Allison Transmission Holdings, Inc. (NYSE:ALSN) Q2 2023 Earnings Convention Name July 27, 2023 5:00 PM ET
Firm Members
Jackie Bolles – Government Director, Treasury and IR
David Graziosi – Chairman and CEO
Fred Bohley – SVP, CFO and Treasurer
Convention Name Members
Rob Wertheimer – Melius Analysis
Ian Zaffino – Oppenheimer
Tim Thein – Citi
Larry De Maria – William Blair
Tami Zakaria – JPMorgan
Jerry Revich – Goldman Sachs
Operator
Good afternoon, and thanks for standing by. Welcome to Allison Transmission’s Second Quarter 2023 Earnings Convention Name. My identify is Daryl, and I will likely be your convention name operator at present. [Operator Instructions] As a reminder, this convention name is being recorded.
I’d now like to show the convention name over to Jackie Bolles, Government Director of Treasury and Investor Relations.
Please go forward, Jackie.
Jackie Bolles
Thanks, Daryl. Good afternoon, and thanks for becoming a member of us for our second quarter 2023 earnings convention name. With me this afternoon are Dave Graziosi, our Chairman and Chief Government Officer; and Fred Bohley, our Senior Vice President, Chief Monetary Officer and Treasurer.
As a reminder, this convention name, webcast and this afternoon’s presentation can be found on the Investor Relations part of allisontransmission.com. A replay of this name will likely be out there via August 10.
As famous on Slide 2 of the presentation, lots of our remarks at present comprise forward-looking statements based mostly on present expectations. These forward-looking statements are topic to recognized and unknown dangers together with these set forth in our second quarter 2023 earnings press launch and our annual report on Type 10-Okay for the 12 months ended December 31, 2022, in addition to different common financial elements. Ought to a number of of those dangers or uncertainties materialize or ought to underlying assumptions or estimates show incorrect, precise outcomes might differ materially from people who we specific at present.
As well as, as famous on Slide 3 of the presentation, a few of our remarks at present comprise non-GAAP monetary measures as outlined by the SEC. You could find reconciliations of the non-GAAP monetary measures to probably the most comparable GAAP measures connected as an appendix to the presentation and to our second quarter 2023 earnings press launch.
Right this moment’s name is ready to finish at 5:45 p.m. Japanese Time. So as to maximize participation alternatives on the decision, we’ll take only one query from every analyst.
Please flip to Slide 4 of the presentation for the decision agenda. Throughout at present’s name, Dave Graziosi will assessment highlights from our second quarter 2023 outcomes and supply an operational replace. Fred Bohley will then assessment our second quarter monetary efficiency and assessment updates to our full 12 months 2023 steerage previous to commencing the Q&A.
Now I am going to flip the decision over to Dave Graziosi.
David Graziosi
Thanks, Jackie. Good afternoon, and thanks for becoming a member of us.
Our second quarter outcomes continued the development from the primary quarter to show 2023 to be an thrilling 12 months for the enterprise as Allison stays positioned for fulfillment with progress alternatives and powerful demand throughout our largest finish markets. Internet gross sales elevated 18% year-over-year to a quarterly file of $783 million resulting in all-time excessive first half income of over $1.5 billion. Given these outcomes and the present finish market circumstances, we’re happy to boost our full 12 months 2023 steerage with a income expectation of $3 billion on the midpoint.
Though our working surroundings stays challenged, Allison continues to understand year-over-year value whereas working to mitigate the associated fee pressures in our enterprise. In the course of the second quarter, we elevated our gross margin of 190 foundation factors year-over-year, together with EPS progress of 52% year-over-year to $1.92.
Allison’s robust working efficiency permits us to fund and spend money on our enterprise for long-term progress whereas sustaining our capital allocation priorities and returning capital to shareholders via our quarterly dividend and share repurchase program. In the course of the second quarter, we paid a dividend of $0.23 per share and repurchased over 2% of our shares excellent. On our final earnings convention name, we outlined alternatives inside our protection finish market, which we anticipate to result in $100 million of incremental annual income within the coming years.
