Q2 2024 Westinghouse Air Brake Technologies Corp Earnings Call

Good morning, everyone, and welcome to the Wabtec second quarter 2024 earnings conference call.

Operator: All participants will be in a listen-only mode.

Operator: If you need assistance, please know a conference specialist by pressing the star key followed by 0.

Speaker Change: All participants will be in a listen-only mode. Should you need assistance, please contact a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask your question, you may press star and then one on a touch-tone telephone. There are your questions; you may press star and two.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 on a touch screen telephone. To withdraw your question, you may press star and 2.

Operator: Please also note that today's event is being recorded.

Kyra Yates: At this time, I'd like to turn the floor over to Kyra Yates, which is president of Investor Relations. And please go ahead.

Operator: All participants will be in a listen-only mode. Should you need assistance, please contact a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star and then one on the touch screen telephone. To withdraw your questions, you may press star and two. Please also note that today's event is being recorded. At this time, I'd like to turn the floor over to Kyra Yates, Vice President of Investor Relations. Ma'am, please go ahead.

Please also note that today's event is being recorded.

Kyra Yates: At this time, I'd like to turn the floor over to Kyra Yates, Vice President of Investor Relations.

Kyra Yates: Thank you, operator.

Kyra Yates: Thank you, Operator. Good morning, everyone, and welcome to Wabtec's second quarter 2024 earnings call. With us today are President and CEO Rafael Santana, CFO John Olin, and Senior Vice President of Finance John Mastelers. Today's slide presentation, along with our earnings release and financial disclosures, was posted to our website earlier today and can be accessed on the Investor Relations tab. Some statements we are making are forward-looking and based on our best view of the world and our business today.

Rafael Santana: Good morning, everyone, and welcome to Wabtech's second quarter of 2024 earnings call. With us today are President and CEO, Rafael Santana, CFO, John Olin, and Senior Vice President of Finance, John Mastellers.

Speaker Change: Ma'am, please go ahead.

Speaker Change: Thank you, Operator. Good morning, everyone, and welcome to Wabtec's second quarter 2024 earnings call. With us today are President and CEO Rafael Santana, CFO John Olin, and Senior Vice President of Finance John Mastelers.

Rafael Santana: 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. Some statements we are making are forward-looking and based on our best view of the world in our business today. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.

Speaker Change: 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.

Speaker Change: Some statements we are 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.

Kyra Yates: For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael.

Speaker Change: 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: I will now turn the call over to Rafael. Thanks, Kyra, and good morning, everyone. Let's move to slide four.

Rafael O. Santana: Thanks, Kyra, and good morning, everyone. Let's move to slide four. I'll start with an update on our business, my perspectives on the quarter, and progress against our long-term value creation framework, and then John will cover the financials. We delivered a strong quarter, advanced by robust sales and earnings-per-share growth. Sales were $2.6 billion, which was up nearly 10% versus the prior year. Revenue growth was driven by strong performance from the freight segment, and Adjusted EPS was up 39% from the year-ago quarter, driven by increased sales and margin expansion. Total cash flow from operations for the quarter was $235 million.

Rafael Santana: I'll start with an update on our business, my perspectives on the quarter and progress against our long-term value creation framework, and then John will cover the financials. We deliver the not-er strong quarter, advanced by robust sales and earnings per share growth. Sales were $2.6 billion, which was up nearly 10% for the prior year. Revenue growth was driven by strong performance from the freight segment. And the adjusted EPS was up 39% from the year-ago quarter, driven by increased sales and margin expansion. Throw cash flow from operations for the quarter was $235 million. The 12-month backlog was $7.3 billion, and the multi-year backlog was $22 billion.

Rafael: Thanks Kyra and good morning everyone. Let's move to slide four. I'll start with an update on our business, my perspectives on the quarter, and progress against our long-term value creation framework, and then John will cover the financials.

Rafael: We deliver the Nauters' strong quarter, evidenced by robust sales and earnings-per-share growth.

John: Sales were $2.6 billion, which was up nearly 10% versus prior year.

John: Revenue growth was driven by strong performance from the freight segment.

John: and Adjusted EPS was up 39% from the year-ago quarter, driven by increased sales and margin expansion.

John: Total cash flow from operations for the quarter was $235 million.

John: The 12-month backlog was $7.3 billion and the multi-year backlog was $22 billion.

Rafael Santana: Overall, the Wattac team delivered a strong second quarter with the first half behind us. We are focused on executing against our second half deliverables. Looking forward, I'm encouraged by the underlying strength and momentum across the business.

Rafael O. Santana: The 12-month backlog was $7.3 billion, and the multi-year backlog was $22 billion. Overall, the WOTAC team delivered a strong second quarter with the first half behind us. We are focused on executing against our second half deliverables. Looking forward, I'm encouraged by the underlying strength and momentum across the business. 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 are encouraged by the strength of our business, the strength of our international markets, and our robust pipeline of opportunities across geography. North American car loads were up 2.1% in the quarter.

Speaker Change: Overall, the WOTAC team delivered a strong second quarter with the first half behind us. We are focused on executing against our second half deliverables. Looking forward, I'm encouraged by the underlying strength and momentum across the business.

Rafael Santana: Shooting 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 are encouraged by the strength of our business, the strength of our international markets, and our robust pipeline of opportunities across geographies. North American car loads were up 2.1% in the quarter. Despite this car load curve, the industry's active locomotive fleet was down when compared to last year's second quarter, while Wattac's active fleet was higher. Looking at the North American rail car builds, last quarter we discussed the industry outlook for 2024 to be about 36,000 cars to be delivered, which has now been raised by industry sources back to the original forecast of 38,000 cars.

Speaker Change: Shifting our focus to slide 5, let's talk about 2024 and market expectations in more details.

Speaker Change: While key metrics across our freight business remain mixed, we are encouraged by the strength of our business, the strength of our international markets, and our robust pipeline of opportunities across geographies.

Rafael O. Santana: Despite this car load growth, the industry's active locomotive fleet was down when compared to last year's second quarter, while WAPTEC's active fleet was higher. Looking at North American rail car builds, last quarter we discussed the industry outlook for 2024 as being about 36,000 cars to be delivered, which has now been raised by industry sources back to the original forecast of 38,000 cars. This is still down, however, from 45,000 in the previous year.

Speaker Change: North American car loads were up 2.1% in the quarter.

Speaker Change: Despite this car load cutoff, the industry's active locomotive fleet was down when compared to last year's second quarter, while WAPTEC's active fleet was higher.

Speaker Change: Looking at the North American rail car builds, last quarter we discussed the industry outlook for 2024 to be about 36,000 cars to be delivered, which has now been raised by industry sources back to the original forecast of 38,000 cars.

Rafael Santana: This is still down, however, from the 45,000 in the previous year. Internationally, we continue to see that significant investments to expand and upgrade infrastructure are supporting your robust international orders pipeline. In mining, commodity prices and an aging fleet are continuing to support activity to refresh and upgrade the truck fleet. Finally, moving to the transition infrastructure, the mega trends of urbanization and decarbonization remain in place, driving the need for clean, safe, and efficient transportation solutions around the globe. Next, let's turn to light six to discuss a few business highlights. In North America, we secured a multi-year order for greater than $600 million.

Rafael O. Santana: Internationally, we continue to see that significant investments to expand and upgrade infrastructure are supporting a robust international order pipeline. In mining, commodity prices and an aging fleet are continuing to support activity to refresh and upgrade the truck fleet. 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. Next, we turn to slide six to discuss a few business highlights. In North America, we secured a multiyear order for greater than $600 million.

Speaker Change: This is still down, however, from the 45,000 in the previous year.

Speaker Change: Internationally, we continue to see that significant investments to expand and upgrade infrastructure are supporting a robust international orders pipeline.

Speaker Change: In mining, commodity prices and an aging fleet are continuing to support activity to refresh and upgrade the truck fleet.

Speaker Change: 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 globe.

Speaker Change: Next, let's turn to slide six to discuss a few business highlights.

Speaker Change: In North America, we secured a multi-year order for greater than $600 million. This is one of our largest orders for new Tier 4 locomotives ever.

Rafael Santana: This is one of our largest orders for new Tier 4 locomotives, Albert. It demonstrates customer demands for a best-in-class solution to improve productivity, reduce fuel usage, improve reliability, and to significantly reduce emissions. I would also like to share with you a key international services order, a 10-year agreement in Brazil for which Wattac will manage the servicing of Valleys locomotives fleet to increase availability, reliability, and safety. In fact, we recently won a strategic order for 15 modernizations for Backstend Railway.

Rafael O. Santana: This is one of our largest orders for new Tier 4 locomotives ever. It demonstrates customer demands for a best-in-class solution to improve productivity, reduce fuel usage, improve reliability, and significantly reduce emissions. I would also like to share with you a key international service order, a ten-year agreement in Brazil for which WAPTAC will manage the servicing of Valley's locomotive fleet to increase availability, reliability, and safety. In Pakistan, we recently won a strategic order for 15 modernizations for Pakistan Railway.

Speaker Change: It demonstrates customer demands for a best-in-class solution to improve productivity, reduce fuel usage, improve reliability, and to significantly reduce emissions.

Speaker Change: I would also like to share with you a key international services order, a 10-year agreement in Brazil for which WAPTAC will manage the servicing of Valley's locomotive fleet to increase availability, reliability, and safety.

Speaker Change: In PAKSTAN, we recently won a strategic order for 15 modernizations for PAKSTAN Railway. This is a great example of the opportunities that we have to modernize locomotives in our international markets.

John Olin: This is a great example of the opportunities that we have to modernize locomotives in our international markets. Finally, our transit segment announced that our green friction braking solution is ready to begin commercial fleet operations in the greater Paris metropolitan area. This innovative solution will improve air quality in the transit authority tunnels and underground network by reducing particle emissions from braking by up to 90 percent. All of this demonstrates the underlying strength across our business, the team's relentless focus on execution, and the strong pipeline of opportunities we continue to deliver on. Wattac is well positioned to continue to capture profitable growth with innovative and scalable technologies that address our customers' needs. With that, I'll turn the call over to John to review the quarter segment results in our overall financial performance. Thanks, Raphael, and hello everyone.

Rafael O. Santana: This is a great example of the opportunities that we have to modernize locomotives in our international market. And finally, our transit segment announced that our green friction braking solution is ready to begin commercial fleet operations in the Greater Paris metropolitan area. This innovative solution will improve air quality in the transit Authority tunnels and underground network by reducing particle emissions from braking by up to 90 percent. All of this demonstrates the underlying strength across our business, the team's relentless focus on execution, and the strong pipeline of opportunities we continue to deliver on.

Speaker Change: And finally, our transit segment announced that our green friction braking solution is ready to begin commercial fleet operations in the Greater Paris metropolitan area.

Speaker Change: This innovative solution will improve air quality in the Transit Authority tunnels and underground network by reducing particle emissions from braking by up to 90%.

Speaker Change: All of this demonstrates the underlying strength across our business, the team's relentless focus on execution, and the strong pipeline of opportunities we continue to deliver on.

Rafael O. Santana: Wabtec is well positioned to continue to capture profitable growth with innovative and scalable technologies that address our customers' needs. With that, I'll turn the call over to John to review the quarter, segment results, and our overall financial performance.

Speaker Change: Wabtec is well positioned to continue to capture profitable growth with innovative and scalable technologies that address our customers' needs.

Speaker Change: With that, I'll turn the call over to John to review the quarter, segment results, and our overall financial performance.

John A. Olin: Thanks Rafael, and hello everyone. Turning to slide seven, I will review our second quarter results in more detail. Our second quarter results played out largely as we expected. We expected both revenue and earnings growth to be overshared versus our full year growth expectations, but slightly tempered from our first quarter results. The primary driver of our first-half results growing faster than our expected second-half results is due to a shift in the combined production of our new locomotives and mods to the first half of this year from the second half in an effort to more evenly load our manufacturing production across the four quarters.

John Olin: Turning to slide 7, I will review our second quarter results in more detail. Our second quarter results played out largely as we expected. We expected both revenue and earnings growth to be overshared versus our full-year growth expectations, but slightly tempered from our first quarter results. The primary driver of our first half results growing faster than our expected second half results is due to a shift in the combined production of our new locomotives and mods to the first half of this year from the second half in an effort to more evenly load our manufacturing production across the four quarters. It's also important to note that we expect our second half revenue in margin to grow, but at a more tempered pace than we experienced in the first half. Within the second half, we do expect to grow revenue and earnings year over year in each quarter.

John: Thanks, Rafael, and hello, everyone. Turning to slide seven, I will review our second quarter results in more detail.

John: Our second quarter results played out largely as we expected. We expected both revenue and earnings growth to be overshared versus our full year growth expectations but slightly tempered from our first quarter results.

John: The primary driver of our first half results growing faster than our expected second half results is due to a shift in the combined production of our new locomotives and mods to the first half of this year from the second half in an effort to more evenly load our manufacturing production across the four quarters.

John A. Olin: It is also important to note that we expect our second half revenue and margin to grow but at a more tempered pace than we experienced in the first half. Within the second half, we do expect to grow revenue and earnings year-over-year in each quarter. However, we expect the third quarter's growth to be greater than the fourth quarter's growth.

John: It is also important to note that we expect our second half revenue and margin to grow, but at a more tempered pace than we experienced in the first half.

John: Within the second half, we do expect to grow revenue and earnings year over year in each quarter. However, we expect the third quarter's growth to be greater than the fourth quarter's growth.

John Olin: However, we expect the third quarter's growth to be greater than the fourth quarter's growth. Sales for the second quarter was $2.64 billion, which reflects a 9.8% increase versus the prior year. Sales growth in the quarter was driven by the freight segment, especially by equipment and components. For the quarter, gap operating income was $403 billion, driven by higher sales, improved growth margin, and an unrelenting focus on continuous improvement and productivity. Adjusted operating margin in Q2 was 19.3%, of 2.9%age points versus the prior year. This increase was driven by improved growth margin of 2.9 percentage points. gap earnings per deluded share were $1.64, which was up 54.7% versus the second quarter a year ago.

John A. Olin: Sales for the second quarter were $2.64 billion, which reflects a 9.8% increase versus the prior year. Sales growth in the quarter was driven by the freight segment, especially equipment and components. For the quarter, GAAP operating income was $430 million, driven by higher sales, improved gross margin, and an unrelenting focus on continuous improvement and productivity. Adjusted operating margin in Q2 was 19.3%, up 2.9 percentage points versus the prior year. This increase was driven by an improved gross margin of 2.9 percentage points.

