Kevin Sadowski - Investor Relations Contact Troy A. Clarke - President, Chief Executive Officer & Director Walter Gerhardt Borst - Chief Financial Officer & Executive Vice President Bill Kozek - President-Truck & Parts Persio V.

Lisboa - President-Operations

Stephen Edward Volkmann - Jefferies LLC Brian C. Sponheimer - Gabelli & Company, Inc.

Ann P. Duignan - JPMorgan Securities LLC Joe D.

Vruwink - Robert W. Baird & Co., Inc.

(Broker) Jeffrey A. Kauffman - The Buckingham Research Group, Inc.

Ted Grace - Susquehanna Financial Group LLLP Andrew M. Casey - Wells Fargo Securities LLC Adam William Uhlman - Cleveland Research Co.

LLC Alexander Eugene Potter - Piper Jaffray & Co (Broker) Seth R. Weber - RBC Capital Markets LLC Neil A.

Frohnapple - Longbow Research LLC Jerry Revich - Goldman Sachs & Co.

Good morning, everyone, and thank you for joining us for Navistar's first quarter 2016 conference call. With me today are Troy Clarke, our President and Chief Executive Officer; and Walter Borst, our Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to cover a few items. A copy of this morning's press release and presentation slides that we will be using today have been posted on our Investor Relations website for your reference.

The non-GAAP financial measures discussed in this call are reconciled to the U.S. GAAP equivalent as part of the appendix in the slide deck.

Finally, today's presentation includes some forward-looking statements about expectations for future performance. Actual results could differ materially from those suggested by our comments made here.

For additional information concerning factors that could cause actual results to differ materially from those projected in today's presentation, please refer to our most recent reports on Form 10-K and 10-Q and our other SEC filings. We'd also like to refer you to the Safe Harbor statement and other cautionary notes disclaimer presented in today's material for more information on the subject.

With that, I'll turn the call to Troy Clarke for his opening remarks.

Okay. Hey, thank you, Kevin, and thank you, everyone, for joining us this morning.

In my remarks, I will review the quarter's key performing metrics and business developments, and then I'll hand it off to Walter who will cover our financials. I will conclude the prepared remarks portion with some final comments before opening it up to your Q&A.

Navistar's first quarter results got us off to a good start for 2016 as we build on last year's progress. Despite lower sales, we substantially improved adjusted EBITDA, up 43% year-over-year to $77 million.

This reflects our ongoing ability to effectively manage the cost of our business. At this time, we are on track to hit our 2016 operating and financial goals of returning to profitability and generating positive manufacturing free cash flow.

Four months into our fiscal year, we maintain our 2016 industry outlook. In short, we believe 2016 will look a lot like 2014, which was the second best year for the industry over the last decade.

As we mentioned on our Q4 call, we expect Class 8 heavy industry to be down year-over-year, however, we project the medium, school bus and severe service segments to grow. Our Parts business continues to be a bright spot as we increased profit by 3% in the quarter.

Together, these factors offset some of the weaknesses we see in the Class 8 market. Navistar's overall market share improved through the quarter.

We started the quarter off slow and exited Q1 with December and January share higher than last year. Heavy was flat and Class 6 and Class 7 were down slightly during the period.

However, our order share, a leading indicator of future market share, was up; rising in Class 6 and Class 7 and Class 8, and more than doubling for severe service. These are encouraging metrics towards our sales goals for 2016.

Of increasing importance in the quarter, used truck is an area we are working demand (03:41). According to a recent Transport Topics article, across the industry, used truck inventories are the highest they've been since 2000 and 2001.

At a time of industry-wide oversupply and a slowdown in used sales, our used truck inventory increased $50 million to $440 million. We had a lot of success in 2015 with our certified used program, developing export markets and selling to traditional used truck buyer.

However, this used inventory is higher than we had planned. So, we will continue these efforts and other initiatives to manage it down over the next several quarters.

In his presentation, Walter will share data that shows the population of Class 8 trucks that we will take and trade this year is planned to be below the levels we saw in 2014 and 2015. So please keep in mind that used truck inventory is a variable over which we have some control.

We continue to make investments that will drive the future market share and we made great progress in Q1. I'm going to focus on three of these investments: our new and exciting product line; our efforts to drive customer uptime; and our development of new services that are adding value for the customer.

Delivering new market-leading products is a key driver to regain market share, and on February 1, we unveiled the HX Series of premium severe service trucks, returning us to a segment from which we've been largely absent since 2010. The HX secured over 300 orders within the first week of its launch.

Customer feedback on its look, comfort, visibility and maneuverability have been overwhelmingly positive, which is really no surprise, as we saw significant customer input throughout the product development process. Thanks to this new product, we have opportunities to make inroads with new customers.

And the HX is just the beginning of a cadence of new products that we will bring to market. We expect to announce a new product on average every six months, which will renew our entire product line by the end of 2018.

In addition, just last week, we announced the addition of the Cummins ISL nine-liter engine into our DuraStar and WorkStar product line. Another key strategy is leading uptime.

Uptime is largely driven by capturing the voice of the customer in our products through quality and reduced dwell time or repair time. As borne out by data, our quality has never been better.

