Good evening, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission's Third Quarter 2021 Earnings Conference Call. My name is Paul, 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 Transmission will conduct a question-and-answer session. Then conference call participants will be given instructions at that time. 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, Paul. Good evening, and thank you for joining us for our third quarter 2021 earnings conference call. With me this evening are Dave Graziosi, our Chairman 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 evening's presentation are available on the Investor Relations section of our website, allisontransmission.com. A replay of this call will be available through November 3. 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 third quarter 2021 earnings press release and our annual report on Form 10-K for the year ended December 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 reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our third quarter 2021 earnings press release. Today's call is set to end at 5:45 PM Eastern Time. In order to maximize participation opportunities on the call, we will 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 third quarter financial performance and update full year 2021 guidance. 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 evening, and thank you for joining us. I'd like to begin by thanking Allison's employees, suppliers, customers, and partners for their continued dedication and tireless efforts. Since the beginning of the pandemic, the Allison team has consistently demonstrated its unwavering commitment to supporting essential workers and critical infrastructure, as well as delivering the Allison brand promise. Today, despite broad and ongoing challenges to global supply chains, Allison remains positioned to meet customer demand. Turning to the quarter, Allison's third quarter 2021 results reflect the ongoing recovery in global economic activity. Customer demand remains robust, and despite global supply chain issues that are tempering commercial vehicle industry production, global demand is approaching pre-pandemic levels. Looking ahead, as the global economy emerges from the pandemic, supply chains will continue to face broad challenges. The availability and utilization of labor, global shortages of electronic components across all industries, logistics disruptions, including air and ocean freight import delays, as well as the limited availability of raw materials will all continue to impact the industry's ability to align with accelerating customer demand for the foreseeable future. Finally, I'm pleased to report that Allison's well-defined approach to capital allocation and prudent balance sheet management remains intact. During the third quarter, we settled $100 million of share repurchases, representing over 2% of outstanding shares, and paid a quarterly dividend of $0.19 per share. As of September 30, Allison had repurchased over 7% of its outstanding shares in 2021. Notably, Allison received credit rating upgrades from both Moody's and Fitch during the third quarter. Thank you, and I'll turn the call over to Fred.

Thank you, Dave. Following Dave's comments, I'll discuss the Q3 2021 performance summary, key income statement line items, and cash flow. I will then update full year 2021 guidance before turning the call back over to Dave. Please turn to Slide 5 of the presentation for the Q3 2021 performance summary. Year-over-year, net sales increased 7% to $567 million from the same period in 2020, as robust customer demand remains tempered by persisting commercial vehicle industry production constraints due to global supply chain challenges. The increase in year-over-year results was led by a 31% increase in the outside North American On-Highway end market, driven by ongoing strength in global On-Highway customer demand and the continued execution of growth initiatives. Year-over-year results were further led by a $19 million increase in the North American Off-Highway end market, driven by an improving demand for hydraulic fracturing applications, and a $10 million increase in the outside North America Off-Highway end market driven by higher demand in the energy, mining, and construction sectors. The global Off-Highway end markets are benefiting from increasing global demand for energy and raw materials as recovery in global economic activity continues to build momentum. Gross margin for the quarter was 46%, a decrease of 170 basis points compared to 47.7% for the same period in 2020. The decrease was essentially driven by unfavorable material costs, partially offset by higher net sales and price increases on certain products. Net income for the quarter was $94 million, compared to $77 million for the same period in 2020. The increase was principally driven by lower selling, general, and administrative expenses, and a higher gross profit, partially offset by increased product initiatives spending. Adjusted EBITDA for the quarter was $189 million, or 33.3% of net sales, compared to $174 million, or 32.7% of net sales for the same period in 2020. Consistent with net income, the increase was principally driven by lower selling, general, and administrative expenses, and higher gross profit, partially offset by increased product initiatives 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 Q3 2021 financial performance summary. Selling, general, and administrative expenses decreased $20 million from the same period in 2020, principally driven by unfavorable 2020 product warranty adjustments that did not recur in 2021, partially offset by higher commercial activity spending. Engineering, research, and development expenses increased $9 million from the same period in 2020, principally driven by increased product initiatives spending. Please turn to Slide 8 of the presentation for the Q3 2021 cash flow performance summary. Adjusted free cash flow for the quarter was $153 million, compared to $136 million for the same period in 2020. The increase was principally driven by lower operating working capital requirements and higher gross profit, partially offset by higher cash interest expense, increased capital expenditures, and increased product initiatives spending. We ended the quarter with a net leverage ratio of 2.8 times, $261 million of cash, $645 million of available revolving credit facility commitments, and approximately $500 million of authorized share repurchase capacity. We continue to maintain a flexible, long-dated, and covenant-light debt structure with the earliest maturities due in 2026. Please turn to Slide 9 of the presentation for the 2021 guidance update. As Dave mentioned earlier, Allison is currently positioned to meet customer demand. However, global supply chain challenges continue to have an adverse impact on commercial vehicle industry production. As a result, we are updating the full year 2021 guidance ranges reaffirmed to the market on July 28. We now expect net sales for 2021 to be in the range of $2.325 billion to $2.4 billion. Our 2021 net sales guidance reflects higher demand in global On-Highway, global Off-Highway, and service parts support equipment in other 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 commercial vehicle industry production constraints and global supply chain challenges for the foreseeable future. In addition to Allison's 2021 net sales guidance, we're updating our guidance ranges for net income in the range of $395 million to $440 million, adjusted EBITDA in the range of $795 million to $845 million, net cash provided by operating activities in the range of $585 million to $635 million, adjusted free cash flow in the range of $415 million to $455 million, and capital expenditures in the range of $170 million to $180 million, including approximately $60 million for sustainment and over $100 million for growth initiatives. As we've mentioned in the past, ongoing and consistent investment in CapEx and R&D through the pandemic, while simultaneously delivering strong financial results, will continue to enable product development initiatives in support of long-term growth across all of our end markets, as well as the continued creation of value for all of our stakeholders. Thank you, and I'll now turn the call back over to Dave.

