Wabtec at Bank of America Conference: Growth and Innovation in Focus

On Wednesday, 19 March 2025, Westinghouse Air Brake Technologies Corp (NYSE: WAB) presented at the Bank of America Global Industrials Conference 2025. The discussion, led by CFO John Olin, highlighted Wabtec’s transformation into a growth-oriented technology company in the rail industry. While the company boasted achieving its previous five-year goals in just three years, it also issued a more ambitious plan focusing on innovation and market share growth. Challenges such as managing tariffs were acknowledged, but the overall tone remained optimistic.

Key Takeaways

• Wabtec achieved its previous five-year guidance in three years and set new ambitious targets.
• Strategic initiatives focus on cost reduction, innovation, and market share growth.
• Acquisitions of Evident Inspection Technologies and Delnor Couplers aim to enhance revenue and margins.
• Wabtec is addressing the aging North American rail fleet with modernization solutions.
• The company is prioritizing R&D and capital allocation for strategic growth.

Financial Results

• Revenue Growth: Targeting mid-single-digit organic growth over the next five years, with a 3% increase in backlog (5.5% excluding FX impacts).
• Margin Expansion: Expecting over 350 basis points of margin expansion in five years.
• EPS Growth: Aiming for double-digit EPS growth, targeting $8.35 to $8.75 in 2025.
• Synergies: Integration 2.0 saved $100 million; Integration 3.0 aims for 30% more savings at 20% less cost.
• Capital Expenditure & R&D: Around 2% of revenue for capital expenditure and 6-7% for R&D.
• Acquisitions: Evident Inspection Technologies and Delnor Couplers acquisitions to add $700 million in revenue.

Operational Updates

• Wabtec positions itself as a "155-year-old startup," emphasizing its innovative culture.
• Focus on integrating multinational companies and realizing cost synergies through Integration 2.0 and 3.0.
• Investments in technology include autonomous inspection machines and remote train control.
• Development of "zero to zero" technology for fuel efficiency.

Future Outlook

• Market Growth: International growth expected to exceed 4%, with North America remaining flat.
• Fleet Modernization: Anticipated updates in the aging locomotive fleet to drive growth.
• Strategic Priorities: Focus on M&A and share repurchases for capital allocation.
• Regulatory Advances: Approval of technologies like "zero to zero" expected to enhance efficiency.

Q&A Highlights

• Revenue Growth Confidence: Driven by industry growth, international expansion, and market share gains.
• Tariff Impact: Complexity acknowledged, with efforts to manage and pass on costs.
• Capital Allocation Strategy: Prioritizing balance sheet strength, business investment, dividends, strategic M&A, and share repurchases.
• Revenue Distribution: U.S. accounts for 45% of revenue, with North America at 55%.

In conclusion, Wabtec’s presentation at the conference outlined a robust strategy for growth and innovation, addressing both opportunities and challenges. For further details, refer to the full transcript below.

Full transcript - Bank of America Global Industrials Conference 2025:

Ken Hechter, Analyst, B of A: Good afternoon, everybody. Good morning for those on the webcast, for anybody in in New York. Thank you for joining us this afternoon. Thank you for attending the, the Global Industrials Conference by B of A. With us today, we’ve got up next, John Olin, chief financial officer of, of Wabtec.

Kari Yates is in the, in the audience, from investor relations. We’re we’re happy to welcome you back to the, to the conference. My

John Olin, Chief Financial Officer, Wabtec: third year and what?

Ken Hechter, Analyst, B of A: Third year. It’s it’s been a tremendous run. So, you know what I thought I’d do is is maybe toss it over to you for everybody. I’m I’m Ken Hechter, B of A’s, air freight and service transportation and marine shipping analyst. Twenty five years at B of A.

Yeah. Yeah. It’s all. So I’ll I’ll throw it over to you, John. If you wanna just start off, you know, a lot going on with Wabtec.

You you recently set five year targets. Maybe just give a a a background about Wabtec and and kinda what’s going on in the in the in the current. And then, obviously, we’ve got a lot of questions to jump into.

John Olin, Chief Financial Officer, Wabtec: Great. I guess, I typical, who’s ready to talk about trains? What’s more fun than trains? When I talk about Webtech, you know, you usually gotta say exactly what Webtech is. Right?

It’s a Westinghouse company, Westinghouse air brakes. A lot of people I’m not sure what Westinghouse is. Right? We do everything trains. We build them.

We supply into the transit market. We do all the digital. Our softwares run trains and networks, dispatch systems, and all the like. We are a, interesting company that’s come out over time, one of the oldest companies in America, One Hundred And Fifty Five years old today or not, I mean, this year. And, but the company that we are today and that we’re gonna talk about here with Ken is really about five years old, and it was a aggregation of, two large acquisitions.

