Q1 2025 Westinghouse Air Brake Technologies Corp Earnings Call

Operator: Good morning, and welcome to the Wabtec First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad.

Good morning, and welcome to the West, Texas first quarter 2025 earnings Conference call.

Participants will be in a listen only mode.

Did you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero on your telephone keypad.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded.

After todays presentation, there will be an opportunity to ask questions.

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Or withdraw your question. Please press Star then two.

Please note this event is being recorded.

Kyra Yates: I would now like to turn the conference over to Kyra Yates, Vice President of Investor Relations. Please go ahead. Thank you, Operator.

Speaker Change: I would now like to turn the conference over to congregate Vice President of Investor Relations.

Please go ahead.

Rafael Santana: Thank you operator, good morning, everyone and welcome to web Teck's first quarter 2025 earnings call with US today are president and CEO Rafael Santana CFO, John Olin and senior Vice President of Finance John match alerts today's slide presentation, along with our earnings release.

Kyra Yates: Good morning, everyone, and welcome to Wabtec's first quarter 2025 earnings call. With us today are President and CEO Rafael Santana, CFO John Olin, and Senior Vice President of Finance John Mastalerz. 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 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.

Speaker Change: And financial disclosures were posted to our website earlier today and can be accessed on the Investor Relations tab.

Speaker Change: Statements, we're making are forward looking and based on our best view of the world and our business today for more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosure.

Kyra Yates: We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.

Rafael Santana: Yours 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. 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. Before we get into the numbers, I'll say that we had a strong start to the year, delivering results ahead of our expectations. While we have favorable business outcomes in the quarter, such as business mix and timing of expenses, more importantly, we have amplified our cost control levers as a direct result of the uncertain economic environment that we're anticipating to play out over the remainder of the year.

Rafael Santana: Thanks, Hi, Ryan 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.

Speaker Change: Before we get into the numbers I'd say that we had a strong start to the year delivering results ahead of our expectations, while we had favorable business outcomes in the quarter, such as business mix and timing of expenses and more importantly, we have amplified our cost control, while Bruce as a direct result of down.

Speaker Change: Certain economic environment that we're anticipating to play out over the remainder of the year.

Rafael Santana: With that said, we are approaching the remainder of the year with caution, with discipline, and the focus to take the necessary actions to deliver against our commitments in an uncertain and volatile economic landscape. Having that in mind, sales were $2.6 billion, which was up 4.5%. Adjusted EPS was up 21% from the year-ago quarter and total cash flow from operations for the quarter was $191 million. The 12-month backlog was $8.2 billion, up 6%, reflecting the continued momentum and visibility across the business.

Speaker Change: With that said, we are approaching the remainder of the year with caution with discipline and the focus to take the necessary actions to deliver against our commitments.

Speaker Change: Uncertain and volatile economic landscape having.

Speaker Change: <unk> got in mind sales were $2 6 billion, which was up four 5%.

Speaker Change: Adjusted EPS was up 21% from the year ago quarter.

Speaker Change: Total cash flow from operations for the quarter was $191 million.

Speaker Change: The 12 month backlog was $8 2 billion up 6%, reflecting the continued momentum and visibility across the business.

Rafael Santana: Shifting our focus to slide five, let's talk about 2025 and market expectations in more detail. While key metrics across our freight business remain mixed, we are encouraged by the strength of international market activity in our current pipeline of opportunities across geography. However, we are cautious with regards to our North American business as the current tariff activities play out over the remainder of the year. North American traffic was up 3% in the quarter. Despite this traffic growth, the industry's and WAPTEC's active locomotive fleets were largely flat when compared to last year's first quarter. As we look forward, we continue to see significant opportunities across the globe in demand for new locomotives, modernizations, and digital technologies as our customers continue to invest in solutions that drive fuel efficiency, reliability, productivity, and safety.

Speaker Change: Shifting our focus to slide five let's talk about 2025 and market expectations in more detail.

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

Speaker Change: However, we are cautious with regards to our North American business as the current tariff activities play out over the remainder of the year.

Speaker Change: North American traffic was up 3% in the quarter.

Speaker Change: Despite this traffic could all the industries and <unk> active locomotive fleets were largely flat when compared to last year's first quarter.

Speaker Change: As we look forward, we continue to see significant opportunities across the globe in demand for new locomotives Modernizations and digital technologies as our customers continue to invest in solutions that drive fuel efficiency reliability productivity and safety.

Rafael Santana: Looking at the North American rail car built, last quarter we discussed the industry outlook for 2025 to be about 35,000 cars to be delivered, which is down 17% from last year. This industry forecast has remained unchanged. Internationally, activity is strong across core markets such as Africa, Asia, and CIS. Significant investments to expand and upgrade infrastructure are supporting a robust international locomotive backlog and orders pipeline. In mining, an aging fleet continues to support activity to refresh and upgrade the truck fleet. Finally, moving to the transit sector, we continue to see underlying indicators for growth. Ridership levels are increasing in key geographies, along with fleet expansion and renewals.

Speaker Change: Looking at the North American railcar built last quarter, we discussed the industry outlook for 2025 to be about 35000 cars to be delivered which is down 17% from last year. This industry forecast has remained unchanged.

Speaker Change: Internationally activity is strong across core markets, such as Africa Asia and CIS.

Speaker Change: Significant investments to expand and upgrade infrastructure are supporting a robust international locomotive backlog and order pipeline.

Speaker Change: In mining and aging fleet continues to support activity to refresh and upgrade the truck fleet.

Speaker Change: Finally, moving to the transit sector, we continue to see underlying indicators for growth.

Speaker Change: <unk> are increasing in key geographies.

Speaker Change: Along with fleet expansion and renewals.

Rafael Santana: Next, let's turn to slide six to discuss a few business highlights. In Kazakhstan, we continue making progress on finalizing orders associated with our installed fleet by signing a $300 million multi-year service agreement to increase the availability, reliability, and productivity of KTZ's locomotive fleet. In North America, we secured a $140 million order from a Class 1 customer for new locomotives. This order demonstrates the need for our Class 1 customers to upgrade their aging fleet by investing in new locomotives. Moving to the APAC region, we secured orders totaling $130 million for new equipment and service contracts. This included orders for new locomotives and mining drive systems. These orders continue to highlight the growth opportunity we see in the region.

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

Speaker Change: In Kazakhstan, we continue making progress on finalizing orders associated with foreign installed fleet by signing 300 million dollar multi year service agreement to increase the availability reliability and productivity of Kt's used locomotive fleet.

Speaker Change: In North America, we secured a 140 million dollar order from a class one customer for new locomotives.

Speaker Change: This order demonstrates the need for our class one customers to upgrade their aging fleets by investing in new locomotives.

Speaker Change: Moving to the APAC region, we secured orders totaling $130 million for new equipment and service contracts. This included orders for new locomotives and mining drive systems.

Speaker Change: Disorders continue to highlight the growth opportunity, we see in the region.

Rafael Santana: Moving to our transit segment, Transit One, two multi-year platform door contracts valued at $85 million for the Madrid Metro and the new Hamburg Metro U5 line. And finally, we secured a $50 million order to provide brakes and couplers for servicing the New York City Transit Authority. This win signified the European and North American transportation authorities' commitment to investing in solutions that enhance passenger safety and modernize metro networks.

Speaker Change: Moving to our transit segments transit wanted to multiyear platform door contracts valued that $85 million for the Madrid Metro and the new Hamburg natural <unk> five line.

Speaker Change: And finally, we secured a $50 million order to provide brakes couplers for servicing the New York City Transit Authority <unk>.

Speaker Change: This win signifies the European and North American transportation <unk> commitment to investing in solutions that enhance passenger safety and modernized Metro networks. Overall. This success continues to demonstrate our leadership in the markets, we serve and the commitment of the <unk> team to deliver.

Rafael Santana: Overall, these successes continue to demonstrate our leadership in the markets we serve and the commitment of the Wabtec team to deliver meaningful results for our business and for our customers.

Speaker Change: Many full results for our business and for our customers.

Rafael Santana: Moving to slide seven.

Speaker Change: Moving to slide seven.

Rafael Santana: Before turning it over to John, I want to briefly discuss the positive momentum we have in our international market. Over the last several quarters, we have highlighted that our international pipeline of opportunities continues to be strong. Our international revenue has grown over the last couple of years at a high single-digit growth rate and delivers a higher level of profitability than our North American region. The continued growth in our international locomotive install base has enabled us to leverage our international footprint and has underpinned our share gains in services, components, and digital solutions.

Speaker Change: Before turning it over to John I want to briefly discuss the positive momentum we have in our international markets.

Speaker Change: Over the last several quarters, we have highlighted our international pipeline of opportunities continue to be strong.

Speaker Change: Our international revenue has grown over the last couple of years at a high single digit growth rate.

Speaker Change: Delivers a higher level of profitability than our North American region.

Speaker Change: The continued growth in our international locomotive install base has enabled us to leverage our international footprint and has underpinned our share gains in services components and digital solutions.

Rafael Santana: As we walk around the world, let's discuss some of these drivers. In Europe, our transit business is supported by urbanization trends and growing infrastructure funding, which has led to resilient and steady revenue growth while providing safer, cleaner, and more cost-effective commuting. The CIS region growth is driven by the locomotive fleet expansion, which has led to robust growth in services and digital products in the region. The Sub-Saharan Africa region is benefiting from new mining projects and volume growth. The new equipment orders for the Simandou mining project that were secured in 2024 are expected to provide further opportunity for services and digital growth in the region.

Speaker Change: As we walk around the world, let's discuss some of these drivers.

Speaker Change: In Europe, our transit business is supported by your organization trends and growing infrastructure funding, which has labs to resilience and steady revenue growth, while providing safer cleaner and more cost effective commuting.

Speaker Change: The CIS region graph is driven by the locomotive fleet expansion, which has led to robust growth in services and additional products in the region.

Speaker Change: The sub Sahara Africa region is benefiting from new mining projects and volume growth.

Speaker Change: New equipment orders for the Simandou mining project that were secured in 2024 are expected to provide further opportunity for services and digital golf in the region.