Thank you, Fred. So far, the second half of the year has been active across all of our end markets. Behind each development and every milestone that we collectively bring to the market, there's a thorough and rigorous process as well as a tremendous amount of work by our team and our partners. With this in mind, I'd like to review some of the team's latest achievements. In August at the Advanced Clean Transportation Expo in Long Beach, California, we announced an expansion of our eGen Power portfolio with the introduction of two new e-axle variants. The 100S is Allison's first single motor e-axle variant within the eGen Power series, designed for Medium-Duty and Tandem-Axle Heavy-Duty applications. And the 130D is a dual motor variant with a 13 metric tonne gross axle weight rating, ideal for European and Asia Pacific markets. These new variants leverage many of the core components of the 100D e-axle variant first unveiled by Hino trucks in October of 2020. Along with this expansion of the eGen Power portfolio, Hino trucks selected Allison as its e-axle development partner for Class 6, 7, and 8 battery electric vehicles trucks and will be the first global OEM to integrate the 100S. A few weeks later, Allison and premium Chinese OEM SAIC Hongyan announced a strategic memorandum of understanding to integrate the 130D into SAIC's regional and long-haul tractors for the Chinese electric commercial vehicle market. Significant enhancements to the electric testing capabilities of our vehicle electrification environmental test center are currently facilitating and accelerating electric vehicle development and validation programs for both Allison engineers and our OEM partners. These enhancements are enabling around-the-clock tests without the need to stop and recharge batteries, modified state of charge testing, additional DC load, and battery replacement during testing. We also executed a global strategic collaboration agreement with Beijing, China-based Jing-Jin Electric, a leader in electric motor inverter and integrated electrified propulsion systems within the largest electric vehicle market in the world. This development presents the latest opportunity to accelerate EV products and programs across multiple regions and offer a differentiated value proposition to our global customers and end users. In connection with this strategic collaboration agreement, Allison is participating in JJE's Initial Public Offering as their strategic investor along with top Chinese OEM FAW Group. We partnered with ElDorado National to bring electric hybrid propulsion to the San Francisco Municipal Transportation Agency, and New Flyer, North America's largest transit bus manufacturing subsidiary of NFI Group, one of the world's leading independent global bus OEMs, will begin offering Allison's next generation eGen Flex electric hybrid propulsion system beginning in January 2022. Our defense end market team is driving electrification as well through the development of transformational electrified transmission technologies for future US Army combat vehicles. In coordination with the US Army's ground vehicle system center, Allison will design, develop, and validate a motor generator and inverter system integrated within a tracked vehicle transmission to accelerate the next-generation electrified transmission program. Allison's conventional products have been driving substantial reductions in global commercial vehicle emissions for decades. Recent partnerships with leading Chinese bus OEMs Zhongtong and King Long are bringing CNG-powered buses to Eastern Europe and Mexico. Our proprietary FuelSense software continues to be installed by new and existing fleets around the world to significantly reduce fuel consumption and carbon emissions. Allison's award-winning 3414 Regional Haul Series fully automatic transmission is now available for quote on Daimler Trucks, North America's Freightliner Cascadia, providing Class 8 tractor customers with improved fuel economy and faster acceleration in the demanding short haul and metro applications. Production is expected to begin early next year. Outside of North America, the Allison fully automatic transmission equipped Hyundai Mighty light-duty truck has captured 40% of the Korea light-duty truck market in the first year. The success of this release has been driven by customers such as Coca-Cola Beverage Company, which is expanding its fleet of Allison-equipped Hyundai Mighty trucks at its logistics centers in Korea. Allison's global Off-Highway end market team is also keeping its foot on the throttle following new product releases earlier this year, including Allison's next-generation hydraulic fracturing transmission FracTran and TerraTran, a variant of Allison's proven 4000 Series transmission purpose-built for the global construction and mining markets. We announced an agreement to acquire the Off-Highway transmission portfolio of India-based AVTEC. This acquisition positions Allison to pursue incremental growth in the India Off-Highway market and expands Allison's product portfolio for new applications including wheel loaders and heavy-duty forklifts, with both new and existing customers. Finally, on October 6, Allison held a virtual Technology Day. Our management team presented information on the company's long-standing commitment to innovation, the latest product development initiatives, electrification and conventional market trends, and Allison's strategy for its portfolio of electrified and internal combustion propulsion solutions. Videos of the event, including two Q&A sessions with management, are available on our Investor Relations website. As we've often said, today there are more opportunities to pursue growth across all of our end markets than at any other time in our history. There's a lot happening at Allison right now, and there's much more to come. The commercial vehicle industry is undergoing a pivotal transition, and Allison is fully engaged in this activity. I'd like to commend the Allison team for continuing to execute at a very high level. We understand how to develop, validate, integrate, and highly customize commercial vehicle propulsion solutions that actively manage power and torque. Allison will leverage its organic, well-established, and proven capabilities to continue developing differentiated products that deliver value to our customers and meet the needs of the market today and in the future. We understand the challenges and the opportunities; the most important, we understand our customer. Allison knows how because we've done it for decades. This concludes our prepared remarks. Paul, please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from Jamie Cook with Credit Suisse. Please proceed with your question.

