Q3 2020 Westinghouse Air Brake Technologies Corp Earnings Call
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Good morning, and welcome Tibet <unk> quarterly earnings Conference call.
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I would now like to turn the conference over to Nick Kristine Kubacki, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to Wabtec third quarter 2020 earnings call.
With us today are president and CEO, Rockdale Santana, CFO, Pat Dugan, and senior VP of Finance John Bachelors.
Today's slide presentation, along with our earnings release and financial disclosures were posted on our website earlier today and can be accessed on the Investor Relations tab on Wabtec Corp. dotcom.
Some statements, we're making are forward looking and best based on the best view of the world and our business today for more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and presentation.
We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics and now I will turn the call over to Rafael.
Thanks, Christian and good morning, everyone. We appreciate you joining us today I hope you and your families remain healthy Im sorry.
Turning to slide three while we continue to see things don't go go good globally, a gradual recovery across the global freight and transit rail markets is continuing north.
North America freight volumes and equipment utilization sequentially improved in the third quarter and transit ridership is also slowly resuming.
Directional trends along with the focus performance of our teams are reflected in our third quarter results.
Total sales for the quarter were $1.9 billion, driven largely by international freight markets at a recovery in transit.
But offset by global disruption due to the co heads up endemic.
Total adjusted operating income was $293 million.
The quarter with adjusted EPS of 95 cents harder.
Harder reinforcing that our teams are continuing to take the necessary steps to control, while we can protect the long term growth of the company and deliver shareholder value.
In the area of synergies, we are accelerating our progress and we are on track to deliver $150 million of NAV synergies in 2020.
As well as deliver on the full run rate of $250 million in synergies before the end of 2022.
To achieve these goals, we continue to take actions on structural cost and in the third quarter. We further reduced headcount by an order, 3%, taking our total reductions to roughly 13% year over year.
We also have reduced our operational footprint year over year, and we are actively driving cost reductions through lean initiatives.
To date, we have exited about 75% of the share services from GE transportation merger ahead of the schedule and we are on track to exit over 90% of these activities by year end.
Overall, our team delivered a strong quarter in a challenging and dynamic environment and won several orders, including a significant deal with New York City Transit to extend battery technology to passenger transit and drive down emissions.
This is a key win death directly aligns with our own sustainability strategy as we outlined in our 2020 sustainability report issued earlier this week.
We also closed 160 million dollar multi year mining order for advanced to drive systems.
And good morning, everyone.
Turning to slide four sales for the third quarter were $1.9 billion, which reflects a 7% decrease versus the prior year.
The decline in year over year sales was mainly due to the ongoing disruption across our freight and transit segments caused by COVID-19.
For the quarter operating income was $207 million and adjusted operating income was $293 million, which was down 12% year over year.
Mainly driven by lower sales and disruption in our operations as a result of the pandemic.
Offset somewhat by variable cost actions and the continued realization of synergies.
In the third quarter adjusted operating income excluded pre tax expenses of $87 million of which 70 million was for noncash amortization and 16 million of restructuring and transaction costs.
Please see appendix D. In our press release for the reconciliation of these details.
Now looking at some of the detailed line items adjusted SGN, a declined 4% year over year to $241 million.
Which is excluding 12 million of the restructuring and transaction expenses I just discussed.
As DNA expense benefited from structural cost actions across the business and the realization of synergies.
As expected, we did see a resumption of certain discretionary and compensation expenses that we eliminated during the depths of the pandemic.
For the full year, we expect adjusted SGN eight to be around $900 million.
Engineering expenses decreased to $37 million or down 38% from last year. This.
This was largely due to the lower volume outlook as well as some changes in project timing.
Amortization expenses were $70 million for 2020, we expect noncash amortization expense to be about $285 million in depreciation expense to be about $180 million.
In the third quarter, we had GAAP earnings per diluted share of 67 cents and adjusted earnings per diluted share of 95 cents.
The details, which bridge GAAP earnings per share to adjusted earnings per share of 95 cents can be found attached to our press release.
As of September Thirtyth, our multi year backlog was $21.4 billion.
Backlog is about flat quarter over quarter.
Our rolling 12 month backlog, which is a subset of the multiyear backlog was $5.2 billion.
And continues to provide good visibility across both freight and transit segments.
Now, let's take a look at the segment results on slide five.
Across the freight segment total sales decreased 7% to $1.2 billion in the third quarter.
In terms of product lines equipment sales were up 35% year over year.
As a result of higher locomotive deliveries.
Which as we have discussed can often vary quarter to quarter due to timing.
In the fourth quarter, we expect locomotive deliveries to be slightly higher when compared to the third quarter, but down versus last year.
In line with improving freight traffic from the second quarter, our services sales improved sequentially, but were down 19% from a seasonally strong period last year. This.
