Allison Transmission Holdings, Inc.

Good evening, ladies and gentlemen. Thank you for standing by. Welcome to Allison Transmission's fourth quarter 2021 earnings conference call. My name is Hector, 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 conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the conference over to Mr. Ray Posadas, the company's managing director of investor relations. Please go ahead, sir.

Thank you, Hector. Good evening, and thank you for joining us for our fourth quarter 2021 earnings conference call. With me this evening are Dave Graziosi, our chairman and chief executive officer. and Fred Volley, 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 February 23rd. 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 fourth quarter 2021 earnings press release, our annual report on Form 10-K for the year ended December 31, 2020, and our quarterly reports on Form 10-Q for the quarters ended March 30, June 30, and September 30, 2021, 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 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 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 fourth quarter 2021 earnings press release. Today's call is set to end at 5.45 p.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 review highlights from our 2021 results and provide a brief operational update. Fred Boley will then review our fourth quarter financial performance and introduce full-year 2022 guidance 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. During the last two years, the global pandemic has presented our industry and the world with many challenges. Despite this environment, the Allison team and our partners have continued working tirelessly to support our customers, essential workers, and critical infrastructure while ensuring the uninterrupted delivery of the Allison brand promise. Once again, I'd like to take a moment to thank the Allison team and our partners for their continued dedication and resilience during this critical period. 2021 was another notable year for Allison's growth objectives. Allison's net sales accelerated in the fourth quarter, largely driven by recovery to pre-pandemic levels in the outside North America on highway end market. In fact, fourth quarter net sales were up sequentially across all of our end markets as our global customers and partners worked diligently to meet global demand. Within the outside North America on highway end market, the Asia Pacific region achieved full, record full year revenue less than two years following the severe global disruptions of the pandemic. And thanks to our team's persistent execution over the years, today we are benefiting from Allison's growth initiatives while the global economy continues to recover. Though challenges remain, we have come a long way and our success is aligned with our long-term strategy of continuous global market leadership expansion. In recent weeks, we have made a number of announcements that will support Allison's long-term growth objectives. For instance, Allison's award-winning 3414 Regional Hall Series fully automatic transmission, designed for the heavy-duty regional hall and day cab tractor market, was released by Volvo Trucks North America in its heavy-duty VNL series. The first production orders for Volvo's 3414 RHS-equipped VNL trucks have already been built for regional haul, food and beverage, and distribution customers. BOA is the third OEM to release Allison's 3414 regional haul series, following releases by Navistar and Daimler Trucks North America. The 3414 RHS is the latest example of Allison's dedication and commitment to continued innovation. It expands our addressable market, enables the pursuit of market share growth, and represents an incremental revenue opportunity of $100 million annually for Allison in the North America heavy duty day cab tractor market. Next, I'm pleased to report that the first units of Allison's next generation hydraulic fracturing transmission, Fractran, have been delivered and are currently undergoing installation with multiple customers. Fractran is the result of extensive voice of customer insights and duty cycle analysis from decades of Allison products operating in the hydraulic fracturing space. From dual fuel engines with the capability to run on natural gas to increasing horsepower and substantially reduced idle time, Fractran offers a unique combination of versatility, power, and efficiency. We are excited to see Fractran in the field and are confident that it will deliver the dependability necessary to meet the unique and continually evolving demands of this industry. Fractran represents $100 million annually in incremental revenue potential for Allison's global off-highway end markets. Our global off-highway team is also actively pursuing incremental penetration opportunities around the world in the energy, mining, and construction sectors. Allison's outside North America on highway end market has not only recovered to pre-pandemic levels, but it also remains positioned for further growth thanks to numerous initiatives around the globe. For example, during our technology event last October, we highlighted the success of the Allison 1000 series equipped Hyundai, Mighty, and Korea, having achieved 40% market share within its first year of release. The Korean light-duty truck market consists of approximately 10,000 units annually, and the success of this release, though smaller than many other initiatives, is representative of the growth potential that exists for Allison globally. In China, Allison's wide-body mining dump truck growth initiative includes both domestic and export opportunities and leverages Allison's existing and proven 4,000-series fully automatic transmission. These Allison-equipped vehicles can carry more loads per day thanks to powerful performance, faster acceleration, and ease of operation, resulting in an estimated 10% increase in productivity. This program alone represents more than $50 million annually in incremental revenue potential for the outside North America on highway and market. These initiatives, along with many others highlighted during our Technology Day last year, are delivering tangible results and positioning Allison for growth while we simultaneously invest in the next generation of propulsion technology to facilitate the transition to zero emissions. Turning to the supply chain, we anticipate broad challenges will remain for the foreseeable future. The availability and utilization of labor, global shortages of electronic components, logistics disruptions including air and ocean freight and port delays, as well as the availability of raw materials are all expected to continue to impact the commercial vehicle industry's ability to align with customer demand. Though uncertainty persists, global customer and end-user demand remains robust, and the Allison team has taken and will continue to take actions that address and mitigate production challenges. Lastly, I'd like to briefly comment on our well-defined approach to capital allocation, which continues to drive earnings per share growth well in excess of net income growth. In 2021, we settled over half a billion dollars of share repurchases representing 12% of shares outstanding as of December 31st, 2020. Notably, during each of the last five years, we have repurchased on average 10% of our outstanding shares annually while simultaneously increasing EPS by more than 200% in aggregate. 2022 marks another milestone for Allison Transmission. It's been 10 years since our initial public offering took place in March of 2012. As a customer and as a team, we have come very far. Through the years, we have worked diligently to strengthen our enterprise, support our customers, deliver the Allison brand promise, and serve our communities. We've invested across the organization, driving world-class performance in manufacturing and product development. We've also invested in and developed innovative solutions that are helping to reduce emissions, enhance productivity, and improve the way the world works. And our unwavering commitment to prudent balance sheet management and opportunistic approach to the capital markets, combined with the team's persistent execution of growth initiatives and investments across all of our end markets are positioning Allison to drive growth and returns for all of our stakeholders for years to come. Thank you, and I'll now turn the call over to Fred.