The first one in very late twenty sixteen that doubled the size of the company. So Wabtec originally was a, a component maker for largely railcars in the freight business. And they also had an interesting technology called PTC, which was a GPS based, safety system, and a GPS based, safety system, and it was required in The United States, anything on the main line. So we track all the trains whether they’re ours or any competitors. They merged with a French company called Favoly in late twenty sixteen that doubled the size of the company, and then two years later, they doubled the size of the company again to about $9.09 and a half billion dollars when they merged with GE.

And, you know, Intelia talk about, m and a. That was an absolute grand slam in terms of an acquisition. Right? While it doubled the size of the company, what it did is it brought in an installed base of 23,000 locomotives. And from that installed base, all over the world is the rest of the company, or rest of the freight segment kind of feeds off of that with component sales, digital sales, services, and, with those are tend to be a fair amount higher margin products.

The other thing that we got in that acquisition is our current CEO, Rafael Santana, that had a a view on how to move the company forward and take us into the future. And, that was five years ago, and we’ve been hard at it for that period of time. And with that, we’ve had some great success. So three years ago, we issued our long term guidance, and it was for mid single digit and two fifty to 300 basis points of margin growth and double digit EPS. We achieved that guidance, five year guidance in a three year period of time.

And as we finished up last year, we reissued our five year guidance because we had already achieved it. And we just recently came out in February with the next five years, which is still mid single digit revenue growth. However, we’ve certainly upped the margin expectations to be in excess of three fifty basis points over the next five years and EPS again growing at a double digit basis. So an interesting thing as we looked at the business today and what we had in terms of margin growth versus where we were three years ago, We see a lot more opportunity today in our cost base even though that was about 300 basis points of margins ago, our margin build. We see a lot more opportunity today.

We’ve gotten very good at taking these three multinationals and integrating them and getting the cost synergies, but as well as, we continue to see a lot of revenue synergies between the companies.

Ken Hechter, Analyst, B of A: So you you, you know, you talked about the the 55 year old company, but you feel like a startup, you know, when we were just out at your tech demonstration, you know, some of the stuff that a futuristic technology. Love to delve into that a little bit, just because you’re right. You’re pressing continue to press on on some real great innovations. But let me start on on the targets that you just you talked about. You know, revenue set a a revenue growth mid single digits.

Backlog was up 3%. We made it crystal clear that there was FX involved. So without that, it’s five and a half percent. Maybe just in this environment where we’re looking at rail carloads not growing, new car builds being down, what gives you the confidence in that in that mid single digit revenue outlook?

John Olin, Chief Financial Officer, Wabtec: Yeah. When we look at the the revenue guidance, we kind of got a a ladder, and you can look in some of our material. You know, the kind of the drafting comes from what the industry around the world is growing. And we calculate that at about two to 3%, which is not not a tremendous amount of growth, right, not overly exciting, but that’s made up of probably three component pieces that are pretty important to the puzzle. The first one and the most stable one is our transit market.

That tends to grow, the industry tends to grow at about 4% year in and year out, very steady, adds a very steady component to us. We’ve got a lot of opportunity on that business, Ken, as you know on the margin side. We’ve seen our margins expand by about 50% in a four year period of time from 9% to just shy of 14%. But that adds a very stable component at 4%. But again, I told you 22% to 3%, right?

The other aspect of it on the positive side is the international growth, and that is growing in excess of 4%. That’s more in the 5% growth. And that would be the international, I’m sorry, international freight side of it. But what brings those two numbers down a fair amount is, when you look at the industry growth of our North American market, which is the single largest market. Most of our sales are outside The United States, but it is, significantly the largest market that we have.

In terms of industry is measured in terms of carload growth, how much weight they are pulling or carloads of product that they’re pulling. And that number really hasn’t grown in the last ten to fifteen years. It’s about the same. So we can put a plug in and a zero for that one. And as we look forward, as as much as the the railroads are working to grow that number, our forward looking plans are not expecting growth on that market.

So that would be all upside to the mid single digits that we talked about, Ken. But that’s how you get to that confluence of 3% to 2% to 3%. Now what we expect to do is is grow about double that for the next half a decade. Right? So how are we gonna do that?

We feel really good about the two to 3%, because all we have to do is hold market share. And over the last considerable period of time, we’ve been growing our market share across all three of those, segments. So how we’re gonna do it is number one, is while The US market is flat or the underlying growth is flat, we have been growing that in the double digit range. And that is partly due to, the railroad’s desire to update their fleets. And there’s a lot of productivity that comes with replacing a twenty year old, twenty five year old locomotive with the new one, And that provides our railroad customers a strong return on their investment for the cost of that locomotive, whether it be a new locomotive or a modernized locomotive, which is taking a donor from twenty five years ago and we replace a vast majority of that with new equipment.

