Q4 2023 Westinghouse Air Brake Technologies Corp Earnings Call

Operator: Good day, and welcome to the Lab Tech fourth quarter and year-end 2023 earnings conference call and webcast. All participants will be in listen-only mode.

Good day and welcome to the web talk fourth quarter and year end 2023 earnings conference call and webcast.

All participants will be in listen only mode.

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Operator: Please note, today's event is being recorded. I would now like to turn the conference over to Kristine Kubacki, Vice President of Investor Relations. Please go ahead.

I would now like to turn the conference over to Christine Kubacki, Vice President of Investor Relations. Please go ahead.

Kristine Kubacki: Thank you operator, good morning, everyone and welcome to <unk> fourth quarter 2023 earnings call.

Kristine Kubacki: Thank you, operator. Good morning, everyone, and welcome to Wabtec's fourth quarter 2023 earnings call. With us today are President and CEO Rafael Santana, CFO John Olin, and Senior Vice President of Finance John Masterly. Today's slide presentation, along with our earnings release and financial disclosures, were posted to our website earlier today and can be accessed on the Investor Relations tab on wabtechcorp.com.

Kristine Kubacki: With us today are president and CEO Rafael Santana.

Kristine Kubacki: Oh, John Olin and senior Vice President of Finance, John Master Alert.

Kristine Kubacki: Today's slide presentation, along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on Investor Relations tab on <unk> Corp Dotcom.

Kristine Kubacki: Some statements we're making are forward-looking and based on our best view of the world and our business today. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please visit our website. 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. I will now turn the call over to Rafael. Thanks, Kristine. And good morning, everyone.

Kristine Kubacki: Some statements, we're making are forward looking and based on our 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.

Kristine Kubacki: We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics I will now turn the call over to Rafael.

Rafael Santana: Thanks, Christine and good morning, everyone.

Rafael Santana: I'll start with an update on our business, my perspectives on the quarter, and our progress against our long-term value creation framework, and then John will cover the financials. We delivered another solid quarter as evidenced by robust sales growth, margin expansion, and increased earnings and cash flow. We achieved this despite continued uncertainty in the broader economy and in the North American rail industry. Sales were $2.5 billion, which was up 9.5% for probably almost a year. Revenue growth was driven by strong performance from both the freight and transit segments. The adjusted EPS was up 18.5% from the year-ago quarter, driven by margin expansion across both segments. Total cash flow from operations for the quarter was $686 million.

Rafael Santana: I'll start with an update on our business my perspectives on the quarter.

Rafael Santana: Our progress against our long term value creation framework and Dan John will cover the financials.

Rafael Santana: We delivered a strong year with another solid quarter as evidenced by robust sales growth margin expansion and increased earnings and cash flow.

Rafael Santana: We achieved despite continued uncertainty in the broader economy and in the North America rail industry.

Rafael Santana: Sales were $2 5 billion, which was up nine 5% versus prior year.

Rafael Santana: Revenue growth was driven by strong performance from both the freight and transit segments.

Rafael Santana: And adjusted EPS was up 18, 5% from the year ago quarter, driven by margin expansion across both segments.

Rafael Santana: Total cash flow from operations for the quarter was $686 million.

Rafael Santana: The 12-month backlog was $7.5 billion, up 10%, signifying continued momentum and visibility across the business into 2024, and the total multi-year backlog was $22 billion. Overall, the Wabtec team delivered a strong year. Looking forward, I'm encouraged by both the underlying momentum across the business and the team's unrelenting focus on delivering for our customers. I believe Wabtec is well-positioned to drive profitable growth ahead.

Rafael Santana: Total year cash flow was $1 2 billion.

The 12 month backlog was $7 5 billion.

Rafael Santana: At 10%, signifying continued momentum and visibility across the business into 2024 and <unk>.

Rafael Santana: Total multiyear backlog was $22 billion.

Rafael Santana: Overall, the Wap Tech team delivered a strong year looking forwards I'm encouraged by both the underlying momentum across the business and the team's unrelenting focus on delivering for our customers I believe <unk> well positioned to drive profitable growth ahead.

Rafael Santana: Our financial position remains strong we.

Rafael Santana: We continue to execute against our capital allocation framework to maximize shareholder value by investing for future growth and returning cash to shareholders. And as a result of our performance in 2023 and our confidence in the future of the company, our board of directors approved an 18% increase in the quarterly dividend and a $1 billion share buyback authorization that replaces our existing program. Shifting our focus to slide five, let's talk about 2024 and market expectations in more detail. While key metrics across our freight business remain mixed, we continue to be encouraged by the strength of the business, international markets, and our robust pipeline of opportunities across geography. North American car loads were up 2.8% in the quarter, while the active locomotive fleet was down slightly when compared to where the industry left off last year.

Rafael Santana: We continue to execute against our capital allocation framework to maximize shareholder value by investing for future growth and returning cash to shareholders.

Rafael Santana: And as a result.

Rafael Santana: Our performance in 2023, and our cost us in the future of the company our board of directors approved an 18% increase in our quarterly dividend.

Rafael Santana: $1 billion share buyback authorization that replaces our existing program.

Rafael Santana: Shifting our focus to slide five let's talk about 2024 and market expectations in more details.

Rafael Santana: While key metrics across our freight business remain mixed we continue to be encouraged by the strength of the business International markets.

Rafael Santana: And our robust pipeline of opportunities across geographies.

Rafael Santana: North American carloads were up two 8% in the quarter, while the active locomotive fleet was down slightly when compared to where the industry exited last year.

Rafael Santana: Yes, we continue to see significant opportunities across the globe and demand for new locomotives modernization and digital technologies as our customers invest in solutions that continue to drive reliability productivity safety and fuel efficiency.

Rafael Santana: Yes, we continue to see significant opportunities across the globe in demand for new locomotives, modernizations, and digital technologies, as our customers invest in solutions that continue to drive reliability, productivity, safety, and fuel efficiency. Looking at North America rail car built, demand for new rail cars showed growth in 2023 for approximately 45,000 cars. The industry outlook for 2024 is for about 38,000 cars to be delivered. Internationally, activity is strong across core markets such as Latin America, Australia, Africa, and Kazakhstan; significant investments to expand and upgrade infrastructure are continuing to support a robust international order pipeline. In mining, commodity prices and an aging fleet are supporting activity to refresh and upgrade the truck fleet. Finally, moving to the transit sector, the megatrends of urbanization and decarbonization remain in place, driving the need for clean, safe, and efficient transportation solutions around the world.

Rafael Santana: Looking at the North America railcar built demand for new railcars showed growth in 2023 at approximately 45000 cars.

Rafael Santana: The industry outlook for 2024 is for about 38000 cars to be delivered.

Rafael Santana: Internationally activity is strong across core markets, such as Latin America, Australia Africa and Kazakhstan.

Rafael Santana: Significant investments to expand and upgrade infrastructure are continuing to support our robust international orders pipeline.

Rafael Santana: In mining commodity prices and an aging fleet are supporting activity to refresh and upgrade the truck fleet.

Rafael Santana: Finally, moving to the transit sector, the Mega trends of urbanization and Decarbonisation remain in place driving the need for clean safe and efficient transportation solutions around the globe.

Rafael Santana: Next, let's turn to slide six to discuss a few recent business highlights. In North America, we won a multi-year order for over 200 modernizations from CSX, demonstrating customer demand for a best-in-class solution to improve productivity while driving down fuel usage and emissions. Looking at our mining business, we are seeing continued momentum and visibility. The team signed orders totaling over $300 million in the quarter, which is up double digits versus last year. In transit, we won a major order worth over $150 million to supply high-performance brake systems in India. These brake systems will provide improved operating performance, efficiency, and safety for a new line of 1,200 electric locomotives.

Rafael Santana: Next let's turn to slide six to discuss a few recent business highlights.

Rafael Santana: In North America, we won a multiyear order for over 200, Modernizations from CSS, demonstrating customer demand for our best in class solution to improve productivity, while driving down fuel usage and emissions.

Rafael Santana: Looking at our mining business, we are seeing continued momentum and visibility.

Rafael Santana: The team signed orders totaling over $300 million in the quarter, which is up double digits versus last year.

Rafael Santana: In transit we won a major order worked over $150 million to supply high performance brake systems in India.

Rafael Santana: This break systems will provide improved operating performance efficiency and safety for our new line of 1200 electric locomotives.

Rafael Santana: Also during the quarter, we announced our entrance into the railcar telematics market.

Rafael Santana: Also, during the quarter, we announced our entrance into the railcar telematics market. Our innovative telematics platform will improve shipment visibility; it will increase on-time performance and expand asset utilization to make shipping freight by rail more competitive. Finally, during December, we acquired the remaining 50% of our JV in Kazakhstan.

Rafael Santana: Our innovative telematics platform will improve shipment visibility it will increase on time performance and expand asset utilization to make shipping freight by rail more competitive.

Rafael Santana: Finally during December we acquired the remaining 50% of our JV in Kazakhstan.

Rafael Santana: This strategic acquisition enhances our manufacturing capability both globally and in a region poised for continued long-term growth. All of this demonstrates the continued momentum across the business, the team's relentless focus on delivering for our customers, and the strong pipeline of opportunities we're executing on. Wabtec is well-positioned to capture profitable growth with innovative and scalable technologies that address our customers' most pressing needs. Moving to slide seven.

Rafael Santana: This strategic acquisition enhances our manufacturing capability, both globally and and a region poised for continued long term growth.

Rafael Santana: All of this demonstrates the continued momentum across the business the team's relentless focus on delivering for our customer.

Rafael Santana: And strong pipeline of opportunities we're executing on.

Rafael Santana: <unk> is well positioned to capture profitable growth with innovative and scalable technologies that address our customers' most pressing needs.

Rafael Santana: Moving to slide seven.

Rafael Santana: Before turning it over to John, I want to briefly discuss our ability to deliver strong results through the economic cycle. Over the last four years, Wabtec has demonstrated a solid track record of managing through challenging markets and significant disruptions. We believe our favorable end markets, combined with our leading technologies and solutions, will enable us to remain resilient and more predictable. Our 12-month backlog of $7.5 billion provides significant visibility and support for growth. The 12-month backlog has consistently grown over the past four years despite a challenging North American rail market and a volatile macroeconomy.

