Earnings Call: Q2 2021

Jul 28, 2021

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission Second Quarter 2021 Earnings Conference Call. My name is Maria, and I'll be your conference call operator today. At this time, all participants are in a listen only mode. After the prepared remarks, the management team from Allison As a reminder, this conference call is being recorded. I would now like to turn the Call over to Mr. Ray Posadas, the company's Managing Director of Investor Relations. Please go ahead, sir. Thank you, Maria. Good morning, and thank you for joining us for our Q2 2021 earnings conference call. With me this morning are Dave Graziosi, our Chairman and Chief Executive Officer and Fred Foley, our Senior Vice President, Chief Financial Officer and Treasurer. As a reminder, this conference call, webcast and this morning's Presentations are available on the Investor Relations section of our website, allisontransmission.com. A replay of this call will be available through August As noted on Slide 2 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 Q2 2021 earnings press release and our annual Report on Form 10 ks for the year ended December 31, 2020, uncertainties related to the COVID-nineteen pandemic and related responses by governments, customers and suppliers and other factors as well as general economic conditions. 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 3 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 Q2 2021 earnings press release. Today's call is set to end at 8:45 am Eastern Time. Please turn to Slide 4 of the presentation for the call agenda. During today's call, Dave Graziosi will provide you with a brief operational update. Fred Bohley will then review our Q2 financial performance and reaffirm full year 2020 guidance. Finally, Dave will conclude the prepared remarks prior to commencing the Q and A. Now, I'll turn the call over to Dave Graziosi. Thank you, Ray. Good morning and thank you for joining us. I would like to begin by acknowledging the remarkable progress that has been made in Previously inconceivable measures were being taken to protect the health and well-being of our families and our communities. In the midst of the global pandemic, it was difficult to foresee what the next 12 months held in store. Today, much progress has been made and we are all eager to return to Practical and predictable operating conditions. However, meaningful risks with the potential to disrupt the current recovery are very real. With this in mind, We continue to encourage everyone to remain vigilant and if eligible get vaccinated. Turning to the quarter, Allison's Q2 2021 results reflect an unprecedented recovery in global markets. Customer demand is Quickly nearing pre pandemic levels and despite broad challenges to global supply chains, industry production is recovering. Global supply chain constraints remain the most significant challenge for the industry and these constraints are unlikely to be resolved in 2021. Limited availability of raw materials, global shortages of electronic components across all industries, Logistics challenges including air and ocean freight and port delays and labor availability issues are all limiting the industry's ability to align with the acceleration in customer demand. Despite these Industry headwinds, I'm extremely proud of the resilience and dedication demonstrated by the Allison team and extended family throughout this Critical time. As we have done since the beginning of the global pandemic, we will continue extensive and visible coordination with our suppliers, Customers and industry participants to ensure the uninterrupted delivery of the Allison brand promise. Finally, during the Q2, we settled $130,000,000 of share repurchasing repurchases representing 3% of outstanding Well initial public offering. This milestone is the direct result of Allison's disciplined and well defined approach to capital structure and allocation and profitable operations. Thank you. And I'll now turn the call over to Fred. Thank you, Dave. Following Dave's comments, I'll discuss the Q2 2021 performance summary, key income statement line items and cash flow. I will then reaffirm full year 2021 guidance before turning the call back over to Dave. Please turn to Slide 5 of the presentation for the Q2 2021 performance summary. Year over year net sales increased 60% to 6 $603,000,000 from the same period in 2020 as the recovery in customer demand and the global Economy continues to strengthen and despite ongoing industry production constraints due to global supply chain challenges. North America On Highway and Outside North America On Highway end market led the increase in year over year results with net sales increases of 84% 63% respectively. As a result of the continuing recovery in the global on highway customer demand, service parts, Support equipment and other end markets net sales were up 44% from the same period in 2020, principally driven by higher demand for North America service parts, Aluminum die cast components and support equipment. Gross margin for the quarter was 47.8%, an increase of 400 basis points compared to 43.8% from the same period in 2020. The increase was principally driven by higher net sales, 2020 restructuring