Good morning, everyone. Thank you for being here. Welcome to Allison Transmission's Second Quarter 2020 Earnings Conference Call. My name is Jesse and I will be your operator for today's call. Now, I will hand it over to Mr. Ray Posadas, the company's Managing Director of Investor Relations. Please proceed, sir.

Thank you, Jesse. Good morning, and thank you for joining us for our second quarter 2020 earnings conference call. With me this morning are Dave Graziosi, our President and Chief Executive Officer; and Fred Bohley, our Senior Vice President, Chief Financial Officer, and Treasurer. As a reminder, this conference call webcast and this morning's presentation are available on the Investor Relations section of our website, allisontransmission.com. A replay of this call will be available through August 12. 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 second quarter 2020 earnings press release; our annual report on Form 10-K for the year ended December 31, 2019; and our quarterly report on Form 10-Q for the quarter ended March 31, 2020; uncertainties related to the COVID-19 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 a reconciliation of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our second quarter 2020 earnings press release. Today's call is set to end at 8:45 A.M. Eastern Time. In order to maximize participation opportunities on the call, we'll take one question from each analyst. 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 second-quarter results and financial performance and provide an update on Allison's liquidity and full year 2020 capital spending plans. Finally, Dave will conclude the prepared remarks prior to commencing the Q&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 start by thanking all of Allison's employees, customers, and suppliers for their continued dedication and resilience during this unprecedented time. As the pandemic continues to disrupt populations and economies around the world, the health and well-being of Allison's extended family remains our top priority, and we will take the actions necessary to ensure the safety of our people and our communities. Our second-quarter results reflect the pandemic's significant impact on global supply chains and customer demand. Despite these ongoing disruptions, all of Allison's global facilities are currently producing transmissions and components, and the majority of our manufacturing operations have run continuously throughout 2020. To date, we have achieved uninterrupted delivery of our products and continued to generate earnings and positive cash flow. As a result of our long-standing commitment to prudent balance sheet management, ample liquidity, profitable operations, and fully funded defined benefit pension plans, Allison is well-capitalized and positioned to realize future growth opportunities that may emerge from the current environment. We also remain focused on aligning our operations, programs, and spending with current end market conditions, while maintaining the flexibility to respond quickly and appropriately as these conditions evolve. Unfortunately, a weaker global outlook has led to a number of restructuring initiatives, including reductions in both our hourly and salary workforce and the ongoing reassessment of the timing and cadence of various capital investment, commercial, and product development initiatives. As I've said in the past, these are difficult decisions that significantly impact our employees, their families, and our communities, and we do not take them without due consideration. Finally, the pandemic continues to create a substantial amount of uncertainty. Though customer demand and supply chains steadily improved throughout the second quarter, as global shutdowns were gradually eased and economies began to reopen, a considerable amount of uncertainty remains as we've entered the second half of 2020. Numerous events and factors may occur over the coming months that could have meaningful consequences on global demand and supply chains. The current highly uncertain environment warrants a prudent approach as we manage the second half of 2020. Nevertheless, the disciplined pursuit of our strategic priorities and our commitment to improving the way the world works will persevere as we look ahead to 2021 and beyond. Thank you. I'll now turn the call over to Fred.