So with that, we would expect to drive one to two percentage points of growth over a five year period of time as that renewal takes place. The average age of a locomotive has grown considerably over the last ten or so years, in terms of the number of years, and it’s gone from one of the youngest fleets in the world to one of the older fleets in the world. So we would expect that. The other area can to drive again that excess on growth over industry is our investment in technology. You had alluded to that and I’m sure we’ll talk about it, but there’s a lot of opportunities.

You know, and I think the first thought of when you see a train go by, you don’t think of a lot of technology, but there’s an incredible amount of technology that goes into that, you know, that that locomotive or the transit parts that we provide. And I’m sure we’ll talk a little bit more about that.

Ken Hechter, Analyst, B of A: Wonderful. So thinking about the the big picture, Rafael has talked about, the CEO has talked about, more opportunity today than the past three years. You’ve mentioned that a couple times on on the when you look at the cost cutting side. But historically, he’s mentioned best backlog in five years. We we saw backlog growing.

He’s talked about the best m and a environment in five years. You’ve made two recent acquisitions. What what’s the setup now from your perspective? How should people think about Wabtec in that environment? What what are you looking for for growth?

John Olin, Chief Financial Officer, Wabtec: Ken, you mentioned a little bit earlier that we we view ourselves as a hundred and fifty five year old five year start up. I think overall, that snowball is starting to go down the hill. I’m from the Wisconsin and in America, a lot of snow up there. Right? And as we gain this momentum, we’re seeing that opportunity increase and we’re seeing the performance, accelerate.

And I think if you look at our performance over the last three years, you’ll see that, right? And that’s how we achieved a five year plan in three years. So it’s continuing to do what we do very well and that is focused on the cost side of our business and integrating these three multinational programs or companies. We’ve got a program we called Integration two point zero, which we just finished up that delivered about $100,000,000 of savings, and we’re moving on to Integration three point zero, and that’s getting after some of that cost opportunity that we see as these three multinationals came together. And on the revenue side and talking about those pipelines, the same thing.

We’re gaining a fair amount of scale and growing market share over a period of time, but a lot of international momentum. We talked about, you know, that growing and installed base is growing at a CAGR of about 5% a year, for the last seven years. And our sales are certainly higher than that because installed base is everything that remains, right? And the other piece can when you look at some of the revenue growth, as the installed base grows. So we’re very focused on making sure that, you know, our locomotives are out there, the the best in the world and they’re running.

We get a lot of ancillary benefits from that. So as a locomotive is running, especially in growing markets, they’re starting to get to a scale and a level that they’re investing more in services or we can invest more in landing people in services and we provide a little bit of exponential growth on our service business there, but also on our digital business. We have a digital businesses that, have onboard electronics that run the trains through cruise control. They optimize all the situations on the onboard. We have overhead systems, I had mentioned PTC, that connect into those and help drive, efficiencies.

And so as our international markets gain scale and our installed base grows with them, it makes a lot of sense for them to add some of these other products that, again, we see more exponential growth growing out of the core installed base growing.

Ken Hechter, Analyst, B of A: I’m I’m gonna ask a domestic question. Domestic US North America, can you just describe before I jump into that, what’s the split international, domestic, and key regions for you on the international side just before I harp down on the North American side? Right.

John Olin, Chief Financial Officer, Wabtec: So United States, about 45% of our revenue. North America is about 55% of our revenue, and the rest of the world is is the other.

Ken Hechter, Analyst, B of A: Okay. So when I think about the North American fleet, we’re just at a rail equipment finance conference talking about just what you talked about, the oldest fleet we we’ve ever had in in The United States. Right? We’re topping over twenty six years when you look at the total fleet. Why in that environment are replacements so low?

Is it you you’ve built a better equipment that’s gonna last longer, or is it delayed CapEx from the railroads? Are we getting to a point where we might see service issues because of delayed investment, or is it a better locomotive that’s lasting longer?

John Olin, Chief Financial Officer, Wabtec: Yeah. So I think it is trade offs that our customers have made and chosen to have an older fleet for various reasons. What I can tell you, Ken, is when they replace those old locomotives, there’s a very strong return on investment for them. We typically look at that in the 15% to 20% range. So again, you’re taking something off the rails that’s 20 years old, 20 plus years old.

It may be DC power, which is not nearly as efficient and have the tractive effort that they have today. So today’s locomotives are more reliable, can haul more, are more durable and certainly much more fuel efficient. So that minimum of 5% more fuel efficiency from an older model. And so with that, given the cost of a new locomotive or a modernization and all the benefits that they get, there’s a strong return on investment. And over the past several years, we’ve seen double digit growth in their purchases of either mods or combined mods or locals.

So we are seeing a fair amount of investment, increased investment by the railroads.

Ken Hechter, Analyst, B of A: So I just got a little bit of technical question, but maybe you want to just talk about the benefits of the mod, the the FDL, the eight the EVO, the old and the new mods, and what the advantage for the railroads of that are. And then you’ve talked about decelerating mods, maybe increasing news in new production. Is there a mix? Do you care about the mix? Is there a reason why you’re seeing the mix?

