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DATE

Monday, February 23, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • Chair, President, and Chief Executive Officer — David S. Graziosi
  • Chief Financial Officer and Treasurer — Scott A. Mell
  • Chief Operating Officer; President and Business Unit Leader, Allison Transmission — G. Frederick Bohley
  • President and Business Unit Leader, Allison Off Highway Drive and Motion Systems — Craig Price
  • Vice President, Investor Relations — Jacalyn C. Bolles

TAKEAWAYS

  • Consolidated Net Sales -- $737 million for the quarter, a 7% decrease year over year.
  • Adjusted EBITDA Margin -- 36% for the quarter, over 200 basis points higher year over year.
  • Net Income -- $99 million, reflecting a decrease of $76 million from the prior year quarter, impacted by a $29 million electrification impairment and $26 million of acquisition expenses.
  • Adjusted Net Income -- $141 million after removing impairment and acquisition-related expenses, with diluted EPS of $1.68.
  • Net Cash from Operating Activities -- $243 million for the quarter, up $32 million from the prior year quarter, aided by lower taxes, decreased R&D spending, and lower working capital funding needs.
  • Adjusted Free Cash Flow -- $169 million in the quarter.
  • Defense End Market Revenue -- $267 million for the year, up 26%; fourth quarter Defense sales were $73 million, a 7% year-over-year increase.
  • Outside North America On Highway Revenue -- Record annual revenue of $507 million and record fourth quarter revenue.
  • Share Repurchases -- $328 million repurchased across the year, representing 4% of outstanding shares.
  • Quarterly Dividend -- Increased to $0.27 per share in 2025.
  • Acquisition Integration -- The Off Highway Drive and Motion Systems business was officially acquired from Dana (NYSE: DAN) in January, expanding to 14,000 employees in 25 countries.
  • Cost Synergies Target -- $120 million annual run rate synergies expected over the next few years; not included in 2026 guidance.
  • 2026 Net Sales Guidance -- Consolidated range of $5.75 billion to $5.925 billion; Allison Transmission segment $3.02 billion to $3.175 billion; Off Highway Drive and Motion Systems segment $2.55 billion to $2.75 billion.
  • 2026 Net Income Guidance -- Projected at $607 million to $650 million, including $70 million in one-time pretax integration and restructuring expenses.
  • 2026 Adjusted EBITDA Guidance -- Range of $1.36 billion to $1.515 billion, with a midpoint EBITDA margin of 25%.
  • 2026 Cash Generation Guidance -- Net cash provided by operating activities $970 million to $1.1 billion; capital expenditures $295 million to $315 million; adjusted free cash flow $655 million to $805 million, including $55 million of one-time cash outflows for acquisition integration and $45 million in one-time integration CapEx.
  • New Reporting Structure -- Starting fiscal 2026, two-reportable segments (Allison Transmission and Allison Off Highway Drive and Motion Systems) plus the Allison Group’s functional costs.
  • India Expansion -- Recent memorandum of understanding with Armored Vehicle Nigam Limited for establishing a maintenance, repair, and overhaul center in India for transmission programs.
  • Chennai Facility -- New facility in Chennai, operational with full ramp by 2027, expands Allison’s regional production capabilities.
  • 2026 Pricing Expectations -- The CFO stated, "somewhere between 250 and 400 basis points of pricing is probably directionally where we will end up" for Allison Transmission; Off Highway business expected to be price neutral year over year, except for tariff mitigation.
  • Capital Allocation -- Continued commitment to both reinvestment, accelerated debt paydown, and shareholder returns through repurchases and dividends, enabled by sustained cash flow.

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RISKS

  • Full year revenue declined 7% year over year, attributed to "broader macroeconomic factors including global trade policies, uncertainties, and sluggish economic growth," as stated by management.
  • Guidance for 2026 assumes "continued softness in the North America On Highway end market, particularly for medium-duty trucks, with no meaningful recovery modeled for Class 8 vocational trucks."
  • The CFO noted, "we expect to recover a meaningful amount of our tariff on a year-over-year basis through pricing actions that we have taken. But it certainly will be a net drag on margins on a year-over-year basis."
  • No synergies from the Off Highway acquisition are included in 2026 guidance, potentially delaying cost benefits.

SUMMARY

The acquisition of Off Highway Drive and Motion Systems from Dana (NYSE: DAN) significantly increased the size of Allison Transmission Holdings (ALSN +0.23%), with early integration and synergy work underway but cost benefits yet to appear in guidance. Substantial one-time costs related to the acquisition and sector softness contributed to a sharp year-over-year decline in quarterly net income, despite growth in Defense and non-North American revenue. The 2026 forecast calls for flat to modest improvement, underpinned by resilient cash flow and maintained capital allocation discipline, while management remains cautious regarding core end-market demand recovery.