Speaker Change: Before turning it over to John I want to briefly discuss our ability to deliver strong results through the economic cycle.

Speaker Change: Over the last four years <unk> has demonstrated a solid track record of managing through challenging markets and significant disruptions.

Speaker Change: We believe our favorable end markets combined with our leading technologies and solutions will enable us to remain resilient and more predictable.

Speaker Change: Our 12 month backlog of seven 5 billion.

Speaker Change: Provides significant visibility and supports for graph.

Speaker Change: The 12 month backlog has consistently grown over the past four years, despite a challenging north American rail market and a volatile macro economy.

Speaker Change: And finally, we have consistently demonstrated our ability to execute our strategies generate strong cash flow deliver growth and create value through disciplined capital allocation.

John A. Olin: And finally, we have consistently demonstrated our ability to execute our strategies, generate strong cash flow, deliver growth, and create value through disciplined capital allocation. Our track record of strong operating margin expansion across the business is evidence of our ability to deliver productivity, manage costs, and price for inflation. Our execution, combined with the strength of our business, leading products, and technologies, which result in Wabtec being resilient through economic cycles, delivering predictable earnings and superior shareholder returns. With that, I'll turn the call over to John to review the quarter, segment results, and our overall financial performance. John?

Speaker Change: Our track record of strong operating margin expansion across the business is evidence of our ability to deliver productivity manage costs and price for inflation.

Speaker Change: Our execution combined with the strength of our business, leading products and technologies, which result in <unk> being resilient through economic cycles, delivering predictable earnings and superior shareholder returns with that ill turn the call over to John to review the quarter.

Speaker Change: Segment results and our overall financial performance John.

John A. Olin: Thanks, Rafael, and hello, everyone. Turning to slide 8, I will review our fourth quarter results in more detail. We finish the year with another solid quarter of operational and financial performance. Sales for the fourth quarter were $2.53 billion, which reflects a 9.5% increase versus the prior year.

John: Thanks, Rafael and Hello, everyone turning to slide eight I will review our fourth quarter results in more detail. We finished the year with another solid quarter of operational and financial performance sales for the fourth quarter were $2 $5 3 billion, which reflects a nine 5% increase versus the prior year sales.

John A. Olin: Sales were driven by strong growth across both the freight and transit segments. For the quarter, GAAP operating income was $308 million, driven by higher sales, improved gross margin, and focused cost management. Adjusted operating margin in Q4 was 17.0%, up 1.7 percentage points versus the prior year. This increase was driven by a higher gross margin of 1.2 percentage points and 0.5 percentage points of lower SG&A and engineering expenses as a percent of sales. Half earnings per diluted share were $1.20, which was up 39.5% versus the fourth quarter a year ago.

John: We're driven by strong growth across both the freight and transit segments for the quarter GAAP operating income was $308 million driven by higher sales improved gross margin and focused cost management.

John: Adjusted operating margin in Q4 was 17, 8% up one seven percentage points versus the prior year.

John: This increase was driven by a higher gross margin of one two percentage points and 0.5 percentage points of lower SG&A and engineering expenses as a percent of sales.

John: GAAP earnings per diluted share were $1 20, which was up 39, 5% versus the fourth quarter a year ago. During the quarter, we had pretax charges of $47 million of which $19 million was for restructuring, which was primarily related to our integration to <unk> initiatives to further integrate web takes off.

John A. Olin: During the quarter, we had pre-tax charges of $47 million, of which $19 million was for restructuring, which was primarily related to our Integration 2.0 initiative to further integrate Webtex operations and to drive $75 to $90 million of run rate savings by 2025. In addition, we are exiting some small, non-strategic product lines and related assets, which generated a Q4 charge of $28 million. Finally, in the quarter, our acquisition of the remaining 50% interest in our LKZ Assembly joint venture generated a gain of $35 million on our existing ownership interest. I will talk more about our progress on Integration 2.0 and Portfolio Optimization in more detail in a few minutes. In the quarter, adjusted earnings per diluted share were $1.54, up 18.5% versus the prior year.

John: Operations and to drive $75 million to $90 million of run rate savings by 2025.

John: In addition, we are exiting some small non strategic product lines and related assets, which generated a Q4 charge of $28 million.

John: Finally in the quarter, our acquisition of the remaining 50% interest in our <unk> Z Assembly joint venture generated a gain of $35 million on our existing ownership interest.

John: We'll talk more about our progress on integration to <unk> and portfolio optimization in more detail in a few minutes.

John: In the quarter adjusted earnings per diluted share were $1 54.

John: Up 18, 5% versus prior year.

John A. Olin: Overall, Wabtec delivered another solid quarter, demonstrating the underlying strength of the business. Turning to slide nine, let's review our product lines in more detail. Fourth quarter consolidated sales were up nine and a half percent. However, equipment sales were down 19.3% from last year as higher mining sales were more than offset by lower locomotive deliveries during the quarter.

John: Overall, <unk> delivered another solid quarter, demonstrating the underlying strength of the business.

John: Turning to slide nine let's review our product lines in more detail.

John: Fourth quarter consolidated sales were up nine 5%.

John: Equipment sales were down 19, 3% from last year as higher mining sales were more than offset by lower locomotive deliveries during the quarter.

John A. Olin: Recall that second-half locomotive deliveries, as planned, were significantly skewed to the third quarter. However, total equipment sales for the year were up a very strong 15.8 percent. Component sales were up 17.4% versus last year, largely driven by higher demand for railcar products, along with increased sales from industrial products. Sales also benefited from the acquisition of L&M earlier in the year by $32 million. Digital intelligence sales were down 6.7% from last year, which was driven by lower revenues in our North American market, partially offset by higher demand for international PTC, next-gen onboard locomotive products, and digital mining.

John: Recall that second half locomotive deliveries as planned we're significantly skewed to the third quarter total equipment sales for the year were up a very strong 15, 8%.

John: Component sales were up 17, 4% versus last year, largely driven by the higher demand for railcar products along with increased sales from industrial products sales also benefited from the acquisition of <unk> earlier in the year by $32 million.

Digital intelligence sales were down six 7% from last year, which was driven by lower revenues in our north American market, partially offset by higher demand for international PTC Nextgen onboard locomotive products and digital mining.

John A. Olin: Our services sales grew 23.9%. Sales growth was driven by significantly higher modernization deliveries. In contrast to new locomotive sales, our planned second half mods deliveries were significantly skewed to the fourth quarter.

John: Our services sales grew 23, 9% sales growth was driven by significantly higher modernization deliveries.

John: In contrast to new locomotive sales our planned second half mods deliveries were significantly skewed to the fourth quarter <unk>.

John A. Olin: Additionally, parts sales continue to show strength as our customers continue to recognize the superior performance, reliability, efficiency, and availability across their Webtech locomotive fleet. Across our transit segment, OE and aftermarket sales increased versus last year. Segment sales were up 14.3% to $728 million behind the execution of our growing backlog. The momentum in this segment is strong across our core markets as secular drivers such as urbanization and decarbonization accelerate the need for global investments in sustainable infrastructure. Moving to slide 10, GAAP gross margin was 30.3 percent, which was up 2.0 percentage points from Q4 last year. Adjusted gross profit margin was up 1.2 percentage points, driven by higher sales, favorable price mix, and foreign currency exchange, as well as improved productivity.

John: Additionally, parts sales continued to show strength as our customers continue to recognize the superior performance reliability efficiency and availability across their web tech locomotive fleets.

John: Across our transit segment, OE and aftermarket sales increased versus last year segment sales were up 14, 3% to $728 million behind the execution of our growing backlog and.

John: The momentum in this segment is strong across our core markets as secular drivers such as urbanization and de carbonization accelerate the need for global investments in sustainable infrastructure.

John: Moving to slide 10, GAAP gross margin was 33%, which was up two eight percentage points from Q4 last year. Adjusted gross profit margin was up one two percentage points driven by higher sales favorable price mix and foreign currency exchange as well as improved productivity.

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John A. Olin: Our team continues to execute well to mitigate the impact of continued cost pressures by driving operational productivity and lean initiatives. Now turning to slide 11, for the fourth quarter, gap operating margin was 12.2 percent, which was up 1.5 percentage points versus last year, while adjusted operating margin improved 1.7 percentage points to 17.0 percent. Gap and adjusted SG&A expenses were down as a percentage of revenue as we leverage higher sales with a strong focus on managing costs. Engineering expense was $61 million, about flat with Q4 last year.

John: Our team continues to execute well to mitigate the impact of continued cost pressures by driving operational productivity and lean initiatives.

John: Now turning to slide 11 for the fourth quarter GAAP operating margin was 12, 2%, which was up one five percentage points versus last year, while adjusted operating margin improved one seven percentage points to 17, 8%.

John: GAAP and adjusted SG&A expenses were down as a percentage of revenue as we leverage higher sales with a strong focus on managing costs.

John: Engineering expense was $61 million about flat with Q4 last year, we continued to invest engineering resources and current business opportunities, but more importantly, we are investing in our future as an industry leader in the carbonization in digital technologies that improve our customer's productivity and capacity utilization.

John A. Olin: We continue to invest engineering resources in current business opportunities, but more importantly, we are investing in our future as an industry leader in decarbonization and digital technologies that improve our customers' productivity, capacity utilization, and safety. Now, let's take a look at segment results on slide 12, starting with the freight segment. As I already discussed, freight segment sales were up 7.7% during the quarter. Gap segment operating income was $246 million for an operating margin of 13.7%, up 1.2 percentage points versus last year. Gap operating income includes $28 million of portfolio optimization costs.

John: Asian in safety.

John: Now, let's take a look at segment results on slide 12, starting with the freight segment as.

John: As I already discussed freight segment sales were up seven 7% during the quarter.

John: GAAP segment operating income was $246 million for an operating margin of 13, 7% up one two percentage points versus last year GAAP operating income includes $28 million of portfolio optimization costs.

John: Adjusted operating income for the freight segment was $347 million up 22, 2% versus the prior year.

