Allison Transmission Holdings, Inc.

Good afternoon. Thank you for standing by. Welcome to the Allison Transmissions fourth quarter 2022 earnings conference call. My name is Camilla and I will be your conference call operator today. At this time, all participants are in a listen only mode. After prepared remarks, Allison Transmission executives 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. I would now like to turn the conference call over to Jackie Bowles, Executive Director of Treasury and Investor Relations. Please go ahead, Jackie.

Thank you, Camilla. Good afternoon, and thank you for joining us for our fourth quarter 2022 earnings conference call. With me this afternoon are Dave Graziosi, our Chairman and Chief Executive Officer, and Fred Bowley, our Senior Vice President, Chief Financial Officer, and Treasurer. As a reminder, this conference call, webcast, and this afternoon's presentation are available on the investor relations section of allisontransmission.com. A replay of this call will be available through February 22nd. 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 2022 earnings press release, our annual report on Form 10-K for the year ended December 31st, 2021, and our quarterly report on Form 10-Q for the quarter ended March 31st, 2022, as well as other general economic factors. 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 2022 earnings press release. Today's call is set to end at 545 p.m. Eastern Time. In order to maximize participation opportunities on the call, we'll take just 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 full year 2022 results and provide an operational update. Fred Boley will then review our fourth quarter financial performance and introduce full year 2023 guidance prior to commencing the Q&A. Now, I'll turn the call over to Dave Graziosi.

Thank you, Jackie. Good afternoon, and thank you for joining us. I would like to start by taking a moment to thank the Allison team and our partners for their dedication and support this year in delivering the Allison brand promise. 2022 was a record year for our business, driven by strength and demand in our global on-highway and off-highway end markets, and the continued realization of our growth objectives. We achieved record fourth quarter net sales, leading to record full-year net sales of $2.8 billion, an increase of 15% from 2021. As we have consistently demonstrated, our net sales performance was once again surpassed by even stronger growth in net income, up 20%, and diluted EPS up 34%. Our EPS growth is a testament to not only our operating performance, but also our opportunistic capital allocation priorities. During 2022, We repurchased a total of $279 million of shares of our common stock, representing 8% of shares outstanding, and ended the year with approximately $1 billion of authorized share repurchase capacity. We remain committed to our capital allocation priorities of generating cash to fund the business, investing for appropriate returns to grow our business, and returning the balance of cash to our shareholders. In our North America on Highway End Market, strong demand and share gains in Class 6-7, Class 8 Straight, and Class 8 Day Cab markets led to net sales of $1.4 billion, a 15% increase from 2021. We are excited about our recent announcement that the award-winning 3414 Regional Haul Series Transmission is now available for order in Daimler Truck North America's Class 8 Freightliner Cascadia day cab model paired with the 12 liter natural gas engine from Cummins. The 3414 RHS has become a compelling option for our customers in the Class 8 day cab market. The superior performance and fuel economy as well as the lightweight durability enables our customers to reduce their emissions and carbon footprint while maintaining industry leading performance. Focusing on our Outside North America on Highway end market, we have made several announcements of partnerships and awards in previous quarters as many of our initiatives in the regions come to fruition. The Outside North America on Highway team achieved record full-year net sales of $463 million in 2022. This is an increase of nearly 22% year-over-year and shows impressive growth as the Allison Automatic provides a differentiated value proposition with a proven track record of durability and reliability, which has led OEMs and fleets to make the trends pitch into our products. I am very proud of the team's success in achieving growth across multiple locations and regions in this end market. Specifically in our Europe, Middle East, and Africa region, net sales for the year increased 28% from 2021. This increase was driven by an accelerated market recovery led by strong sales and vocational trucks and wheel defense vehicles, which leverage variants of our on-highway products. In addition, during 2022, we secured new releases with European OEMs for specialty vehicles for use in fire, refuse, and construction applications, and European and Turkish defense OEMs for wheel defense programs that we expect will continue to provide revenue growth opportunities over the coming years. In China, despite the commercial truck and bus market contracting by more than 40 percent in 2022, Allison realized a 59 percent increase in net sales led by strong wide-body mining dump and export bus sales. Our wide-body mining dump initiative in China, which leverages our existing 4,000 series fully automatic transmission, has already received multiple awards and is gaining traction quickly. We estimate that Allison has approximately a 10% share in this new market. Also driving top line increases in our outside North America on highway end market, the South America region saw a 38% increase in net sales year over year, led by front engine bus and wheel defense markets. Last quarter, we touched on our growing presence in the agriculture sector. since our entrance in 2015. As mentioned, leading OEMs in both Argentina and Brazil have selected the Allison 2000 series and 3000 series transmissions for use in their agricultural sprayers due to the enhanced performance in soft soil, which is critical in this application. Moving on to our defense end market, last quarter we announced the contract award of over $6 million from the US Army's ground Vehicle Systems Center, which is being used to support the design, development, and testing of the newest addition to the EGEN portfolio, the EGEN Force. As a reminder, the new EGEN Force electric hybrid system is designed for 50-ton tracked vehicles and will meet the U.S. Army's optionally manned fighting vehicle requirements and has been selected as the propulsion solution for American Ramanathal's Lynx vehicle. EGEN force is scalable to 70-ton track vehicles, making it capable of meeting future main battle tank requirements as well. Late last year, we announced that Allison was awarded a $51 million contract for X-1100-3B1 transmission to support Abrams tanks production for the U.S. Army as well as U.S. allies. The Abrams is the most prevalent main battle tank in the free world, And the recent announcement of defense sales expanding to Taiwan, Australia, and Poland increases its presence to eight U.S. partner nations. The Abrams tank, introduced in the early 1980s, has been the subject of continuous capability improvements throughout its service life. Similarly, Allison continues to develop innovative enhancements to meet customer demand while ensuring transmission longevity and performance. Allison is proud of its relationships with the U.S. Army and the world's defense vehicle manufacturers. Our internal investments have led to new contracts in the last six months for not only the Abrams, but also the Mobile Protective Firepower Vehicle, or MPF, and the U.S. Army's newest light tank, as well as the M88A3 Hercules recovery vehicle, which we expect to drive future revenue growth in the defense and market. Internationally, we recently announced that Larson and Tubro selected Allison's proven 3040MX transmission, which is currently used in the U.S. Army's MPF as the propulsion solution for India's future infantry combat vehicle, or FICV. The FICV is a tracked armored vehicle designed to replace India's fleet of aging BMP infantry fighting vehicles, with the Indian Army stated intention to procure approximately 750 FICVs over the next two decades. The FICV is just one of several programs that will continue to support growth in Allison's international defense business. With geopolitical uncertainties leading to increased defense spending and defense forces now utilizing equipment following a period of idleness due to COVID, as well as new defense programs production programs launching every year for the next several years, we believe the defense market is entering a period of sustained revenue growth. While delivering record sales and earnings per share in 2022, we also continue to invest in the development of new products and technologies across all of our end markets to drive future revenue growth. Our 2022 results demonstrate the power of Allison as we continue to take action to realize our growth initiatives and develop the next generation of propulsion solutions that meet the challenges of tomorrow and ensure sustainable growth for our business. Thank you, and I'll now turn the call over to Fred.