John: Sales for the second quarter were $2.64 billion, which reflects a 9.8% increase versus the prior year.

John: Sales growth in the quarter was driven by the freight segment, especially by equipment and components.

John: For the quarter, GAAP operating income was $430 million, driven by higher sales, improved gross margin, and an unrelenting focus on continuous improvement and productivity.

John: Adjusted operating margin in Q2 was 19.3 percent, up 2.9 percentage points versus the prior year. This increase was driven by improved gross margin of 2.9 percentage points.

John A. Olin: Gap earnings per diluted share were $1.64, which was up 54.7% versus the second quarter a year ago. During the quarter, we had net pre-tax charges of $6 million for restructuring, which were primarily related to our Integration 2.0 and our Portfolio Optimization Initiative to further integrate and streamline WebTEX operations.

John: GAAP earnings per diluted share were $1.64, which was up 54.7% versus the second quarter a year ago.

John Olin: During the quarter, we had net pre-tax charges of $6 million for restructuring, which were primarily related to our Integration 2.0 and our portfolio optimization initiative to further integrate and streamline Web Tech's operations. As you may recall, integration 2.0 is expected to drive $75 to $90 million of run rate savings by 2025, and our portfolio optimization initiative will eliminate roughly $110 million of low-margin non-strategic revenue while reducing manufacturing complexity. In the quarter, adjusted earnings per diluted share was $1.96, up 39.0% versus prior year. Overall, web tech delivered another strong quarter, demonstrating the underlying strength of the business.

John: During the quarter, we had net pre-tax charges of $6 million for restructuring, which were primarily related to our Integration 2.0 and our Portfolio Optimization Initiative to further integrate and streamline Webtex operations.

John A. Olin: As you may recall, Integration 2.0 is expected to drive $75 to $90 million of run rate savings by 2025, and our Portfolio Optimization Initiative will eliminate roughly $110 million of low-margin, non-strategic revenue while reducing manufacturing complexity. In the quarter, adjusted earnings per diluted share was $1.96, up 39.0% versus the prior year. Overall, Wabtec delivered another strong quarter, demonstrating the underlying strength of the business. Turning to slide 8, let's review our product lines in more detail.

John: As you may recall, Integration 2.0 is expected to drive $75 to $90 million of run rate savings by 2025.

John: and our Portfolio Optimization Initiative will eliminate roughly $110 million of low-margin, non-strategic revenue while reducing manufacturing complexity.

John: In the quarter, adjusted earnings per diluted share was $1.96, up 39.0% versus prior year. Overall, Wabtec delivered another strong quarter, demonstrating the underlying strength of the business.

John Olin: Turning to slide 8, let's review our product lines in more detail. Second quarter consolidated sales were up 9.8% as we expected. Our quarter results were driven by solid growth across all our business groups, and further aided by a year-over-year increase in the combined new local and mods as we have shifted our production and deliveries more to the first half versus the second half in order to more appropriately balance or level load our factories, thereby allowing us to be more consistent with our labor staffing, improve our quality, and gain manufacturing efficiencies. Equipment sales were up 36.4% from last year's second quarter, driven by robust deliveries of new locomotives and increased sales of mining equipment.

John A. Olin: Second quarter consolidated sales were up 9.8%, as we expected. Our quarter results were driven by solid growth across all our business groups and further aided by a year-over-year increase in the combined new local and mods as we have shifted our production and deliveries more to the first half versus the second half in order to more appropriately balance or level load our factories, thereby allowing us to be more consistent with our labor staffing, improve our quality, and gain manufacturing efficiency.

John: Turning to slide 8, let's review our product lines in more detail.

John: Second quarter, consolidated sales were up 9.8% as we expected.

John: Our quarter results were driven by solid growth across all our business groups.

John: and further aided by a year-over-year increase in the combined new local and mods as we have shifted our production and deliveries more to the first half versus the second half in order to more appropriately balance or level load our factories.

John: thereby allowing us to be more consistent with our labor staffing, improve our quality, and to gain manufacturing efficiencies.

John A. Olin: Equipment sales were up 36.4% from last year's second quarter, driven by robust deliveries of new locomotives and increased sales of mining equipment. Component sales were up 17.5% versus last year, largely driven by increased sales of industrial products, higher international sales, and the acquisition of L&M in late Q2 of 2023, partially offset by lower North American rail car bills. Digital intelligence sales were up 2.1% from last year, where we continue to experience growth in international sales aided by higher PTC revenues, partially offset by lower revenues in our North American market. Our services sales grew 2.3%. Sales growth was driven primarily by higher year-over-year overhauls and part sales. Our customers continue to recognize the superior performance, reliability, and availability of our fleet.

Speaker Change: Equipment sales were up 36.4% from last year's second quarter, driven by robust deliveries of new locomotives and increased sales of mining equipment.

John Olin: Component sales were up 17.5% versus last year, largely driven by increased sales of industrial products, higher international sales, and the acquisition of L&M in late Q2 of 2023, personally offset by lower North American rail car build. Digital intelligence sales were up 2.1% from last year, where we continued to experience growth in international sales, aided by higher PTC revenues, personally offset by lower revenues in our North American market. Our services sales grew 2.3%. Sales growth was driven primarily by higher year-over-year overhauls and part sales. Our customers continue to recognize the superior performance, reliability, and availability of our fleet.

John: Component sales were up 17.5% versus last year, largely driven by increased sales of industrial products, higher international sales, and the acquisition of L&M in late Q2 of 2023, partially offset by lower North American rail car build.

John: Digital intelligence sales were up 2.1% from last year, where we continue to experience growth in international sales aided by higher PTC revenues, partially offset by lower revenues in our North American market.

John: Our services sales grew 2.3%. Sales growth was driven primarily by higher year-over-year overhauls and part sales. Our customers continue to recognize the superior performance, reliability, and availability of our fleet.

John Olin: In our transit segment, sales were up 2.0 percent. During the quarter, we saw our aftermarket revenue grow 10 percent. On a constant currency basis, sales grew 3.4 percent. Moving to slide 9, gap gross margin was 33.0 percent, which was up 2.9 percentage points from last year. Adjusted gross margin was also up 2.9 percentage points during the quarter. In addition to the higher sales, gross margin benefited from favorable mix between segments. Thanks within the freight segment was also favorable despite higher combined new locomotives and modernizations in the quarter. Foreign currency exchange was a headwind of revenue, as well as gross profit in operating margin in the quarter.

John A. Olin: In our transit segment, sales were up 2.0%. During the quarter, we saw our aftermarket revenue grow 10%. On a constant currency basis, sales grew 3.4%. The momentum in the transit segment remains positive as secular drivers such as urbanization and decarbonization accelerate the need for investments in sustainable infrastructure. Moving to slide nine.

John: In our transit segment, sales were up 2.0%. During the quarter, we saw our aftermarket revenue grow 10%. On a constant currency basis, sales grew 3.4%.

John: The momentum in the transit segment remains positive as secular drivers such as urbanization and decarbonization accelerate the need for investments in sustainable infrastructure.

John A. Olin: Gap gross margin was 33.0%, which was up 2.9 percentage points from last year. Adjusted gross margin was also up 2.9 percentage points during the quarter. In addition to the higher sales, gross margin benefited from favorable mix between segments; mix within the freight segment was also favorable despite higher combined new locomotives and modernizations in the quarter. Foreign currency exchange was a headwind to revenue, as well as gross profit and operating margin in the quarter.

John: Moving to slide 9, gap gross margin was 33.0%, which was up 2.9 percentage points from last year.

John: Adjusted gross margin was also up 2.9 percentage points during the quarter.

John: In addition to the higher sales, gross margin benefited from favorable mix between segments.

John: Mixed within the freight segment was also favorable despite higher combined new locomotives and modernizations in the quarter.

John: Foreign Currency Exchange was a headwind to revenue, as well as gross profit and operating margin in the quarter.

John Olin: During the quarter, we also benefited from favorable fixed cost absorption, increased productivity, and benefits from integration 2.0, as well as lapping last year's start of the airy strike in late Q2 of 2023. Our team continues to execute well by driving operational productivity and lean benefits. Now, turning to slide 10. For the second quarter, gap operating margin was 16.3 percent, which was up 3.4 percentage points versus last year. Adjusted operating margin improved 2.9 percentage points to 19.3 percent. The gap in adjusted SGNA expenses were up versus prior year, but largely flat as a percentage of revenues.

John A. Olin: During the quarter, we also benefited from favorable fixed cost absorption, increased productivity, and benefits from Integration 2.0, as well as lapping last year's start of the Airy strike in late Q2 of 2023. Our team continues to execute well by driving operational productivity and lean benefits. Now, turning to slide 10, for the second quarter, gap operating margin was 16.3 percent, which was up 3.4 percentage points versus last year. Adjusted operating margin improved 2.9 percentage points to 19.3 percent.

John: During the quarter, we also benefited from favorable fixed cost absorption, increased productivity and benefits from Integration 2.0, as well as lapping last year's start of the Airy strike in late Q2 of 2023.

John: Our team continues to execute well by driving operational productivity and lean benefits.

John: Now, turning to slide 10. For the second quarter, GAAP operating margin was 16.3%, which was up 3.4 percentage points versus last year. Adjusted operating margin improved 2.9 percentage points to 19.3%.

John A. Olin: GAAP and adjusted SG&A expenses were up versus the prior year, but largely flat as a percentage of revenue. Engineering expense was $57 million, moderately higher than Q2 last year. 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.

John: GAF and adjusted SG&A expenses were up versus prior year, but largely flat as a percentage of revenues.

John Olin: Engineering expense was $57 million, moderately higher than Q2 last year. We continue to invest engineering resources in current business opportunities. But more importantly, we are investing in our future as an industry leader and decarbonization and digital technologies that improve our customers' productivity, capacity utilization, and safety. Now, let's take a look at segment results on slide 11, starting with the freight segment. It's already discussed freight segment sales were up 13.1 percent during the quarter. Gap segment operating income was 391 million dollars for an operating margin of 20.4 percent, up 4.5 percentage points versus last year. Gap operating income included $5 million of restructuring costs, primarily related to Integration 2.0 and portfolio optimization.

John: Our engineering expense was $57 million, moderately higher than Q2 last year. 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.

John: that improve our customers' productivity, capacity utilization, and safety.

John A. Olin: Now, let's take a look at segment results on slide 11, starting with the freight segment. As I already discussed, freight segment sales were up 13.1% during the quarter. Gap segment operating income was $391 million for an operating margin of 20.4%, up 4.5 percentage points versus last year. Gap operating income included $5 million of restructuring costs, primarily related to integration 2.0 and portfolio optimization. Adjusted operating income for the freight segment was $462 million, up 34.3% versus the prior year.

John: Now, let's take a look at segment results on slide 11, starting with the freight segment.

John: As I already discussed, freight segment sales were up 13.1% during the quarter.

Speaker Change: Gap segment operating income was $391 million for an operating margin of 20.4%, up 4.5 percentage points versus last year.

Speaker Change: GAAP operating income included $5 million of restructuring costs primarily related to integration 2.0 and portfolio optimization.

John Olin: Adjusted operating income for the freight segment was $462 million, up 34.3 percent versus prior year. Adjusted operating margin in the freight segment was 24.1 percent, up 3.8 percentage points from the prior year. The increase was driven by improved gross margin behind strong operational execution, favorable mix, integration 2.0 savings, and as we lap last year's manufacturing inefficiencies caused by the strike and error. At the same time, SG&A and engineering expenses were lower as a percentage of revenue. Finally, segment 12-month backlog was $5.50 billion, up 4.0% from the same period a year ago. The multi-year backlog was $17.93 billion, down 2.0% from the prior year.

Speaker Change: Adjusted operating income for the freight segment was $462 million, up 34.3% versus prior year.

John A. Olin: Adjusted operating margin in the freight segment was 24.1%, up 3.8 percentage points from the prior year. The increase was driven by improved gross margin behind strong operational execution, favorable mix, Integration 2.0 Savings, and as we lapped last year's manufacturing inefficiencies caused by the strike in Erie.

Speaker Change: Adjusted operating margin in the freight segment was 24.1%, up 3.8 percentage points from the prior year.

Speaker Change: The increase was driven by improved gross margin behind strong operational execution.

Speaker Change: Favorable Mix, Integration 2.0 Savings, and, as we lapped last year's manufacturing inefficiencies caused by the strike in Erie.

John A. Olin: At the same time, SG&A and engineering expenses were lower as a percentage of revenue. Finally, the segment 12-month backlog was $5.50 billion, up 4.0% from the same period a year ago. The multi-year backlog was $17.93 billion, down 2.0% from the prior year. Turning to slide 12, transit segment sales were 2.0% at $724 million. When adjusting for foreign currency, transit sales were up 3.4%. Gap operating income was $82 million. Restructuring costs related to integration 2.0 were $5 million in Q2.

Speaker Change: At the same time, SG&A and engineering expenses were lower as a percentage of revenue.

Speaker Change: Finally, segment 12-month backlog was $5.50 billion, up 4.0% from the same period a year ago. The multi-year backlog was $17.93 billion, down 2.0% from the prior year.

John Olin: Turning to slide 12, transit segment sales were 2.0% at $724 million. When adjusting for foreign currency, transit sales were up 3.4%. Gap operating income was $82 million; restructuring costs related to integration 2.0 were $5 million in Q2. Adjusted segment operating income was $91 million; adjusted operating income as a percent of revenue was 12.7%, up 1.6 percentage points from last year, driven by integration 2.0 savings and favorable mix. Finally, transit segment 12-month backlog for the quarter was $1.83 billion, down 5.0% versus a year ago. The decrease on a year-over-year basis was expected due to our focus on being more selective on the orders that we add to backlog, thereby expecting to drive improved long-term profitability.

Speaker Change: Turning to slide 12, transit segment sales were 2.0% at $724 million. When adjusting for foreign currency, transit sales were up 3.4%.

Speaker Change: Gap operating income was $82 million. Restructuring costs related to Integration 2.0 were $5 million in Q2.