This was largely driven by lower part sales due to continued record high locomotive parking.
As well as the timing of mods deliveries and overhauls.
We expect our parts sales to continue to improve with the gradual recovery in freight volumes and on parking of locomotives.
Digital electronic sales were down 13% year over year as orders shift to the right in North America due to cobot disruption overall.
Overall, we continue to see a significant pipeline of opportunities.
In our digital electronics product line, providing productivity and improve safety for our customers.
Component sales were down 16% year over year on a 45% lower railcar build versus the prior year demo.
Demonstrating that diversification within our components business.
Since September we have seen early signs of improvement in demand for aftermarket railcar components as more railcars are beginning to come out of storage.
Despite the top line headwinds and a higher mix of OE locomotives during the quarter our execution on synergies continue to drive positive impact as reflected in our segment adjusted operating income of $234 million and adjusted margin of 18.9%.
Finally segment backlog was $17.8 billion down just slightly from the prior quarter.
Turning to slide six across our transit segment sales decreased 6% year over year to $628 million driven largely by disruptions stemming from the COVID-19.
Well, we sales were down 2% year over year.
It's important to note that this is a strong improvement from the second quarter due in large part to improving transit ridership and service levels around the globe.
Aftermarket sales were down 10% from last year, we remain positive on the aftermarket and expect sales to continue improve as transit services increase globally.
Adjusted segment operating income was $75 million, which was up 21% year over year for an adjusted operating margin of 12% Cross.
Across the segment, we continued to drive down cost and improved project execution as noted by our strong operating performance.
While early days, we are pleased with the momentum underway and will continue to execute on more actions to drive increased profitability for the segment.
Finally transit segment backlog was 3.5 billion, which was up slightly versus last quarter.
Now, let's turn to our financial position on slide seven.
Cash flow generation during the quarter was strong at 230 million driven largely by working capital management, including improved inventory levels and higher customer deposits.
I'd also note that there was no material change from the AR securitization in the quarter.
We had about $15 million of one time impacts on cash flow during the quarter and about $170 million for the full year.
Mainly due to prior year restructuring transaction and litigation charges.
Throughout the quarter, we continued to strengthen our financial position and reduced net debt by approximately $460 million since the same quarter a year ago.
Our adjusted leverage ratio at the end of the third quarter was 2.6 times down slightly from the last quarter and our liquidity is still robust at 1.9 billion.
In summary, our balance sheet is strong and we are confident we can drive solid cash flow generation, giving us the liquidity and flexibility to execute our strategic plans.
With that let's move to slide eight and I will turn the call back over to Rafael.
Thanks, Pat looking.
Looking ahead, we are seeing a gradual recovery across most freight and transit and markets as global economic activity and commuter traveling improves.
In North America rail volumes increased dramatically from the second quarter due to a broad recovery in our agricultural intermodal metals and automotive volumes.
Locomotive bark inc.'s after peaking to a record high in the second quarter have improved but are still more than 20% higher than pre covia at levels.
As railroads answering to recovery and we accelerate technology improvements, we expect demand for reliability and productivity to be even greater putting us in a position of strength for modernization, so overhauls and parts demand.
In terms of North America rail car builds railcars are slowly moving out of storage however, more than 25% of the North American railcar fleet is still remains in storage.
Builders are taking continued step two is low production lines.
The industry forecast currently indicates that the railcar builds for quite whining will be less than 30000 cars.
Internationally, where economies have started to open we continue to see encouraging signs in.
In Brazil demand remained steady with greater dependency on agriculture products following a record harvest.
In Australia rail activity has shown good momentum following the Cove had locked down.
Cass extend year to date car volumes are up driven by growth in volumes from China.
Any idea after long locked down activity has recently improved with the gradual reopening of the region.
Overall, we have a strong order pipeline internationally in places like Brazil, Russia Africa, and Australia, and we expect revenue growth in several of these markets throughout 2021.
In mining end markets remained stable and we remain optimistic that the mining market conditions are improving.
Transitioning to the transit soccer ridership is continuing to recover from historic wells, particularly in Europe, and Asia and in line with an operational recovery in transit globally.
Looking forward the long term market drivers for the passenger transport remains strong.
Infrastructure spending in support for Green initiatives continues to be a focus, especially as governments globally book to rail for clean safe and efficient transport.
Turning to guidance for the year, we are updating our sales guidance to seven and a half to $7.6 billion, which is the higher end of our previous range.
And we are updating our adjusted EPS guidance to the range of $20.75 to $3.85 due largely to our operational execution today ongoing actions to align variable and fixed costs to the volume realities, we face.
And visibility into our backlog.
Finally, we remain confident in delivering strong cash generation for the year.
Turning to slide nine and two concludes.