  • Operational efforts in India, including partnerships and facility expansion, are central to Allison Transmission Holdings's geographic diversification strategy.
  • Management emphasized it has not included the anticipated $120 million of annual run-rate cost synergies in the 2026 outlook, deferring potential upside to future periods.
  • Guided EBITDA margins reflect ongoing near-term challenges, with management targeting higher 27%-29% levels only once synergy realization and end-market improvements materialize.
  • Pricing actions are projected to partially offset input cost inflation and tariff impacts, with anticipated margin drag remaining a concern in the coming year.

INDUSTRY GLOSSARY

  • Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted for unusual items, used to assess core operating profitability.
  • Cross-Drive Transmission: A type of transmission used in tracked and wheeled military vehicles, supporting complex drive requirements.
  • LTAs (Long-Term Agreements): Multi-year contract arrangements with customers establishing fixed terms on pricing, volume, and other conditions.
  • Class 8 Truck: Heavy-duty trucks, typically vocational or freight vehicles exceeding 33,000 pounds gross vehicle weight.
  • Trough: Industry term referring to the lowest point in a business or economic cycle, often preceding recovery.

Full Conference Call Transcript

Jacalyn C. Bolles: Good afternoon, and thank you for joining us for our fourth quarter 2025 earnings conference call. With me this afternoon are David S. Graziosi, our Chair, President and Chief Executive Officer; Scott A. Mell, our Chief Financial Officer and Treasurer; G. Frederick Bohley, Allison Transmission business unit leader and Chief Operating Officer; and Craig Price, Allison Off Highway business unit leader. As a reminder, this conference call, webcast, and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through March 9. As noted on slide two of the presentation, many of our remarks today contain forward-looking statements based on current expectations.

These forward-looking statements are subject to known and unknown risks including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2024, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2025. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC.

You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our fourth quarter 2025 earnings press release. Today's call is set to end at 5:45 p.m. Eastern Time. In order to maximize participation opportunities on the call, we will take just one question from each analyst. Please turn to slide four of the presentation for the call agenda. During today's call, David S. Graziosi will reaffirm opportunities presented by the acquisition of Dana's Off Highway business and introduce Craig Price, Allison Off Highway's president. Following remarks from Craig, David will present the Allison go-forward business unit reporting structure.

Prior to reviewing the highlights from Allison Transmission Holdings, Inc.'s full year 2025 results, G. Frederick Bohley will then review recent announcements across our business. Scott A. Mell will end the prepared remarks with a review of Allison Transmission Holdings, Inc.'s fourth quarter 2025 financial performance, and Allison Transmission Holdings, Inc.'s full year 2026 guidance. Prior to commencing the Q&A. I will now turn the call over to David. Thank you, Jacalyn. Good afternoon, and thank you for joining us.

David S. Graziosi: In January, we announced the completion of our acquisition of the off highway drive and motion system business of Dana Incorporated. I would like to welcome our new colleagues around the world. We are excited to bring these two world-class businesses together with 14,000 employees operating in 25 countries, creating a truly global leader in the end markets we serve.

David S. Graziosi: In late January, we welcomed our new colleagues and celebrated our combined company through nearly 50 events across our global sites. I want to thank everyone who participated in these events marking our first opportunity to come together as one Allison team. The sense of unity across our sites was clear and encouraging. Together, we begin this journey with a substantially expanded market reach, a much broader portfolio of high quality and reliable products, creating a platform that will continue to deliver strong financial performance from both organic and inorganic growth. Our talented colleagues are dedicated to helping support our customers and their end users as they continue to respond to the global megatrends shaping the modern industrial world.

On slide five of the presentation, we outline attributes strengthening our position as a premier industrial company. As a combined company, Allison will leverage an expanded global footprint for more local-for-local production, with increased proximity to customers and markets providing advantages in meeting both commercial and government customers' requirements. Allison will also utilize our global technology centers for local development, with realization of cost synergies through combined engineering research and development. We believe that complementary technical knowledge within the combined business in areas such as software and controls, fully integrated commercial duty propulsion solutions, and electrification will accelerate product innovation and progress on key engineering capabilities and initiatives.

We will continue our long history of engineering expertise delivering products known for quality, reliability, and durability across diverse drivetrain components and work solutions. With greater purchasing scale as well as vertical integration opportunities in manufacturing in best-cost countries, Allison expects opportunities for synergy realization and cost reduction initiatives within our operations.