charges that did not recur in 2021 and price increases on certain products partially offset by unfavorable material costs. Net income for the quarter was $110,000,000 compared to $23,000,000 for the same period in 2020. The increase was principally driven by higher gross profit, partially offset by higher selling, general and administrative expenses and increased product initiatives spending. Adjusted EBITDA for the quarter was $213,000,000 or 35.3 percent of net sales compared to 115,000,000 dollars are 30.5 percent of net sales for the same period in 2020. The increase was principally driven by higher gross profit, partially offset by increased incentive compensation expense, increased product initiatives spending and higher commercial activity spending. A detailed overview of our net sales by end market can be found on Slide 6 of the presentation. Please turn to Slide 7 of the presentation For the Q2 2021 financial performance summary, selling, general and administrative expenses increased $11,000,000 from the same period in 2020, principally driven by higher incentive compensation expense and higher commercial activity spending, partially offset by the impact of 2020 restructuring charges. Engineering, research and development expenses increased $3,000,000 from the same period in 2020, Currently driven by increased product initiatives spending, partially offset by the impact of 2020 restructuring charges. Please turn to Slide 8 of the presentation for the Q2 2021 cash flow performance summary. Adjusted free cash flow for the quarter was $95,000,000 compared to $67,000,000 for the same period in 2020. The increase was principally driven by higher net cash provided by operating activities, partially offset by increased capital expenditures. We ended the quarter with a net leverage ratio of 2.9 times, dollars 238,000,000 of cash and 6 and covenant light debt structure with the earliest maturities due in 2026. I'm also pleased to report that yesterday, Moody's Investors Service Published a comprehensive upgrade on Allison Transmission. Moody's upgraded its ratings on all of Allison's financial obligations, including the corporate family rating, senior secured credit facility and senior notes. During the quarter, we settled $130,000,000 in share repurchases and paid a dividend of $0.19 per share. We ended the quarter with approximately $600,000,000 of authorized share Repurchase capacity. Notably, we repurchased 5% of our outstanding shares in the first half of twenty twenty one. And as Dave mentioned, Over 50% of the outstanding shares since the 2012 IPO. Please turn to Slide 9 of the presentation for the 2021 guidance review. As a result of the ongoing recovery, we are reaffirming the 2021 guidance ranges released to the market on April 28. We expect net sales in 2021 to be in the range of 2.325 to $2,475,000,000 Our 2021 net sales guidance continues to reflect higher demand in the global on highway, Service Parts Support Equipment and Other and North America Off Highway end markets as a result of the ongoing global economic recovery and price increases on certain products. Our full year 2021 guidance also assumes the continuation of industry production constraint and global supply chain challenges for the foreseeable future. In addition to Allison's 2021 net sales guidance, We are reaffirming our guidance ranges for net income in the range of $395,000,000 to $465,000,000 Adjusted EBITDA in the range of $795,000,000 to $885,000,000 net cash provided by operating activities in the range of $585,000,000 to $655,000,000 adjusted free cash flow in the range of $415,000,000 to $475,000,000 And capital expenditures in the range of $170,000,000 to $180,000,000 including approximately $60,000,000 for sustainment and over $100,000,000 for growth initiatives. As we've often discussed, continued investments in CapEx and R and D through the pandemic, while simultaneously delivering strong financial results and creating value for all of our shareholders have enabled product development initiatives to in support of long term growth initiatives across all of our end markets. Thank you. And I'll now turn the call back over to Dave. Thank you, Fred. Earlier this year during the Q4 2020 earnings conference call in February, we outlined some of our conventional propulsion initiatives that are driving the recent and planned increases in CapEx as well as R and D spending. Last quarter, we highlighted numerous developments within our fully electric and electric hybrid product portfolio. This quarter, I'd like to highlight several conventional milestones that have recently come to fruition. Despite the challenging state of the global energy markets through most of 2020, Allison remained committed to its global off highway customers. In fact, when others step back, Allison stepped up, Reinforcing our commitment and promise to our customers with significant investments in increasingly capable and higher rated Products that will deliver the Allison brand promise for years to come. In June, Allison introduced FracTran, our next generation hydraulic From dual fuel engines with the capability to run on natural gas to increasing horsepower and substantially reduced idle time, The hydraulic fracturing industry