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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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. [Operator Instructions]
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 Bohley, 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 5.
As noted on Page 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 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 express today.
In addition, as noted on Page 3 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 2018 earnings press release.
Today's call is set to end at 8:45 AM Eastern Time. In order to maximize participation opportunities on the call, we'll take one question from each analyst.
Please turn to Slide 4 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 Bohley 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 David 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% were surpassed by even stronger growth in net income of 27%, diluted EPS of 42% and adjusted EBITDA of 30%. Our commitment to the realization of growth initiatives across our entire business is demonstrated in our 2018 result, notably double-digit growth in the Outside North America On-Highway end markets 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 market 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're also excited about our position in Class 4-5 truck with the recent launches of 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 $0.15 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 5 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 American 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 $250 million from 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 Jobs Act enacted into law in December 2017.
The change in net income was also driven by increased product initiative spending and increasing 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 and administrative expenses.
Adjusted EBITDA for the quarter was $261 million or 40.3% of net sales compared to $210 million or 35.7% 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 and administrative expenses partially offset by increased product initiatives spending.
Now I'll turn the call over to Fred.
Thank you, Dave. Given Dave's comments, I'll focus on key income statement line items and cash flow. You can also find an overview of our net sales by end market on Slide 6 of the presentation.
Please turn to Slide 7 of the presentation for the Q4 2018 financial performance summary. Selling, general and administrative expenses were lower by $7 million for the same period in 2017, principally driven by unfavorable product warranty adjustments in 2017 that did not recur in 2018.
Engineering - Research and Development expenses increased $6 million for the same period in 2017, principally driven by increased product initiatives spending. As reported in the earnings press release, due to continued weak demand conditions for the TC10, we ceased production and recorded a corresponding $4 million impairment loss.
Other expense net was lower by $17 million from the same period in 2017, principally driven by lower technology-related investment expense and credit related to post retirement benefit plan amendment.
Income tax expense for the quarter was $27 million compared to a $131 million benefit for the same period in 2017. The change was principally driven by a one-time income tax benefit resulting from a decrease in deferred tax liabilities in 2017 as a result of the U.S. Tax Cuts and Jobs Act as well as the increased taxable income partially offset by a decrease in effective tax rate. Again as a result of the U.S. Tax Cuts and Jobs Act.
Please turn to Slide 8 of the presentation for the Q4 2018 cash flow performance summary. Net cash provided by operating activities increased $56 million from the same period in 2017, principally driven by increased gross profit, decreased cash, income taxes and decreased cash interest expense, partially offset by increased product initiative spending.
Adjusted free cash flow increased $69 million from the same period in 2017, principally due to increased net cash provided by operating activities and decreased capital expenditures.
As Dave mentioned earlier, during the fourth quarter, we settled a $153 million of share repurchases and paid a dividend of $0.15 per share. We ended the quarter with a net leverage ratio of 2.05, $231 million of cash and $533 million of available revolving credit facility commitments, and $440 million of authorized share repurchase capacity.
Please turn to Slide 9 of the presentation for the 2019 guidance in market net sales commentary. For 2019, Allison expects net sales to be in the range of $2.58 to $2.68 billion or midpoint decrease of 3% compared to the record net sales achieved in 2018, reflecting lower demand in the North American Off-Highway and Service Parts, Support Equipment & Other end market, principally driven by hydraulic fracturing applications, partially offset by increased demand in the Global On-Highway end markets, price increases on certain products and the continued execution of our growth initiatives.
Although, we are not providing specific first quarter 2019 guidance, Allison does expect first quarter net sales to be flat with the same period in 2018, principally driven by increased demand expected in the North American On-Highway end market offset by decreased demand expected in the North American Off-Highway and Service Parts, Support Equipment & Other end markets.
With that I'd like to highlight the following end market assumptions for the full year 2019.
North America On-Highway, Allison expects a net sales midpoint increase of 5%, principally driven by anticipated market share gains in Class 4-5 truck as a result of the recent medium duty commercial truck launches by Chevrolet and Navistar and higher Class 8 straight truck production.
North America Off-Highway, we expect a net sales midpoint decrease of 78%, principally driven by lower demand for hydraulic fracturing applications. Defense, Allison expects flat net sales at the midpoint versus 2018.