World protection budgets proceed to rise, Allison is poised to seize progress on this cycle via our long-standing partnership with america Division of Protection whereas diversifying our income sources by rising our worldwide gross sales. We anticipate a rise in worldwide gross sales on account of continued demand for our present merchandise, notably the X1100 cross-drive transmission as over 400 Abrams fundamental battle tanks are anticipated to be delivered abroad by the U.S. Division of Protection within the subsequent three years.
Allison additionally expects to understand progress internationally via {our relationships} with world protection OEMs. Late this summer season, Allison will ship the primary X1100 transmission to Turkey for his or her Fırtına self-propelled Howitzers program.
Additional worldwide progress is anticipated from South Korea’s Hanwha Aerospace with gross sales of their K9 Thunder self-propelled Howitzer additionally outfitted with an X1100 variant to international locations comparable to Egypt, Australia, Norway and Poland.
Moreover, improvement of recent merchandise, comparable to our 3040 MX medium method cross-drive transmission will drive worldwide progress within the close to future because the demand for medium-weight armored fight automobiles will increase with shifts in geopolitical dynamics.
As we’ve beforehand talked about, the 3040 MX has already been chosen for India’s future infantry fight automobile in addition to Poland’s Borsuk infantry combating automobile with additional alternatives in different European stock combating automobile applications.
Domestically, Allison is concerned in a number of applications with the U.S. Division of Protection, together with platforms such because the U.S. Military’s Cell Protected Firepower MPF and the M88A3 armored restoration automobile.
In the course of the quarter, the MPF was renamed the M10 Booker Mild tank with the U.S. Military funding a second manufacturing contract for this system. Allison will provide our 3040 MX because the propulsion answer of selection for this system.
For the M88A3, outfitted with our X1100-5B, Allison has labored intently with the U.S. Military and is anticipating authorities testing to start military program late this 12 months. Along with the $100 million of incremental annual income alternative within the medium time period, with our new eGen Drive electrical hybrid propulsion system for tracked fight automobiles, we’re trying ahead to even longer-term progress alternatives in our protection finish market as modernization applications develop into a precedence.
As we’ve beforehand talked about, the Allison eGen Drive was chosen by American Rheinmetall because the propulsion system for his or her optionally manned combating automobile or OMFV program providing. In late June, the U.S. Military designated the OMFV program, the X30 mechanized stock fight automobile and down chosen from 5 OEMs to 2. We’re happy that American Rheinmetall was chosen to proceed into the detailed design and prototype construct and testing phases and look ahead to future bulletins because the U.S. Military plans to begin testing in 2026 with estimated begin of manufacturing in 2029 for the XM30.
Allison stays dedicated to investing and pursuing progress in our protection finish market, leveraging our asset-light enterprise mannequin and long-standing relationship with protection OEMs as a aggressive benefit. We’re enthusiastic for the upcoming applications and alternatives from the U.S. Division of Protection, in addition to worldwide OEMs and finish customers in each wheeled and tracked functions. Our crew is targeted and aligned to understand $100 million of incremental annual income within the coming years, and we look ahead to offering updates within the close to future.
Transferring on, I wish to spotlight a couple of different bulletins Allison made through the second quarter. In June, we launched our 2022 environmental, social and governance report. Allison and its friends are navigating an evolving industrial automobile trade in preparation for upcoming modifications to emission requirements. One of many methods we’re driving the subsequent era of propulsion options is thru our eGen household of totally electrical and electrical hybrid propulsion options.
In earlier quarters, we’ve introduced quite a few awards and partnerships with transit authorities throughout america that can make the most of the eGen Flex zero-emission succesful electrical hybrid system. We just lately introduced that the Indianapolis Public Transportation Company, or Indigo is making use of its current grant from the Federal Transit Administration in the direction of increasing its fleet of Allison eGen Flex outfitted buses.
This partnership is consultant of our efforts to increase the market share of the eGen Flex with transit businesses throughout the nation advancing clear transportation and enabling a greener future with fewer emissions.