I'm proud of the strong execution by the team in the third quarter, despite a challenging environment.
Our team remains vigilant on monitoring code, we had 19 globally and is laser focused on keeping our employees say, while executing through today's volatile environment to deliver for our customers.
As we go forward, we remain committed to executing on our strategic plan, reducing costs aggressively managing cash.
Delivering on our synergy targets and focusing on what we can control.
We will continue to lean into the strong long term fundamentals of this company and invest in technologies that vast star competitive advantage here.
Help us successfully manage today's market headwinds over the long term and emerge as a more resilient company.
Before I turn the call over to questions I want to personally thank each and every member of the Wabtec team for all that they are doing.
This year has been a significant stress test for our organization.
As we have navigated a complex integration.
An industrial recession, a market research that in addition to the up and down tick.
Yes, despite all these headwinds.
We are performing well and we have continued to deliver as demonstrated by our synergy execution strong cash flow and overall performance.
Looking ahead.
We are encouraged by the constructive trends, we are seeing across the global transit and freight market.
The man should continue to improve sequentially across most of the portfolio.
Recovery will remain somewhat mixed but our business is uniquely positioned to drive long term profitable growth.
With that I'll turn the call back to Christine to begin the Q and a portion of our discussion today.
Thank you Rafael we will now move on to questions before we get out of consideration for others on the call I ask that you limit yourself to one question and one follow up question. If you have additional questions. Please rejoin the queue.
Operator, we're now ready to take our first question.
Hello.
Okay.
Bob and one qualifying Carl.
Let me tell you open.
Thanks Ben.
Our next question comes from Allison Poliniak well today.
Go ahead.
Good morning.
Morning.
Give me just a chance that a little better I think the performance in that segment was quite a bit more resilient than six including myself I would have thought is there a way just given the backdrop of close date, it sounds like Europe and eastern Europe are starting to recover quite a bit faster is there a way to kind of quantify the headwind that youre seeing from North America and then just how do you think.
That segment evolve the CNN in terms of the future just with Covidien you know the concern Thats, we'll never get back on a commuter rail again.
Let me start first with the falling on me and we're we're working off course very closely with our customers I think while transit all towards is around the globe, there, saying operating budget constraints.
I think there is really a strong supports in terms of government stimulus for down to navigate through this.
At this point, we haven't seen any project cancellations were continuing to work with customers and I think a lot of the dynamics at this point I mean they remain.
Positive I think they're still going to be volatility in terms of all some of the measures that you see being taken place.
Places like Europe, but.
But we don't feel that thats going to go back to what I'll call the worst trough levels of.
Covitz, so overall a positive trends.
Well.
Couple of comments here.
If you think about transits I think experience lower in the U.S. versus auto markets I call out that the U.S. market represents only 15% of what we do in the transit market. So I think thats all.
Also not important elements and with that I think.
Im really proud to see how the team has embraced change they are driving improvement, we see that coming into our orders backlog I think I've said it before and that trend continues our backlog today's guidance margins down at our 100% at least higher.
Than they were a year ago, we see improve execution and I think we're moving down in the right direction with that business. So we're committed to continue to improve margins over time.
Great and then just a question on margins within freight and if I recall the equipment margins were a little bit could be a little bit low end just in terms of the Max eight can you help quantify if theres a way to do that sort of the mix impact from sort of the product dynamics in the quarter within freight in terms of credit would it have been better I guess if the.
With a strong.
You got it so on the on the margins were primarily impacted by mix and else in them and just just very straightforward right, Phil when I've got equipment growing up 35% in the quarter and at the same time I've got services, which is a much larger business with digital electronics, I mean services was down 19%.
And with digital entrants at 13%.
So thats really what drove that I mean, we can have those variations based on Max.
Just a we remain focused on improving margins I think we're taking a lot of that.
Right actions in different areas, we are delivering on synergies we've been taking action on EPS DNA and in direct costs and we're going to continue to.
Moving that direction.
Great. Thanks, I'll pass along.
Thank you. Your next question comes from Doug Hello, Stephen Please go ahead.
Thanks, and good morning.
Morning, So.
So I wanted to start with a question on the North American freight aftermarket business I'm curious how that trended sequentially in the third quarter and your expectations going forward and maybe within that business. It would be helpful to hear about the cadence of mine.
Twoq to Threeq, you and maybe even threeq to Fourq, you as well just because I know that can move things around a a good bad.
Okay. So let me take a step back first to the second quarter on services, because I think it's important just to understand I can't think of carloads in the second quarter were down close to 20%. We saw on the water side, our revenues came down about 9%.
Now when you come into the third quarter. So there's clearly a lag there when you come into the third quarter, while carloads were down.
Bob I think 7.5% always seeing a I'll call improvement in about 1%.