John Olin, Chief Financial Officer, Wabtec: Yeah. So, Ken, as as we’ve talked, there’s a lot of fascination whether we’re selling a mod in North America or a new locomotive. There’s a lot more fascination than there is focus on it by us. And again, I had mentioned earlier, what we want is to make sure what’s running on the rails are our locomotives because that spins off digital work, that’s builds off services and more components. So when we work and plan with the railroads, we’re looking at how much power they need, and then we start to get into what is best for them in terms of putting that, package together for them.

Now every customer is different, and the railroads in North America, the class ones, everyone kinda looks at them as as all equal. They’ve got different routes. They’ve got, some are more hilly, some are flat, some are more intermodal, some are more heavy. All of those things play into how you would plan out a fleet. Right?

But they have a couple choices. One is is to look within their fleet and the old stuff and say, hey, is there anything that makes a lot of sense from a modernization standpoint? And what I mean by makes a lot of sense is what is that return on investment? And again, is that it is at the right level or the right age that provides them a good return on investment. So if you have that excess power, that’s in the park or not being used today, that might be the best alternative and the best return for that customer.

And if they don’t have that power or can’t spare taking something off the rails to modernize it, then a new is a good option. We’ve also got customers that have only bought new, and we’ve got customers that have only bought modernization. So they’re all different, all different situations. But the net of your question is is do we care? And the answer is no.

Ken Hechter, Analyst, B of A: So, you’ve made a couple acquisitions recently, Evident, and then another one yesterday. Evident’s got about $430,000,000 in revenues, but you’ve excluded that from your revenue growth target. Just to clarify, that is not in the target. So I suppose that means we can see upside to those revenue targets as you get the integration. So you’re Absolutely.

Yeah. Absolutely. Okay.

John Olin, Chief Financial Officer, Wabtec: So when when we when we give those numbers on the revenues, it’s always organic that we provide. But next year, when we do own Evident, we’ll repost our guidance. And given the fact that they, in 2024, had $430,000,000 of revenue on our $10,000,000,000 base, that would add about four percentage points of, annualized revenue growth.

Ken Hechter, Analyst, B of A: Great. You target three fifty basis points plus of margin. You, at the tech demonstration, emphasized the word plus multiple times. Maybe just talk about why the the confidence, in that what what’s conservative, maybe the skill set you’ve learned

John Olin, Chief Financial Officer, Wabtec: And the snowball is getting bigger.

Ken Hechter, Analyst, B of A: It is.

John Olin, Chief Financial Officer, Wabtec: I think that when we talk about over 350 basis points, we have a clear path to the three fifty, but we are seeing that snowball building, that momentum building with the company. And that’s on the revenue side, the cost side and the cultural side as again we bring these three multinationals together. So we will believe we believe that we will deliver over three fifty basis points of margin. And and I would say that our track record’s pretty good.

Ken Hechter, Analyst, B of A: Now you also like to use the concept of the analogy of the startup and but yet you’re going back and eliminating a portfolio optimization, getting rid of some. Maybe talk about the experience you did in the last Network2.o, Integration 2 O, and and your next phase of why you see the opportunity to keep going.

John Olin, Chief Financial Officer, Wabtec: Good question, Ken. You know, when we talk about we’re kind of a start up, right, and Rafael coming in, it’s really first things first, right, what are we gonna do first, second, and third? We got so many things that we can do. And, as I came into the company three and a half years ago, saw a tremendous amount of more so than I’ve seen in forty years of being a CFO of what we do. So what we need to do is align what’s first and what’s second and what’s third.

So coming out of the merger with GE, the first thing first was getting the $250,000,000 that we promised, and setting the tone that Wabtec delivers on what it does what it says it’s gonna do. And, I was not there at this time. Rafael and the team did a fantastic job, and they delivered on those synergies a year and a half I’m sorry, a year fifteen months early. And that’s about the time I was coming and we sat down and said, well, what’s next? And we looked at all this opportunity from a cost standpoint, from a revenue standpoint, from a building pipeline standpoint.

And on the cost standpoint, we looked at it and took a bite of the apple that we felt that we could manage and, and learn from. And that was what we called integration two point o. And so we delivered that and that was a three year program and and we delivered it. We over achieved what we said we were going to do. But a year ago, Ken, we were ready for the next step in terms of margin enhancement and that was something that we call portfolio optimization, right?

We inherited three multinationals that came together, have different business models, have different cultures, have different plant setups, different sizes, some are matrix, some are decentralized, and on and on and on. And, with that, we’ve also got some assets that are not gonna take us to the future that we envision. And and and on their best day, they’re just not gonna get us where we’re going. And we know exactly where we’re going and taking the company and they don’t fit in. And so part of it is is the hygiene of of making sure that we’re focused on the right thing and on the things that are gonna deliver the future that we envision for our shareholders, for our employees, for our communities that we work in.