demanded a transmission that can deliver the dependability necessary to maximize uptime and handle any unexpected operational challenge. Designed to meet the unique and continually evolving demands of this industry, Frac Tran is the result of extensive voice of customer insights as well as an analysis of duty cycle information from decades of Allison products Operating this application. This robust hydraulic fracturing transmission aims to deliver unparalleled performance and high pressure duty cycles within the harshest operating environment. Key benefits and specifications of frac trying include high reliability with the service life up to 25000 hours and an overhaul that provides a second life without hard parts replacement resulting in a total Cost of ownership at a low level. In addition, Frac Tran offers filter and fluid life prognostic, A transmission mounted control module torsional measuring diagnostics and an on rig telematics gateway. As hydraulic fracturing fleets and operators move toward higher horsepower, smaller spreads to reduce their environmental footprint And seek shorter times to reach depth in search of improved sustainability, efficiency and profitability. Allison is innovating with them to remain a partner of choice for the energy market. Additionally, last week, Allison introduced Our latest innovation innovative propulsion solution purpose built for the global construction and mining markets, A variance of Allison's proven 4,000 series transmission, the Allison Terra Tran is designed for unique demands of Off highway applications including mobile crane, articulated dump truck and wide body mining dump trucks with enough application flexibility to target Additional on highway opportunities as well. Similar to Frac Tran and Terra Tran's development was also based voice of customer input, which indicated a need for the proven reliability and durability of Allison's 4,000 Series transmission, But with increased horsepower, torque and gross vehicle weight capability combined with enhanced drivability, Great ability and maneuverability under demanding operating conditions. We are excited to launch TeraChand with CMG, the largest manufacturer of construction equipment in China, will be launched on XEMG's all terrain crane application. This collaboration is the latest example of Allison working closely with our OEM partners to develop innovative solutions that deliver Unparalleled performance and productivity to end user customers. Finally, late last week, the U. S. Army announced that Parties chosen to design the optionally manned fighting vehicle includes American Rheinmetall vehicles. In February, Allison announced a strategic partnership with American Rheinmetall to provide Allison's next generation electrified transmission propulsion system for the LYNX vehicle that is competing for the OMFV program. The next generation electrified Transmission is the newest product in Allison's extensive tactical vehicle portfolio. It will enable electric hybrid propulsion as well as electric only silent maneuverability and provide exportable power provisions for on and off board systems. The next generation electrified transmission is also designed to meet the requirements across a broad spectrum of applications, including the heavy This U. S. Army OMFV program is a Priority ground modernization initiatives that could include replacing nearly 3,800 Bradley Infantry Fighting Vehicles. The program begins with design phases that continue through early 2023, followed by the development of prototype vehicles in 20 And government testing beginning in early 2026. As we have often discussed, conventional propulsion does not have the luxury of standing still While we wait for the electric commercial vehicle and its corresponding infrastructure to be ready, the global markets seek increasingly efficient, Cleaner and more reliable propulsion solutions and global emissions regulations continue to become more stringent and demanding. Allison is ready to deliver the solutions that improve the way the world works today, and we will continue to develop the next generation of This concludes our prepared remarks. Maria, please open the call for questions. At this time, we will be conducting a question and answer session. Our first question is from Rob Wertheimer with Milus Research. Please proceed with your question. Our train side, and just ask, I mean, obviously, we're all aware it's very early days. There are a number of e axle and similar propulsion providers out there. I just wanted to I feel what it feels like to hear what it feels like for you competitively. When you go to look at platforms, You tend to have a pretty good win rate on the platform as you're looking at, maybe it's even early for that, I'm not sure. And just in these very early days, just how you see the competitive environment Rob, good morning. I think I missed the did not hear the First part of your question. It was a comment on conventional powertrain and it was good to hear the updates there. That's all. Okay. Fine. I guess to your question on competitive EV solutions In terms of what's out there, as we said before, ET, very early updates In terms of what's actually available and frankly production ready or I should say