Q2 2025 Westinghouse Air Brake Technologies Corp Earnings Call
Good day and welcome to the web Tech, second quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance? Please signal conference specialist by pressing the star key followed by zero.
Vice president of investor relations. Please go ahead, ma'am.
Speaker Change: Thank you, operator. Good morning, everyone. And welcome to wabtec second quarter 2025 earnings call.
With us today, our president and CEO Rafael Santana, CFO, John, Olan, and Senior Vice President of Finance John Masters.
Speaker Change: Today's slide presentation along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on the investor relations tab.
Speaker Change: Some statements we are making are forward-looking and based on our best view of the world and our business today for more detailed risks uncertainties and assumptions relating to our forward-looking statements. Please see the disclosures in our earnings release and presentation.
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: I will now turn the call over to Rafael.
Rafael: Thanks Kyra, and good morning everyone. Let's move to slide 4. I'll start with an update on our business. My perspective is on the quarter and progress, I guess our long-term value creation framework and then John will cover the financials.
Rafael: Before we get into the numbers, I'd like to highlight a couple points. We have a strong first half of the Year where we were able to achieve better than expected margin expansion, as well as double digit adjusted earnings per share, growth during a volatile and uncertain economic environment. This is a direct result of our teams continued, discipline and unrelenting focus on taking actions to manage outcomes and to deliver against our commitments. As I look ahead to the second half, I'm encouraged by the continued demand for our core products and services.
Rafael: Momentum remains strong across our end markets and pipeline, both International, and domestic opportunities with significant activity underway in key businesses. Even as we navigate a persistently, volatile global economic and geopolitical environment,
Rafael: We are entering the second half with a strong momentum reflected in our organic revenue forecast, a healthy 12-month, backlog and continued margin expansion.
Rafael: That's sad. I'm also very excited to bring the inspection Technologies, business into wabtec following the closing of that acquisition on July 1st with that. I'd like once again to welcome those employees to WAP,
Rafael: We have adjusted our guidance to reflect the business expected financial performance with our company.
Rafael: With the progress we've made and the strong opportunities I had, I'm confident that wax. Well, positioned to drive sustained long-term profitable growth.
Rafael: Having said that?
Rafael: Sales in the second quarter were 2.7 billion dollars which was up 2% adjusted. EPS was up 16% from the year ago. Second quarter.
Rafael: Total cash flow from operations for the quarter was 209 million.
Rafael: And the 12-month backlog was 8.2 billion dollars up, 11.9% reflecting continued momentum and visibility ahead.
Rafael: Shifting our Focus to his life 5.
Rafael: Let's talk about 2025 and Market expectations in more details.
Rafael: While key metrics across our Freight business remain mixed.
Rafael: We are encouraged by the strength of our pipeline of opportunities across the globe.
Rafael: Despite the strong momentum that we're experiencing, we continue to exercise caution as we navigate a volatile and uncertain economic landscape in the second half of the year.
Rafael: North American traffic was up 2 and a half percent in the quarter.
Rafael: Despite this traffic growth, the industries and wax, active locomotive fleets were down when compared to last year's second quarter. However, the active locomotives are running harder than in the previous year.
Rafael: As we look forward, we continue to see significant opportunities in demand for new locomotives and modernizations as well as digital Technologies.
Rafael: Due to our customers investing in solutions, that continue to drive fuel efficiency, reliability, productivity and safety.
Rafael: 5,000 cars to be delivered. And which now has been reduced by industry sources to approximately 29,000 cars, this forecast represents a 31% reduction from last year.
Rafael: Internationally activity is strong across core markets, such as Africa, Asia Brazil, and the CIS
Rafael: Significant Investments to expand and upgrade infrastructure are supporting a robust, International locomotive, backlog and orders pipeline.
Rafael: In mining and aging fleets continues to support activity to refresh and upgrade the truck Fleet.
Finally moving to the transit sector, we continue to see the underlying indicators for growth.
Ridership levels are increasing in key geographies along with Fleet, expansion, and renewals
next.
Rafael: Let's turn to slide 6, to discuss our recent m&a activity.
Rafael: In addition to the Core Business strength on very proud of what our team has been able to accomplish with the accusations of inspection Technologies. The owner couplers and foushee sensor technology.