And so with that, about a year ago, we said that we would shed $110,000,000 of revenue. So again, when you go back and look at that 5% mid single digits, that’s net of a point of stuff that we’re getting rid of, very low margin stuff. And it’s funny, I was talking to all the presidents and looking at some of these things and encouraging, that we look at maybe we we can go forward without it. And, we in the first, hundred million, it was five entities that we got rid of, and not one person has come up and said, oh, God. Do I miss that business?

Right? I I missed the fact that I wasn’t making any money on it. And, so we’re taking the the second swing at that. We’re taking to the second swing in integration, which is a three year program. We just announced integration three point o in February.

Again, it’s about 30% more savings at 20% less cost than we did three years ago, and that’s some of the learning that we’ve done, right? And again, we see more opportunity today than we did three years ago. Partly, Ken, is because now we know how to get after it. Yeah. Right?

And we’ve now consolidated a lot of facilities and we’ve done it very well. And while integration two point o was a little bit of a push that, hey, we should look at this, we should do this. It’s now becoming a pull and people are saying, hey, we can do this, this and this. And again, it’s that snowball continuing to grow. And then the other side of it, a month ago, we introduced the second kind of bite of the apple of portfolio optimization, which is another $100,000,000 again of lower margin stuff in this track to deliver three fifty basis points plus of opportunity.

Ken Hechter, Analyst, B of A: When you think about the three fifty basis points plus, is there a division between a focus on freight, a focus on transit? Is it balanced? How do you think about within the organization?

John Olin, Chief Financial Officer, Wabtec: In terms of our investment between the two?

Ken Hechter, Analyst, B of A: No. Return potential. Increased margins between the two.

John Olin, Chief Financial Officer, Wabtec: Yeah. I I would say they’re they’re pretty evenly focused. Now integration two point o, probably two thirds of the money was really, lodged in our in our transit business and a lot of opportunity in Europe, which we became very capable of of consolidating some things and exiting some things. And I’d say integration three point o is more balanced between the segments.

Ken Hechter, Analyst, B of A: Alright. One more thing on on the numbers and the targets, and then we’ll get to to some different subjects. But You

John Olin, Chief Financial Officer, Wabtec: can never get off the numbers and targets.

Ken Hechter, Analyst, B of A: Why I’m here. So you target double digit EPS growth over

John Olin, Chief Financial Officer, Wabtec: the next

Ken Hechter, Analyst, B of A: five years on a on a staggered basis. You target eight thirty five, eight 70 five in 2025 up 10 to 16% just for starting points. Should we expect a softer start given the economy? We’ll talk about tariffs and other things in a minute, but just given the deceleration economy, or is is it kind of well balanced through the plan just because of the the backlog and the order book? How do you think how do you think we should think about that?

John Olin, Chief Financial Officer, Wabtec: And you see, from a revenue standpoint, pretty balanced between the quarters in terms of the the growth, the midpoint of growth is about 5%. We’d expect to see that pretty consistently across the quarters. Of course, there’s going to be some quarters that are a point or two higher and some are a point or two lower. In terms of profitability, we’ll see that build over the year. And again, when we look at the comparable base, in 2024, we did a fair amount of hygiene on our production.

We were not well balanced coming out of the supply disruptions and out of COVID. And if you look back at 2023, we had a billion dollars more revenue in the back half than the front half. And, with that, it was largely driven by our production of mods and locos. And so we work with our customers to change the timing and to become much more level loaded, which will allow us to improve quality, certainly productivity. And from a labor standpoint, we’ll be more consistent in keeping our folks working versus hiring and laying off.

So with that, in 2024, we saw some unusual things in terms of we moved a fair amount of revenue forward and those orders forward. While the underlying momentum was very consistent throughout the year, our revenues and our margins were not. Revenues were growth was much higher in the first half as well as margin growth because we moved a lot of those that revenue forward. And in the back half, it was a little bit less, but came out, well, we raised guidance three times. So it came out a little bit better than we started the year with.

Ken Hechter, Analyst, B of A: And so going forward, you’re saying more consistent?

John Olin, Chief Financial Officer, Wabtec: More consistent. Yes. And that’s one of the reason long winded to say, one of the reasons that we did it, Yeah. Is to bring more consistency and level loading to our factories.

Ken Hechter, Analyst, B of A: Yeah. It’s gotta help with the factories. Yeah. Definitely. So, let’s talk about some of the tech projects, some of the exciting new things.

Maybe just

John Olin, Chief Financial Officer, Wabtec: talk about what.