David S. Graziosi: Finally, while our focus over the last two months post close has been on successful combination and integration of our businesses, our teams are working diligently on synergy capture and growth initiatives. In this transformational moment in Allison's history, we are confident in our ability to combine the two businesses while realizing annual run-rate synergies, maintaining our focus on solid financial performance, and continued growth as a premier industrial company. With regards to our reporting structure, as described in the press release announcing the acquisition close, the combined company will be comprised of two business units: Allison Transmission and Allison Off Highway Drive and Motion Systems. Allison Transmission will be led by G.

Frederick Bohley, and Allison Off Highway Drive and Motion Systems will be led by Craig Price. Both hold the title of President and Business Unit Leader reporting to me. Fred will continue to serve as Allison's Chief Operating Officer. Craig, if you would like to say a few words,

Craig Price: Thank you, David. Good afternoon, everyone. I am honored to step into the role of Off Highway President and excited to be part of this pivotal moment in Allison's history. With the close of the acquisition, we are entering a new chapter focused on sustainable growth, disciplined execution, and long-term value creation. From my earliest conversations with Allison's leadership team, it was clear that our businesses share a strong alignment around innovation, operational excellence, and delivering meaningful value to customers and shareholders. This combination brings together highly complementary strengths. The Off Highway business contributes deep end-markets expertise, a proven track record, and a highly capable, engaged team.

Together, we are positioned to leverage enhanced scale, resources, and global platforms to accelerate growth opportunities. As we move forward, our priorities are clear: seamless integration whilst maintaining disciplined execution. We are confident in our ability to implement our plans and look forward to updating you on our progress in the quarters ahead. David?

David S. Graziosi: Thank you, Craig. Moving on to Allison Transmission Holdings, Inc.'s full year 2025 performance highlights. Before I begin, please note that these 2025 results do not reflect the financial results of the Off Highway business we acquired from Dana on January 1. The year began with strong momentum. However, as the year progressed, our performance was negatively impacted by broader macroeconomic factors including global trade policies, uncertainties, and sluggish economic growth in most of the regions in which we operate. Despite these external headwinds, we remain disciplined, focusing on cost control and execution. Although full year revenue was down 7% year over year, we increased full year adjusted EBITDA margin by 140 basis points year over year to 37.5%.

With recent events providing improved clarity on the timing and impact of tariffs and emissions regulations, we are beginning to see early signs of demand improvements within our largest end market, North America On Highway, and a rebound from the trough in the 2025. We entered 2026 confident in our ability to navigate ongoing uncertainty. In addition, we are pleased with the ongoing performance of our Defense end market, which for the year increased revenue by 26% to $267 million. We have now achieved our $100 million incremental annual revenue objective for this end market and remain focused on further growth opportunities given substantial increases in global defense spending commitments. Throughout the year, we also satisfied our capital allocation priorities.

For the full year, we repurchased $328 million of common stock, representing 4% of outstanding shares. We also increased our quarterly dividend in the 2025 to $0.27 per share. The ability to complete an acquisition whilst simultaneously returning capital to shareholders underscores the strength of our balance sheet and the resilience of our cash flow. We remain focused on maintaining our shareholder-aligned capital allocation priorities as we progress with the integration of the Allison Off Highway business segment. In summary, although 2025 was challenging, we exited the year with reaffirmed confidence in our business, and we look forward to the future as we enter a new chapter in Allison's over 110-year history.

Now I will pass it over to Fred to review recent announcements across our business. Fred?

G. Frederick Bohley: Thank you, David. Good afternoon, everyone. In early December, we outlined our expanding footprint and investment in India with strategic initiatives spanning multiple sectors, starting with Defense. We recently signed a memorandum of understanding with Armored Vehicle Nigam Limited, a government-owned defense manufacturer. The multiphase agreement marks a significant step toward establishing a maintenance, repair, and overhaul center in India to service current and future Allison cross-drive transmission programs. This partnership aligns with India's broader defense modernization localization efforts, including the ongoing Future Infantry Combat Vehicle program utilizing our 3040 MX cross-drive transmission. In the Indian mining sector, Allison's industry-leading value proposition continues to drive business expansion by contributing to the nation's infrastructure development and resource-extraction efficiency.