One measure of this is warranty expense. We have seen our warranty expense as a percentage of manufacturing revenue continue to improve, falling to 2.6% in the first quarter.

In addition, our dealer network has made great progress reducing dwell time. In our Annual Report, we noted that in 2015 our network on average achieved an almost 50% reduction in the time a truck spends at a dealership waiting for repairs and doubled the number of repairs completed in less than 24 hours.

We're going to continue to build on that progress in 2016. And the third strategic element I want to touch upon is our continued investment in new services that build on our uptime performance, setting the stage for future growth.

OnCommand Connection, our unique open architecture approach to telematics continues to show strong growth. January was our best month to-date for new subscriptions and today, we have more than 180,000 subscribers.

In addition, on February 29, we announced the launch of over-the-air reprogram or re-flashing of engine controls on vehicles that use our proprietary engines. This is a first in the industry innovation and it lays the groundwork for future two-way connected vehicle services, which will help improve bill efficiency, uptime and reduce vehicle maintenance cost, while the integration of OnCommand Connection with our service network will increasingly return customers to our dealers for parts and service.

Combine this with our Fleetrite all mix (07:51) parts offering and we're making significant strides in our efforts to create customers for life. So let me say, we're encouraged by our results to-date and with that, let me hand it over to Walter who will discuss our financial results.

Thank you, Troy, and good morning, everyone. As Troy indicated, Q1 was a solid quarter in which we made real progress towards achieving our 2016 goals.

We continue to take costs out of our business and we improved adjusted EBITDA year-over-year, even with lower revenues. We also operated within our indicated cash range in what is easily our most cash-intensive quarter.

Finally, we remain on track to return to profitability and generate manufacturing free cash flow for fiscal year 2016. With that introduction, let me walk you through our income statement highlights, review our segment performance, and provide an update on our expectations for the remainder of the year.

As shown on slide 10, core chargeouts during the quarter were 11,000 units, up 19% compared to the first quarter of last year. We recorded consolidated revenues of $1.8 billion, down 27% year-over-year.

The decline reflects, one, lower volumes in our core U.S. and Canadian markets due to softer industry conditions; two, lower volumes in our Mexico and export markets and a stronger U.S.

dollar; and three, lower engine volumes in Brazil due to the ongoing weak economic conditions there. Additionally, one-fourth of the decline year-over-year also reflects the impact of the Blue Diamond Truck joint venture that ended last April.

Our loss from continuing operations, net of tax, narrowed to $33 million from $42 million last year, reflecting substantial cost reductions. Q1's diluted loss per share from continuing operations was reduced to $0.40 from $0.52 in last year's first quarter.

As Troy noted, adjusted EBITDA was up 43% to $77 million versus the same period last year. The market improvement shows our ability to improve our results despite softer industry conditions.

Cost savings came in better-than-expected; we achieved structural cost savings by reducing SG&A and engineering costs, as well as through product cost improvements, in part due to favorable commodity impacts. The improvement in our Q1 adjusted EBITDA margin to 4.4% from 2.2% last year shows the impact of our team's hard work to manage costs and deliver top-quality products.

As we look towards the remainder of 2016, we anticipate reinvesting in our business to launch products, further improve uptime, grow market share through increased consideration and meet 2017 emission standards. As a result, we do not expect the benefit of the accelerated cost reduction actions seen in the first quarter to continue at the same rate through the rest of the year.

Q1 2016 was a relatively clean quarter as shown on slide 11. The first quarter's adjusted EBITDA of $77 million reflects a $5 million charge for pre-existing warranties and a $10 million net benefit for other one-time items.

Turning to slide 12, let's review our segment results. Truck sales were $1.1 billion versus $1.7 billion in the prior year, down 34% due to the factors I mentioned earlier: lower core truck volumes due to weaker industry conditions, the termination of the BDT's JV with Ford in April a year ago and the decline in Mexico and export truck operations due to the stronger U.S.

dollar. While the Truck loss widened to $51 million compared with a loss of $18 million in 2015, last year's Q1 included a $55 million benefit from the release of pre-existing warranty reserves versus a $5 million addition to the warranty reserve this year.

Net of these reserve adjustments and a $15 million one-time fee received from a third party in the first quarter of 2016, the Truck segment improved by $12 million year-over-year. Please also note that warranty expense excluding pre-existing adjustments declined to 2.6% of manufacturing revenue as Troy indicated, a substantial improvement year-over-year and approaching best-in-class quality levels.

Turning to Parts, while sales declined 9% to $570 million versus $626 million last year due to strong sales in Q1 2015, segment profit rose 3% to a first quarter record of $150 million. Our cost reduction initiatives exceeded the headwinds posed by lower volumes in North America, the decline in Blue Diamond Parts sales and reduced export sales due to economic conditions.

Sales in our Global Operations were off substantially, falling 39% to $92 million. The drop reflects an 18% decline in engine volumes year-over-year as well as adverse currency movements.

The Brazilian real weakened 33% against the U.S. dollar during the last 12 months.

Nevertheless, the Global segment's loss narrowed by $2 million to $13 million as we continued to aggressively lower manufacturing and structural costs in Brazil. NFC continued to perform well.