Hi, good evening. I guess, question Dave, can you just talk about sort of when you expect to see supply chain issues ease? I think you said last quarter you expected it to continue into 2022. What your expectation is now? And then I guess another sort of longer-term strategic question. As you're talking a lot about the ability to outgrow the market based on all these opportunities, whether it's on your conventional product line or on your alternative product line. Is there any way you can help frame how you think about market outgrowth over the next couple of years relative to whatever the industry can do and where that would come from? Thank you.

Sure. Jamie, I appreciate the questions. First on supply chain to be clear, unfortunately, I think we were - our expectations were met, given our Q2 call comments. And I think it's - having said that I would say again, credit the team at Allison as well as our partners, customers, and suppliers. This is a tremendous amount of effort behind the scenes, and I'm not sure everybody fully appreciates that. But I will tell you, it's not for lack of effort, and that's through multiple tiers of the supply chain. And it's a daily process, frankly. Nevertheless, as we see things today, as I believe we mentioned on the Q2 call, we did expect some improvement in at least Allison's specific issues. For the most part that's occurred. I would certainly describe us as well-positioned to meet demand. I'd argue we're demand-constrained at this point. With that in mind, we're only as good as what we know right today, and I think it continues to be a very fluid situation. And I'm certainly aware of public reporting, that you're aware of that there are muted expectations for the balance of certainly this year. I would also note when you think about what's possible, given the amount of working days that's left with building rates, et cetera, it's very challenged and I think we mentioned that on Q2 as well. So with all of that in mind, we're certainly looking forward to '22 for better conditions. But again, keep in mind that there's a number of activities that are going to need to occur, a number of constraints that are going to need to be resolved. I will tell you the level of engagement that we have right now solving problems through multiple levels or challenges, making some strategic investments as well to break constraints it's all underway. But that, of course, assumes that labor is going to be available in a timely way that logistics there's a lot of assumptions that go into that. So the takeaway from all that is we're working as hard as we can to certainly be in a position to meet customer demand. And I would describe us again as demand-constrained. Your comment in terms of question around outgrowing the markets, if we just take the six end markets that certainly we report, North America On-Highway, as we talked about, we're excited about the 3414 regional haul series being fully available in the marketplace through at least the major OEMs. That target market is plus or minus 30% plus of the day tractor, day cab market right as you think about it, so significant opportunity for us with very low penetration today. We continue to be well-positioned in Class 8 vocational. We've gained shares over the year as you know despite I think certain alternative technologies that are out there that was speculated to be much more applicable in the heavy - heavier, more demanding duty cycles that's not happened. So the team continues to grow, certainly share there. We're pleased with our positioning in Class 4, 5 with the Navistar and GM releases that those products are doing well in the marketplace. As we go to the outside North America, On-Highway market, as we talked about on the virtual Technology Day running through very low penetration and at least the larger core markets that being China as well as parts of Asia at this point. We see more opportunity to grow there. We already have significant share in certain niche, smaller sub-segments of the market that are very similar to what you've seen in Europe and North America. We're also looking at our Off-Highway market, outside of North America in terms of mining and construction applications and new products in terms of the TerraTran release. I think we're doing very well there with the team. It's received, I think, very good uptake from the market. That's a sizable opportunity as we look at that particular market. And again, just growing in core locations, very similar and aligned to North American and Europe. Defense, multitude of programs going on there, as we've talked about defense as an asset-light business, typically longer