Rafael: Each 1 of them has a rich history of innovation and hold the number 1 market position within their respective markets.
Rafael: Over the past 6 months, we have committed 3 and a half billion dollars in Investments to acquire 3. High quality businesses which are expected to deliver immediate shareholder value.
Rafael: Each company is expected to deliver a creative growth.
Rafael: A creative adjusted ebit up margins.
Rafael: A creative adjusted earnings per share in the first year and a creative roic over time.
Rafael: In Aggregates the exact positions are expected to generate first year annualized revenues of 850 million dollars producing and expected. The beta of 217 million at in the bit, the margin of 25.5%
Rafael: We expect significant growth in margin expansion, over the next 3 years which includes the expected realization of 60 million dollars of run rate synergies.
Rafael: As I mentioned earlier, inspection Technologies, joined the company at the beginning of this month.
Rafael: Fur sensor, technology is expected to close by the end of the year. In delna couplers is expected to close in the first half of 2026 as we finalize, customary regulatory approvals.
Rafael: While these Acquisitions provide, very attractive Financial metrics and returns.
Rafael: The most exciting aspect is the Strategic fit that they bring to our existing Technologies. Our existing customers and our existing business model.
Rafael: this strategic Acquisitions aligned with our value creation framework and what that will grow faster and more profitably because of them, which will in turn make us stronger and even more resilient
Rafael: with that, I'll turn the call over to John to review the quarter segment results and our overall financial performance. John
John: Thanks Raphael and hello everyone turning the slide 7. I'll review our second quarter results in more detail.
John: Sales for the second quarter were 2.71 billion, which reflects a 2.3% increase versus the prior year sales growth, in the quarter was driven by the transit segment, excluding the impact of currency sales were up 1.9% our second quarter Revenue results played out differently than previously anticipated. And clearly below our expectations Q2 revenues were adversely impacted due to a supplied part issue that we experienced during the quarter.
John: This delayed shipment of locomotives to our customers.
John: The net impact of the issue was approximately 60 million dollars of Revenue in the quarter.
John: Excluding this issue, we would have posted growth of 4.6% in line with our expectations and our guidance.
John: The supply part issued that caused the delay has been corrected and we expect to catch up on the delayed locomotive shipments by the end of the year looking forward. We expect second half new locomotive, deliveries to post strong growth partially offset by lower year-over-year. Second half mod deliveries
John: First half.
John: As we rebalance our production in the second half of the year, we expect Revenue to be largely the same in the third and fourth quarters, which would result in the fourth quarter, having a higher year-over-year growth rate than the third quarter.
John: In spite of challenges in the second quarter locomotive deliveries, our operating margin expansion came in even better than expected. This was driven by favorable product mix.
John: partially, as a result of lower local motive shipments, and as a result of our focus on prudent cost management which was initiated in the first quarter as a result of economic and market uncertainty,
John: For the quarter Gap. Operating income was 472 million. The increase versus prior year was driven by higher sales, improved gross margin and proactive cost management.
John: Adjusted operating margin in Q2 was 21.1% up 1.8% points versus the prior year.
John: This increase was driven by improved gross margins of 1.5 percentage points and driven by operating expenses which grew at a slower rate than Revenue, increasing our Q2 margin by an additional 0.3 percentage points.
John: Gap earnings per diluted, share was 1.96, which was up 19.5% versus a year ago quarter.
John: During the quarter, we had net pre-checks charges of million dollars for restructuring which were primarily related to our integration and portfolio optimization initiatives.
John: As well as a benefit of 7 million related to m&a activity. That includes transaction costs and a hedge gain.
John: In the quarter adjusted earnings per diluted share was $2.27 up 15.8% versus the prior year.
John: Overall, web Tech delivered, another strong quarter, despite the challenges that we faced on locomotive deliveries, during the quarter, which further demonstrates the underlying strength of the business.
John: According to slide 8, let's review our product lines in more detail.
John: Second quarter, Consolidated sales were up 2.3%, which per my previous comments were below our expectations due to a supplied part issue.
John: Our services Revenue was up 6.0%.
