Allison Transmission Holdings, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission's fourth quarter and full year 2018 earnings conference call. My name is Melissa, and I will 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, and the conference call participants will be given instructions at that time. As a reminder, this conference is being recorded. If anyone should need operator assistance during the conference, please press star zero. I would now like to turn the conference over to Mr. Ray Posadas, the company's Director of Investor Relations. Please go ahead, sir.

Thank you, Melissa. Good morning, and thank you for joining us for our fourth quarter 2018 earnings conference call. With me this morning are Dave Graziosi, our President and Chief Executive Officer, and Fred Boley, our Vice President, Chief Financial Officer, and Treasurer. As a reminder, this conference call, webcast, and the presentation we are using this morning are available on the investor relations section of our website, allisontransmission.com. A replay of this call will be available through March 5th. As noted on page two of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our fourth quarter 2018 earnings press release, and our annual report on Form 10-K for the year ended December 31, 2017, and uncertainties 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 expressed today. In addition, as noted on page three of the presentation, some of our remarks today contain non-GAAP financial measures, as defined by the SDC. you can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures attached as an appendix to the presentation and to our fourth quarter 2018 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 four of the presentation for the call agenda. During today's call, Dave Graziosi will provide you with an overview of our fourth quarter results. Fred Boley will then review the fourth quarter financial performance and 2019 guidance. And finally, Dave will wrap up the prepared comments 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. Before I discuss the quarterly results, I'd like to briefly touch on what was a record year for Allison Transmission. Full year 2018 results exceeded our initial net sales guidance ranges across all of our end markets. We achieved record levels of net sales, net income, adjusted EBITDA, net cash provided by operating activities, and adjusted free cash flow. Full year net sales growth of 20% was surpassed by even stronger growth in net income, up 27%, diluted EPS up 42%, and adjusted EBITDA up 30%. Our commitment to the realization of growth initiatives across our entire business is demonstrated in our 2018 results, notably double-digit growth in the outside North America on highway end market for the third consecutive year, full-year net sales up 11%, primarily driven by increased penetration in Asia and Europe. The success of our growth initiatives is also reflected in our North America on highway core markets, led by market share gains in Class 6-7 truck with 74% share in 2018 compared to 71% in the prior year, and Class 8 straight truck with 70% share in 2018 compared to 68% in the prior year. In the past, we've discussed the secular trend of increasing automaticity in the vocational truck market, and our 2018 market share gains suggest that this transition continues. We are also excited about our position in Class 4-5 truck with the recent launches of the new Chevrolet Silverado and Navistar International CV Series medium duty commercial trucks exclusively with the Allison fully automatic transmission. This is a timely launch as demand for last mile delivery vehicles continues to increase, providing further opportunity for Allison to regain market share relinquished almost a decade ago. Finally, our established and well-defined approach to capital structure and allocation remains intact. During the quarter, Allison paid a dividend of 15 cents per share and settled $153 million of share repurchases, resulting in $609 million of total share repurchases in 2018, or approximately 10% of our shares outstanding. Please turn to slide five of the presentation for the Q4 2018 performance summary. Turning to the quarter, we are pleased to report that fourth quarter year-over-year net sales growth once again surpassed our expectations. Net sales increased 10% compared to the same period in 2017 to $647 million, principally driven by higher demand in the outside North America off-highway and North America on-highway end markets, as well as price increases on certain products and the continued execution of our growth initiatives. Gross margin for the quarter was 52.2%, an increase of 320 basis points as compared to 49% for the same period in 2017, principally driven by increased net sales, price increases on certain products, and favorable material costs. Consistent with Q3, favorable material costs continue to be driven by several multi-year cost reduction initiatives, partially offset by unfavorable raw material costs. Net income for the quarter was $147 million compared to $215 million for the same period in 2017. The decrease was principally driven by a one-time income tax benefit of $152 million in the prior year as a result of the U.S. Tax Cuts and Job Act enacted into law in December 2017. The change in net income was also driven by increased product initiative spending and increased interest expense. partially offset by increased gross profit, decreased loss associated with the impairment of long-lived assets, decreased technology-related investment expense, and decreased selling general administrative expenses. Adjusted EBITDA for the quarter was $261 million, or 40.3 percent of net sales, compared to $210 million, or 35.7 percent of net sales for the same period in 2017. The increase in adjusted EBITDA was principally driven by increased gross profit and decreased selling general administrative expenses, partially offset by increased product initiative spending. Now I'll turn the call over to Fred.