Rafael Santana: Beyond Guinea, there are more opportunities for African expansion in 2025.

Speaker Change: Beyond Guinea, there are more opportunities for African expansion in 2025.

Rafael Santana: Moving to the APAC region, we see trans-supportive of growth for both freight and transit. Urban Infrastructure Investment and our growing stall base of equipment is driving transit growth. While mining, fleet renewals, and a growing locomotive install base support freight growth, particularly in Australia. And finally, South America is upgrading fleets, exploring alternative fuel and automation technologies, as well as implementing various digital products, such as STREAP Optimizer suite of onboard products, PTC 2.0, digital mining, and our inspection technologies. This is in support of the region's needs for efficient transportation of goods to help with increased freight demands.

Speaker Change: Moving to the APAC region, we see trends supportive of growth for both freight and transit.

Speaker Change: Our urban infrastructure investment and our growing installed base of equipment is driving transit growth.

Speaker Change: While mining fleet renewals and a growing locomotive install base support straight growth, particularly in Australia.

Speaker Change: And finally, South America is upgrading fleets exploring alternative fuel and automation technologies as well as implementing various digital products such as trip Optimizer suite of onboard products BTC Ciudadano digital mining in our inspection.

Speaker Change: Acknowledges.

Speaker Change: This is in support of the region's needs for efficient transportation of goods to help with increased freight demand.

Rafael Santana: We expect our execution, the strength of our business, and our leading products and technologies will result in Wabtec continuing to convert the opportunities in our pipeline into orders and growth.

Speaker Change: We expect our execution the strength of our business.

Speaker Change: And our leading products and technologies will result in <unk> continuing to convert the opportunities in our pipeline into orders and golf.

John Olin: With that, I'll turn the call over to John to review the quarter, segment results, and our overall financial performance. John? Thanks, Rafael, and hello, everyone. Turning to slide eight, I will review our first quarter results in more detail. Our first quarter results came in better than expected behind strong operating margin expansion. The drivers of the first quarter's operating margins were due largely to favorable timing of expenses and mix, improved operational execution, and as a result of our proactively taking a more defensive spending posture as we head into significant economic uncertainty. Sales for the quarter were $2.61 billion, which reflects a 4.5% increase versus the prior year.

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

John: Thanks, Raphael and Hello, everyone turning to slide eight I will review, our first quarter results in more detail.

John: Our first quarter results came in better than expected behind strong operating margin expansion.

John: The drivers of the first quarter's operating margins were due largely to favorable timing of expenses and mix improved operational execution and as a result of our proactively taking a more defensive spending posture as we head into significant economic uncertainty.

John: Sales for the quarter were $2 $61 billion, which reflects a four 5% increase versus the prior year sales growth in the quarter was driven by the freight and transit segments. Excluding the impact of currency sales were up six 2%.

John Olin: Sales growth in the quarter was driven by the freight and transit segments. Excluding the impact of currency, sales were up 6.2%. For the quarter, GAAP operating income was $474 million. The increase was driven by higher sales, improved gross margin, and proactive cost management. Adjusted operating margin in Q1 was 21.7%, up 1.9 percentage points versus the prior year. This increase was driven by improved gross margins of 1.7 percentage points. and driven by operating expenses, which grew at a slower rate than revenue, increasing our Q1 margin by an additional two-tenths of a percentage point. Gap earnings per diluted share was $1.88, which was up 22.9% versus the year-ago quarter.

John: For the quarter GAAP operating income was $474 million. The increase was driven by higher sales improved gross margin and proactive cost management.

John: Adjusted operating margin in Q1 was 21, 7%.

John: Up one nine percentage points versus the prior year. This.

John: This increase was driven by improved gross margins of one seven percentage points.

John: And driven by operating expenses, which grew at a slower rate than revenue, increasing our Q1 margin by an additional two tenths of a percentage point.

John: GAAP earnings per diluted share was $1 88, which was up 22, 9% versus the year ago quarter during.

John Olin: During the quarter, we had net pre-tax charges of $9 million for restructuring, which were primarily related to our integration and portfolio optimization initiatives to further integrate and streamline web tax operations. As you may recall in our Q4 earnings call, we introduced Integration 3.0, which is expected to drive $100 to $125 million of run rate savings as we exit 2028, and another round of portfolio optimization initiatives that are expected to eliminate roughly $100 million of low-margin, non-strategic revenue while reducing manufacturing complexity. In the quarter, adjusted earnings per diluted share was $2.28, up 20.6% versus the prior year.

John: During the quarter, we had net pre tax charges of $9 million for restructuring, which were primarily related to our integration and portfolio optimization initiatives to further integrate and streamline <unk> operations.

John: As you May recall in our Q4 earnings call. We introduced integration 3.0, which is expected to drive $100 million to $125 million of run rate savings as we exit 2028, and another round of portfolio optimization initiatives that are expected to eliminate roughly $100 million of low margin non.

John: <unk> revenue, while reducing manufacturing complexity.

John: In the quarter adjusted earnings per diluted share was $2 28.

John: Up 26% versus the prior year.

John Olin: Overall, Wabtec delivered another strong quarter, demonstrating the underlying strength of the business.

John: Overall web tech delivered another strong quarter, demonstrating the underlying strength of the business.

John Olin: Turning to slide nine, let's review our product lines in more detail. Before we discuss our business group sales performance for the quarter, I would like to point out that we have realigned a couple of our businesses within the freight segment. Essentially, we have moved our Nordco maintenance away and a freight distribution business to our components group from our services group. This shifts $91 million of revenue in the quarter to components from services. Prior year's results have been adjusted to make our presented financials comparable year-over-year. We believe that this realignment will improve focus and better match our group's competencies to deliver improved growth in the future.

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

John: Before we discuss our business group sales performance for the quarter I would like to point out that we have realigned a couple of our businesses within the freight segment.

John: Essentially we have moved our north pole maintenance of way and a freight distribution business to our components group from our services group this shifts $91 million of revenue in the quarter to components from services.

John: Prior year's results have been adjusted to make our presented financials comparable year over year.

John: We believe that this realignment will improve focus and better match, our group's competencies to deliver improved growth in the future.

John Olin: With that being said, first quarter consolidated sales were up 4.5%. Our services sales were up 16.9%. This was driven by the timing of modernizations and overhauls. During the first quarter, we allocated additional capacity to our mods production, which was the reverse of what we experienced in the fourth quarter. Regarding our core service business, we experienced expected growth as our active fleets ran according to plan. Equipment sales were down 9.5% from last year's first quarter. This decrease was expected given the shift of capacity to mods during the quarter. In Q2 and the second half of the year, we are planning for a shift back to new locomotive production.

John: With that being said first quarter consolidated sales were up four 5%.

John: Our services sales were up 16, 9%. This was driven by the timing of Modernizations and overhauls during the first quarter, we allocated additional capacity to our <unk> production, which was the reverse of what we experienced in the fourth quarter.

John: Regarding our core service business, we experienced expected growth as our active fleets ran according to plan.

John: Equipment sales were down nine 5% from last year's first quarter.

John: This decrease was expected given the shift of capacity to <unk> during the quarter in Q2, and the second half of the year. We are planning for a shift back to new locomotive production.

John Olin: This is expected to result in slightly lower year-over-year mod production in Q2 and a more pronounced reduction in the second half. Component sales were down 0.8% versus last year due to portfolio optimization efforts and a lower North American rail car bill, which was partially offset by increased industrial product sales. Digital intelligence sales were up 2.8% from last year. This was driven by growth in our international sales, which was partially offset by a lower North American market. In our transit segment, sales were up 5.3% and driven by our products and services business. Foreign currency exchange had an adverse impact on sales in the quarter of 2.6 percentage points.

John: This is expected to result in slightly lower year over year by production in Q2, and a more pronounced reduction in the second half.

John: <unk> sales were down 0.8% versus last year due to portfolio optimization efforts and a lower north American railcar build which was partially offset by increased industrial product sales.

John: Digital intelligence sales were up two 8% from last year. This was driven by growth in our international sales, which was partially offset by a lower north American market.

John: And our transit segment sales were up five 3% and driven by our products and services business.

John: Foreign currency exchange had an adverse impact on sales in the quarter of two six percentage points.

John Olin: The momentum in the transit segment remains positive due to elevated infrastructure investment and global ridership, which accelerates the need for investments in sustainable infrastructure.

John: The momentum in the transit segment remains positive due to elevated infrastructure investment in global ridership, which accelerates the need for investments in sustainable infrastructure.

John Olin: I'm moving to slide 10. The gross margin was 34.5%, which was up 1.8 percentage points from the first quarter last year. adjusted gross margin was also up 1.7 percentage points during the quarter. In addition to higher sales, gross margins benefited from timing of expenses, favorable mix and modest contract escalation. Mixed within the freight segment was also favorable despite significantly higher new local and mod deliveries in the quarter. Foreign currency exchange was a headwind to revenue, as well as gross profit and operating margin in the quarter. During the quarter, we also benefited from improved operational execution and to our proactive approach on cost control.

John: Now moving to slide 10.

John: GAAP gross margin was 34, 5%, which was up one eight percentage points from the first quarter last year.

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

John: In addition to higher sales gross margins benefited from timing of expenses favorable mix and modest contract escalation.

Mix within the freight segment was also favorable despite significantly higher new local and my deliveries in the quarter.

John: Foreign currency exchange was a headwind to revenue as well as gross profit and operating margin in the quarter.

John: During the quarter. We also benefited from improved operational execution into our proactive approach on cost controls.

John Olin: Our team continues to execute well by driving operational productivity and lean initiatives. Turning to slide 11, for the first quarter, gap operating margin was 18.2%, which was up 1.7 percentage points versus last year. Adjusted operating margin improved 1.9 percentage points to 21.7%. The gap in adjusted SG&A and engineering expenses was up versus the prior year, with adjusted SG&A slightly lower as a percentage of revenue. Engineering expense was $46 million, slightly lower than Q1 last year.

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

John: Turning to slide 11 for the first quarter GAAP operating margin was 18, 2%, which was up one seven percentage points versus last year.

John: <unk> operating margin improved one nine percentage points to 21, 7%.