Additionally through the quarter, we introduced that our new hydraulic fracturing transmission, the frac development has been launched in China. The frac development represents a possibility of $100 million of incremental annual income in our world off-highway finish market enlargement into vitality markets in China signifies the robust demand we’re experiencing outdoors of North America and reiterates our efforts in designing a clear sheet transmission particular to the wants of bus operators and producers.
In conclusion, Allison’s second quarter outcomes illustrate the present success of our enterprise and working efficiency, in addition to our future alternatives for progress. We stay diligent in our investments to be able to obtain our progress initiatives whereas returning capital to shareholders and delivering on our model promise to enhance the way in which the world works.
Thanks, and I am going to now flip the decision over to Fred.
Fred Bohley
Thanks, Dave.
Following Dave’s second quarter 2023 feedback, I am going to focus on the Q2 2023 efficiency abstract, key revenue assertion line objects and money move. I am going to then present updates to the total 12 months 2023 steerage.
Please flip to Slide 5 of the presentation for the Q2 2023 efficiency abstract. Second quarter internet gross sales elevated 18% from the identical interval in 2022 to a file of $783 million. The rise in year-over-year outcomes was led by a $57 million enhance in internet gross sales within the North American On-Freeway finish market, principally pushed by power in buyer demand for medium-duty and Class 8 vocational vehicles and value will increase on sure merchandise.
A $43 million enhance within the service elements, assist tools and different finish market, principally pushed by increased demand for world service elements and assist tools and value will increase. 12 months-over-year outcomes have been additionally improved by an $18 million enhance in internet gross sales within the outdoors North America On-Freeway finish market, principally pushed by power in buyer demand in Europe and Asia, the continued execution of our progress initiatives and value will increase.
Gross revenue for the quarter was $381 million, a 23% enhance from the $311 million for a similar interval in 2022. The rise was principally pushed by value will increase on sure merchandise and elevated internet gross sales, partially offset by increased manufacturing expense.
Internet revenue for the quarter was $175 million in comparison with $122 million for a similar interval in 2022. The rise was principally pushed by increased gross revenue, partially offset by elevated promoting, common and administrative expense. Adjusted EBITDA for the quarter was $288 million in comparison with $227 million for a similar interval in 2022. The rise was principally pushed by increased gross revenue, partially offset by elevated promoting, common and administrative bills.
Diluted earnings per share elevated 52% from the identical interval in 2022. Second quarter EPS of $1.92, was pushed by increased internet revenue and decrease whole shares excellent. An in depth overview of our internet gross sales by finish market could be discovered on Slide 6 of the presentation.
Please flip to Slide 7 of the presentation for the Q2 2023 monetary efficiency abstract. Promoting, common and administrative bills elevated $14 million from the identical interval in 2022, principally pushed by elevated industrial exercise spending, incentive compensation expense and product guarantee expense. Engineering analysis and improvement bills for the quarter have been basically flat with the identical interval in 2022.
Please flip to Slide 8 of the presentation for the Q2 2023 money move efficiency abstract. Adjusted free money move for the quarter was $122 million in comparison with $34 million for a similar interval in 2022. The rise was principally pushed by increased gross revenue, decrease working working capital necessities and decrease capital expenditures, partially offset by increased money revenue taxes.
In the course of the second quarter, we returned capital to shareholders via our quarterly dividend of $0.23 per share and repurchasing $97 million of our widespread inventory. For the quarter, this represented over 2% of our excellent shares with practically 61% of our excellent shares repurchased since Allison’s IPO in 2012.
We ended the quarter with a internet leverage ratio of two.1x, $351 million of money and $645 million of accessible revolving credit score facility commitments. As well as, we proceed to keep up a versatile, long-dated and covenant-light debt construction with the earliest maturity due in 2026.
Over $2.5 billion of excellent debt, $622 million is topic to variable rates of interest, of which $500 million is hedged, leading to 95% of our debt being fastened via the third quarter of 2025.
Please flip to Slide 9 of the presentation for the replace to our 2023 steerage. Given first half of 2023 outcomes and present finish market circumstances, we’re elevating our full 12 months 2023 steerage for internet gross sales, earnings and money move. Allison expects internet gross sales to be within the vary of $2.96 billion to $3.04 billion.