Here's some things to keep in mind drive I think there is naturally a lag there what I will tell you what we're seeing from a services perspective, there's clearly a pick up.
In terms of I'll call recovery. It started at first in our international markets and we saw feats fleets getting on parts and.
I think we're seeing volumes cell can choose to moving the right direction. There was a lag into North America up but we've also seen that improve.
Improving.
So I think saw continued to move forwards to shorter cycle business, but.
The trends that I look at it right now.
Just under their positive offer the services business and you ask specifically on mods I think the areas, there's pent up demand being created in terms of fleets that Enron.
So overhauls that have pushed to the right.
Potentially investments into fleets that have not been done in the course of the last a couple of years that have also pushed to the right and to adapt pent up demand is going to comp. So we do expect.
Good.
Good health in mods moving forward.
Okay away from providing you any specifics in quarter over quarter, because we can have variation on that but.
Thank you.
A positive dynamics there in the services business.
Okay. Thanks, and secondly, I wanted to ask about your thoughts on buybacks, just given where the valuation metrics for the stock are today and as you think about closing that valuation gap to the market and peers were there any major takeaways from the end.
Investor perception study that you recently completed just curious if there any actions you are planning to take after completing that exercise.
So let me start with glass Sparks yards, we have down that study a really great churn out. So I think the amount of feedback was great very specific very calendar answers.
So while we're continuing to work on Dotz with that saw a couple of things in mind number one I think there's an element of providing I'll call a little more details in Saar in terms of some of our segments, which were going to work with you to make sure that we're looking to though sales we are going to not share on capital allocation.
And what I would like to tell you is number one.
We are committed to drive organic growth and continue the R&D investments that really drive differentiation and innovation for our customers Thats desktop of mines and of.
Of course, we're looking reprioritizing it as we look at the current environment that very committed there. We're also confident about our ability to drive cash and to reduce debt. Just think about of just last 12 months, we have paid down $490 million of death.
And at the same time, we were driving over $190 million of both stock buybacks and dividends right now and as I look out at our current stock price presents significant opportunity to return value to shareholders. We currently have a share repurchase authorization for 400 million.
And we are intensifying buybacks, that's a that's a focus now.
Great very helpful. I appreciate the time.
Thank you. Your next question is from.
Great.
Go ahead.
Thanks, Good morning, guys.
Turning.
Good morning, Chris.
I was wondering about sort of the the resource the return of resources in the for each segment as we see volumes continue to improve in Fourq, you and potentially you know first half of next year and beyond specifically on the headcount side what are the learnings that you've had some sort of this downturn in their ability to is there the ability to hold.
On bringing folks back to try to drive it may be stronger sequential incremental margins and what we saw just initially here in the third quarter.
Yes. It is yes number one I think if you look at our headcount numbers, so we reduced 3% quarter over quarter, 13% us per cent versus a year ago.
I think there's a lot of learnings that came from just a coveted periods I mean, we've looked oh.
At different areas and I got to tell you I mean, there's an opportunity here to win even more product 50 for certain areas of the company for your work remotely Theres some auto ones that that's not the case, but we do see the opportunity to drive alcohol or increase or a leverage and we'll we'll be growing.
Gross margins.
As a result of volume growth ahead.
Okay. Okay. That's helpful. And then maybe a bigger picture question on sort of synergies too I think you talked about achieving full run rate.
Out sometime during 2022.
Can you talk about some of the sort of puts and takes that might influence that timing a little bit sort of maybe forgetting about sort of the macro to some degree I think with what's in your control are there any potential drivers that could maybe pull that forward a little bit what could they be and sort of what's the risk to kind of pushing that out a little bit I.
I'll tell you, what's pushing dot all the little bed right now and it's just a function of volume.
But saw with the guidance of what we provided the $150 million ish for the year. We're committed to data we're going to deliver on Dotz, we're tracking to that and we have not breaking down that on the quarter, but we're tracking to be north of $150 million for the year, and we will deliver the $250 million of before.
Our end of next year, so moving in that direction, what I'll say is of course, a tough volume conditions improve it can only help us there.
Okay got it thanks for the time appreciate it.
Thank you.
Thank you our next question from Rob.
Now, let me reiterate that.
Go ahead.
Hi, and good morning, everybody good morning, Rob.
So my question is on just I'm trying to get you had another quarter of good progress on margin and I Wonder if you would just give a general update on on Oh, what sort of workflows are left to come I mean, you've rolled off some of the unprofitable business I'm just could you just give us nothing on your strategy for continued improvement there. Thanks.
Yeah, I'd say just this ongoing works right you have a backlog that we got to work through I think the comments I would make is I think for more than a year now and we have been really disciplined about the quality of that backlog and the orders we take answer the specific terms and conditions that come with those on.