Thank you, Dave. Following Dave's comments, I'll discuss the Q2 2020 performance summary, key income statement line items, and cash flow. I will then review Allison's liquidity and full year 2020 capital spending plans before turning the call back over to Dave. Please turn to Slide 5 of the presentation for the Q2 2020 performance summary. Net sales decreased 49% to $377 million compared to the same period in 2019. The decrease in net sales was principally driven by the ongoing effects of the pandemic on the global economy, resulting in lower demand across all of our end markets, except for the defense end market. As Dave mentioned, a weaker global outlook and current end market conditions have led us to implement a number of restructuring initiatives across our business. As a result, we incurred $12 million in restructuring charges during the second quarter for voluntary and involuntary separation programs for both our hourly and salaried employees. Gross margin for the quarter was 43.8%, a decrease of 900 basis points compared to 52.8% from the same period in 2019. The decrease was principally driven by lower net sales and restructuring charges, partially offset by lower incentive compensation expense, price increases on certain products, and favorable material costs. Net income for the quarter was $23 million compared to $181 million for the same period in 2019. The decrease was principally driven by lower net sales and restructuring charges, partially offset by lower selling, general, and administrative expenses. Adjusted EBITDA for the quarter was $115 million, or 30.5% of net sales, compared to $308 million, or 41.8% of net sales, for the same period in 2019. The decrease was principally driven by lower gross profit, partially offset by lower selling, general, and administrative expenses. A more 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 2020 financial performance summary. Selling, general, and administrative expenses decreased $24 million or 26% from the same period in 2019, principally driven by lower commercial activity spending, lower incentive compensation expense, lower intangible amortization expense, and lower stock compensation expense, partially offset by product warranty adjustments and restructuring charges. Engineering research and development expense increased $1 million from the same period in 2019. Please turn to Slide 8 of the presentation for the Q2 2020 cash flow performance summary. Adjusted free cash flow decreased $147 million from the same period in 2019, principally driven by lower gross profit and higher cash interest expense, partially offset by lower cash income taxes, lower operating working capital requirements, and lower commercial activity spending. Please turn to Slide 9 of the presentation. We ended the quarter with a net leverage ratio of 2.78x, $434 million of cash, and $319 million of available revolving credit facility commitments. We also maintained our flexible, long-dated, and covenant-light debt structure with the earliest maturity due in September 2024. During the second quarter, we paid a dividend of $0.17 per share and ended the quarter with approximately $870 million of authorized share repurchase capacity. As we continue to manage this unprecedented period, Allison's unwavering commitment to a well-defined approach to capital structure and prudent balance sheet management remain intact. Thus, Allison continues to operate from a position of strength and maintains the optionality to pursue growth and capitalize on opportunities that are consistent with our strategic priorities. Given the ongoing impact of the pandemic on the United States and other major markets in which we operate around the world, its uncertain duration as well as the continuously evolving customer demand and supply chain readiness, we cannot conclusively provide a full year 2020 revenue earnings and cash flow outlook at this time. However, as Dave mentioned, we remain focused on aligning operations, programs, and spending with current end market conditions. We are reaffirming our full year 2020 capital expenditure target of approximately 35% below 2019. In addition, we anticipate a permanent annual cost savings of approximately $25 million as a result of the restructuring initiatives undertaken during the second quarter. We will continue to monitor end market conditions and make adjustments to our operations and spending accordingly. Finally, we remain steadfast in our commitment to the future growth of Allison. And we will continue to fund key product development initiatives that will drive the expansion of our business and further secure our leadership position in the end markets that we serve. To that end, we anticipate that engineering research and development expenses for the second half of 2020 will be consistent with the first half levels of spending. Thank you, and I'll now turn the call back over to Dave.

