Allison Transmission Holdings, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission's third quarter 2019 earnings conference call. My name is Melissa, and I will be your conference call operator today. At this time, all parties are in a listen-only mode. After the prepared remarks, the management team from Allison Transmission will conduct a question-and-answer session, and conference call participants will be given instructions at that time. As a reminder, this conference is being recorded. If anyone should require operator assistance during today's call, please press star zero on your telephone keypad. 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 third quarter 2019 earnings conference call. With me this morning are Dave Graziosi, our President and Chief Executive Officer, and Fred Bowley, our Senior 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 November 7th. 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 risk, including those set forth in our third quarter 2019 earnings press release and our annual report on Form 10-K for the year ended December 31st, 2018, and uncertainties and other factors, as well as general economic conditions. If 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 slide three of the presentation, Some of our remarks today contain non-GAAP financial measures as defined by the FDC. 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 2019 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 have 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 third quarter results. Fred Boley will then review the third quarter financial performance and the 2019 guidance update. 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. We are pleased to report that Allison's third quarter 2019 results are within the full year guidance ranges provided to the market on July 31. And our North American highway and market remains on track for a third consecutive record year led by ongoing execution of our growth initiatives and market share gains in class four or five trucks. Furthermore, Allison continues to demonstrate solid operating margins, and free cash flow while executing its prudent and well-defined approach to capital structure and allocation. During the third quarter, we settled $46 million of share repurchases, paid a dividend of 15 cents per share, and closed the acquisitions of Walker Diecasting and CNR Tool and Engineering. Earlier this month, we also completed an opportunistic repricing of our $646 million term loan due March 2026. Please turn to slide five of the presentation for the Q3 2019 performance summary. Net sales decreased 3% to $669 million compared to the same period in 2018, principally driven by lower demand in the service parts, support equipment, and other global off-highway end markets partially offset by higher demand in the North America on-highway end market. Gross margin for the quarter was 52%, a decrease of 120 basis points as compared to 53.2% for the same period in 2018, principally driven by lower net sales and higher manufacturing expenses commensurate with increased on-highway volume, partially offset by price increases on certain products and favorable material costs. Net income for the quarter was $149 million, compared to $167 million for the same period in 2018. The decrease was principally driven by lower gross profit, increased product initiative spending, and increased interest expense, partially offset by lower selling, general, and administrative expenses. Adjusted EBITDA for the quarter was $269 million of 40.2% of net sales, compared to $295 million or 42.6% of net sales for the same period in 2018. The decrease in adjusted EBITDA was principally driven by lower gross profit and increased product initiative spending partially offset by lower 2019 product warranty expense and favorable 2019 product warranty adjustments. Now, I'll turn the call over to Fred.