Q1 revenues were essentially flat and profits rose $2 million or 8%. The better results reflect gains on lease terminations, a decrease in loan loss provisions and cost reduction initiatives, partially offset by lower interest income from intercompany loans.

Turning to slide 13, our used truck inventory increased to $440 million during the quarter, up $50 million sequentially, and we increased our reserve by $35 million to 33% of assets due to lower used truck price assumptions and longer holding periods. As Troy noted, the supply of used trucks has increased across the industry, which we expect will continue in the near-term.

We are aggressively attacking the used truck issue and we continue to pursue sales opportunities both domestically via our Diamond Renewed certified used program and abroad by selling into additional export markets. Nevertheless, as we've seen domestic wholesale and certain export markets soften, we will be more selective on receipts to work our used truck inventories lower and turn some of the $300 million of net inventory into cash.

The graph on slide 14 shows actual and expected EGR heavy truck receipts through the end of the year. Over the last few years, we've taken back 16,500 trucks.

We believe we will take back less EGR trucks this year than we did in 2014 and 2015 and that we've now taken back more than half of the EGR trade receipts that will run through our used truck operations. As we've stated in the past, while we are not typically obligated to take used trades, our used truck business supports new truck sales.

We continuously work to balance the used truck equation, including the acceptance of trades to generate new truck sales, the working capital impact of carrying used trucks on our balance sheet, and the residual value impact associated with taking back used trucks. As a result of our elevated level of used truck inventory, we plan to manage the number of trade receipts lower in the near-term.

Turning to slide 15, we ended the period with $673 million of manufacturing cash, within the expected range of $600 million to $700 million. Adjusted EBITDA was more than offset by cash use for: one, working capital consumed in the quarter due to seasonally less production days than the first quarter and higher used truck inventories; two, capital expenditures of $29 million; three, interest payments of $67 million, which are seasonally higher in Q1 and Q3; and four, warranty payments in excess of expense of $61 million, reflecting better-than-expected improvements in warranty expense.

Offsetting these uses was a receipt of $50 million of cash from NFC to finance the increase in our used truck inventory. Other than the higher used truck inventories, the Q1 cash uses are in line with the expected amounts for our fiscal year as laid out in December.

We expect to build cash balances over the balance of the year as EBITDA grows and working capital improves. We are comfortable that we have adequate liquidity to run the business.

Our guidance is summarized on slide 16. We have reduced our revenue guidance for the year to $9 billion to $9.25 billion, reflecting the lower revenues experienced in the first quarter, the revenue impact of Caterpillar's recent announcement to exit the on-highway truck market, potentially lower heavy-duty truck sales as we manage used truck trades and the impact of industry vehicle mix on our revenues for the remainder of the year.

We continue to estimate Class 6 to Class 8 and bus industry volumes of 350,000 units to 380,000 units. However, we see the Class 8 heavy market being a little softer, partially offset by higher volumes in the other product segments, which could cause the overall industry to come in towards the lower end of that range.

We are on track to meet our structural and product cost reduction goals of more than $200 million for the year. Reflecting the impact of our revenue forecast, we've tightened our adjusted EBITDA arrange to $600 million to $650 million for the year and still expect to be profitable this year.

We believe we'll end the year with about $900 million to $1 billion in cash on positive manufacturing free cash flow. As for the second quarter, we anticipate revenue of around $2.2 billion, an improvement of 25% sequentially, and we expect Q2 adjusted EBITDA to be slightly better than Q2 last year despite lower revenues.

With that, I'll turn the call back to Troy.

Many thanks, Walter. In closing, our Q1 results show our ability to manage and optimize costs, bring to market trucks that customers want to buy and solutions that produce uptime, improve our Parts business and strengthen our dealer network to provide the absolute best service.

On our last call, I said that 2016 is going to be an important year, and at this time, we believe the first quarter positions us to achieve our full year profitability and manufacturing free cash flow goals. We're excited about the future and we're confident that we're taking the right steps to regain a profitable market position and create value for shareholders.

So with that, let me hand it back over to Kevin and we'll take your questions.

Thanks, Troy. That concludes our prepared remarks.

Before we go to questions, I'd like to let you know that in addition to Troy and Walter, also joining us today is Persio Lisboa, our President of Operations; and Bill Kozek, our President of Truck and Parts. To be fair, we ask that each of you limit yourself to one question and including additional follow up.

Operator, we're now ready to open the lines for questions.

Hi. Good morning, guys.

Good morning.

Good morning, Steve.

Good morning, Steve.

I'm wondering – maybe just start with a little bit of a focus on the market share comments, Walter. I think you said something about grow market share with increased consideration, if I heard you right, and I guess I'm not sure what you mean by that?

Why don't I take that one, Steve? You know, we have a – our plan is to grow market share in each one of our segments, and when we say increased consideration what we mean by that is getting in front of more customers, discussing the benefits of our vehicles, getting in front of more customers with our new products and negotiating with those customers and them giving us an opportunity to earn their business.

And I would tell you in the last 12 months, we've grown considerably in that area versus where we were maybe two years ago.

Okay. Great.

That's helpful, Bill. Thanks.

And can I just sort of ask you to talk a little bit about the balance? I mean, it sounds like you expect your market shares to grow, but it also sounds like you're going to take fewer used trucks as we go through the year here, and it feels like those things are kind of mutually exclusive and how do you think about that?