John A. Olin: Adjusted operating income for the freight segment was $347 million, up 22.2% versus the prior year. Adjusted operating margin in the freight segment was up 2.3 percentage points from the prior year at 19.3%. The increase was driven by a significantly higher gross margin, which benefited from higher sales, favorable price mix, and improved productivity and absorption. However, at the same time, SG&A and engineering expenses were lower as a percentage of revenue. Finally, the Segment 12-month backlog was $5.45 billion, up 11.2% from the same period a year ago. Both our 12-month and multi-year backlogs demonstrate good visibility into 2024 and beyond. Turning to slide 13, transit segment sales were up 14.3% to $728 million. However, when adjusting for foreign currency, transit sales were up 9.9%. Gap operating income was $86 million, up 36.5%. The restructuring costs related to Integration 2.0 activities were $17 million in Q4.

John: Adjusted operating margin in the freight segment was up two three percentage points from the prior year at 19, 3% the increase.

John: It was driven by significantly higher gross margin, which benefited from higher sales favorable price mix and improved productivity and absorption at the same time, SG&A and engineering expenses were lower as a percentage of revenue.

John: Finally segment 12 month backlog was five $4 5 billion up 11, 2% from the same period a year ago.

John: The multiyear backlog was $17 eight 3 billion down four 3% from the prior year.

John: Both our 12 month and multi year backlogs demonstrate good visibility into 2024 and beyond.

John: Turning to slide 13 Transit segment sales were up 14, 3% to $728 million when adjusting for foreign currency transit sales were up nine 9%.

John: GAAP operating income was $86 million up 36, 5% restructuring.

John: Restructuring costs related to integration to <unk> activities were $17 million in Q4.

John A. Olin: Adjusted segment operating income was $108 million, which was up 13.7%; adjusted operating margin of 14.9% was up 0.1 percentage points from last year, driven by the benefits of volume growth and integration 2.0 savings. Finally, the Transit Segment 12-month backlog for the quarter was $2.01 billion, up 8.0% versus a year ago. The multi-year backlog was also up 9.7% to $4.17 billion.

Adjusted segment operating income was $108 million, which was up 13, 7% adjusted.

Operating margin of 14, 9% was up 0.1 percentage points from last year, driven by the benefits of volume growth and integration to point over savings.

John: Finally transit segment 12 month backlog for the quarter was $2 1 billion up eight 8% versus a year ago.

John: <unk> backlog was also up nine 7% to $1 7 billion.

John: Moving to slide 14 over the next two slides I would like to touch on both our progress against our integration to <unk> initiative as well as provide details on our portfolio optimization.

John A. Olin: Moving to slide 14, over the next two slides, I would like to touch on both our progress against our Integration 2.0 initiative, as well as provide details on our portfolio optimization. The efforts of both these programs in 2024 will unlock greater profitability and margin expansion across the portfolio. With regard to Integration 2.0, recall that during our Investor Day in 2022, we announced a restructuring program comprised of estimated one-time expenses between $135 and $165 million that would yield an incremental $75 to $90 million of run rate savings by 2025. These savings are to be achieved through a combination of actions that simplify, streamline, and consolidate parts of our operation.

The efforts of both these programs in 2024 will unlock greater profitability and margin expansion across the portfolio.

John: With regards to integration to <unk> recall that during our Investor day in 2022, we announced a restructuring program comprised of estimated onetime expenses between 135 and $165 million that would yield an incremental $75 million to $90 million of run rate savings by 2025.

John: These savings are to be achieved through a combination of actions, which simplify streamline and consolidate parts of our operations.

John: With program to date restructuring expenses of $118 million, we achieved $22 million of run rate savings as we exited 2023, we.

John A. Olin: With program to date restructuring expenses of $118 million, we achieved $22 million of run rate savings as we exited 2023. We expect savings to ramp up more meaningfully in 2024, and we remain on track to meet our 2025 goals. Now turning to slide 15, as you are aware, we are very focused on driving improved shareholder value through the addition of strategic bolt-on acquisitions with accretive earnings, margins, and return on invested capital. In the second quarter of 2023, we acquired L&M, a business that is very complementary to our heat transfer portfolio and enhances our mining installation base.

John: We expect savings to ramp more meaningfully in 2024, and we remain on track to meet our 2025 goals.

John: Now turning to slide 15, as you are aware, we are very focused on driving improved shareholder value through the addition of strategic bolt on acquisitions with accretive earnings margins and return on invested capital.

John: In the second quarter of 2023, we acquired <unk> a business that is very complementary to our heat transfer portfolio and enhances our mining install base.

John: In the short time that we've owned this business. We are pleased with its performance and more importantly, we are excited about its future potential for driving long term profitable growth for web tech.

John A. Olin: In the short time that we have owned this business, we are pleased with its performance, and more importantly, we are excited about its future potential for driving long-term profitable growth for web tech. Also, as Rafael stated... As a result of the transaction, we recorded a $35 million non-cash gain in the quarter, which is excluded from adjusted earnings.

John: Also as Rafael stated Les.

John: Late in the fourth quarter, we acquired the remaining 50% stake of our unconsolidated <unk> Z Assembly joint venture in Kazakhstan for $81 million net of cash received.

John: As a result of the transaction, we recorded a $35 million non cash gain in the quarter, which is excluded from adjusted earnings.

John A. Olin: Going forward, this business will be 100% owned by WebTech and consolidated in our financial results. We would expect virtually no impact on sales and a limited benefit to earnings in 2024. We're also announcing today the exit of some non-strategic product lines in 2024. Pruning these product lines will improve focus and profitability while reducing manufacturing complexity. Sales from these product lines totaled about $110 million in sales in 2023 and represented a lower than average margin profile. The expected net exit charges of roughly $85 million are largely non-cash, of which we recognize $28 million of non-cash charges in our Q4 GAAP results.

Going forward this business will be 100% owned by web Tech and consolidated in our financial results, we would expect virtually no impact to sales and limited benefit to earnings in 2024.

John: We're also announcing today the exit of some non strategic product lines in 2024 pruning of these product lines will improve focus and profitability, while reducing manufacturing complexity.

Sales from these product lines totaled about $110 million of sales in 2023 and represented a lower than average margin profile the.

John: The expected net exit charges of roughly $85 million are largely noncash of which we recognized $28 million of noncash charges in our Q4 GAAP results.

John A. Olin: Both our progress against our Integration 2.0 initiative and the announced portfolio moves will help position WebTech to drive multi-year margin expansion. Now, let's turn to our financial position on slide 16. Fourth quarter cash generation was strong at $686 million, resulting in total cash from operations of $1.2 billion versus $1.04 billion in the prior year, an increase of 15.7 percent. Cash flow benefited from higher earnings and improved working capital. Our balance sheet and financial position continue to be strong. We ended the quarter with liquidity of $2.12 billion.

John: Both our progress against our integration two <unk> initiative, and the announced portfolio moves will help position <unk> to drive multi year margin expansion.

John: Now, let's turn to our financial position on slide 16.

Fourth quarter cash generation was strong at $686 million, resulting in total cash from operations of $1 2 billion.

John: Versus one all $4 billion in the prior year, an increase of 15, 7% cash.

John: Cash flow benefited from higher earnings and improved working capital.

John: Our balance sheet and financial position continued to be strong we ended the quarter with liquidity of $2 one $2 billion.

John A. Olin: And, our net debt leverage ratio was 1.9 times at the end of the fourth quarter, which was favorable versus the prior year's 2.2 times debt leverage. During 2023, we invested $308 million in the strategic acquisitions of L&M and the LKZ joint venture and returned $532 million to shareholders through share repurchases and dividends. Finally, we improved ROIC during the year by 1.2 percent. We continue to allocate capital in a disciplined and balanced way to maximize returns for our shareholders. Moving to slide 17, quickly recapping the year.

John: And our net debt leverage ratio was one nine times at the end of the fourth quarter, which was favorable versus the prior years, two two times debt leverage.

John: During 2023, we invested $308 million on the strategic acquisitions of <unk> and the <unk> Z joint venture and returned $532 million to shareholders through share repurchases and dividends.

John: Finally, we improved ROIC.

John: During the year by one two percentage points.

John: We continue to allocate capital in a disciplined and balanced way to maximize returns for our shareholders.

John: Moving to slide 17 quickly recapping the year.

John A. Olin: Overall, the team delivered a strong year for all our stakeholders. Despite macro challenges, we drove strong revenue growth, expanded our operating margins, and generated robust cash flows. The resiliency of the business and strong execution provide us with a solid foundation for profitable growth as we enter 2024. With that, I'd like to turn the call back over to Rafael to provide our 2024 financial guidance. Thanks, John.

John: Overall, the team delivered a strong year for all our stakeholders.

John: <unk> macro challenges, we drove strong revenue growth expanded our operating margins and generated robust cash flows.

John: The resiliency of the business and strong execution provides us with a solid foundation for profitable growth as we enter 2024.

John: With that I'd like to turn the call back over to Rafael to provide our 2024 financial guidance.

Rafael Santana: Thanks, John now lets turn to slide 18 to discuss our 2020 for outlook and guidance.

Rafael Santana: Now let's turn to slide 18 to discuss our 2024 Outlook and Guidance. We believe that underlying customer demand for our products and solutions continues across our business. This is the strongest order pipeline we've had since 2019.

Rafael Santana: We believe that the underlying customer demand for our products and solutions continues across our business.

Speaker Change: This is the strongest order pipeline we've had since 2019.

Our 12 months' multiyear backlogs as well as our orders pipeline continues to be strong providing solid visibility for profitable growth ahead.

Rafael Santana: Our 12-month and multi-year backlogs, as well as our orders pipeline, continue to be strong, providing solid visibility for profitable growth ahead. The team is committed to driving top-line growth and margin expansion in 2024, despite an uncertain macro environment. With these factors in mind, we expect 2024 sales of $10.2 billion at the midpoint, over 5% growth versus last year, and an adjusted EPS midpoint of $6.70 per share, up about 13% from last year.

Speaker Change: The team is committed to driving top line growth and margin expansion in 2024, despite an uncertain macro environment.

Speaker Change: With these factors in mind, we expect 2024 sales up $10 2 billion.

Speaker Change: At the midpoint.

Speaker Change: Over 5% growth versus last year and.

Speaker Change: And adjusted EPS midpoint of $6 70 per share up about 13% from last year.

Rafael Santana: We also expect cash flow conversion to be greater than 90%. Looking ahead, I'm confident that Wabtec is well positioned to drive profitable growth in 2024, which is aligned to our long-term financial framework. Now, let's wrap up on slide 19.