On the midpoint, this represents over 8% year-over-year progress based mostly on the continued power in demand in our finish markets, value will increase on sure merchandise and the continued execution of our progress initiatives main to a different anticipated file internet gross sales 12 months.
Along with Allison’s 2023 internet gross sales steerage, we anticipate internet revenue within the vary of $575 million to $625 million, adjusted EBITDA within the vary of $1.05 billion to $1.11 billion, internet money supplied by working actions within the vary of $675 million to $725 million, capital expenditures within the vary of $125 million to $135 million and adjusted free money move within the vary of $550 million to $590 million.
This concludes our ready remarks. Daryl, please open the decision for questions.
Query-and-Reply Session
Operator
[Operator Instructions] Our first questions come from the road of Rob Wertheimer with Melius Analysis. Please proceed along with your query.
Rob Wertheimer
In order that was a litany of excellent information. And sadly, I’m going to ask you about doubtlessly excellent news, it is not even in your checklist. Regulators in Europe have moved to make hydrogen combustion a suitable kind of zero-emission technique. And I believe the U.S. is possibly shifting in that route, too. I assume that is optimistic as a result of I assume a hydrogen combustion say medium-duty truck would use the identical transmission just isn’t. I ponder in the event you can simply remark usually on in the event you see hydrogen combustion as making progress within the regulatory world. And if it is impartial or destructive or optimistic for totally automations in vehicles versus diesel individuals. Thanks.
David Graziosi
Rob, good afternoon. It is Dave. Thanks for the query. I might say the brief reply there’s we consider it is a optimistic – we definitely hear lots of the issues that you just and others are listening to about hydrogen. I believe it has been lengthy a topic of dialogue simply given the prevailing investments in standard property that may be deployed, as you properly know, for hydrogen in some ways.
So I believe from an general trade perspective, in addition to frankly, I believe the – a lot of totally different options being out there, it is certainly one of many as you recognize. We’re definitely a supporter of an all-of-the-above technique. I believe the event in Europe. My guess is or our guess is it can – you will see extra of that elsewhere to your query as a result of as you may inform, given the variety of developments round missions within the U.S. there continues to be a good variety of constraints that everyone is attempting to work via.
As you recognize, with our technique, actually getting the suitable options on the proper time. Time seems to be getting stretched out a bit simply given the realities of a lot of the constraints, whether or not they be infrastructure the maturity of know-how, et cetera. So we’re definitely staying near these specific matters and look ahead to additional developments on the regulatory aspect.
Rob Wertheimer
I believe that was not me.
Fred Bohley
Rob, that is Fred. Just a bit fast follow-up on that. I do know that out of your query, you are conscious of it, only for the broader viewers, the hydrogen combustion engine will use a standard transmission. So again to your query, definitely, that is the trail that is broadly adopted you can use, clearly, the property of an inside combustion engine, but in addition standard transmissions. So definitely, that is clearly favorable for us.
Rob Wertheimer
Excellent. You stated one query, so I am going to cease there and get again within the line. Thanks.
Operator
Thanks. Our subsequent questions come from the road of Ian Zaffino with Oppenheimer. Please proceed along with your query.
Ian Zaffino
Hello Nice. Thanks very a lot. Query can be, I assume, on all of the protection success. Perhaps assist us perceive what’s differentiating yourselves, the place you are profitable all this enterprise?
David Graziosi
Hello Ian. Good afternoon, it is Dave. I assume when it comes to success, you begin out with [technical difficulty]. The benefit of our know-how when you concentrate on totally computerized options as they’ve advanced through the years. On the wheel aspect, we definitely have a really important place with the U.S. navy with totally computerized transmissions for his or her wheeled fleet on the tactical aspect.
I believe as you proceed to consider the problems on the industrial aspect with labor and the challenges of frankly, handbook transmissions, the coaching, the damage and tear. The totally computerized product, as you all know, has a big quantity of age benefits over availability, uptime and efficiency, so the identical may very well be stated on the observe aspect when it comes to the developments.