Well, it's important to note that not every Class 8 truck has a used truck associated with it. So we're – probably about a third of those, so now we're talking about a third of the market, and what we plan on doing, I thought Walter said it very well, we're going to manage those and it's a balance of how many used trucks can we take and have a balance between making sure the working capital is taken care of and making sure that the market share is there and we're taking care of customers as well.

So it's a lot of work and our used truck organization is focusing on that, and we've done very well to date.

Okay. Thanks.

And then maybe just one big picture question, maybe this is a Troy question, but you guys have obviously made a lot of progress here, but just as obviously you're not really earning your cost of capital at what is a pretty good point in the cycle. And I guess I'm thinking just big picture what are the next kind of sources of improvement that we're going to see here?

I guess it's probably not going to be warranty because you're close to best-in-class, maybe there's a fair amount more to do on the cost side, maybe you need volume and market share to kind of come back to get to that cost of capital. But how do you think about the next few years?

What are the kind of the key buckets of improvement that you're counting on?

Yeah, Steve, you know. So I look at a – just a couple of things that I'm sure they're evident to all of you as well.

From a cash basis, we have a couple of cash impacts to the business that run off even though our warranty expense is we think in the right ZIP Code today and improving, warranty spend is still elevated because of the previously accrued warranty. So, if you think about that over the next couple of years, a lot of that runs off or significantly runs off which significantly changes basically the cash – our cash position.

Think of the used truck thing as the same way, over the course of the next two years that runs off, we believe, in a significant way. Again, that also – that impacts operating results, it also happens to impact working capital or cash for the business as well.

The third item that I would highlight to you is our – is cost, and despite the fact that we have taken a lot of cost out of the business, the fact of the matter is we're pretty pleased, and I feel really good about how the leadership of this company looks at the subject of cost and waste, and we're just not done chopping wood there yet. And then last but not least, you think about all those things, we just keep lowering the breakeven point so that as the volume does come back, which it will because if we're making the best product in the market, if the marketing study show consideration is going up, at the end of the day we would just make the increased volume, I think, as a leveraged effect on the performance of the company.

So, those I think are the kind of four major pieces of this going forward. If I had to add a fifth piece, it's kind of like we've had the perfect storm here with regards to the global markets kind of collapsing at the same time we have had difficulties in the United States.

We would typically count on Mexico and Brazil in particular and the rest of our global organizations to deliver a couple hundred million dollars of profit on an annual basis into the coffers and unfortunately that's just not been the case. So that comes back as well, but that's a function of things that are somewhat out of our control.

The other four things I talked about I think we study them, they're pretty well known to us, and we look forward to the days that a lot of those are behind us. Was that helpful?

Yeah, that's great. I appreciate it.

I'll pass it on. Thanks.

Thank you.

Hi. Good morning, guys.

Good morning, Brian.

I guess on the used truck side, the conscious decision to add the $50 million given the lack of, I guess, outlet on the resale side, was this – why is the decision going forward to take fewer receipts, I would imagine that, as Stephen pointed out, that really hampers you from a market perspective. And what do you think your new ceiling is on this – on the used truck inventory?

Yeah, let me – before we get to – before I turn it over to somebody to answer the question on a more technical basis, Brian, let me highlight to you that, first off, when it comes to used trucks, you negotiate a deal that the units potentially are built over the course of a year. We don't take the used truck until we deliver the new truck or some combination of that.

So typically we're making a commitment when we make a deal for a larger fleet to take a series of used trucks over a series – over a period of time. So, a lot of the used trucks that enter our system over the course of last quarter were deals that were actually made in the June and July timeframe of last year.

So that said, we have a very clear line of sight given our delivery schedule of the intake or receipt of used trucks that we see. So, that's the one point I'd like to make.

So there's a couple of variables there. One is the deal.

The second is the timing of the deal, okay, and then the third is the timing, I think, of when we make deliveries, all right? So I don't want anybody to think that this is – again, as I indicated in my comments, this is something we can control the intake of the units, and as we're able to turn units more out of the inventory through sales or whatever, this then allows us to – again, to lean forward or kind of lean backwards a little bit.

So that's the – so the main driver of the rise in the inventory for this quarter isn't that the receipts were higher than we thought. It was that the sales fell off for about a two month period of time for the industry as a whole.

So, just to give you a little bit of background on kind of how that works. I don't know, Bill, if you'd like to add (28:02).

The only thing I would add to that is, we're not saying we're not taking back used trucks, we're just going to do a better job of managing it and that we're going to take a look at a couple of different outlets as well, one of them being our dealer network to take back more of the used as well and then working with them to sell and dispose of the units. So it's not – I don't want you to go away thinking we're getting out of the used truck business.

It's just we're going to focus on it and figure out how to manage it well to take advantage of our working capital.

Yeah, we think of this as a dial, not as an on-off switch, and we've committed a portion of our balance sheet to used trucks. We're at the higher end of what we'd like that to be and so we need to dial that back a little bit.