Outside North America On-Highway, we expect a net sales midpoint increase of 3%, principally driven by increased fully automatic penetration. Outside North America Off-Highway, Allison expects a net sales midpoint decrease of 19%, principally driven by lower demand in the energy sector.
Service Parts, Support Equipment & Other, we expect a net sales midpoint decrease of 10%, principally driven by decrease demand for North America Off-Highway service parts.
Please turn to Slide 10 of the presentation for the 2019 guidance summary. In addition to Allison's 2019 net sales guidance in the expected range of $2.58 billion to $2.68 billion, we anticipate net income in the range of $535 million to $585 million. Adjusted EBITDA is expected to be in the range of $1 billion to $1.06 billion.
Net cash provided by operating activities in the anticipated range of $710 million to $750 million. Adjusted free cash flow is expected to be in the range of $550 million to $600 million. And cash income taxes in the anticipated range of $100 million to $110 million.
Our 2019 guidance assumes capital expenditures in the expected range of $150 million to $160 million. The increase in capital expenditures will primarily fund an expansion of our engineering facilities and testing capabilities, which Dave will describe in more detail momentarily.
Every day at Allison, we serve a wide variety of end markets across the globe, and these investments underscore our commitment to remain a leader in the propulsion solutions across all of the end markets we serve.
Now, I'll turn the call back over to Dave.
Thanks, Fred. Allison Transmission remains committed to its strategic priorities of global market leadership expansion, emerging markets penetration, product development, focused on value proposition that address the challenges of improved fuel economy and reduced greenhouse gases, and core addressable markets growth, while delivering solid financial results to create value for all of our stakeholders.
Today, as we continue our focus on these strategic priorities, we find ourselves with more opportunities to drive innovation and growth than in any other time in our history. At the core of the engineering facilities and testing capabilities expansion, mentioned by Fred, is a new state-of-the-art vehicle environmental testing facility. It will be located within Allison's Indianapolis global headquarters campus and provide our engineers and third-parties with enhanced capabilities to conduct testing under the most extreme conditions and replicate a broad range of vehicle environments and duty cycle.
The vehicle environmental testing facility is scheduled for completion in 2020 and will be one of the few available for commercial use in the United States and the only one in the Midwest. In addition to new vehicle environmental testing facility, Allison is also expanding and enhancing its existing engineering and testing capabilities. These investments will include new state-of-the-art simulation and modeling capabilities including virtual vehicle simulation and fuel efficiency, greenhouse gas and functional safety simulation capabilities as well as software controls and electrification proposition, system development and modeling capabilities.
In combination, these new resources will support close interaction with our OEM customers, significantly augment our capabilities to develop manufacturing quickly bring to market new propulsion solutions and fully integrated vehicle propulsion systems that will continue to meet today's and tomorrow's evolving emissions and fuel economy requirements, while reinforcing Allison's ability to retract develop and retain the very best talent. We look forward to providing additional details regarding these investments in the coming months.
One of Allison's competitive advantages rest in our ability to leverage our existing technology to make - to meet the market's evolving needs and expectations. For example, last quarter, we discussed the global launch of the medium-duty, fully automatic 9-speed transmission. This new product leverages the architecture improving durability of the Allison 2000 series 6-speed commercial transmissions, which have accumulated more than 100 billion miles globally.
We have also continued to expand our electrification portfolio with our new enhanced electric hybrid system than includes purely electric extended range capabilities up to 15 kilometers and features zero emissions with engine off. This hybrid with extended electric range builds on one of the most dependable and efficient electric hybrid propulsion systems in the world with our 8,000 buses using our systems since 2003.
Finally, in the fall, we'll be introducing an uprated variants of our well-known 3000 series transmissions for the Class 8 tractor market. This is an exciting development and latest example of our ability to leverage existing technology to meet the markets increasing demand for automaticity, fuel economy and reduced emissions. This variant will have increased horsepower and torque ranges, enhancing the Allison value proposition for the Class 8 distribution and regional haul market.
In closing, our fourth quarter and record 2018 results demonstrate the power of Allison as we continue to execute our strategic priorities, including expansion of our global addressable market, investing in our business to facilitate growth, developing new products to meet tomorrow's challenges, while delivering enhanced value propositions to our customers and our relentless focus on execution, illustrated by the success of our ongoing cost management initiatives.