Thank you, Fred. As we've discussed on prior calls, the resiliency of Allison's business is inherent in its strong market position in diverse end markets. While the pandemic has inevitably impacted Allison's commercial business, the essential business of the United States national defense continues unabated, and we remain committed to supporting the United States military on current and future programs. Recently, Allison partnered with the United States Army's Tank-automotive and Armaments Command to support the sustainment of the Army's light armored vehicle fleets. Consistent with the initial contract's requirements, we began delivery of the X200 cross-drive transmission in June. The X200 is designed for light-tracked combat vehicles weighing up to 16 tons, including the M113A3 armored personnel carrier, which remains the army's single largest armored vehicle fleet with nearly 5,000 vehicles. Allison continues to work with our defense end market partners, actively pursuing numerous wheeled and tracked opportunities around the world. The defense end market demonstrates the inherent strength and resiliency of Allison's diverse business. Despite the pandemic's impact on our commercial business, we remain committed to our growth initiatives, and we'll continue to invest prudently and appropriately to drive programs across all of our end markets. Recent growth developments include the latest release of the award-winning Allison 3414 Regional Haul Series transmission with Navistar's International Trucks in July. First introduced late last year at the North America Commercial Vehicle Show, the new Regional Haul Series is an uprate variant of Allison's proven and well-known 3000 Series fully automatic transmission designed to meet the higher engine torque requirements of the Class 8 tractor market. Last week, we announced that New Flyer and Allison will deliver 50 electric hybrid-equipped buses to New York City Transit, the largest transit authority in the United States. This 50-unit order follows the successful evaluation by the transit authority of buses equipped with Allison's H 40 EP electric hybrid propulsion system. We also continue to enhance our presence outside of North America with new releases such as the recently introduced UD Croner medium-duty truck in Australia, featuring Allison's 3000 Series transmission as standard across the vehicle lineup and the upcoming UD Quon heavy-duty truck, which expands Allison's offerings in the international vocational market. In China, we continue to make inroads into the competitive export market. Recent wins with OEMs such as Kinglong and Ankai feature Allison transmissions in various bus models for the Middle Eastern markets, exports of our refuse trucks and LNG yard tractors to Latin America and other parts of Asia by Sinotruk and Shanxi also feature our transmissions. In Europe, Allison transmissions are featured in new and upcoming transit and articulated bus releases with KAMAZ and MAZ for the Eastern European and Russian markets as well. In South America, we continue to expand our vocational presence with recent truck releases by Triton and Mercedes-Benz for fire and emergency, refuse pickup and delivery, and armored vehicle vocations. These global releases are key components of our growth strategy. Along with ongoing and targeted end-user initiatives, Allison's expanded offerings will support increased penetration, promote demand for our brand, and advance our market leadership expansion efforts. Innovation is another key component of our strategy that will drive growth across our entire business. Allison's recently completed Vehicle Environmental Test Center is already being leveraged to accelerate the development of our next-generation propulsion solutions, including Allison's portfolio of electric propulsion systems. The test center enables the accumulation of in-vehicle durability hours under real-world operating conditions and accelerated rates without the downtime required to charge the energy storage system in an electric vehicle. The test center also facilitates instant evaluation and responses to issues under controlled conditions that ensure the desired operating environments can be isolated, tested, and replicated at will. This capability provides Allison with the unique advantage in the development of new products. For example, our electric axle architectures can undergo testing under a broad range of real-world operating conditions and extreme environments. The ability to simulate and replicate a wide range of conditions expedites the testing of onboard power electronics, power consumption, and electric accessories, as well as overall system performance and efficiency across a range of energy storage systems, including battery electric and hydrogen fuel cell-powered solutions. These combined capabilities also facilitate the delivery of the Allison promise of durability and reliability, even for the most demanding cycles. The test center is equipped to help our engineers, as well as our OEM partners, body builders, suppliers, and fleet owners innovate their vehicles, optimize performance, and accelerate time to market by testing safely and confidently in a single environment-controlled and seasonally independent location. Allison remains prepared and committed to meet the current and future needs of our customers. Our product development expertise, with a focus on improved fuel economy and reduced greenhouse gases, combined with our financial strength, robust cash flow generation, strong margin profile, variable cost structure, and asset-light business model supports the continued pursuit of our strategic priorities and enhances Allison's position as a preferred and long-term partner. This concludes our prepared remarks. Jesse, please open the call for questions.

Our first question comes from the line of Ross Gilardi with Bank of America.

Just on the North America on-highway side, can you comment at all on revenue trends in July relative to the down 59% in Q2? And just with that, are the SG&A savings in the second quarter sustainable for the balance of the year? And with that, what kind of decremental EBITDA margins should we expect in the second half?