to get programs launched, but very long lives in terms of platforms. So the Abrams has been around since the late '70s, early '80s, and continues to be modified. Having - with that in mind, we're also behind both the OEMs competing for the NPF. In terms of sizing those, the NPF market, as you think about that, what does that start to look like longer term. The OMFV is a platform that we're certainly exposed through the team working with American Rheinmetall. That's about a 4000 unit potential market over a number of years. We're also on the M88 platform, which is a heavy-duty recovery platform with BAE. So you start that those are very significant long-running platforms. And then of course, the work that the team is doing outside of North America. The service support equipment in other market for us. The team continues to grow our franchise there in a number of different regions and also benefiting from some of the growth that we're seeing in our defense business as well. So the team has done, I think, a very good job there as well. So when you start to put it all together, I think it's a strong story, which frankly, explains why we are investing the way we are. Fred mentioned it earlier about very pointed programs from us to grow this business. And I think when you look at it, whether it's a limited amount of clean sheet design, so to speak, but mostly variants, we've been very successful leveraging those with attractive returns and incremental investment. So hopefully that covers the waterfront a bit for you.

Thank you. Our next question comes from Larry De Maria with William Blair. Please proceed with your question.

Hi, thanks. Good afternoon everybody. Obviously the FuelSense software win post Q, just curious, first of all, if we can expect more of those, if that's subscription, recurring revenue that's going to come every year, and if that could ultimately be material the next couple of years. And secondly, are you able to - you said - I noted you're able to fill demand, is there any evidence of OEM stockpiling of your transmissions? Or is it flowing through to finished goods? I'm just trying to understand to make sure that you can produce to whatever production is next year, and there won't be any pushback because they have inventory of your product.

Hey Larry, it's Dave. If you just do me a favor repeat that - I think the first half of your second question.

I noted that you're able to fill demand. So I'm curious if there's any OEM stockpiling of your transmissions or maybe you can produce them as it is, but trying to understand if you're going to just produce towards production next year, or if the inventory of your product at the OEMs.

Okay. I appreciate that. The FuelSense, to your questionnaire. Yes, we would expect FuelSense revenue to grow with volume. And as you think about the cost of fuel continuing to go up, that creates a better backdrop frankly for FuelSense sales as we go forward. Again, you can look at the overall On-Highway volume, but also look at the economics, which become much more attractive, given fuel prices, and frankly, the opportunity to reduce emissions as well. In terms of your question on On-Highway, there's certainly the ability for OEMs. They do inventory our transmissions. I would say though, their ability to do that's relatively limited, just given the scope and size of what that starts to look like. So I would say though, to your question, we can certainly - as we sit here today, we're demand constrained, from what we understand, for at least third-party forecasts for next year, I think we're very well positioned to meet that demand. I think the other nuance to understand and frankly, I think, gets back to some of the questions around supply chain and why you see disruptions - pre-pandemic, there was - there were buffers that were in throughout the supply chain, and frankly, throughout OEMs, and a number of this –the component suppliers, right. That was largely wiped out on the front end as we see it in terms of the pandemic. So anything that happens today is almost an instantaneous impact versus pre-pandemic, you had some time to recover with a buffer. Those buffers are largely been depleted. So part of the process going forward besides the tailwind of underproducing to demand for the industry right now, there's some level of inventory that will have to be rebuilt over time as well. So that's something we're staying close to try to understand, especially as you know when you look at the inventory numbers that are out in the market right now, that'll be another element of as the market tries to catch up and recover. That's something to watch as well.