Our know-how within the Abrams is a 40-plus 12 months platform at this level, many advances over time, however the differentiation there past the potential to ship a extremely dependable answer does come right down to the – as properly incumbency and the put in base there when you concentrate on what’s been collected from an expertise standpoint. And in addition the property which are deployed for these specific cross-drive options.
It may be a really capital-intensive course of and one which requires a reasonably excessive degree of technical ability, each on the engineering aspect in addition to manufacturing. So, when you concentrate on that sort of product, which is usually by on-highway measure, comparatively low volumes, it does have a lot of challenges when you concentrate on sustaining a low degree of very advanced manufacturing over a time frame. And that goes whether or not we’re fabricating or provider companions.
But it surely’s pretty advanced to really launch propulsion options into that exact market. I’d additionally add that the opposite differentiator for us is our crew, which we’ve a world group that we’re in a position to cross-functionally leverage, whether or not that be technical gross sales, advertising, service channel, et cetera, however our attain is absolutely crucial when you concentrate on deploying techniques and the necessity to have the ability to service these on a world foundation in a well timed style.
Ian Zaffino
Okay. Thanks very a lot.
Operator
Thanks. Our subsequent query comes from the road of Tim Thein with Citi. Please proceed along with your query.
Tim Thein
Nice. Thanks. And good afternoon. Dave or Fred, the query is absolutely on the North America On-Freeway section. And simply curious as to – in the event you take a look at the forecast from some or, I assume, the one unbiased consultancy on the market. They’re calling, particularly within the Class 8 market – sorry, the Class 8 straight truck market, a reasonably important step down within the fourth quarter. And I am simply curious, and this is able to lengthen to a lesser extent, the medium obligation as properly. However I am simply curious, as you – is that the messaging you are getting out of your OEM prospects? After which B) I am curious, is your steerage, that you just simply laid out at present, does that assume that type of follows that sample of what ACT is assuming when it comes to that sequential step down within the fourth quarter or is it one thing totally different? As a result of it appears to be the messaging from sure of your OEM prospects appears to be extra not that falloff. So principally, the spirit of the query is what your steerage assumes? Is it that falloff or not? Thanks.
David Graziosi
Tim, it is Dave. Good afternoon. So, I’d simply – you talked about the forecaster I’d inform you, as we issues see issues creating proper now and the suggestions that we’ve from our OEM companions, we’re actually not anticipating that type of consequence, frankly, in This autumn. I’d say because the phrase goes, timber do not develop to the sky, and I believe one factor that turns into clear as we get additional into coping over final 12 months.
I would definitely anticipate we’re regular we’re attending to extra of a normalized run fee. As you recognize, some many provide constraints have been resolved or are definitely enhancing. I would not say they’re all resolved, however higher than it was a 12 months in the past, it was higher than it was six months in the past. I believe a few of that in the end is enjoying into the mindset of all people adjusting to this new actuality, which continues to be extra variable, but it surely’s enhancing.
I’d say the underlying fundamentals as we see impression in Class 8 straight and medium obligation. Medium obligation, as you recognize, has been very undersupplied so OEMs are nonetheless catching up with that degree of pent-up demand. Autos are growing old, as you recognize, lease rental is an enormous a part of the medium-duty market, these fleets are getting fairly lengthy within the tooth that they will have to be changed.
So, we see definitely medium obligation, proceed to be fairly robust. I’d say vocational, the underlying assist there when it comes to vocational drivers comparable to infrastructure spending, the variety of vehicles, once more, that haven’t been produced continues to be a comparatively robust market. So general, we see favorable demand dynamics on this, persevering with into the second half. However clearly, some degree of normalization relative to our ’22 efficiency into the second half needs to be anticipated at this level.
However I believe our – frankly, our greater issues of any are the complete trade with the ability to produce at increased ranges. And as I stated, the constraints haven’t been all resolved and you’ll assume given the carryover into this 12 months with very robust demand, a few of that’s anticipated to maneuver into ’24 as properly. Having stated that, backlogs, as you properly know, have been burn down a bit.
So, I believe a few of that can get additional focus and albeit, readability as order books are opened by a lot of OEMs but this 12 months, definitely by the tip of this quarter. In order that’s the subsequent factor for us to be centered on. Within the meantime, we’re ready to produce to no matter demand is required.