John: Sales growth was driven by higher parts sales and increase modernization deliveries.
John: Equipment sales were down. 4.2% from last year's. Second quarter.
John: This decrease was due to a supplied part issue for which we see approximately dollars of Revenue shift from the second quarter.
John: To the second half of the year, as we rebalance our manufacturing production.
John: Component sales were down 3.1% versus last year due to a lower. North America, rail car, build and our portfolio optimization efforts which was partially offset by increased product sales from our industrial businesses.
John: Digital intelligence sales were down 4.0% from last year. This was primarily driven by timing of international projects
John: Our Transit segment sales were up, 8.7% in the quarter driven by our products. And services, businesses foreign currency exchange had a favorable impact on sales of 3.0 percentage points.
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: Moving to slide 9 Gap, gross margin was 34.7% which was up 1.7% points from the second quarter last year.
John: Adjusted gross margin was also up 1 and a half percentage points during the quarter.
John: In addition to the higher sales, gross margin benefited from favorable mix and contract escalation
John: Mixed within the freight. Segment was more favorable than anticipated primarily driven by the shifting of new, locomotives out of the quarter and into the second half of the year.
John: The strong mixed favorability in the first half will be a headwind in the second half.
John: Orange currency exchange was a benefit to revenue in the quarter as well as to gross profit, but slightly unfavorable to operating margin.
John: During the quarter, we also benefited from our ongoing integration 2.0 and 3.0 savings. Our proactive approach on cost management and transits strong productivity.
John: Now, turning to slide 10 for the second quarter Gap. Operating margin was 17.4%, which was up, 1.1% in points versus last year.
Adjusted operating margin improved. 1.8% points to 21.1%.
John: Versus prior year.
Engineering expense was fifty million dollars which was down 7 million versus last year as a result of timing. We do expect higher engineering expenses in the second half compared to the first half as a result of this shift in timing.
John: We continue to invest in engineering resources in current business opportunities, but more importantly, we are investing in our future as an industry leader, in fuel efficiency and digital technologies that improve our customers productivity capacity, utilization and safety.
John: Now, let's take a look at segment results on slide, 11 starting with the freight segment.
As I already discussed Freight segment sales were largely flat to last year's second quarter as a result of the delay and locomotive deliveries.
Yep. Segment, operating income was 415 million driving. An operating margin of 21.6% up 1.2% points versus last year.
John: Adjusted operating income for the freight. Segment was 480. Million up 3.9% versus the prior year.
John: Adjusted operating margin in the freight segment was 25.0% up. 0.9% points from the prior year.
John: The increase was driven by improved gross margin. Behind favorable, business mix and proactive cost management.
John: Finally 12 month, segment backlog was 6.02 billion. Our 12-month backlog was up 10.7% on a constant currency basis while the multi-year backlog of 17.14 billion dollars was down 4.0% on a constant currency basis.
John: Turning to slide 12 Transit segment, sales were up 8.7% and 787 million. When adjusting for foreign currency Transit sales were up 5.7%.
Yep. Operating income was 109 million restructuring costs related to integration and portfolio optimization were 5 million dollars in Q2.
John: Adjusted segment. Operating income was $120, million, adjusted operating income. As a percent of Revenue was 15.2% up 2 and a half percentage points.
John: The increase was driven by higher adjusted gross margin behind integration and portfolio optimization efforts.
John: As well as strong operational execution. Finally Transit, segment, 12-month backlog for the quarter was 2.19 billion, which was up 10.5% on a constant currency basis. The multi-year backlog was up 6.5% on a constant currency basis.
John: Now, let's turn to our financial position on slide 13.
John: second quarter, operating cash flow generation was 209 million, which was lower on a year-over-year basis, resulting from higher working capital, which was partially affected by higher inventories, due to the delay in Q2 locomotive deliveries,
John: We continue to expect greater than 90% cash conversion for the full year.
John: Our balance sheet and financial position continued to be strong as evidenced. By first our liquidity position, which ended the quarter at 4.09 billion and our net debt leverage ratio, which ended the second quarter at 1.4 times.
John: The leverage ratio was below our stated range in anticipation of funding. The acquisition of evidence inspection Technologies division that closed on July 1st adjusting for the cash payment at closing. Our leverage ratio would have been approximately 2.2 times.