End users are expanding their fleets of wide-body dump trucks equipped with our 4800 Series fully automatic transmissions, citing the consistent reliability and performance of Allison products in challenging environments. The integration of local production and global sales is underscored by Allison's strategic position within India's export hub. Daimler India Commercial Vehicles has begun shipments of Allison's 3000 Series fully automatic transmissions integrated into Fuso's medium-duty trucks exported to South Africa. These developments are supported by Allison's capital investments in the region. The company's state-of-the-art facility expansion in Chennai, announced in late 2024, is operational and will ramp to full capacity in 2027.

In addition, we are excited for the opportunities presented by our expanded footprint and presence in India, with four manufacturing plants and around 4,000 employees joining Allison from the Off Highway Drive and Motion System team. Our strategic investments not only reinforce Allison's ability to meet increasing demand across global markets, but also solidify the company's role as a key partner in India's industrial growth. With more local-for-local production and partnership with OEMs supporting the Made in India framework, Allison's opportunities are expanded, our competitive advantages are strengthened. Thank you, and I will now turn the call over to Scott for a recap of Allison Transmission Holdings, Inc.'s fourth quarter 2025 financial performance and introduction of Allison's 2026 guidance.

Scott A. Mell: Thank you, Fred. Please turn to slide six of the presentation for the Q4 2025 performance summary. Year-over-year net sales of $737 million were down 7% from the same period in 2024. In the Outside North America On Highway end market, we achieved record fourth quarter revenue, leading to record full year revenue of $507 million. In the Defense end market, we continue to execute on our growth initiatives, fourth quarter net sales of $73 million, up 7% year over year.

Although fourth quarter net sales were down year over year in our North America On Highway end market, the sequential improvement of 10% from the trough in the third quarter demonstrates the positive impact that improved clarity has had on end-user purchasing decisions. Net income for the quarter was $99 million, a decrease of $76 million from $175 million for the same period in 2024. This year-over-year decrease in net income reflects two meaningful one-time items. First, we recorded a $29 million impairment related to our investment in electrification. Second, we incurred approximately $26 million of expenses related to the Dana Off Highway business acquisition.

When adjusting net income for the impairment loss and the acquisition-related expenses, our fourth quarter net income was $141 million, with diluted earnings per share of $1.68. Despite a net sales decrease of 7% year over year, adjusted EBITDA margin increased over 200 basis points to 36% for the fourth quarter. Net cash provided by operating activities for the quarter was $243 million, an increase of $32 million from the same period in 2024. The increase was principally driven by lower cash income taxes, reduced engineering R&D spending, and lower operating working capital funding requirements, which more than offset lower gross profit and $17 million of payments for acquisition-related expenses.

Our cash generation remains a key strength of our business, with adjusted free cash flow of $169 million in the fourth quarter. We continued to maintain solid operating cash flow reflecting the resilience of our operations and disciplined cost management. We expect to continue to generate substantial and sustainable free cash flow as a combined business with our robust cash generation ensuring our capital allocation priorities remain intact. We will continue to invest in our businesses to drive long-term growth and innovation, with accelerated debt reduction, which will allow us to reach our leverage targets in the near term.

We have already started to pay down debt incurred for the Off Highway acquisition, and we will continue to provide updates as we progress. Importantly, Allison remains fully committed to returning capital to shareholders through ongoing share repurchases and consistent dividend payments, reinforcing our disciplined approach to creating long-term value. A detailed overview of Allison Transmission Holdings, Inc.'s net sales by end market and Q4 2025 financial performance can be found on slides seven, eight, and nine of the presentation. Please turn to slide 10 of the presentation for Allison's 2026 guidance. Before I cover our 2026 guidance, I want to highlight that starting with our Q1 2026 10-Q, we will be providing two-segment reporting.

One for the Allison Transmission business unit, which will, for the most part, reflect the historical Allison Transmission business, and one for the Allison Off Highway Drive and Motion Systems unit, which will reflect the business acquired from Dana. In addition, we will report financial results for the Allison Group, which will include primarily functional costs that support both business segments. We will provide additional details on this reporting structure as we move forward. For the full year 2026, we are providing the following guidance. Consolidated net sales in the range of $5,750,000,000 to $5,925,000,000.

This includes net sales for the Allison Transmission segment in the range of $3,020,000,000 to $3,175,000,000 and net sales for the Allison Off Highway Drive and Motion Systems segment in the range of $2,550,000,000 to $2,750,000,000. Consolidated net income in the range of $607,000,000 to $650,000,000, subject to the completion of purchase price accounting associated with the acquisition of the Allison Off Highway segment. Our net income guidance for 2026 includes approximately $70 million of one-time pretax expenses associated with the separation, integration, and restructuring of the Allison Off Highway segment. Even with these one-time costs, we expect the Allison Off Highway acquisition to be accretive to net income and earnings per share in 2026.