We're looking forward to 2019 as another year of solid results and resolute execution of our strategic priorities. This concludes our prepared remarks. Melissa, please open the call for questions.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jamie Cook with Credit Suisse. Please proceed with your question.
Hi, good morning, and nice quarter. I guess, my first question, Dave, just some color on your guide, North America On-Highway one. I think it's the first time, as I'm thinking about you guys guiding where you're guiding largely due to market share gains, which is an interesting story for Allison, so if you could give a little more color on what's assumed in terms of market share gain versus what you're implying for the industry and also just your level of visibility on your - on the Class 8 truck business, just given what the OEs are saying about extended visibility.
And then my second question, just obviously the guide on North America Off-Highway down 78% tied to fracing. Any context you could provide there, what your order book looks like relative to usual, is probably a little worse than people would have expected? Thanks.
Good morning, Jamie. Let me just jump through that. So the North America On-Highway guide as we mentioned in prepared remarks, the team did I think a great job, driving some market share gains in Class 4-5 truck, as well as 6-7 and Class 8 straight truck. I would say, we continue to drive those growth initiatives into 2019 as you would expect. The keys there in terms of the comments that we made relative to the Chevrolet as well as Navistar releases are important in 4-5.
As you know, we had significant share in that market through 2009, so we were regaining position there, which we're very pleased with. In addition to that, we continue to make good progress incrementally in Class 8 straight truck, as I mentioned the trend towards automaticity continues there. The performance of our technology I think speaks for itself in terms of the durability for those particular applications.
6-7 truck, again, as we look at the broader market there, there continues to be opportunities. Our guide for 2019 is certainly assumes the progress that I mentioned with the Navistar and Chevrolet releases and some incremental gains in 6-7 truck as well as Class 8 straight trucks. So with the combination, if you compare our overall guide for North America On-Highway to third-party forecast, I think we're certainly a bit ahead of that, as you indicate, which implies some continued gain in share.
Your comments in terms of some of the issues with the OEMs on lead times and certain - the truck releases with specifically I think around Class 8, the supply constraints I believe impacted some of the OEMs into the fourth quarter. Our understanding is some of their suppliers did work through the holidays to catch up a bit; having said that, there are still some issues there.
As we understand it, those order books are pretty firm to release the first half of the year at this point. Having said that, I think everybody is studying much more closely the second half and we're staying close to that as well. Off-Highway guide for North America, certainly as we looked at the second half of last year and I think we talked about this a bit, and you know having followed us for a number of years now, very volatile end market, the developments in the price of oil as well as some of the take-away issues certainly continued into the second half with the Permian.
We believe there are a number of cases where there is probably more equipment out there than certain people would like at this point. I believe there has been a number of public comments by some of the end-users to that effect. What that means going into 2019, we certainly positioned ourselves for a soft start.
We believe it will be very much a first half, second half, I think as other public comments have been made by third parties, the take-away issues with the Permian, the expectation is those being largely resolved. Having said that, I think the inventory of equipment that is out there and available, I think the condition of it going into this particular soft patch is probably better than it was the last time around in terms of some of these mini-cycles, so we're staying close to that.
You would certainly argue, I think based on other third-party comments, we may be a little bit more aggressive in terms of softness expectations in the first half. That being said, we're reflecting what we're certainly being told and what our team is managing towards. And if we're fortunate enough to have a better result we'll be happy to provide the volume there, but at this point it appears to be a very soft first half.
Okay, great. Thank you. I'll get back in queue.
Thank you. Our next question comes from the line of David Leiker with Robert W. Baird. Please proceed with your question.
Good morning, this is Joe Vruwink for David.
Good morning.
Hi, Joe.
A question on EBITDA margin guidance, so with revenue mix skewing toward On-Highway and away from Off-Highway parts in 2019, not so much of surprise that profitability should moderate a bit, but at the same time, when I just square up, what your guidance implies for revenues from each of those verticals and compare historically. There would seem to still be an underlying I'll call it structural margin improvement in the business.