Speaker Change: Adjusted Segment Operating Income was $91 million. Adjusted Operating Income as a percent of revenue was 12.7%, up 1.6 percentage points from last year, driven by Integration 2.0 savings and favorable mix.

John A. Olin: Adjusted segment operating income was $91 million. Adjusted operating income as a percent of revenue was 12.7%, up 1.6 percentage points from last year, driven by integration 2.0 savings and favorable mix. Finally, Transit's segment 12-month backlog for the quarter was $1.83 billion, down 5.0% versus a year ago.

Speaker Change: Finally, Transit's segment 12-month backlog for the quarter was $1.83 billion, down 5.0 percent versus a year ago.

Rafael O. Santana: The decrease on a year-over-year basis was expected due to our focus on being more selective in the orders that we add to backlog, thereby expecting to drive improved long-term profitability. Now, let's turn to our financial position on slide 13. Second quarter cash flow was another highlight for the quarter, with operating cash coming in at $235 million. During the quarter, cash flow benefited from higher earnings and improved working capital, partially offset by a reduction of $230 million of securitization borrowing.

Speaker Change: The decrease on a year-over-year basis was expected due to our focus on being more selective on the orders that we add to backlog, thereby expecting to drive improved long-term profitability.

John Olin: Now let's turn to our financial position on slide 13. Second quarter cash flow was another highlight for the quarter, with operating cash coming in at $235 million. During the quarter, cash flow benefited from higher earnings and improved working capital, personally offset by a reduction of $230 million of securitization borrowings. We continue to expect greater than 90% cash conversion for the full year. Our balance sheet and financial position continue to be very strong, as evidenced by first our liquidity position, which ended the quarter at $2.09 billion, and our net debt leverage ratio was 1.6 times at the end of the second quarter, which was lower versus the same quarter a year ago at 2.4 times that leverage.

Rafael O. Santana: We continue to expect greater than 90% cash conversion for the full year. Our balance sheet and financial position continue to be very strong, as evidenced by, first, our liquidity position, which ended the quarter at $2.09 billion, and our net debt leverage ratio was 1.6 times at the end of the second quarter, which was lower versus the same quarter a year ago at 2.4 times debt leverage. We continue to allocate capital in a disciplined and balanced way to maximize returns for our shareholders. During the quarter, we purchased $200 million of our shares and paid $35 million in dividends. With that, I'd like to turn the call back over to Rafael to talk about our 2024 financial guidance.

Speaker Change: Now let's turn to our financial position on slide 13.

Speaker Change: Second quarter cash flow was another highlight for the quarter, with operating cash coming in at $235 million.

Speaker Change: During the quarter, cash flow benefited from higher earnings and improved working capital, partially offset by a reduction of $230 million of securitization borrowings.

Speaker Change: We continue to expect greater than 90% cash conversion for the full year.

Speaker Change: Our balance sheet and financial position continue to be very strong as evidenced by, first our liquidity position which ended the quarter at $2.09 billion.

Speaker Change: And our net debt leverage ratio was 1.6 times at the end of the second quarter, which was lower versus the same quarter a year ago at 2.4 times debt leverage.

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

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

John Olin: During the quarter, we purchased $200 million of our shares and paid $35 million in dividends.

Speaker Change: During the quarter, we purchased $200 million of our shares and paid $35 million in dividends.

Rafael Santana: With that, I'd like to turn the call back over to Raphael to talk about our 2024 financial guidance. Thanks, John. Now let's turn to slide 14 to discuss our 2024 full-year guidance. As you heard today, our team delivered the very strong second quarter, which was slightly ahead of our expectations. Consequently, we are increasing our previous adjusted EPS guidance. We now expect adjusted EPS to be in the range of $7.20 to $7.50; at the midpoint, up 24.2%. Our revenue and cash flow conversion guidance remain unchanged.

Speaker Change: With that, I'd like to turn the call back over to Rafael to talk about our 2024 financial guidance.

Rafael O. Santana: Thanks, John. Now let's turn to slide 14 to discuss our 2024 full-year guidance. As you heard today, our team delivered a very strong second quarter, which was slightly ahead of our expectations. Consequently, we are increasing our previous adjusted EPS guidance. We now expect adjusted EPS to be in the range of $7.20 to $7.50 at the midpoint, up 24.2%. Revenue and cash flow conversion guidance remain unchanged.

Rafael: Thanks, John . Now let's turn to slide 14 to discuss our 2024 full-year guidance.

Rafael: As you heard today, our team delivered a very strong second quarter, which was slightly ahead of our expectations.

Speaker Change: Consequently, we are increasing our previous adjusted EPS guidance.

Speaker Change: We now expect adjusted EPS to be in the range of $7.20.

Speaker Change: to $7.50 at the midpoint, up 24.2%. Our revenue and cash flow conversion guidance remain unchanged. Looking ahead, I'm confident that Wabtec is well-positioned to drive profitable growth into 2024 and beyond.

Rafael Santana: Looking ahead, I'm confident that WAPTEX will position to drive profitable growth into 2024 and beyond.

Kyra Yates: Looking ahead, I'm confident that Wabtec is well-positioned to drive profitable growth into 2024 and beyond. Now, let's wrap up on slide 15. As you heard today, our team continues to deliver value for our stakeholders, thanks in large part to our resilient installed base, world-class team, innovative technologies, and our continued focus on our customers. Overall, we believe we have an opportunity to continue building significant long-term momentum with growth in equipment, services, components, digital solutions, and transit Systems.

Rafael Santana: Now, let's wrap up on slide 15. As you heard today, our team continues to deliver value for our stakeholders, thanks in large part to our resilient install days, world-class team, innovative technologies, and our continued focus on our customers. Overall, we believe we have an opportunity to continue building significant long-term momentum with growth in equipment, services, components, digital solutions, and transit systems. We've solid underlying demand for our products and technologies, and intense focus on continuous improvement and cost management. Consistent with our previous guidance, we continue to expect to drive mid-single-digit organic growth while delivering double-digit earnings per share growth to our planning horizon, thereby maximizing our shareholder return.

Speaker Change: Now, let's wrap up on slide 15.

Speaker Change: As you heard today, our team continues to deliver value for our stakeholders, thanks in large part to our resilient install base, world-class team, innovative technologies, and our continued focus on our customers.

Speaker Change: Overall, we believe we have an opportunity to continue building significant long-term momentum with growth in equipment, services, components, digital solutions, and transit systems.

Kyra Yates: With solid underlying demand for our products and technologies and an intense focus on continuous improvement and cost management, consistent with our previous guidance, we continue to expect to drive mid-single-digit organic growth while delivering double-digit earnings per share growth through our planning horizon, thereby maximizing our shareholder returns. With that, I want to thank you for your time this morning, and I'll now turn the call over to Kyra to begin the Q&A portion of our discussion. Kyra? Thank you, Rafael.

Speaker Change: with solid underlying demand for our products and technologies.

Speaker Change: and the intense focus on continuous improvement and cost management.

Speaker Change: Consistent with our previous guidance, we continue to expect to drive mid-single-digit organic growth while delivering double-digit earnings-per-share growth through our planning horizon, thereby maximizing our shareholder returns.

Kyra Yates: With that, I want to thank you for your time this morning, and I'll now turn the call over to Kyra to begin the Q&A portion of our discussion.

Speaker Change: With that, I want to thank you for your time this morning, and I'll now turn the call over to Kyra to begin the Q&A portion of our discussion. Kyra?

Kyra Yates: Kyra? Thank you, Rafael.

Kyra Yates: 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 question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question.

Kyra Yates: 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 question. If you have additional questions, please rejoin the queue.

Kyra Yates: 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 question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question.

Operator: Operator, we are now ready for our first question.

Daniel Imbrow: In our first question today, comes from Daniel Imbrow from Stephens. Please go ahead with your question. Good morning, everybody. Thanks again. Our questions.

Operator: And our first question today comes from Daniel Imbro from Stevens. Please go ahead with your question.

Speaker Change: And our first question today comes from Daniel Imbro from Stevens. Please go ahead with your question.

Rafael O. Santana: Good morning, everybody. Thanks for taking our questions. Rafael, maybe we'll start on the new locomotive side. I think you mentioned in your remarks that the 600 million dollar order, one of the bigger tier four orders you've had in a while, is coming over multiple years from the slides. Any color you can provide on how many years that contract is, when it should start, as we think about modeling it? And then, to clarify, was that included in the 2Q backlog, or is that signed July quarter to date?

Daniel Imbrow: Good morning.

Rafael Santana: Rafael, maybe we'll start on the new locomotive side. I think you mentioned near remarks at the $600 plus million order, one of the bigger tier four orders you've had in a while. It's coming over multiple years from the slides. Any color you can provide just on how many years that contract is. When it should start up as we think about modeling it and then clarify, was that included in the 2Q backlog or was that signed July quarter to date? No, that was not included in previous backlogs. So it's in the second queue backlog.

Daniel Imbro: Good morning, everybody. Thanks for taking our questions. Morning.

Daniel Imbro: Rafael, maybe we'll start on the new locomotive side. I think you mentioned in your remarks that the $600-plus million order, one of the bigger Tier 4 orders you've had in a while.

Speaker Change: It's coming over multiple years from the slides. Any color you can provide just on how many years that contract is, when it should start up, as we think about modeling it, and then a clarify, was that included in the 2Q backlog or is that signed July quarter to date?

Rafael O. Santana: No, that was not included in the previous backlog, so it's in the second queue backlog. The second piece is that this is an order that will largely be executed between 25 and 26. And the other piece is, I think it just speaks to the strength of our pipeline of opportunities. We continue to see good momentum there internationally, and that spreads really across different geographies. We continue to see it mixed in North America, but with opportunities here. We have a number of sizable opportunities that are being worked on in the current pipeline. The current total backlog is healthy, and overall, it's a positive. We're progressing, we're continuing to grow, and our pipeline supports it.

Speaker Change: No, that was not included in the previous backlog, so it's in the second queue backlog. The second piece is this is an order that will largely be executed between 25 and 26.

Rafael Santana: The second piece is this is an order that will largely be executed between 25 and 26. And our piece is, I think it just speaks to the strength of our pipeline of opportunities. We continue to see. Good momentum there internationally, and that expands really across different geographies. We continue to see it mixed in North America, but with opportunities here. We have a number of sizable opportunities. They're being worked in the current pipeline; the current total backlog is healthy. And overall, it's a positive. We're progressing. We're continuing to grow. And our pipeline supports it.

Speaker Change: And the other piece is, I think it just speaks to the strength of our pipeline of opportunities. We continue to see good momentum there internationally, and that expands really across different geographies.

Speaker Change: We continue to see it mixed in North America, but with opportunities here. We have a number of sizable opportunities.

Speaker Change: They're being worked in the current pipeline. The current total backlog is healthy, and overall, it's a positive. We're progressing. We're continuing to grow, and our pipeline supports it.

Daniel Imbrow: Great. Really encouraging.

John A. Olin: Great! That's really encouraging. And for my follow-up, John, maybe just on the guide, if we can dig into it a little bit, I think you were expecting revenue and earnings growth in the back half. I think the previous assumptions had been that margins would moderate through the year, but it looks like, sequentially, revenue is relatively flat. So can you talk about maybe what's changing on the cost side? Are costs increasing to drive that sequential de-leverage on the margin piece, on the operating margin? Is there some conservatism in that? How are you thinking about the operating margin outlook for the back half of the year after a strong first half?

John Olin: And from our follow-up, John, maybe it's only on the guide if we can dig into it a little bit. I think you're expecting you to revenue and earnings growth in the back half. I think the previous assumptions had been that margins would moderate through the year, but it looks like sequentially revenues are relatively flat. So can you talk about maybe what's changing on the cost side or cost increasing to drive that sequential delivery on the margin piece on the operating margin? Is there some conservatism in that?

Speaker Change: Great. Really encouraging. And for my follow-up, John , maybe it's on the guide, if we can dig into it a little bit.

John: I think you're expecting, you said, revenue and earnings growth in the back half. I think the previous assumptions had been that margins would moderate through the year, but it looks like, sequentially, revenue is relatively flat.

Speaker Change: So can you talk about maybe what's changing on the cost side? Are costs increasing to drive that sequential de-leverage on the margin piece, on the operating margin? Is there some conservatism in that? How are you thinking about the operating margin outlook for the back half of the year after a strong first half?

John Olin: How are you thinking about the operating margin outlook for the back half of the year after a strong first half? Thanks, Daniel. And certainly, last couple quarters, we've talked about kind of how our halves are going to unfold. And they're certainly unfolding the way we expected. And Daniel, that is with the first half having significantly higher year-over-year growth as well. So for both revenue and margin growth, revenue was up 11.7 and margin up to point or 3.2 percentage points. With that, we've also talked about the back half being up and growing in both those measures, but at a more significant level, a temperate level.

John A. Olin: Thanks, Daniel. And certainly in the last couple quarters, we've talked about kind of how our halves are going to unfold, and they're certainly unfolding the way we expected. And Daniel, that is with the first half having significantly higher year-over-year growth as well. So for both revenue and margin growth, revenue was up 11.7 and margin was up two points, or 3.2 percentage points.

Speaker Change: Thanks Daniel and certainly the last couple quarters we've talked about kind of our how our halfs are going to unfold and they're certainly unfolding.

Speaker Change: the way we expected. And Daniel, that is with the first half having significantly higher year-over-year growth as well, I'm sorry, for both revenue and margin growth. Revenue was up 11.7 and margin up 2.0 or 3.2 percentage points.

Speaker Change: With that, we've also talked about the back half being up and growing in both those measures but at a more significant tempered level.

John A. Olin: With that, we've also talked about the back half being up and growing in both those measures, but at a more significantly tempered level. And the reason for that, Daniel, is that what is driving some of the first half growth is not going to be there in the second half. So let's talk about a couple of those things. One is mixing. And we talked about this on the last call. Our first half mix is a good tailwind for us. And we expect that to turn into a slight headwind in the second half. So that's one of the reasons.

John Olin: And the reason for that, Daniel, is what is driving some of the first half growth is not going to be there in the second half. So let's talk about a couple of those things. One is mix, and we talked about this on the last call. Our first half mix is a good tailwind for us, and we expect that to turn into a slight headwind in the second half. So that's one of the... Reasons. The other is really around absorption, right? Fix cost absorption. With the growth that we have in the first half, again, being up on almost 12%, we are getting much more absorption on a year-over-year basis in the first half versus the second half.