Further, we expect consolidated adjusted EBITDA in the range of $1,360,000,000 to $1,515,000,000. At the midpoint, this implies a 25% adjusted EBITDA margin. Our adjusted EBITDA margin guidance assumes continued softness in the North America On Highway end market, particularly for medium-duty trucks, with no meaningful recovery modeled for Class 8 vocational trucks. Also, key Allison Off Highway end markets are expected to remain at or near trough. As previously communicated, we expect to capture approximately $120 million of annual run-rate synergies over the next few years. Once the full synergy capture is realized, and we see moderate improvements in end market conditions, we expect consolidated adjusted EBITDA margins in the range of 27% to 29%.

For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $970,000,000 to $1,100,000,000, consolidated capital expenditures in the range of $295,000,000 to $315,000,000, including one-time separation and integration CapEx of approximately $45,000,000, and consolidated adjusted free cash flow in the range of $655,000,000 to $805,000,000. Please note that our consolidated net cash provided by operating activities guidance includes approximately $55,000,000 of one-time cash outlays associated with our acquisition of the Off Highway Drive and Motion Systems business unit. In addition to our financial guidance, slides eleven and twelve in the presentation provide commentary on our 2026 outlook for the Allison Transmission and Allison Off Highway end markets.

This concludes our prepared remarks. Paul, please open the call for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. In the interest of time, we ask that participants limit themselves to one question. One moment please while we poll for questions. Our first question is from Rob Wertheimer with Melius Research. Hi, thanks. Could you talk just briefly about what your pricing expectations are of 2026, what your rate of inflation is and just kind of what is your competitive ever-changing tariff situation.

And just for clarity, when you do disclose the segment data, you would do an EBITDA by segment or operating income by segment? And any comments on kind of the core legacy business? Whether props are up or down in your embedded guide?

Scott A. Mell: Thank you. I will take the first question, which I think started with pricing. So as we have talked about before, given our LTA negotiations over the last few years, we expect to continue to see meaningful year-over-year pricing. And I think we have also said it certainly may not be at the rate that we have seen in the last few years. I think somewhere between 250 and 400 basis points of pricing is probably directionally where we will end up. I think us, like others, are facing substantial inflationary pressure across not only people cost, but material cost or otherwise. I would point you to what you are seeing in inflationary forward indicators as what we are experiencing.

And then, obviously, on the tariffs, I have not been online today, so I am not sure where we are at. But I think we expect to recover a meaningful amount of our tariff on a year-over-year basis through pricing actions that we have taken. But it certainly will be a net drag on margins on a year-over-year basis.

G. Frederick Bohley: I think that answered the beginning of the question, Rob. And I guess I would say Scott's comments relative to pricing were for the Allison Transmission business unit. We will obviously be combining, you know, looking at pricing in total, and to his point, we do have customers we put on LTAs, and we do expect better than traditional pricing that we have done in the past of 50 to 100 basis points. Then the other question really was on level of reporting, Scott, down to—

Scott A. Mell: Yes. So I think the expectation is you will see from net sales down through an operating profit level with enough detail around depreciation and amortization that you can get to an EBITDA number. So there will probably be some cash flow metrics as well. But I think you will certainly have enough detail as we report the first to be able to distinguish between the two business segments. Thank you.

Operator: Our next question is from Timothy W. Thein with Raymond James. Thank you. Good afternoon. And congrats on getting all this work done and behind you. Just on the—I recognize that there are always challenges in fixing to a midpoint. But just if we did that, if you think about the kind of the midpoint EBITDA estimate of $1,000,000,000, if we assume it is probably not the right assumption, but if we assume that the Allison business is flat year over year despite growing on the top line, that would imply the Off Highway business is doing something like an 11% to 12% EBITDA margin on, call it, on the $2.6 billion in revenues.

Is that—are there things we should think about? Is that, I do not know, some one-time items going through there? Or maybe just help us there in terms of the implied EBITDA of the acquired business? Thank you.

Scott A. Mell: Well, this is Scott. Thank you for the question. As you try to do your math there, I would encourage you to keep in mind that while we are going to have sales growth on the top line, as we start to look at the end markets, in particular the Class 8 straight, we are going to have a substantially different mix than we had in 2025. And as Fred mentioned or David mentioned on the call, 2025, the first quarter into the second quarter was stronger in the North America On Highway end market.

And as I mentioned in our call, we are not expecting a meaningful improvement, and we are modeling it or we are looking at it closer to where it was in the second half of last year. So that will impact the margin outlook for the traditional Allison Transmission business.

