Allison Transmission Holdings, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission's fourth quarter and full year 2019 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, 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 require operator assistance during the call, please press star zero on your telephone keypad. I would now like to turn the call 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 and full year 2019 earnings conference call. With me this morning are Dave Graziosi, our President and Chief Executive Officer, and Fred Volley, 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 February 27th. As noted on slide 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 of 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. 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 slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the FCC. 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 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 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 Brad Boley will then review the fourth quarter financial performance and introduce full year 2020 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 morning and thank you for joining us. I am pleased to report that full year 2019 results exceeded our guidance due in large part to stronger than anticipated performance in the North American highway and markets. Furthermore, both the North America and outside North America on-highway end markets concluded a third consecutive record revenue year, largely driven by the continued success of our growth initiatives. Our commitment to growth is most notably reflected in the North America on-highway end market where we achieved meaningful market share gains in 2019. Market share for Class 4-5 truck more than doubled, climbing to 16% compared to 7% in 2018. The substantial share gain in Class 4-5 was principally driven by the medium-duty commercial truck launches at Chevrolet and Navistar exclusively with the Allison fully automatic transmission. Class 6-7 truck grew to 76% market share in 2019 from 74% in 2018 and Class 8 straight truck achieved 74% market share in 2019 compared to 70% in 2018. Our 2019 North Market share gains suggest that the secular trend of increasing automaticity in the vocational truck market continues to occur, and the Allison remains positioned to capitalize on this transition. Finally, I'm pleased to report that Allison's established and well-defined approach to capital structure and allocation remains intact. During the fourth quarter, we settled $62 million of share repurchases, resulting in $393 million of total share repurchases for the year or approximately 7% of our outstanding shares. Also during the quarter, we paid a dividend of 15 cents per share and completed an opportunistic repricing of our term loan due March 2026. Please turn to slide five of the presentation for the Q4 2019 performance summary. Net sales decreased 5% to $617 million compared to the same period in 2018, principally driven by lower demand in the global off-highway and service parts, support equipment, and other end markets due to ongoing weakness in hydraulic fracturing activity and partially offset by higher demand in the North America on-highway end market. Gross margin for the quarter was 48.3%, a decrease of 390 basis points, as compared to 52.2% for the same period in 2018. The decrease was principally driven by lower net sales and unfavorable mix, partially offset by price increases on certain products and favorable material costs. Net income for the quarter was $107 million, compared to $147 million for the same period in 2018. The decrease was principally driven by lower gross profit and increased product initiative spending. partially offset by an environmental remediation benefit. Adjusted EBITDA for the quarter was $216 million or 35% of net sales compared to $261 million of 40.3% of net sales for the same period in 2018. The decrease was principally driven by lower gross profit and increased product initiative spending. Now I'll turn the call over to Fred.