Speaker Change: We also expect cash flow conversion to be greater than 90%.

Speaker Change: Looking ahead, I'm confident that <unk> is well positioned to drive profitable growth in 2024, which is aligned to our long term financial framework.

Speaker Change: Now, let's wrap up on slide 19, as you've heard today.

Rafael Santana: As you've heard today, our team delivered a solid quarter to finish out a very strong year, thanks in large part to our resilient installed base, world-class team, innovative technologies, and our continued focus on our customers. These results are in line with our long-term value creation framework. I'd like to take a moment to thank all the employees of WAPTEC, whose dedication and focus on execution made these strong results possible.

Speaker Change: Our team delivered a solid quarter to finished out a very strong year. Thanks in large part to our resilience installed base World class team innovative technologies and our continued focus on our customers.

Speaker Change: These results were in line with our long term value creation framework.

Speaker Change: I'd like to take a moment to thank all the employees of Wap deck, whose dedication and focus on execution may did strong results possible.

Speaker Change: With solid underlying demand across the portfolio increased visibility through our backlog.

Kristine Kubacki: With solid underlying demand across the portfolio, increased visibility through our backlog, and intense focus on continuous improvement, WAPTAC is well positioned to drive profitable long-term growth and maximize shareholder return. With that, I want to thank you for your time this morning. I'll turn the call over to Kristine to begin the Q&A portion of our discussion.

Speaker Change: <unk> task focus on continuous improvement <unk> is well position to drive profitable long term growth and maximize shareholder returns with that I want to thank you for your time. This morning, I'll turn the call over to Christine to begin the Q&A portion of our discussion Christine.

Kristine Kubacki: Thank you Rocco, we will now move onto questions, but before we do and 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.

Kristine Kubacki: Thank you, Rafael. We will now move on to questions. But before we do, and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up. If you have additional questions, please rejoin the... Operator, we're ready for our first question. Thank you. And as a reminder, if you'd like to ask a question, please press star and then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the key.

Kristine Kubacki: Greater we're ready for our first question.

Speaker Change: Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.

Speaker Change: If you're using a speaker phone.

Speaker Change: Pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed I would like to withdraw your question. Please press Star then two.

Justin Long: If at any time your question has been addressed and you would like to withdraw your question, please press star 1. Today's first question comes from Justin Long with Stevens. So maybe to start with a question on freight margins, if you look at the fourth quarter, we saw a decline relative to the third quarter, despite mix looking like it got better, equipment sales were down a lot sequentially, and services revenue was up a lot sequentially. So can you talk about what drove that pressure kind of quarter to quarter and freight margins and what you're anticipating for the progression of freight margins as we look at the 2024 guide? Yes, Justin. This is John.

Today's first question comes from Justin Long with Stephens. Please go ahead.

Justin Long: Thanks, and good morning, good morning, Justin.

Justin Long: So maybe to start with a question on freight margins. If you look at the fourth quarter, we saw a decline relative to the third quarter. Despite mix looking like it got better equipment sales were down a lot sequentially services revenue was up a lot sequentially. So.

Justin Long: Can you talk about what drove that pressure kind of quarter to quarter and freight margin than what you're anticipating for the progression of freight margins as we look at that 2024 guide.

Justin Long: Yes, Justin this is John.

John A. Olin: I probably wouldn't characterize it as pressure between the third and the fourth quarter. A lot of that is just seasonality in our overall margin structure. You know, we've talked about the back half margins versus a year ago being the strongest in the back half and even stronger in the fourth quarter, and that's exactly what we saw. In the fourth quarter, company margins were up 1.7%, but when we dig down a little bit deeper into that and we look at the freight segment, they were up 2.3 percentage points. So again, we feel really good about those margins that we did deliver in the fourth quarter in the freight segment. When we look forward, we've talked about the overall guidance, you've seen the guidance, and we would expect both our freight and transit segments to grow revenue as well as margins in 2024. Okay, great. That's helpful.

John: Probably wouldn't characterize it as pressure between the third and the fourth quarter a lot of that is just seasonality of our overall margin structure.

John: Talked about the back half margins.

John: Versus year ago, being the strongest in the back half and even stronger in the fourth quarter and that's exactly what we saw with the fourth quarter.

John: Company margins being up one 7%, but when we dig down a little bit deeper into that and we look at the freight segment. They were up two three percentage points.

Speaker Change: So again, we feel real good about that.

Speaker Change: Those margins that we did deliver in the fourth quarter in the freight segment.

Speaker Change: When we look forward.

Speaker Change: Talked about the overall guidance you've seen the guidance and we would expect both our freight and transit segments to grow revenue as well as margin in 2024.

Speaker Change: Okay, Great that's helpful.

Justin Long: And I guess, as a follow-up, I know we can see some lumpiness in the business on a quarterly basis because of mix and the timing of deliveries, similar to what we saw here in the fourth quarter. So as we think about the 2024 guidance, is there anything you can share on the expected quarterly cadence of revenue and earnings, but more specifically, in fiscal 24, we expect to see higher revenue growth in the first half versus the second half, and we also expect to see modestly higher margin growth in the first half than the second. So when we look at the drivers of the cadence, one continues to be on the volume side, hinges on the timing of our local and MODS deliveries and comping against higher 2023 margins in the second half. Okay, great. I'll leave it at that. Thanks for your time.

I guess as a follow up I know, we can see some lumpiness in the business on a quarterly basis because of mix and the timing of deliveries.

Speaker Change: Similar to what we saw here in the fourth quarter. So as we think about the 2024 guidance is there anything you can share on the expected quarterly cadence of revenue and earnings.

Speaker Change: Yes.

Speaker Change: Debt.

I'm talking about it in half to half again, just in any given quarter can be moved pretty much by a handful or two of on locomotives. So the most important part is that we expect 24 revenue and operating margins to be up versus 2023, and generally in line with our long term growth framework, but more specifically in 'twenty four we expect to see.

Speaker Change: The higher revenue growth in the first half versus the second half and we also expect to see.

Speaker Change: Modestly higher margin growth in the first half than the second half.

Speaker Change: So when we look at the drivers of the cadence one continues to be on the volume side hinges on the timing of our local unmatched deliveries in.

Speaker Change: And comping against higher 2023 margins in the second half.

Speaker Change: Okay, Great I'll leave it at that thanks for the time thanks.

Matt Elkott: Thank you. And our next question today comes from Matt Elkott with TD Cowen. Please go ahead. Pardon me, Mr. Elkott, your line is open, or are you perhaps muted? Uh, sorry about that.

Speaker Change: Thanks, Justin.

Speaker Change: Thank you and our next question today comes from Matt Alcott with Cowen. Please go ahead.

Matt Brooklier: Pardon me Mr Okada.

Matt Brooklier: It is open are you, perhaps you're muted.

Matt Brooklier: Sorry about that.

Matt Elkott: Uh, good morning, everyone. Uh, can you guys give us some more insight on the, uh, 5% revenue growth at the midpoint? Um, you know, price versus volume. Are there any acquisitions, uh, baked in? Um, I also ask because your backlog is 10% higher and your revenue growth is 5% last year; you did 16% revenue growth. Is this just a function of comps being more difficult for revenue this year? Matt, there are a couple of things.

Matt Brooklier: Good morning, everyone can you guys give us some.

Matt Brooklier: Some more insight on the 5% revenue growth at the midpoint.

Matt Brooklier: Price versus volume are there any acquisitions baked.

Matt Brooklier: And I.

Matt Brooklier: I also ask because your backlog.

Matt Brooklier: Is 7% higher.

Matt Brooklier: Annual revenue growth of 5% last year, 16% revenue growth.

Matt Brooklier: Function of comps being more difficult for revenue this year.

Matt Brooklier: Matt a couple of tanks first the fundamentals for the business are strong we have the coverage we have the orders to execute here. The portfolio is well positioned to provide customers with fairly significant payback fleets are old and we're still coming out of a trough in terms of customers' investments in their fleets.

Rafael Santana: First, the fundamentals for the business are strong. We have the coverage. We have the orders to execute here. The portfolio is well positioned to provide customers with really a significant payback. Fleets are old, and we're still coming out of a trough in terms of customers' investments in their fleets. There are also significant drivers globally.

Matt Brooklier: There's also significant drivers globally international as you heard this very strong which drives demand not just on the locomotive front, but if you think about mining transit digital and the overall freight.

Rafael Santana: International, as you heard, is very strong, which drives demand not just on the locomotive front, but if you think about mining, transit, Digital, and overall freight. Emissions, as you know, emission regulations are a tailwind for us. We have continued to expand our visibility with really improved backlog coverage, which goes beyond 24. And that really positions us well to deliver ahead of our long-term guidance. With that being said, our guidance takes into consideration a number of factors. If you think about 24, you still have North America car loads continuing to be on the low end.

Matt Brooklier: <unk> as you know.

Matt Brooklier: Emission regulations that tailwind for us.

Matt Brooklier: We have continued to expand our visibility with really improved.

Matt Brooklier: Backlog coverage, which goes beyond 'twenty four.

Matt Brooklier: And that really positions us well to deliver ahead of our long term guidance with that being said our guidance takes into consideration a number of factors. If you think about 'twenty. Four you still have North America car loads are continues to be on the low end. We expect parking is to continue to go up and freight car build is actually.

Rafael Santana: We expect parking to continue to go up, and freight car build is actually down. With that, our approach has consistently ensured a really strong say-do ratio with results ahead of our commitments, and we continue to be committed to over-delivering. Well, that's helpful, Rafael.

Matt Brooklier: Down with that our approach has consistently insured.

Matt Brooklier: Really a strong say do ratio with results ahead of our commitments.

Matt Brooklier: We continue to be committed.

Matt Brooklier: To over deliver.

Speaker Change: Well that's helpful. Raphael and my follow up question some of the kind of headwind as you mentioned is that the reason why the freight.

Matt Elkott: And my follow-up question, you know, some of the kind of headwinds you mentioned, is that the reason why the freight organic, the organic freight revenue contribution to growth in the fourth quarter was lower than 3Q and basically the lowest in the last couple of years, if I'm doing my numbers correctly? And do you expect that to continue to trend downward in 2024? I'm sorry, Matt, I'm not sure I completely understand the question. Can you repeat the driver of it?

Speaker Change: Organic.

