[Management View]
Allison Transmission management acknowledged a 7% decline in revenue guidance for the year, driven by lower North America On-Highway build rates. Despite this, management anticipates improved EBITDA margins through strategic pricing and cost management. The integration of the pending Dana acquisition is expected to expand global reach and support future growth.

[Outlook]
Management guided revenue to $3 billion, a decrease of $250 million year over year, due to weaker North America On-Highway demand. Future price increases are expected to exceed historical pre-pandemic ranges, with guidance to be provided in February. The Dana acquisition is progressing, promising a global footprint and access to new markets.

[Financial Performance]
Year-over-year net sales of $693 million were down 16% from the same period in 2024, primarily due to lower demand for Class A vocational and medium-duty trucks in North America. Adjusted EBITDA margin was flat at 37%, with net income decreasing to $137 million from $200 million in 2024.

[Q&A Highlights]
Question 1: Rob Wertheimer asked about the steep decline in On-Highway sales and factors affecting the cycle, including channel inventory and end market demand.

Answer: CEO David Graziosi explained that reductions in build rates continued through Q3, with normalization at lower levels. Bodybuilders have high inventory levels, and OEM comments support the need for further rationalization. The decline is seen as a deferral of purchases rather than a permanent market size change.

Question 2: Timothy Thein inquired about the implied revenue improvement for Q4 despite challenges in North America On-Highway.

Answer: CFO Frederick Bohley noted significant OEM downtime in Q3, with fewer workdays in Q4. Defense ramp-up is expected to continue, contributing to sequential improvement.

Question 3: Ian Zaffino asked about the timing of noticing weakness and cost management strategies.

Answer: CEO Graziosi stated that weakness in build rates began early Q3, with adjustments made throughout the year. Cost management has been consistent, aligning with macroeconomic volatility and uncertainty.

Question 4: Tami Zakaria questioned the impact of Section 232 tariffs and Allison's ability to offset costs.

Answer: CFO Bohley highlighted that 85% of components are sourced from the U.S., Mexico, and Canada, minimizing tariff impact. OEMs prioritize U.S.-made content, positioning Allison well.

Question 5: Angel Castillo asked about the potential for earnings growth in 2026 without volume recovery.

Answer: CFO Bohley indicated visibility on pricing into 2026, with uncertainty around end-user demand. Guidance will be provided in February.

Question 6: Luke Junk inquired about maintaining margins and preventing decrementals.

Answer: CEO Graziosi emphasized focus on margins, with good progress on growth initiatives and capacity investments. Market conditions will dictate actions.

Question 7: Kyle David Menges asked about international market opportunities and the Dana acquisition.

Answer: CEO Graziosi noted significant opportunities outside North America, with regional production investments supporting growth. The Dana acquisition offers a global footprint and access to new markets.

[Sentiment Analysis]
Analysts expressed concern over the steep decline in On-Highway sales but acknowledged management's strategic pricing and cost control efforts. Management maintained a confident tone regarding future growth and resilience.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | Change |
|--------|---------|---------|--------|
| Net Sales | $693M | $825M | -16% |
| Net Income | $137M | $200M | -31.5% |
| Adjusted EBITDA Margin | 37% | 37% | Flat |

[Risks and Concerns]
Risks include ongoing macroeconomic volatility, tariff impacts, and uncertain end-user demand. The integration of the Dana acquisition presents execution risks but offers strategic benefits.

[Final Takeaway]
Allison Transmission faces challenges with declining North America On-Highway demand but remains resilient through strategic pricing and cost management. The pending Dana acquisition is poised to enhance global reach and support future growth. Management's focus on maintaining margins and adapting to market conditions positions the company well for navigating uncertainty and capitalizing on emerging opportunities.