John: We continue to allocate capital in a disciplined and balanced way to maximize returns for our shareholders. During the quarter. We repurchase $50 million of our shares and paid 44 million in dividends.
John: With that, I'd like to turn the call back over to Rafael to talk about our 2025 Financial guidance.
John: As we've heard today, our team delivered, a strong start to the year, which was ahead of our expectations while navigating through a challenging environment, our Global pipeline remains strong in our 12-month and multi-year backlogs, provide visibility for profitable. Growth ahead, additionally, we successfully closed the acquisition of inspection Technologies.
John: We are pleased to include their expected financial performance in our updated outlook for the remainder of the year.
John: Up 6 and a half percent from last year and adjusted EPS to be between 8 and 555 to $9.15 up 17% at the midpoint looking ahead. I'm confident that WX well positioned to drive profitable growth into 2025 and Beyond.
John: Now let's wrap up on slide, 15.
John: As you heard today our team continues to deliver on our value creation framework. Thanks again in large part to our resilient installed base World quest, team Innovative Technologies and continued focus on our customers.
John: With solid underlying demand for our products and Technologies.
John: Strategic portfolio enhancements through Acquisitions and intense focus on continuous Improvement and cost management. We remain committed to maximize our returns for our shareholders.
John: While the economic environment remains uncertain, we are committed to maintaining discipline and to take appropriate actions to deliver against our commitments with that, I want to thank you for the time this morning. I'll now turn the call over to Kyra to begin the Q&A portion of our discussion Kyra.
Kyra: Thank you. Raphael, 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 1 question and 1 follow-up question.
Kyra: If you have additional questions, please rejoin the queue operator. We are now ready for our first question.
Kyra: Thank you. We will now begin the question and answer session.
to ask a question, you may press star then 1 on your touchtone phone,
Kyra: If you're using a speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then 2 and at this time we'll pause momentarily to assemble our roster.
Speaker Change: In the first question will come from Rob worst, dimer, with Melius research. Please go ahead.
Hi, good morning and thank you. Um, question on, uh, real industry Dynamics and I know you're not going to want to comment on potential mergers, but I wonder if you could give us a mini teach in on kind of coast to coast operations and whether there's any major inefficiencies, uh, that result from 2 parties. If that question is allowed, I'll stop there.
Speaker Change: Uh Rob, thanks for the question. Uh, I think we see a significant opportunity here. And that's for well, I'll call increased car, loads increased rail volumes. Uh, that would be a positive for us, a positive for the industry. That's how we look at it.
Meaning there's more efficiency. So, so rail is more attractive versus other modes of Transport. Exactly. Uh, we see an opportunity for rail to win, share out there as a result of that and uh, that would translate into, uh, growing volumes, which would be a positive for us.
Speaker Change: Okay. Uh, thank you. I'll stop there. Thanks.
Angel Castillo: The next question will come from Angel Castillo with Morgan Stanley. Please go ahead.
Angel Castillo: Hey guys, this is Oliver Jang on for, for Angel, just on International markets. Um, would you mind just sharing some more detail on what you're seeing in demand, um, especially within Freight and Transit? You know, just curious if you've seen any step changes up or down, uh, with customers, you know, just as a result of, you know, geopolitics or or macro, and whether that's driving the decrease in um kind of your multi-year backlog or if that's something else entirely. Thanks.
Speaker Change: Well, thanks for the question. Uh, let me mention a couple of things here. I think it was about 18 months ago. I said, we had the strongest pipeline since the merger. Well today, the pipeline is stronger. I think there is a combination of sizable opportunities in our International markets. I think I've been quite open about that uh in the last calls but it's also under domestic market. So I'm going to emphasize that and uh our teams are continuing to convert that pipeline. I think certainly encouraging uh to see the 12-month backlog exceeding, 8 billion dollars for the second consecutive quarter.
Which really provides what I call a solid coverage into 2025 and Beyond. So, I'm confident you're going to see that, uh, strength reflected in continued, backlog, growth.