Research and that's where I say that we've got a over a 100 basis points of margin improvement on that backlog. So its a continuation I think execution is a lot better I think we've got a improvement in terms of our on time delivery. The team has really embraced.
The principles of lean across our operations, we're going through a significant acts or size on making sure that we've got what I'll call a more just a more efficient footprints I mean I see.
Without mentioning the business here are and sometimes into businesses, where you have eight locations different groups of engine engineers in each one of those locations are designing thanks to a lot of times different us back sometimes the sport like similar customers, we have the opportunity here to have.
Of waterfall centers of excellence when it comes down to engineering, we have some of those stylish in places like India to have the opportunity to significantly reduce costs and reallocate. It really don't need those eight sites I can do that with Bob maybe four or five and I think that's that's something that we're going to continue to pursue.
Two oh, we're being very disciplined about it but we're going to continue to drive margins up so we're committed to.
The the framework that we've highlighted before which is up over 100 basis points.
<unk> points in average per year, a I think we see the opportunity to do better this year and so we're not going be pushing for anything last done on other hundreds on next year.
Well, that's very helpful. Thank you and I'm, sorry for clarification, but how much is left of unfavorable contracts and backlog that will flow through a positive margin at this point I.
I think the one contract that we've been more open about it was the UK project that runs out so a fundamentally by down or this year. So theres very minimum laughed I think for the first quarter of next year, but we've gotten them and there is a backlog of contracts. It will will continue to work I think the important and says work.
Okay. And then you know you would obviously mentioned that you have a mining service a mining contract or a multi your order is that gonna start to flow through next year and kind of help us think about how locals are shaping up thanks.
So let me give yourself the bar and Marcus of course, I'm not gonna get into the elements here of giving guidance into 2021, but the way I look at our end markets. Let me just start with maybe the transit piece of edge.
We're <unk>, we're continuing to see positive signs of recovery. If you look at our backlog right now yeah. It's.
Larger than it was a year ago and I think we're to continue to see good trans there.
The second piece it would probably come down to really I'll call. The freight side, I think where positive on services as I mentioned before I think we've seen the big cop on services from the trough levels in the second quarter start first and international markets. Then we saw that.
A little bit of a lag, but then it came into North America and I think we see positive trance. There I think there's of course diary as a shorter nature of the cycle of that business. So thanks tend to pick up faster now when you go into the equipment side I think.
We're kind of a scene similar dynamics menning, if you think about the pipeline of opportunities to do we were working.
Versus six months ago, we see significant improvement it started once again into international markets.
I think there are positive signs on some of Deus pie.
Pipeline actually converting into the fourth quarter, which means even on a possibility in.
Specifically in one of those markets to already deliver Ah so being revenues into 2021, but we got to see that taking I'll call a broader impact across international markets.
Think ultimately you're going to see that happening in North America, but there so of course, a lag there and when you look at our equipment business, there's an element of I'll go longer cycle.
Into that perspective, but.
As you highlighted I think their pent up demand in terms of just.
<unk> that didn't happen fleets during this year and that has pushed out many elements of maintenance to the right. So there's pent up demand in that regard.
With that being said Theirself course, a lot of volatility still we're working hard there's a lot of focus and working very closely with our customers. Because I think we can provide them significant opportunities here to accelerate some of this call investment in the fleet keep in mind I think there's been a non.
Your investment in the fleet and the fleet is aging and the good news is we are accelerating.
Lot of the investments we've done in terms of technology to improve he'll call efficiency and those fleets. So if you think about those mods in those overhaul us I expect to be able to deliver it to the customer increased fuel efficiency I expect to increase reliability on those fleets and with our.
Digital electronics portfolio we.
We do expect to have an opportunity there to also.
Kris technology, we've just talked about.
An order we got on zero two zero with a class one in North America. That's another building block towards alternation the significance of that that opens up really room for me to introduce that into all water class one stink of like products like creep Optimizer. This is like something that builds.
On the top of that so I think we've got some good dynamics here to work from.
Thanks, and then just on a freight margins for the fourth order I think you've historically talked about 20% to 25% decremental margin framework and frame, obviously they'll hire this quarter given the next but would you expect it you know given that you're expecting to be down here for years.
The fourth quarter to go back to that same work or are potentially.
Be a little bit better as the next improve.
So again staying away from commenting on Max and specifics on the quarter, what I'll say is.
We're confident with the guidance we've provided and.
We're committed.
To hit that guidance and.
With that I think there's also an element of.
Ah cash flows and I.
I think we're seeing all of our teams working through that.
Of course had winds into the quarter, but whitfill shrunk about the guidance, we're providing at this point.
Thank you.
Thank you.
Okay cool.
No problem.
Oh go ahead.
Yes, good morning, everyone. Good morning, good morning.