Sure. Ross, it's Dave. In terms of your question on North America on-highway revenue in July relative to second quarter, as you know, as we mentioned, certainly, the level of demand improved throughout the second quarter and, obviously, carried into Q3 so far. I would say, we're pleased with what we've seen out of July and, frankly, early indications of August. Having said that, as we talked about on the Q1 call and worth repeating here, near-term visibility is about where we're at. I can offer to you that a number of events, as I mentioned in the prepared remarks, continue to create some concern for us and, frankly, some challenges as the pandemic. When you see some of the case history, a number of regions around the country, as you know, are pretty critical to the commercial vehicle industry and the broader economy. We are staying very close to that, but our expectations, as we've already discussed, are predicated on a continuation of what you see currently in terms of the supply chain's ability to ultimately execute with the guidelines that they have and that we're also operating under at the same time. OEMs having a similar experience. But I would say, in summary, overall, certainly pleased with what we saw in July and early indications for August. And beyond that, I would say our visibility is pretty limited as we start thinking about Q4 at this point. On your Q2 SG&A run rate question, certainly, our expectations overall, is that you should expect and we expect a pretty similar level quarterly run rate for the second half, similar to what you saw in Q2 for SG&A.

Our next question comes from the line of Joe O'Dea with Vertical Research Partners.

As we've seen cost-cutting action across the group over the course of earnings, R&D has been one area that's also been hit. You didn't do that. Can you talk about some of the prioritization on R&D spend, whether that's shifted at all given the current environment? And you've talked about being well capitalized and sort of the potential of being well-positioned to realize opportunities that may emerge. Can you expand on that at all? And what kind of opportunities you're seeing on the horizon?

It's Dave. I'd say, briefly, in terms of your R&D question, our priorities haven't changed. As we begin our analysis and how we think about that, it's market-driven. I would say, overall, we haven't really come across the need to change. I think unlike probably some others that you've heard of in terms of public comments and redirects or significant level of retiming as such as it may be, we're staying very close to what we believe is market-driven demand at this stage. So we've continued to align and pursue those initiatives. And I would offer it's across all of our end markets. It's not just conventional; it is electrification, and it also extends to our defense end market as well and off-highway for that matter. So we — as we've talked many times, our view is to invest through the cycle. Our balance sheet and overall leverage levels take that into account, but this is not a situation where we find ourselves needing to significantly change. And I think if nothing else, sending the signal to all stakeholders that we continue to be committed to our business and end markets is an important point. I think, frankly, it also is a significant message to send to not only the broader market but internally to our team, which is continuing to drive what we believe is important to deliver that promise but also maintain our leadership position in the markets. In terms of capital allocation, I guess, as to your question, how we think about that, we haven't changed that view either. We continue to be committed to prudent balance sheet management and an appropriate level of leverage over the cycle. Fred and the team, I think, continue to do a great job monitoring where we are and, frankly, maintaining a high level of liquidity at the same time, we're also opportunistic. So our commitments in terms of generating cash and returning it to shareholders continues in that. As you know, it takes a number of different forms as we continue to maintain our dividend, but also the flexibility to return capital to shareholders and other efforts.

Our next question comes from Jerry Revich with Goldman Sachs.

I'm wondering if you could talk about the prospects for the electric hybrid products. A number of years ago, it was a meaningful part of the portfolio, but then customer interest ultimately didn't pan out. Can you talk about how demand for electric hybrids looks like from here? Was this a one-off order or is there an opportunity for Apollo and elsewhere based on your pipeline? And is the technology more economic today compared to 5 or 6 years ago? And any other developments that we should be thinking about on alternative propulsion systems for you folks where we'll get data points over the balance of this year based on customer announcements?

