Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT - Allison Transmission Holdings Inc | d915241d8k.htm |
| EX-99.1 - EX-99.1 - Allison Transmission Holdings Inc | d915241dex991.htm |
 1
Q1 2015 Earnings Release
Published April 27, 2015 (Earnings Conference Call April 28, 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:
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;
risks
related
to
our
substantial
indebtedness;
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
and
other
external
factors
impacting
demand
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,
2014. |
 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
Q1 2015 Performance
Full Year 2015 Guidance Update |
 5
Q1 2015 Performance Summary
($ in millions)
Q1 2015
Q1 2014
% Variance
Net Sales
$504
$494
2.0%
Gross Margin %
47.5%
45.1%
+240 bps
Adjusted Net Income
(1)
$150
$108
38.7%
Adjusted Free Cash Flow
(1)
$87
$96
(9.6%)
Commentary
Net
Sales:
the
increase
was
principally
driven
by
the
continued
recovery
in
the
North
America
On-Highway
end
market,
higher
demand
in
the
North
America
Off-Highway
end
market
and
price
increases
on
certain
products
partially
offset
by
lower
demand
in
other
end
markets.
Gross
Margin:
the
increase
was
principally
driven
by
price
increases
on
certain
products
and
increased
net
sales.
Adjusted
Net
Income:
the
increase
was
principally
driven
by
decreased
cash
interest
expense,
price
increases
on
certain
products,
increased
net
sales,
lower
warranty
expense,
$3
million
of
2014
technology-related
license
expenses
and
decreased
global
commercial
spending
activities
partially
offset
by
increased
product
initiatives
spending.
Adjusted
Free
Cash
Flow:
the
decrease
was
principally
driven
by
decreased
incentive
compensation
accruals
($14
million),
deferred
revenue
($9
million)
and
miscellaneous
other
current
liabilities
($10
million),
and
2014
technology-related
license
expenses
($3
million)
partially
offset
by
decreased
capital
expenditures,
price
increases
on
certain
products,
increased
net
sales,
decreased
global
commercial
spending
activities
and
increased
excess
tax
benefit
from
stock-based
compensation.
(1)
See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash
Flow. |
 6
Q1 2015 Sales Performance
($ in millions)
End Markets
Q1 2015
Q1 2014
% Variance
Commentary
North America On-Hwy
$268
$233
15%
Principally driven by higher demand for Rugged Duty Series
models
North America Hybrid-
Propulsion Systems for
Transit Bus
$18
$24
(25%)
Principally driven by 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
$22
$12
83%
Principally driven by higher demand from hydraulic fracturing
applications
Defense
$25
$34
(26%)
Principally driven by reductions in U.S. defense spending to longer
term averages experienced during periods without active conflicts
Outside North America
On-Hwy
$57
$64
(11%)
Principally driven by weakness in China
Outside North America
Off-Hwy
$16
$21
(24%)
Principally driven by lower demand in the mining sector
Service Parts, Support
Equipment & Other
$98
$106
(8%)
Principally driven by lower demand for North America service parts
Total
$504
$494
2% |
 Q1 2015
Financial Performance ($ in millions, except share data)
Q1 2015
Q1 2014
$ Var
% Var
Commentary
Net Sales
$503.6
$493.6
$10.0
2.0%
Increase principally driven by the continued recovery in the North America
On-Highway end market, higher demand in the North America Off-Highway
end market and price increases on certain products partially offset be lower