But we're over halfway through the amount of trades that we think we're going to need to take anyways, and so it's an appropriate time to consider dialing that back a little bit and pursuing other initiatives that we have to continue to help us with our sales. And the order share statistics that we're seeing are one good indicator of that, as are lower dealer stock inventories, as you can see in the appendix of our materials.

I did see that. Troy, just...

Part of our...

Sorry.

I'm sorry – part of our comments this quarter are really aimed to – attempt – in an effort to answer some your questions. Nothing that we've said here is new.

These are things that we have been doing for a period of time, but as we listen to you guys' questions there has been some thought that says, man, can you help dimension this problem for us or this issue for us, and how long you think it's going to be around, and how you're managing it. So, now I hope the comments we've contributed are helpful in how we think about it

They certainly are. Just one small one, the impact of the Caterpillar business, and then Troy, you were quoted in the press this week, I think, just talking about the organization in general as being a good partner, going forward.

Maybe you can take a couple minutes just to elaborate on the message that you were conveying at that point?

Sure. Bill, do you want to comment on the Caterpillar?

Sure. Yeah, just real quick.

The Caterpillar announcement that they will not be manufacturing their own vehicle, I can't speak for what was going on in Caterpillar's mind, but it was a very small percentage of our business, about 1,200 at its peak a year. We see this as an opportunity for us with our new HX vehicle, get into those customers that buy construction and vocational equipment.

So, overall, it won't impact our results from the Caterpillar side, but it will impact favorably on the international side of our business.

All right. Thanks.

Yeah, and on the other comment, Brian, you know, hey, it's actually – at least the words were really the same words as I've answered, I think, that question a number of times, even on this call. We continually look for the opportunities of a partner.

That's been something we've done for a while. Most recently we've announced partnership with General Motors on the development of a Class 4-5 product.

I think that's going to be a terrific program for both us and them. We have previously partnered in a strategic manner with Ford.

Walter referenced the Blue Diamond venture and Caterpillar that Bill just talked about is kind of coming to a close. We have JVs in China and we have had JVs in India as well in the past.

I think, all the progress we're making – all the progress we're making just makes us a better potential partner at any level for any company. I won't speculate about what that next partnership opportunity might be, but that's the nature of the comment, and I think that again that should not be new news to most of you on the phone.

All right. Thank you very much, guys.

Hi. Good morning.

Morning.

Morning.

Morning. Just on the notion of partnerships, could you comment on the issue of dealers and distributors?

Would they benefit from a partnership with the European company that might have like a small-medium duty cab-over truck that might complement your medium duty trucks?

Yeah, Ann, that tough to speculate on. So, I think, we'll – your thoughts around that are probably as good as mine.

Okay. It was worth a try.

And then just taking a step back and looking at the weakness in orders year-to-date on the Class 8 side, can you talk about what you're seeing out there in the marketplace versus the medium duty side where we seem to still have some strength? I'm just curious what you're seeing out there from a fundamental standpoint?

Well, if you looked at what – where we're doing well as an industry and where we're not doing as well, I feel pretty good in a number of areas. Municipalities, state and local governments are still doing well.

Construction is still strong. Our TEM business is doing well.

As you mentioned, medium duty business we expect medium to be up year-over-year and the early indication is that it's going to continue to be that way. And then bus as well is going to be up for 2016.

Where we're seeing the negatives are really oil and gas and the energy segments. Anywhere where there is – that is the primary business has been slow, and then where we're mixed is really over-the-road.

I think there's a lot of customers in a wait-and-see mode although we've seen some recent strong activity – not strong, better activity. And then leasing, we see some positive signs but to-date at least through this fiscal year, order intake has been a little bit lower than where we anticipated it.

But, there's a number of people predicting a truck recession. But tonnage is still good, unemployment is low, housing, automotive production, commercial construction are all pretty strong, so I'm still very optimistic concerning 2016.

Okay. I appreciate the color.

I'll get back in line. Thanks.

Hey, guys. It's Joe Vruwink for David.

Good morning, Joe.

Hi. If I look at your 6-7 truck orders during the quarter, you reported a 15% increase, and it looks like the other OEMs if I just subtract out your intake, were down 15% to 20%.

So wondering, can you comment on maybe accounts or segments where the share is being recaptured and then maybe a broader comment on what the rest of the industry is seeing?

You know, in terms of the medium market, you're right. We've seen an increase.

That's primarily in the biggest segments in the medium duty, which is the leasing segment. We've also seen small construction, municipalities, those have been very, very strong as well.

And then the TEM business or the truck equipment manufacturers, those that put some sort of body on top of our chassis, has been very strong. I think we're getting into accounts – as I said earlier about consideration, we're getting into accounts that a few years back we weren't getting into.

Having discussions, negotiating about what they need in their products, and how we can take care of them come from a customer uptime standpoint, so we're earning back the business that we've lost in recent years, is how I would put it in just a quick synopsis.

Okay. Great.

That's good to see. And then just shifting gears a bit, on the product renewal, Troy, you mentioned that goes through 2018, is it possible to frame timing for when some of the more meaningful volume platforms might become available for order and ultimately delivery?

I'm thinking the ProStar would probably be the most material, but just any cadence or sense of timing on when those might benefit the financials?