Jerry, it's Dave. In terms of your questions, the electric hybrid product that we've been producing for upwards of 17-plus years now, and I would say very successfully with thousands of units running, and it does — we do take quite a bit of pride in the fact that there are literally billions of miles that have been racked up over time. It's interesting when you compare that to announcements in the alternate propulsion space and statements are made about accumulating some — a few million miles here or there with a number of different alternatives. The fact is we have a lot of experience. I think it's — from that experience, it has also allowed us to improve that particular solution to make it more economic. It has more value today than it had when it started. We're also adding additional features to that. And we've talked about the fact that it will be introduced in an extended range for full EV operation, which is an important aspect. And frankly, what we're hearing from customers, I think despite what I think some people may mistakenly believe is there's no market for hybrid, the fact is there are because not every region, not every property is in a position where, for a number of reasons, full EV may be the solution for their entire fleet. At the same time, they want the benefits of reduced greenhouse gas emissions, etc. And I think that's — the concept here is what is the hybrid product — the electric hybrid continue to deliver to end users. So we're proud of where that sits. I think the team continues to do a great job evolving it, and it's well received by the market. And the other question you raised in terms of the transit authorities order, it's — we do not view that as a one-off. We continue to have strong demand for that particular product. In terms of our efforts in alternative propulsion, we've been certainly in the market for years with products that can be used with alternate fuels, that continues to get a lot of attention. I mentioned in the prepared remarks, with CNG and otherwise, I think fuel cells are getting — hydrogen fuel cells and other forms are getting more attention now. The fact is they're all facilitated ultimately by an EV capability. So that is consistent with our strategy and our portfolio and what the team is currently pursuing. I think, in general, I'll tell you, we're pretty pleased with where we are and the progress that we've made. I would also offer the pandemic has not been a situation that's helped in certain regards, getting a number of things done. As we've talked about before, it takes all the parts to make a transmission. It also takes a lot of things to perform development work and complete it. And that has been somewhat confounding this year, just given the conditions with the pandemic and limiting our reach to affect some issues. But I would say, overall, very pleased. I'd also say, in terms of my comments on the environmental test center, that has really brought to bear the advantages of controlling your destiny in terms of your ability to develop and test on site. The idea of keeping our team, which is a priority for us, safe really does come to pass when you think about doing that type of work in your own facilities with your guidelines and safety requirements and, ultimately, not having to put people on the road. So we're very pleased with the results so far there. In terms of expectations going forward, I would say, overall, we're staying very close to OEMs in a very targeted way. We also have a number of different internal, external milestones targeted for early next year that we're working towards relative to alternate propulsions.

Our next question comes from the line of Courtney Yakavonis with Morgan Stanley.

Just curious if you can comment. I think last quarter, you had just given us the impact of Walker Die Cast on the parts business and also on the margins, if you can disaggregate that? And then if you can also just comment on the supply chain more broadly. Obviously, we saw some challenges over the past quarters, but you guys have been bringing some components in-house via this acquisition? And if the current environment has changed your thinking about vertical integration at all, and if there's anything you're rethinking in the supply chain at this point?

Sure, Courtney. Let me take the first part on Walker. We did comment last quarter on the impact on gross margins, that kind of 125 to 150 basis points. I think in a normal quarter, that's probably a consistent number. This quarter, with all the disruption, both within our parts business down significantly, the Walker business, the challenges there, really minimal impact on margin for Q2. But I think going forward, in a more normalized quarter, similar to quarter 1, you'd see the same impact from Walker Die Cast.