Speaker Change: And the reason for that, Daniel, is...

Daniel Imbro: What is driving some of the first half growth is not going to be there in the second half.

Daniel Imbro: So let's talk about a couple of those things. One is mix, and we talked about this on the last call. Our first half mix is a good tailwind for us, and we expect that to turn into a slight headwind in the second half. So that's one of the reasons.

John A. Olin: The other is really around absorption, right? Fixed cost absorption. With the growth that we have in the first half, again, being up almost 12 percent, we are getting much more absorption on a year over year basis in the first half versus the second half. So again, that won't be there. Now, there are some common things in there, right?

Daniel Imbro: The other is really around absorption, right? Fixed-cost absorption.

Daniel Imbro: With the growth that we have in the first half, again, being up almost 12%, we are getting much more absorption on a year-over-year basis in the first half versus the second half. So again, that won't be there. Now, there's some common things in there, right? Integration 2.0 is benefiting both halves.

Daniel Imbrow: So again, that won't be there. Now there's some common things in there, right? Integration 2.0 is benefiting both halves at a similar rate, and we've got some one-time benefit, both in the first half and the second half. But the answer is, is really on mix and absorption in the second half. Great. Appreciate all the color. That's a look. Thank you.

John A. Olin: Integration 2.0 is benefiting both halves at a similar rate, and we've got some one-time benefits both in the first half and the second half. But the answer is really about mix and absorption in the second half.

Daniel Imbro: at a similar rate, and we've got some one-time benefit both in the first half and the second half. But the answer is really on mix and absorption in the second half.

Daniel Imbro: Great. I appreciate all the color. Best of luck.

Angel Castillo: Next question comes from Angel Castillo from Orange Family. Please go ahead with your question. Hi, thanks for taking my question. Just a quick one on the revenue. You've touched on it, but you didn't change that guidance, and it sounds like there's some mixed factors, some getting better. You talked about car loads and real car deliveries, but you could unpack that a little bit more, maybe thinking around keeping that unchanged versus the APS guide. Angel, we are tracking right on our revenue plan. We adjusted that in the first quarter, brought it up a bit largely for some of the things that we're seeing in the parking arena.

Operator: Our next question comes from Angel Castillo from Morgan Stanley. Please go ahead with your question.

Speaker Change: Great. Appreciate all the color. Best of luck. Thank you.

Speaker Change: Our next question comes from Angel Castillo from Morgan Stanley . Please go ahead with your question.

Angel Castillo: Thanks for taking my question. Just a quick one on the kind of revenue you've kind of touched on, but you didn't change that guidance, and it sounds like there's some kind of mixed factors, some getting better. You know, you talked about car loads and in-wheel car deliveries, but just if you could unpack that a little bit more and maybe the thinking around keeping that unchanged versus the EPS guide.

Angel Castillo: Hi, thanks for taking my question. Just a quick one on the kind of revenue you've kind of touched on it, but you didn't change that guidance, and it sounds like...

Angel Castillo: There are some kind of mixed factors, some getting better, you know, you talked about car loads and in-wheel car deliveries, but just if you could unpack that a little bit more and maybe the thinking around keeping that unchanged versus the APS guide.

John A. Olin: Angel, we are tracking right on our revenue plan, you know, we adjusted that in the first quarter, brought it up a bit, largely for some of the things that we're seeing in the parking arena. That's right on track, everything is tracking well, and I would kind of look at what we did in terms of EPS as fine-tuning the quarter. We brought it up 15 cents at the midpoint. Again, revenue's on

Angel Castillo: Angel, we are tracking right on our revenue plan. We adjusted that in the first quarter, brought it up a bit, largely for some of the things that we're seeing in the parking.

John Olin: That's right on track. Everything is tracking well. I would kind of look at what we did in terms of EPS is fine-tuning the quarter. We brought it up 15 cents at the midpoint, again revenues on track, but we did see a little bit of favorability in mix in the first half, and the tax rate came in a little bit favorable. I would say, Angel, that about half that 15 cents is in the actuals in the second quarter, and a little bit of favorability that we're expecting in the back half, and that is due to the same two reasons.

Angel Castillo: Arena. That's right on track. Everything is tracking well and I would kind of look at what we did in terms of EPS as fine-tuning the quarter.

John A. Olin: But we did see a little bit of favorability in the mix in the first half, and the tax rate came in a little bit favorably. And I would say, Angel, that about half that 15 cents is in the actuals in the second quarter, and a little bit of favorability that we're expecting in the back half. And that is due to the same two reasons. Mix is going to be a little bit more favorable than we think. However, still a headwind to the half.

Angel Castillo: We brought it up 15 cents at the midpoint. Again, revenue's on track, but we did see a little bit of favorability in mix in the first half and the tax rate came in a little bit favorable.

Angel Castillo: And I would say, Angel, that about, you know, half that 15 cents is in the actuals in the second quarter and a little bit of favorability that we're expecting in the back half.

John Olin: Mix is going to be a little bit more favorable than we expected. However, still a headwind to the half, and then the tax rate is favorable. We've also regated on the tax rate, bringing it down from 25% to 24.5%. We're seven months into this thing, and we feel very good about overall guidance and how the back half is going to unfold, and really align with what we've talked about the last couple of quarters.

Speaker Change: And that is due to the same two reasons. Mix is going to be a little bit more favorable than we expected, however, still a headwind to the half.

John A. Olin: And then the tax rate is favorable. And we've also re-guided on the tax rate, bringing it down from 25% to 24 and 1.5%. But we're seven months into this thing, and we feel very good about our overall guidance and how the back half's going to unfold, really in line with what we've talked about in the last couple quarters.

Speaker Change: and then the tax rate is favorable and we've also re-guided on the tax rate bringing it down from 25% to 24.5%.

Speaker Change: But, you know, we're seven months into this thing, and we feel very good about our overall guidance and how the back cap's going to unfold, and really in line with what we've talked about the last couple quarters.

John Olin: That's very helpful. Thank you, and just given the level of conviction and optimism on how things are unfolding, your first half to cash flow has been very robust, and you've added to continued exploitation for greater than 90%. I think second half typically is a better cash generation.

Speaker Change: That's very helpful. Thank you. And just given that level of, you know, conviction and optimism on how things are unfolding, your first half to cash flow has been very robust and, you know, you got it to continued expectation for greater than 90%. And I think second half typically is

John A. Olin: Your first half cash flow has been very robust, and you know, you've added to continued expectation for greater than 90%. And I think the second half typically is a better kind of cash generation. So could you talk about just your thought process? You talked about kind of discipline, balanced capital allocation, but it seems like your cash regeneration should be quite robust and allow for perhaps a little bit more aggressive deployment of capital. So could you just kind of touch on that and your expectations for cash flow in the second half?

John Olin: Could you talk about your thought process? You talked about discipline-balanced capital allocation, but it seems like your cash for generation should be quite robust and allow for perhaps a little bit more aggressive deployment of capital. You could just touch on that in your expectations for cash flow in the second half. Thanks for pointing out the very strong first half, much appreciated. The first half was up with $469 million on a year-over-year basis, and what we're seeing there and why we're seeing that is if you recall a year ago, our working capital was still rising as most industrial companies were because of the supply disruptions, and we had a little bit of added in there with regards to the inventory we were building.

Speaker Change: [inaudible]

John A. Olin: Well, Angel, thanks for pointing out the very strong first half. It is much appreciated.

Speaker Change: Angel, thanks for pointing out the very strong first half. Much appreciated. Yeah, the first half was up with $469 million on a year-over-year basis.

John A. Olin: Yeah, the first half was up by $469 million on a year-over-year basis. And what we're seeing there and why we're seeing that is, if you recall a year ago, our working capital was still rising, as most industrial companies were because of the supply disruptions. And we had a little bit of extra in there with regard to the inventory we were building with regard to a potential strike at the time. So in the back half of last year, we brought that inventory down quite a bit.

Speaker Change: And what we're seeing there and why we're seeing that is if you recall a year ago, our working capital was still rising as most industrial companies were because of the supply disruptions. And we had a little bit of added in there with regards to the inventory we were building.

John Olin: with regard to a potential strike at the time. In the back half of last year, we brought that inventory down quite a bit. The team did a fantastic job on managing it back down after the supply disruptions. What we're seeing in the first half is really lapping that higher working capital. We're seeing a significant strength there. Overall, we are expecting the guidance that we've had of over 90% cash conversion. We're looking to continue to deploy that angel as we've talked about in the past. We're going to, you know, favor M&A, and with the excess cash, will buy back shares.

Speaker Change: with regard to a potential strike at the time.

John A. Olin: The team did a fantastic job of managing it back down after the supply disruptions. And so what we're seeing in the first half is really lapping that higher working capital. So we're seeing significant strength there. Overall, we are expecting the guidance that we've had of over 90% cash conversion. And we're looking to continue to deploy that, Angel, as we've talked about in the past. We're going to favor M&A, and with the excess cash, we'll buy back shares.

Speaker Change: So...

Speaker Change: In the back half of last year, we brought that inventory down quite a bit. The team did a fantastic job on managing it back down after the supply disruptions.

Speaker Change: And so what we're seeing in the first half is really lapping that higher working capital. So we're seeing significant strength there.

Speaker Change: Overall, we are expecting the guidance that we've had of over 90% cash conversion.

Speaker Change: And we're looking to continue to deploy that, Angel, as we've talked about in the past. We're going to favor M&A, and with the excess cash, we'll buy back shares.

John Olin: Maybe expand a little bit on the M&A front in the pipeline and what you're seeing. Let me stick on that. I mean, we're continuing to be really looking at M&A. The pipeline is as robust as it's ever been. We're going to be opportunistic here. What's going to drive the decision-making is really making sure that we drive higher our OIC for the business and faster profitable growth. But we're going to be opportunistic here. And as we continue to see opportunities to return value to shareholders through share buybacks, we'll do so. And we feel we're very well positioned here to drive long-term profitable growth.

Rafael O. Santana: Could you maybe expand a little bit on the M&A front and the pipeline and what you're seeing? Let me click on that.

Rafael O. Santana: Let me take on that. I mean, we're continuing to really look at M&A; the pipeline is as robust as it's ever been. We're going to be opportunistic here; what's going to drive decision-making is really making sure that we drive higher ROIC for the business and faster profitable growth. But we're going to be opportunistic here, and as we continue to see opportunities to return value to shareholders through share buybacks, we'll do so, and we feel we're very well positioned here to drive long-term profitable growth.

Speaker Change: Could you maybe expand a little bit on the M&A front and the pipeline and what you're seeing?

Speaker Change: Let me click on that. I mean, we're continuing to be really looking at M&A. The pipeline is as robust

Speaker Change: as it's ever been. We're gonna be opportunistic here. What's gonna drive decision making is really making sure that we drive higher ROIC for the business and faster profitable growth.

Speaker Change: But we're going to be opportunistic here, and as we continue to see opportunities to return value to shareholders through share buybacks, we'll do so. And we feel we're very well positioned here to drive long-term profitable growth.

John Olin: Thank you very much.

Bascome Majors: Our next question comes from African majors from Susquehanna. Please go ahead with your question. Thanks for taking my questions. Just wanted to start internationally. Can you expand some on the 15 mod orders you talked about from Pakistan Railway? What's the scale of that business? Where are you doing those modifications? And is there an opportunity to see even install base or breadth of geography that you can cover from those facilities to expand to something more like you see in North America over time? Thank you. Yes, so we see a strong pipeline of opportunities internationally. When we talked about Pakistan, I think one of the things that we've talked about is the opportunity to continue to modernize the fleets that are out there.

Operator: Our next question comes from Bascome Majors from Susquehanna. Please go ahead with your question.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from Bascome Majors from Susquehanna. Please go ahead with your question.

Bascome Majors: Thanks for taking my questions. I just wanted to start internationally. Can you expand some on the 15 mod orders you talked about from Pakistan Railway? You know, what's the scale of that business? Where are you doing those modifications? And is there an opportunity for either the installed base or the breadth of geography that you can cover from those facilities to expand to something more like you see in North America over time? Thank you. Yeah

Bascome Majors: Thanks for taking my questions. Just wanted to start internationally. Can you expand some on the 15 mod orders you talked about from Pakistan Railway?

Bascome Majors: What's the scale of that business? Where are you doing those modifications? And is there an opportunity?

Speaker Change: to see either the install base or breadth of geography that you can cover from those facilities to expand to something more like you see in North America over time. Thank you.

Rafael O. Santana: Yes, so we see a strong pipeline of opportunity internationally. When we talked about Pakistan, I think one of the things that we talked about was the opportunity to continue to modernize the fleets that are out there. We often emphasize the age of the fleet, and we have continued to invest in significant innovation that allows customers to significantly reduce fuel by upgrading those engines. They can improve both reliability and availability of those units through them.

Speaker Change: Yes, so we see a strong pipeline of opportunity internationally. When we talked about Pakistan, I think one of the things that we've talked about is the opportunity to continue to modernize the fleets that are out there. We often emphasize the age of the fleet.

Rafael Santana: We often emphasize the age of the fleets, and we have continued to invest on significant innovation that allows customers here to significantly reduce fuel by upgrading those engines. They can improve both reliability and availability of those units through those. When you think about modernizations, we largely have a kit that shipped, and we ultimately work with the customers on doing some of that internationally. But, as you know, we have some of our locations around the world that we're very much equipped to do so. What if it's in Brazil, what if it's in Australia, what if it's in Kazakhstan and will leverage us as we work through?

Speaker Change: and we have continued to invest in significant innovation that allows customer share to significantly reduce fuel by upgrading those engines.

Rafael O. Santana: When you think about modernizations, largely, we have a kit that's shipped, and we ultimately work with the customers on doing some of that internationally. But as you know, we have some of our locations around the world that we're very much equipped to do so, whether it's in Brazil, whether it's in Australia, whether it's in Kazakhstan, and we'll leverage those as we work through. So I think what's exciting about the international opportunities is that they're not concentrated in one single location.

Speaker Change: They can improve both reliability and availability of those units.

Speaker Change: through those. When you think about modernizations, we largely, we have a kit that shipped, and we ultimately work with the customers on doing some of that internationally. But as you know, we have some of our locations around the world that we're very much equipped to do so, whether it's in Brazil, whether it's in Australia, whether it's in Kazakhstan, and we'll leverage those as we work through. But I think what's exciting about the international opportunities, we're not concentrated in one single location. We've seen our business be very competitive if customers are looking for reliable, efficient power, if they're looking for value. We are seeing the business winning. I think we highlighted in the first half of this year.