John: GAAP and adjusted SG&A and engineering expenses was up versus the prior year with adjusted SG&A slightly lower as a percentage of revenues.

John: Engineering expense was $46 million slightly lower than Q1 last year.

John Olin: We continue to invest in engineering resources and current business opportunities, but more importantly we are investing in our future as an industry leader in fuel efficiencies and digital technologies that improve our customers' productivity, capacity utilization, and safety.

John: We continue to invest in engineering resources and current business opportunities, but more importantly, we are investing in our future as an industry leader in fuel efficiencies and digital technologies that improve our customers' productivity capacity utilization and safety.

John Olin: Now let's take a look at segment results on slide 12, starting with the freight segment. As I already discussed, freight segment sales were up 4.2% during the quarter. Gap segment operating income was $420 million, driving an operating margin of 22.1%, up 1.9 percentage points versus last year. Gap operating income included $3 million of restructuring costs, primarily related to our integration and portfolio optimization initiative. Adjusted operating income for the freight segment was $488 million, up 11.2% versus the prior year. Adjusted operating margin in the freight segment was 25.7 percent, up 1.6 percentage points from prior year.

John: Now, let's take a look at segment results on slide 12.

John: Starting with the freight segment.

John: As I already discussed freight segment sales were up four 2% during the quarter.

John: GAAP segment operating income was $420 million driving an operating margin of 22, 1% up one nine percentage points versus last year GAAP operating income included $3 million of restructuring costs, primarily related to our integration and portfolio optimization initiatives.

John: Adjusted operating income for the freight segment was $488 million up.

John: Up 11, 2% versus the prior year.

John: Adjusted operating margin in the freight segment was 25, 7% up one six percentage points from prior year.

John Olin: The increase was driven by improved gross margin behind favorable business mix, timing of expenses, improved productivity, and proactive cost controls. Finally, 12-month segment backlog was $6.07 billion. Our 12-month backlog was up 9.1% on a constant currency basis. while the multi-year backlog of $17.85 billion was up 1.4% on a constant currency basis.

John: The increase was driven by improved gross margin behind favorable business mix timing of expenses improved productivity and proactive cost controls.

John: Finally, 12 months segment backlog was $6 $7 billion, our 12 month backlog was up nine 1% on a constant currency basis.

John: The multiyear backlog of $17 85 billion was up one 4% on a constant currency basis.

John Olin: Turning to slide 13. transit segment sales were up 5.3% at $709 million. When adjusting for foreign currency, transit sales were up 7.9%. Gap operating income was $90 million.

John: Turning to slide 13.

John: Transit segment sales were up five 3% at $709 million when adjusting for foreign currency transit sales were up seven 9%.

John: GAAP operating income was $90 million restructuring costs related to integration and portfolio optimization were $6 million in Q1.

John Olin: Restructuring costs related to integration and portfolio optimization were $6 million in Q1. Adjusted segment operating income was $103 million. Adjusted operating income as a percent of revenue was 14.6%, up 1.9 percentage points. The increase was driven by higher adjusted gross margin behind favorable mix and strong operational execution. Finally, transit segment 12-month backlog for the quarter was $2.13 billion, which was up 2.2% on a constant currency basis. The multi-year backlog was up 5.1% on our constant currency basis.

John: Adjusted segment operating income was $103 million adjusted operating income as a percent of revenue was 14, 6% up one nine percentage points. The increase was driven by higher adjusted gross margin behind favorable mix and strong operational execution.

John: Finally transit segment 12 month backlog for the quarter was $2 3 billion, which was up two 2% on a constant currency basis. The multiyear backlog was up five 1% on a constant currency basis.

John Olin: Now let's turn to our financial position on slide 14. First quarter cash flow generation was $191 million. We continue to expect greater than 90% cash conversion for the full year.

John: Now, let's turn to our financial position on slide 14.

John: First quarter cash flow generation was $191 million, we continue to expect greater than 90% cash conversion for the full year.

John Olin: Our balance sheet and financial position continued to be strong, as evidenced by, first, our liquidity position, which ended the quarter at $2.54 billion, and our net debt leverage ratio, which ended the first quarter at 1.5 times. The leverage ratio was below our stated range in anticipation of funding the acquisition of Evidence Inspection Technologies Division that we announced on January 13th, which is expected to close at the end of the second quarter. Upon closing this purchase, we anticipate that our leverage ratio will be roughly 2.3 times.

John: Our balance sheet and financial position continued to be strong as evidenced by first our liquidity position, which ended the quarter at $254 billion.

John: And our net debt leverage ratio, which ended the first quarter at one five times.

John: The leverage ratio was below our stated range in anticipation of funding the acquisition of evidence inspection technologies Division that we announced on January 13th which is expected to close at the end of the second quarter. Upon closing this purchase we anticipate that our leverage ratio will be roughly two three times.

John Olin: We continue to allocate capital in a disciplined and balanced way to maximize returns for our shareholders. During the quarter, we repurchased $98 million of our shares and paid $43 million in dividends, which was recently increased by our Board of Directors, up 25% per share versus prior year.

John: We continue to allocate capital in a disciplined and balanced way to maximize returns for our shareholders. During the quarter, we repurchased $98 million of our shares and paid $43 million in dividends, which was recently increased by our board of directors up 25% per share versus prior year.

Rafael Santana: With that, I'd like to turn the call back over to Rafael to talk about our 2025 Financial Guide. Thanks, John. Now let's turn to slide 15 to discuss our 2025 Outlook and Guidance. As you've heard today, our team delivered a good start to the year. Our international pipeline remains strong, and our 12-month and multi-year backlogs provide visibility for profitable growth ahead. With that being said, we are approaching the remainder of the year with caution, but with the discipline and focus to take the necessary actions to deliver against our commitments in an uncertain and volatile economic landscape.

Rafael Santana: With that I'd like to turn the call back over to Rafael to talk about our 2025 financial guidance.

Rafael Santana: Thanks, John now lets turn to slide 15 to discuss our 2025 outlook and guidance as you've heard today our team delivered a good start to the year, our international pipeline remains strong and our 12 month and multiyear backlogs provide visibility for profitable growth ahead with that being said.

Rafael Santana: We are approaching the remainder of the year with caution, but with the discipline and focus to take the necessary actions to deliver against our commitments and on and.

Rafael Santana: Uncertain and volatile economic landscape. Consequently, we are increasing our previous adjusted EPS midpoint guidance and we now expect adjusted EPS to be in the range of $8 35.

Rafael Santana: Consequently, we are increasing our previous adjusted EPS midpoint guidance, and we now expect adjusted EPS to be in the range of $8.35 to $8.95, up 14% at the midpoint. Our revenue and cash flow conversion guidance remains unchanged.

Rafael Santana: To $8 95.

Rafael Santana: 14% at the midpoint.

Rafael Santana: Our revenue and cash flow conversion guidance remains unchanged.

Rafael Santana: Now let's wrap up on slide 16. As you heard today, our team continues to deliver on our value creation framework, thanks in large part to our resilient install base, world-class team, innovative technologies, and our continued focus on our customers. with solid underlying demand for our products and technologies and intense focus on continuous improvement and cost management consistent with our previous guidance.

Rafael Santana: Now, let's wrap up on slide 16.

Rafael Santana: As you've heard today, our team continues to deliver on our value creation framework. Thanks in large part to our resilient installed base World class team innovative technologists and our continued focus on our customers.

Rafael Santana: With solid underlying demand for our products and technologies and a das 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 EPS growth through our planning horizon.

Rafael Santana: We continue to expect to drive mid-single-digit organic growth while delivering double-digit EPS growth through our planning horizon, thereby maximizing our returns to our shareholders. As we have discussed, the current economic environment is uncertain and volatile. We will be proactive with our cost control levers and drive actions to deliver against our commitment.

Rafael Santana: Thereby maximizing our returns to our shareholders.

Rafael Santana: As we have discussed the current economic environment is uncertain and volatile we will be proactive with our cost control Alvarez and drive actions to deliver against our commitments.

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

Speaker Change: With that I want to thank you for the time this morning, and I'll turn now the call over to <unk> to begin the Q&A portion of our discussion higher. Thank you Rafael we will now move onto questions, but before we do and out of consideration for others on the call I ask that you limit yourself to one question and one follow up question.

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.

Rafael Santana: 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. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Speaker Change: We will now begin the question and answer session.

Rafael Santana: To ask a question you May press Star then one on your telephone keypad.

Rafael Santana: If you are using a speakerphone please pick up your handset before pressing the keys.

Rafael Santana: Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Rafael Santana: At this time, we will pause momentarily to assemble our roster.

Rob Wertheimer: The first question today comes from Rob Wertheimer with Mellius Research. Please go ahead. Hey, thanks, and good morning, everybody. Rafael, you called out in your opening remarks just some of the obvious uncertainty around North America. I wanted to ask just how that shows up in your business or in your pipeline or your pre-pipeline, whether it's, you know, less appetite for new locos, more than expected, more for mods, less for mods, more... Just kind of talk about what you meant by those comments and what you're saying. Thank you. Absolutely.

Speaker Change: The first question today comes from Rob Wertheimer with Melius Research. Please go ahead.

Rob Wertheimer: Hey, Thanks, and good morning, everybody.

Rob Wertheimer: You called out in your in your in your opening remarks, just some of the obvious uncertainty around North America wanted to ask just how that shows up in your business or in your pipeline or your pipeline, whether it's less appetite from new logos more than expected more for months left for months.

Rob Wertheimer: Just kind of talk about what you meant by those comments and what you are saying thank you.

Rafael Santana: Well, first, as we look into some of those dynamics, we continue to see North America lagging versus what we see internationally, and that's really part of how we're managing the overall business. We've got strong momentum internationally. It's more profitable, and those orders continue. We have a strong pipeline that we're continuing to convert, so it's good to see. We're seeing some other elements tied to both the transit and the mining business, which continue to be strong. Even in our components business, industrial seems to be holding quite well. So I go back to the fundamentals for the business continue to be strong.

Rob Wertheimer: Absolutely well first.

Rob Wertheimer: As we look into some of those dynamics.

Rob Wertheimer: Continuing to see our North America lagging.