In terms of the — Courtney, your supply chain question, as we talked about on the Q1 call and a number of questions that we received there, certainly, things have improved, as you would expect, fortunately. Having said that, to my prior comments, the amount of case development, shall we say, and some of the deterioration that you've seen in a number of different regions is really challenging. So we are, I think, at the early end of some of that as it continues to roll through by region. As you know, a number of regions are more relevant, I would say, to commercial vehicle and automotive than others. I think you — we are certainly keeping a close eye on those regions in terms of what steps they are taking, if they're rolling back, opening, so to speak, and what those requirements, restrictions will be. We certainly support all of our suppliers in terms of operating safely with guidelines and certainly share best practices with them. I would tell you that it continues to be very much a 24/7 operation in terms of managing our supply chain, which is not only North America but global. And I would say outside of North America, there continued to be a number of so-called hot spots that we're staying close to. Having said that, the vast majority of our supply chain is still in North America. We continue to work with suppliers looking for alternatives and helping them where we can, contingency planning. I think to date, we've been extremely fortunate and successful through the efforts of our team as well as suppliers to keep us in a position to operate. Having said that, I think, again, I give all the credit in the world to our team in terms of what they've been able to do. I would also offer to you, we've had to change a number of our internal processes around managing the business just given the amount of issues. And I think that's an important point because we are literally talking about 24/7, as I mentioned, but also daily, if not weekly, updates with the broader leadership team here to drive action and be very proactive. It will also create some challenges in terms of working capital investment to a level because we find ourselves taking, I would say, certainly leaning forward in a number of areas to ensure supply and trying to be helpful there. At the same time, I think we've been fortunate in terms of the support we've been able to offer to suppliers. I think that also has highlighted the advantages of some things we've certainly done in the past in terms of proactive capital investment, both internally as well as at some of the suppliers. I think to your question on vertical, Fred mentioned the Walker operations. As we think about that, it continues to, frankly, outperform our expectations in terms of the ability to leverage that particular asset, not only for Allison's purposes but for third parties. I think it's really provided us a tremendous amount of flexibility and, frankly, a surety of supply to get some things done, but we continue to look at what the rest of our book of business is. And I would say, at this stage, is it causing us to think differently about vertical. We're always thinking. I think the question is, is there something new there I would offer as you think about global sourcing, and this will be one of the — I'm sure, the hot topics amongst many within the market and amongst Board meetings is how do you think about offshore supply and, ultimately, do you move from a regional basis to more localization, and that's something we're spending a fair bit of time on, as you can imagine, with our operating footprint. In summary, overall, I think we're very pleased and appreciate the efforts of many parties to keep us operating.

Our next question comes from the line of Ian Zaffino with Oppenheimer.

Just wanted to drill down a little bit on the North American on-highway business. Maybe particularly in July, when the markets are recovering the best, which ones is the slowest to recover, which one sort of have the best momentum in them? And then maybe also if you could broaden that to your international markets too? Like what are you seeing recovering first? What has recovered first? And what are the trends there?

Ian, it's Dave. Let me start with North America on-highway. In response to the earlier question about supply chain, I noted some adjustments we've made to our internal processes, and similar improvements have been made in our commercial operations. The team has done an excellent job maintaining close relationships with our customers at various levels. One positive outcome from the pandemic is our enhanced engagement with customers and deeper understanding of their businesses. Before the pandemic, the industry was quite automated, with seamless electronic data exchange, but that process was disrupted, as we discussed in our first quarter call. It's mostly recovered now and has significantly improved, although we still don’t have much visibility beyond a month ahead, and that's how we’re currently planning. Regarding North America on-highway, the most active segments remain construction, refuse, and pickup and delivery. Class 8 over-the-road tractors, which we don't participate in, are still a weak point, as are food and beverage segments. Lease rental, especially in the medium market, is seasonal and decision-making can vary. There is considerable equipment that needs to circulate through the market, leading to rentals being converted to leases. The municipal market shows mixed results depending on property revenue sources and ridership considerations. Overall, North America is on a positive trajectory. We are closely monitoring order rates as they indicate future OEM production levels. Bodybuilder lead times are stretched due to component supply challenges, affecting timely vehicle delivery. Dealer inventories are somewhat depleted and in a rebuilding phase, but market conditions have improved since our Q1 discussion. Outside North America, China is recovering well, and we've had some success in export markets. Domestically, their support for development efforts continues. Europe is also showing signs of improvement, though holiday-related shutdowns are affecting visibility. In Asia, Australia seems to be stabilizing after previous oversupply. Unfortunately, Brazil and India are still facing significant challenges due to COVID, which dampens the market there and affects parts of Africa too. Overall, conditions are challenging. However, we are optimistic about the defense market in the second half, with expected run rates higher than the first half, and we’re committed to meeting our obligations. Off-highway, particularly outside North America, remains soft, largely due to challenges in the frac market, which we do not anticipate improving in the near to medium term.