G. Frederick Bohley: And then we still have to work out with that on allocation.

Timothy W. Thein: Your North America On Highway forecast is assuming kind of run rate where you exited the year. Is that right, Scott?

G. Frederick Bohley: I will take that, Tim. This is Fred. Yes. What we are seeing and what we said in our prepared remarks is very, very soft conditions relative to medium-duty. And we have not modeled any meaningful recovery in Class 8 straight. So to Scott's point, on a year-over-year basis, that would be negative from a mix standpoint because first half was very robust from a Class 8 straight truck. And then really getting down into each segment's margins at this point is challenging because there is still a lot of work being done here relative to how corporate costs are going to be allocated.

And that work is still yet to be done in the first quarter and will be represented in the results that we post up in May.

Timothy W. Thein: Thank you.

Operator: Our next question is from Ian Alton Zaffino with Oppenheimer. Hi, great. Thank you very much. Why do you not drill down on the acquisition? I guess you have been operating it for a couple months now. How should we think about synergies? I think you initially outlined, I think, $120 million or $125 million. How do you feel about it now? And then what amount of that is actually in guidance, and how do we think about the cadence of that? Thanks.

David S. Graziosi: Ian, appreciate the question. It is David. In terms of the synergies, back to the prepared comments and what we actually talked about when we announced the acquisition, that $120 million run rate of synergies a few years out, that is exactly where we sit today. The team—and I say that both Allison Transmission and the Off Highway segment—are very engaged right now at a functional level analyzing what you would expect. I believe you were kind in two months with the company; if you actually think about just closing and getting the teams organized, it has been a very busy 40 to 50 days.

But despite that, I give the team a tremendous amount of credit in really digging in on the synergies work that was outlined. As you would expect, from our perspective, operations, procurement, engineering, and some SG&A are really the focus areas for our team. We are certainly excited about that when you think about the global footprint that we now enjoy, especially in the context of some of these trade policy developments that are out there. And frankly, I think the team is very engaged in analyzing some broader opportunities there. I would also offer how we really have scratched the surface in terms of other synergies as well.

So as the year progresses here, we will be providing some level of update. To answer the last part of your question, we have not assumed any synergies in the 2026 guide at this point. So Scott's comments, I think it is important when you look at the reoccurring business guidance that is being provided, is really the go forward in terms of setting expectations where we are. But there is a tremendous amount of work that the global team is undertaking this year, as you could imagine from some of the investments that we announced.

Ian Alton Zaffino: All right. Thank you very much.

Operator: Our next question is from Jerry Revich with Wells Fargo Securities. Congratulations on the closing. I want to ask Fred, as we think about the margin profile for the legacy Allison business going forward, are the 40% EBITDA margins that we saw the business hit in 2018, 2019, are those feasible in this coming cycle, the way you see the business setting up? Can you just give us an update on if we think we can go back to those margin levels? And then Craig, just to follow-up on the last question, can you mind just sharing your maybe top two or three priorities for the business over the next twelve months. Thank you.

G. Frederick Bohley: Jerry, this is Fred. Clearly, you look at the performance we had in 2025, revenue down 7% and EBITDA margin up 140 basis points, with a significant amount of cost pressure relative to tariffs. To the extent that you get a lift in the top line, and we have made investments such that we are bringing on additional capacity, we are growing the business outside North America—record revenue outside North America in 2025. Again, some choppy end markets. The opportunities that we have relative to the combined footprint that David talked about and the ability to leverage and optimize a much larger global footprint.

The fact that our products are very well received—our largest driver in North America On Highway is Class 8 freight truck. And share last year was up 1%. We have been able to pass on price. We have been able to actually increase share. So we have a significant value proposition. I certainly would not rule out returning to those peak margins, 40%. I think what needs to be understood is we are making peak earnings on everything we send out the door. So we saw significant cost increases and we have not been able to price it $2 for every dollar of cost increase. Obviously, margins compressed on a percentage basis.

But absolute margins on what we sell have never been higher. And the team is very focused on getting after cost, best-in-quality, and continuing to grow outside North America. Again, that does not always come with the same margins initially. Sometimes there is an element of penetration pricing, but the short of it is putting it all together, I think 40% is achievable. But from our standpoint, it is what is the dollar amount of EBITDA we make, and ultimately, how much of that can we convert to cash. That is truly what the team is focused on.