Okay, thanks very much.

Thank you. Our next question is from Jerry Revich with Goldman Sachs. Please proceed with your question.

Yes, hi, good evening, everyone.

Good evening, Jerry.

Dave, since unfortunately, you were right about the supply chain for this quarter. As you said, I think I heard you say that you feel better about the supply chain. From here. Can I trouble you just clarify and expand on those comments because if that's the case, that would certainly bode well for everyone?

Yeah, again, I wasn't right. I think the team here was right, in terms of how they manage the situation day to day and the input that they provide to run this business. I would just - to your comment there, we certainly feel better about a number of our positioning right now versus certainly the end of the second quarter coming into third quarter. I would say we are staying again, very close to things, but an overall perspective, right now, it's a harder lift than it was at this time last year, I think I said that on the second quarter call as well, in terms of the amount of effort to do what the team needs to do to run the business on a day-to-day basis. That being said, overall I think we're certainly better positioned than we've been. But we're only as good as when the demand is ultimately going to be there. As I said, we're demand constrained. And we say this often here, it typically takes all the components to make the vehicle and that is going to –continues to be, I think, a broader challenge for the industry. So we're staying close, probably as close as we've ever been, to our customers to make sure that we're aligning our resources and our timing with what they're telling us. But we're, I think, better positioned from that standpoint to meet demand.

And as we think about your operating leverage from here, is there anything that would keep you from putting up historical Allison type incremental margins of the demand? Is there over the next 12 months, either anything from rising R&D or SG&A or price costs that we need to be aware of? Or can we look forward to typical Allison type incremental margins if that demand part of the equation is there.

Yeah. Jerry, this is Fred. As you know, the operating leverage is pretty significant with the business. Think about what's incurred this year the significant rise in raw material. We've talked about price cost. We are going to be negative price cost this year probably to the tune of about 15 million. We also talked about the fact that our raw material pass throughs lag anywhere from six months to a year. So we have those in front of us for 2022. At this point, anticipating about a little over 100 basis points in pricing just from those commodity pass throughs. So think as something sort of in the 25 million to 30 million range, we'll have that going for us, clearly subject to what commodities are going to look like next year. On top of that, pricing will secure our normal commercial pricing where we've historically gotten anywhere from 50 to 100 basis points. It's a challenging environment to function in today. Dave talked about the supply chain. I mean, there's certainly a lot of cost leakage. So I think as you see that stabilize, I think everybody will get some costs out of the system. And then just the operating leverage that the business has, certainly is significant. And we would expect to see that play through as volumes do rise.

Terrific. Appreciate the discussion. Thanks.

Thank you. Our next question is from Ian Zaffino with Oppenheimer. Please proceed with your question.

I just kind of want to follow up on the whole pricing equation here. Ordinarily, it's always been - or I guess, you've tried to move to vocational pricing. How are you going to market with price increases? Are you doing it from a vocational pricing standpoint? Are you doing it just from kind of a COGS and raw material recovery perspective? Any kind of details with that? And then the second question would just be, what's the ending share count for the quarter? And what are your thoughts on buybacks going forward from here because I know you bought back up 100 million. So thanks.

Sure, Ian. This is Fred. From a pricing standpoint, as you mentioned, we price for the vocational value we deliver. But our long-term supply agreements, the vast majority of them have pass-through methodologies for raw materials, so pegged to three grade two steel and aluminum. And you typically pass through about 75% of the cost. So we've incurred the costs in 2021, and we'll be passing them on for those agreements in 2022. We continue to increase the value of our product from a durability and reliability standpoint. The fuel economy that we deliver - we spoke to FuelSense earlier, so we've been in a position as we increase that value, really to do two things historically, one recognize that you're providing more value, and then we've been able to price for that value while simultaneously taking share. And I think that's - as we look out through 2022, expect that that will continue. Relative to share count, we'll be putting out the Q tomorrow, but as of the October 15, 104.3 million shares outstanding.

And thoughts on buying back more stock going forward?

I mean, it's clearly part of our capital allocation priorities right. Organic revenue, earnings, growth, new product technology development, and look at strategic acquisition opportunities, but the return of capital to shareholders is front and center. We're fortunate as a business that we generate more cash than the business needs. We're clearly funding it from an R&D, from a CapEx standpoint. But, we will plan to return the excess cash to shareholders via the quarterly dividend and share repurchases.