Ken Hechter, Analyst, B of A: You know, when we think about the you know, you talk about a 55 year old company, yet how do you keep, you know, keep pressing forward? Maybe talk about a few of the projects. I mean, we saw Rail Ghost, which the autonomous car inspection machine, I thought, was was one of my favorite things of the day. What do you see as the potential? What’s the timing of some of the projects?

When does it become reality in terms of reselling to the railroads?

John Olin, Chief Financial Officer, Wabtec: Let me take a step back, Ken, and talk about the importance of innovation, in our in our company. And some of you are thinking, oh, jeez. You can’t invest too much. There can’t be too much innovation in a train. Right?

And as we mentioned earlier, there’s tremendous amount of innovation in that. And I think that when we look at it as a company, we got 30,000 people, waking up every morning and how to make our customers more efficient. Right? Again, when you sell a thirty year asset or a twenty year asset, you better figure out a way to make it better, so that you don’t have to wait a generation before you replace that thing. Right?

And to do that, it really comes back for our customers in two areas, and I’m talking largely on the freight side, right, is their two biggest expenses are fuel and our labor. And so when we talk about efficiencies and making our customers more productive, you wanna fish where the fish are, and that is in fuel efficiency. And I mentioned just a minute ago that we got the most efficient engines in the world in terms of that size and scale, and that delivers a lot of benefits and lower operating costs for our customers and maybe more importantly, a lot more for the atmosphere because of that much less carbon going on. Now rail is significantly more, less carbon than trucks and our customers have significantly less because of the efficiency of our engine. The other area is on labor.

There’s a fair amount of labor in rail yards, and certainly on locomotives. And given our expertise in digital and our leadership position in our digital business where we focus on onboard electronics, network electronics and system like PTC, we’ve got a lot of opportunity. So Ken had mentioned a month ago, we invited some folks, to Pittsburgh and, went through some of the advanced technologies that we’re working on, haven’t been commercialized yet. But they’re largely focused on how do we take labor out. And the one that Ken mentioned is pretty cool.

We set up, actually, it was an old old rail station. Right? We had the meeting there. It’s all done kinda like in the this facility. But we put a a a track up and we had, you know, not a train, but, the wheels running on it.

And what every train that starts out at North America has gotta be inspected, and the regulations call for a manual inspection. So whether six feet of snow or it’s, you know, burning heat in the desert, somebody’s gotta walk the length of a train, which can be a couple miles long, and they gotta check board and check this off, was this done and this done. And so in trying to figure out how to save our customers and automate, one of the things is on, doing those inspections. Right? Every train, 15,000 of them, starts, a morning and that’s happened several times a day.

It’s gotta be inspected. And so the engineers looked at the problem and figured out a way to run, on the rail between the rail car wheels. And a pretty neat thing is when it gets to the wheel, these things come back up and it but it rolls underneath the rail, the length of a a rail car, and it’s got all the visual inspection and it can, you know, check a lot of those things that that human does. And also looking, for the technology so that it can reach up and connect anything that’s not connected. But those are the types of things, Ken, as you saw, that we’re looking at.

Now you talk about a number of people that that would eliminate and these are jobs that are not pleasant to inspect a train before it goes, crawling under a train in hundred degree heat or in a bunch of snow, you know, to check and tick something off when you could run something down, between all the wheels, and and to get that done. The other one that I like, Ken, I like them all. But, one of an interesting one is, you know, when we look at automation and our path to to be fully automated, we’ve got a lot of pieces to that. Right? And we continue to put pieces in place.

But we don’t expect there to be, you know, that we’re gonna move into a a world where everything runs on its own and there’s no human intervention. But starting to think about it is do we need human intervention to sit on a train? Why can’t you recreate what’s on a train in an office? Right? Instead of having a a crew go out to a train, get on the train, start it up, the computer runs can run the train and sit there and monitor things, why can’t you monitor it from an office?

And then you don’t have to worry about, you know, putting that person up in a hotel, waiting for the next crew to come, stopping the train to let them off and so on and so forth. And we’ve got all the visual technologies and the cameras on trains that you can sit there and can you saw it? It looks like your living room chair with a bunch of screens. Right? And with that, we were, we could have controlled the train or we were controlling a train up in our facility in Erie from Pittsburgh.

And, so you think about what that can do and maybe someday that we won’t need two people in a cab and maybe that will be controlled remotely from our our our customer’s offices. And when there’s a change of shift, instead of stopping a train and starting a train and trying to move two miles of it and all that kind of stuff, maybe someone steps out of a chair and another one sits in the chair. Right? And they’ve got all the controls, and our software controls, our trip optimizer controls a lot of the movements of a train, and we got PTC that knows where every train is, and so on and so forth. So those are that’s the world that we envision and the future that we envision.

And with that, it gives us a tremendous amount of opportunity, to lead that given the the leadership position we are in today and how close we are to our customers as well as the businesses that we serve.