Yeah, it's probably not appropriate for us – well, we've – let us go back and think about how we might be able to do that without giving away some level of competitive intelligence. I don't what to pre-announce launch dates and advise our competitors when they should be prepared with some kind of marketing initiative to thwart our launch so to speak.

So – but I understand what you're saying, and let me flip that to my IR community to think about if there's a way we can be more forthcoming with some of that, but it's not something that I really want to talk about on the call or speculate on the call about. I think, we'll just – we'll take that as to do, if you don't mind.

Sure. Understood.

Thanks, guys.

Thank you.

Thank you very much. Good morning, guys.

Congratulations.

Thank you.

Real quick, Walter, I just want to make sure I got a number right because it looked different in the handout than I think you said in the commentary. You mentioned the prior-year change in the inventory reserve, but for the current year I think you said $5 million in your comments, and in the handout it says $35 million, which number is correct number?

We added $35 million to the used truck reserve.

Used truck reserve. Okay, so let me just work through some math here and tell me if I'm thinking about it wrong.

If I take the reported truck segment profit of $18 million, and adjust for the benefit in the prior year, and then I take the current year of $51 million and I adjust for the $35 million, the $15 million one-time receipt and the miscellaneous restructuring impairment charges that you noted in your release, it looks like segment profit for North American truck improved about $55 million. Is that the right way to think about it, kind of, brushing away all the odd items that don't have to do with day-to-day operations?

What I had indicated is when you take out the one-time items for truck, the truck segment improved $12 million year-on-year, I did not adjust for the used truck reserves, those were $35 million this year, and I seem to recall they were a little over $20 million in the first quarter of last year. So...

Okay. $20 million, okay.

– I'd like to show that nice improvement, it's probably a little bit less than you suggested due to the addition to the used truck reserves in the first quarter of 2015 as well.

Okay, guys. That's my one question.

Thank you.

Good morning, gentlemen.

Ted, good morning.

I don't know, if it's Troy or Walter, but could you maybe walk through the used parts – or the Parts business a little more specifically. I know you talked about cost reductions being a big tailwind offset by North American volume, Blue Diamond and exports, but I guess the revenue was kind of as we expected, but the profitability was great and good to see.

I was just wondering if there's any more perspective or color you can share on the nature of the cost reductions, are there any other kind of items one-time or otherwise that we should just be cognizant of?

Well, let me – this is Bill, let me talk about the Parts business. First and foremost, we had a great 2015.

And we really had a great start to 2016, while revenue is down in the U.S., the revenue was up, but we were impacted by Canada, Mexico export market, all the things Walter said and Blue Diamond Parts. But yeah, the group is aggressively – the parts group has done a great job of aggressively managing cost, using a lot of lean practices and then growing our private label, Fleetrite brand.

So, there – I guess, I'll let Walter talk about any one-time stuff in terms of parts, but there isn't – certainly isn't any plans for any one-time things in parts, it's just continue to grow the business and continue to grow the bottom line.

Yeah, and I wouldn't highlight any one-time items. It's just strong performance in our Parts segment.

Okay. So (40:48) I guess normally 1Q has tended to be seasonally a softer margin performance for that business, so looking at 1Q results, I mean, should we assume that these are sustainable just for modeling purpose?

Now we haven't provided any real guidance for parts, but we do expect to improve our results year-on-year, over the course of the year. We're off to a good start.

Okay.

We'll see how the rest of the year progresses.

Great. Thanks.

My follow-up question would be on – just the cleanup on used truck inventory. Just – obviously you've reviewed how the dynamics have changed.

Can you talk about how people should think about a peak balance now? Is there any change in that framework?

And when we think about the $35 million increase on the reserve, is that simply mark-to-market kind of dynamics, or is there some presumption there will be fading in the future on used truck values?

Yeah, so we do take a look at every quarter, as I've indicated on prior calls, that – how does the used truck market look? Pricing is weaker in the market as a whole, not only for ourselves, but our competitors, from what I read.

And secondly, when you take a look at our holding periods and since the sales have been a little weaker than we had hoped, those holding periods are longer as well. And so we've adjusted for that in the quarter as we've done in prior quarters as well.

So that's how we do the accounting. We need to do that every quarter, and we take our best call at it and that's what we've done this quarter again.

In terms of how much of the balance sheet this will use, it's at an elevated level. We'd like that to be lower.

We're higher than where we ended last year and we'd like to work that down over time again. So that's what we'll look to do here.

Obviously used truck inventories are a function of sales and receipts, and so those don't necessarily always move together, and I thought, Troy did a nice job of describing how that works for us on the receipt side, and on the sales side, I think, we're doing as much as anybody between Diamond Renewed, looking to our export markets, working with our dealers to move these used trucks on as we try to selectively work with our customers to take these back. So elevated levels currently, we'd like them to be lower.

We'll work on that over the balance of the year and the rest is consistent with our remarks early on the call.

Okay. Well, that's helpful.

Best of luck this quarter and for the remainder of the year, guys.

Thank you.

Thanks a lot. Good morning, everybody.

Good morning.

On the Class 8 industry, can you talk about the pricing environment for the new truck industry? Are you seeing any increase in the competitive nature?

Well, as we've said in the past, there's still a lot of capacity in the Class 8 industry, but with today's products in terms of reliability, durability and the fuel economy, we think there's a slight growth in pricing for 2016. But like I said, it's a really competitive market and it's down a little bit from 2015.