Rafael Santana: But I think what's exciting about the international opportunity, they're not concentrated in one single location. We see in our business be very competitive if customers are looking for reliable, efficient power if they're looking for value. We are seeing the business winning. I think we highlighted in the first half of this year a significant order for us in West Africa. That's the kind of order that's going to be executed in 26 and 20,000. So it's good to see the strength of international, especially I'm going to call bringing broader and broader visibility into conversion, going out into 26 and into 20,000.

Rafael O. Santana: We've seen our business be very competitive. If customers are looking for reliable, efficient power, and if they're looking for value, we are seeing the business winning. I think we highlighted in the first half of this year a significant order for us in West Africa. That's the kind of order that's going to be executed in 2026 and 2027.

Speaker Change: a significant order for us.

Speaker Change: in West Africa. That's the kind of orders that's going to be executed in 2026 and 2027. So it's good to see the strength of international, especially I'm going to call bringing broader and broader visibility into conversion going out into 2026 and into 2027.

Rafael O. Santana: So it's good to see the strength of international business, especially what I'm going to call bringing broader and broader visibility into conversion going out into 2026 and into 2027. So overall, I think good dynamics internationally, and we've seen that business grow between 4% and 5%. Our fleets have grown 4% to 5% over the last five years, and we continue to see good dynamics there.

Rafael Santana: So overall, I think good dynamics internationally, and we've seen that business grow between 4 and 5%. Are fleets grow 4 to 5% over the last five years. And we contribute to see good dynamics there. Thank you for that.

Speaker Change: So, overall, I think good dynamics internationally, and we've seen that business grow between 4% and 5%. Our fleets grow 4% to 5% over the last five years, and we continue to see good dynamics there.

Rafael O. Santana: Thank you for that. And to follow up domestically, can you talk a little bit about the inquiry levels and discussions with your North American Rail customers and specifically how they're operating within regulatory uncertainty, both with who's going to be in the leadership in Washington and who's going to be in the leadership at the EPA come next year, and if it's just realistic for us to expect, you know, to not see extensions of some of the large multi-year orders that you' Thank you. So I think we will continue to see it mixed.

Rafael Santana: And to follow up domestically, can you talk a little bit about the inquiry levels and discussions with your North American rail customers and specifically how they're operating within regulatory uncertainty, both with who's going to be in the leadership in Washington and who's going to be in the leadership at the EPA come next year?

Speaker Change: Thank you for that. And to follow up domestically, can you talk a little bit about the inquiry levels and discussions with your North American Rail customers and specifically

Speaker Change: how they're operating within regulatory uncertainty both with.

Speaker Change: You know, who's going to be in the leadership in Washington, and who's going to be in the leadership at the EPA come next year? And if it's just realistic for us to expect.

Rafael Santana: And if it's just realistic for us to expect, you know, to not see extensions of some of the large multi-year orders that you've got in both the mod and new locomotive backlog until after we get into 2025 with a bit more certainty there. Thank you. So I think we could use to see it mixed in North America. It's very customer-specific. So it really varies different levels of I'm going to call fleet redundancy. Some customers might have or not. And I think you see that reflected on the significant order here we got in the second quarter.

Speaker Change: To not see extensions of some of the large multi-year orders that you've got in both the mod and new locomotive backlog until after we get into 2025 with a bit more certainty there. Thank you.

Rafael O. Santana: So, I think we continue to see it mixed in North America. It's very customer-specific, so it really varies different levels of, I'm going to call, fleet redundancy some customers might have or not. And I think you see that reflected in the significant order here we got in the second quarter.

Speaker Change: So, I think we continue to see it mixed in North America. It's very customer specific.

Speaker Change: So it really varies, different levels of, I'm going to call fleet redundancy, some customers might have or not.

Rafael Santana: So it's customer-specific. I don't think when I think about what will make our customers invest; it's ultimately the value, the returns they obtain on really modernizing their fleets. What I'm happy to see is the innovation we're driving the business. A lot of the growth you saw here over the last few years, which was tied to the modernizations largely connected to, in a lot of ways, what I'll call the seven FDL fleet, which is an older engine we have. We're doing the same thing now for the evil engine. So, in fact, we're going at the end of this year into really commercializing the evil product, which will drive an order five plus percent fuel efficiency and improvements for that fleet.

Speaker Change: and I think you see that reflected on the significant order here we got in the second quarter so it's customer specifics.

Rafael O. Santana: So, it's customer-specific. I don't think when I think about what will make our customers invest, it's ultimately the value, the returns they obtain on really modernizing their fleets. What I'm happy to see is the innovation we're driving the business. A lot of the growth you saw here over the last few years, which was tied to the modernizations, is largely connected to, in a lot of ways, what I'll call the 7 FDL fleet, which is an older engine we have.

Speaker Change: I don't think, when I think about...

Speaker Change: What will make our customers invest is ultimately the value, the returns they obtain on really modernizing their fleets.

Speaker Change: What I'm happy to see is the innovation. We're driving the business. A lot of the growth you saw here over the last few years, which was

Speaker Change: tied to the modernizations, largely connected to, in a lot of ways,

Rafael O. Santana: We're doing the same thing now for the Evo engine. So, in fact, we're going, at the end of this year, to really commercialize the Evo product, which will drive an order of 5 plus percent fuel efficiency and improvement for that fleet. And we're doing the same thing on Tier 4, so it's that continued innovation that's going to make customers come, modernize their fleets before they get to 25, 30 years of age, and that will drive both an element of a reduction in cost, which will improve OR on how they operate the fleets, but it will also improve services with the availability and reliability of those fleets. So, all in all, I think we see strong coverage here as we progress forward with the business with the backlog we have.

Speaker Change: what I'll call the 7 FDL feet, which is an older engine we have.

Speaker Change: We're doing the same thing now for the Evo engine.

Speaker Change: So in fact, we're going, at the end of this year, into really commercializing the EVO product, which will drive an order 5-plus percent.

Rafael Santana: And we're doing the same thing on Tier four. So it's that continued innovation that's going to make customers come, modernize their fleets before they get to 25, 30 years of age. And that will drive both an element of reduction and cost, which will improve OAR on how they operate the fleets, but will also improve services with availability and reliability of those fleets. So all in all, I think we see strong coverage here as we progress forward for the business with the backlog we have.

Speaker Change: Fuel Efficiency and Improvement.

Speaker Change: for that fleet. And we're doing the same thing on Tier 4. So it's that continued innovation that's going to make customers come, modernize their fleets.

Speaker Change: before they get to 25-30 years of age, and that will drive both...

Speaker Change: an element of a reduction in cost, which will improve OR on how they operate the fleets, but it will also improve services with availability and reliability.

Speaker Change: All in all, I think we see strong coverage here as we progress forward for the business with the backlog we have.

Rafael Santana: Thank you.

James Monigan: Our next question comes from Cerey for this key from Jeffrey. Please go ahead with your questions.

Operator: Our next question comes from Saree Boroditsky from Jefferies. Please go ahead with your question.

Speaker Change: Thank you.

Speaker Change: Thank you.

James Monigan: Good morning. This is James from Cerey. Thanks for taking questions. Good morning.

Speaker Change: Our next question comes from Saree Boroditsky from Jefferies. Please go ahead with your question.

Saree Emily Boroditsky: Good morning, this is James Dunford, Saree. Thanks for taking questions. So, I just wanted to follow up on the...

James Monigan: So I just wanted to follow up on the Tier Four locomotive orders in North America.

Speaker Change: Good morning. This is James Dunn for Saree. Thanks for taking questions.

Rafael O. Santana: Tier 4 locomotive orders in North America. What was the driver behind the customer ordering new locos versus modernization? And I believe Class 1s are generally fine with the number of locos they have, so I just wanted to understand the conversation that you had with the customer and why they decided to go with the new locos. Thanks.

James Dunn: Good morning. So I just wanted to follow up on the...

Rafael Santana: What was the driver behind the customer ordering new locals versus modernization? And I believe class ones are generally fine with the number of locals they have. So I just wanted to understand the conversation that you had with the customer and why they decided to go with the new locals. Thanks. I think it's very much tied to, again, value. It's how customers see an opportunity here to improve both costs, operations, how they see the improved reliability and availability. So think about just the speed in their network; just think about the service levels that they're able to sustain.

James Dunn: Tier 4 locomotive orders in North America, what was the driver behind the customer ordering new locomotives versus modernization?

Speaker Change: And I believe Class 1s are generally fine with the number of locos they have, so I just wanted to understand the conversation that you had with the customer and why they decided to go with the new locos.

Rafael O. Santana: I think it's very much tied to, again, value. It's how customers see an opportunity here to improve both the cost of operations and how they see the improved reliability and availability. So think about just the speed in their network.

Speaker Change: I think it's very much tied to, again, value. It's how customers see an opportunity here to improve both costs.

Speaker Change: of operations, how they see the improved reliability and availability. So think about just the speed in their network. Just think about the services levels that they're able to sustain. And with this specific fleet of Tier 4s, also the capability of taking what I'll call alternative fuels.

Rafael O. Santana: Just think about the service levels that they're able to sustain. And with this specific fleet of Tier 4s, also the capability of taking what are called alternative fuels. That's a fleet that we have talked about the opportunity to take on not just biofuels, but also what's a fleet ready to take on what's called a mix that could come with things like hydrogen and so forth. So those are some of the elements.

Rafael Santana: And with this specific fleet of tier fours, also the capability of taking what I'll call alternative fuels. That's a fleet that we have very much talked about the opportunity to take on not just biofuels but also that's fleet ready to take on what I'll call a mix that could come with things like hydrogen and so forth. So those are some of the elements.

Speaker Change: That's a fleet that we have very much talked about the opportunity to take on, not just biofuels, but also that fleet ready to take on what I'll call a mix that could come with things like hydrogen and so forth.

James Monigan: In addition to that, I got a highlight to you, the fact that you've got very much obsolescence taking on on older fleets, especially if you think from an electronics perspective and the challenge on maintaining some of those fleets over time. So I think very much aligned with the dynamics of customers investing to lower their cost, to improve serviceability. And in some cases, you'll also see customers with an opportunity to grow here. So those are, I think, some of the elements that will continue to drive demand from our customers in North America and everywhere else. Great, thanks for the color.

Rafael O. Santana: In addition to that, I got to highlight to you the fact that, I mean, you've got very much obsolescence taking place in older fleets, especially if you think from an electronics perspective and the challenge of maintaining some of those fleets over time. So I think it is very much aligned with the dynamics of customers investing to lower their costs and improve serviceability. And in some cases, you also see customers with an opportunity to grow here. So those, I think, are some of the elements that will continue to drive demand from our customers in North America and everywhere else.

Speaker Change: So those are some of the elements.

Speaker Change: In addition to that, I've got to highlight to you the fact that, I mean, you've got very much obsolescence.

Speaker Change: taking on on older fleets, especially if you think from an electronics perspective, and the challenge on maintaining some of those fleets over time. So I think very much aligned with the dynamics of customers investing to lower their costs.

Speaker Change: to improve serviceability, and in some cases, you'll also see customers with an opportunity to grow here. So those, I think, are some of the elements that will continue to drive demand from our customers in North America and everywhere else.

Rafael O. Santana: Great, thanks for the caller. And as a follow-up, I want to touch on digital, like North America kind of remained weak for a while, while international kind of continued to show strength. Can you talk about when you expect North America to recover and the driver behind the weakness here? Yeah, I think some of what

Rafael Santana: And as a follow-up, I want to touch on the digital, like North America kind of remained weak for a while, while international kind of continued to show strengths. Can you talk about when you expect North America to recover and drive it behind the witness here? Yeah, I think some of what you saw in the quarter, which is really I think ultimately connected to higher demand for what I'll call on-board locomotive products. We also saw a good demand on the digital mining technologies. I think ultimately those were in continuing to be offset by lower sales in the North America market.

Speaker Change: Great, thanks for the caller. And as a follow-up, I want to touch on the digital, like North America kind of remained weak for a while, while international kind of continued to show strength. Can you talk about when you expect North America to recover and driver behind the weakness here?

Rafael O. Santana: Yeah, I think some of what you saw in the quarter, which is really, I think, ultimately connected to higher demand for what I'll call on-board locomotive products. We also saw good demand for digital mining technologies. I think, ultimately, those were and continue to be offset by lower sales in the North American market. I think in the second quarter, you saw that tick to a positive, so the business grew 2.1 percent.

Speaker Change: Yeah, I think some of what you saw in the quarter, which is really, I think, ultimately connected to higher demand for what I'll call on-board locomotive products. We also saw a good demand on the digital mining technologies.

Rafael Santana: I think in the second quarter you saw that tick to a positive, so the business grew 2.1 percent. But moving forward, I think we're continuing to see here for the second half a pipeline hire demand from international. Death calls for things like BTC, the same on board products that I discussed in mining technologies as well. But it continues a softer demand in the U.S. driven by fundamentally what I call discretionary op-acts in that regard. Without our businesses or our teams, are very much focused on making sure that we continue to drive order convertibility with the recurring revenues.

Speaker Change: I think ultimately those were and continue to be offset by lower sales in the North American market. I think in the second quarter, you saw that tick to a positive, so the business grew 2.1%.

Rafael O. Santana: But moving forward, I think we're continuing to see here through the second half a pipeline of higher demand from international markets. That calls for things like PTC, the same on-board products that I discussed in mining technologies as well. But it continues softer demand in the U.S. driven by fundamentally what I'll call discretionary OPEX in that regard. With that, our businesses, or our teams are very much focused on making sure that we continue to drive order convertibility with recurring revenues and feel we're continuing to progress here to ultimately drive a growth year in 2024 for this business.

Speaker Change: But moving forward, I think we're continuing to see a year to the second half.

Speaker Change: pipeline higher demand from international. That calls for things like PTC, the same on-board products that I discussed in mining technologies as well, but it continues a softer demand in the U.S. driven by fundamentally what are called discretionary OPECs.

Speaker Change: In that regard, with that, our businesses or our teams are very much focused on making sure that we continue to drive order convertibility with recurring revenues and I feel we're continuing to progress here to ultimately drive a good off-year in 2024 for this business.