Raphael: The organic free revenue contribution to growth in the fourth quarter was lower than <unk> and basically the lowest in the last couple of years, if I'm doing my numbers correctly and do you expect that to continue to.

Raphael: And downward in 'twenty four.

Speaker Change: I'm, sorry, Matt Im not sure I completely understand the question.

Speaker Change: Could you repeat the driver.

Matt: Yes, yes, John look the $92 million organic.

Matt Elkott: Yeah, John, like the $92 million organic freight revenue contribution in the fourth quarter. If I look back over the last two years, it's the lowest number we've seen from organic freight revenue. Is that a function of the headwinds in the North American rail market, and do you expect it to continue to trend downwards?

Matt: Freight revenue.

Matt: <unk> and <unk> in the fourth quarter.

Matt: If I look back over the last two years, it's the lowest number we've seen from organic revenue.

Matt: Hum.

Matt: Is that a function of the headwinds in the North American.

Matt: Rail market and do you expect it to continue to trend downwards.

Matt: So let me just be clear here, our backlog is strong with feel good about it the pipeline of opportunities show at shy as I said the strongest pipeline we've looked at in the last five years and despite of some of the dynamics here. We just described to you in North America with carloads.

Rafael Santana: Our backlog's strong. We feel good about it. The pipeline of opportunities shows it. As I said, the strongest pipeline we've looked at in the last five years. And despite some of the dynamics here we just described to you, in North America, with car loads and so forth, we're continuing to see customers investing for cost, investing for reliability, and we continue to see both an element of growth both for us in North America and international. You're gonna have variation here, as John described, quarter to quarter, but we're continuing to look at profitable growth as we go in 24, and most importantly, I think we've I got it.

Matt: And so forth.

Matt: We're continuing to see really customers investing for cost investing for reliability and.

We continue to see both an element of golf ball for US here in North America and international you're Gonna have variation here as John described quarter to quarter, but we're continuing to look at profitable growth as we go into 'twenty four and most importantly, I think we've got a stronger element of international here that really.

Matt: Provides us visibility now into 'twenty five 'twenty six 'twenty salad.

Jerry Revich: Thanks, Rafael. Thanks, John. Thank you. Thank you. And our next question comes from Jerry Revich with Goldman Sachs. Please go ahead. Yes, hi. Good morning, everyone. Hi, Jerry. Rafael, hi.

Speaker Change: Got it thanks Raphael Thanks, John.

Speaker Change: Thank you.

Speaker Change: Thank you and our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Jerry Revich: Yes, hi, good morning, everyone.

Jerry Revich: Hi, Jerry roughly.

Rafael Santana: Rafael, I'm wondering, can you just provide an update on how your customers are thinking about the discussions with California on sub-tier 4 locomotives in the fleet and, you know, how do you see the regulatory process and timeline unfolding, and is that driving customer preference for new versus mods that, you know, wouldn't fit the new CARB proposed standards? Can you just talk about how the ebbs and flows are going and the timeline that you expect to drive from a clarity standpoint for the industry? Jerry, last November, CARB petitioned the EPA for a waiver in support of regulation for in-use locomotives. EPA has not responded to California's waiver request, and the ruling became effective at the beginning of this year.

Jerry Revich: Hi, Rob.

Jerry Revich: I'm wondering can you just provide an update on how your customers are thinking about.

Jerry Revich: Discussions with California.

Sub tier four locomotives.

Jerry Revich: Fleet.

Jerry Revich: How do you folks see the regulatory process and timeline unfolding.

Driving customer.

Jerry Revich: Earnings for new versus March.

Jerry Revich: Wouldn't fit the new.

Jerry Revich: Proposed standards can you just talk about.

Jerry Revich: How the ebbs and flows are going in and the timeline that you expect.

Jerry Revich: Can you drive.

Jerry Revich: From a clarity standpoint for the industry.

Jerry Revich: Yes.

Jerry Revich: So gerrick last November a car a petition with the EPA for a waiver and supports for regulation for end use locomotives.

Jerry Revich: <unk> has not responded to California's waiver request and the ruling became effective the beginning of this year.

Jerry Revich: On the one hand, I'd say the outcome of the rule remains fluid, but we're technically very well-positioned to support our customer share for all outcomes. We have the best-in-class products, the lowest fuel consumption, the lowest emissions, best reliability, best availability, and regardless of further regulation, what I'll tell you the good news is our entire installed base will be able to burn bio and renewable fuel. But what's more exciting to me is our newer fleets; they'll ultimately go beyond bio and renewable fuel. We firmly believe we can bridge customer share to their ultimate near zero emission goals. We are aggressively testing alternative fuels, hydrogen being part of that mix in our newer internal combustion engines.

Jerry Revich: One and I'd say the outcome of the rule remains fluid.

Jerry Revich: But we are technically very well positioned to support our customers share for all outcomes. We have the best in class products lowest fuel consumption lowest emission vast reliability best availability and regardless of Fargo regulation, what I'll tell you. The good news is our entire installed base, we'll be able to burn bio.

Jerry Revich: <unk> and renewable fuels, but what's more exciting to me is our newer fleets that will ultimately go beyond vial and renewable fuel. We firmly believe we can bridge customers share to their ultimate near zero emission goals, we're aggressively testing alternative fuels hydro jumping part of that mix.

Jerry Revich: Our newer internal combustion engines, and with really an eye towards enabling our customers' sustainability journey and a bottle Lal reintegrating batteries and ultimately hybrid systems into our fleet. So we have not incorporated regulated regulatory change and for our guidance so that would be a tailwind for us.

Rafael Santana: And we've really an eye here towards enabling customers on the sustainability journey and, in parallel, reintegrating batteries and ultimately hybrid systems into our fleet. So we have not incorporated regulatory change into our guidance, so that would be a tailwind for us.

Jerry Revich: Yes.

Okay.

Speaker Change: Super and then can I just ask you've been very clear on the cash flow from operations conversion rate of over 90%. The capex that we're seeing at 2% of sales is that the run rate that we should be thinking about John are there any ebbs and flows as we think about what total.

Jerry Revich: And then, can I just ask you, you've been very clear on the cash flow from operations conversion rate at over 90%. The CapEx that we're seeing at 2% of sales, is that the run rate that we should be thinking about, John? Are there any ebbs and flows as we think about what the total net income to free cash flow conversion should be like over the next couple of years, depending on your CapEx plan? When we look at the rest of our investment horizon that we came up with a couple years ago, we would expect a 2% range of CapEx over that entire period of time. That's clear.

Speaker Change: Net income to free cash flow conversion should be like over the next couple of years, depending on your Capex plan. So when we look out over the rest of our investment horizon that we came out with a couple of years ago, We would expect 2%.

Range of Capex over that entire period of time.

John A. Olin: All right. Thank you. Thank you. And our next question today comes from Rob Wertheimer with Melius Research. Thank you. And, I guess, a little bit similar to Jerry's question, but I think you had a healthy order for mods from CSX that just came in. I wonder if you can give us any sense of where your total number of mods was in 23, just for perspective on what that order kind of means in context.

Speaker Change: That's clear alright, thank you.

Speaker Change: Thank you and our next call.

Speaker Change: Listen today comes from Rob Wertheimer with Melius Research. Please go ahead.

Robert Wertheimer: Thank you I.

Robert Wertheimer: I guess, a little bit similar to Jerry's question, but I think you had a healthy order for months from <unk> X that just came through and I'm wondering if you can give us any sense of where your total number of Mas was in 'twenty three.

Robert Wertheimer: Just your perspective on what that order kind of means of context, and then more generally even if we leave aside California. There's all there's also the climate goals of the rails have and there is a fairly old fleet that they're running and maybe record oil play that theyre running.

Robert Wertheimer: And then more general, even if we leave aside California, there's also the climate goals that the rails have, and there's, you know, a fairly old fleet that they're running, or maybe a record old fleet that they're running. So in your conversations with your customers in North America, how much are they actually thinking about new locomotives right now, with or without California? How is that balance looking? Do they think they can get to their climate goals with just modifications?

Robert Wertheimer: In your conversations with your customers in North America.

Robert Wertheimer: How how much are they actually thinking about new locomotives right now with or without California, how does that balance looking at it.

Speaker Change: I think.

Speaker Change: They can get to their climate goals with just mods, maybe just any color around that.

Rafael Santana: Maybe just any color around that level of mods and then how they think about new. Hey Rob, our customers invest for returns at the end of the day, so this really comes down to making sure as they look into their fleets, they've got the opportunity here to continue to drive costs down, to drive reliability up, and improve service levels, and I think that will continue. When I look at that investment, of course, we're coming from trough levels here in the past; we have growth coming to 23, we still have significant growth in 24, and the recent order that you just referred to just gives us greater visibility to really continue to grow the market. I think we still have an opportunity to grow here as we get closer to what I'll call average replacement rates with really the oldest fleet we've had.

Speaker Change: That level of mods, and then how to think about new thank you.

Speaker Change: Hey, Rob.

Speaker Change: Our customers in vascular recharge to another day. So it's just really comes down to making sure as they look into their fleets.

Speaker Change: Got it.

Speaker Change: The opportunity here to continue to drive costs down to drive reliability up.

Speaker Change: Improved service levels and I think that continues when I look at that investment of course, we are coming from trough levels here in the past we have growth coming into 'twenty. Three we have still significant cutoff in 'twenty four and the recent order that you just referred to it just gives us greater.

Speaker Change: Visibility too.

Really all continued to grow market I think we still have.

Speaker Change: I think an opportunity to grow here as we get closer here to what I'll call average replacement rates with.

Speaker Change: Really the oldest fleets we've had.

Rafael Santana: I think some of the elements of what customers decide to invest in could be shaped here certainly by regulation, but most importantly, I think it's going to be shaped by some of the elements of technology that we're introducing that allow faster payback, greater payback, and greater flexibility to really, I'll call it ultimately, bridge customers here into a lower emissions environment, and that's how we look at it. All right, thank you. And our next question today comes from Scott Group with Wolf Research. Please go ahead.

Speaker Change: I think some of the elements on what customers decide to invest in it could be shaped here certainly by regulation, but most importantly, I think it's going to get a.

Speaker Change: Shaped by some of the elements of technology that we're introducing that allows a.

Speaker Change: Faster payback, greater payback and greater flexibility to really I'll call ultimately a bridge customers share into a lower emissions environment.