So, how our competitors are going to react, our plan calls for just a moderate pricing for 2016, and in line with our share goals as well. So, just a slight increase, but certainly not – it's not going to be gangbusters, as we've discussed in the past.

Okay. Thanks.

And then following in on that, your dealer stock inventory for your dealers came down for the third consecutive quarter, so good job there. What are you hearing from your dealers pretty much as a whole related to their inventory intentions?

Is it to continue to reduce into this year a little bit further or are you seeing a likelihood that there'll be any form of restock?

Yes. Our dealers are very optimistic with our new product.

They're very optimistic how the markets are reacting to international truck. So yeah, we feel very good about where our dealer inventory is today and the plan is to, as we get into the spring selling season, to increase specifically vocational products and medium-duty products because that's a time when you sell the majority, or a good percentage of them.

So, our dealers are feeling very good about international and they're feeling very good about where their inventory is today, but they will be restocking here, and as a matter of fact that's happening right now.

Okay. Thanks.

And then last question, I guess for Walter. You took down (46:08) a little bit the 2016 ending manufacturing cash balance.

It seems like a lot of that might be due to the used inventory. But if that's not the case, could you walk us through the puts and takes and then if the end market for some reason weakens, is there a level that you guys just don't want to go below going into the fiscal Q1 seasonal drawdown next year?

Yes, you're right. We did expand the range on our cash guidance for the year, really two elements that could impact that.

One is used truck inventories, although as we indicated, we're going to try to work those levels down over the balance of the year. And the second is, we did take our revenue guidance down for the year and there's some related working capital impacts associated with that, but on the $900 million to $1 billion range, we'll still end the year very strong from a liquidity perspective kind of preparing for the first quarter of 2017 similar to what we did here preparing for the first quarter this year, which tends to be the low point of our cash for the year and we'll be looking to grow cash over the balance of the year now to those levels at year-end.

Okay. Thank you very much.

You're welcome.

Hi. Good morning.

Good morning.

I guess maybe to follow up a little bit on that Walter, could you maybe walk through the revenue guidance reduction, I think you had mentioned that you're targeting industry sales coming at the lower end of the outlook, maybe you could talk about – did you change your market share assumptions across the various segments? And just in general when we think about the industry order trends maybe through the rest of the year how much of a pickup that we need to see across the industry to hit your updated guidance?

Well, it's a mouthful there. So, we did take down the revenue guidance to $9 billion to $9.25 billion.

We did highlight a number of things, a couple of which you mentioned, including potentially being at the lower end of that industry volume. We did have a couple hundred million dollar lower revenues in the first quarter than we had guided to on our prior call.

So that's going to find its way through the year and we also indicated with Caterpillar's recent announcement, we had planned to sell them some severe service trucks, so that will come out of the revenue balance as well. So those are the principal drivers as well as any impact from trying to manage through the used truck situation, as Bill discussed earlier.

Okay. Does your forecast include any type of recovery in the global markets and then could you just tell us what you're seeing down in Brazil from your OEM customers, have we hit a bottom yet or are there any signs of life down there?

Thanks.

Hi. This is Persio and we continue to see the economy in Brazil very weak and the markets pretty much down.

So it's hard to say that we reached bottom, but it's pretty close to that we think. To that sense, we've made all the adjustments we had to make in a company down there to make sure that once the market rebalances that we'll be able to benefit from that.

But we are not seeing any short-term improvement and we don't have any forecast, any upside coming from the Global Operations at this point.

Thank you.

Hi, guys. I had a quick one there following up on the Brazil question.

I think it was last quarter or two quarters ago you mentioned that the expectation was that Brazil or MWM, I guess, could be breakeven by the end of this fiscal year or in the second half of this fiscal year. Is that still on track?

And I guess just remind everybody or remind me about what the profitability expectations are?

Yes, we are pretty much on track, actually in the first quarter we completed the majority of the restructuring changes we had to make in Brazil. We closed our engine facility down in the South of the country.

We combined production in Santo Amaro which is in São Paulo and actually we ended up doing that through productivity management that we put in place. We ended up going down from two shifts in Santo Amaro to one shift which allowed us to rebalance the operation down there as well.

So if you just take a look at the end of Q1, we will have a total reduction that is close to 40% in headcounts in our operations in South America by the end of January. So that starts building up as we go through the year, so we are still seeing that by the end of the year we'll be positioning the operation there to be pretty much at a breakeven level.

Okay. Great.

And then I guess just one – I guess another follow-up question on a question that was asked a couple of speakers ago; specifically regarding inventory levels, of new truck inventory levels, in the retail market. I know it looks like you guys are in pretty good shape, but the industry overall I guess potentially because of one OEM in particular is still running at I guess higher inventory levels than what we'd like to see.

And I guess any sort of commentary around the threat or a potential competitive action on the pricing side as those guys try to work through their excess inventory, whether you see that in the risk or not? Thanks.

Well, when we put our plan together for the year we knew that there was a significant amount of inventory in the dealer channel, or the entire channel, the OE channel. And so we knew that was going to impact our production, and our competitors are working on selling that and reducing their inventory.