regular production ready, That being said, a number of different providers that are out there, both I would say traditional powertrain suppliers as well as new Entrance, that being said, as we see the landscape continue to develop, As we've said before, a number of solutions in our view will be required to serve the commercial vehicle market. In other words, there is no one With that in mind, our approach given our understanding of the addressable space, multiple locations globally, etcetera, That's really the strategy that we're pursuing is a number of different solutions to capture and cover the vast majority of the market. Our understanding in terms of what's out there, I would say there are limited number of parties that appear to be capable of Providing what I would consider to be a more fulsome portfolio of solutions. That being said, again, It's a focus that a number of parties are collaborating on including us. So that is continues to be our strategy, which is a portfolio Working closely with other suppliers and frankly OEMs. So I think that It's the landscape that's in front of us that will continue to evolve and again something we're staying very close to. Okay, thanks. And then on the conventional side, just in China, how broad is the, I don't know, scope of conversations You're having the people on different machine form factors and higher volume potential machines and lower and so forth. I don't know if that The announcement you made is an indicator of more work behind the scenes. Thank you. I'll stop there. No, it's fine. We continue to work with multiple parties in China, as you know, very large commercial vehicle market there. They continue to really advance their technology and their users are demanding more capability, which Certainly consistent with our product offering and as this recent announcement indicates, we are taking that voice of customer to heart as we always have done And applying our technology across a number of different end markets and applications. And that's an indication of what we would expect to be a number of developments As we continue to work with the Chinese OEMs and frankly the end users. As I said, I think the end users are increasing Their demands and requirements ultimately, it's really going to be a combination of working with the OEMs as well as The end users to come up with better solutions. Thank you. Our next question is with Ian Zaffino with Oppenheimer. Please proceed with your question. Hi, great. I know you guys touched upon this a little bit in the prepared comments, but can you dig a little bit deeper and give us an update on Sort of the questions, does your supply chain inflation? I know you guys are typically able to pass that through, but Maybe touch upon that a little bit, chip shortage? And then I have a follow-up. Thanks. Let me good morning, Ian. It's Dave. Let me start and then I'll Hand it over to Fred. On the supply changes, I'm sure you're well aware with some of the most recent public reporting from a number of OEMs and other industries, we are seeing much of what you've heard already. And frankly, what we've, I believe started talking about in our Q3 2020 call, which is some supply chain Constraints developing, it's in our view, if you ask me what it looks like now versus a year ago, I would tell you it's obviously much worse. It's created a tremendous amount of work throughout the industry at all levels to try to react to it, but It's across the board. It's hard not to think about things that aren't a challenge right now, whether it be logistics, as I mentioned in the Prepared remarks, electronics, everybody's heard about those, but it's starting to make its way into a number of other supply issues as well. The challenge there is trying to keep up and ultimately have better visibility into what's going to be available as you think about the balance of this year and setting For 2022, we're staying close to both at the OEM level customers, suppliers throughout the tiers That is taking a tremendous amount of time from our team, which is also, I think, very stressful across the board for the And I think as I mentioned in the prepared remarks, there are things happening that frankly were inconceivable prior to the pandemic in the industry. I don't See that being resolved near term. I think if you take that all of that in, it sets up for, I think a very strong tailwind going into 2020. I would also offer from our perspective, I think it's going to be very difficult To be deferring things at this point from a build perspective and trying to slot those in for the balance of the year. That's Just not the industry is going to run out of time and especially when you start thinking about getting outside North America markets, If you're not really pushing product into the channel at this point beyond the end of this quarter, I would say you're probably timing out on things. So you have that dynamic working in North America. We believe that's going to time out on deferrals. And then you have, I think, some of the same issues starting to evolve for outside North America. And that's what the context of Some level of certainty around what's happening with disruptions, which is I'm sure you're well aware over the last few weeks, That