Rob Wertheimer: Versus what we see internationally.

Rob Wertheimer: It's really part of how we're managing the overall business, we've got strong momentum internationally, it's more profitable.

Rob Wertheimer: Those were to continue we have a strong pipeline.

Rob Wertheimer: Turning to convert so it's good to see we're seeing some other elements tied to both the transit and the mining business, which continued to be strong.

Rob Wertheimer: Even in our components business industrial seems to be holding quite well. So I go back to the fundamentals for the business continued to be strong I think the best way to look at it is the quality of the backlog.

Rafael Santana: I think the best way to look at it is the quality of the backlog, in which we've got not just better visibility at this point, but higher margins. With that, there's always going to be elements of lumpiness, quarter to quarter, on both the elements of how we cut up those orders, but how we go about delivering on them. So we continue to approach the year with caution, but very focused here on what we can control. And ultimately, we're going to continue to take the actions to, number one, deliver on the 25 guidance, but most importantly, make sure that we're driving profitable growth into 26 and beyond.

Rob Wertheimer: In which we've got not just better visibility at this point, but higher margins with Doctor is always going to be elements of lumpiness quarter to quarter on both the elements of how we got those orders, but how we go about delivering on down so.

Rob Wertheimer: We continue to approach the year with caution, but very focused here on what we can control and ultimately we're going to continue to take actions to number one deliver on the 25 guidance, but most importantly make sure that we're driving profitable growth into 'twenty six and beyond.

Rafael Santana: Perfect.

Rafael Santana: And so you're saying, basically, that both the profitability and the order flow from an international is currently, anyway, offsetting any hiccups or weakness or softness or hesitation in North America. But are you seeing, like, less appetite for mods in North America right now? Or just any color there on what you mean by that? And I'll stop there. Thank you. It's very customer-specific at the end of the day. I think what we've seen is not necessarily customers migrating from one to the other. It's customers that maybe were not investing as much. You see them now investing on some new fleets.

Rob Wertheimer: Perfect.

Rob Wertheimer: Basically the both the profitability and the order flow for international is apparently anyway, offsetting any any hiccups or weakness or softness.

Rob Wertheimer: <unk> of America, but are you seeing like less appetite for mods in North America, right now or just any color there on what you mean by that and I'll stop there. Thank you.

Rob Wertheimer: Very customer specific IP under a day and I think with what we've seen is not necessarily customers migrating from one to the order it's customers that.

Rob Wertheimer: Maybe.

Rob Wertheimer: We're not investing as much youll see them now and investing on some new fleet. So we've certainly seen tier four locomotives growing in North America I think the auto elements here to keep you in mind, yes, very often we're very focused on North America in dynamics between new logos and mods, we're managing ultimately a global business.

Rafael Santana: So we've certainly seen Tier 4 locomotives growing in North America. I think the other element here to keep in mind is very often we're very focused on North America and dynamics between new locos and mods. We're managing, ultimately, a global business. And there's elements here of how we make some of those shifts and moves between the global volumes we see in North America. We'll very often look at that, continue to extend and expand on some of these agreements. So it's very dynamic from that perspective. And I go back to the comments I made, which is taking every action to deliver on that 25 guidance, which we've just given you, and making sure that we're driving profitable growth into 26 and beyond.

Rob Wertheimer: And theres elements here of how we make some of those shifts and moves between the global volumes, we see in North America will very often look at continuing to extend and expand on some of these agreements. So it's very dynamic from that perspective, and I go back to the comments I made which adds thinking out reaction to deliver on the up 25 guidance with.

Rob Wertheimer: With just given you and making sure that we're driving profitable, but up until 26 and beyond.

Rafael Santana: Thank you.

Rob Wertheimer: Thank you.

Ken Hoexter: The next question comes from Ken Hoexter with Bank of America. Please go ahead.

Ken <unk>: The next question comes from Ken <unk> with Bank of America. Please go ahead.

Speaker Change: 18, it's Adam Ross Koski on for Ken Thanks for taking my.

Adam Roszkowski: Adam Roszkowski. and Kenneth Hoexter. Thanks for taking my question.

Ken <unk>: Questions.

Adam Roszkowski: So maybe Rafael or John, I think the 2025 guidance assumes Arabs, with the exception of clarify. © The Bulletproof Executive 2013 All rights reserved. that after the 90-day pause, there's no further impacts. If you could clarify. Thanks, Adam. So as we put our guidance together, we looked at all the tariffs that have been, I would call the first round of tariffs, and excluding the reciprocal. So that would include, Adam, 25% in Canada, 25% in Mexico, 25% steel and aluminum, and 20% in China. So those are, they've been initiated in February and March. We're currently paying on those tariffs today, and that's been built in to our forecast, both the impacts on cost as well as revenue.

Speaker Change: So maybe Raphael and John I think the 2025 guidance assumes Arabs with the exception of a reciprocal.

Speaker Change: <unk> tariffs. So can you just clarify kind of what you're expecting there or is that just assuming that the after.

Speaker Change: After the 90 day pause Theres no further impacts if you could clarify.

Speaker Change: Thanks, Adam So as we put our guidance together, we looked at all the tariffs that have been I would call. The first round of tariffs and excluding the reciprocal. So that would include add them, 25% in Canada, 25%, Mexico, 25% steel aluminum and 20% in China.

Speaker Change: So those are have been initiated in February and March. We're currently paying on those tariffs today and that's been built in to our forecast both the impacts on cost as well as our revenue we have not built in the reciprocal which is 125% to China and 10% on all the other countries and that's simply.

John Olin: We have not built in the reciprocal, which is 125% to China and 10% on all the other countries, and that's simply a factor of there is so much volatility in those. And kind of the forward look at those tariffs, whether they'll be on or off, and as you mentioned, Adam, there's a 90-day reprisal on lifting them higher. So we're going to continue to read that situation. Now those tariffs won't start to affect us financially until the end of May, because there's an on-water exemption for them to hit. So we're going to take some more time and understand where they land and the impact that they'll have on the economy.

Speaker Change: Factor of there is so much volatility.

Speaker Change: In those.

Speaker Change: And kind of a forward look at those tariffs, whether there'll be on or off and as you mentioned, Adam There's a 90 day.

Speaker Change: <unk> lifting them higher.

Speaker Change: We're going to continue to read that situation now those tariffs don't won't start to affect us financially until the end of may because there is a.

Speaker Change: On water exemption.

Speaker Change: For them to hit so we're going to take some more time and understand where they land and the impact that they'll have on the economy.

John Olin: Thanks, John.

John: Thanks, John and then just.

John Olin: And then. Following up Last quarter, you noted that you expected balanced revenue growth.

Speaker Change: Following up on the kind of the cadence and shape of this year I think last quarter. You noted that you expect it balanced revenue growth.

But two which would be a little bit more.

Speaker Change: Heavier weighted on the EPS side, So maybe just talk about how you're thinking about margin progression in both transit and freight.

John Olin: Talk about how you're thinking about margin progression. You know, Adam, again, going back to this incredible amount of uncertainty and volatility, I don't think it helps much to kind of go out a couple quarters, maybe to bring it in a little bit. Let's talk about the second quarter in relationship to the first quarter. We do expect a strong, solid quarter in the second quarter. However, a couple things that you should note as we do move into the second quarter is a lot of the mixed favorability that we had and drove a fair amount of margins in the first quarter, we'd not expect this to be at the same level in the second quarter.

Speaker Change: You know Adam again going back to this incredible amount of uncertainty and.

Speaker Change: And volatility I don't I don't think it helps our much.

Speaker Change: Go out a couple of quarters.

Speaker Change: It may be to bring it in a little bit let's talk about the second quarter.

Speaker Change: In relationship to the first quarter, we do expect a strong solid quarter in the second quarter. However couple of things that you should note as we do move into the second quarter is the.

Speaker Change: Love the mix favorability that we had and drove a fair amount of margins in the first quarter. We would not expect this to be at the same level in the second quarter I remember first quarter revenue mix.

John Olin: Remember, our first quarter revenue mix, I'm sorry, mix was driven by strong revenues out of the services group at up 16.9% and somewhat given back with regards to the equipment group being down 9.5%. And again, this is just how we allocate the capacity that we have. In the second quarter, we expect our equipment group to be up a fair amount and our services group to be up but at a much more moderated pace. So that will be a headwind with regards to mix in the second quarter. And the second thing, as we had mentioned, there's some timing items that impacted our first quarter that we'd expect to not repeat in the second quarter.

Speaker Change: I'd say the mix was driven by strong revenues out of the services group is up 16, 9% and somewhat given back with regards to the equipment group being down nine and a half and again. This is just how we allocate the capacity that we have in the second quarter, we expect our equipment group to be up.

Speaker Change: A fair amount and our services group to be up but at a much more moderated pace so that will be up.

Speaker Change: Headwind with regards to mix in the second quarter and the second thing is we had mentioned theres some timing items that impacted our first quarter that wed expect to not repeat in the second quarter.

Speaker Change: Thank you.

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

Jerry Revich: and comes from Jerry Revich with Goldman Sachs.

Jerry Revich: Please go ahead. Yes, hi. Good morning, everyone. And congratulations on the strong start to the year.

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

Speaker Change: Congratulations on the strong start to the year.

Jerry Revich: I want to ask in terms of on the feedback from customers, Rafael and John, that you're hearing on the tariff side, can you just talk about Are there any customers that are essentially opting to age their fleet or any specific feedback that you're seeing? And as you think about, you know, integration 3.0, to what extent are you thinking about potential pivot in that strategy if you were to, let's say, increase capacity in the U.S. as you think about that multi-year plan, to what extent does the tariff situation impact your planning process?

Jerry Revich: I wanted to ask you in terms of.

Jerry Revich: The feedback from customers Raphael and John that you are hearing on the tariff side can you just talk about.

Jerry Revich: Are there any customers that are.

Essentially.

Jerry Revich: Opting to each their fleet or any specific feedback that youre seeing and as you think about.

Jerry Revich: Integration three can we know.

Jerry Revich: To what extent are you thinking about potential.

Jerry Revich: Pivot in that.

Jerry Revich: <unk>.

