Attached files
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| 8-K - 8-K - Allison Transmission Holdings Inc | d47245d8k.htm |
| EX-99.2 - EX-99.2 - Allison Transmission Holdings Inc | d47245dex992.htm |
 1 Q3 2015 Earnings Release Published October 26, 2015 (Earnings Conference Call October 27, 2015) Lawrence Dewey, Chairman, President & Chief Executive Officer David Graziosi, Executive Vice President & Chief Financial Officer Exhibit 99.1 |
 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 Q3 2015 Performance Full Year 2015 Guidance Update |
 5 Q3 2015 Performance Summary ($ in millions) Q3 2015 Q3 2014 % Variance Net Sales $493 $553 -10.9% Gross Margin % 47.9% 46.9% +100 bps Adjusted Net Income (1) $123 $138 -10.6% Adjusted Free Cash Flow (1) $142 $164 -13.8% Commentary Net Sales: the decrease was principally driven by lower demand in the global Off-Highway end markets partially offset by higher demand in the North America On-Highway end market and price increases on certain products. Gross Margin: the increase was principally driven by price increases on certain products and favorable material costs. Adjusted Net Income: the decrease was principally driven by decreased sales volume and unfavorable product warranty adjustments partially offset by price increases on certain products, favorable material costs, lower incentive and stock based compensation expense, reduced global commercial spending activities and decreased cash interest expense. Adjusted Free Cash Flow: the decrease was principally driven by decreased net cash provided by operating activities and decreased excess tax benefit from stock-based compensation. (1) See Appendix for a reconciliation of Adjusted Net Income and Adjusted Free Cash Flow. |
 6 Q3 2015 Sales Performance ($ in millions) End Markets Q3 2015 Q3 2014 % Variance Commentary North America On-Hwy $262 $256 2% Principally driven by higher demand for Highway Series models North America Hybrid- Propulsion Systems for Transit Bus $12 $23 (48%) 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 $12 $30 (60%) Principally driven by lower demand from hydraulic fracturing applications Defense $34 $35 (3%) Principally driven by reductions in U.S. defense spending to longer term averages experienced during periods without active conflicts Outside North America On-Hwy $67 $73 (8%) Principally driven by lower demand in China partially offset by higher demand in Europe Outside North America Off-Hwy $4 $18 (78%) Principally driven by lower demand in the energy sector Service Parts, Support Equipment & Other $102 $118 (14%) Principally driven by lower demand for North America service parts Total $493 $553 (11%) |
 7 Q3 2015 Financial Performance Q3 2015 Q3 2014 $ Var % Var Commentary Net Sales $493.0 $553.3 ($60.3) (10.9%) Decrease principally driven by lower demand in the global Off- Highway end markets partially offset by higher demand in the North America On-Highway end market and price increases on certain products Cost of Sales $256.9 $294.0 $37.1 12.6% Gross Profit $236.1 $259.3 ($23.2) (8.9%) Decrease principally driven by decreased sales volume partially offset by price increases on certain products, favorable material costs and lower incentive compensation expense Operating Expenses Selling, General and Administrative Expenses $86.6 $87.5 $0.9 1.0% Decrease principally driven by lower incentive and stock based compensation, and reduced global commercial spending activities partially offset by unfavorable product warranty adjustments Engineering – Research and Development $23.6 $24.5 $0.9 3.7% Decrease principally driven by lower incentive compensation Environmental Remediation $14.0 $0.0 ($14.0) N/A Pursuant to the 2007 asset purchase agreement with General Motors Total Operating Expenses $124.2 $112.0 ($12.2) (10.9%) Operating Income $111.9 $147.3 ($35.4) (24.0%) Interest Expense, net ($33.7) ($29.3) ($4.4) (15.0%) Increase principally driven by unfavorable mark-to-market adjustments for LIBOR swaps partially offset by debt repayments and refinancing and the expiration of certain LIBOR swaps Other Expense, net ($4.4) ($1.7) ($2.7) (158.8%) Income Before Income Taxes $73.8 $116.3 ($42.5) (36.5%) Income Tax Expense ($27.3) ($47.5) $20.2 42.5% Decrease in the effective tax rate is principally driven by the change in discrete activity Net Income $46.5 $68.8 ($22.3) (32.4%) Diluted Earnings Per Share $0.27 $0.38 ($0.11) (28.9%) Q3 2015: 175.0M shares; Q3 2014: 180.9M shares Adjusted Net Income (1) $122.9 $137.5 ($14.6) (10.6%) Adjusted EBITDA (1) $174.1 $201.8 ($27.7) (13.7%) Adjusted EBITDA excluding technology-related license expenses (1) $174.3 $201.8 ($27.5) (13.6%) (1) See Appendix for a reconciliation from Net Income. ($ in millions, except share data)