Our next question comes from the line of Tim Thein with Citi.

Yes, Dave, I wanted to follow up on the off-highway situation in North America. Your largest frac end customer recently mentioned on their call that they expect the capital intensity of their business going forward to be about half of what it has been in the past. I’m not certain if they represent the whole industry, and their capital expenditures are allocated to many areas beyond transmissions. At a high level, how should we interpret this in terms of potential implications, not only from a new unit perspective but also considering the significance of the aftermarket? This really caught my attention, and I'm eager to hear your thoughts, especially since the prevailing narrative has been that increasing horsepower requires more capital intensity. This marks quite a change, so I'm interested in your insights.

Tim, thank you for your question. There are a few things to consider. Can we relate that commentary to the broader market? The broader market itself is weak for various reasons that everyone knows. Do I interpret those comments as broadly as some might? Looking beyond the short to medium term, I'm curious about the amount of hydraulic horsepower that will be utilized in North America, which will ultimately influence aftermarket units. Energy isn't going away; it's still a relatively low cost, which suggests there won't be upward pressure on global commodities. They also emphasized an international focus, and I believe we are well-positioned to engage in those international markets. I see that as a growing area. Our strategy combines the right technology with suitable customers and effective solutions. The concept of plateauing intensity is intriguing; however, it's still uncertain how the long-term trends will develop. If that is the case, I expect users will continue to seek more efficiency. Regarding our discussed initiatives, we are still committed to investing even in the current near-term cycle, particularly in off-highway solutions and improvements. This positions us well to support Halliburton and others effectively. The aftermarket is crucial, as it relates to the units and utilization rates. Our experience outside North America shows that some of those markets are moving towards the duty cycles and utilization levels seen in North America, indicating a potential rise in consumption rates. There's still much to observe in terms of development. However, as we've stated before, the market is volatile and may not suit everyone, which reflects the variety of market participants. We utilize an asset-light model, allowing us to meet demand effectively without significant absorption issues waiting for orders.

Our next question comes from Felix Boeschen with Raymond James.

I was just hoping you could provide some color on how the launch of your new Regional Haul Series is tracking. I appreciate the announcement with Navistar, and I believe you'd partnered with Freightliner previously. But curious if you could talk about your outlook on the ramp with what you're hearing from customers and maybe what you believe is achievable from a market share perspective in that Class 8 Metro space you have outlined longer term?

Felix, it's Dave. Very briefly, very pleased with the team's work on the RHS launch, specifically, near term here with Navistar. Understand that that was a market pull initiative. So I think the team did a great job demonstrating the value of that technology in that particular solution. We believe it's very competitive for the reasons we've discussed earlier. We also believe there's a solid portion of the market that we can obtain with that particular product in the so-called metro, as you said. I think it's a little early at this point to be indicating expectations around market share other than we obviously think there's some opportunity there, or else, we wouldn't have made the investment in time to do it. Having said that, I think we shall see. I think certainly the way Navistar has — and we appreciate their support to push that solution. And ultimately, our friends at Freightliner to get there as well. I think let's the market give it the opportunity to speak, again, as these vehicles get out there and fleets get more experience. We're looking forward to that. And again, as a market pull solution, we're very pleased with the response so far.

Ladies and gentlemen, we have reached the end of our question-and-answer session. So I would now like to turn the floor back over to Mr. Graziosi for any additional closing comments.

Thank you, Jesse. Thank you for your continued interest in Allison and for participating in today's call. On behalf of the entire Allison family, we wish all of you, your families, and colleagues good health and safety. We look forward to providing you with further updates, and hope you enjoy the rest of your day.

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.