David S. Graziosi: And, Jerry, it is David. To your question for Craig, the good news is his top three priorities are the same as everybody else in Allison, which is meeting customer commitments, seamless integration and combination—which is a tremendous amount of work this year—and execution. As Fred mentioned, we are right back into it here. Many of the end markets that we are dealing with are at or coming off trough levels. There will be a fair bit of work to be highly aligned with our customers around return of volume, managing the supply base, etcetera and so forth. So a lot of work there to be done this year.

But again, it is really back to meeting customer commitments, the separation and integration work, and most importantly, just execution across the board. Thank you.

Operator: Our next question is from Tami Zakaria with JPMorgan.

Tami Zakaria: Hey, good afternoon. Thank you so much. I wanted to clarify two things. The first one on Off Highway Drive and Motion segment guide. That guidance, the midpoint, how much is Dana Off Highway growing like-for-like year over year embedded in that guide?

David S. Graziosi: Tami, it is David. Do you look at it, and again, like-for-like understanding the 2025 results are not out there on an, I would say, apples-to-apples basis for what we, as Allison, have as Allison Off Highway now. But I would put it in the, on a year-over-year basis, mid-plus single-digit rate on a year-over-year basis at top line.

Tami Zakaria: Understood. That is helpful. And then the second question, I hear the 25% EBITDA margin guide for the year. How should we model the seasonality between the four quarters and related to that, how should gross margin be throughout the year versus the high 40 that you ended with last year?

David S. Graziosi: Tami, it is David. Let me take the first part of that and then Scott can chime in. In terms of seasonality, it is interesting when you look at the way our guide is built this year. It is really not, I would say, very uneven at this point just given the nature of the two segments we now have. So if you are broadly looking at sales, first half, second half, very similar on a total Allison basis. So as you know, historically Allison has had some level of seasonality in the fourth quarter. The last few years have changed that dynamic a bit.

So I would say, generally speaking, as you think about the year from an overall pace perspective, as we sit today, relatively level. And Scott, on the margins.

Scott A. Mell: Yes. I mean, working toward an annual midpoint of 25%, I do not think you are going to see, to David's point, substantial swings in margins just given some of the nature of the sales, which are going to be even over the course of the year. So I would not build in any substantial changes in margins, although I would say we, as we get to the second half of the year, on the Transmission side, we are cautiously optimistic that we will start to see some improvement in medium-duty demand potentially. So that might be a driver in the second half of the year.

Tami Zakaria: Understood. Thank you.

Operator: Our next question is from Angel Castillo with Morgan Stanley.

Angel Castillo Malpica: Hi, good afternoon. Thanks for taking my question. Just was hoping you could unpack the end market guidance in a little bit more detail. I guess I am a little bit surprised just the assumptions around no recovering Class 8 trucks. And I think you mentioned that, assuming Off Highway remains kind of at or near trough, just, you know, when I think about versus what we are hearing from either other OEMs on the truck side or even on construction or ag side, it seems like there is a little bit more kind of upbeat sentiment that there could be a little bit more recovery or improvement at least in the second half.

And I think you had mentioned, you know, very soft conditions, I think, in the vocational market. So just can you unpack that a little bit more? To what degree is that you are seeing something in the latest order books that seems to suggest a little bit more cautiousness is warranted versus maybe it being early in the year versus what other people are seeing?

G. Frederick Bohley: Angel, this is Fred. I will take on the Allison Transmission portion and then David will go through the Allison Off Highway. Start with our largest end market, North America On Highway. Again, we are seeing very, very soft medium-duty activity. A lot of that is driven by the large lease rental players. They have really not reentered the market. Class 8 straight is, I would call it, steady. And still a decent amount of uncertainty as to whether it is going to be a prebuy in the second half of the year. We have not modeled in that prebuy.

So, really, when you look at it on a year-over-year basis with the strength we had in the first half, certainly unit volumes for us are down. Now that is being offset by continued momentum in Defense, primarily outside North America and non-U.S. government sales. Volume going to Hanwha out of Korea with their K9 howitzer, the Poland Borsuk, the Turkey Kirpi, some programs that we have talked about that have been announced but are now generating revenue. So we definitely expect Defense to continue to accelerate. And a decent portion of the deal that we have in the plan as well is going in that direction. Outside North America, again, record in 2025, but we expect continued growth.

And we are seeing some strength in vocational truck in Europe, wheeled Defense. As David mentioned, Japan was really dealing with Australian vehicle regulations. It was a little soft last year. Some of that volume was pulled into 2024. So we had that in our favor. And that is a market that in certain classes we have over 60% share. China, forward momentum on the wide-body mining dump business. Vocational haul, fire, crane. South America, and we have penetrated school buses. We are seeing success in vocational truck. So walk through the end markets, outside North America up, Defense up, but then you have got lower volume assumptions in North America On Highway.