Jerry Revich: You were to let's say to increase capacity in.

Jerry Revich: In the U S. As you think about that multiyear plans to what extent does the tariff situation.

Jerry Revich: Impact your planning process.

Rafael Santana: Thank you.

Rafael Santana: Chair, a couple of things. I mean, there's clearly what I call a balancing act here. I think we've been working quite constructively with both customers and suppliers to ultimately make sure that we're managing the supply chain shifts in a way that's fair and that minimizes disruption. I think a large part of our focus here is ultimately making sure that we're protecting what I call the reliability and availability of our customers' fleets. That's key. That's how they ultimately support the service levels and ultimately how we support demand. So I think it's important to start there. We're actively evaluating a range of levers, things like USMCA.

Speaker Change: Sure a couple of tanks I mean, there's clearly a what I'll call a balancing act here I think we've been working quite constructively with both customers and suppliers to ultimately make sure that we're managing the supply chain shifts in a way that's fair and that minimizes disruption.

Speaker Change: A large part of our focus here is ultimately making sure that we're protecting what I'll call the reliability and availability of our customers' fleets. That's key that's how they ultimately support the service levels and ultimately how to support demand. So I think it's important to start there.

Speaker Change: We're actively evaluating a range of Lau <unk> shops things like U S. MCA, we've looked at alternative sourcing strategies of course, you've got to evaluate inventory positioning and broader supply chain adjustments, but at the same time I think we've taken cost you asked specifically with regards to <unk>.

Rafael Santana: We've looked at alternative sourcing strategies. Of course, you've got to evaluate inventory positioning and broader supply chain adjustments. But at the same time, I think we've taken costs.

Rafael Santana: You asked specifically with regards to integration 2.0 and 3.0. We do have the opportunity to accelerate those, and those are the kinds of things that we're going to actively and proactively manage it. And we've taken pricing actions that help offset additional pressures we're facing there. And Jerry, you also asked about any pivot on Integration 3.0, or our strategy's direction there. And the answer is no. Our strategy remains the same. There's plenty of opportunity for us to reduce costs by that $100 to $125 million. Now, as we get into the execution piece, we'll look at, you know, we do an IRR on every project that we run, and as the economics change, you know, some of that may change.

Speaker Change: Integration shoot all in three thought all we do have the opportunity to accelerate dollars and those are the kinds of things that we're going to actively and proactively manage it and we've taken pricing actions that help offset the additional pressures we're facing there.

Speaker Change: Hey, Jerry you also asked about any pivot on integration three point al.

Speaker Change: Our strategies direction, there and the answer is no. Our strategy remains the same there is plenty of opportunity for us to reduce cost by that $100 million to $125 million as we get into the execution piece will look at we do an IRR in every project that we run and adds the economics change some of that May change, but overall the.

Rafael Santana: But overall, the direction remains the same, and our ability to take out $100 to $125 million is not going to be affected by the tariffs. Super.

Speaker Change: <unk> remains the same and.

Speaker Change: Our ability to take out $100 million to $125 million is not going to be affected by the tariffs.

Jerry Revich: And then, can I ask, the international installed base is growing really nicely. I think you're also going to have more locomotives entering the sweet spot.

Speaker Change: Super and then can I ask the international installed base is growing really nicely I think youre also going to have more locomotives entering the sweet spot from a service standpoint based on your models what kind of growth rate do you expect international aftermarket service just given the age profile.

Jerry Revich: From a service standpoint, based on your models, what kind of growth rate do you expect in international aftermarket service, just given the age profile, 25, 26? What are your models tell you as those fleets age? Well, Jerry, we certainly see an acceleration of that, and the way I would answer you there, if you look at more mature service businesses that we have running out there, if you look at the core of services, and that excludes things like modernization, you'll see those growing at what are called a 6 to 7% rate. That's what we've seen in the past.

Speaker Change: 25, 26, what are your models tell you.

Speaker Change: As those fleets age.

Speaker Change: We certainly see an acceleration of that I mean, the way out of Algeria, you. There. If you look at more mature service businesses that we have running out there. If you look at the core of services and that excludes things like modernization youll see those growing atwater call up 6% to 7% rate that's what we've seen.

Speaker Change: In the past.

Jerry Revich: I think one of the things that's important here is we're seeing not just that transition that you spoke about of fleets that were under warranty entering to a normal service. Our fleets are running. They're running hard, and what I mean by that, we have over 18,000 units that we monitor regularly. When you look at the megawatt hours, that really translates into how much work those units are doing. Those hours are up. They're up in the first quarter of this year as well, and we haven't really seen change on that.

Speaker Change: I think one of the things thats important areas.

Speaker Change: We're seeing not just that transition that you spoke about of fleets that were under warranty entering to a normal service our fleets are running they're running.

Speaker Change: Hard to you and what I mean by that we have over 18000 units that we monitor regularly when you look at the megawatt hours to really translate into how much work. Those units are doing those ars are up they're up by in the first quarter of this year as well and we haven't really seen change on that.

Jerry Revich: Thank you.

Speaker Change: Thank you.

Daniel Imbro: The next question comes from Daniel Imbro with Stevens. Please go ahead. Yeah, good morning, guys. Thanks for taking our questions. Maybe to follow up on the tariff backdrop, John, I appreciate the color on maybe what you're including what you're not including. But, you know, can we actually expand on what the impacts are from these tariffs? I think back in 2018, there was a few million dollars of gross margin headwind per quarter, but can you maybe expand on how many of your freight components are imported, what that import map looks like, and what the actual impacts will be starting on May 1?

Daniel: The next question comes from Daniel <unk>.

Speaker Change: Steven Please go ahead.

Speaker Change: Yeah, Hey, good morning, guys. Thanks for taking our questions.

Speaker Change: Maybe to follow up on the tariff backdrop, John I appreciate the color on maybe what you include and what Youre not including but can you maybe actually expand on what the impacts are from these tariffs I think back in 2018. There was a it was a few million dollars or a gross margin headwind per quarter, but could you maybe expand on how many of your freight components are imported what that import map.

Speaker Change: It looks like and what the actual <unk>.

Speaker Change: <unk> will be starting on May one.

John Olin: Thanks, Daniel.

John Olin: Hey, Daniel, we're not going to disclose the impact of the tariffs on the business due to the fact that timing, volatility, uncertainty. Don't think that would benefit. Again, we've got a great competency going here of putting them on and taking them off and delaying them. So I'm not going to provide any of that guidance. Suffice to say, we are collaborating with our stakeholders to minimize the impact of incremental tariffs on our business. We're also working multiple, we're. We've minimized the tariffs, and we've adjusted our prices of the tariffs that are currently in place. again with the exception of the Reciprocals.

Speaker Change: Thanks, Daniel Hey, Daniel we're not going to disclose the impact of the tariffs on the business due to the fact that timing volatility uncertainty continued to change on a daily basis.

Speaker Change: I think that would benefit again, we've got a great competency going here of putting them on and taken them off and delaying them.

Speaker Change: So.

Speaker Change: I'm not going to provide any any of that guidance at this point, it's suffice to say we are collaborating with our stakeholders to minimize the impact of incremental tariffs on our businesses.

Speaker Change: We're also working multiple work streams to minimize the tariffs and we've adjusted our prices of the tariffs that are currently in place.

Speaker Change: Again with the exception of the reciprocal tariffs.

John Olin: I think as you mentioned, I mean, we've done this over the last six years and we'll continue to manage this dynamic environment.

Speaker Change: I think as you mentioned I mean, we've done this over the last six years and will continue to manage this dynamic environment, there could always be an element of specific.

John Olin: There could always be an element of specific impact into quarters, but we'll continue to navigate these challenges and continue to really make sure that we drive profitable growth over time. Great, that's helpful. Appreciate it.

Speaker Change: In fact in two quarters.

Speaker Change: We will continue to navigate this challenges and continue to really make sure that we drive profitable growth over time for the business.

Speaker Change: Great. That's helpful. I appreciate it and then maybe my second or follow ups on just free cash flow in the first quarter I think it was down year over year, John I think the receivables securitization slowed if we read that right was that just a timing issue or something in the ABS market different where it was less receptive given the volatility does any thoughts on how that should trend through the year.

John Olin: And then maybe my second or follow up on just free cash flow, you know, the first quarter, I think it was down year over year, John, I think the receivable securitization slowed if we read that right. Was that just a timing issue or something in the ABS market different where it was less receptive given the volatility? Do you have any thoughts on how that should trend through the year? You reiterated it. Thank you. The 90% Pre-Cash Flow Conversion Guidance, but just curious, what's going to make that get better given the timing there? Thanks. Yeah, Daniel, thanks for the question.

Speaker Change: Generated.

The 90% free cash flow conversion guidance, but just curious what's going to make that get better given the timing there. Thanks, Daniel Thanks for the question.

John Olin: Matter of fact, we had a very good cash flow quarter in the first quarter when you adjust for that securitization financing that happened a year ago. So what you're seeing is we ended the year last year with a balance of $230 million of outstanding securitization, and this quarter, the first quarter of this year, we have zero. So with that, you're seeing that change, and that's driving the $143 million lower, actually a fair amount more than that. And if you adjust that out, we would be up over 20% in terms of cash flow. As we go forward, Daniel, we have amended our Securitization Trust and will now recognize all changes in securitization.

Speaker Change: Matter of fact, we had a very good cash flow quarter in the first quarter when you adjust for that securitization.

Speaker Change: Financing that happened a year ago, so what youre seeing as we ended the year last year with a balance of $230 million of outstanding securitization and this quarter. The first quarter of this year, we have zero, so with that youre seeing that that change.

Speaker Change: And that's driving the $143 million lower actually a fair amount more than that and if you adjust that out.

Speaker Change: Would be up over 20% in terms of cash flow for the quarter.

Speaker Change: As we go forward Daniel we have amended our securitization trust and will now recognize all changes in securitizations in the financing section of the cash flow statement, so they won't be flowing through.

John Olin: and the financing section of the CAST. so they won't be flowing through. operating cash anymore. Now it doesn't mean we still have a prior year quarter that will have an impact on the growth rates, but going forward there'll be no more cash from securitization or changes in securitization.