Tim Thein
Superb. Thanks, Dave.
Operator
Thanks. Our subsequent query comes from the road of Larry De Maria with William Blair. Please proceed along with your query.
Larry De Maria
Hello, thanks. Good afternoon, all people. I needed to speak in regards to the massive 31% enhance in service elements. I am seeing this good progress, and you have had a powerful 12 months general, even on some, not even nationally, straightforward comps. However are you able to – I do not know, possibly deconstructed value quantity and discuss in regards to the sustainability of service elements progress? And what is going on on particularly? Is it catch-up from provide chain challenges? Is it principally value? Are you able to simply type of deconstruct what is going on on there for us and the sustainability, please?
Fred Bohley
Positive, Larry. That is Fred. There’s – once you break it down, there is definitely a component of all the pieces you talked about. We are the North American service enterprise – very robust for the quarter, on a year-over-year foundation, driving about half of the uplift. However outdoors North America – up assist tools bought to our OEMs with the upper volumes up, our enterprise popping out of Walker Die Forged is up after which relative to pricing.
I imply, within the quarter, we had important value in whole $45 million in value, over 600 foundation factors and that is additionally offering a raise within the elements class as properly, however we’re getting value throughout all of our finish markets.
Larry De Maria
Okay. That is useful. Thanks very a lot.
Operator
Thanks. Our subsequent query comes from the road of Tami Zakaria with JPMorgan. Please proceed along with your query.
Tami Zakaria
Hello, thanks a lot. I hoped to ask two questions. So my first query is, I believe you talked about pricing was $45 million so it is greater than 6%. What was the associated fee headwind? Like I am attempting to get a way of the value value? After which what’s your pricing outlook for the again half?
Fred Bohley
Positive, Tami. That is Fred. Sure, $45 million in value on a year-over-year foundation, over 600 foundation factors within the quarter, that was off of 800 foundation factors of value in Q1. As you are conscious, we did a number of inter-year pricing final 12 months. So, the comps from a value in whole do get harder as you progress into Q3 and This autumn.
Initially, after we supplied a information again in February, we’re anticipating to get about 400 foundation factors of value on a year-over-year foundation. At this level, we needs to be nearer to 500 foundation factors of value. Within the quarter, materials prices benefited from commodity costs coming off. So our whole materials value on a year-over-year foundation was principally impartial. We did incur about $17 million of extra manufacturing prices.
Clearly, a few of that related to getting extra quantity out the door based mostly on our preliminary information enhance in information in Q1 after which once more, rising information in Q2. We’re accruing increased incentive comp bills as properly, which is driving a few of that manufacturing expense up.
Tami Zakaria
Received it. If I could ask another query. As you take a look at your gross margin, they have been fairly robust this 12 months. So if we glance to subsequent 12 months, for example, on-highway volumes are, for example, flattish. Do you anticipate to carry gross margins in a flattish surroundings or how ought to we take into consideration gross margin, for example, in a flat quantity right here?
Fred Bohley
Tami, that is Fred once more. I imply I might begin with, as you talked about, I imply, gross margin definitely robust within the quarter, the incremental drop-throughs on the revenues may be very robust, it is simply pondering of the quarter. I imply income up 18%, EBITDA margins up 260 foundation factors; internet revenue up 43%; EPS up 52%, so positively a really robust performing quarter. As we predict what’s 2024 going to appear to be, clearly, we’re not offering information for 2024.
However as we glance on the market – one – the price of all the pieces has been inflating. So if you concentrate on the price of automobiles going up, the price of labor going up, the associated fee to get your automobile restore going up, upkeep elements going up, what that actually is generated is a state of affairs the place we ship merchandise that make the automobile to run extra effectively. Finally, you may get from level A to B faster, you do not have the upkeep downtime, you may dimension smaller fleets and fewer drivers.
So, the associated fee will increase has actually pushed for us a big enchancment in our price proposition, which is clearly already very robust. In order prices proceed to go up, we positively need to handle them from a value value standpoint but it surely positions us with extra — delivering a larger worth proposition to each additional enhance market share in addition to get value. In order we’re occupied with the place we sit proper now.
