 per diluted share
CapEx
($ in millions)
Maintenance
New Product Programs
$60 to $65
$0 to $5
Subject to timely completion of development and sourcing
milestones
Cash Income Taxes ($ in millions)
$10 to $15
U.S. income tax shield and net operating loss utilization
|
 11
APPENDIX
Non-GAAP Financial Information
*
*
*
*
*
*
*
*
* |
 12
Non-GAAP Reconciliations
(1 of 2)
$ in millions, Unaudited
2010
2011
2012
2013
2014
2013
2014
Net income
$29.6
$103.0
$514.2
$165.4
$228.6
$42.9
$50.5
plus:
Interest expense,
net
277.5
217.3
151.2
132.9
138.4
28.4
37.4
Cash interest expense
(239.1)
(208.6)
(167.3)
(159.2)
(140.0)
(46.3)
(36.7)
Income tax expense (benefit)
53.7
47.6
(298.0)
100.7
139.5
24.6
27.3
Cash income
taxes
(2.2)
(5.8)
(10.7)
(3.8)
(5.0)
(0.3)
(1.5)
Fee to terminate services agreement with Sponsors
—
—
16.0
—
—
—
—
Technology-related investment expenses
—
—
14.4
5.0
2.0
2.5
—
Public offering expenses
—
—
6.1
1.6
1.4
0.7
—
Impairments
—
—
—
—
15.4
—
15.4
Amortization of intangible
assets
154.2
151.9
150.0
105.3
98.8
25.2
24.7
Adjusted net
income
$273.7
$305.4
$375.9
$347.9
$479.1
$77.7
$117.1
Cash interest expense
239.1
208.6
167.3
159.2
140.0
46.3
36.7
Cash income
taxes
2.2
5.8
10.7
3.8
5.0
0.3
1.5
Depreciation of property, plant and equipment
99.6
103.8
102.5
98.7
93.8
24.6
22.8
(Gain)/loss on redemptions and repayments of long-term debt
(3.3)
16.0
22.1
0.8
0.5
0.3
0.2
Dual power inverter module extended coverage
(1.9)
—
9.4
(2.4)
1.0
—
1.0
UAW Local 933 signing bonus
—
—
8.8
—
—
—
—
Benefit plan re-measurement
—
—
2.3
—
—
—
—
Unrealized loss (gain) on commodity hedge contracts
0.3
6.5
(1.0)
1.5
(1.0)
0.4
0.7
Unrealized (gain) loss on foreign exchange
(0.2)
0.3
0.1
2.3
5.2
—
1.8
Premiums and expenses on tender offer for long-term debt
—
56.9
—
—
—
—
—
Restructuring charges
—
—
—
1.0
0.7
—
—
Reduction of supply contract liability
(3.4)
—
—
—
—
—
—
Other, net
10.9
8.6
7.0
13.8
14.7
3.1
3.5
Adjusted
EBITDA
$617.0
$711.9
$705.1
$626.6
$739.0
$152.7
$185.3
Adjusted EBITDA excluding technology-related license expenses
$617.0
$711.9
$717.1
$632.6
$745.1
$152.7
$188.1
Net Sales
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$2,127.4
$491.0
$544.4
Adjusted EBITDA
margin
32.0%
32.9%
32.9%
32.5%
34.7%
31.1%
34.0%
Adjusted EBITDA margin excl technology-related license expenses
32.0%
32.9%
33.5%
32.8%
35.0%
31.1%
34.6%
Three months ended
December 31,
For the year ended December 31,
Adjusted Net Income and Adjusted EBITDA reconciliation
(1) Includes
charges
or
income
related
to
benefit
plan
adjustments,
employee
stock
compensation
expense,
service
fees
paid
to
Allison’s
Sponsors
and
an
adjustment
for
the
settlement
of
litigation
which
originated
with
the
Predecessor
but
was
assumed
by
the
Company
as
part
of
the
Acquisition
Transaction.
(1) |
 13
Non-GAAP Reconciliations
(2 of 2)
$ in millions, Unaudited
2010
2011
2012
2013
2014
2013
2014
Net Cash Provided by Operating Activities
$388.9
$469.2
$497.5
$453.5
$556.9
$138.1
$140.9
(Deductions) or Additions:
Long-lived assets
(73.8)
(96.9)
(123.9)
(74.4)
(64.1)
(33.2)
(26.5)
Fee to terminate services agreement with Sponsors
—
—
16.0
—
—
—
—
Technology-related license expenses
—
—
12.0
6.0
6.1
—
2.8
Excess tax benefit from stock-based compensation
—
—
5.3
13.7
24.6
4.4
11.8
Adjusted Free Cash Flow
$315.1
$372.3
$406.9
$398.8
$523.5
$109.3
$129.0
Net
Sales
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$2,127.4
$491.0
$544.4
Adjusted Free Cash Flow (% to Net Sales)
16.4%
17.2%
19.0%
20.7%
24.6%
22.3%
23.7%
Three months ended
December 31,
For the year ended December 31,
Adjusted Free Cash Flow reconciliation |