Speaker Change: And as far as specifically International, I mean, it continues, uh, uh, to be strong the opportunities. Uh, their uh, you ask a little bit on the transit business. We're very pleased with, uh, how that business continues, uh, to perform and, uh, we're continuing to look at, uh, uh, positive, uh, both the bill, uh, for our businesses, uh, as we close 25 here,
Speaker Change: Got it. That's that's helpful. And then, maybe just 1 on Capital, allocation, you know, obviously, you guys have a couple of deals, uh, live in the pipeline, you know, how should we think about, you know, capital allocations in the near future and, and if that, you know, eventually ends up transitioning back to, you know, perhaps paying down debt or, or more BuyBacks.
Speaker Change: Hey Albert, this is John.
Speaker Change: Um, with regards to our Capital, allocation strategy, uh, we see nothing has changed. Um, we've always had a bend for, um, um, driving increased shareholder returns through m&a. And I think, what Rafael talked about in the prepared remarks is, you know, we couldn't be happier with the 3 acquire and certainly the Strategic benefits. Um so we will continue to focus on um m&a going forward um in terms of the very near-term.
Speaker Change: Um, we would look to bring down our net debt, leverage ratio um um as we in anticipation of funding fur which we would expect by the end of the um year and then um I'm following that with Dell and learn the first half of next year.
Speaker Change: The next question will come from Ken hoaxer with Bank of America. Please go ahead.
Speaker Change: Hi, it's Adam mrozowski on for Ken hexter. Thanks for taking my question. Uh, I guess, John, um, maybe just thoughts on the shape of the back half of the year, you gave some kind of the revenue puts and takes and it looks like a bit more of a mix issue. But anyway to just think broadly about Freight and Transit margins the year-over-year or just sequentially. Thanks. Yeah.
Speaker Change: A very high level.
Speaker Change: Um you know when we look at the second half as it relates to revenue and margin growth, we see a very strong second half in front of us. First our organic Revenue growth will accelerate in the second half as compared to the first half next. Our adjusted operating margin will increase quite robustly on a year-over-year basis in the second half.
Speaker Change: Now, with that, let's talk a little bit more specifically about the Cadence of each. You know, when we look at Revenue initially, we were expecting um quarterly Revenue growth to be relatively consistent, um, with our full year guidance, given the shipment delays in Q2 that push roughly 60 million dollars into the second half. We're now expecting our second half organic Revenue to grow faster than the first half.
In addition, we've added in the second half, we've added Revenue, um, from the uh um acquisition of the inspection Technologies.
Speaker Change: So when we consider the revenue shift to 60 million and the acquisition, we would expect second half revenues to grow approximately 10% at the midpoint of our guidance.
Speaker Change: When we look at the the splits between the quarters, we expect the third and the fourth quarter Revenue to be largely. Um the same
Speaker Change: When we shift over to margin Cadence, you know, we expect our second half margins to grow at a strong Pace, but somewhat less than the 1.8 percentage points, we experienced in the first half. There's 2 reasons for this first is mix as you would pointed out. Um, the first half we experienced considerable mixed favorability as a result of our higher margin Services business, which grew at at 11 and a half percent during the half and um, our our lower margin equipment business was actually down by 6.8% in the second half. We, we expect the reverse of this in the second half, we expect equipment Revenue to grow well, into the double digits behind an approximate 70%, increase in new, local deliveries. While I, we expect our services Revenue to be down in the second. Half behind the approximate 30% reduction in mod. Deliveries, it is important to note that overall we continue to expect our combined local and mods to be up in the high single digits, on a full year basis. The second, um, piece that affects the margin Cadence on
Speaker Change: Slightly as as the timing of expenses. As you'll note the first, half on R&D, in particular was favorable on a year-over-year basis by about 9 million. We'll see some of that reverse out in the back half.
Speaker Change: So, looking at the quarters.
Speaker Change: Within the second half, we expect the fourth quarter, adjusted operating margin to be directionally higher than the third quarter.
Speaker Change: The great color, thank you. Um, and then just 1 more follow up on the backlog. Uh, you know, some acceleration in the 12-month minor moderation in the total on a year-year basis, Maybe Just Thoughts broadly on the pipeline and, and is that more timing as some of these things flow through. Thank you.