We’re nonetheless – we’re not having conversations with our prospects on 2024 pricing, we’re actually attempting to know what the expectations are for value. However we’re properly positioned to proceed to get value. After which as the availability chain begins to normalize, we will get after the working inefficiencies which are on the market, whether or not that be expedited freight or our plant productiveness measures, we do not all the time have each half you could produce a product.
And at instances, you are operating on extra time, which actually is pointless in the event you had all elements. So there’s positively value alternatives to get out, however we do anticipate that labor goes to proceed to be challenged and that is going to drive some value pressures throughout the enterprise and the trade.
Tami Zakaria
Received it. That is very useful coloration. Thanks.
Operator
Thanks. Our subsequent query comes from the road of Jerry Revich with Goldman Sachs. Please proceed along with your query.
Jerry Revich
Sure, hello. Good night, everybody. I am questioning in the event you may discuss your views on the alternatives for pure fuel and landfill fuel powered engines, particularly, when it comes to what that may imply for an computerized attachment charges? And might you remark particularly whether or not you are going to be specked on the brand new upcoming 15-liter pure fuel engines which are set to return out over the subsequent 18 to 24 months? Thanks.
David Graziosi
Hello, Jerry, it is Dave. Good night. Relative to pure fuel, and Fred talked about this earlier on the query about hydrogen. Nat fuel has some fascinating attributes when it comes to energy density. So one of many issues that it requires is methods you can truly enhance the ability on the decrease finish when it comes to RPM efficiency. So, what that requires is evaluation in transmission, a completely computerized overcomes that lag you probably have this sense of hesitation once you would attempt to speed up, that is the benefit of a completely computerized, proper?
So to your level on pure fuel, we definitely view ourselves in an advantaged place relative to transmission options to pair with pure fuel. So, your query round engine releases, that state of affairs continues to evolve for a lot of causes, will permit the OEMs and the engine suppliers to in the end get there when it comes to their maps and their product introduction timing. However suffice to say, I believe we’re definitely the popular answer from a transmission perspective with pure fuel engines.
Jerry Revich
Thanks.
Operator
Thanks. Our subsequent query comes from the road of Rob Wertheimer with Melius Analysis. Please proceed along with your query.
Rob Wertheimer
Hello guys. Thanks for the follow-up. Only a fast one only for grounding. What has modified in margin construction from the type of pre-COVID ranges, I am going to name it peak, however I am unsure it is a very excessive peak in your finish markets. Is there something that is structurally down shifted for you in margin? Or is that one thing you hope to win again over time as value and quantity catch up?
Fred Bohley
Sure, Rob, I imply, most likely the one factor that is modified structurally can be the acquisition of Walker Die Forged and the portion of that enterprise that is been is represented in outdoors gross sales and elements. That is not – that is a lower-margin enterprise than the stability of our elements enterprise. However actually, past that, I believe we have had a high-class drawback within the – you may have roughly 50% margin.
So to be able to preserve these margins for each greenback of value you get, you bought to get $2 in value. Clearly, we’re value/value optimistic, and we’re making extra on all the pieces that goes out the door when you concentrate on gross margin or gross revenue per unit, we’re making extra, despite the fact that you have seen margins — the gross margin is down a few hundred foundation factors from peak.
However we’re definitely, as I talked earlier with the pricing alternative that is out there’s, definitely one thing we’re centered on. However for us, the actual focus is all the time EBITDA actually is a proxy for money and the way a lot money can we generate. And the excellent news is we’re producing extra cash on what is going on out the door now relative to what was pre-COVID.
Rob Wertheimer
Okay. Thanks.
Operator
Thanks. We’ve got reached the tip of our question-and-answer session. I’d now like at hand the decision again over to David Graziosi for closing feedback.
David Graziosi
Thanks, Daryl. Thanks to your continued curiosity in Allison and for collaborating on at present’s name. Take pleasure in your night.
Operator
Thanks. This does conclude at present’s teleconference. We admire your participation. You could disconnect your traces at the moment. Take pleasure in the remainder of your day.