Oh really I was pleasantly surprised by the Boogie shrimp and freight really strong book Bill, even though you had really strong deliveries in the in the quarter. So can you just expand on your prepared remarks in terms of where you see pockets of strength promoters.
Alluded to a building international locomotive project pipeline as well.
Would you mind, just expanding on those two areas place.
So when I talk about the pipeline of opportunities and the option to convert those into orders I think we're seeing some positive signs in places like Latin America, and we have the opportunity to your to convert so some of the disorders already in the fourth quarter. The team feel strong about it we're saying similar trends and places like that.
<unk>.
And Ah well dish picked up the activity and some are.
Markets, which I read or not.
Open up at this point and.
And where where where.
We're certainly.
With a strong competition wherever we go and we want to make sure that.
We will continue to progress in that direction.
Okay. Thank you and the bookings from a quarter to really can you just expand on.
Drove so such a strong bookings quarter and they're really couldn't learn.
I think so that was the order that we announced on New York City Transit there was certainly a significant.
Ah element of that's.
Big opportunities for us here to continue to expand on.
I'll call electrification of our market. So this battery electric locomotive, we we see this as.
Great solution for our customers there has been a great degree of interest and we're moving into what I'll call the face too of that with.
With a couple of different customers. So we expect that to continue.
But.
And what.
And John Geography, solid mentioned to use mining I think mining has demonstrated resilience.
And even as we go forward here I think they're shop really.
It really an element of resilience, especially when he will look at iron or copper and some specific commodities. So.
That's also an utter resilient part of the business.
Okay. Thank you and can you talk about how the productivity ramp has gone on the facilities.
India in particular are you getting the productivity that you're targeting.
So two tanks.
Has been a significant improvements in productivity and efficiency I look at the last two years with significantly improve the product profitability of the contract that we are executing so it's a it's a positive there.
Can you talk about the last quarter I mean, it is of course, it's been very disruptive between Covid hats between monsoon season, I can't say things have been necessarily easy, but I think the payments continue to progress we have delivered more than 130 local.
Notice.
At this point.
I would say the team is very much committed to deliver the minimum 100 locomotives per year. So we feel positive about.
The dynamics, but very top dynamics in the course of less.
90 plus base.
I appreciate the discussion thanks.
Thank you.
Okay, Okay great.
Great single.
Falls.
<unk>.
Hey, Thanks morning, guys.
Can you just talk so can you just talk Directionally, how you see the the the loco and railcar markets for next year, Directionally, just sort of up or down or we're flattish and then I'm wondering can you talk at all about some of the things youre doing with electric or alternative brokers on.
On the freight side.
Yes.
So.
Couple of Thanks man on the freight Karsh side I think you all look at the same I'll call reports, we do I think for this year.
For freight cars, probably around 30000 as you look into the next year. There is an expectation for that too dropped down to potentially mid twenties I guess the question here is there's potentially some.
The stimulus incentives that could improve those numbers, but right now and I'll be thinking about numbers around 25 to 30000, depending on how that plays out when I think about locomotives I think you've got a break.
<unk>.
The elements of North American International I think international we continue to see a robust.
Pipeline and good opportunities here for us.
North America as I had mentioned there is a lag here so.
Keep in mind.
Longer cycle nature of.
This disorders in order to be fulfilled so those sure maybe.
Hopefully that answers part of your question I think mining, which is another element here I think we.
We see mining resilience at this point.
Oh and on now electrification, which you asked about it.
We see the opportunity here too.
Answer into some areas of Alec terrific Asian, with differentiation, which would man driving value for both our customers and for ourselves I'll talk to you more about it in the first quarter of next year, but that's an exciting area.
That will also help us.
I think accelerate growth in the business I think there is an element of.
Pent up demand that I talk to you about it there is an element of for me accelerating technology into our fleets, which will ultimately accelerates just the.
The investments so you have more reliable and more efficient fleets and there is an element here of it's stopping to new.
New areas so.
We're really working hard to build on the right side of dynamics through drive could off and on March.
We go see positive trends.
Going through that year.
Okay helpful. And then just lastly, what are the opportunities with the with the G. E deal is I think improving the content per logo on the legacy Web Tech side can you just give us an update on where we stand on that front are we seeing that yet is that still on the come any thoughts there.
I think we've seen a little bit but it's.
In in the scheme of things I could call. It's immaterial I think what's what's been important.
We see and know immense of dolphin.
The opportunity to Israel.
It takes sometimes a little bit longer just in terms of all customers wanting to pass that before day fully adopt pets, but we're doing that we're doing that across the board.
I think.
A broader than that we've seen.
There were so penetrating so many different regions, we see announce teams falling.
He'll call different products before we couldn't even think about selling a man we're selling our heat exchanger business here in the U S would never being able to reach the kind of businesses were getting on and.