Speaker Change: Operating cash anymore now it doesn't mean, we still have.

Speaker Change: Prior year quarter that will have an impact on the growth rates, but going forward there'll be no more cash from securitization or changes in securitization in working capital I'm sorry in the operating.

John Olin: I'm sorry, and... Great. Thanks for all the detail. Appreciate it.

Speaker Change: Okay.

Speaker Change: Great. Thanks for all the detail I appreciate it.

Speaker Change: Cool.

Angel Castillo: The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead. Since your line is open, you can answer your question. Hello? Good morning. You have VSNs. Go ahead. Can you hear me? Yes. Hey, this is Angel Castillo. I'm from Morgan Stanley.

Vincent Andrews: The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Speaker Change: Okay.

Speaker Change: Hello. Your line is open you can answer your question.

Speaker Change: Hello.

Speaker Change: Good morning.

Speaker Change: Can you hear me yes.

Hey, this is angel Castillo.

Speaker Change: I'm.

Angel Castillo: I'm not sure why I came up as Vincent Andrews. Anyway, just thank you for taking my time. Just wanted to ask about the margin backdrop. You talked about the 2Q dynamic. I was hoping you could quantify that a little bit better just in terms of, you know, how much of that mixed favorability, how much of an impact that is maybe on a sequential basis. And same thing with the timing dynamic that you talked about and any other kind of factors that may be surprising in the first quarter, if you could kind of help quantify the magnitude of the move.

Speaker Change: Naturally I came up as Vincent Andrews.

Speaker Change: Anyway. Thank you for taking my time, just wanted to ask about the margin backdrop.

Speaker Change: You talked about the <unk> dynamic I was hoping you could quantify that a little bit better just in terms of how much of that mix favorability how much of an impact that is maybe on a sequential basis and same thing with the timing.

Speaker Change: Dynamic that you talked about it in any other kind of factors that may be surprised in the first quarter. If you could kind of help quantify the magnitude of the move.

Angel Castillo: Thanks, Angel.

John Olin: Angel, I'm not going to quantify in terms of percentage points. I think what I'd like to do is to make sure the understanding of, you know, we had four dynamics that really drove our first quarter margin and certainly came in over what are expected Mix being the biggest piece of it, and we would expect that to not be the same in the second quarter. But on a four-year basis, you know, mix is more of a timing element on a full year. The other one is that we talked about some timing of expenses and again that's just more the way the timing works out.

Speaker Change: Thanks Angel of Angel, and that's not going to quantify in terms of percentage points.

Speaker Change: Thank you.

Speaker Change: We'd like to do is.

Speaker Change: Make sure the understanding we had four dynamics that really drove our first quarter margin and certainly came in over what our expectations are mixed being the biggest piece of it.

Speaker Change: We would expect that that'd be the same in the second quarter, but on a full year basis.

Speaker Change: As more of a timing element on a full year basis.

Speaker Change: The other one is as we talked about some timing of expenses and again.

Speaker Change: It's just more and more of the way the timing works out.

John Olin: I think the other two though are areas where we will see them continue on and that's why we took our guidance up. I'm strong. Productivity that we've experienced, again, led by Integration 2.0 and Portfolio Optimization. They came in higher than expected. I expect that to stick on it for you. and then finally this idea of proactive cost management, right? The tariffs come in and we are getting incredibly prudent on every dollar that we spend to make sure that. Deliver on our commitments to our share. So some of that favorability is what we're taking our guidance up for as well.

Speaker Change: I think the other two though are areas, where we will see them continue on and that's why we took our guidance up and that is with the.

Speaker Change: The strong.

Speaker Change: Productivity that we've experienced again led by integration 2.0 and portfolio optimization. They came in higher than expected and we would expect that to stick on a full year basis.

Speaker Change: And then finally this idea of a proactive cost management.

Speaker Change: Right as we've seen that.

Speaker Change: Tariffs come in and we are getting incredibly prudent on every dollar that we spend to make sure that we can deliver on our commitments to our shareholders. So some of that favorability is what we're taking our guidance up for as well.

Rafael Santana: And maybe to that point on just the margin side and the ability to kind of respond to the tariff dynamic, curious for the reciprocal side where there's still a little bit of uncertainty and particularly as we go into kind of the May 1st timeframe, could you talk about your ability to kind of respond and quickly kind of pivot to whatever the ultimate kind of normalized level of tariffs is, meaning should we expect somewhat of a lag in terms of any kind of your ability to kind of reflect the kind of new environment, or is there an ability to kind of pass that through and reflect the kind of May 1st kind of immediately as soon as we know?

Speaker Change: And maybe to that point on just the margin side and the ability to kind of respond to the tariff dynamic curious for the reciprocal side, where there's still a little bit of uncertainty in particular as we go into kind of the may 1st.

Speaker Change: Timeframe could you talk about your ability to kind of respond and quickly kind of pivot to whatever the ultimate kind of normalized level of tariffs is meaning should we expect somewhat of a lag in terms of any kind of.

Speaker Change: The ability to kind of pull levers beyond to kind of reflect that.

Speaker Change: And a new environment or is there an ability to kind of pass that through and reflect the kind of may 1st kind of immediately as soon as we know.

Rafael Santana: Like I said before, I think it's going to be a balancing act here. We're managing through a number of variables. I think it's important to really highlight some of the comments John made here with regards to second quarter, which we've got more visibility into it. We're taking every action to make sure we deliver on the guidance for the year, but then from that perspective is really making sure that we're managing the business here, most importantly to drive profitable growth into 26 and beyond. And there's an element of shifts on suppliers. There's an element of really looking at our inventory positioning.

Speaker Change: Like I said before I think it's going to be a balancing act here when managing through a number of variables.

Speaker Change: I think it's important to really highlight some of the comments John made here with regards to second quarter, which we've got more visibility into it where.

Speaker Change: We're taking every action to make sure we deliver on the guidance for the year, but down from that perspective is really making sure that we're managing the business year, most importantly to drive profitable Gulf into 26 and beyond.

Speaker Change: There is an element of shifts on our suppliers.

Speaker Change: Suppliers, there is an element of really looking at our inventory positioning.

Rafael Santana: We have, as I mentioned, not just taking cost actions, we've also taken pricing actions that help us offset those additional pressures. There will always be some element of variability quarter to quarter, but we're taking every measure here to continue to drive profitable growth over time.

Speaker Change: We have as I mentioned, not just taken cost actions. We've also taken pricing actions that help us offset those odds.

Speaker Change: Additional pressures there will always be some element of variability quarter to quarter, but.

Speaker Change: We're taking every measure here to continue to drive profitable growth over time.

John Olin: Hey, Angel, you mentioned a couple times, May 1st, the reciprocal tariffs won't start hitting us or we won't be charged at the border until the end of May. Sorry, yeah, I meant, yeah. The earlier of that are May 26 for an on water exemption. So we got a little bit more time before the financial impacts. Got it. Very helpful. Thank you.

Angel: Hey, Angel.

Speaker Change: <unk> made the reciprocal tariffs.

Speaker Change: Won't start hitting us or we won't be charged at the border until the end of May.

Speaker Change: I'm sorry, yes.

Speaker Change: Earlier of that or May 26.

Speaker Change: Non water exemption. So we got a little bit more time before the financial impacts start to hit us.

Speaker Change: Got it very helpful. Thank you.

Speaker Change: Thank you.

Bascome Majors: The next question comes from Bascom Majors with Susquehanna. Please go ahead. I understand the... concern about being too precise on the reciprocal terrace when a lot of that is still in flux and you've got some time to see how that plays out, but can you give us a little qualitative help on your supply chain? For example, some of the locomotives you're assembling internationally in Kazakhstan or maybe India, how much of that content do you support with kits and engine and key components shipped out of the U.S.? Just understanding the back and forth of what's coming from the U.S.

Speaker Change: The next question comes from Bob <unk> with Susquehanna. Please go ahead.

Speaker Change: I understand the.

Speaker Change: Concern about being too precise on the reciprocal terrorists win win a lot of that is still in flux and you've got some time to see how that plays out but can you give us a little qualitative help on your supply chain.

Speaker Change: For example, some of the locomotives your assembly internationally in <unk>.

Speaker Change: Kazakhstan, or maybe India, how much of that content do you support.

Speaker Change: With kits.

Speaker Change: And other key components shipped out of the U S.

Speaker Change: Understanding the back and forth of what's coming from the U S. If if those negotiations and up an escalation rather than the escalation. Thank you.

Rafael Santana: if those negotiations end up in escalation rather than de-escalation. Thank you.

Rafael Santana: Let me start with just North America. I mean, we have a large footprint here in North America. We're largely localized in North America, and even as you look into the aspects of USMCA, we're quite balanced from that perspective. As you go into, I'll call those international markets, we'll balance the elements of what I'll call what's competitive locally. And at the same time, you got to make sure you're leveraging the scale on some critical components that will ultimately be imported. So it's a balancing act here between global and local. I think we do that quite well, and that's one of the elements that we'll continue to manage through that transition.

Let me start with just North America.

Speaker Change: Have a large footprint in North America were largely localized in North America, and even as you look into the aspects of U S. MCA, we're quite balanced from that perspective, as youre going to I'll call. Those international markets will balance the elements of what I'll call what's competitive locally.

Speaker Change: And at the same time, you've got to make sure you're leveraging the scale on some critical components that will ultimately be imported so it's a balancing act between global and local I think we we do that quite well and that's one of the elements that we will continue to manage through that transition.

Rafael Santana: But, you know, your term balanced, are you suggesting that the content, if a locomotive built in Central Asia, is actually similar in value to what's coming locally and what's coming from the U.S.? I just want to understand how literally we should take the word balanced when we think about, you know, the puts and the takes of what's coming from each direction in some of your international supply chains.

Speaker Change: But.

Speaker Change: Your your term balanced or are you, suggesting that the content. It's a locomotive built in central Asia.

Speaker Change: <unk> is actually similar in value to what's coming locally and what's coming from the U S. I just want understand how how literally we should take the word balance when we think about the.

Speaker Change: Puts and takes of what's coming from each direction and some of your international supply chains.