Ken Hechter, Analyst, B of A: Tremend, if you’re addressing the fuel issue, addressing the employment issue, it’s hard for the rails to hire for some of these roles that that are so manual in task. And and I I think we’ve had a maybe a government administration change that is it may be more accommodative. You wanna talk the regulatory environment a little bit? Sure.

John Olin, Chief Financial Officer, Wabtec: The best example of everyone is is, again, we have a kind of a product umbrella called Trip Optimizer. It’s been out for twenty years. But a piece of that is just cruise control just like your car, and it starts at about 11 or 12 miles an hour and it takes over. And given we know what’s in front of us, what’s in back of us, we know what the engines RPMs are if you’re on a couple percent grade is what’s the most fuel efficient to take that. And if no one’s in front of you, you’re on schedule, maybe you should take that at a slower rate and save some fuel.

Right? Or, we have what’s called distributed power. There’s typically three or more locomotives on a train, and there’s nobody sitting on those other locomotives because we have software that controls them. But then again, the computer knows a two mile train, there may be part of it going down a hill, part of it coming up a hill, and maybe another part of it going down a hill. And with that, all the algorithms say which one should be pushing and pulling all in the name of saving that energy, but still, delivering the train where it needs to be at the time it’s supposed to it’s supposed to be.

So it’s making all those trade offs. Right? One piece of the puzzle that we haven’t had but we’ve developed some time ago is the front end of that. Right? Is the zero to, 11 miles an hour and then from 11 miles an hour back down to zero.

And we call that product zero to zero. Right? There’s cleverness. And it’s a product that we’ve had a customer test and it delivers on the fuel savings that have been promised. And it’s been sitting at the FRA, and not being ruled on whether we can go forward with it or not, not just kind of there.

And, so with the new administration, we’ve seen movement. And you might ask, well, why wasn’t it moving? And well, we’re not within the last administration, but from our best understanding is there was concern over by some of the unions that there was an impact that this technology could limit some of the employment. And our view of it is it would limit the amount of fuel that we needed to use. But in any event, it wasn’t looked at.

And so with the new administration, we do have some movement in that area and looking at waivers and considering those type of products. But those types of things keep putting the puzzle piece together so that we can drive that efficiency for our customers.

Ken Hechter, Analyst, B of A: Let’s talk about topic topic du jour, topic of of the minute, right, which is is tariffs, and and maybe talk a little bit about the impact on the business, where your manufacturing is. You manufacture a lot of the locomotives in or North American locomotives in in The US, but what percent, maybe if you can ballpark it, of of all the parts and stuff is is built in in The US, and where’s the risk through that and the pass through capability?

John Olin, Chief Financial Officer, Wabtec: Not in favor of tariffs right here, but we’re working through a lot of tariff activity in North America and The United States. And, it seems like it’s a thing that, while we meet three times a week to make sure we’re keeping up with all the changes and making sure that we’re able to understand the impact to us and I’m sure that with our customers. So with that, we’ve got, oh my goodness, 20% China tariffs, 25% Canada tariffs, 25% Mexico tariffs, less USMC parts, 25%, steel and aluminum tariffs are all, initiated and, looking for, an expectation that on April 2, there’ll be a fair number more of tariffs coming that would implicate various other countries as well as product lines around the country. So we’re keeping up with all of that and making sure that we can pass that on. We haven’t provided exactly what that is, in terms of, kind of how that boils down.

But the significant majority of our products, our locomotives are produced in American and America parts, but we do have some parts coming from other parts of the world, that it’s hard to get United States, or beneficial to get in other jurisdictions. So with that, we’re working through it and reevaluating where those are sourced, but kind of managing through it. Very similar to me is, hyperinflation. Right? When we had to go through that and, we needed the price to collect that and so on and so forth.

So a similar exercise, but, maybe a little bit more everyday changing.

Ken Hechter, Analyst, B of A: Yep. You know, we’ve got just a couple minutes left. Do you wanna talk a little bit about capital allocation? Right? So you’ve you’ve made two acquisitions, maybe toss in thoughts about the $1,000,000,000 acquisition yesterday, what the fit is, and then and then your thoughts on Sure.

How you allocate capital as you.

John Olin, Chief Financial Officer, Wabtec: Sure. So capital allocation, is is pretty straightforward. We’ve got a a capital allocation waterfall made up of five things. I don’t think that we’re highly unique to any other company. But the first and most important is, what we call as the strength in the balance sheet.

Right? And our definition of that is to maintain a leverage between two and two and a half times. That puts us squarely in the triple B range where we’re at, and we feel very comfortable with it given our risk profile as a company and our resilience to some of the downturns that we have in the various businesses that have been successful in offsetting some of volatility out in the marketplace, in particular our service business or some of our transit businesses that are very stable in terms of those growth profiles. The second one is to invest in the business. There’s not a better business to invest in for us than WebTech, and we view that in two ways.