And so I'm just wondering, what are some of the things that are different in 2019 as opposed to let's pick a year, 2016, that also ran a very high mix of On-Highway. And then I would imagine let's say, you are a little conservative on some of the Off-Highway assumptions in 2019, it's probably fair then that the EBITDA performance is going to skew at or above the high-end of guidance, is that the way to think of it?
Joe, this is Fred. So - I mean, a lot in that question. I mean, the - you start with mix and your comments are correct. I mean, the mix with - we don't report segments, but obviously we rank the end markets with Service Parts, Support Equipment & Other, our top rank market, down as well as North America and outside North America Off-Highway end markets down. It is negatively mixed. We really start with best-in-class gross margins, 52.4% for 2018. So really any movement from the incremental incremental-decremental or certainly meaningful - what's different in the year. From a price cost standpoint, we are estimating about 50 basis points of favorable price with cost relatively neutral. We've got engineering R&D. We continue to fund the business and have that up in sort of the $10 million to $15 million range. We are relatively flat from an SG&A standpoint.
Great. That's all, helpful. Thank you.
Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Hi, good morning everyone. This is Ben Burud on for Jerry.
Morning.
Morning. Just wanted to touch on the Off-Highway business. So the last time that business troughed, it was at about a $1 million quarterly run rate. Can you just give us some more color as to the level of oversupply you're seeing at the moment? And is there any chance that we return to that quarterly trough or this down 78% year-over-year is that kind of below as you see it going?
This is Dave. To your question, the North America Off-Highway business is very challenged from a volatility perspective. So and we - the guide obviously is for full year as I mentioned earlier on the call. It's not linear, it's never been linear.
For us these downturns, we believe the current - beside the commodity pricing issue to your comment on equipment levels that are out there, our expectation is some of that we will start to clarify by the middle of the year. That's the programs that are out there.
You heard third-party comments around there. CapEx spending, some positioning around further adjustments being possible, I think from some of those comments, at least the implication that's there. The fact is, I think it is very early to try to draw lines back to prior cycles. Just frankly, I don't think many of them are comparable. So for us, it really comes down to I think positioning for what - when the market demand is there being able to deliver and it's frankly one of the things that continues to be a feature of that business for us is the current volatility, which is why our team works as diligently as they do to be in a position to supply on a timely basis.
I think it also explains why there are challenges in many cases to meet those schedule, so we spend a lot of time on that and continue to be committed to that market. But I don't see any strong correlations, I would draw to more recent cycles or many cycles that we could point you to other than, we've laid out our expectations for the year as we again see the market developing. It's very much a first half second half story but we positioned it in such a way that we are confident to guide as we sit here today.
Got it. Thank you.
Thank you. Our next question comes from the line of Ian Zaffino with Oppenheimer & Co. Please proceed with your question.
Hi, great. Thank you. Straight to TC10, can you just give us a little bit more color on that as far as, as you look back in retrospect, kind of, what happened there versus expectations, and what are you thinking about metro truck market going forward? Thanks.
Ian, good morning. I guess there's a couple of things there. As we've talked about the TC10 before, it's certainly an attractive market that it targeted. The fact is that market lined up with the attributes that we believe were underlying, which was the push toward automaticity et cetera.
Having said that I think it's safe to say as we approach that market years ago. Some of the alternatives that are now being offered are certainly we believe at some level more competitive there than they have been in the past that reduce the overall opportunity for the TC10. It certainly exceeded customer expectations on performance and all of the attributes that you would expect from Allison.
That being said it does not make economic sense for Allison to continue to supply at those run rate so we have chosen to cease production.
As I mentioned in the prepared remarks, in the fall we will be introducing an upgraded version of our well-known 3000 Series. It is certainly intended to be a part of that Class A distribution and regional haul market. We believe that's a better overall economic proposition for Allison, given the market size and the opportunity for us versus the TC10.
Okay, thank you very much.
Thank you. Our next question comes from the line of Seth Weber with RBC Capital Markets. Please proceed with your question.
Hi, this is Brendan on for Seth. Thanks for taking my question. One, I just want to confirm I heard correctly. For net pricing realization in 2019, you expect that to be a positive 50 basis points, correct?
That's correct.
Okay. And then what was it in the fourth quarter?