Perfect, thanks so much.

Thank you. Our next question is from Rob Wertheimer with Melius Research. Please proceed with your question.

Howdy I'm sorry, it's kind of the same question and maybe just answered it adequately. But I'm curious if you have any more deliberate conversations around buybacks just given where the share price has been. The market values where you are, but your cash flow is pretty good. So is there anything in your conversations in the board-level discussions or no.

Certainly, where our stock is valued, is always front and center in the board discussions relative to the pace of share repurchases.

Can you talk - can you just - in that context, just give us your view ranges on net debt to EBITDA again? And then just in curiosity, you've made a lot of strides in electrification, internal investment, or relationships, external investment, is there anything large on the horizon that - I don't know if you have a funnel of acquisitions or investments, et cetera, that could be a large use of cash in that direction? And I will stop there. Thank you.

Sure. Rob, I'll take the first part. I mean we talk about below three and a half times net debt to EBITDA, obviously, well below that at 2.8 times. If you think about us, over time, we haven't really changed other than ensuring that the debt's long-dated we've extended maturities. But that net leverage ratios really moved around based on LTM EBITDA. As to the back half of that question, I'll let Dave address.

Rob, thank you for that question. So, as I talked about before, Fred mentioned that as well here, in terms of we are being, I would say, try to be very thoughtful and deliberate about what steps we are taking in terms of investing, whether that's internal or external. Obviously, the most recent announcement with participating in JJE's IPO is one of a number of different opportunities and alternatives that we have been and will continue to pursue. That's both in the conventional space and EV frankly. So as we've said, our job is to generate results, and deploy that capital to the advantage of all of our shareholders. And I think as we think about that, there are definitely opportunities out there that we're tracking and interested in. With that being said, as we look at our portfolio, you see us continue to make, I think, very focused steps. I would also offer there is - as part of electrification, conventional is another opportunity as you start to think about what's next in that world. So, we're always looking at that in the broader context of how do we best deploy Allison's resources. Our advantage is we've talked about what we're leveraging in the EV space. The latest announcements around collaborating with JJE is a good example of that. We look at a number of different opportunities to collaborate as well on the conventional side. So we'll continue to pursue our disciplined process there. But rest assured we are very engaged across a number of different end markets looking at opportunities.

Thank you.

Thank you. Our next question is from Courtney Yakavonis with Morgan Stanley. Please proceed with your question.

Hi, good evening, guys. Thanks for the question. Maybe just on the sales or the net sales guidance reduction, is the right way to be thinking about that is entirely North America On-Highway reduction, or are there any other areas that you feel are I think you referred to as demand constrained earlier?

Courtney, it's Dave. Thank you for the questions. I would say is - because I'm sure you've been paying close attention to a number of the OEM announcements already. I would certainly attribute some of the change that we made in our guide attributed to North America in terms of as I said, we're demand constraint. So I think that's fair. Having said that, I think we've to the other end of the spectrum seen better results out of the North America Off-Highway end market really driven largely by hydraulic frac. As you know our portfolio outside North America would say both On-Highway and Off-Highway is performing. The outlook is a bit better than we thought there as well to be balanced about the whole package. So those markets continue to perform, I would say a bit better in terms of supply constraints understanding that our focus there are typically our end-use customers are reasonably prioritized in those local markets. I think that explains some of what we're seeing there in terms of improved performance, if you will, versus earlier expectations. The other side of that is with our service, parts business there are labor constraints out in the channel right now, that I would say, are somewhat constraining demand as well, because they just can't get the labor to an adequate enough level. So you're seeing extended lead times out there to get the vehicle serviced, we don't lack certainly the parts to provide to the channel. But again, I think there's some level of constrained demand there as well.

Okay, thanks. That's helpful. And if I could just follow up on the pricing discussion. I think you'd previously guided to being price cost negative in the third quarter, just wanted to make sure that's the expectation for the fourth quarter as well and we shouldn't expect to see gross margin expansion again until 2022. Is that the right way to be thinking about it?

I mean, we have taken obviously, some pricing actions during the year, but we do expect for Q4 to be a price cost unfavorable. As I said, a lot of the commodity pass-throughs kick in on January 1, which I spoke to earlier.

Okay, thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to David Graziosi for any closing comments.

Thank you, Paul. Thank you again to everyone for joining us this evening for our call. We look forward to updating you on our fourth quarter call. Enjoy the rest of your evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.