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 8 Q3 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) Q3 2015 Q3 2014 $ Variance % Variance Commentary Net Cash Provided by Operating Activities $156 $174 ($18) (10.2%) Principally driven by decreased sales volume partially offset by price increases on certain products, favorable material costs, reduced global commercial spending activities, decreased cash interest expense and reduced excess tax benefit from stock-based compensation CapEx $15 $15 $0 2.0% In line with prior period Adjusted Free Cash Flow (1) $142 $164 ($22) (13.8%) Principally driven by decreased net cash provided by operating activities and reduced excess tax benefit from stock-based compensation ($ in millions) Q3 2015 Q3 2014 $ Variance % Variance Commentary Operating Working Capital (2) Percentage of LTM Sales 11.6% 10.5% N/A 110 bps Principally driven by reduced Accounts Payable due to payment timing Cash Paid for Interest $22 $35 ($13) (37.2%) Principally driven by expiration of certain LIBOR swaps, and debt repayments and refinancing Cash Paid for Income Taxes $1 $0 $1 175% In line with prior period |
 9 Full Year 2015 Guidance Update Guidance Commentary Net Sales Change from 2014 (6) to (8) percent Guidance reflects the elevated level of uncertainty and a dearth of near-term visibility in the global Off-Highway and Service Parts, Support Equipment & Other end markets Adjusted EBITDA Margin 34.75 to 35.75 percent Principally driven by Net Sales and the execution of several initiatives to align costs and programs across our business with challenging end markets demand conditions Adjusted Free Cash Flow ($ in millions) $470 to $500 $2.65 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 |
  10 APPENDIX Non-GAAP Financial Information |
 11 Non-GAAP Reconciliations (1 of 2) $ in millions, Unaudited Last twelve months ended September 30, 2010 2011 2012 2013 2014 2014 2015 2015 Net income $29.6 $103.0 $514.2 $165.4 $228.6 $68.8 $46.5 $219.8 plus: Interest expense,
net 277.5 217.3 151.2 132.9 138.4 29.3 33.7 131.1 Cash interest expense, net (239.1) (208.6) (167.3) (159.2) (140.0) (34.7) (21.8) (112.1) Income tax expense (benefit) 53.7 47.6 (298.0) 100.7 139.5 47.5 27.3 127.1 Cash income
taxes (2.2) (5.8) (10.7) (3.8) (5.0) (0.4) (1.1) (6.5) 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 — — Impairments — — — — 15.4 — — 16.7 Environmental Remediation — — — — — — 14.0 14.0 Amortization of intangible assets
154.2 151.9 150.0 105.3 98.8 24.7 24.3 97.6 Adjusted net
income $273.7 $305.4 $375.9 $347.9 $479.1 $137.5 $122.9 $487.7 Cash interest expense 239.1 208.6 167.3 159.2 140.0 34.7 21.8 112.1 Cash income
taxes 2.2 5.8 10.7 3.8 5.0 0.4 1.1 6.5 Depreciation of property, plant and equipment 99.6 103.8 102.5 98.7 93.8 23.6 22.4 88.6 (Gain)/loss on redemptions and repayments of long-term debt (3.3) 16.0 22.1 0.8 0.5 0.3 — 0.4 Dual power inverter module extended coverage (1.9) — 9.4 (2.4) 1.0 — (0.3) (1.1) 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) (0.6) 0.7 1.4 Unrealized (gain) loss on foreign exchange (0.2) 0.3 0.1 2.3 5.2 2.0 2.8 3.4 Premiums and expenses on tender offer and redemption of long-term debt — 56.9 — — — — 0.2 25.3 Restructuring charges — — — 1.0 0.7 — — — Reduction of supply contract liability (3.4) — — — — — — — Other, net (1) 10.9 8.6 7.0 13.8 14.7 3.9 2.5 10.7 Adjusted
EBITDA $617.0 $711.9 $705.1 $626.6 $739.0 $201.8 $174.1 $735.0 Adjusted EBITDA excluding technology-related license expenses $617.0 $711.9 $717.1 $632.6 $745.1 $201.8 $174.3 $738.0 Net Sales $1,926.3 $2,162.8 $2,141.8 $1,926.8 $2,127.4 $553.3 $493.0 $2,052.0 Adjusted EBITDA margin
32.0% 32.9% 32.9% 32.5% 34.7% 36.5% 35.3% 35.8% Adjusted EBITDA margin excl technology-related license expenses 32.0% 32.9% 33.5% 32.8% 35.0% 36.5% 35.4% 36.0% Three months ended September 30, For the year ended December 31, (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. Adjusted Net Income and Adjusted EBITDA reconciliation |
 12 Non-GAAP Reconciliations (2 of 2) $ in millions, Unaudited Last twelve months ended September 30, 2010 2011 2012 2013 2014 2014 2015 2015 Net Cash Provided by Operating Activities $388.9 $469.2 $497.5 $453.5 $556.9 $174.0 $156.3 $530.9 (Deductions) or Additions: Long-lived assets (73.8) (96.9) (123.9) (74.4) (64.1) (14.9) (15.2) (56.6) Fee to terminate services agreement with Sponsors — — 16.0 — — — — — Technology-related license expenses — — 12.0 6.0 6.1 — 0.2 3.0 Excess tax benefit from stock-based compensation — — 5.3 13.7 24.6 5.0 0.2 20.0 Adjusted Free Cash Flow $315.1 $372.3 $406.9 $398.8 $523.5 $164.1 $141.5 $497.3 Net
Sales
$1,926.3 $2,162.8 $2,141.8 $1,926.8 $2,127.4 $553.3 $493.0 $2,052.0 Adjusted Free Cash Flow (% to Net Sales) 16.4% 17.2% 19.0% 20.7% 24.6% 29.7% 28.7% 24.2% Three months ended September 30, For the year ended December 31, Adjusted Free Cash Flow reconciliation |