In the total for the year, for 2018, it was close to 120 basis points. Specific for the fourth quarter, it was a little higher. It was slightly above 150 basis points on a year-over-year.
Okay. All right. Thank you. And then looking at the free cash flow outlook, I mean, you do have the CapEx jump there. But is there any other color, I guess, that you can give as to the decrease in the cash from operating activities?
Sure. So as you mentioned, CapEx at the midpoint up $55 million. Within our 2019 guidance, we do have incentive comp at a target level. We are up slightly from a cash interest and a cash income tax standpoint, with those being offset by lower pension funding and some favorable working capital on a year-over-year basis.
Okay. Thank you.
Thank you. Our next question comes from the line of Tim Thein with Citigroup.
Hi, good morning, guys. This is Drew Jaskowiak on for Tim Thein. I just want to ask a quick one on parts and support. So how did the split between On- and Off-Highway develop throughout the year? And what sort of mix is built into your assumption for 2019?
So the - this is Dave. As we - to your question for 2018, the splits overall, the Off-Highway - North America Off-Highway business was heavier first half versus second half as we've built the 2019 guide, it's really continuing the run rate from first half into - or first half 2019 from second half 2018 at a slightly lower level. And then again, as I mentioned earlier with the first half, second half breakout, we'll see how the second half goes, but we would expect some level of improved volume there.
The On-Highway business last year for North America from an overall perspective was up from 2017. We're expecting that to be up slightly 2019 versus 2018.
All right. Thank you.
Thank you. Our next question comes from the line of Neil Frohnapple with Buckingham Research Group. Please proceed with your question.
Hi. Thanks. A few questions have been asked for North America Off-Highway. But for Outside North America Off-Highway, you're expecting a step down in 2019 relative to what other business has been operating the prior few quarters. So I'm just curious, are you experiencing deterioration the order book to support this view. I know you called out lower energy, but also serve mining and construction markets. Just anymore color there would be helpful. Thank you.
Good morning, Neil. This is Dave. Couple of things there. As you know, when you look at our portfolio Outside North America over the cycle, it's typically split more or less evenly between energy and mining construction as we had strong performance in 2018 in both markets. As you mentioned our guidance, we expect energy to be a bit softer in 2019. Why is that very similar to 2018 in terms of North America, where we - there certainly has been strong demand and some level of buildup in equipment.
Commodity prices softening a bit as the second half unfolded last year, we believe that's going to create some level of softness in demand for 2019. So we reflected that, that energy business, in most cases, very much focused around the market in China versus any other geography. And bluntly stated, that's been our experience in the past in terms of that particular market, it's more nascent. It's still developing from a broader capability perspective. And also I think the run rating in terms of capacity there that's required. So we believe, it will take a bit of a breather in 2019 versus 2018.
Okay. Dave. And just a quick follow-up just on your view on construction and mining internationally?
Yeah, obviously, the team did, I think, a great job last year delivering the volume. As you know, we had some new releases with Volvo as well as Bell. That's performed well for us. We expect that to continue into 2019, but the broader lease feedback that we have from our end users in that space would indicate, I would say, solid expectations. Again, we're staying close to the market. We're always monitoring channel inventory levels as well. And I think, our commentary and expectations are certainly not inconsistent with some of the public comments from others that participate in the space.
Okay. Thanks very much.
Thank you. Our next question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.
Hey, good morning, everyone. My question is on your comments on, I guess, the comments related to market share gain, a little bit more investment in CapEx, R&D and autonomous. And I'm just wondering if you can give us any indication as to whether manual is really starting to slide off little faster maybe unrelated to autonomous, and that's driving the gain, or whether that's versus some of the other products?
And more generally, I don't know whether you have any intent or any hope to capture a little bit more content as the potential for autonomous vehicles drives - obviously, you're - you can share maybe because your products is robust, et cetera. I don't know whether there's an opportunity as well for content as the overall vehicle content goes up.
Rob, good morning. It's Dave. In terms of answering your question there, we believe automaticity continues to gain share at a relatively accelerated rate versus expectations five years ago or 10 years ago, more broadly in the market. That would imply there's certainly going to be less drivers out there that are trained in manual technology. I think, it's also clear that despite the push for automaticity, certain technologies that are not fully automatic do you have some limitations. It really gets down to a level of control of the vehicle and the implied safety thereof.