Rafael Santana: And I feel we're continuing to progress here to ultimately drive a girl here in 24 for this business.

James Monigan: Great, thank you.

Scott Group: Our next question comes from Scott Group from Wolf Research.

Operator: Our next question comes from Scott Group from Wolfe Research. Please go ahead with your question.

Speaker Change: Great, thank you.

Scott Group: Please go ahead with your question. Hey, thanks. Good morning. One more on the guidance.

Speaker Change: Our next question comes from Scott Group from Wolfe Research. Please go ahead with your question.

Scott H. Group: Hey, thanks. Good morning.

Scott Group: So I totally get the first half, second half comps. I just want to sort of look a little bit more on just like on an absolute basis. So op margins were 19.5 percent in the first half. If we're looking at the model right and guidance right, it sort of suggests that margins go a little bit below 18 percent in the second half. And I thought the message was more, hey, we're smoothing out mods and deliveries, and so I think we're seeing the revenue smoother. I guess, why aren't the margins smoother? And ultimately I'm trying to figure out, right, is there sort of upside to sort of the implied margin in the back half of the year?

Scott H. Group: Hey, thanks. Good morning. One more on the guidance. So I totally get the

Scott H. Group: One more on the guidance. So I totally get the first half, second half comps. I just want to sort of look a little bit more on just like an absolute basis.

Scott H. Group: I just want to sort of look a little bit more on just like on an absolute basis. So margins were 19.5% in the first half. If we're looking at the model right and guidance right.

Scott H. Group: So margins were 19.5% in the first half. If we're looking at the model right and guidance right, it sort of suggests that margins will go a little bit below 18% in the second half. And I thought the message was more, hey, we're smoothing out mods and deliveries. And so I think we're seeing revenue flow more smoothly. I guess, why aren't the margins smoother? And ultimately, I'm trying to figure out, right, is there any upside to sort of the implied margin in the back half of the year?

Scott H. Group: It sort of suggests that margins go a little bit below 18% in the second half.

Speaker Change: And I thought the message was more, hey, we're smoothing out mods and deliveries. And so I think we're seeing the revenue smoother. I guess, why aren't the margins smoother? And ultimately, I'm trying to figure out, right, is there sort of upside to sort of the implied margin in the back half of the year?

John A. Olin: Yeah, Scott, it's the same thing we talked about. It's mix, right? Mix is lifting it in the first half and is going to pull it down a little bit in the second half. And also, in the first half, that 19.3% is aided by a fair amount of absorption that we don't expect in the second half.

John Olin: Yes, Scott. It's the same thing we talked about. It's next, right? Mix is lifting it in the first half and is going to pull it down a little bit in the second half. And also the first half that 19.3 percent is aided by a fair amount of absorption that we don't expect in the back half. And so ultimately, when we start thinking about 25 margins, maybe just too early to go there. But like, should we, is there, is the first half of the second half anything more represented about like what the business should be as on a go forward?

Speaker Change: Yeah, Scott, it's the same thing we talked about. It's mix, right? Mix is lifting it in the first half and is going to pull it down a little bit in the second half. And also, the first half, that 19.3% is aided by a fair amount of absorption that we don't expect in the back half.

Scott H. Group: And so ultimately, when we start thinking about 25 margins, maybe it's just too early to go there, but like should we, is the first half or the second half, you think, more representative of, like, what the business should be as we go forward?

Speaker Change: And so ultimately, when we start thinking about 25 margins, maybe just too early to go there, but like.

Speaker Change: Is the first half or the second half, you think, more representative of what the business should be on a go forward?

John Olin: Well, it's too early to get into what 2025 looks like. We'll certainly be looking at it from where we're launching, in terms of the margin that we have at the end of the year. And we have 27,000 people waking up every morning to improve upon that. And so we'll be in a position in a couple of quarters to provide guidance on that. But we believe we're in line with our long-term guidance as we move out of this year, and I feel good about what's in front of us. Scott, the only thing out there is, I think we have a good momentum coming from lean initiatives with productivity, cost actions driven by integration to that all.

John A. Olin: It's too early to get into what 2025 looks like, but we'll certainly be looking at it from where we are launching in terms of the margin that we have at the end of the year. We've got 27,000 people waking up every morning to improve upon that. We'll be in a position in a couple quarters to provide guidance on that. We believe we're in line with our long-term guidance as we move out of this year and feel good about what's in front of us. Scott Jones

Speaker Change: It's too early to get into what 2025 looks like.

Speaker Change: We'll certainly be looking at it from where we're launching in terms of the margin that we have at the end of the year.

Speaker Change: And, you know, we have 27,000 people waking up every morning to improve upon that. And so, you know, we'll be in a position in a couple quarters to provide guidance on that. But...

Speaker Change: We believe we're in line with our long-term guidance as we move out of this year and feel good about what's in front of us.

Rafael O. Santana: Scott, the only thing I'll add there is that I think we have good momentum coming from lean initiatives with productivity, cost actions driven by integration into that all. I think you're going to see more in portfolio optimization, and while I think you're going to continue to see variation, what if it's quarter-to-quarter have to have, we are going to continue to expand margins ahead.

Speaker Change: Scott, the only thing I'll add there is I think we have good momentum coming from lean initiatives with productivity, cost actions driven by integration to that all. I think you're going to see more in portfolio optimization.

John Olin: I think you're going to see more in portfolio optimization. And while I think you're going to continue to see variation, what if it's quarter quarter have to have, we are going to continue to expand margins ahead. Yeah, that makes sense.

Scott H. Group: And while I think you're going to continue to see variation, what if it's quarter to quarter, half to half, we are going to continue to expand margins ahead.

Scott H. Group: Yeah. No, that makes sense. And then maybe just one follow-up, like, is price a bigger factor now than maybe it's been in the past? Right? Obviously, really good freight margins. Is price cost a bigger tailwind than historically, and is that sort of a sustainable driver of further margin improvement?

Scott Group: And then maybe just one follow-up, like is price a bigger factor now?

Scott H. Group: Yeah, no, that makes sense. And then maybe just one follow up, like

Rafael Santana: Then maybe it's been in the past right now. It's really good freight margins. Is price cost a bigger tailwind than historically? And is that sort of a sustainable driver of further margin improvement? Scott, we look at price very much connected to the level of differentiation and innovation that we bring into the business, which ultimately leads into value for our customers, and by driving value to our customers, we drive a value for ourselves. And on those lines, we continue to expect to drive a value for our customers here, which means, yes, we should be able to drive possible growth ahead along those lines.

Scott H. Group: is

Speaker Change: Price a bigger factor now than maybe it's been in the past right loves you really good freight margins is

Speaker Change: Is price cost a bigger tailwind than historically, and is that sort of a sustainable driver of further margin improvement?

Rafael O. Santana: Scott, we look at price very much connected to the level of differentiation and innovation that we bring to the business, which ultimately leads to value for our customers. And by driving value for our customers, we drive value for ourselves. And on those lines, we continue to expect to drive value for our customers here, which means, yes, we should be able to drive profitable growth ahead along those lines.

Speaker Change: Scott, we look at price very much connected to the level of differentiation and innovation that we bring into the business, which ultimately leads into value for our customers. And by driving value to our customers, we drive a value for ourselves. And on those lines, we continue to expect to drive a value for our customers here, which means...

Speaker Change: Yes, we should be able to drive profitable growth ahead along those lines.

Scott Group: Thank you, guys. Appreciate it.

Scott H. Group: Thank you guys, I appreciate it. Thanks, Chad.

Jerry Revich: Thank you. Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question. Yes, hi. Good morning, everyone.

Operator: Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question.

Speaker Change: Thank you guys. Appreciate it. Thank you.

Jerry David Revich: Yes, hi. Good morning, everyone. Hi, I'm wondering if you could just comment on the conversations that you've had with your customers since the Chevron case and any impact on how they're thinking about potential changes at the EPA and CARB. Talk about what the flows have been since that ruling, if you don't mind.

Speaker Change: Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question.

Jerry Revich: I'm wondering if you just comment on the conversations that you've had with your customers since the Chevron case and any impact on how they're thinking about potential changes at the EPA and CARB. Can you just talk about what the blows have been since that ruling, if you don't mind. Yeah, so based on that ruling, I mean, we can't expect here. I think that federal agencies will receive less the fairness to their regulations, when course, a Confederate agencies are acting within the authority here, granted by Congress, Jerry. But as courts take a more prominent role here, I think there will certainly have an impact to regulations pertaining to rail.

Jerry David Revich: Yes, hi. Good morning, everyone.

Jerry David Revich: I'm wondering if you just comment on the conversations that you've had with your customers since the Chevron case and any impact on how they're thinking about potential changes at the EPA and CARB. Can you just talk a little bit about that?

Speaker Change: talk about what the flows have been since that ruling? If you don't mind. Yeah.

Rafael O. Santana: So, based on that ruling, I mean, we can expect here, I think, that federal agencies will receive less deference to their regulations when courts consider if they are acting within the authority here granted by Congress, Jerry. But as courts take a more prominent role here, I think they'll certainly have an impact on regulations pertaining to rail. I think the way I think about it, there are, it could go in different ways, but if you think about, like, the two-person crew mandate, I mean, that's certainly one area here, and the other one is really associated with car emissions through that.

Jerry David Revich: So based on that ruling, I mean, we can expect here, I think, that federal agencies will receive less deference to their regulations when, of course, consider if agencies are acting within the authority here granted by Congress, Jerry.

Speaker Change: But as courts take a more prominent role here, I think they'll certainly have an impact to regulations pertaining to rail. I think the way I would think about it, it could go in different ways, but if you think about like the two-person crew mandate,

Rafael Santana: I think the way I'll think about it, there's, there's, it could go in different ways, but if you think about like the two person crew mandate, I mean, that's, that's certainly one area here. And the other one is really associated with the car emissions through that. So I think those are things they're going to play out over time, but I can't say we have seen a celly change in customer behavior associated with those.

Speaker Change: I mean, that's certainly one area here, and the other one is really associated with the carb emissions through that. So I think those are things that are going to play out over time, but I can't say we have seen necessarily a change in customer behavior associated with those. I think those are fairly fluid and still playing out.

Rafael O. Santana: So I think those are things that are going to play out over time, but I can't say we have necessarily seen a change in customer behavior associated with those. I think those are fairly fluid and still playing out.

Rafael Santana: I think those are fairly fluid and still playing out. Got it.

Jerry David Revich: Got it. And then, you know, really outstanding margin performance, particularly in freight. I'm wondering, can you just expand on the mixed benefits that you alluded to? Because, you know, to see that margin performance with service as a percent of total declining year-over-year really stood out. So I'm wondering what parts of that business drove favorable makes? And then from an efficiency standpoint, are you folks back at pre-COVID levels of labor hours per unit, or how do you measure that?

John Olin: And then, you know, really outstanding margin performance, particularly in freight, and where can you just expand on the mixed benefits that you alluded to because, you know, to see that margin performance with service as a percent of total declining year, year, really set out. So what parts of that business drove favorable mix, and then from an efficiency standpoint, are you folks back at pre-COVID levels of labor hours per unit or however you measure it? Okay, with regards to mix, Jerry, there's really three big drivers, and it's not only the second quarter; it's for the first half.

Speaker Change: Got it. And then, you know, really outstanding margin performance, particularly in Freyda. I'm wondering, can you just expand on the mixed benefits that you alluded to? Because, you know, to see that margin performance with service as a percent of total declining year over year really stood out. So I'm wondering what parts of that business.

Speaker Change: Drove, Favorable Makes, and then from an efficiency standpoint, are you folks back at pre-COVID levels of labor hours per unit or however you measure it?

John A. Olin: With regard to the mix, Jerry, there are really three big drivers, and it's not only the second quarter. It's for the first half, and a lot of the favorability we're going to see in the first half isn't going to be there or will be a little bit of a headwind in the second half. The first area is in our equipment group, right?

Speaker Change: With regards to the mix, Jerry, there's really three big drivers, and it's not only the second quarter, it's for the first half.

John Olin: And a lot of the favorability we're going to see in the first half is not going to be there or be a little bit of a headwind in the second half. The first area is in our equipment group, right? While the equipment group is a little bit lower than the average in terms of overall margin, we've had significant favorability. And that's going to take you back, Jerry, to an order that we had an international order that wound up in the back half, I'm sorry, the first half of 2023, that was very low margin. And so in the first quarter, we're comparing against that and driving significant mix favorability.

Jerry David Revich: and a lot of the favorability we're going to see in the first half is not going to be there or be a little bit of a headwind in the second half.

John A. Olin: While the equipment group is a little bit lower than the average in terms of overall margin, we've had significant favorability, and that's going to take you back, Jerry, to an international order that wound up in the first half of 2023 that was very low margin. In the first quarter, we're comparing against that and driving significant mixed favorability. Again, that won't be there in the second half.

Jerry David Revich: The first area is in our equipment group, right?

Jerry David Revich: While the equipment group is a little bit lower than the average in terms of overall margin, we've had significant favorability.

Jerry David Revich: And that, I'm going to take you back, Jerry, to an order that we had, an international order.

Jerry David Revich: that wound up in the back half, I'm sorry, the first half of 2023 that was very low margin. And so, in the first quarter, we're comparing against that and driving significant mixed favorability. Again, that won't be there in the second half.

John Olin: Again, that won't be there in the second half. The second area is with regards to our mining business. Mining has been a good, strong business for us and expected across the year. However, when we look at the production schedule, we are producing more OE in the first half and more aftermarket in the first half and expect to do more OE in the back half. So that's going to turn from a tailwind to a headwind. And then the third area of mixed favorability has been in our components group, driven by a couple of things. One is the international growth is greater in the first half, and within this product line, it's a higher margin.

John A. Olin: The second area is with regard to our mining business. Mining has been a good, strong business for us and is expected to be strong across the year. However, when we look at the production schedule, we are producing more OE in the first half and more aftermarket in the first half and expect to do more OE in the back half. So that's going to turn from a tailwind to a headwind.

Jerry David Revich: The second area...

Jerry David Revich: is with regards to our mining business.

Jerry David Revich: Mining has been a good, strong business for us and expected across the year. However, when we look at the production schedule, we are producing more OE in the first half and more aftermarket in the first half.