With that, David, do you want to comment on Off Highway?

David S. Graziosi: Angel, it is David. So just on Off Highway, just to level set, if you think about the five end markets for Off Highway that we list in the call presentation, the largest of those is construction and material handling. Right behind that would be service parts, specialty, and other, and then agriculture, and then obviously industrial mining.

To your comments in terms of what some of our customers are saying relative to those individual end markets, I would offer as we think about starting with construction and material handling, although construction markets you are seeing a steady level in terms of civil engineering and some of the infrastructure work that is going on, the fact is residential is still relatively weak as we know given its rate sensitivity. If you think about the material handling side, again, very much subject to what has been going on in the trade space as we mentioned earlier.

I would certainly provide some backdrop to that by saying the team, I believe overall the guidance that we are providing on this call for 2026, we are taking a prudent approach. I would say the same thing, frankly, as you start thinking about agriculture. A lot of moving pieces there, as you know. If you look through the public comments from customers, there are many assumptions that are going into that at this point. There is bifurcation in terms of equipment sizing, where the market is, where inventory levels are. Commodity prices are certainly a bit challenged right now for a number of reasons.

There are some assumptions that some are making around farm subsidies, etcetera, that drive that market as well. But margins are still very challenged for farming overall, so the team has taken that into account. Beyond that, industrial, they certainly expect to benefit from some of these larger projects that are tied to industrial output and manufacturing. And finally, mining, we have some assumptions there around, given commodity prices for things we find most relevant to our Off Highway business being gold, copper, rare earths, minerals, etcetera. We are certainly assuming some growth there directional with what you have heard from some.

But again, that is a bit of a first half, second half story as well in terms of overall approach or expectations for the year.

Angel Castillo Malpica: Very helpful. Thank you.

Operator: Our next question is from Luke Junk with Baird. Good afternoon. Thanks for taking the question. Just hoping we could maybe discuss pricing in the Off Highway business that you acquired. Both in the near term, I would assume there is probably some tariff impacts and recovery in the business this year, but also would be curious just to get your bigger picture thoughts on aspirations for pricing in that business longer term as well. Thank you.

David S. Graziosi: Luke, it is David. I appreciate the question there. For 2026, as we have done with the Allison Transmission business, as we have discussed, the team's approach certainly is to mitigate the tariffs. That is incorporated into some of the top line changes you see from 2026 versus 2025. I would say overall for the Off Highway business, in totality, price relatively neutral year over year with the exception of some of the tariff activities that I mentioned. The approach, as you know, for Allison is to sell our products based on value. I think the Off Highway team certainly is aligned with that approach historically.

I think some of that, frankly, in terms of our expectations are really tied to overall market conditions. As we mentioned, relatively trough levels almost across the board. We would expect, commensurate with those market conditions improving, some improvement in terms of overall price. But as we again entered the year, top priority being meeting these customer commitments, we are obviously staying close to overall volume expectations and developments.

Operator: Our next question is from Kyle David Menges with Citigroup. Thanks for taking the question. I was hoping we could revisit the cost synergies. It sounded like that there were no cost synergies embedded in your guidance. Just wanted to clarify that. And then just would love to hear what cost synergies you are targeting for the first twelve months and how to think about the magnitude of impact that could potentially drive. Thank you.

David S. Graziosi: Kyle, it is David. On synergies, again, very confident in the $120 million annual run rate that we have talked about. There is a tremendous amount of work going on amongst the global team. You can imagine the scope of that undertaking just given the amount of facilities, different products, etcetera. We are taking, as best we can, a very thoughtful measured approach by functions—whether it is operations, procurement, etcetera—being very deliberate about stepping through that. That is why I would answer your question there in terms of twelve-month assumption really aligns with our 2026 guide. The answer is we have not assumed any.

For that reason, as we get, as I mentioned earlier, further into the year and certainly for 2027 guidance, we can provide a pretty fulsome update at that point. But I would tell you, just given the amount of activity that is being undertaken around separation, that does involve a number of agreements, etcetera, there is a fairly high level of work that is involved there. This is the same group of people doing many, many things right now. So we are going to do it right and make sure that we have the outcome that we are looking for. But there is certainly no doubt from the Allison team's perspective that we are committed to deliver those synergies.

Operator: Thank you. That is all the time we have for questions today. I would now like to pass the floor back over to David S. Graziosi for any closing comments.

David S. Graziosi: Thank you for your continued interest in Allison Transmission Holdings, Inc. and for participating on today's call. Enjoy your evening.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.