In.
Russia with just signs about 5 billion dollar deal was small it just.
Gives you the sense of how we can really take.
This products into a broader sense, we're educating our teams through it.
There is a SaaS of really having a broader product portfolio that we can win sure out there and the fact that we're improving now profitability in transit. It also allows us to be a lot more aggressive ongoing after.
Market share in some areas and drive profitable at all so.
Just.
Stronger stronger team together.
Okay. Thank you guys.
Okay.
Thank you.
Okay.
Pollen.
Oh.
Good morning. Thank you Raphael I think you have highlighted some.
Pockets of revenue growth opportunities.
And it was for next year, but but did you did you say if you guys expect to grow revenue total revenue next year.
Okay. So a couple of thanks, I, we're not giving guidance Internet Scheer I think what I provided what was just a perspective on how do I see the recovery taking place I think there's an element of our business, which state the services, which shorter cycle and we're seeing the recovery there so a short.
Cycle, you were able to deliver most of the time and water call lasted six months right. There is an element of equipment, which is longer cycle and say a lot of cases, you're looking at deliveries above.
12 months.
I think the.
Signs were shades of order recovery, we started to see that as I described to you with the pipeline at that started first internationally and we do expect.
Some of those conversions already started here in the fourth quarter, but North America has been lagging behind.
Got it that's that's helpful and then maybe switching over to the transit side.
Well, we'll see.
New York City Transit hybrid locomotive order is very encouraging but can you help us understand how this is happening at a time when.
If this is with the with actually the M. T. A I mean I think there.
Expecting a deficit and $16 billion through 2024, if there is not a.
Federal.
Emergency funding.
Funding so that.
Is this.
Order basically contingent upon a blue waves scenario next week.
Well a couple of things number one we're not going to comment on any specific customers customer order shore transactions, but I'd.
I'd say treselle torches around the globe, there are really saying operating budget constraints.
We haven't seen as I told you before project constellations at this point I think there is a significant opportunity for those transit authority. So drive waterfall, a shift to green and we're saying significant investments on that and that.
Helps a lot of these elements. So that's that's maybe are well we're all finished.
Got it and you did mention that you are having more of these conversations with different customers around the world about the the transit hybrid locomotive I think they're shot huge interest on edge, there's clearly an opportunity to already applied some of these and some specific routes. So we've got.
Well, we're going to start a pilot's here.
In California and.
We've.
Started some of the elements of what I'll call. The next phase.
I think there's.
Some real interest I mean, if you think about the elements of.
Feel efficiency that could be gained from desk, there are significantly and due to all the dynamics you see in the automotive.
And the story you were saying really a significant progress in terms of just the power density on those batteries Ah life continues to improve and costs continues to come down and that's.
Really I think accelerating some of the opportunity to hear that we that we see.
Okay, and then you mentioned, California was kind of reminded me of something that's probably much much longer term and it's probably contingent on.
Energy more aggressive energy.
Policies, but I think California, a few years ago, we're talking about tier five locomotive this long afraid side.
Do you think if we have.
You know a more aggressive push to implement green policies in the U S.
Do you think we could start talking about the next generation of locomotives sometime in the next five years.
Well a couple of comments, they're number one.
Let's just talk about from tier for right and how much has been adopted in all much us become a significant part of the installed base and I think.
I look at it I think still under.
Maybe 1200 units of fear for installed and if you consider the installed base.
It's minimum.
At this point so before we jump into the next wave I think it's important to look at what he is available out there and make sure that.
Think ultimately you are taking advantage of the products that have been developed.
Now when it comes down to a tier five I think.
<unk> electric as I described to you can really.
Potentially drive.
Thank you have been more benefits than simply thinking about like whatever tier five would mean, so we're talking here.
15 to 30 plus percent.
Reduction on fuel on ramps and that's like massive right. That's that's probably not up in.
Ooh.
And you're all the odder.
Programs that have been done in the past. So that's that's why we look at battery electric is really of the forward.
Great. Thank you very much.
Thank you.
Thank you okay.
Alright.
Jeffrey.
Can I help.
Pardon me.
Oh Wow.
<unk>.
Hi, sorry, I'm sorry.
Could you talk about the nice and profile on international locomotives Tiger International recommended.
We can expect to see me marching headwinds.
And then for my final question could you just provide the impact on the contacted chest man faint matches in a quick I personally think about the impact going into 2021 is the Egypt contact goes off thank you.
Okay, sorry, yeah, so in the quarter the impact of.
That blow market intangibles $12.5 million so.
Lower than previous quarters, and we expect for the full year that as we've talked in with them. You know is that it's about flat year over year, and then from a profile standpoint, we definitely see that that coming down those those specific accounting that you're referring to is is is those.