seems to be throwing yet another variable into the equation. So it's again from our view going to be challenging and that's resulting in a number of Inefficiencies relative to labor and cost that as far as I can tell everybody in the industry is starting to Experience with that, I'll turn it over to Fred to your cost question and inflation. Sure. Ian, As Dave mentioned, there's certainly inefficiencies due to supply chain constraints, freight labor, expediting costs, higher overtime rates, The inflationary pressures, elevated commodity costs for us, that's primarily steel and aluminum continue. Based on the timing of our commodity pass throughs with our customers, we expect the majority of these pass throughs to occur in early 2020 Looking at the first half, we were favorable price, about 110 basis points of price. We've taken other pricing actions throughout the year and really expect year over year pricing to be closer on a full year basis to 150 This is an increase from what we talked about on the April call of an expectation of 100 basis points. But really prior to those early 2022 commodity pass throughs to our customers, we We anticipate being slightly price cost negative. Okay, good. And then just on another topic, it looks like you're kind of increasing a lot of CapEx, but that seems to be Primarily on the conventional side, it sounded like. How are you thinking on the East side about Increases in CapEx, is there a need maybe to go out and add something additional inorganically into the portfolio? Or sort of where are you thinking on the electrical side? Thanks, electric side. Ian, it's Dave again. To your question or comment there, understand that our increased capital spending in R and D is covering both Conventional and electric vehicle components. So as you know With the announcements of our both our eGen Power and eGen Flex products that is requiring R and D as well as CapEx. So We are spending CapEx funds as well at this point on EV. There's certainly more to come As we further evolve the portfolio and start commercialization, you can imagine there'll be various stages Whether you're taking it from a low rate production ultimately to a full rate production that will And our view occur over several years. Having said that, we are making upfront foundational investments in terms of Development capabilities as well as production capabilities, when you think about the investments we made That launched our vehicle test center last year. That included conventional as well as We also have stood up testing capability now in Auburn Hills, Michigan as well as Increasing our other facilities in the Indianapolis area. So there is broad based spending going on for EV as well as conventional To your comment in terms of inorganic, as we've mentioned before, we're always looking for opportunities to augment our capabilities as an organization, globally. So that continues to be featured in our activities As a team here, that can happen through a number of different, avenues as we know from our 2019 activity in terms of outright Acquisitions, but there are a number of opportunities that we're looking at and continue to assess in terms of building out our capabilities. Thank you very much. Our next question is with Jamie Cook from Credit Suisse. Please proceed with your question. Hi, good morning. Two questions. I guess one Fred, just as you think about the incremental costs that are coming into 20 21 related to supply chain, freight, material costs, etcetera. Is there any way you can help us understand potentially what costs are in 20 21 that are elevated that could go away in 2022, setting up incrementals okay for 2022? And then I guess just My other question is obviously with concerns on weighing on your stock in terms of EV and how that positions Allison, longer term, is there any way you can help us understand as you think about like your top line growth or your margins Over the next over the long term, do you see sales or margins At lower levels relative to where we've seen them historically, because I think that's one of the issues sort of weighing on your stock that R and D structurally higher, so your margins are lower or that you have some top line headwinds ahead of you? Thanks. Thanks, Jamie. I'll speak to the incremental cost that we're seeing in 2021 in R and D and I'll let Dave talk about top line revenue in the out period. As we mentioned in our Prepared remarks. I mean there's a significant amount of inefficiencies, expedited freight, Enabling suppliers to actually produce product in house elevated overtime being run. So I think really broadly across the industry, a significant amount of inefficiencies that should be relatively easy to get out once the supply It catches up. From an engineering R and D standpoint, we see the same constraints there With 3rd party providers having difficulty providing us what we want on the timeline that we want. Originally, the guidance we provided from an engineering R and D standpoint was up 30% year over year. Last call, I talked about the spin being about 45% in H1 and then 55% in H2. At 45% to 55% ratios still there, but really driven by some of the supply Chain constraints at this point, we expect engineering R and D to be closer to up