Speaker Change: Strong coverage, as you look at 12 months. 18 months, 12 months, uh, 24 months and the 12, uh, months backlog. It has grown over time. We have called solid coverage in 2025 and, uh, I think most importantly, we are continue to build momentum into 2026 and Beyond. So all in all, I think we have better visibility into future years. It just reinforces uh, our position to continue to drive. Uh, profit growth ahead.
Rafael John: All right. Rafael John. Thank you. Thanks you
Speaker Change: The next question will come from. Daniel embro with Stevens. Please go ahead.
Speaker Change: Hey morning everyone. This is Brady leers on for Daniel embro. Thanks for taking our questions Rafael. I wanted to go back to the previous question on the potential rail mergers you know who who knows what ultimately happens there. Um but maybe you know, if we are in as as an industry considering that to be possible again. What else do you think could potentially be on the menu? That previously hasn't seemed likely, uh, you know, are you seeing any progress on zero to zero from The Regulators or potential for automation? Uh, just brought our thoughts on the shifting regulatory. Environment would be great. Thanks.
Speaker Change: Okay. Well, uh, we're certainly following that very closely, uh, in the previous calls, uh, did mention specifically, to progress. We had seen with, uh, alright on specifically some technologies and, uh, I think I highlighted, the trip Optimizer 0 to zero, are brake, control product. Uh, so we do a dissipate after a under new leadership to continue to focus on, uh, what I'll call advancing both, uh, rail safety, but supporting Innovation driving our call ultimately efficiency. And, uh, to combine that, uh, with uh, uh, a merger, uh, here, I think, uh, we would certainly see. I think an opportunity here for increased car loads and rail volumes. And I think that's a direct element of winning share, uh, of transportation. And that would be a very, uh, positive thing for us.
Speaker Change: Okay, great. That's uh, that's helpful color. Uh, maybe just as a follow-up. I wanted to ask on Transit, uh, you know, the revenue growth and and margin expansion. Has continued to exceed our expectations in recent quarters there. Can you just talk about what's driving the growth? Uh, maybe the runway for that growth and and just where uh, you you see the margin going over the coming years. Particularly, as you scale to the business, thanks.
Speaker Change: Yeah, we're we're very pleased with the overall progress and uh, Transit business. Our team continues to take, uh, I want to call with really significant steps to both simplify the footprint and drive sustainable margin Improvement. Uh, I think the greater news here is the backlog is stronger. Uh, in the business, we're on track to expand fully year margins, uh, that business will continue to benefit from integration 3.0 portfolio optimization. Uh, they will continue to be selective on the approach to profitable growth, of course, as the business becomes more and more competitive, I think they're earning the right, uh, uh, to win, uh, uh, uh, penetration and share of wallet with customers. And uh, while we'll continue to have quarter to quarter variation, that's driven by like Max project timing. And uh, I think the business will continue to be very intentional about the growth, they pursue. So there will be selectively here. Uh, this team is committed continues to take
Speaker Change: focused actions and you're going to continue to see margin extension expansion and long-term profitable growth beyond the meetings.
Pastor Long: Awesome, thank you so much. Raphael I'll go ahead and uh stop their Pastor long.
Speaker Change: Nope.
Speaker Change: The next question will come from Jerry revich with Goldman Sachs, please go ahead.
Speaker Change: Hi, good morning everyone. This is Jetton Cana on behalf of Jerry. Rach, can you provide us an update on how tariffs are flowing through the business in the second quarter and your anticipated impact? In the third quarter? Also any changes in customer Behavior
Speaker Change: Part of the disruption to our customers. Um, our teams are committed to make this a non-event over time and that will come with cost and pricing actions as we have done before. And uh, we would expect, uh, to be able to navigate us very similar to what we've done in the past.