demand in other end markets
Cost of Sales
$264.4
$271.1
$6.7
2.5%
Gross Profit
$239.2
$222.5
$16.7
7.5%
Increase principally driven by price increases on certain products and
increased net sales
Operating Expenses
Selling, General and Administrative Expenses
$73.4
$83.2
$9.8
11.8%
Decrease
principally
driven
by
lower
product
warranty
expense,
a
warranty
expense
reduction
for
the
dual
power
inverter
module
extended
coverage
program
and
decreased
global
commercial
spending
activities
Engineering –
Research and Development
$22.2
$24.5
$2.3
9.4%
After
excluding
the
2014
technology-related
license
expenses
of
$3
million
to
expand
our
position
in
transmission
technologies
the
increase
was
principally
driven
by
increased
product
initiatives
spending
Impairment Loss
(1)
$1.3
$0.0
($1.3)
N/A
Total Operating Expenses
$96.9
$107.7
$10.8
10.0%
Operating Income
$142.3
$114.8
$27.5
24.0%
Interest Expense, net
($36.9)
($35.1)
($1.8)
(5.1%)
Increase principally driven by unfavorable mark-to-market adjustments for
LIBOR swaps partially offset by the expiration of certain LIBOR swaps and
debt repayments
Other Income (Expense), net
$2.8
($0.4)
$3.2
800.0%
Increase principally driven by favorable foreign exchange
Income Before Income Taxes
$108.2
$79.3
$28.9
36.4%
Income Tax Expense
($39.8)
($27.2)
($12.6)
(46.3%)
Change
in
effective
tax
rate
principally
driven
by
the
change
in
discrete
activity
Net Income
$68.4
$52.1
$16.3
31.3%
Diluted Earnings Per Share
$0.38
$0.28
$0.10
35.7%
Q1 2015: 182.4M shares; Q1 2014: 185.9M shares
Adjusted Net Income
(2)
$149.7
$107.9
$41.8
38.7%
Adjusted EBITDA
(2)
$190.1
$165.8
$24.3
14.7%
Adjusted EBITDA excluding technology-related
license expenses
(2)
$190.1
$169.1
$21.0
12.4%
(1)
Long-lived assets and accrued expenses related to the production of the H3000 and
H4000 hybrid-propulsion systems. (2)
See Appendix for a reconciliation from Net Income.
7 |
 Q1 2015
Cash Flow Performance (1)
See Appendix for a reconciliation of Adjusted Free Cash Flow.
(2)
Operating
Working
Capital
=
A/R
+
Inventory
–
A/P.
($ in millions)
Q1 2015
Q1 2014
$ Variance
% Variance
Commentary
Net Cash Provided by
Operating Activities
$80
$99
($19)
(18.8%)
Principally driven by decreased
deferred revenue, incentive
compensation accruals and
miscellaneous other liabilities
partially offset by price increases
on certain products, increased net
sales and decreased SG&A and
engineering spending
CapEx
$1
$11
($10)
(88.3%)
Principally driven by timing of
certain 2015 productivity and
replacement programs spending
Adjusted Free Cash
Flow
(1)
$87
$96
($9)
(9.6%)
Principally driven by decreased
net cash provided by operating
activities partially offset by
decreased capital expenditures
($ in millions)
Q1 2015
Q1 2014
$ Variance
% Variance
Commentary
Operating Working
Capital
(2)
Percentage
of LTM Sales
11.0%
11.7%
N/A
70 bps
In line with prior period after
excluding the 2014 impact of
deferred tracked defense revenue
Cash Paid for Interest
$18
$29
($11)
(37.1%)
Principally driven by expiration of
certain LIBOR swaps and debt
repayments
Cash Paid for Income
Taxes
$2
$2
$0
19.0%
In line with prior period
8 |
 Full
Year 2015 Guidance Update Guidance
Commentary
Net Sales Change from 2014
(4) to (8)
percent
Guidance reflects the increased level of uncertainty and the
lack of near term visibility in the global Off-Highway and
Service Parts, Support Equipment & Other end markets
Adjusted EBITDA Margin
34.5 to 35.5
percent
