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Allison Transmission Announces Third Quarter 2019 Results

INDIANAPOLIS — Allison Transmission Holdings, Inc. (NYSE: ALSN), the largest global provider of commercial duty fully-automatic transmissions, today reported net sales for the third quarter of $669 million, a 3 percent decrease from the same period in 2018.

The decrease in net sales was principally driven by lower demand in the Service Parts, Support Equipment & Other and Global Off-Highway end markets partially offset by higher demand in the North America On-Highway end market.

Net Income for the quarter was $149 million compared to $167 million for the same period in 2018. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was $269 million compared to $295 million for the same period in 2018.

Net Cash Provided by Operating Activities for the quarter was $212 million compared to $239 million for the same period in 2018. Adjusted Free Cash Flow, a non-GAAP financial measure, for the quarter was $165 million compared to $216 million for the same period in 2018.

David S. Graziosi, president and CEO of Allison Transmission commented: “We are pleased to report that Allison’s third-quarter 2019 results are within the full-year guidance ranges provided to the market on July 31st, and our North America On-Highway end market remains on track for a third consecutive record year, led by the ongoing execution of our growth initiatives and recent market share gains in Class 4/5 truck.”

Graziosi continued, “Allison continues to demonstrate solid operating margins and free cash flow while executing its prudent and well-defined approach to capital structure and allocation. During the third quarter, we settled $46 million of share repurchases, paid a dividend of $0.15 per share and closed the acquisitions of Walker Die Casting and C&R Tool and Engineering. In October, we completed an opportunistic repricing of our $646 million term loan due March 2026.”

Third Quarter Highlights

North America On-Highway end market net sales were up 11 percent from the same period in 2018 principally driven by higher demand for Rugged Duty Series and Highway Series models, led by the continued execution of our growth initiatives and market share gains in Class 4/5 truck, and down 7 percent on a sequential basis principally driven by lower demand for Rugged Duty Series and Pupil Transport/Shuttle Series models.

North America Off-Highway end market net sales were down $6 million from the same period in 2018 and down $3 million sequentially, in both cases principally driven by lower demand from hydraulic fracturing applications.

Defense end market net sales were down 5 percent from the same period in 2018 principally driven by lower Wheeled vehicle demand and up 8 percent on a sequential basis principally driven by higher Tracked vehicle demand.

Outside North America, On-Highway end market net sales were up 3 percent from the same period in 2018 principally driven by higher demand in Europe and South America partially offset by lower demand in Asia and down 7 percent sequentially principally driven by lower demand in Europe and Asia.

Outside North America, Off-Highway end market net sales were down $22 million from the same period in 2018 principally driven by lower demand in the mining and energy sectors and down $16 million on a sequential basis principally driven by lower demand in the energy sector.

Service Parts, Support Equipment & Other end market net sales were down 20 percent from the same period in 2018 and down 11 percent sequentially, in both cases principally driven by lower demand for North America service parts.

Gross profit for the quarter was $348 million, a decrease of 5 percent from $368 million for the same period in 2018. Gross margin for the quarter was 52.0 percent, a decrease of 120 basis points from a gross margin of 53.2 percent for the same period in 2018.

The decrease in gross profit from the same period in 2018 was principally driven by lower net sales and higher manufacturing expenses commensurate with increased on-highway volume partially offset by price increases on certain products and favorable material costs.

Selling, general and administrative expenses for the quarter were $85 million, a decrease of $4 million from $89 million for the same period in 2018. The decrease was principally driven by lower 2019 product warranty expense and favorable 2019 product warranty adjustments partially offset by increased commercial activities spending.

Engineering R&D expenses for the quarter were $39 million, an increase of $6 million from $33 million for the same period in 2018. The increase was principally driven by increased product initiatives spending.

Interest expense for the quarter was $32 million, an increase of $2 million from $30 million for the same period in 2018. The increase was principally driven by higher interest rates related to long-term debt refinancing that extended maturities at fixed interest rates.

Net income for the quarter was $149 million, a decrease of $18 million from $167 million for the same period in 2018. The decrease was principally driven by lower gross profit, increased product initiatives spending and increased interest expense partially offset by lower selling, general and administrative expenses.

Net cash provided by operating activities was $212 million, a decrease of $27 million from $239 million for the same period in 2018. The decrease was principally driven by lower gross profit and increased product initiatives spending partially offset by decreased cash income taxes.

Third Quarter Non-GAAP Financial Measures

Adjusted EBITDA for the quarter was $269 million, a decrease of $26 million from $295 million for the same period in 2018. The decrease in Adjusted EBITDA was principally driven by lower gross profit and increased product initiatives spending partially offset by lower 2019 product warranty expense and favorable 2019 product warranty adjustments.

Adjusted Free Cash Flow for the quarter was $165 million, a decrease of $51 million from $216 million for the same period in 2018. The decrease was principally driven by lower net cash provided by operating activities and increased capital expenditures.

Full-Year 2019 Guidance Update

Allison updated full-year 2019 guidance includes Net Sales in the range of $2,650 to $2,700 million, Net Income in the range of $555 to $575 million, Adjusted EBITDA in the range of $1,035 to $1,065 million, Net Cash Provided by Operating Activities in the range of $745 to $775 million, Adjusted Free Cash Flow in the range of $570 to $610 million and Cash Income Taxes in the range of $95 to $105 million.

Allison full-year 2019 net sales guidance reflects lower demand in the Service Parts, Support Equipment & Other and North America Off-Highway end markets principally driven by lower demand from hydraulic fracturing applications partially offset by increased demand in the North America On-Highway end market, price increases on certain products and the continued execution of our growth initiatives.

Conference Call and Webcast

The company will host a conference call at 8:00 a.m. ET on Thursday, October 31 to discuss its third quarter 2019 results. The dial-in phone number for the conference call is 877-425-9470 and the international dial-in number is 201-389-0878. A live webcast of the conference call will also be available online at http://ir.allisontransmission.com.

For those who may be unable to participate in the conference call, a replay will be available from 11:00 a.m. ET on October 31 until 11:59 p.m. ET on November 7. The replay dial-in phone number is 844-512-2921 and the international replay dial-in number is 412-317-6671. The replay passcode is 13695438.

About Allison Transmission

Allison Transmission (NYSE: ALSN) is the world’s largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles. Allison transmissions are used in a variety of applications, including refuse, construction, fire, distribution, bus, motorhomes, defense and energy. Founded in 1915, the company is headquartered in Indianapolis, Ind. With a market presence in more than 80 countries, Allison has regional headquarters in the Netherlands, China and Brazil, with manufacturing facilities in the U.S., Hungary and India. Allison also has approximately 1,400 independent distributor and dealer locations worldwide. www.allisontransmission.com

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