about 20% versus the original estimate of 30%. I'll let Dave comment on out period sales. Bulk sales and margins. Thanks. On the long term. Good morning, Jamie. So a couple of things. In terms of top line, As we've talked before that our concept of our content on a per vehicle basis when you look at The eAxles and other solutions, at least initially are several times what conventional content looks So from a top line perspective, I think it really gets back to ultimately what we view our share of the market to be versus what it is today to I think ultimately answer your top line question. That being said, I think we're certainly not in a position to comment, I would On the longer term view there because I think it's frankly far too early to even think about when and where and how much. What we are focused on is, as you know, are frankly the meaningful programs that we can actually to develop solutions that can be broadly applied from a modular perspective. So, as you know, we've The industry has created a very high level of conventional expectation in terms of performance and reliability, total cost of ownership. That's what we focus on and we believe from a value perspective that's ultimately what will win the day in terms of the market. So I understand that to the earlier question, there's a number of players out there, but we're talking about providing managing Power within the vehicle is a lot different than taking a portion of that ultimate system and trying to manage it. And For that reason, the content when you think about top line is really going to come down to a volume answer. On the margin side, We didn't achieve the margins that we have today on conventional overnight that's occurred over several decades. The disruptive nature of EV as you think about ultimately where EV lands, it's going to take in our Few years to get there, just to get a market position, let alone what's the mature cost to look like. And then of course, What the value of the solution is, which is the way that we ultimately price our products. So there's not unfortunately, I think a tremendous amount of answers To your questions, other than delivering what we believe will be differentiated products that attract an appropriate value From end users, I would also add on to that comment. We're working on a tremendous amount of technology and Product initiatives, as we said, whether that be electrified vehicles and conventional, We're obviously looking forward to demonstrating that to the investment community and I know there's a lot of interest in this. So we're Certainly pleased to share, we're currently organizing a virtual technology day to showcase Some of our latest innovations in both conventional and electrified propulsion. So we expect That event will be held early Q4 and we'll be providing the market with additional details in the coming weeks. I appreciate that. Thanks so much. Our next question is from Ross Gilardi with Bank of America. Please proceed with your question. Good morning, guys. Good morning. Can you hear me okay? Yes. Hey, Dave. Yes, look, several quarters ago, you seem to convey A good degree of confidence that you have an announcement to make with 1 of the major truck OEMs on e axle and perhaps just on broader systems integration. You certainly talked about Some interesting developments in the off highway space, but we haven't heard much on the on highway side aside from what you've been saying for a number of years. And I'm wondering, should we assume that some type of formalized collaboration with 1 of the major OEMs is unlikely to be announced or the balance of 2021? And then just further to that kind of related to the last question, how do you compete on e axle with the conventional axle suppliers who seem perfectly content To accept low double digit EBITDA margins when you yourself are coming from position where you've got EBITDA margin is obviously substantially higher than that. Ross, a couple Thanks. So I would tell you, we're expecting a relatively busy balance of the year From an announcement standpoint, so I would just offer that as an answer to your first question there. The teams despite I think some very challenging market conditions that we're all very familiar with. I can tell you the team is Extremely engaged at this point and busy on multiple fronts and I would expect, as I said, pretty active balance of the year in terms of Announcements to your question on competition at least on e axles, I think ultimately it does get back to The value of the solution that's being provided and with due respect to others in the marketplace, we all have our Our approaches to solutions for customers and I would say Allison as a preferred supplier in terms of powertrain, our capabilities and what we believe we bring to Customers, ultimately end users, total cost of ownership, support, that process of understanding how to manage Power, integrate the vehicle with all the controls and the safety requirements. Those are not to be And you can certainly do some of that, but to do all of it well and be able to Support that over the life of commercial vehicles is a real challenge. I don't dismiss others' capabilities to potentially do that, It's a relatively high hurdle. So for us, we're very