Those locomotive units will have been.
Falling off and we will see the number of decline into next year.
Oh, let me be very specific as we go into next year, we're going to see that number to the Alaskan 50, it's gotta be limited today, India contracts. So I just wanted to remove any fast various.
Call, a lack of profitability associated with international contracts.
Alright, Thank you and just could you I mean cause you prevent any kind of like.
Use them I can pass out international come on isn't maybe how.
How's that India contact difference from the contact that you are looking to gain going filing.
So so yeah, sorry, so the the the margin on international projects for locomotives is.
Is good it's it's it's it's obviously higher these these specific accounting item that word and you're asking about was just really related to.
Two new markets, new markets with where we were costs were incurred and it's part of localization of initial engineering, that's non-recurring and.
Very very typical with brand, new new product development and business development opportunities.
But on a go forward basis, we have pockets of of international projects, where the.
The the profitability level is is really good it can be higher than average it can be.
It's it's it's it's not it's not really appropriate to kind of look at it as international projects or less profitable and locomotives and kind of the average it. It just it really comes down to how long we've been established and.
And I have been operating in those in those like locations. Let me give you more caller here. When you look at countries that we've had caused stablish browsers, that's been mature with a product that's also be immature.
Good profitability and I can speak of places like Brazil, I can speak of places like Kazakhstan right I can speak of places like Australia of course are you asked Monica known as you go into new markets as Bad described which was the case of India investing on a brand new platform sure designing a product for the.
First time, you're investing in infrastructure, and that's where you'll see those be on the lower end side, even in Africa. We went through that on the beginning and I'm in today's a mature market we have established.
We have established and mature presence there so.
That's that's may be the way to think about it and these and these these decisions to enter into these markets. They really are is because there are strategic opportunity and and so you know you you get yourself established you have.
Ah Ah Ah Ah long lives.
Contract with the opportunity for lean activities, and and variable cost productivity improvements and so when you get into and the and the initial cost is behind you you end up with a with a add on orders an additional units that that really enjoy.
A good margin and ultimately installed base, that's going to be there for the next 30 years that you're going to be serving on the aftermarket side.
I appreciate the kind of guys. Thank you for explaining that.
<unk>.
Thank you.
It can I mean why is that.
Cause I'm Erica.
Go ahead.
Hi, good morning.
You touched on the demand side quite a bit but I just wanted to see if we could dig instead of a little more mentioning strength in Latin America, Kazakhstan. Some other regions, maybe you could give us an indication of <unk> is that enough to support the backlog a growth in the backlog.
Or should we expect this kind of secular decline in in the backlog until we see kind of a pick up in and demand from North America, maybe if you could just give us a little more color on on the.
The magnitude of the demand that that you're seeing and where there are pockets of strength.
Yeah. So I'll just take your question being very focused on the locomotive sites.
We are like that trough levels here on the locomotive side right, so and by the time, you get pretty close to zero.
I tend to think thanks.
Go up right. So the question for me here is more on the pacing. So it's more on the pace of recovery and that's where I started with the elements of the international I think with C. A robust pipeline versus what we saw six months ago and I was starting to see some good indications of potentially converting that north.
American was lagging behind.
Okay. That's helpful. Uhm It makes sense can't can't go below zero, that's exactly [laughter].
[laughter] on the.
Oh, just on the transit side, maybe if you could give a little more color. You you had mentioned that municipal budgets in transit authorities are seeing some pressure maybe if you could give some color on how that's changing the nature of the discussions.
With those with those organizations.
Are they looking for more price concessions or that sort of thing you know just how do you see contracts kind of evolving in that space, given given that budget pressures they're facing.
So we were we had a meeting just two days ago with one of those or parties in Europe, and I'll I'll tell you right now and it has a deer maintaining their budgets at this point. So of course, there's a lot of volatility as he would have described it in terms of what happens here on this wave too but.
They're committed to keep the fleets running at this point.
And they do not at this point being down 20 project cancellation. So I'm just trying to give you your perspective, one customer and of course, we're working with various customers very closely so I think something to continue to watch.
I think the commitment to have trains Ronnie and operating I think it's there could we have a rash that existing delays harder at a certain point, there's delaying projects I guess that could be a possibility I wouldn't be expecting waiting at this time, so right now I think the track.
<unk> and even as you're looking to some of.
I'll call industry reports those point out too I'll call girl Fahads. So I think we've got some good indications there at this point.
That's great colors that thanks at the time.
Okay.
Complaint uncle.
I would like to telecom thanks.
Kubacki for any closing remark. Thank you Rachel and thank you everyone for participating today, we look forward to you catching up with the next quarter.
Thank you.
Yeah. Thank you for attending today's presentation you may now disconnect.
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Uh-huh.
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Uh-huh.
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Okay.
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