Principally driven by Net Sales and the execution of several
initiatives to align costs and programs across our business
with challenging end markets demand conditions
Adjusted Free Cash Flow ($ in millions)
$460 to $510
$2.50 to $2.80 per diluted share
CapEx
($ 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
9 |
 APPENDIX
Non-GAAP Financial Information
*****
*****
*****
*****
*****
*****
*****
*****
*****
*****
10 |
  Non-GAAP Reconciliations
(1 of 2)
$ in millions, Unaudited
Last twelve
months ended
March 31,
2010
2011
2012
2013
2014
2014
2015
2015
Net income
$29.6
$103.0
$514.2
$165.4
$228.6
$52.1
$68.4
$244.9
plus:
Interest expense,
net
277.5
217.3
151.2
132.9
138.4
35.1
36.9
140.2
Cash interest expense
(239.1)
(208.6)
(167.3)
(159.2)
(140.0)
(29.4)
(18.5)
(129.1)
Income tax expense (benefit)
53.7
47.6
(298.0)
100.7
139.5
27.2
39.8
152.1
Cash income
taxes
(2.2)
(5.8)
(10.7)
(3.8)
(5.0)
(2.1)
(2.5)
(5.4)
Fee to terminate services agreement with Sponsors
—
—
16.0
—
—
—
—
—
Technology-related investment expenses
—
—
14.4
5.0
2.0
—
—
2.0
Public offering expenses
—
—
6.1
1.6
1.4
0.3
—
1.1
Impairments
—
—
—
—
15.4
—
1.3
16.7
Amortization of intangible
assets
154.2
151.9
150.0
105.3
98.8
24.7
24.3
98.4
Adjusted net
income
$273.7
$305.4
$375.9
$347.9
$479.1
$107.9
$149.7
$520.9
Cash interest expense
239.1
208.6
167.3
159.2
140.0
29.4
18.5
129.1
Cash income
taxes
2.2
5.8
10.7
3.8
5.0
2.1
2.5
5.4
Depreciation of property, plant and equipment
99.6
103.8
102.5
98.7
93.8
23.3
21.4
91.9
(Gain)/loss on redemptions and repayments of long-term debt
(3.3)
16.0
22.1
0.8
0.5
—
0.2
0.7
Dual power inverter module extended coverage
(1.9)
—
9.4
(2.4)
1.0
—
(1.8)
(0.8)
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)
0.1
(0.2)
(1.3)
Unrealized (gain) loss on foreign exchange
(0.2)
0.3
0.1
2.3
5.2
(0.3)
(2.3)
3.2
Premiums and expenses on tender offer for long-term debt
—
56.9
—
—
—
—
—
—
Restructuring charges
—
—
—
1.0
0.7
—
—
0.7
Reduction of supply contract liability
(3.4)
—
—
—
—
—
—
—
Other, net
(1)
10.9
8.6
7.0
13.8
14.7
3.3
2.1
13.5
Adjusted
EBITDA
$617.0
$711.9
$705.1
$626.6
$739.0
$165.8
$190.1
$763.3
Adjusted EBITDA excluding technology-related license expenses
$617.0
$711.9
$717.1
$632.6
$745.1
$169.1
$190.1
$766.1
Net Sales
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$2,127.4
$493.6
$503.6
$2,137.4
Adjusted EBITDA
margin
32.0%
32.9%
32.9%
32.5%
34.7%
33.6%
37.7%
35.7%
Adjusted EBITDA margin excl technology-related license expenses
32.0%
32.9%
33.5%
32.8%
35.0%
34.3%
37.7%
35.8%
Three months ended
March 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.
11 |
 Non-GAAP Reconciliations
(2 of 2)
$ in millions, Unaudited
Last twelve
months ended
March 31,
2010
2011
2012
2013
2014
2014
2015
2015
Net Cash Provided by Operating Activities
$388.9
$469.2
$497.5
$453.5
$556.9
$98.6
$80.1
$538.4
(Deductions) or Additions:
Long-lived assets
(73.8)
(96.9)
(123.9)
(74.4)
(64.1)
(11.1)
(1.3)
(54.3)
Fee to terminate services agreement with Sponsors
—
—
16.0
—
—
—
—
—
Technology-related license expenses
—
—
12.0
6.0
6.1
3.3
—
2.8
Excess tax benefit from stock-based compensation
—
—
5.3
13.7
24.6
5.0
7.8
27.4
Adjusted Free Cash Flow
$315.1
$372.3
$406.9
$398.8
$523.5
$95.8
$86.6
$514.3
Net
Sales
$1,926.3
$2,162.8
$2,141.8
$1,926.8
$2,127.4
$493.6
$503.6
$2,137.4
Adjusted Free Cash Flow (% to Net Sales)
16.4%
17.2%
19.0%
20.7%
24.6%
19.4%
17.2%
24.1%
Three months ended
March 31,
For the year ended December 31,
Adjusted Free Cash Flow reconciliation
12 |