Speaker Change: That's how we look at it.

Speaker Change: Alright, Thank you and our next question today comes from Scott Group with Wolfe Research. Please go ahead.

Scott Group: Hey, thanks. Good morning. So within the morning with within the revenue guidance, just directionally, are you guys expecting better freight or transit growth? And when you just think about all the, you know, the moving pieces with your growth?

Scott Group: Hey, Thanks, good morning, so within.

Scott Group: Good morning within the revenue guidance, just Directionally are you guys expecting better freight or transit growth and when you just think about all the moving pieces with your growth how should we think about mix is.

John A. Olin: How should we think about mix as a tailwind or not this year? Great question, Scott. You know, when we look across our five business groups and look into 2024, we expect equipment to be the fastest growing, again, for the reasons that Rafael had just mentioned in the last question. And with that, and actually, in looking at mods as well, we expect both mods and locos combined to be growing at a faster rate than our average midpoint of revenue growth. And that will put a little bit of mixed headwind in 2024. And again, as I've said before, you know, in this world, Scott, there are two kinds of mixes.

Scott Group: Tailwind or not this year.

Scott Group: Great question, Scott when we look at it across our five business groups and look into 2024, we expect equipment to be the fastest growing again for the reasons that Rafael had just mentioned on the last question and with that.

Scott Group: And looking at <unk> as well, we expect both mods and locals combined to be growing at a faster rate than our average the midpoint of the revenue growth and that will put a little bit of mix headwind in 2024, and again as I've said before you know in this world Scott, there's two kinds of mix. So theres good mix in bed.

Scott Group: There's good mix and bad mix. And this is a case of really good mix as we mix down a little bit because we're putting out assets in the marketplace that'll be generating revenues for us for decades to come. So we feel really good, but there will be a little bit of mixed headwinds going forward. Okay.

Scott Group: Mix and this is a case of really good mix as we.

Scott Group: It's down a little bit because we're putting out assets in the marketplace that will be generating revenues for us for decades to come.

Scott Group: So we feel really good but there will be a little bit of mix headwinds going forward.

Speaker Change: Okay helpful. And then just I just wanted to clarify just on.

Speaker Change: On the Mod side are you seeing I think you've been talking about no pretty consistent double digit growth in mods last bunch of years do we have that again this year and then any update on the on the battery logo and.

Rafael Santana: Helpful. And then just, I just want to clarify just on the mod side: are you seeing, I think you've been talking about, pretty consistent double-digit growth in mods the last bunch of years. Do we have that again this year?

Timing of the first delivery and all of that thank you with regards to the mods.

Scott Group: And then any update on the battery loco? timing of first delivery and all that. Thank you. So, strong growth here, going to 24. And Scott, with greater visibility ahead, on your question on battery electric, we're continuing to make progress here in the fourth quarter. As you know, we unveiled the first heavy haul battery electric locomotive with over seven megawatts of power.

Speaker Change: Tend to look at one or the other mines or knew if we look at combined mods and new in the year, we said they'd be up double digit and they were in 2023 as we look forward as I had just mentioned, we do expect them to grow faster than the average those combined to grow faster than the average.

Speaker Change: Strong growth here going to 24, and Scott with greater visibility of add on your question on battery electric.

We're continuing to make progress here.

Speaker Change: In the fourth quarter as you know you unveiled the first heavy haul battery electric locomotive with over seven megawatts of power.

Rafael Santana: These units will start running this year in Australia. And on that, I think fuel continues to be one of the biggest costs for customers. There's a continued focus here on driving efficiency. We've got a number of pilots and demo projects. And while we do not expect broad adoption of these, there are going to be some really key opportunities here that we're ready to work on and support customers on. Thank you. And our next question today comes from Allison Poliniak with Wells Fargo. Hi, good morning. Good morning, Allison.

Speaker Change: Units will start running this year in Australia and on that I think fuel continues to be one.

Speaker Change: One of the biggest cost for customers. There is a continued focus here on driving efficiency.

Speaker Change: Got a number of pilots and demo projects.

Speaker Change: While we do not expect broader adoption of these there's going to be some really key opportunity this year.

Speaker Change: We're ready to work on and support customers on.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: And our next question today comes from Allison <unk> with Wells Fargo. Please go ahead.

Allison: Hi, good morning.

Allison Poliniak: I just want to see if you could expand on the digital intelligence piece of your business, particularly in North America. It seems like that's been a bit slower. Is there any color there of folks pushing off some of these investments from the cyclical standpoint, understanding the long-term drivers are still there, just any color on that near term? Yeah. So number one, I think during the quarter, while we saw higher demand from international customers, when you think about PTC, onboard locomotive, and digital mine, we saw really softer demand here, which is continuing with the US driven by really discretionary OpEx and the commuter signaling business. What I'd say is the pipeline of opportunities remains strong, driven primarily by international customers and also by digital mining solutions. I'd say recurring revenues and short-term convertibility continue to be a focus area for the group. But I think what's more exciting here is something we announced in the fourth quarter which is really tied to us entering the rail car telematics market. We are creating a platform here with proven technology.

Allison: I also see if you could expand on the digital intelligence piece of your business, particularly in North America. It seems like that's been a bit slower.

Allison: Any color there pushing out some of these events.

From a cyclical standpoint understanding the long term drivers are still there just any color on that near term.

Allison: Yes.

Allison: Number one I think during the quarter I think in one side, while we saw higher demand from international when you think about PTC onboard locomotive digital mine, we saw really a softer demand here, which is continuing with U S.

Allison: Driven by really discretionary opex and the commuter signaling business.

Allison: I'd say the pipeline of opportunities remains strong driven primarily by our international.

Allison: And also by digital mining solutions.

Allison: Recurring revenues in short term convertible to continues to be a focus area for the group, but I think what some more exciting here something we announced in the fourth quarter, which is really tied to us entering the rail car telematics market.

Allison: We are creating a platform here with proven technology and just as a market of $1 6 million in freight cars.

Rafael Santana: And this is a market of 1.6 million freight cars. It is a multibillion-dollar opportunity for us, one that we will be providing real-time data to rail car and tank car owners. And opportunities like this will keep propelling growth and profitable growth for this business. At it. And then on the cost optimization, could you maybe give us any color on how we should think of that run rate exiting 2024? And then with that portfolio pruning, part of that is that gradual. Yeah, Allison, this is John.

Allison: It is a multi billion dollar opportunities for us one that we will be providing real time data to railcar.

Allison: And tank car owners and.

Allison: Sure.

Allison: Opportunities just like us will keep propelling our golf and profitable growth for this business.

Speaker Change: Got it and then on the cost optimization.

Allison: Can you maybe give us any color on how we should think of that run rate exiting 2024, and then was that portfolio pruning part of that is that incremental just any color there. Thanks.

Allison: Yes, Allison this is John so they're separate integration 2.0, we couldnt be more pleased with the performance of that and to date. Most of the investment is behind us and most of the savings are in front of us. So as we exited 2023, we had a run rate of $22 million and as we exit 2025.

Allison Poliniak: So they're separate. Integration 2.0, we couldn't be more pleased with the performance of that. And, you know, to date, most of the investment is behind us, and most of the savings are in front of us. So as we exited 2023, we had a run rate of $22 million. And as we exit 2025, the run rate that we will exit at will be $75 to $90 million. So over the next two years, we would expect a significant ramp up moving from $22 to the $75 to $90, and they'll probably be somewhat equal as we ramp from here to the exit period. Great, thank you. And our next question today comes from Ken Hoexter with Bank of America. Great, good morning.

Allison: <unk> the run rate that we will exit at will be $75 million to $90 million. So over the next two years, we would expect a significant ramp.

Allison: And moving from 22 to the 75 to 90.

Allison: And they'll probably be somewhat equal as we ramp from here.

Allison: Period.

Great. Thank you.

Speaker Change: Thank you.

Speaker Change: And our next question today comes from Ken <unk> with Bank of America. Please go ahead.

Ken: Great Good morning.

John A. Olin: So, Rafael and John, can you talk a bit about the, you've kind of gone over the mix of product types, but how about international versus domestic and kind of maybe talk us through to understand margin differentials or mix issues as one is growing versus the other within your 5% growth outlook? Yeah.

Ken: Raphael and John can can you talk a bit about the you've kind of gone over the mix of <unk>.

Ken: Product type, but how about international versus domestic.

Ken: And kind of maybe talk us through to understand margin differentials.

Ken: Or a mix issues as one is growing versus the other.

Ken: And within your 5% growth outlook.

Ken: What do you think of revenue aside. Thank you heard me describing stronger international pipeline, which I think ultimately wants to reflect stronger growth internationally as we look, especially beyond 'twenty four in that regard so always see.

Rafael Santana: When it comes to revenues, I think you heard me describing a stronger international pipeline, which I think ultimately wants to reflect stronger growth internationally as we look, especially beyond 24, in that regard. So we see a strong pipeline of deals, some of them signed last year. We'll see a part of those converting into backlog this year, which will continue to show all the really strength that we've got longer term in the business. I think with regard to specific margins, I mean, this is really project by project driven. As John described, I think there's an element of headwinds just associated with the pace in which we grow both the new locomotive business and the modification business at a rate, at a growth rate faster than the overall company. So maybe we can delve into that for a quick one for my follow-up.

Ken: Our strong pipeline of deals.

Ken: Some of them signed last year, we'll see.

Ken: But part of those converting into backlog this year, which will continue to sit on all really of the strength that we've got longer term in the business I think with regards to specific margins I mean, it just says.

Ken: Really.

Ken: Project by project driven as John described I think there is an element of still have wins just associated with Dol.

Ken: The pace in which we grow above.

Ken: The new locomotive business, but also the <unk> business all add up right.

Ken: At a growth rate faster than the overall company.

Speaker Change: So maybe we can delve into that for a quick one for my follow up just the backlog conversion. It looks like the backlog is building up maybe double digit rates right freight is up 11% trains at up 8%. Just wondering is that a good signal a read through for that revenue growth I mean, you're you're targeting 5% to backlogs growing their double digit how do we <unk>.

Ken Hoexter: Just the backlog conversion, it looks like the backlog is building up maybe double-digit rates, right? Freight is up 11%, and transit up 8%. Just wondering, you know, is that a good signal or read-through for that revenue growth? I mean, you're targeting 5%.