To your question or comment on autonomous, I would say our markets, which are typically higher shift and stop-start urban applications. We believe autonomous has a fair way to go there in terms of that technology. I think the feedback from OEMs as they've talked about it publically, would align with that. I think autonomous is better suited at this point, given where the technology is from an over-the-road perspective than what you would see in our core addressable markets.
Having said that, the fully automatic technology has the level of control that's extremely high. So to the extent that you would want autonomous, that would certainly imply that the level of vehicle control is best or that requirement is best met by a fully automatic solution. The market share gains that the team has achieved, as I talked about, with 4-5, the Class 4-5 truck in North America, we continue to drive the Allison value proposition and that's a day in, day out, Allison product performing in that overall value proposition.
And we believe there continues to be opportunities there to grow our position. The comment that we made around the 3000 series, going into Class 8 distribution and regional haul is an important development as we think about the continued leveraging of our base architecture. We believe it's well suited. It's a proven transmission certainly. And the opportunity there is something that we'll be talking about later this year.
Thank you. And I don't know if I can sneak in one more or not. But I mean, could you give us, if so, any update on On-Highway in China. Obviously, that's a huge market and big ambition. So I just don't know if you can give any status of progress.
For the China On-Highway market, recently here the Chinese government has come out with an updated mandate, if you will, on new energy vehicles. As we understand it for tier 1, tier 2 cities for domestic bus. So by the end - last 2020, at least the mandate is lining up with very much a complete push if you will to the extent that's possible with - for new energy vehicles. So the domestic, China domestic bus market continues to see volume shifting from conventional to so called new energy vehicles.
At the same time, our team is driving growth initiatives in truck. We've seen a fair bit of success and traction there in that particular market. It's one that requires a fair bit of emphasis by our team as well as the OEMs. It's a complete sell process from the classic push/pull there. The value proposition is something we're spending a fair bit of time on in terms of driving individual vehicle releases. Those volumes are different than the On-Highway.
When you talk about bus for instance, they're volume tender driven business, versus truck tends to be smaller pockets of volume. So I would say a more complicated process to drive from a growth perspective. But we're certainly pleased with what we're seeing in that broader market. I think the overall tonality for China 2019 versus 2018 in terms of On-Highway, is a reasonably solid market in the addressable space that we focus on.
I can't speak to their over-the-highway, shall we say, market in terms of some of the fits and starts that that has. And we're all are awaiting more clarity around their emissions changes.
All right. Thank you.
Thank you. Our next question comes from the line of Kristine Kubacki with Mizuho. Please proceed with your question.
Good morning. My question is on the defense business. Can you just talk about the puts and takes there? I know you guided to flat. And I was just wondering - there's been some noise around JLTV recently with some operational deficiencies. And I was just wondering if that's just noise or if there are some potential impacts there at all to you. Thank you.
Kristine, it's Dave. I guess, a couple of things, right, so we as you know are the on the JLTV platform. I can't speak to Oshkosh's vehicle there from the context of your comment on performance or otherwise. I will say our transmissions continue to perform as expected. That product for Oshkosh as we understand it continues to move towards full rate. The public comments have pushed I think that timing out a bit later this year.
But we're certainly not aware of performance issues concerning our transmission. The guide as we see it overall flat for 2019 versus 2018. The mix is very similar. As you know, there are really two markets that we participate in Tracked and Wheeled. I would that, again, the team here has done a nice job continuing to drive number of different programs there.
Frankly, we're focused as well on future program opportunities. A number of them will be able to talk about later this year. But I would say on the track side in particular, Wheeled, the platform continues to perform relative to our expectations in terms of broader volumes. The global market there is supportive of the business as we see it currently. And we're certainly pleased with the progress that we continue to make versus what you saw in the 2015 through 2017 timeframe for that business.
Thank you very much. I appreciate the color.
Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I turn the floor back over to Mr. Graziosi for any final comments.
Thank you, Melissa. I appreciate everybody's time this morning and for joining the call and continued interest in Allison. As I said, we're going to drive our strategic priorities in execution and look forward to providing you with updates as the year progresses. Enjoy the rest of your day.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.=