So there's naturally going to be some reduction in pricing. It hasn't been significant to-date so we're optimistic that we're going to make good decisions.

Yeah, we expected that to happen, and like you said, we're in a decent situation with our inventory and now it's getting it in the hands of our customers, so.

If I could add to that, I mean, I think given the fact that that inventory is at dealers, what we see is that it's a regional or localized phenomenon, not every region or every dealer of our competitors. They all have different inventory conditions and so if we see anything, we see I think a regional or a dealer-by-dealer kind of impact on that.

And I got to say we have great dealers and they're really aggressive and they're looking for 2016 to be a very good year and I know that our dealers are – they're very cognizant of what's taking place in their marketplace, and again they feel good and which makes us feel good that we have the ability to work through that competitive dynamic.

Okay. Very good.

Thanks.

Hi. Good morning.

My questions have been asked and answered. Thank you.

Thanks Seth.

Okay, thanks.

Hi. Good morning, guys.

Good morning.

As a follow up to the parts margin question earlier. What's your outlook for North America parts revenue for the remainder of the year?

I think your comps get easier next quarter, so wondering if you can begin to deliver year-over-year growth starting in Q2? Or should we still expect that business to be down due to the impact of Blue Diamond Parts?

Thank you.

Blue Diamond Parts is just a smaller percentage of the total. And as I mentioned the U.S.

we've had growth in our Parts business. We anticipate some growth in Canada and Mexico as we move into the second quarter, third quarter and fourth quarter.

So, we do anticipate growth. Like Walter had said in his comments, the comp from Q1 2015 to Q1 2016 was pretty tough for Q1 2016.

But still there's been modest growth and we anticipate that for 2016 and we anticipate continuing to take all the actions that we have to improve on our margins as well.

Okay. So just to clarify, Bill.

You would expect North America Parts segment sales to be up year-over-year?

Yes

Okay. And then another one on used truck, I know a lot have been asked and answered, but just given the used truck market backdrop with the high industry inventory levels and declining used truck prices.

If we assume that the pricing on ProStars with MaxxForce engines have found a bottom in the market, and if the price spread between your competitor brand trucks and these vehicles is actually narrowing, does that in theory hurt the value proposition for buyers of these ProStar trucks with the MaxxForce engines? And takes longer to work through those population of vehicles in the market?

Yeah, I know what you are – I understand the question. We have done – with the Diamond Renewed, these vehicles are performing very well.

And matter of fact I'd even will say excellent based on the data we receive from OnCommand Connection. So that's our job now to get those in the hands of the customers to prove that data.

Yeah, the price has gotten – the gap has changed here in the last couple of months, but with export markets and some of the lease finance programs we've got, we feel in just overall managing the used truck inventory and the used truck sales, we think we're in a pretty good shape here moving forward. But again, it's going to take a lot of focus and work very closely to manage.

My two cents. I think these Diamond Renewed trucks and what we've done with them, they're a tremendous deal target.

All right. That's helpful.

And I guess just one final follow-up. I mean are you guys planning to utilize the auction channel more so than in past to help manage through some of this inventory, or just any thoughts on using that channel?

Thank you.

Yeah, the auction process in terms of revenue per unit is the lowest particular channel or avenue to dispose of used trucks, so we use that very, very limited and it's more for older trucks. So our plan is not to full scale participate in the auction process.

All right. Thanks very much, guys.

Hi. Good morning, everyone.

Good morning, Jerry.

Good morning.

I'm wondering if you could talk about the timeframe of when the higher order share you expect to flow through into your production and retail shares that are as early as 2Q? And on that note your revenue guidance looks to be more back-half weighted this year than what we've seen over the past couple of years.

Can you just talk about what's getting better in the back half versus the first half compared to normal seasonality?

Yeah, the first quarter is always our slowest quarter in terms of revenue, both volume and total revenue dollars. Second quarter we're going to see growth, and the order intake we've seen in medium, the increase in medium, you'll see that beginning right now.

With heavy, as we talked about, the over the road and some of the leasing guys, that will be a little bit later in the year, but medium is right now and severe with our new products, that's happening right now as well. Those products won't go into production until next month for delivery starting in May, but we're seeing the order intake there will turn into production here beginning in April and May.

Okay. Thank you.

And, Bill, can you give us some context on used inventory sales seasonality? Looks like in the first quarter you were able to sell out of your inventory roughly half of the intakes of new trade-ins this quarter.

Is there a seasonal pickup in 2Q? How should we think about the pace of used sales from here?

Can you calibrate us?

Yeah, the November, December, January timeframe is always the slowest for used trucks. It's just the seasonal nature.

This year it was down a little bit more than in previous years. So yeah, beginning in February, we've seen an increase in used activity and sales across all of our channels.

So Diamond Renewed channel, the export channel and the lease finance program, and then used sales through our dealer network as well. So it's increased throughout now as the weather warms up in most of the U.S.

Okay. Thank you.

Okay. Hey.

I think as we indicated, first quarter results on track. Thank you very much for your time and interest on Navistar and our performance this morning.

If you have any additional questions or insights you're looking for, please feel free to call Kevin Sadowski and he can track us down later during the day and we can have additional conversations. Thanks.