comfortable in terms of competing With the traditional so called axle suppliers that are out there, but that's really not the only thing that we're doing. I'd also offer our capabilities can be deployed and will be deployed across a number of different propulsion architectures. And I think ultimately, OEMs current experience with conventional when you think about The disdain for proliferation, the requirements to standardize to have efficient vehicle production, all of the Things that they enjoy today, I don't believe go away are going to be suspended for electric vehicles. I think it's quite the opposite. And that From our experience to date, it appears to be the case where initial views on EV specs and ultimately performance continue To move to conventional or above conventional at this point, we've noticed in some cases. So The idea that that's going to be met and you have the capabilities from a technology perspective to deliver all of that is a relatively Challenging ask. So I think we're, as I said, very comfortable with our position and welcome the competition. We believe customers should have It makes everybody better, but in the context of at least our history and capabilities, we feel very well placed in terms of competing. Thanks very much. Our next question is from Jerry Revich with Goldman Sachs. Please proceed with your question. Yes. Hi. Good morning, everyone. Dave, I'm wondering if I could just ask you to as you look at Your supply chain conversations and your suppliers' capacity expansion plans, do you have a rough Sense of when you expect additional supply for some of the critical components beyond semiconductors To ramp up, when do you think we could see meaningful supply additions based on Those conversations and then separately on the electric vehicle side, we've had an update from PACCAR and Volvo about their orders for electric vehicles, so far, over the past quarter. And I'm wondering if you can provide a similar update in terms of The number of orders that you have for your systems on electric vehicles given the pickup in the order trends this quarter? Thanks. Good morning, Jerry. On the quickly on the supply chain capacity issues and I guess to your where you're going is, When does all this get better? From our perspective, we don't see this being resolved near term. We expect there'll be a number of challenges Well, through the second half and into twenty twenty two, hopefully, we're pessimistic and things will be better, but we don't plan the business on hope. We Are expecting that some of our challenges will certainly be resolved in the second half. I Frankly, you can't comment on everybody else's situation. I would say, just to highlight the obvious, it takes all of the parts To make the vehicle, and I would say the OEMs just given what you've heard publicly already in terms of the amount of parts Vehicles and the effort that it takes to manage that particular situation from a process perspective amongst other things is pretty challenging. They have and will continue to have, I think some challenges from electronics Just in general, everything we're hearing would say, that one is not going away. I think even the public comments by some of the semiconductor Manufacturers would tell you that, but relative to Allison's specific issues, we see some of those Improving certainly in the second half. I would also offer as busy as 2018 2019 were, in many cases, The supply chain was running hard only to come to a rather abrupt stop because of the pandemic and then a very abrupt restart. That's not the way The industry is used to operating frankly and I think that's created some challenges with the ramp back up to your question how quickly That can be ultimately resolved and improved. That would imply that you have, what you need in terms of components As well as the manpower to make those things happen, I'm not sure that's really readily available as our Experience with lead times on machinery and such continue to be rather extended. Having said that, we are planning to Certainly be in a position to supply what the market demands and we're staying close to customers probably I would say closer than we ever have In terms of forecasting to your EV question in terms of some of the initial feedback, I think from what we know That's pretty consistent with what everybody has been saying relative to orders in relatively low numbers. That's the kind of thing that we're hearing and continue to hear. I would also offer that our comments around timing of programs, They don't appear to be moving to the left on the calendar and there's a fair bit of work that's going into trying to manage to Initial views on timelines and some slippage to the right, that's really been our experience Well as volume numbers continuing to come in at the low end of ranges at least initially. So I don't I have not heard of anything from the 2 parties that you mentioned that would be significantly different from what we're Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back over to Dave Grazios for closing remarks. Thank you, Maria. Thank you for your continued interest in Allison and for participating on today's call. Enjoy the rest of your day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.