One is in terms of R and D spending. So we spend more than the average industrial company on R and D. Again, a surprise for maybe maybe a surprise to some for a railroad company. Six to 7% of our revenues are spent on engineering and R and D. The other areas in capital.

Now we spend a little bit under the industrial average in capital. We’re about 2% of revenue. And given the nature and the size of what we do and some of the highly engineered, and the project work that we do. Our plants are probably not as automated as some, and is not as conducive to robotics on everyday products. But in any event, we spend about 2% there, a little bit less than the industry average.

The third area is dividend policy, right? We are looking to continue a dividend payout ratio in the 10% to 15%, which provides not a significant yield, right? The yields at about 0.5%, so not a great yield. But given the investment opportunities that we believe we have in M and A and in purchasing our shares, we feel very comfortable with that dividend yield that we do have. So that kind of takes care of the kind of the top of the pyramid.

That leaves us with free cash. And with regards to our free cash, we’re going to prioritize M and A with the Proviso that we’ve got good strong strategic M and A that could hit on as many of many as many accretives as we can, right, between accretive growth, accretive margins, accretive ROIC and accretive EPS that we can. And we’ve been very disciplined and Rafael does talk about the M and A pipeline as being very strong and I think we certainly proved that over the last two months. But it is something that we show a lot of discipline and we’ve walked away from some good assets because we didn’t think our shareholders would appreciate the price. So we’ve been very disciplined and we’ve also been very pleased.

So every December, we take our Board through the returns of those. And I’m happy to say of all the ones that we purchased since the 2019 merger, the returns in aggregate have come out a fair amount higher than the original business case or the acquisition plan. And so if we don’t have that good strong strategic M and A that’s accretive, what we will do is have no problem returning that cash to our shareholders in the form of share repurchases. Ken, we are not looking to build cash on our balance sheet. It’s not our money and our shareholders can invest it the way they see fit.

And I think 2024 was a great example of this. We did four acquisitions, all smaller, provided great niches in our various businesses, but was less than $300,000,000 and our operating cash was 1,800,000,000 take out a couple hundred million dollars or $300,000,000 for capital and dividends and that left a fair amount of extra capital. And with that, we repurchased $1,100,000,000 a share. Now move forward a year and here we’re sitting here in March and, we’ve signed up for two acquisitions of a bigger and the larger side, one in early January for $1,800,000,000 for a company called, Evident Inspection Technologies. We have, in our digital business, we do a lot of inspection technology.

We have a lot of shared technologies with this company and, it brings more technologies to us and a tremendous amount of synergy and we believe a lot of revenue synergies, which we haven’t factored into the returns. And then just yesterday, we announced a billion dollar $960,000,000 transaction with Delnor Couplers and this is squarely in our transit business. Really strong everything. Well, actually, I can talk about both of them in aggregate. I’m sorry, going back to the couplers.

Our transit business, what we do is we do not make transit cars. What we do is we make components for transit cars, and very similar to the product portfolio that Kenora would have. And we meet Kenora in most every bid there is, but that’s brake system, door systems, HVAC systems, personal information systems, pantographs, so on and so forth. And one of those is couplers and we’ve got a small coupler business and we are looking to buy Delnor, which is the number one transit coupler maker in the world. So it fits very well into the portfolio and very good margin structure.

So as we look at both Evident and, Delnor, both of them, of sizable amount of revenue, adding about $700,000,000 of revenue when they both close to our business. They are accretive growth profile. They’ve got an accretive ROIC. They’ve got accretive EPS in the first year of ownership and they’ve got accretive margins. And the margin one is always the toughest for us to define given the fact that our margins in the freight industry and the transit industry are at the top of the heap, so to speak.

So we couldn’t be more excited about these two businesses and what they’ll do for us in the future. And again, moving us toward that future that we envision. These are two big pieces of that puzzle. With that, we’ll certainly won’t be buying back amount of shares that we did last year and we’ll continue to look for good strategic M and A. And if we have excess cash, we’ll return that to our shareholders in the form of share repurchases.

So to sum up,

Ken Hechter, Analyst, B of A: your core North American customers kind of flat line in operations, yet your take you’re growing. They need your new locomotives or mods and getting a good return on that, so it’s a good investment for them. It it turns into improving margins with along with your cost cutting program. You got double digit EPS target. You’ve got some new technology that continues to aid the growth.

You’re making acquisitions which are enhancing your margins. Anything else you wanna kinda highlight before we wrap up?

John Olin, Chief Financial Officer, Wabtec: Highlight that you are listening pretty damn well.

Ken Hechter, Analyst, B of A: Awesome. Thank you very much, John. Appreciate it. Thank you,

John Olin, Chief Financial Officer, Wabtec: and thanks everyone for your interest in Webtech. If you need any information, Cairo will will help you out. We’d love to have a conversation. We love what we do, and we love what we do for the world, to move and improve it. Thank you.

Thank you.

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