Jerry David Revich: and expect to do more OE in the back half. So that's going to turn from a tailwind to a headwind.

John A. Olin: And then the third area, mixed favorability, has been in our components group, driven by a couple things. One is that international growth is greater in the first half, and within this product line, it's a higher margin. And then the second one is the cars that are being built for the rail car build. The orders that we got in the first half for specific cars are higher margin than in the back half. So the same thing there.

Jerry David Revich: And then the third area, mixed favorability, has been in our components group, driven by a couple things. One is the international growth is greater in the first half.

John Olin: And then the second one is the cars that are being built for the rail car build. The orders that we got in the first half for specific cars are higher margin than in the back half. So the same thing there, we've got a benefit, and then we're not going to have in the back half.

Jerry David Revich: And within this product line, it's a higher margin. And then the second one is the cars that are being built for the rail car build. The orders that we got in the first half for specific cars are higher margin than in the back half. So the same thing there. We've got a benefit, and then we're not going to have in the back half.

John Olin: Yeah, thank you, John, and I apologize. The efficiency part of the question: Are you folks back at pre-COVID levels of efficiency at this point? The answer would be overall, yes. And I guess I wouldn't be thinking so much as pre-COVID, but some of the strike ramifications all behind us, all the efficiencies are back where we would expect within our plants. And, matter of fact, Jerry, when we look at the first half of this year, the operations have run extremely well. The operations team has done an admirable job of kind of post-supply disruptions and the strike at Airy of really driving great productivity.

Jerry David Revich: Thank you, John. And I apologize. The efficiency part of the question: are you folks back at pre-COVID levels of efficiency at this point? The answer would be, overall, yes.

Jerry David Revich: Thank you, John . And I apologize, the efficiency part of the question, are you folks back at pre-COVID levels of efficiency at this point?

John A. Olin: The answer would be overall yes, and I guess I wouldn't be thinking so much as pre-COVID, but you know, some of the strike ramifications are behind us, all the efficiencies are back where we would expect within our plans. As a matter of fact, Jerry, when we look at the first half of this year, the operations have run extremely well. The operations team has done an admirable job of, you know, kind of dealing with the post-supply disruptions and the strike at Erie of really driving great productivity, and you're seeing that in some of that 3.2 percentage points of lift in the first half due to productivity.

Speaker Change: The answer would be overall yes, and I guess I wouldn't be thinking so much as pre-COVID, but you know, some of the strike ramifications all behind us, all the efficiencies are back where we would expect within our plants.

Speaker Change: As a matter of fact, Jerry, when we look at the first half of this year, the operations have run extremely well. The operations team has done an admirable job of post-supply disruptions.

John Olin: And you're seeing that in some of that 3.2 percentage points of lift in the first half due to productivity. Well done. Thank you.

Speaker Change: the Strykit area of really driving great productivity, and you're seeing that in some of that 3.2 percentage points of lift in the first half due to productivity.

Kenneth Hoexter: Our next question comes from Ken Hoaster from Bank of America. Please go ahead with your question. Hey, great. Good morning.

Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question.

Jerry David Revich: Well done. Thank you. Thank you.

Speaker Change: Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question.

Kenneth Scott Hoexter: Hey, great. Good morning. Rafael, John, I guess just a real quick one.

Kenneth Hoexter: Raphael John, I guess just a real quick one, clarify that North American order. Did you mention that was a Class One railroad just to clarify that? And then looking at the margin expectation slide, you've got North American locomotive still down, rail cart deliveries below historical average. Web tech share going up and thoughts on sustainability of that share gained. I know there was lawsuits a while ago to kind of target that. I guess just how that's proceeded, you know, as new orders have come in.

Kenneth Scott Hoexter: Hey, great. Good morning.

Kenneth Scott Hoexter: Rafael, John , I guess just a real quick one. Clarify, that North American order, did you mention that was a Class 1 railroad? Just to clarify that. And then looking at the margin expectation slide, you've got North American locomotives still down, rail car deliveries below historical average.

Speaker Change: Webtech share going up and thoughts on sustainability of that share gain I know there was lawsuits a while ago to kind of target that I guess just how that's preceded You know as as new orders have come in

John Olin: And then, is there anything post the Chevron doctrine in terms of discussions on shifting from new builds to mods, or any discussions on that at this point yet? Let me start off pester on to John here, but the only thing we mentioned about that order, that was on North America order. That's the only data with provided John. Yeah, with regards to the, I think the question Ken was of the rail car and market share. So going, taking you back to the first half of last year, the supply disruptions were still in full swing, and we took an inventory position on that, and it paid off very well.

Speaker Change: And then, is there anything post the Chevron doctrine in terms of discussions on shifting from new builds to mods or any discussions on that at this point yet?

Kenneth Scott Hoexter: Clarify that North American order. Did you mention that it was a Class 1 railroad, just to clarify that? And then looking at the margin expectation slide, you've got North American locomotives still down, rail car deliveries below the historical average, and Wabtec share going up. Thoughts on the sustainability of that share gain? I know there were lawsuits a while ago to kind of target that, but I guess just how that's proceeded as new orders have come in. And then, is there anything post the Chevron doctrine in terms of discussions on shifting from new builds to mods or any discussions on that at this point yet?

Speaker Change: Let me start, I'll pass it on to John here, but the only thing we mentioned about that order, that was a North America order. That's the only data we've provided, John .

Rafael O. Santana: Let me start; I'll pass it on to John here, but the only thing we mentioned about that order was that it was a North American order. That's the only data we've provided, John.

John A. Olin: Yeah, with regard to the rail car and market share. So, taking you back to the first half of last year, the supply disruptions were still in full swing, and we took an inventory position on that, and it paid off very well. We gained a fair amount of market share because of availability, and we've seen a lot of that share. It's tempered a bit, but we've seen a lot of that share stick, and again, I think it goes to the value of our products and kind of the full service and the way we look at things in supporting and supplying our customers. So again, we're seeing that benefit this year in terms of holding on to a fair amount of that share.

John: With regards to the, I think the question, Ken, was the rail car and market share. So.

Speaker Change: We're taking you back to the first half of last year. The supply disruptions were still in full swing, and we took an inventory position on that and it paid off very well. We gained a fair amount of market share because of availability.

John Olin: We gained a fair amount of market share because of availability. And we've seen a lot of that share; it's tempered a bit, but we've seen a lot of that share stick. And again, it goes to the value of our products and the kind of the full service and the way we look at things and supporting and supplying our customers. So again, we're seeing that benefit this year in terms of holding on to a fair amount of that share.

Speaker Change: And we've seen a lot of that share, it's tempered a bit, but we've seen a lot of that share stick. And again, I think it goes to the value of our products and kind of the full service and the way we look at things.

Speaker Change: in supporting and supplying our customers. So again, we're seeing that benefit this year in terms of holding onto a fair amount of that share.

John A. Olin: You brought up the Chevron precedent. I think we're very much having robust conversations with customers about their fleet needs for the future. But I can't say we have seen any major shift in the conversations, either as a result of the CARB regulatory process or the two-man crew mandate.

Rafael Santana: You're on a question on the Chevron precedent. I think we're very much having robust conversations with customers about their fleet needs for the future. I can't say we have seen any major shift in the conversations, either as a result of the CARP regulatory process or the two men crew mandate.

Speaker Change: You were out of question on the Chevron precedent. I think we're...

Speaker Change: We're very much having robust conversations with customers about their fleet needs for the future. I can't say we have seen any major shift in the conversations, either as a result of CARB regulatory process or the two-man crew mandate.

Kenneth Hoexter: All right.

Rafael O. Santana: All right, and then just a follow-up on the backlog. It was up 4% in the 12 months but down 2% long-term. Anything, you know, is the thought here that we're at a past peak in terms of building that backlog, or are you going to tell me it's kind of lumpy and it comes in different things like the $600 million order? Any thoughts on the scale and size of the backlog as we look into next year and beyond?

Rafael Santana: And then just a follow-up on the backlog was up 4% in the 12 months, but down 2% long term. Anything, you know, is the thought here that we're at past peak in terms of building that backlog, or is that you're going to tell me it's kind of lumpy and it comes in different things like the $600 million order. Any thoughts on the scale and size of backlog as we look into next year and beyond? So first, how to start with the way we run the business who's really looking at what I call a coverage. What if it's 12 months out, 18 months out?

Speaker Change: All right and then just a follow-up on the backlog was up 4% in in the 12 months but down 2% long-term anything

Speaker Change: You know, is the thought here that we're at past peak in terms of building that backlog, or is that...

Speaker Change: You're going to tell me it's kind of lumpy and it comes in different things like the $600 million order. Any thoughts on the scale and size of backlog as we look into next year and beyond?

Rafael O. Santana: So first, I'll start with the way we run the business. We really look at what I call coverage. Whether it's 12 months out, 18 months out, and our coverage at this point, when I think about the next 12 months, is that it's strong, and it's really continued work from the business groups to make sure that we drive in that direction. All in all, I think the pipeline of opportunities is strong. We continue to expand visibility into future years, which, once again, reinforces, I think, our position to drive profitable growth. Yes, there's going to be variation quarter to quarter, as you pointed out. We've seen that in previous quarters, and it really comes down to the coverage we have.

Speaker Change: So first, I'll start with the way we run the business is really looking at what I'll call coverage, whether it's 12 months out, 18 months out.

Rafael Santana: And our coverage at this point, when I think about the next 12 months, is strong, and it's really a continued work from the business groups to make sure that we're driving that direction. All in all, I think the pipeline of opportunities is strong. We continue to expand visibility into future years, which once again reinforces, I think, our position to drive Propagodofa had. Yes, there's going to be variation quarter to quarter. As you pointed out, we've seen that in previous quarters before, and it really comes down to the coverage we have.

Speaker Change: Our coverage at this point, when I think about the next 12 months, is that it's strong and it's really continued work from the business groups.

Speaker Change: to make sure that we drive in that direction. All in all, I think the pipeline of opportunities is strong. We continue to expand visibility into future years, which, once again, reinforces, I think, our position to drive profitable growth ahead. Yes, there's gonna be variation quarter to quarter, as you pointed out. We've seen that in previous quarters before, and it really comes down to the coverage we have.

Rafael Santana: Great. Thanks, Rafael.

Kenneth Scott Hoexter: Great. Thanks, Rafael. Thanks, John.

Rob Lurheim: Thanks, once again. If you would like to ask a question, please press star and one. Our next question comes from Rob Lurheim from Knowing Research. Please go ahead with your question. Thanks, and good morning, everybody. My question is on just a minor one on the front half back half. John, you mentioned a couple of differences in mix between front and back half, which were helpful. Are you doing, you know, with a level loading? Are you doing fewer mods in the back half on the front half? And is there any room for, I think you mentioned 3Q, a little stronger than 4Q?

Operator: Once again, if you would like to ask a question, please press star and 1. Our next question comes from Rob Wertheimer from Melius Research. Please go ahead with your question.

Speaker Change: Great. Thanks, Rafael. Thanks, John .

Speaker Change: Once again, if you would like to ask a question, please press star and 1.

Speaker Change: Our next question comes from Rob Wertheimer from Melius Research. Please go ahead with your question.

Robert Cameron Wertheimer: Thanks and good morning everybody. My question is just a minor one on the front half-back half. John, you mentioned a couple of differences in the mix between the front and back half, which were helpful. Are you doing, you know, with a level loading, are you doing fewer mods in the back half and the front half, and is there any room for, I think you mentioned 3Q a little stronger than 4Q, I don't know if that was absolute or year-over-year, but is there any room for fill-in and revenue still in 4Q?

Robert Cameron Wertheimer: Thanks, and good morning, everybody.

Robert Cameron Wertheimer: My question is on just a minor one on the front half-back half. John , you mentioned a couple of differences in mix between front and back half which were helpful. Are you doing, you know, with a level loading, are you doing fewer mods in the back half and the front half and is there any room for, I think you mentioned 3Q a little stronger than 4Q, I don't know if that was absolute or year-over-year, but is there any room for fill-in and revenue still in 4Q?

John Olin: I don't know if that was absolute year of a year, but is there any room for filling and revenue still in 4Q?

John Olin: So number one, I think the question on mods, I would broaden that question, Rob, to looking at the combined production of local and mods. So in the first half, that would be up well into the double digits. And in the back half, it would be flat to down slightly. So again, that's that shift that's driving the revenue and all the absorption and all those types of things. But right now, more on the back half for both mods and locals combined, we were looking at flat to slightly negative. And then I'm sorry, Rob. Well, is that slightly negative one half versus two half or year over year?

John A. Olin: So number one, I think the question on mods. I would broaden that question, Rob, to look at the combined production of loco and mods. So in the first half, that would be up well into the double digits. And in the back half, it would be flat to down slightly. So, again, that's that shift that's driving revenue and all the absorption and all those types of things. But right now, more in the back half for both mods and locos combined, we're looking at flat to slightly negative.

Speaker Change: So number one, I think the question on mods, I would broaden that question, Rob, to looking at the combined production of local and mods.

Speaker Change: So, in the first half, that would be up well into the double digits, and in the back half, it would be flat to down slightly.

Speaker Change: So, again, that's that shift that's driving the revenue and all the absorption and all those types of things. But right now, more in the back half for both mods and locos combined, we're looking at flat to slightly negative.

Robert Cameron Wertheimer: You have something else, Robert? Well, is that flat slightly negative one half versus two half or year over year? That's what I'm trying to sort of figure out. I understand the mining thing you said was down, but yeah, sorry, go ahead.

Speaker Change: I'm sorry, I'll drop it.

Speaker Change: Well, is that flat slightly negative one-half versus two-half or year-over-year? That's what I'm trying to sort of figure out on. I understand the mining thing you said was down, but yeah, sorry, go ahead.

John Olin: That's what I'm trying to sort of figure out on. I understand the mining thing you said was down, but yeah, sorry, go ahead. That's half to half. Right, we're going to have variations within the half. In the second quarter, we had a very strong gain in locals, but modernizations weren't nearly up as much in the second quarter as the first quarter. But I was referring half to half. When we look at the back half in terms in total, we expect the back half, as we talked about revenue, to grow at a much more moderated rate than the first half and the same thing with margin percent on a year-over-year basis.

John A. Olin: That's half to half. We're going to have variations within that half.

Speaker Change: That's half to half.