Rafael Santana: Bascome, I'm being generic here because some of this is going to depend even on the maturity of some of this supply chains and scale that we use them internationally. But take, for instance, like in Kazakhstan, we only have a lot of the fabrication, a lot of the elements tied to the platform and all of that. It's done locally. I mean, what you'll ultimately shift is some of the very specific controls, some of the elements tied to the engines and things like that. So it's what I'll call how you go about leveraging the elements of things that you can acquire locally on competitive terms. At the same time, you leverage the scale of concentrating some of these specific components in certain markets.

Speaker Change: Generic here because some of this is going to be even on the maturity of some of those supply chains and scale that we use them internationally, but take France. This.

Speaker Change: Like in Kazakhstan, and we only have a lot of it.

Speaker Change: Fabrication of lot of the elements side through the platform and all of that it's done vocally I mean, why do you will ultimately a shift as some of the very specific controls some of the on the site to the Ain gens and things like that so it's it's what I'll call. How you would go about leveraging the elements of.

Speaker Change: Things that you can acquire locally on competitive terms at the same time, you allowed us to scale of concentrating some of this specific components in certain markets.

Rafael Santana: And I think we're very well balanced from that perspective. Well, we don't we wouldn't expect a huge amount of things going from the U.S. outside. We haven't seen much retaliatory tariffs at all around the world, with the exception of China. Our biggest impact continues to be in North America from that perspective. You both. Bascome, we didn't catch that. I'm sorry, I said thank you.

Speaker Change: I think we're very well balanced from that perspective what.

Speaker Change: Well, we don't we wouldn't expect a huge amount of things going from the U S outside we haven't seen.

Speaker Change: Much retaliatory tariffs at all around the world with the exception of China.

Speaker Change: Our biggest impact continues to be in North America from that perspective.

Speaker Change: You bet.

Speaker Change: Okay.

Speaker Change: Our basketball you didn't catch that.

Speaker Change: I'm, sorry, I said thank you.

Saree Boroditsky: Thank you. The next question comes from Saree Boroditsky with Jeffreys. Please go ahead.

Speaker Change: Thank you.

Brian <unk>: The next question comes from Brian <unk> with Jefferies. Please go ahead.

James Monigan: Good morning, this is James on for Saree. Thanks for taking questions. Uh, I guess I just wanted to touch on the margin, uh, you talked about like international margins being higher than North American margins So I just wanted to understand when did that crossover occur? Like and what are like primary like drivers behind like that shift? Is it like mixed pricing like or structural like cost advantage? And kind of do you expect like international to continue to outpace like North American margin base?

Speaker Change: Oh. Good morning. This is James on for series, Thanks for taking my questions.

Speaker Change: Oh, I guess I just wanted to touch on the margin you talked about like international margins being higher than North American margins. So.

Speaker Change: Just wanted to understand when did the crossover ochre like in water like primary Eaton like drivers behind like that shift is it like mixed pricing like where our structural cost.

Speaker Change: Vantage and kind of do you expect international to continue to outpace North America margin basis.

John Olin: James, this is John. It isn't something that just happened. We just haven't disclosed it. So this is the first time we're really talking about the margin differential between international and North America. There's a common question that we get, and basically the margin structure that we have in our international business yields a higher overall margin than our North America business does. And we would expect that to certainly continue on. I think if you go back five years ago in the business, there was a number of markets that we were still at the stage, in some cases, of developing a platform to compete.

John: This is John.

John: It isn't something that just happened, we just haven't disclosed it.

John: So this is the first time, we're really talking about the margin differential between international and.

John: North America.

John: A common question that we get and the basically the margin structure that we have in our international business yields a higher overall margin than our North America business does and we would expect that certainly continue on into the future I think if you go back.

John: Five years ago into business towards a number of markets, where we're still at the stage in some cases of developing a platform to compete are you still on the early stages of standardizing some of the elements of the.

John Olin: You're still in the early stages of standardizing some of the elements of the product. We've certainly made, I think, a lot of progress in terms of the productivity on some of the international footprint we have out there. I think that has ultimately helped us really transform this over time. But I think John's comments that it hasn't changed overnight. I mean, this is something we've been working at it. And it's good to see reflected in the business that it's more profitable internationally than in North America. Great.

John: The product was certainly made I think a lot of progress in terms of the productivity on some of the international footprint. We have out there I think that has ultimately helped us.

John: Transform DSO over time, but I think John's comments that it hasnt changed overnight I mean, this is something we've been working at it and it's good to see it reflected in our business that it's a more profitable internationally and.

John: In North America.

James Monigan: Yeah, I guess then another follow-up question here. You guys talked about, like, amplified cost control measures. Like, can you provide more color here?

Speaker Change: Great Yeah, I guess another follow up question here you guys talked about like amplified cost control measures like can you provide.

Speaker Change: More color here is this like structural and kind of included in integration to <unk>.

John Olin: Is this, like, structural and kind of included in integration 2.0 and 3.0 efforts, or will they kind of reverse once kind of uncertainty and, like, inflation and everything kind of recites? Yeah, this is certainly in addition to our more structural efforts of integration and portfolio optimization. This is, James, just getting down to blocking and tackling, right, is things that's traveling less, holding positions open, again, scrutinizing all investments, accepting higher return capital projects, and so on and so forth. What we're doing is, again, to provide a more opportunity and a certainty that we'll hit those guidance that we delivered today.

Speaker Change: Or will they kind of reversed once kind of uncertainty and inflation and everything kind of recites. Yes. This is.

Speaker Change: Certainly in addition to that are more structural efforts of integration and portfolio optimization.

Speaker Change: As James just getting down to blocking and tackling rate is.

Speaker Change: Things Thats traveling less holding positions open.

Speaker Change: Again scrutinizing all investments.

Speaker Change: Accepting higher return capital projects and so on and so forth.

Speaker Change: We're doing it is again the provide more opportunity.

Speaker Change: Certainty that we'll hit those guidance that we delivered to date, but I want to assure you James that has nothing to do with anything that would have an impact on the future of our business. But these are just things that we can tighten up and as we get a little bit more defensive.

John Olin: But I want to assure you, James, that it has nothing to do with anything that would have an impact on the future of our business. But these are just things that we can tighten up. And as we get a little bit more defensive on you know, the risk profile that we have through the remainder of 2025. Got it.

Speaker Change: The risk profile that we have through the remainder of 2025.

James Monigan: Thanks for the caller.

Got it thanks for the color.

Speaker Change: Thank you.

Steve Barger: The next question comes from Steve Barger with KeyBank Capital Markets. Please go ahead. Thanks. To follow up on the international margin difference, is that positive variance pretty consistent across regions and product lines? And I know you're focused on margin expansion continually, but do you feel like there's still room to run on international? I think it's consistent, the growth we've seen in our margins internationally. Of course, it'll vary country to country based. Number one, on some of the maturity of some of the products we sell, it varies also depending on what the mix is in some of these countries.

Speaker Change: The next question comes from Steve Barger with Keybanc capital markets. Please go ahead.

Steve Barger: Thanks to follow up on the international margin difference is is that positive variance pretty consistent across regions and product lines and and I know you are focused on margin expansion continually but do you feel like there's still room to run on international.

Speaker Change: I think it's consistent the Gulf with.

Speaker Change: With sand in our margins internationally of course, they'll vary country to country based.

Speaker Change: Number one on some of the maturity of some of the products we sell.

Speaker Change: It's very it's also depending on what the next steps and some of these countries, but I think we have seen consistent improvement in the margin and that's driven a lot by some of the integration work that we have done and just really being very focused on our lean efforts and productivity Alpha.

John Olin: But I think we have seen consistent improvement in the margin, and that's driven a lot by some of the integration work that we have done and just really being very focused on our lean efforts and productivity efforts across the board. We feel like we have a good portfolio to compete for the opportunities we have out there. Even on the most recent opportunities like Guinea, we were able to ultimately adapt some of the existing platforms to be able to competitively compete in these products, which I have ultimately translated into, I think, really positive margins on the equipment side of the business.

Speaker Change: It's across the board, we feel like we have a good portfolio to compete for the opportunities we have out there even on the most recent opportunities like Guinea, we were able to ultimately.

Speaker Change: Adapt to some of the existing platform should be able to competitively compete and this products, which ultimately translated into I think a really positive margins on the equipment side of the business.

John Olin: That's great.

Rafael Santana: And I know it's an uncertain environment and you don't want to look too far ahead, but Just to ask it again directly, have you heard anything from your emerging market customers about international trade policy changing how they think about building rail or mining infrastructure? Like, would you, do you think that there's a negative reaction to that or are those countries just focused on what they're doing? I mean, tariffs are certainly not good, but the projects we talk about here, I mean, those are decade-long projects. In a lot of ways, you think about Guinea, it's not about price of iron ore right now, or it's not about any elements of specific tariffs that we're transitioning here.

Speaker Change: That's great.

Speaker Change: I know, it's an uncertain environment and you don't want to look too far ahead, but.

Speaker Change: Just to ask it again directly have you heard anything from your emerging market customers.

Speaker Change: About international trade policy changing how they think about building rail or mining infrastructure like would you do you think that there's a negative reaction to that or are those countries just focused on what they're doing.

Speaker Change: Tariffs are certainly not good but the projects we talk about here I mean, those are decade long projects and a lot of ways you think about Guinea, it's not about.

Speaker Change: Price of iron ore right now or it's not about any elements of specific tariffs.

Speaker Change: Tariffs that were transitioning here.

Rafael Santana: With that, some customers are more mature out there. I think we've also seen the dollar weakening. So there's so many elements moving and in transition here that can make the business more competitive. There's some other ones that are more headwinds to this. So right now, as I said, I think a lot of them are just really focused on running their business and making sure that we're taking the necessary actions to mitigate some of the things that we can control in that regard. And those were some of my comments in terms of how we really have this balancing act on looking at supply chains and making sure we're being constructive and proactive with our customers.

Speaker Change: With that.

Speaker Change: Some customers are more mature out there I think we've also seen the dollar weakening so there's there's so many elements.

Speaker Change: Moving and transition here that can make the business more competitive there are some other ones that are more headwinds to that so right now.