Rafael Santana: The backlog's growing. They're double-digit. How do we reconcile the two?

Speaker Change: Inside of the two what whereas their loss I guess in the consortium. So a couple of tanks and we will have variation here quarter to quarter, just reflecting lost.

Ken Hoexter: Where is their loss, I guess, in the conversion? So a couple of things, man. We will have variation here from quarter to quarter. Just reflect on the last four quarters.

Rafael Santana: I mean, we have quarters in low single-digits. We have quarters in double-digits. And I think you're going to see some of that variation. How we run the business, making sure that we've got that convertibility built in 12 months out, 18 months out. And we've got to really think about the lead times we've got associated with our products. So it's making sure that we have that coverage.

Speaker Change: Four quarters, I mean, we have quarters on low single digits, we have quarters on double digits, and I think youre going to see some of that variation, how we run the business, making sure that we've got that convertibility built out 12 months out 18 months out and we got to really think about the lead times, we've got associated with with our products. So it is.

Speaker Change: Sure do we have that coverage.

Speaker Change: Pink and specific about 24, I think there are some elements of.

Ken Hoexter: If you think specifically about 24, I think there are some elements of coverage, especially for the flow products that really need to be executed through the year. And if you keep in mind, you've got things like the freight car built, which is down. So you do have some elements here that will play out through the year. But the bottom line is, we feel strong about both the coverage and about the ability here to continue to drive profitable growth with the pipeline we have. Thanks a lot, Pam.

Speaker Change: Coverage, especially for a full products that really need to.

Speaker Change: Really be executed through the year and if you keep in mind, you've got things like the freight car build which is down. So you do have some elements here that play out through.

Speaker Change: Through the year, but bottom line is we're still shrunk about both the coverage and about the ability here to continue to.

Speaker Change: Drive profitable growth with the pipeline we have.

Speaker Change: Thanks, a lot there.

Angel Castillo: Thank you. And our next question comes from Angel Castillo with Morgan Stanley. Please go ahead. Hi, good morning.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Adam <unk> with Morgan Stanley. Please go ahead.

Angel Castillo: Thanks for taking my question. Just maybe kind of expanding on that in a little bit longer term. As you think about your book to bill for 2024, focused in particular on locomotives, new locomotives, how are you thinking about that kind of evolving? It sounds like deliveries will be ramping up during the year. But you know, just based on what you're hearing from your conversations with your customers, how do you kind of see that throughout the year in terms of above one, below one? Any more color that would be helpful.

Adam: Hi, Good morning, Thanks for taking my question, just maybe kind of expanding on that in a little bit longer term as you think about your book to Bill for 2024 focused in particular on locomotives.

Adam: The new locomotives, how are you thinking about that kind of evolving it sounds like deliveries will be ramping up during the year, but just based on what you're hearing from your conversations with your customers. How do you kind of see that throughout the year in terms of above one below one <unk>.

Speaker Change: Any more color that would be helpful.

Speaker Change: And help you know on average we expect our book to bill to be over one because we expect to continue to grow in the mid single digits over the sustainable future rate.

John A. Olin: Well, in hell, you know, on average, we expect our book to bill to be over one because we expect to continue to grow in the mid single digits over the sustainable future, right? So again, going back to, you know, some of these orders can be lumpy from time to time, and a lot of them are multi-year.

Speaker Change: So, but again going back to some of these orders can be lumpy from time to time and a lot of them are multi year. So.

Angel Castillo: So, We're not, we don't provide guidance in terms of what we expect a forward-looking book the bill to be, but over time, we would certainly expect it to be over. Got it. And then maybe just on the portfolio divestitures or pruning that you talked about, could you quantify that from an EPS perspective, how much of that is kind of a, what was the impact embedded in the guidance and any kind of incremental pruning that you see as kind of opportunities here? Yeah, so when we look at portfolio optimization, again, we're looking very focused on overall company profitability, and certainly integration 2.0 is helping to drive that. In addition to that, we've taken a hard look at the portfolio and are looking at the product lines that are not carrying the weight or not delivering the profitability that we expect or the value that we expect.

Speaker Change: We're not we don't provide a guidance in terms of what we expect our forward looking book to bill be but over time, we would certainly expect it to be over one.

Speaker Change: Got it and then maybe just on the portfolio divestitures or pruning that you talked about could you quantify that from an EPS perspective, how much of that is kind of what was kind of the impact embedded in the guidance and any kind of incremental pruning that you see as kind of opportunities here.

Speaker Change: So when we look at portfolio optimization.

Speaker Change: We're looking very focused on overall company profitability and certainly integration 2.0 is helping to drive that.

Speaker Change: In addition to that we are looking at taking a hard look at the portfolio and looking at the.

Speaker Change: The product lines that are not carrying the weight are not delivering the profitability that we expect or the value that we expect and with that we're going out and removing about $110 million of revenue. So when you look at our overall guidance you got.

John A. Olin: And with that, we're going out and removing about $110 million of revenue. So when you look at our overall guidance, you've got to realize, too, that this revenue isn't going to be there in 2024. So that's putting a little bit of a headwind on the overall midpoint that we've given. But to answer your question, this is very low margin or no margin on health.

Speaker Change: Realize too that this revenue isn't going to be there in 2024.

Speaker Change: So that's putting a little bit of headwind on the overall, our midpoint that we've given but to.

Speaker Change: Answer. Your question. This is very low margin or no margin held so it's not having an impact on our profitability going forward, but it is bringing our revenue down and therefore, we would expect a little bit.

Angel Castillo: So it's not having an impact on our profitability going forward, but it is bringing our revenue down. And therefore, we would expect a little bit of upward pressure on or upward momentum on margin. Very helpful.

Speaker Change: Word pressure on upward.

Speaker Change: Momentum on margin percent.

Saree Boroditsky: Thank you. And our next question today comes from Saree Boroditsky with Jeff. Thanks for fitting me in.

Speaker Change: Very helpful. Thank you.

Speaker Change: And our next question today comes from sorry.

Jefferies: With Jefferies. Please go ahead.

John A. Olin: So you announced the $1 billion share buyback authorization. Can you just talk about how you're thinking about using the cash flow this year between repurchases and M&A, the expected timeline for completing this authorization, and is any of this baked into your EPS guidance for the year? So, Saree, number one is, in terms of capital allocation, we are on track to do what we did in 2023. Again, we couldn't be more pleased with the balance that we had in 2023. When you look at the free cash of about $900 million, and operating cash of $1.2, it was pretty split between M&A and share repurchase. In relation to the authorization, it replaced the old authorization that we had, so we've got the ability to spend up to a billion dollars on share repurchases, and again, that will be determined throughout the year as far as what we have in M&A operations.

Jefferies: Thanks for fitting me in so you announced the $1 billion share.

Jefferies: Share buyback authorization peers talk about how youre thinking about using the cash flow this year, but share repurchases and M&A. The expected timeline for completing this optimization and if any of this baked into your EPS guidance for the year.

Speaker Change: So sorry.

Speaker Change: Sorry number one is in terms of capital allocation. We are on track to do what we've done in 2023 again, we couldnt be more pleased with the balance that we had in 2023. When you look at the free cash of about 900 billion operating cash of $1 two.

Speaker Change: It would sound pretty split between M&A and share repurchases.

Speaker Change: When we look forward as you know, we will prioritize M&A over share repurchases as long as we have good strategic bolt on M&A.

Speaker Change: And if not we will return excess cash to our shareholders in the form of share repurchases in relationship to the.

Speaker Change: The authorization it replaces the old out the realization that we had so we've got the ability to spend up to $1 billion in share repurchases and again that will be determined throughout the year as far as what we have in M&A opportunities.

Saree Boroditsky: But is it fair to say that any additional share buybacks this year are not included in your EPS guidance? Our guidance includes all of our business aspects as well as the use of cash in 2024. Okay, so it does include share buybacks. Care Buybacks, M&A, or the use of that cash, yes.

Speaker Change: Okay.

Speaker Change: But is it fair to say that any of that any additional share buybacks. This year is not included in your EPS guidance.

Speaker Change: Our guidance includes all of our business aspects as well as the use of cash in 2024.

Speaker Change: Okay. So it does include share buybacks.

Speaker Change: Share buybacks M&A or the use of that cash yes.

John A. Olin: Okay, and then for the next question, you know, I know you're hesitant to kind of put a number on freight margin performance for this year, but maybe comment on incremental margins in freight because I think you should have easier comps with the absence of the strike, you have higher volumes, and you're exiting lower margin products. So what can we think about for incremental freight margins this year? Well, overall, you can figure out where we are, and what we're looking at for incremental margins on the company in total. Freight will certainly be a driver of that, but we also expect margin growth on the transit side. You know, when you look at, we are lapping some of the impact of the strike that we had, and that's been incorporated in our overall guidance, right? So, when we look at the margins in general, we're looking at favorable productivity and absorption, and certainly the benefits of integration 2.0, as well as portfolio optimization that you mentioned. Now, again, there's going to be some headwinds to that on an unfavorable mix.

Speaker Change: Okay and then.

Speaker Change: The next question.

Speaker Change: Has it into kind of put a number on freight margin performance for this year, but maybe comment on incremental margins and free because I think you should have easier comps with the absence of the strike we have higher volumes in your exiting lower margin products.

Speaker Change: Like what can we think about Frank comment kind of freight margins this year.

Speaker Change: Well overall, you can figure out where we're what we're looking at for incremental margins on our company in total freight will certainly be a driver of that but we also expect margin growth in the transit side. When you look at we are lapping some of.

Speaker Change: Some impact to the strike that we had and thats been incorporated into our overall guidance right.

Speaker Change: So when we look at the margins in general we're looking at favorable productivity and absorption and certainly the benefits of integration to <unk> as well as portfolio optimization that that you've mentioned now again, there's going to be some headwinds to that unfavorable mix.

Saree Boroditsky: Great, thanks for taking my question. And our next question today comes from Chris Weatherby with Citigroup. Please go ahead. Hey, thank you, operator. And good morning, everyone. This is Rob on behalf of Chris.

Speaker Change: Great. Thanks for taking my question.

Speaker Change: Yes.

Speaker Change: And our next question today comes from Chris Wetherbee with Citigroup. Please go ahead.