John A. Olin: In the second quarter, we had a very strong gain in locos, but modernizations weren't nearly up as much in the second quarter as in the first quarter, but I was referring half to half. When we look at the back half in terms of total, we expect the back half, as we talked about, revenue to grow at a much more moderated rate than the first half, and the same thing with margin percent on a year-over-year basis. And if you look within the quarters within the second half, we would expect the third quarter to be up slightly in terms of growth over the fourth quarter for both revenue and profit growth.

Speaker Change: Right, we're going to have variations within the half. In the second quarter, we had very strong gain in locos, but modernizations weren't nearly up as much.

Speaker Change: and the second quarter is the first quarter, but I was referring half to half.

Speaker Change: When we look at the back half in total, we expect the back half, as we talked about, revenue to grow at a much more moderated rate than the first half, and the same thing with margin percent on a year-over-year basis.

Rob Lurheim: And if you look within the quarters within the second half, we would expect the third quarter to be up slightly in terms of growth over the fourth quarter for both revenue and in profit. at Grove. Okay, perfect. Sorry not to be pathetic there. Thank you. And then I guess your traffic guys are getting lonely.

Speaker Change: And if you look within the quarters within the second half, we would expect the third quarter to be up slightly in terms of growth over the fourth quarter for both revenue and profit growth.

Robert Cameron Wertheimer: Okay, perfect. Sorry to be pathetic there. Thank you. And then I guess your transit guys are getting lonely. You're having great margin progress, a couple good quarters there as well. Any commentary on the end markets on, you know, price versus inflation, just margin direction and transit. And I'll stop there. Thank you.

Rafael Santana: You're having great margin progress, a couple of good quarters there as well.

Speaker Change: Okay, perfect. Sorry to be pathetic there. Thank you. And then I guess your transit guys are getting lonely. You're having great margin progress, a couple of good quarters there as well. Just any commentary on the end markets on price versus inflation, just margin direction and transit, and I'll stop there. Thank you.

Rafael Santana: Just any commentary on the end markets on, you know, price or inflation, just margin direction and transit. And I'll stop there. Thank you. Let me start now, Lichon, complete, but we can see the same fundamentals in debt business. We expect Grove to be on debt part of the business as far as market goes, around three to five percent. We expect the teams to continue to apply. I'm going to call a strong discipline around order intake. And that should ultimately continue to reflect on and improve the margins in the backlog, which is what we see today.

Rafael O. Santana: Let me start and I'll let John finish, but we continue to see the same fundamentals in that business. We expect growth to be in that part of the business as far as the market goes, around 3 to 5 percent. We expect the teams to continue to apply, I'm going to call it strong discipline, around order intake, and that should ultimately continue to reflect on improved margins in the backlog, which is what we see today. So good progress is never going to be as fast, and you're going to see some variation on the backlog numbers as a result of that. Yeah, commenting on the 12-month backlog.

Speaker Change: Let me start and I'll let John complete, but we continue to see the same fundamentals in that business. We expect growth to be on that part of the business, as far as market goes, around 3 to 5 percent.

Speaker Change: We expect the teams to continue to apply, I'm going to call it strong discipline, around order, intake.

John: And that should ultimately continue to reflect on improved margins in the backlog, which is what we see today. So good progress, never going to be as smooth, and you're going to see some variation on the backlog numbers as a result of that.

John Olin: So good progress. Never going to be as mud. Then you're going to see some variation on the backlog numbers as a result of that.

John A. Olin: Yeah, commenting on the 12-month backlog, they were down this quarter. They were a little bit tempered in the first quarter.

John Olin: Yeah, coming on the 12-month backlog, they were down this quarter. They were a little bit tempered in the first quarter. And as you know, and we've talked about, it's due larger part of our focus on being more selective on orders that we add to backlog. And Rob, that's in line with our effort to drive improved long-term profitability in the transit business. We've seen the impact of the selectivity again in the first quarter, to some extent. And we would expect to see it over the next few quarters as we build in a higher level of profitability in our backlog over time.

John: Yeah, commenting on the 12-month backlog, they were down this quarter, they were a little bit tempered in the first quarter, and as you know and we've talked about, it's due on a larger part of our focus on being more selective on orders that we add to backlog.

John A. Olin: And as you know, and we've talked about, it's due to a larger part of our focus on being more selective on orders that we add to backlog. And Rob, that's in line with our effort to drive improved long-term profitability in the transit business. We've seen the impact of selectivity again in the first quarter to some extent, and we would expect to see it over the next few quarters as we build in a higher level of profitability in our backlog over time. But overall, the underlying strength and business of the transit business is there, but we are going to see some shifts in the timing of backlogs as we build in more profitability.

John: And Rob, that's in line with our effort to drive improved long-term profitability in the transit business.

Robert Cameron Wertheimer: We've seen the impact of the selectivity again in the first quarter to some extent.

Robert Cameron Wertheimer: and we would expect to see it over the next few quarters as we build in a higher level of profitability in our backlog over time.

John Olin: But overall, the underlying strength and business of the transit businesses there. But we are going to see some shifts in timing of backlogs as we build in more profitability. Thank you.

Robert Cameron Wertheimer: But overall, the underlying strength and business of the transit business is there. But we are going to see some shifts in timing of backlogs as we build in more profitability.

Steve Barger: And our next question comes down to Steve Barger from KeyBank Capital Markets. Do you have a question? Thanks. Good morning.

Operator: And our next question comes from Steve Barger from KeyBank Capital Markets. Please go ahead with your question.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Steve Barger from KeyBank Capital Markets. Please go ahead with your question.

Robert Stephen Barger: Thanks. Good morning. Going back to digital, can you talk about how you define the addressable market size in North America versus international and what the penetration rate is for each? I'm just trying to gauge the relative forward opportunities for those products.

Steve Barger: Going back to digital, can you talk about how you define a dressable market size in North America versus international and what the penetration rate is for each? And I'm just trying to gauge the relative forward opportunities for those products. We're, of course, much more highly penetrated in North America. If you think about the bulk of our products with, if you think that while you think about internationally, we still have significant opportunities here. And I think some of that is really connected to some of the products. I mean, you think about a treat optimizer. We still have ways to go into markets like the Kazakhstan, for instance.

Robert Stephen Barger: Thanks, good morning.

Robert Stephen Barger: Going back to digital, can you talk about how you define addressable market size in North America versus international, and what the penetration rate is for each? And I'm just trying to gauge the relative forward opportunity for those products.

Rafael O. Santana: We're, of course, much more highly penetrated in North America if you think about the bulk of our products. But if you think about internationally, we still have significant opportunities here, and I think some of that is really connected to some of the products. I mean, if you think about a trip optimizer, we still have ways to go into markets like Kazakhstan, for instance. If you think about PTC 2.0, I think you continue to have demand out there, and you're going to see us grow into some of these markets.

Speaker Change: We are, of course, much more highly penetrated in North America, if you think about the bulk of our products.

Speaker Change: with, if you think about it internationally, we still have significant opportunities here. And I think some of that is really connected to some of the products. I mean, you think about a trip optimizer, we still have ways to go into markets like Kazakhstan, for instance.

Steve Barger: If you think about BTC, chew that all. I think you've continued to have a demand out there. And you're going to see us growing to some of these markets. What I think is interesting also is some of the products like Zero to Zero, which we continue to work through regulation in North America. We're moving forwards with those into our international markets. So, to some extent, you could start seeing some degrees of automation, potentially moving faster into international markets, given some of the dynamics in North America. So, more and more, I think positive growth coming from international is still some of the dynamics I described earlier in North America.

Speaker Change: If you think about PTC 2.0, I think you continue to have a demand out there, and you're going to see us grow into some of these markets. What I think is interesting also is some of the products like Zero2Zero, which we continue to work through regulation in North America, we're moving forward with those into our international markets. So to some extent, you could start seeing some degrees of automation, potentially moving faster into international markets.

Rafael O. Santana: What I think is interesting also is some of the products like Zero to Zero, which we continue to work through regulation in North America, are moving forward with those in our international markets. So to some extent, you could start seeing some degrees of automation potentially moving faster into international markets given some of the dynamics in North America. So more and more, I think positive growth coming from international business is still some of the dynamics I described earlier in North America.

Speaker Change: given some of the dynamics in North America. So, more and more, I think positive growth coming from international is still some of the dynamics I described earlier in North America.

Robert Stephen Barger: So, it's surrounding an $800 billion business. Is that a multi-billion dollar opportunity internationally, or, I guess globally, or how do you think about the market size?

Rafael Santana: So it's what's surrounding $800 billion business. Is that a multi-billion-dollar opportunity internationally, or I guess globally, or how do you think about market size? It is a multi-billion-dollar opportunity. So size is significant here. I think one of the things that I look at internationally is more than timing to get to some of these orders. You're fundamentally describing, in some cases. This orders that might take a little bit more time to get those. And those are some really the work started by the group here a couple of years back. But I'm glad to see the progress.

Speaker Change: So, it's surrounding an $800 billion business. Is that a multi-billion dollar opportunity internationally or, I guess, globally? How do you think about market size?

Rafael O. Santana: It is a multi-billion dollar opportunity, so the size is significant here. I think one of the things that I look at internationally is more the timing to get to some of these orders. You're fundamentally describing some cases, orders that might take a little bit more time to get, and those are some really the work started by the group here a couple of years ago, but glad to see the progress. I think you've heard from us on some of the orders we've gotten from PTC. You're going to see more of those orders outside of North America as we continue to progress.

Speaker Change: It is a multi-billion dollar opportunity, so size is significant here. I think one of the things that I look at internationally is more the timing, to get to some of these orders.

Speaker Change: Fundamentally describing, in some cases, orders that might take a little bit more time to get those. And those are some of, really, the work started by the group here a couple of years back. But glad to see the progress. I think you've heard from us on some of the orders we've gotten from PTC. You're going to see more of those orders outside of North America as we continue to progress.

Rafael Santana: I think you've heard from us on some of the orders we've gotten from PTC. You're going to see more of those orders outside of North America as we continue to progress. Got it.

John A. Olin: Got it. And John, for you, in the last few years, transit margins in the fourth quarter have seen a pretty sizable step up versus the prior three quarters. Do you expect that same dynamic this year?

Steve Barger: And John, for you in the last few years, transit margins in the fourth quarter have seen a pretty sizable step up versus the prior three quarters.

Speaker Change: Got it. And John , for you, in the last few years transit margins in the fourth quarter have seen a pretty sizable step up versus the the prior three quarters. Do you expect that same dynamic this year?

John Olin: Do you expect that same dynamic this year? Steve, we don't provide individual quarters and margins. I would just say that overall, a lot of businesses over time develop traits. And that ends up being in the margin profiles. And I've always felt that it's more important to look year over year than sequentially. But we're not going to provide specific thoughts on the fourth quarter.

Robert Stephen Barger: Steve, we don't, we don't provide individual quarters and margins. I would just say that, overall, a lot of businesses, you know, over time, develop traits and that ends up being in the margin profiles. And I've always felt that it's more important to look year-over-year than look sequentially, but we're not going to provide some specific thoughts on the fourth quarter.

Speaker Change: Well, Steve, we don't we don't provide individual quarters and margins. I would just say that overall a lot of businesses

Speaker Change: you know over time develop traits and and that ends up being in the margin profiles.

Speaker Change: I've always felt that it's more important to look year-over-year than sequentially, but we're not going to provide specific thoughts on the fourth quarter.

John A. Olin: We've achieved expectations there, Steve, to see profitable growth ahead, to see that in the fundamentals of the business, and the team has really taken several steps in terms of having to meet TN margins, and we expect that to continue.

Rafael Santana: Steve, there are Steve to see profitable growth I had. I would see that in the fundamentals of the business. And the team is really taking several stops in terms of having to meet TN margins. And we expect out to continue. Got it.

Speaker Change: I appreciate the expectations there, Steve, to see profitable growth ahead. I would see that in the fundamentals of the business. And the team has really taken several steps in terms of adding to meet T& margins, and we expect that to continue.

Rafael O. Santana: Got it. And just, John, if I look at the last three years, you know, staying away from this year, what causes that, has caused that margin step up? Is that budget flush at customers, or what? Why did that happen in the past? In some cases, there's more after.

John Olin: And just John, if I look at the last three years, you know, staying away from this year, what causes that has caused that margin step up? Is that budget flush at customers? Or what? But why did that happen in the past? In some cases, there's more aftermarket sales in the fourth quarter because, you know, customers' budgets, a lot of government spending within the transit business. SGNA, SGNA typically has patterns of spending in the fourth quarter. But probably the biggest would be as the mix up the top of my head for transit. Okay, thanks.

Robert Stephen Barger: Got it. And just, John , if I look at the last three years, you know, staying away from this year, what causes that, has caused that margin step up? Is that budget flush at customers or what, why did that happen in the past?

John A. Olin: In some cases, there's more aftermarket sales in the fourth quarter because, you know, customers' budgets, a lot of government spending within the transit business. SG&A typically has patterns of spending in the fourth quarter, but probably the biggest would be the mix off the top of my head for transit.

Speaker Change: In some cases, there's more aftermarket sales in the fourth quarter because, you know, customers' budgets, a lot of

Speaker Change: government spending within the transit business. SG&A typically has patterns of spending in the fourth quarter.

John: But probably the biggest would be is the mix off the top of my head for transit.

John Olin: Thank you.

Kyra Yates: And ladies and gentlemen, that will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Kara Yates for any closing remarks. Thank you, Jamie. And thank you, everyone, for your participation today. We look forward to speaking with you again next quarter.

Operator: And ladies and gentlemen, that will conclude today's question and answer session. At this time, I'd like to turn the floor back over to Kyra Yates for any closing remarks.

Speaker Change #100: Okay, thanks.

Speaker Change #100: Thank you.

Speaker Change #100: And ladies and gentlemen, that will conclude today's question and answer session. At this time, I'd like to turn the floor back over to Kyra Yates for any closing remarks.

Kyra Yates: Thank you, Jamie, and thank you, everyone, for your participation today. We look forward to speaking with you again next quarter. Goodbye.

Kyra Yates: Thank you, Jamie, and thank you, everyone, for your participation today. We look forward to speaking with you again next quarter. Goodbye.

Kyra Yates: Goodbye.

Operator: And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining.

Operator: And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining us. You may now disconnect your lines.

Operator: You may now disconnect your line.

Kyra Yates: And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.