Allison Transmission’s Solid First Quarter Performance

Allison Transmission, a leading manufacturer of vehicle propulsion solutions, has reported its financial results for the first quarter of 2025. The company’s performance during this period showcases its resilience and ability to navigate the evolving market landscape.

Revenue Trends Allison Transmission’s net sales for the first quarter of 2025 were $766 million, a 3% decrease compared to the same period in 2024. This decline was primarily driven by several factors:

• Global Off-Highway end market net sales decreased by 61%, mainly due to lower demand from the energy, mining, and construction sectors outside of North America.
• Service Parts, Support Equipment and Other end market net sales decreased by 8%, primarily due to lower demand for service parts and support equipment, partially offset by price increases.
• Outside North America On-Highway end market net sales decreased by 3%, primarily driven by lower demand in Europe.

These decreases were partially offset by:

• North America On-Highway end market net sales increased by 4%, driven by price increases and continued strength in Class 8 vocational trucks, partially offset by lower demand for medium-duty trucks.
• Defense end market net sales increased by 10%, primarily due to price increases on certain products.

Profitability and Margins Despite the revenue decline, Allison Transmission’s profitability and margins improved during the first quarter of 2025. Gross profit increased by 3% to $378 million, and gross profit margin increased by 290 basis points to 49% of net sales. This improvement was primarily driven by:

• $39 million in price increases on certain products
• $13 million in UAW Local 933 contract signing incentives recognized in the first quarter of 2024 that did not recur in 2025
• Decreased cost of sales, including the absence of the UAW Local 933 contract signing incentives

Selling, general, and administrative expenses remained flat at $86 million, while engineering and research and development expenses decreased by 7% to $43 million, reflecting the timing of product initiatives spending.

Non-GAAP Metrics Allison Transmission uses several non-GAAP financial measures to assess its performance, including Adjusted EBITDA and Adjusted free cash flow. These metrics provide a more comprehensive view of the company’s operational results and cash generation capabilities.

Adjusted EBITDA, which excludes the impact of interest, taxes, depreciation, amortization, and other adjustments, was $287 million for the first quarter of 2025, compared to $289 million in the same period of 2024. Adjusted EBITDA margin increased from 36.6% to 37.5% of net sales, reflecting the company’s ability to maintain profitability despite the revenue decline.

Adjusted free cash flow, which represents the cash generated by the business after capital investments and mandatory debt service requirements, was $155 million for the first quarter of 2025, compared to $162 million in the same period of 2024. The decrease was primarily due to higher capital expenditures, partially offset by improved operating cash flow.

Liquidity and Capital Structure Allison Transmission maintains a strong liquidity position, with $753 million in cash and cash equivalents and $744 million available under its Revolving Credit Facility as of March 31, 2025. The company’s total debt stood at $2.4 billion, primarily consisting of its Term Loan and Senior Notes.

During the first quarter of 2025, Allison Transmission made $1 million in principal payments on its Term Loan and repurchased $154 million of its common stock under its share repurchase program. The company’s first lien net leverage ratio, a key metric for its credit facility, was (0.21x) as of March 31, 2025, well below the required maximum of 5.50x.

Outlook and Strengths Allison Transmission’s performance in the first quarter of 2025 demonstrates its ability to navigate market challenges and maintain its competitive edge. The company’s strengths include:

• Diversified end markets: Allison Transmission serves a wide range of industries, including on-highway, off-highway, defense, and aftermarket, providing stability and resilience to its business.
• Pricing power: The company’s ability to implement price increases on certain products has helped offset the impact of cost pressures and maintain profitability.
• Strong liquidity and financial flexibility: Allison Transmission’s robust cash position and access to credit facilities give it the resources to invest in growth initiatives and weather potential market volatility.
• Commitment to innovation: The company’s ongoing investments in research and development are crucial for staying ahead of technological advancements and meeting the evolving needs of its customers.

Looking ahead, Allison Transmission remains cautiously optimistic about the future. While the global economic environment continues to present uncertainties, the company’s diversified business model, financial strength, and focus on innovation position it well to navigate the challenges and capitalize on emerging opportunities.