Speaker Change: Thank you operator, and good morning, everyone. This is rob on for Chris.

Chris Weatherby: If I could dig a little bit further into integration 2.0, it looks like on a run rate basis exiting 2024, you're more than double the savings. Can you give us a sense of the cadence you're expecting to realize that run rate throughout 2024? Yeah, we wouldn't expect any unusual aspects of that.

Robert Wertheimer: If I could dig a little bit further into integration to point out.

Robert Wertheimer: It looks like on a run rate basis exiting 2024 more than double the savings can you give us a sense of the cadence you're expecting to realize.

Robert Wertheimer: That run rate.

Robert Wertheimer: Route 24.

Robert Wertheimer: We wouldn't expect any unusual aspect of that there are numerous projects that make up integration to <unk> and most of them have all been executed.

John A. Olin: You know, there are numerous projects that make up integration 2.0, and most of them have all been executed. And now it is just different levels of implementation as the savings start to drive forward. So, that bill.

Robert Wertheimer: Now it is just different levels of as the savings start to drive forward. So.

Robert Wertheimer: <unk>.

Robert Wertheimer: Purposes of modeling probably there'll be more straight line is more accurate than any other way to look at them.

Chris Weatherby: That's really helpful. And then just to kind of circle back on Justin's question about the cadence of earnings and revenue growth, can you give us any, can you fine-tune kind of the percentage of revenue you're expecting in the first half versus the second half? We would just expect revenue growth to be higher in the first half than the second half, largely due to some of our delivery of the high-ticket items planned. But, you know, again, whenever you move a few locomotives from one period to the other, or deliveries are a little bit ahead or behind, it's hard to get too fine-tuned on that.

Robert Wertheimer: That bill.

Speaker Change: That's really helpful. And then just to kind of circle back on Justin's question about the cadence of earnings and revenue growth can you give us any.

Speaker Change: Can you fine tune kind of percentage of revenue youre expecting in the first half versus the second half I clearly can be more weighted to the first half, but yeah. We would just expect revenue growth to be higher in the first half and the second half.

Speaker Change: Then largely how we have on some of our delivery of the high ticket items planned, but you know again whenever you move a few.

Speaker Change: A few locomotives from one period to the other or deliveries a little bit ahead or behind its hard to get done to fine tuned on that so suffice to say that the first half revenue growth will be a little bit higher than the second half.

John A. Olin: So suffice to say that the first half revenue growth will be a little bit higher than the second half. Thank you. I appreciate it.

Speaker Change: Understood I appreciate the color.

Baskin Majors: Thank you. And our next question comes from Baskin Majors with Susquehanna. You talked about a roughly neutral volume environment for North American Rail. How much would that have to deteriorate to start to meaningfully impact your service revenue on the locomotive contracts? So, what we described was car loads being, I'll call it, to some extent, muted for the year.

Speaker Change: Thank you and our next question comes from Bascom majors with Susquehanna. Please go ahead.

Bascom Majors: You talked about a roughly neutral volume environment for North American rail how much would that have to deteriorate to start to meaningfully impact your service revenue on the locomotive contracts.

Bascom Majors: So what we described was saw callouts being.

Bascom Majors: I'll call it some exact muted job for the year.

Rafael Santana: That has, of course, been included in our guidance. But what I think you have that's more than offsets this is the continued opportunity here for customers to really invest for returns. It's really driving productivity, lowering costs, replacing, in some cases, three units for two units. And I think those dynamics are remaining in place and will remain in place, not just 424, as you see reflected here by the orders that we just got. We think, at least from a fleet perspective in parking, service levels have really – the focus on service levels has really kept the active fleet relatively stable, and we would expect us to continue to be – have a favorable market dynamics for North America included. And moving to international on the buyout in Kazakhstan, you talked about not much 2024 impact from that. As you look at the longer term, is the deal structured in a way where all of the benefits from any of this $2 billion plus of MOUs converting to orders would accrue to Wabtec? Longer term, when could that become a meaningful contributor to your overall profit profile?

Bascom Majors: It has of course been included into our guidance. What I think you have that more than offsets does is the continued opportunity here for customers to really invest for returns.

Bascom Majors: Really by driving productivity lowering costs, replacing in some cases three units for two units and I think those dynamics are remaining place and remain in place not just 424 as you see reflected here by.

Bascom Majors: But by the orders that we just got job, we would think at least from a fleet perspective and parking.

Bascom Majors: Service levels have really.

Bascom Majors: The focus on service levels has really kept the active fleets are relatively stable and we.

Bascom Majors: We would expect us to continue to be.

Bascom Majors: Have a favorable market dynamics for North America included.

Bascom Majors: Moving to international on the buyout in Kazakhstan.

Bascom Majors: You talked about not much 2024 impact from that.

Bascom Majors: As you look out longer term.

Bascom Majors: Is the deal structured in a way where.

Bascom Majors: All of the benefits from any of this $2 billion plus of M. O us converting to orders would accrue to WAF attack.

Bascom Majors: And just longer term when could that become a meaningful concert contributor to your overall profit profile. Thank you.

Baskin Majors: Thank you. I would think about the LKZ venture that we have as an assembly joint venture. It doesn't have any impact on our overall revenue growth or, you know, growth into the CIS region. What it does is improve our supply chain, right? A lot of the things that we were driving through the joint venture were kits that we would make, and a lot of the parts were made in other parts of the world and shipped in, and the JV was for the assembly side of it.

Bascom Majors: Think about the <unk>.

Bascom Majors: Venture that we have is an assembly joint.

Bascom Majors: Joint venture.

Bascom Majors: So it doesn't have any impact on our overall revenue growth or.

Bascom Majors: Hum.

Bascom Majors: Growth into the CIL region, what it does is improves our supply chain right a lot of the things that we were driving through the joint venture where kits that we would make a lot of the parts were made in other parts of the world and shipped in there and the JV was for the assembly side of it. So now this just gives us a great operational.

John A. Olin: So now this just gives us a great operational, complete control over the operational supply chain in an area of the world that we believe is going to show significant growth going forward. We have seen significant growth in 24. We have significant growth in 25, and we have an opportunity here to utilize that installed, that manufacturing footprint to export outside of Kazakhstan, and I think that's a significant element here on top of this, just had some really strong RO returns for us. Thank you. Thank you. And our next question comes from Steve Barger with KeyBank Capital Markets. Please go ahead.

Bascom Majors: Complete control over the operational supply chain and an area of the world that we believe is going to show significant growth going forward, we have significant growth in 'twenty four we have significant growth in 'twenty five and we have an opportunity here to utilize that.

Bascom Majors: Installed.

Bascom Majors: That manufacturing footprint to exports.

Bascom Majors: Outside of Kazakhstan, and I think Thats a significant element here.

Bascom Majors: On the top of this.

Bascom Majors: Just had some really strong oral returns for us.

Speaker Change: Thank you.

Speaker Change: Thank you and our next question comes from Steve Barger with Keybanc capital markets. Please go ahead.

Steve Barger: Hey, thanks. John, you said equipment would be the fastest growing group, but if I'm remembering right, that category is pretty evenly split between locomotives and mining, marine, and drilling. Are you thinking the locomotive outgrows the industrial products, or do you expect more equal growth from those two categories? Yeah, we don't break it out specifically, Steve, but when we look at 2024, our equipment group, we expect good growth out of both locomotives as well as mining equipment. Got it, thanks. So, similar growth rates; no big variance between the two. It's, I think, a challenge here.

Steve Barger: Hey, thanks.

Steve Barger: John You said equipment will be the SaaS is growing group, but if I'm remembering right that categories pretty evenly split between locomotives and mining marine and drilling.

Steve Barger: Are you thinking locomotive outgrows, the industrial products or do you expect more equal growth from those kind of two categories.

John: We don't break it out specifically, Steve, but when we look at 2020 for our equipment group, we expect good growth out of both local.

John: Locomotives as well as mining equipment.

Speaker Change: Got it thanks.

Speaker Change: Similar growth rates no big variance between the two.

John: Steve.

Steve Barger: I think our challenge here you might have again.

John A. Olin: It might have, again, variation as we go through it, but they're strong, they're strong, both strong, and a lot of it really internationally driven and beyond 24. And for transit, you're coming off a tough comp, you know, really the best growth in years. And with equipment and services on the freight side outgrowing consolidated guidance, does that mean freight is more like a high single-digit for the year and transit is a low single-digit? We won't get into the specifics regarding for transit or for freight. What I'll tell you, on transit, the fundamentals for the business continue to be strong. The book-to-bill ratio closed over one for the year. While we're pleased with the progress, we continue to do significant work here to simplify the footprint, and this business will deliver on margin expansion 24. Our integration should not always be a significant contributor to that, but we will continue to have variation, quarter-to-quarter, driven by the mix and timing of projects.

John: Variation as we go through it.

John: They are strong they are strong both strong.

John: And.

John: A lot of it really internationally driven and beyond 24.

John: And for transit Youre coming off a tough comp, but really the best growth in years and with equipment and services on the freight side outgrowing consolidated guidance does that mean freight is more like high single digit for the year in terms of low single digits.

Speaker Change: We won't get into the specifics are guiding for transit or for freight and what I'll tell you on transit the fundamentals for the business continued to be a strong book to bill ratio of <unk>.

Speaker Change: Over one for the year.

Speaker Change: While we are pleased with the progress we've continued to do a significant work here to simplify the footprint.

Speaker Change: This business will deliver on margin expansion of 24 integration should not always a significant contributor to that but.

Speaker Change: But we will continue to out variation quarter to quarter, driven by really mix and timing of project.

Speaker Change: Understood. Thanks.

Steve Barger: Understood, thanks. Thank you. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Kristine Kubacki for any closing remarks. Thank you, Rocco, and thank you, everyone, for your participation today. We look forward to speaking with you next quarter, www. Flydreamers.com Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a..., www. WestinghouseAirBnb.com

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Christine Kubacki for any closing remarks.

Kristine Kubacki: Rocco and thank you everyone for your participation today, we look forward to speaking with you next quarter.

Speaker Change: Okay.

Kristine Kubacki: Thank you. This concludes today's conference call. Thank.

Speaker Change: Thank you all for attending today's presentation you.

Speaker Change: You may now disconnect your lines and have a wonderful day.

Speaker Change: [music].