Speaker Change: And and, and to what Rafael said, I think it's important to understand that the significant majority of our purchase materials for sale in the US are, are actually sourced in the US. We got a lot of level of high level of vertical integration and a high level of um, us sourcing. Well, there's a percentage that we buy internationally for items that are difficult. The Source at all in the US as well as from a, a cost competitive standpoint. Um, we certainly do um, purchase outside the country for those as Raphael and mentioned. We're focused on mitigating the cost of these tariffs through largely a 4 pronged approach. Um,
Speaker Change: We've Incorporated our best estimate of the overall impact of tariffs. Um, uh, is it what it would have on our cost as well as our revenues? And that's baked into our, our current guidance. Now it's important to note that our guidance includes all tariffs, levied through the end of the second quarter. There's been a fair amount of activity after the quarter, um, in terms of of, um, proposed tariffs. Um,
Speaker Change: And the data's been pushed out a bit. Now, we're looking more at August 1st. So those haven't been Incorporated and and will certainly incorporate them, um, when we get to the, the next quarter, the the third quarter, um, but the the process at which we followed and mitigate those tariffs, um, we'll certainly, um, remain intact. I think most importantly, um, our tariff. The tariffs, um, are not expected to have a material impact on our 2025 earnings.
Speaker Change: Got it. Thanks for that and just as a follow-up, you complete the inspection Technologies acquisition early in the third quarter. I know it's very early but what's been the customer response so far? And how has the business performed earlier today versus expectations?
Speaker Change: Hey, I have the opportunity to, uh, be in a couple of the larger sites here, uh, with the employees. I think it's great to see, uh, the excitement. Uh, it's quite positive, uh, really, uh, a great leadership team here, uh, the business, uh, is, uh, looking I'll call favorably in terms of some of the demands, uh, that's out there. Uh, we're again feel very strong about the quality of the business and the quality of, uh, of the results and the numbers, uh, that will come uh, with it, uh, in that regard. So uh, uh, customers are looking, uh, very favorably into that. To this can't be again a significant element of how we continue to drive improved reliability and availability. Uh, and to
Speaker Change: Um, really not just the rail, space, the mining space, and, uh, we're uh, feel very strong, uh, about this right now.
Speaker Change: Great. Thanks a lot for that.
Speaker Change: The next question will come from boscombe Majors with susco Hannah. Please go ahead.
Speaker Change: Thanks for taking my questions. Um,
Speaker Change: I appreciate the m&a response on progrowth, uh,
Speaker Change: Aspects of a transcontinental merger, um, in certainly with your leadership position and North American locomotive that that seems very logical and real. Um, but the class ones do have different strategies in terms of Maintenance, insourcing versus Outsourcing Parts agreements. And and you know that business is really core to your locomotive cradle. The grave strategy and really the aftermarket revenue and stability to that generates for wabtec. Can you talk a little bit about you know maybe the differences across the different rails without necessarily
Speaker Change: specifying which does which and just you know what opportunities in Risk would some combination of rails, present for web Tech on the services business. Thank you.
Speaker Change: Mergers in the space. Uh, as I look back into those, they have translated into, I'll call a positive for both, uh, customers and for ourselves, as a result of that process. And, uh, I wouldn't anticipate, uh, anything different uh, in that process, uh, overall. So it's a positive, uh, certainly uh, over time
Speaker Change: Thank you for that. And just as a follow-up irrespective of the merger situation, um, you know, 2 of your largest mod customers or 6 months from the expiration of their long-term contracts in North America. Um,
Speaker Change: Uh, you know, the backlog, uh, doesn't indicate that you have new multi-year agreements in there. Quite yet. Can you talk a little bit about where that stands when we might see an update? And, you know, how you feel about the opportunity to continue to grow the combination of both mods, and new build deliveries in North America in 2026 and Beyond. Thank you.
Speaker Change: Thanks for the question. It goes right into the commentary. I provided all earlier which is uh we're right now in sitting on the strongest pipeline uh that we've had for years and uh I think we've got very many people uh discussions there. What's certainly a bit different uh than maybe uh a a few quarters ago is I think there's a greater interest when I look at new locomotives in that context.
Speaker Change: I think that's uh, a really continuing what doesn't really change is the fact that the fleet is old, and there's significant opportunities here, especially as customers looking to obsolescence. As they look into some of the advancements. We've been able to provide into the product. And uh, I'm very confident you're going to see. Uh, I think this pipeline uh, converted into, uh, ultimately, uh, a backlog growth and you certainly feel it right now with, uh, I'll call the 12-month backlog. Providing I think greater visibility uh, certainly uh, uh, uh, into a solid 25, but uh visibility is growing uh into 26 and Beyond uh in that context.