Speaker Change: As I said I think a lot of them are just really focused on running their business.

Speaker Change: Making sure that we're taking the necessary actions to mitigate some of job.

Speaker Change: Things that we can control in that regard and Dallas, where some of my comments in terms of how we how we really have this balancing act on looking at supply chains, and making sure we are being constructive.

Speaker Change: Constructive and proactive with our customers.

Oliver Holmes: Thank you.

Speaker Change: Thank you thank.

Speaker Change: Thank you.

Oliver Holmes: The next question comes from Oliver Holmes with Red Bird Atlantic. Please go ahead. Hi guys, thanks for having me on. Just a quick one from me on pricing pass-through, just as a comment you made earlier about passing through or maybe just actually repricing for tariffs and if I'm correct, your contract enable you to pass that through to customers. Just wondering how customers are reacting to that pass-through and is there a risk that perhaps they want to keep their capex budgets flat and maybe they extend their delivery cycles?

Speaker Change: The next question comes from Oliver Huang with Redburn.

Speaker Change: Please go ahead.

Oliver Huang: Hi, guys. Thanks for having me on just a quick one from me on pricing pulse rate just as.

Speaker Change: The comment you made earlier about passing through or maybe just actually repricing potassium if I'm correct. Your contract and then we need to pass that through to customers. Just wondering how customers are reacting to that pass through is there a risk that perhaps they want to keep that capex budgets flat to maybe extend their delivery cycles.

Rafael Santana: Thanks. Well, I go back to really the posture we've been having, which is, one, to make sure, I mean, that as we look into this, managing the supply chain shifts, we do it in a fair manner and that we minimize disruption. I mean, if you look at it, I mean, fleets are running, so the need to make sure that you're supporting those fleets is there, and you want to make sure you support reliability and availability of those fleets. And that's prime time to make sure you're ultimately supporting the demands you have from the customers, of our customers, in that case.

Speaker Change: Well I'll go back to really the posture, we've been having which was just want to make sure man.

Speaker Change: As we're looking to this.

Managing the supply chain shifts we do it in a fair amount of <unk> that we minimized disruption.

Speaker Change: And if you look at it and I'm in.

Speaker Change: Fleets or Ronnie so that needs to make sure that you're supporting those fleets is there and you want to make sure we support reliability and availability of those fleets and Thats Prime time to make sure you're ultimately supporting the demand you have.

Speaker Change: From the customers of our customers in that case, where continued stake.

Rafael Santana: We're continuing to take a number of strategies. I mentioned USMCA because we're working quite actively there to qualify more items in that regard. We are certainly looking at our inventory positioning. We've taken ourselves cost actions that have also helped us through that process, but we've also taken pricing actions. So it's not a one-way stream of cost and pricing go-to. I think there's a number of levers that we've been working through it, and that's what really keeps, I think, a more constructive dialogue with not just customers, but with suppliers in that context as well.

Speaker Change: A number of strategies I mentioned U S. MCA, because we're working quite actively there to qualify more items in that regard. We are certainly looking at our inventory positioning we've taken ourselves cost actions that have also helped us through that process, but we also have taken pricing action. So it's not a one.

Speaker Change: Waste stream with.

Speaker Change: Our cost and pricing go through I think theres a number of hours that we were.

Speaker Change: We've been working through it.

Speaker Change: That's what really keeps I think a more constructive dialogue with not just customers, but with suppliers in that context as well.

Scott Group: Thank you.

Speaker Change: Thank you.

Speaker Change: Sure.

Ivan Yi: The next question comes from Scott Group with Wolf Research. Please go ahead. Hey, good morning, guys. This is Ivan Yi on for Scott. First, quickly going back to tariffs, I know you're not quantifying the exact financial impact, but can you roughly estimate how much can you pass through? Can you pass through 100% of this through higher pricing? Just any additional color?

Speaker Change: Next question comes from Scott Group with Wolfe Research. Please go ahead.

Speaker Change: Hey, Good morning, guys. This is <unk> on for Scott.

Speaker Change: Quickly going back to tariffs I know youre not quantifying the exact financial impact, but can you roughly estimate how much can you pass through can you pass through 100% of this.

Speaker Change: Through higher pricing just any additional color. Thanks.

John Olin: Ivan, we will work with our customers, again, first of all, we're going to do everything we can to minimize those tariffs through USMCA. Exemptions as well as moves that we can do in our supply chain, but at the end of the day, we expect to come out of this hole and margins intact and deliver the margins that we've signed up for. I'm not sure of the guidance that we've signed up for.

Speaker Change: Ivan we will work with our customers.

Speaker Change: Again first of all we're going to do everything we can to minimize those tariffs through U S. MCA.

Speaker Change: Exemptions as well as our moves that we can do in our supply chain.

Speaker Change: At the end of the day, we expect to come out.

Speaker Change: This.

Speaker Change: Oh margins intact and deliver the margins that we've signed up for.

Speaker Change: The guidance that we've signed up for.

John Olin: Thank you. And then my follow-up, any additional color on the new Class 1 local order? How many units? When does it start? Over how many years?

Speaker Change: Thank you and then my follow up any additional color on the new class one local water.

Speaker Change: How many units when does it start over how many years. Thank you.

John Olin: Thank you. We're, again, not going to comment on any specific business with any specific customer on that regard. To your question earlier, I mean, we certainly manage a basket of opportunities and different projects with various customers. So this is ultimately a discussion that's very customer-specific based on really the impact that you see, the elements you're able to mitigate, and how you ultimately translate that into any price changes into those projects.

Speaker Change: Again, I'm not going to comment on any specific business with any specific customer on that regard.

Speaker Change: To your question earlier, I man with surely manage a basket of opportunities in different projects with various customers. So this FES ultimately a discussion thats very customer specific based on.

Speaker Change: Really.

Speaker Change: In fact that you see.

Speaker Change: Elements, you are able to mitigate and how.

Speaker Change: How you ultimately translate that into.

Speaker Change: Any price changes into those projects.

Tammy Sicario: Thank you.

Speaker Change: Thank you.

Speaker Change: Yeah.

Tammy Sicario: The next question comes from Tammy Sicario with J.P. Morgan. Please go ahead. Hi, good morning. Thank you so much. I actually appreciate all the comments you gave on tariffs earlier, given how fluid the situation is. I think I heard you talk about pricing action.

Speaker Change: The next question comes from Tami Zakaria with Jpmorgan. Please go ahead.

Tami Zakaria: Hi, good morning, Thank you so much.

Speaker Change: I absolutely appreciate all the comments you gave on test our India, given how fluid the situation is.

Speaker Change: I think I heard you talk about pricing action I just wanted to clarify are you able to reprice, the backlog if needed or wood pricing actions be.

Tammy Sicario: I just wanted to clarify, are you able to reprice the backlog if needed, or would pricing actions be primarily focused on new orders going forward if tariffs escalate from here? Again, I'm not going to go into specifics. I mean, as I said, we do have a basket of business. We do with customers, those involved, not just sometimes new locomotives, modernizations. There's a number of multi-year agreements that sometimes we have. We've got customers who are more transactional in nature in terms of the parts. So this is ultimately about managing that basket of business and making sure that through that process, we're both fair, we're smart as we're looking to balancing all the elements of the things that are at stake here.

Speaker Change: Primarily focused on new orders going forward.

Speaker Change: Escalate something here.

Speaker Change: Again, I'm not going to go into specifics and as I said.

Speaker Change: We do have a basket of <unk>.

Speaker Change: We do with customers those evolve not just sometimes new locomotive modernizations, there's a number of multiyear agreements that sometimes we have we've got customers who are more transaction.

Speaker Change: <unk> in nature in terms of the park. So this is ultimately about managing that basket of business and making sure it out through that process, where we're both we're fair where smart says we're looking to <unk>.

Speaker Change: Balancing all the elements of the things that are at stake here.

Rafael Santana: And that's what we're really managing. And I think to the comments we've made earlier, we feel strong about being able to manage that despite of any specific impact on any given quarter. We expect to be able to manage this through and continue to really make sure we deliver on the guidance we've provided through the year. But more importantly, make sure we're constructing profitable growth into 2026 and beyond. I think those were really some of the comments here John made. Understood. That's fair. That's very helpful. Thank you.

Speaker Change: That's.

Speaker Change: What we're really managing and I think to the.

Speaker Change: Comments, we've made earlier, what feel strong about being able to manage that despite of any specific impact on any given quarter, we expect to be able to manage this through and.

Speaker Change: Continue to really make sure we deliver on the guidance we've provided through the year, but more importantly make sure we're constructing.

Speaker Change: Paula Graff into 26 and beyond I think those were real.

Speaker Change: Some of the comments here John Meg.

Understood that said that's very helpful. Thank you and a follow up question on FX and it seems it was the headwind in the first quarter, but the U S. Dollar thanks Ziv alright.

Tammy Sicario: And a follow-up question on FX. It seems it was a headwind in the first quarter, but the U.S. dollar strength has reversed from earlier in the year.

John Olin: So is there any FX headwind embedded in the revenue guide for this year? Again, the guidance takes everything that we know right before we issue it.

Speaker Change: So is there any FX headwind embedded in the revenue guide for this year.

Speaker Change: But again.

Speaker Change: Again, the guidance takes everything that we know.

Speaker Change: But right before we issue it so earlier this week.

John Olin: Tammy. So it would include our view of what revenue or what currency over that period of time. Got it, thank you.

Speaker Change: So it would include our view of what revenue or what currency would be over that period of time.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Kyra Yates: This concludes our question and answer session.

Speaker Change: This concludes our question and answer session.

Kyra Yates: I would like to turn the conference back over to Kyra Yates for any closing remarks. Thank you, Betsy, and thank you, everyone, for your participation today. We look forward to speaking with you again next quarter.

Speaker Change: I'd like to turn the conference back over to Carl Lee for any closing remarks.

Carl Lee: Thank you Becky and thank you everyone for your participation today.

Speaker Change: We're just speaking with you again next quarter.

Carl Lee: Yeah.

Carl Lee: Yeah.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: You may now disconnect. © BF-WATCH TV 2021

Speaker Change: Yeah.