Speaker Change: Thank you, thanks.
Speaker Change: The next question will come from Steve Berger with keybanc capital markets. Please go ahead.
Speaker Change: Good morning. This is actually Christian Zila on for Steve. Barker, thanks for taking our questions.
Speaker Change: Rafael, after the inspection Tech deal, you talked about your digital Tam expanding to 16 billion, what will that can be now with browser and then can you just talk about that Tam in terms of rail mining or other industrial and markets? Where do you see the biggest digital growth opportunities?
Speaker Change: We continue to see opportunities, uh, in the digital fronts. I think that's, uh, a positive, uh, for us. Uh, you talk a lot about the pipeline of opportunity, especially on m&a. Uh, with both on deals, I think that has been an area that we have highlighted and, uh, we continue to have opportunities there. We're going to be opportunistic as we take that approach and you're right. We're expanding our uh, uh, our Tam, uh, through that process. I think most importantly, I think we've got some very strong relationships in certain geographies. So there's an element here of, uh, synergies that we can drive, and they're just not cost synergies. They're significant synergies that can come from, uh, growth in this context and, uh, we're continuing to work, uh, on those. So we see the opportunity here to accelerate profitable growth within, uh, specifically the digital, uh, segments, and, uh, uh, those are margins that
Your credit to object and that really continues to be uh part of how we position the company here for faster. Profitable growth ahead.
Speaker Change: Great. And then if I can add 1 more on digital, once your deal is closed, you'll have added about 600 million in annual sales to that business, which almost doubles it.
Speaker Change: What we've done in the rail car telematics, uh, business. I think it was at the end of 23 when we announced, uh, really, uh, that we would enter that market by creating a platform, uh, of proven technology that has uh, continued to play out. I mean, at that point was really focused on North America. Uh, we have expanded that now to include the European market as well. I mean, that alone it's, um, a market that we expanded from 1.6, into 1.6 million rail cars, uh, to 5.2 million rail cars worldwide. So, just a multi-billion dollar opportunity for us and that's how we how we think about it. It's utilizing that penetration, the global presence we have. I think the very positive uh, uh, service capability, we have with our customers and, uh, continue to uh, scale that business up and drive faster, profitable growth to watch.
Speaker Change: Greater thanks for the time.
Speaker Change: Thank you.
Speaker Change: The next question will come from Scott group with wolf research. Please go ahead.
Ivan Neon: Uh good morning everyone. This is uh Ivan neon for Scott. Uh thanks for taking the time.
Speaker Change: First. Uh, how does the 1, big, beautiful, Bill impact, your operations and more? Specifically, how does the bonus depreciation part impact your customers?
Speaker Change: Hi Ivan. This is John, you know, with regards to the the big the 1 big, beautiful bill. Um we're very pleased uh to have those tax um um benefits restored that we've enjoyed in the past. Um, but if we look at it strictly from an effective tax rate because we had them in the past, we don't see a big change on that, um, but certainly, um, it's a big change from where we would have been if they would have expired. Um, when we look at the
Speaker Change: Um, the accelerated depreciation, you know, there's there's 2 facets to that and certainly we enjoy it on the things that we're buying here, um, and being able to take that tax benefit upfront. Um, but when we look at our, our customers, you know, we've talked a lot Ivan. We've, um, the way we sell our stuff is based on a return on investment to them, right? We sell equipment, um, that makes them more productive, um, safer.
And then so on, um, what this does is certainly helps that irr, right? Um, because they get that, um, benefit of, um, um, accelerating it and, um, improving the, the cash flows or the, the tax on benefits that they have. Um, so that just serves the add-on to the, the already good returns that we had, um, in terms of an irr to them.
Speaker Change: Thank you for that. Uh and then my follow on what's next on the regulatory front. Now that carb dropped its logo. Mandate, do you expect California to revisit at some point or just over? Also, anything else we should be monitoring uh regulatory wise. Thank you.
Speaker Change: I would like to turn the conference back over to miss kairo Yates for any closing remarks. Please go ahead, ma'am.
Kairo Yates: Thank You, Chuck. And thank you everyone for your participation.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect