Q2 2026 Westinghouse Air Brake Technologies Corp Earnings Call

July 22, 2026

Operator: Welcome to the Wabtec Q2 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kyra Yates, Vice President of Investor Relations. Please go ahead.

Speaker #1: To the WabTech, Q2 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on a touchtone phone.

Speaker #1: To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Kyra Yates, Vice President of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you, operator. Good morning, everyone, and welcome to WabTech's Q2 2026 earnings call. With us today are Chairman and CEO Rafael Santana, CFO John Olin, and Senior Vice President of Finance John Mastalers.

Kyra Yates: Thank you, operator. Good morning everyone, and welcome to Wabtec Q2 2026 earnings call. With us today are Chairman 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. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael.

Speaker #2: 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 #2: 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 #2: We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael.

Speaker #3: Thanks, Kyra, and good morning, everyone. We're proud of the progress we have made in the first half of the year, which is strengthening our position as a leading industrial technology company.

Rafael Santana: Thanks, Kyra, and good morning everyone. We're proud of the progress we have made in H1, which is strengthening our position as a leading industrial technology company. It reflects the strength of the leadership position we continue to build across our portfolio and the continued focus of the Wabtec team to deliver for our stakeholders. With that, let's move to slide four. I'll start with an update on our business, my perspectives on the quarter, and progress against our long-term value creation framework, and then John will cover the financials. We delivered a strong H1, which exceeded our expectations despite tariff headwinds, unfavorable business mix, and challenging prior year comparisons. Through disciplined execution across the organization, we achieved robust growth, extended margins, and delivered double-digit EPS growth.

Speaker #3: It reflects the strength of the leadership position we continue to build across our portfolio and the continued focus of the WabTech team to deliver for our stakeholders.

Speaker #3: With that, let's move to slide 4. 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 #3: We delivered a strong first half of the year, which exceeded our expectations despite tariff headwinds unfavorable business mix and challenging prior year comparisons. Through disciplined execution across the organization, we achieved robust growth, expanded margins, and delivered double-digit earnings per share growth.

Speaker #3: Looking ahead to the second half, I remain encouraged by the healthy pipeline and continued demand for our core products and services, the profitable growth of our 12-month and multi-year backlogs, and our focus on driving productivity and efficiency.

Rafael Santana: Looking ahead to H2, I remain encouraged by the healthy pipeline and continued demand for our core products and services, the profitable growth of our 12-month and multi-year backlogs, and our focus on driving productivity and efficiency. This momentum is evident in our Q2 operational execution and our overall financial results. Having said that, sales were $3.2 billion, which was up 17.5%, and adjusted EPS was up 22% from the year ago quarter. Total cash flow from operations for the quarter was $441 million. Backlog remains a key strength. 12-month backlog was up 11% from the prior year, while the multi-year backlog exceeded $30 billion, up 42%. Our financial position remains strong. We continue to execute against our capital allocation framework and expect to continue to compound long-term value for our shareholders. Shifting our focus to slide five.

Speaker #3: This momentum is evident in our Q2 operational execution and our overall financial results. Having said that, sales were 3.2 billion dollars, which was up 17.5%, and adjusted EPS was up 22% from the year-ago quarter.

Speaker #3: Total cash flow from operations for the quarter was 441 million dollars, backlog remains a key strength. Twelve-month backlog was up 11% from the prior year while the multi-year backlog exceeded 30 billion dollars, up 42%.

Speaker #3: Our financial position remains strong. We continue to execute against our capital allocation framework and expect to continue to compound long-term value for our shareholders.

Speaker #3: Shifting our focus to slide 5, let's talk about our 2026 end-market expectations in more detail. While key metrics across our freight markets remain mixed, we continue to be encouraged by the overall strength and resilience of our business.

Rafael Santana: Let's talk about our 2026 end market expectations in more detail. While key metrics across our freight markets remain mixed, we continue to be encouraged by the overall strength and resilience of our business. We are seeing solid momentum in our international markets and the pipeline of opportunities across geographies remains strong. In North America, carload traffic was up 4% in the quarter. As a result of this growth, Wabtec's and industry's active locomotive fleet was up compared to last year's Q2. Internationally, carload growth during the quarter was mixed, the long-term carload growth trends continue to be robust. Significant investments to expand and upgrade infrastructure are driving our international orders pipeline.

Speaker #3: We are seeing solid momentum in our international markets and the pipeline of opportunities across geographies remains strong. In North America, Carlo traffic was up 4% in the quarter.

Speaker #3: As a result of this growth, WabTech's and industries' active locomotive fleet was up compared to last year's Q2. Internationally, Carlo's growth during the quarter was mixed.

Speaker #3: But the long-term Carlo growth trends continue to be robust. Significant investments to expand and upgrade infrastructure are driving our international orders pipeline. Looking at the North American rail car build, the industry forecast for new rail cars lightly up compared to prior quarter.

Rafael Santana: Looking at the North American railcar build, the industry forecast for new railcars slightly up compared to prior quarter and is now projected to be approximately 25,000 cars for 2026, which is still down 21% from 2025. Finally, turning to the transit sector, we continue to see positive underlying indicators for growth. Ridership continues to increase in key markets such as Europe and India, we continue to see strong backlogs at car builders, supported by robust levels of public investment for fleet expansion and renewals. Now let's turn to slide six and highlight several recent business wins. During the quarter, we secured a billion-dollar order from an Australian customer, spending across locomotives, services, components, and digital solutions.

Speaker #3: And is now projected to be approximately 25,000 cars for 2026, which is still down 21% from 2025. Finally, turning to the transit sector, we continue to see positive underlying indicators for growth.

Speaker #3: Ridership continues to increase in key markets, such as Europe and India, and we continue to see strong backlogs at car builders, supported by robust levels of public investment for fleet expansion and renewals.

Speaker #3: Now let's turn to slide 6, and highlight several recent business wins. During the quarter, we secured a billion dollar order from an Australian customer spending across locomotives, services, components, and digital solutions.

Speaker #3: This award highlights the breadth of WabTech's capabilities and demonstrates how our integrated offering are creating value throughout the product lifecycle. We also signed a 184 million dollar order for positive strength control with Vali, strengthening our long-standing partnership and marking an important step forward in advancing rail safety, efficiency, and automation across Brazil's rail network.

Rafael Santana: This award highlights the breadth of Wabtec's capabilities and demonstrates how our integrated offering are creating value throughout the product lifecycle. We also signed a $184 million order for Positive Train Control with Vale, strengthening our longstanding partnership and marking an important step forward in advancing rail safety, efficiency, and automation across Brazil's rail network. In transit, we were awarded a $55 million platform door order for the Grand Paris Express project. Moving to mining, our APAC team secured a $52 million order to supply drive systems for 240 ton mining trucks. Overall, these successes continue to demonstrate our leadership in the markets we serve, the strength of our pipeline, and the commitment of the Wabtec team to deliver meaningful results for our customers and stakeholders. With that, I'll turn it over to John to review the quarter, segment results, and our overall financial performance. John?

Speaker #3: In transit, we were awarded a 55 million dollar platform door order for the Grand Paris Express project. Moving to mining, our APAC team secured a 52 million dollar order to supply drive systems for 240-ton mining trucks.

Speaker #3: Overall, this success is continuing to demonstrate our leadership in the markets we serve, the strength of our pipeline, and the commitment of the WabTech team to deliver meaningful results for our customers and stakeholders.

Speaker #3: With that, I'll turn it over to John to review the quarter, segment results, and our overall financial performance. John?

Speaker #1: An important step forward in advancing rail safety efficiency and. Across Brazil, Israel, network. In transit, we were awarded a $55 million platform door order for the Grand Paris Express project.

Speaker #4: Thanks, Raphael, and hello everyone. Turning to slide 7, I'll review our results in more detail. Our Q2 results came in better than expected driven by stronger revenue, growth, and increased operating margin expansion.

John Olin: Thanks, Rafael, and hello, everyone. Turning to slide seven, I'll review our results in more detail. Our Q2 results came in better than expected, driven by stronger revenue growth and increased operating margin expansion. As we discussed in our last call, we expected the quarter's revenue growth to be similar to Q1's results. Q2 revenue growth came in stronger than the Q1, driven by a combination of a couple things. First, we had favorable timing of shipments, and second, we experienced incremental flow business revenue. We also expected our margin expansion to be similar to the Q1. In actuality, our operating margin expansion also came in favorable to Q1's results. This was driven by better than expected product mix and our continued focus on productivity and efficiency with programs such as Integration 3.0.

Operator: Welcome to the conference replay system. Please enter your access code followed by the pound key.

Speaker #1: Moving to mining: our APAC team secured a $52 million order to supply drive systems for 240-ton mining trucks. Overall, the success continues to demonstrate our leadership in the markets we serve, the strength of our pipeline, and the commitment of the Wabtec team to deliver meaningful results for our customers and stakeholders.

[Analyst]: Hello? Hello?

Speaker #4: As we discussed in our last call, we expected the quarter's revenue growth to be similar to Q1 results. Q2 revenue growth came in stronger than Q1, driven by a combination of a couple things.

Speaker #4: First, we had favorable timing of shipments and second, we experienced incremental flow business revenue. We also expected our margin expansion to be similar to Q1.

Speaker #1: With that, I'll turn it over to John to review the quarter segment results and our overall financial performance. John?

Speaker #2: Thanks, Rafael, and hello everyone. Turning the slide 7, I'll review our results in more detail. Our second quarter results came in better than expected driven by stronger revenue, growth, and increased operating margin expansion.

Speaker #4: In actuality, our operating margin expansion also came in favorable to Q1's results. This was driven by better-than-expected product mix and our continued focus on as integration 3.0.

Speaker #2: As we discussed in our last call, we expected the quarter's revenue growth to be similar to first quarter's results. Second quarter revenue growth came in stronger than the first quarter, driven by a combination of a couple things.

Speaker #4: Having said that, sales for the Q2 were 3.18 billion dollars, which reflects a 17.5% increase versus the prior year. With strong contributions from both the freight and transit segments.

John Olin: Having said that, sales for Q2 were $3.18 billion, which reflects a 17.5% increase versus the prior year, with strong contributions from both the freight and transit segments. Excluding the impact of currency, Q2 sales were up 16.6%. For the quarter, GAAP operating income was $600 million, which was up 27.1% versus the prior year. The increase was predominantly driven by higher sales, improved gross margin, and lapping prior year's transaction costs resulting from our recent acquisitions. Adjusted operating margin for Q2 was 21.9%, up 0.8 percentage points versus the prior year. This improvement was achieved despite tariff related headwinds, unfavorable mix, and tough year-over-year comps. GAAP earnings per diluted share was $2.33, which was up 18.9% versus the year-ago quarter. During the quarter, we had net pre-tax charges of $6 million for purchase accounting charges and transaction costs associated with our recent acquisitions.

Speaker #2: First, we had favorable timing of shipments and second, we experienced incremental flow business revenue. We also expected our margin expansion to be similar to the first quarter.

Speaker #4: Excluding the impact of currency, Q2 sales were up 16.6%. For the quarter, gap operating income was 600 million dollars, which was up 27.1% versus the prior year.

Speaker #2: In actuality, our operating margin expansion also came in favorable to Q1's results. This was driven by better-than-expected product mix and our continued focus on productivity and efficiency with programs such as integration 3.0.

Speaker #4: The increase was predominantly driven by higher sales, improved gross margin, and lapping prior year's transaction costs resulting from our recent acquisitions. Adjusted operating margin for Q2 was 21.9%, up 0.8 percentage points versus the prior year.

Speaker #2: Having said that, sales for the second quarter were 3.18 billion dollars, which reflects a 17.5% increase versus the prior year. With strong contributions from both the freight and transit segments, excluding the impact of currency, Q2 sales were up 16.6%.

Speaker #4: This improvement was achieved despite tariff-related headwinds, unfavorable mix, and tough year-over-year comps. Gap earnings per diluted share was $2.33, which was up 18.9% versus the year ago quarter.

Speaker #2: For the quarter, gap operating income was $600 million. Which was up 27.1% versus the prior year. The increase was predominantly driven by higher sales, improved gross margin, and lapping prior year's transaction costs resulting from our recent acquisitions.

Speaker #4: During the quarter, we had net pre-tax charges of $6 million for purchase accounting charges and transaction costs associated with our recent acquisitions. In the quarter, adjusted earnings per diluted share was $2.76, up 21.6% versus the prior year.

John Olin: In the quarter, adjusted earnings per diluted share was $2.76, up 21.6% versus the prior year. Overall, the quarter reflects the strength of our execution, the resilience of our business, and solid momentum as we move through the year. For H2, we expect year-over-year revenue growth to temper as we lap the inclusion of Inspection Technologies in the prior year period. We also expect the majority of our margin expansion for the year to occur in the back half of the year. Our H2 margins are expected to benefit from, first, tempering year-over-year tariff impacts as we begin to lap 2025 tariff increases. Next, increasing productivity momentum from our Integration 3.0 and portfolio optimization initiatives. Finally, lapping more moderate prior year margin growth.

Speaker #2: Adjusted operating margin for Q2 was 21.9%, up 0.8 percentage points versus the prior year. This improvement was achieved despite tariff-related headwinds, unfavorable mix, and tough year-over-year comps.

Speaker #4: Overall, the quarter reflects the strength of our execution, the resilience of our business, and solid momentum as we move through the year. For the second half, we expect year-over-year revenue growth to temper as we lap the inclusion of inspection technologies in the prior year period.

Speaker #2: Gap earnings per diluted share was $2.33, which was up 18.9% versus the year-ago quarter. During the quarter, we had net pre-tax charges of $6 million for purchase accounting charges and transaction costs associated with our recent acquisitions.

Speaker #4: We also expect the majority of our margin expansion for the year to occur in the back half of the year. Our second half margins are expected to benefit from, first, tempering year-over-year tariff impacts as we begin to lap 2025 tariff increases.

Speaker #2: In the quarter, adjusted earnings per diluted share was $2.76, up 21.6% versus the prior year. Overall, the quarter reflects the strength of our execution, the resilience of our business, and solid momentum as we move through the year.

Speaker #4: Next, increasing productivity momentum from our integration 3.0 and portfolio optimization initiatives. And finally, lapping more moderate prior-year margin growth. When we look at the cadence of growth between the third and the fourth quarters, we expect revenue growth to be slightly higher in the third quarter versus the fourth.

John Olin: When we look at the cadence of growth between Q3 and Q4, we expect revenue growth to be slightly higher in Q3 versus Q4, and on the margin side, we anticipate the opposite dynamic. We expect a meaningful acceleration in margin growth in Q4 with Q3's performance generally consistent with the margin growth rates delivered in H1. Now turning to slide eight, let's review our product line's performance in more detail. Q2 consolidated sales were up 17.5%. Equipment sales were up 35% from last year's Q2. This was driven by higher locomotive deliveries and increased mining sales. Our services group drove strong core services sales growth in the quarter, which was offset by lower modernization deliveries, as we expected.

Speaker #2: For the second half, we expect year-over-year revenue growth to temper as we lap the inclusion of inspection technologies in the prior year period. We also expect the majority of our margin expansion for the year to occur in the back half of the year.

Speaker #4: And on the margin side, we anticipate the opposite dynamic. We expect a meaningful acceleration in margin growth in the fourth quarter, with third quarter's performance generally consistent with the margin growth rates delivered in the first half of the year.

Speaker #2: Our second half margins are expected to benefit from, first, tempering year-over-year tariff impacts as we begin to lap 2025 tariff increases. Next, increasing productivity momentum from our integration 3.0 and portfolio optimization initiatives.

Speaker #4: Now turning to slide 8, let's review our product lines' performance in more detail. Q2 consolidated sales were up 17.5%. Equipment sales were up 35% from last year's Q2.

Speaker #2: And finally, lapping more moderate prior-year margin growth. When we look at the cadence of growth between the third and the fourth quarters, we expect revenue growth to be slightly higher in the third quarter versus the fourth.

Speaker #4: This was driven by higher locomotive deliveries and increased mining sales. Our services group drove strong core services sales growth in the quarter, which was offset by lower modernization deliveries as we expected.

Speaker #2: And on the margin side, we anticipate the opposite dynamic. We expect a meaningful acceleration in margin growth in the fourth quarter, with third quarter's performance generally consistent with the margin growth rates delivered in the first half of the year.

Speaker #4: Looking ahead, we expect modernization deliveries to grow in the second half of the year, returning services to growth in the back half. That said, we continue to expect full-year services revenue to be down due to the lower number of modernization deliveries that were shipped in the first half when we compared that to the prior year.

John Olin: Looking ahead, we expect modernization deliveries to grow in H2, returning services to growth in H2. That said, we continue to expect full year services revenue to be down due to the lower number of modernization deliveries that were shipped in H1 when we compare that to the prior year. Consequently, as modernization deliveries ramp up in H2, we would expect equipment revenue growth to remain positive, but at a very moderate pace versus the 43% growth achieved in H1. Component sales were down 0.7% versus last year due to the industry's decline in the North America railcar build and due to lower revenue from our portfolio optimization efforts, partially offset by increased industrial product sales. Digital Intelligence sales were up 88.5% from last year. This was driven by contributions from the Inspection Technologies and Frauscher acquisitions.

Speaker #2: Now, turning to slide 8, let's review our product lines performance in more detail. Second quarter consolidated sales were up 17.5%. Equipment sales were up 35% from last year's second quarter.

Speaker #4: Consequently, as modernization deliveries ramp up in the second half, we would expect equipment revenue growth to remain positive, but at a very moderate pace versus the 43% growth achieved in the first half.

Speaker #2: This was driven by higher locomotive deliveries and increased mining sales. Our services group drove strong core services sales growth in the quarter, which was offset by lower modernization deliveries as we expected.

Speaker #4: Component sales were down 0.7% versus last year due to the industry's decline in the North America rail car build. And due to lower revenue from our portfolio optimization efforts, partially offset by increased industrial product sales.

Speaker #4: Digital intelligence sales were up 88.5% from last year. This was driven by contributions from the inspection technologies and Frauscher acquisitions. In our transit segment, sales were up 18.9% driven by the Delner acquisition and growth across our products and services businesses.

John Olin: In our Transit segment, sales were up 18.9%, driven by the Dellner acquisition and growth across our products and services businesses. Foreign currency exchange had a favorable impact on sales in the quarter of 1.3 percentage points. Moving to slide nine, GAAP gross margin was 36.5%, which was up 1.8 percentage points from Q2 last year. Adjusted gross margin was up 1.9 percentage points during the quarter. GAAP operating margin was 18.9%, which was up 1.5 percentage points versus last year. Adjusted operating margin improved 0.8 percentage points to 21.9%. Operating margin was positively impacted by cost recovery from contractual price escalation, increased productivity and integration savings, partially offset by rising manufacturing costs, higher year-over-year tariffs, and unfavorable mix. Adjusted and GAAP SG&A expenses were higher year-over-year, due largely to the SG&A expense associated with our acquisitions.

That said, we continue to expect full-year Services revenue to be down due to the lower number of modernization deliveries that were shipped in the first half, when we compare that to the prior year.

Speaker #4: Foreign currency exchange had a favorable impact on sales in the quarter of 1.3 percentage points. Moving to slide 9, gap gross margin was 36.5%, which was up 1.8 percentage points from the Q2 last year.

Consequently, as modernization deliveries ramp up in the second half. We would expect equipment Revenue. Growth to remain positive.

but at a very moderate pace, versus the 43% growth achieved in the first half,

Speaker #4: Adjusted gross margin was up 1.9 percentage points during the quarter. Gap operating margin was 18.9%, which was up 1.5 percentage points versus last year.

Component sales were down 0.7% versus last year due to the industry's decline in North America railcar build, and due to lower revenue from our portfolio optimization efforts, partially offset by increased industrial product sales.

Speaker #4: Adjusted operating margin improved 0.8 percentage points to 21.9%. Operating margin was positively impacted by cost recovery from contractual price escalation, increased productivity, and integration savings, partially offset by rising manufacturing costs, higher year-over-year tariffs, and unfavorable mix.

Digital intelligence sales were up 88.5% from last year. This was driven by contributions from the inspection Technologies and fur acquisitions.

In our Transit segment, sales were up 18.9%, driven by the Delnor acquisition and growth across our products and services businesses.

Foreign currency exchange had a favorable impact on sales in the quarter of 1.3 percentage points.

Speaker #4: Adjusted and gap SG&A expenses were higher year-over-year due largely to the SG&A expense associated with our acquisitions. Engineering expense was 70 million dollars, 20 million dollars higher than Q2 last year, primarily due to acquisitions.

John Olin: Engineering expense was $70 million, $20 million higher than Q2 last year, primarily due to acquisitions. We continue to invest in engineering resources and current business opportunities, but more importantly, we are investing in our future as a leading industrial technology company focused on improving our customers' fuel efficiency, labor productivity, capacity utilization, and safety. Now let's take a look at segment results on slide 10, starting with the Freight segment. As I already discussed, Freight segment sales were up a strong 16.9%. GAAP segment operating income was $504 million, driving an operating margin of 22.5%, up 0.9 percentage points versus last year. Adjusted operating income for the Freight segment was $579 million, up 20.6% versus the prior year. Adjusted operating margin in the Freight segment was 25.8%, up 0.8 percentage points from the prior year.

Moving to slide 9. GAP gross margin was 36.5%, which was up 1.8 percentage points from the second quarter last year.

Adjusted gross margin was up 1.9 percentage points during the quarter.

Speaker #4: We continue to invest in engineering resources in current business opportunities, but more importantly, we are investing in our future as a leading industrial technology company focused on improving our customers' fuel efficiency, labor productivity, capacity utilization, and safety.

Yep. Operating margin was 18.9%, which was up 1.5 percentage points versus last year.

Adjusted operating margin improved by 0.8 percentage points to 21.9%.

Speaker #4: Now let's take a look at segment results on slide 10, starting with the freight segment. As I already discussed, freight segment sales were up a strong 16.9%.

Operating margin was positively impacted by cost recovery from contractual price escalation, increased productivity, and integration savings, partially offset by rising manufacturing costs, higher year-over-year tariffs, and unfavorable mix.

Speaker #4: Gap segment operating income was 504 million dollars, driving an operating margin of 22.5%, up 0.9 percentage points versus last year. Adjusted operating income for the freight segment was 579 million dollars, up 20.6% versus the prior year.

Adjusted and GAAP SG&A expenses were higher year-over-year, due largely to the SG&A expense associated with our acquisitions.

Engineering expense was $70 million, $20 million higher than Q2 last year, primarily due to acquisitions.

Speaker #4: Adjusted operating margin in the freight segment was 25.8%, up 0.8 percentage points from the prior year. The increase was driven by higher gross margin of 1.7 percentage points partially offset by an increase of 0.9 percentage points in our operating expense expressed as a percentage of revenue.

John Olin: The increase was driven by higher gross margin of 1.7 percentage points, partially offset by an increase of 0.9 percentage points in our operating expense, expressed as a percentage of revenue. The key driver of this is due to the mix of higher gross margin businesses as a result of our acquisitions of Inspection Technologies and Frauscher, and our continuous focus on productivity and efficiency. Finally, the Freight segment's 12-month backlog was $6.64 billion. Our 12-month backlog was up 10.2%, while the multi-year backlog of $25.33 billion was up 47.8%. Turning to slide 11, Transit segment sales were up 18.9% at $936 million. When adjusting for foreign currency, Transit sales were up 17.7%. GAAP operating income was $146 million, which reflected the quarter's robust revenue growth and operating margin expansion.

We continue to invest in engineering resources in current business opportunities, but more importantly, we are investing in our future as a leading industrial technology company focused on improving our customers' fuel efficiency and labor productivity.

Capacity, utilization and safety.

Speaker #4: The key driver of this is due to the mix of higher gross margin businesses as a result of our acquisitions of inspection technologies and Frauscher, and our continuous focus on productivity and efficiency.

Now, let's take a look at segment results on slide 10, starting with the Freight segment. As I already discussed, Freight segment sales were up a strong 16.9%.

Operating income was $504 million, driving an operating margin of 22.5%, up 0.9 percentage points versus last year.

Speaker #4: Finally, the freight segment's 12-month backlog was 6.64 billion dollars, our 12-month backlog was up 10.2%, while the multi-year backlog of 25.33 billion dollars was up 47.8%.

Adjusted operating income for the freight. Segment was 579 million up 20.6% versus the prior year.

Speaker #4: Turning to slide 11, transit segment sales were up 18.9% at 936 million dollars. When adjusting for foreign currency, transit sales were up 17.7%. Gap operating income was 146 million dollars, which reflected the quarter's robust revenue growth and operating margin expansion.

Adjusted operating margin in the Freight segment was 25.8%, up 0.8 percentage points from the prior year.

The increase was driven by higher gross margin of 1.7 percentage points, partially offset by an increase of 0.9 percentage points in our operating expense expressed as a percentage of revenue.

The key driver of this is due to the mix of higher gross margin businesses, as a result of our acquisitions of Inspection Technologies and FUR.

Speaker #4: These strong results were partially offset by 20 million dollars of purchase accounting charges and non-cash amortization expenses, which were primarily associated with the acquisition of Delner in the first quarter.

John Olin: These strong results were partially offset by $20 million of purchase accounting charges and non-cash amortization expenses, which were primarily associated with the acquisition of Dellner in Q1. Adjusted segment operating income was $166 million. Adjusted operating income as a percent of revenue was 17.7%, up 2.5 percentage points from prior year, with the underlying momentum of the business and the Dellner acquisition serving as key contributors to this quarter's margin expansion. Finally, Transit segment 12-month backlog for the quarter was $2.5 billion, and our 12-month backlog was up 14.5%, while the multi-year backlog was up 19.4%. Now let's turn to our financial position on slide 12. Our Q2 cash flow generation was $441 million, resulting in a cash conversion of 82%.

And our continuous focus on productivity and efficiency.

Finally, the freight segment's 12-month backlog was $6.64 billion. Our 12-month backlog was up 10.2%.

Speaker #4: Adjusted segment operating income was 166 million dollars, adjusted operating income as a percent of revenue was 17.7%, up 2.5 percentage points from prior year.

while the multi-year backlog of $25.33 billion was up 47.8%.

Speaker #4: With the underlying momentum of the business and the Delner acquisition serving as key contributors, to this quarter's margin expansion. Finally, transit segment 12-month backlog for the quarter was 2.5 billion dollars, and our 12-month backlog was up 14.5%, while the multi-year backlog was up 19.4%.

Turning to slide 11, Transit segment sales were up 18.9% at $936 million.

When adjusting for foreign currency, Transit sales were up 17.7%.

Operating income was $146 million, which reflected the quarter's robust revenue growth and operating margin expansion.

Speaker #4: on slide 12. Our Q2 cash flow generation was 441 million dollars, resulting in a cash conversion of 82%. Our balance sheet and financial position continue to be very strong, as evidenced by: first, our liquidity position, which ended the quarter over 2 billion dollars; and our net debt leverage ratio, which ended the quarter at 2.2 times.

These strong results were partially offset by $20 million of purchase accounting charges and non-cash amortization expenses, which were primarily associated with the acquisition of Delnor in the first quarter.

Segment operating income was $166 million.

John Olin: Our balance sheet and financial position continue to be very strong, as evidenced by, first, our liquidity position, which ended the quarter over $2 billion, and our net debt leverage ratio, which ended the quarter at 2.2 times. Our leverage ratio remained in our stated range of 2 to 2.5 times, even after funding the purchase of Dellner during Q1 for approximately $1 billion and repurchasing 457 million of our shares in H1. We continue to allocate capital in a disciplined way to maximize returns, with an expectation of compounding our earnings for our shareholders. During the quarter, we repurchased 215 million of our shares and paid $53 million in dividends. With that, I'd like to turn the call over to Rafael to talk about our 2026 financial guidance.

John Olin: Our balance sheet and financial position continue to be very strong, as evidenced by, first, our liquidity position, which ended the quarter over $2 billion, and our net debt leverage ratio, which ended the quarter at 2.2x. Our leverage ratio remained in our stated range of 2x to 2.5x, even after funding the purchase of Dellner during Q1 for approximately $1 billion and repurchasing 457 million of our shares in H1. We continue to allocate capital in a disciplined way to maximize returns, with an expectation of compounding our earnings for our shareholders. During the quarter, we repurchased 215 million of our shares and paid $53 million in dividends. With that, I'd like to turn the call over to Rafael to talk about our 2026 financial guidance.

Adjusted operating income as a percent of revenue was 17.7%, up 2.5 percentage points from the prior year.

With the underlying momentum of the business and the Delnor acquisition serving as key contributors to this quarter's margin expansion.

Speaker #4: Our leverage ratio remained in our stated range of 2 to 2.5 times. Even after funding the purchase of Delner during the first quarter for approximately 1 billion dollars, and repurchasing 457 million dollars of our shares in the first half.

Finally, Transit segment 12-month backlog for the quarter was $2.5 billion, and our 12-month backlog was up 14.5%, while the multi-year backlog was up 19.4%.

Speaker #4: We continue to allocate capital in a disciplined way to maximize returns. With an expectation of compounding our earnings for our shareholders. During the quarter, we repurchased 215 million of our shares and paid 53 million in dividends.

Now.

Let's turn to our financial position on Slide 12.

Our second quarter cash flow generation was 441 million resulting in a cash conversion of 82%.

Speaker #4: With that, I'd like to turn the call over to Raphael to talk about our 2026 financial guidance.

Speaker #3: Thanks, John. Now let's turn to slide 13 to discuss our 2026 outlook and guidance. Overall, the team delivered a strong Q2 with operational results ahead of our expectations.

Our balance sheet and financial position continue to be very strong, as evidenced by, first, our liquidity position, which ended the quarter at over $2 billion.

Rafael Santana: Thanks, John. Let's turn to slide 13 to discuss our 2026 outlook and guidance. Overall, the team delivered a strong Q2 with operational results ahead of our expectations. Importantly, we continue to see underlying demand for our products and solutions across the business. That demand is reflected in a strong pipeline in both our 12-month and multi-year backlogs provide clear visibility into profitable growth ahead. With that backdrop, we are increasing our full-year guidance. We now expect 2026 revenue of approximately $12.5 billion at the midpoint, up 11.5% from last year, which is an increase of 1 percentage point versus our prior guidance. We also now expect adjusted EPS to be in the range of $10.60 to $10.90, up 20% at the midpoint. Let's wrap up on slide 14. As you heard today, our team continues to execute against our value creation framework and our five-year outlook.

Rafael Santana: Thanks, John. Let's turn to slide 13 to discuss our 2026 outlook and guidance. Overall, the team delivered a strong Q2 with operational results ahead of our expectations. Importantly, we continue to see underlying demand for our products and solutions across the business. That demand is reflected in a strong pipeline in both our 12-month and multi-year backlogs provide clear visibility into profitable growth ahead. With that backdrop, we are increasing our full-year guidance. We now expect 2026 revenue of approximately $12.5 billion at the midpoint, up 11.5% from last year, which is an increase of 1 percentage point versus our prior guidance. We also now expect adjusted EPS to be in the range of $10.60 to 10.90, up 20% at the midpoint. Let's wrap up on slide 14. As you heard today, our team continues to execute against our value creation framework and our five-year outlook.

And our net debt leverage ratio, which ended the quarter at 2.2 times.

Speaker #3: Importantly, we continue to see underlying demand for our products and solutions across the business. That demand is reflected in a strong pipeline in both our 12-month and multi-year backlogs provide clear visibility into profitable growth ahead.

Our leverage ratio remained in our stated range of 2 to 2 and a half times. Even after funding the purchase of dellner, during the first quarter for approximately 1 billion dollars and repurchasing 457 million dollars of our shares in the first half.

Speaker #3: With that backdrop, we are increasing our full-year guidance. We now expect 2026 revenue of approximately 12.5 billion dollars at the midpoint. Up 11.5% from last year, which is an increase of 1 percentage point versus our prior guidance.

We continue to allocate capital in a disciplined way to maximize returns, with an expectation of compounding our earnings for our shareholders.

During the quarter, we repurchased $215 million of our shares and paid $53 million in dividends.

With that, I'd like to turn the call over to Rafael to talk about our 2026 Financial guidance.

Thanks John.

Insurance is item 13 to discuss.

Speaker #3: We also now expect adjusted EPS to be in the range of $10.60 to $10.90, up 20% at the midpoint. Now let's wrap up on slide 14.

Outlook and guidance.

Overall, the team delivered a strong second quarter, with operational results ahead of our expectations.

Speaker #3: As you heard today, our team continues to execute against our value creation framework and our five-year outlook. The strength of our performance is driven by our resilient install base world-class team innovative technologies and our customer-focused approach.

Importantly, we continue to see underlying demand for our products and solutions across the business.

Rafael Santana: The strength of our performance is driven by our resilient install base, world-class team, innovative technologies, and our customer-focused approach. We are also encouraged by the integration and early performance of our recent acquisitions, which are strengthening our portfolios and expanding our total available markets for future growth. Overall, I believe Wabtec's uniquely positioned as a leading industrial technology company. With a strong foundation, a talented global team, and significant opportunities ahead, we are well-positioned to deliver profitable growth and continue to compound shareholder value over time. With that, I want to thank you for your time this morning, and I'll now turn the call over to Kyra to begin the Q&A portion of our discussion. Kyra?

That demand is reflected in a strong pipeline, and both our 12-month and multi-year backlogs provide clear visibility into profitable growth ahead.

Speaker #3: We are also encouraged by the integration and early performance of our recent acquisitions which are strengthening our portfolios and expanding our total available markets for future growth.

With that backdrop. We are increasing our full year guidance. We now expect 2026 revenue of approximately 12 and a half billion dollars at the midpoint.

Up 11.5% from last year, which is an increase of 1 percentage point versus our prior guidance.

Speaker #3: Overall, I believe WAPTEC's uniquely positioned as a leading industrial technology company. With a strong foundation of talented global team and significant opportunities ahead, we are well positioned to deliver profitable growth and continue to compound shareholder value over time.

We also now expect adjusted EPS to be in the range of $10.60 to $10.90, up 20% at the midpoint.

Now let's wrap up on slide 14.

As you heard today, our team continues to execute against our value creation framework and our 5-year outlook.

Speaker #3: With that, I want to thank you for your time this morning, and I'll now turn the call over to Kaira to begin the Q&A portion of our discussion.

Speaker #3: Kaira?

Speaker #2: Thank you, Raphael. We will now move on to questions, but before we do, an out-of-consideration for others on the call, I ask that you limit yourself to one question and one follow-up question.

Kyra Yates: Thank you, Rafael. We will now move on to questions, before we do, and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question. If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question.

Speaker #2: If you have additional questions, please rejoin the queue. Operator, we are now ready for our first question.

Speaker #1: Our first question comes from Ken Hoxter with Bank of America. Please go ahead.

The strength of our performance is driven by our resilient installed base, world-class team, innovative technology, and our customer-focused approach. We are also encouraged by the integration and early performance of our recent acquisitions, which are strengthening our portfolios and expanding our total available markets for future growth. Overall, I believe Wabtec is uniquely positioned as a leading industrial technology company.

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

Speaker #5: Hey, great. Good morning and congrats on raising the outlook. Raphael or John, maybe you noted kind of the mixed carload outlook on a global basis.

Ken Hoexter: Hey, great. Good morning, and congrats on raising the outlook. Rafael or John, maybe you noted kind of the mixed car load outlook on a global basis, some wins on international Australia in particular, maybe thoughts on sustaining the 12-month backlog at that nearly one time book-to-bill. Are you seeing maybe, Rafael, just give an update on kind of what you're seeing out in the market in terms of keeping that progress going on the orders?

With a strong foundation, a talented global team, and significant opportunities, I believe we are well positioned to deliver profitable growth and continue to compound shareholder value over time.

Speaker #5: Some wins on international, Australia in particular. Maybe thoughts on sustaining the 12-month backlog at that nearly one-time book-to-bill. Is there are you seeing maybe, Raphael, just give an update on kind of what you're seeing out in the market in terms of keeping that progress going on the orders?

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

Speaker #3: Okay. John, in terms of demand and backlog conversion, I mean, we're seeing improved demand in the year, and we're converting a strong pipeline into multi-year backlog and higher margins.

Rafael Santana: Okay. Ken, in terms of demand and backlog conversion, we're seeing improved demand in the year, and we're converting a strong pipeline into multi-year backlog and higher margins. You certainly see that globally. You saw that strong win we had in Australia in the Q2. We continue to have opportunities of size, and you're going to see a couple of those coming through the H2 of the year, so strong from that perspective. On the execution front, I'd say we're continuing to drive better execution, and that's really coming with improved margins, and that's driven by productivity gains and the progress on simplification, Integration 3.0. Despite of the headwinds we still face with inflationary pressures, still managing through tariffs, and chip shortages with the impact to electronics. I think the other item to highlight is the acquisitions, which continue to perform very well early days.

Thank you. Rafael, we will now move on to questions, but before we do, and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question. If you have additional questions, please rejoin the queue with the operator. We are now ready for our first question.

Speaker #3: You certainly see that globally. You saw that strong win we had in Australia in the Q2. We continue to have opportunities of size and you're going to see a couple of those coming to the second half of the year.

Our first question comes from Ken Hawkster with Bank of America. Please go ahead.

Speaker #3: So strong from that perspective. On the execution front, I'd say we're continuing to drive better execution. And that's really coming with improved margins and that's driven by productivity gains and the progress on simplification integration 3.0.

Speaker #3: Despite of the headwinds, we still face with inflationary pressures, still managing through tariffs, and cheap shortages with the impact to electronics. I think the order item to highlight is the acquisitions which continue to perform very well.

Seeing out in the market, in terms of keeping that progress going on the orders.

Speaker #3: Early days. So overall, it's been stronger year with our teams delivering ahead of plan in support of the long-term guidance. John, you might want to comment more on the specifics of the quarter.

John Olin: Overall, it's been a stronger year with our teams delivering ahead of plan in support of long-term guidance. John, you might want to comment more on the specifics of the quarter. Yeah. When we look at the Q2, Ken, revenue was ahead of expectations as well as earnings. When we look at revenue was driven by a couple things. Number 1, on more of a sustainable basis, we saw our flow businesses accelerate, and that is on the freight side. As you pointed out, Ken, partially driven by the improvement in car loads, which has driven to higher year-over-year locomotives and operations during the quarter. We also saw some strength in the aftermarket in our transit business. The other piece of our revenue in the Q2 was some timing on shipments.

Speaker #4: Yeah. When we look at the second quarter, Ken, revenue was ahead of expectations as well as earnings. When we look at revenue, revenue was driven by a couple of things.

Speaker #4: Number one, on more of a sustainable basis, we saw our flow businesses accelerate. And that is on the freight side. And as you pointed out, Ken, partially driven by the improvement in carloads, which has driven to higher year-over-year locomotives and operations during the quarter.

Speaker #4: And then we also saw some strength in the aftermarket and our transit business. The other piece of our revenue in the second quarter was some timing on shipments.

Okay, counting in terms of demand and balance conversion. I mean, we're seeing improved demand in the year and we're converting a strong pipeline into multi-year backlog in higher margins. You certainly see that globally. Uh you saw that uh strong wind we had in Australia in the second quarter. Uh we continue to have opportunities of size and you're going to see a couple of those coming to the second half of the year. So strong from that perspective on the execution front, I would say we're uh continue to drive better execution uh and that's really uh coming with improved margins and that's driven by productivity gains and the progress on simplification integration 3.0 despite of the headwinds, we still face with inflationary pressures still managing through tariffs and cheap shortages with intact Electronics. Uh, I think the other items to highlight is the Acquisitions which uh continue to perform very well early days. So over,

Speaker #4: We did see some pull-forward in the from the back half into the second quarter. And also, as we talked about in the first quarter, we're we had a lower organic growth.

Rafael Santana: We did see some pull forward from H2 into Q2. Also, as we talked about in Q1, we had a lower organic growth. We saw some push-outs of that. They landed in Q2 as well. Overall, a very strong revenue growth at 17.5% with organic growth up 8.5%. When you kind of shift to the earnings side of it, I'm sorry, going back to the revenue for that and the piece that is really more sustainable on the flow business, we've looked at that. We've forecasted it forward, and that growth to continue in Q2, Q3, and Q4 at largely the same rate. That has resulted in us raising our overall revenue guidance by the $110 million or a full 1 percentage point on the year.

John Olin: We did see some pull forward from H2 into Q2. Also, as we talked about in Q1, we had a lower organic growth. We saw some push-outs of that. They landed in Q2 as well. Overall, a very strong revenue growth at 17.5% with organic growth up 8.5%. When you kind of shift to the earnings side of it, I'm sorry, going back to the revenue for that and the piece that is really more sustainable on the flow business, we've looked at that. We've forecasted it forward, and that growth to continue in Q2, Q3, and Q4 at largely the same rate. That has resulted in us raising our overall revenue guidance by the $110 million or a full 1 percentage point on the year.

Overall, it's been a stronger year, with our teams delivering ahead of plan in support of long-term guidance. John, you might want to comment more on the specifics of the quarter. Yeah. When we look at the second quarter,

Speaker #4: We saw some push-outs of that. So they landed in the second quarter as well. But overall, very strong revenue growth at 17.5% with organic growth up 8.5%.

Speaker #4: When you kind of shift to the earnings side of it, and I'm sorry, going back to revenue, for that and the piece that is really more sustainable on the flow business, we've looked at that.

Can you Revenue was ahead of expectations? As well as earnings when we look at Revenue. Um, Revenue was driven by a couple things number 1. Um, on, on more of a sustainable basis, we saw our flow businesses, um, um, accelerate and that is on the freight side. Um, and as you pointed out, Ken, um, partially driven by the, um, Improvement in car loads which has driven to higher year-over-year, locomotives and operations during the quarter. And then we also saw

Speaker #4: We've forecasted it forward. And that growth to continue in the second and the third the third and the fourth quarters, that largely the same rate.

Speaker #4: And that has resulted in us raising our overall revenue guidance by the 110 million dollars or a full percentage point on the year. So now we're sitting at a midpoint of 11.5%.

Rafael Santana: Now we're sitting at a midpoint of 11.5%. On the other side is the earnings. We did see earnings come in a bit more than what we had expected.

John Olin: Now we're sitting at a midpoint of 11.5%. On the other side is the earnings. We did see earnings come in a bit more than what we had expected. A fair amount of that was driven by two things. Number one is on the flow revenue, it comes at typically a higher margin, and we saw that reflected in favorable mix in that aspect. Overall, mix was still unfavorable, but less unfavorable than what we had anticipated. Then the other area is on the integration and productivity, came in stronger. Making really good progress on Integration 3.0. With that, we did the same thing and extended that goodness over H2. With that, we raised our midpoint of our guidance by $0.30 up to the $10.75.

Speaker #4: On the other side, is the earnings. We did see earnings come in a bit more than what we had expected. And a fair amount of that was driven by two things.

John Olin: A fair amount of that was driven by two things. Number one is on the flow revenue, it comes at typically a higher margin, and we saw that reflected in favorable mix in that aspect. Overall, mix was still unfavorable, but less unfavorable than what we had anticipated. Then the other area is on the integration and productivity, came in stronger. Making really good progress on Integration 3.0. With that, we did the same thing and extended that goodness over H2. With that, we raised our midpoint of our guidance by $0.30 up to the $10.75.

Speaker #4: Number one, is on the revenue, on the flow revenue, it comes at typically a higher margin. And we saw that reflected in favorable mix in that aspect.

Speaker #4: But overall, mix was still unfavorable, but less unfavorable than what we had is on the integration and productivity came in stronger. Making really good progress on integration 3.0.

Speaker #4: And with that, we did the same thing and extended that goodness over the back half. And with that, raised our midpoint of our guidance by 30 cents up to the 1075.

Some strange in, um, the aftermarket and our Transit business, um, the other piece of our, our Revenue. Um, in the second quarter was some, um, timing. Um, on shipments. We did see some pull forward, um, in the, um, from the back half into the second quarter. And also, as we talked about in the first quarter, you know, we're, um, we had a, a lower, um, organic growth. We saw some push outs of that, so they landed in the second quarter as well. But overall, um, a very strong Revenue growth at 17 and a half percent, um, with Organic growth up 8 and a half percent, when you, you kind of shift to the earning side of it. Um, and I'm and I'm sorry, going back to the revenue for that. And the piece that, um, is is really more sustainable on the flow business. We've looked at that we've, um, forecasted It Forward. Um, and that growth to continue, um, in the second and the third, um, the third, and the fourth quarter is largely the same rate and that has resulted in us. Raising our

Speaker #5: Hey, John, if I can just get a follow-up there. You mentioned that the 3.0. Can you talk about how much cost savings were realized?

Our overall Revenue guidance by the 110 million, or a full percentage point on the year. So now we're sitting at a midpoint of 11 and a half percent, um, on the the other side.

Ken Hoexter: Hey, John, if I can just get a follow-up there. You mentioned the 3.0. Can you talk about how much cost savings were realized? It sounds like, I don't know, maybe the message you're trying to give for margins into Q3 from Q2 based on the run-up you gave us.

Speaker #5: And it sounds like I don't know, maybe the message you're trying to give from margins into the third quarter from second quarter based on the run-up you gave us?

Speaker #4: Yeah. So Ken, as you know, in the first quarter, we raised our guidance by 15 million on integration 3.0. And we saw the momentum and the timing of these projects at that time.

John Olin: Yeah. Ken, as you know, in Q1, we raised our guidance by $15 million on Integration 3.0. We saw the momentum and the timing of these projects at that time, and we've seen that convert certainly in Q2, and we would expect from our original thoughts on the year that Integration 3.0 is going to drop more goodness on the year. Again, that is part of that increase in the EPS guidance of $0.30.

Speaker #4: And we've seen that convert certainly in the second quarter. And we would expect from our original thoughts on the year, that integration 3.0 is going to drop more goodness on the year and again, that is part of that increase in the EPS guidance of 30 cents.

Is the earnings. Um, we did see earnings come in a bit more than what we had expected. Um, and a fair amount of that was driven by 2. Things number 1 is on the revenue, um, on the flow Revenue, it comes at typically a higher, um, margin. And we saw that reflected in favorable, mix and that aspect. But overall mix was still unfavorable but less unfavorable than what we had anticipated. And then the other area is, um, on on their integration and productivity, um, came in stronger. Um, making really good progress on integration 3.0 and with that, we did the same thing and extended that, um, that goodness, um, over the back half. And with that raised, our midpoint of our guidance by 30 cents up to the 1075,

Speaker #5: Thanks, John.

Ken Hoexter: Thanks, John.

Speaker #1: Our next question comes from Scott Group with Wolf Research. Please go ahead.

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

Speaker #6: Hey, thanks. Good morning. So if I look the 12-month backlogs up 11%, the total backlogs up 42% year over year, I think that's the biggest spread we've ever seen between the two.

Scott Group: Hey, thanks. Good morning. If I look, the 12-month backlog's up 11%, the total backlog's up 42% year-over-year. I think that's the biggest spread we've ever seen between the two. I guess I'm trying to understand what's the timing for that multiyear backlog to start converting to revenue? Ultimately, I guess what I'm trying to figure out is, we had high single-digit organic growth in Q2. Is that sustainable?

Hey John, if I can just get a follow-up there, um, you mentioned the 3.0; can you talk about how much cost savings are realized? And it sounds like, I don't know, maybe the message you're trying to give regarding margins into the third quarter from the second quarter, based on the run-up you gave us.

Speaker #6: I guess I'm trying to understand what's the timing for that multi-year backlog to start converting to revenue. And ultimately, I guess what I'm trying to figure out is we had high single-digit organic growth in Q2.

Speaker #6: Is that sustainable?

Speaker #3: Well, two things. I'll start with just the total backlog. And this is very strong coverage Scott, to your point. And that's how we run the business.

Rafael Santana: Well, sure thing. I'll start with just the total backlog, this is very strong coverage, Scott, to your point. That's how we run the business, make sure that we have that coverage. It's probably the strongest coverage we've had and some multiyear backlog to call over really a multitude of years. That's very good and really strengthens our position to deliver on the long-term guidance we provide. In terms of the 12-month backlog, I think that number really supports the mid-single digit growth on 5% to 6% that we've described for the year. I think you've got to extract from that some of the nuances associated with especially the acquisitions we've done. John, I don't know if you want to add to that.

Yeah. So Ken is as you know, in the first quarter, we raised our guidance by 15 million on integration 3.0 and um, we we saw the the momentum and the timing of these projects at that time and we've seen that convert um certainly in the second quarter and we would expect um um from our our original thoughts on the year, that integration 3.0 is going to drop um um more goodness um on the year. And again, that is is part of that um increase in the EPS guidance of 30 cents.

Thanks John.

Speaker #3: Make sure that we have that coverage. It's probably the strongest coverage we've had in some multi-year backlog to cover really a multitude of years.

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

Hey, thanks. Uh, good morning. So,

Speaker #3: So that's very good and really strengthens our position to deliver on the long-term guidance we provide. In terms of the 12-month backlog, I think that number really supports the mid-single-digit growth from 5 to 6 percent that we've described for the year.

The 12-month backlogs.

Speaker #3: And I think you've got to extract from that some of the nuances associated with especially the acquisitions we've done. John, I don't know if you want to add to that.

Up 11% the total backlogs up 42% year-over-year. I think that's the biggest spread we've ever seen between the 2. I guess I'm trying to understand. Like What's the timing for that multi-year backlog to start converting to revenue and, and ultimately, I guess what? I'm trying to figure out is like, we had high single digit organic growth in Q2 is, is that

Sustainable.

Speaker #4: Yeah. Scott, you had mentioned organic growth in the second quarter. When you look at our overall growth of 17.5%, the easy way to look at this is half of it, about 8.5% is driven by the year-over-year impact of acquisitions.

John Olin: Yeah. Scott, you had mentioned organic growth in Q2. When you look at our overall growth of 17.5%, the easy way to look at this is half of it, about 8.5%, is driven by the year-over-year impact of acquisitions. The other half of it, about 8.5%, is driven by organic growth. That's certainly an acceleration from what we saw in Q1. If you remember, our Q1 organic growth was up 2.3% based on timing of shipments as well as the write-down of a digital project. I think the best way to look at organic growth is to look at it on the H1 basis that takes care of some of the timing nuances there, for which we're up 5.5%. We feel good about that.

Speaker #4: And the other half of it, about 8.5% is driven by organic growth. And that's certainly an acceleration from what we saw in the first quarter.

Speaker #4: If you remember our first quarter organic growth was up 2.3% based on timing of shipments as well as the write-down of a digital project.

Speaker #4: So I think the best way to look at organic growth is to look at it on the first half basis that takes care of some of the timing nuances there.

Speaker #4: For which we're up 5.5%. And we feel good about that. When you look at the 12-month backlog as an indicator of that, if you take out the acquisitions and currencies and more normalize that, we are in that range of the mid-single digits.

John Olin: When you look at the 12-month backlog as an indicator of that, if you take out the acquisitions and currencies and more normalize that, we are in that range of the mid-single digits. We see that continuing on in the H2 of the year, given the strength that we're seeing in particular of our flow business.

Well, true, thanks. Uh, I'll start with just uh, the total backlog and this is very strong coverage, uh, uh, Scott to your point. And that's how we run the business. Make sure that we have that coverage, it's probably the strongest coverage we've had, and it's a multi-year backlog the call over really a multitude of years. So that's, uh, very good and really strengthens our position to deliver on the long-term guidance. We provide, uh, in terms of the 12 month, backlog, I think that number really supports the meet single digits, the growth on 5 to 6%, uh, that we've uh, uh described for the year and uh I think you got to extract from that. Uh, some of the nuances associated with uh, especially the Acquisitions. Uh, we've done, uh, John. I don't know if you want to add to that. Yeah, it's got, you had mentioned organic growth in the the second quarter. Um, when you look at our overall growth of 17 and a half percent, the easy way to look at, this is half of it but 8 and a half percent is driven.

Speaker #4: And we see that continuing on in the back half of the year. Given the strength that we're seeing in particular of our flow business.

Speaker #6: Okay. That's helpful. And then just one follow-up for you, John. I think your comment about the pace of margin suggests Q4 we see some really strong year-over-year margin improvement.

Scott Group: Okay, that's helpful. Just one follow-up for you, John. I think your comment about the pace of margin suggests Q4 we see some really strong year-over-year margin improvement. I know it's early, but is that a good way to think about what 2027 could look like? That exit rate?

Speaker #6: I know it's early, but is that a good way to think about, what, 27 could look like? That exit rate?

Speaker #3: I would say looking at the half, Scott, is more indicative of that. So let's talk about why we're expecting what we're expecting, right? We're expecting the probably significant majority of our margin growth to be in the fourth quarter.

John Olin: I would say looking at the H1, Scott Group, is more indicative of that. Let's talk about why we're expecting what we're expecting, right? We're expecting the probably significant majority of our margin growth to be in the Q4. We expect growth in the Q3, but that's going to be in the range of around a half a point that we saw in the H1 of the year. Why is the Q4 going to be up so much? I think first we start with what happened a year ago in the Q4. If you remember, Scott Group, we had one heck of a cash flow in the quarter. Actually, cash conversion was just shy of 300%.

Speaker #3: We expect growth in the third quarter, but that's going to be in the range of around a half a point that we saw in the first half of the year.

Speaker #3: So why is the fourth quarter going to be up so much? And I think first we start with what happened a year ago in the fourth quarter.

By the year-over-year impact of Acquisitions and the other half of it about 8 and a half percent is driven by organic growth and that's certainly an acceleration from what we saw in the first quarter. If you remember our first quarter organic growth was up 2.3%, um, based on timing of shipments as well as um, the rate down of a digital project. Um, so I think the best way to look at organic growth is to look at it on the first half basis that takes care of some of the, the timing nuances there, um, for which we're up 5 and a half percent. And, um, we feel we feel good about that. When you look at the 12-month backlog, as an indicator of that, if you take out the, um, the Acquisitions and currencies and more normalize that, um, we are in in that range of, uh, mid single digits. And and we see that continuing on, in the back half of the year, um, given the strength that we're seeing, in particular of our flow business,

Speaker #3: If you remember, Scott, we had one heck of a cash flow in the quarter. And actually, cash conversion was just shy of 300%. And as I think you also know, is our comp plans and our focus on cash is throughout the organization, but it is embedded in both our short-term and long-term comp plans.

John Olin: As I think you also know, is our comp plans and our focus on cash throughout the organization, but it is embedded in both our short-term and long-term comp plans. That drove a higher expense than we had anticipated. The second area in last year was the fact that our transit business was level loading some production and moved forward some benefit through production and moving production forward in the Q2 and the Q3. Consequently, we had a pretty weak margin in transit in the Q4, and that was driven by the manufacturing inefficiencies as we rebalanced that. We're lapping those two things that aren't going to repeat again this year. The other piece of it, again, goes back to tariffs.

Okay, that's helpful. And then just uh, let me follow up for you John. I think your your comment about like the pace of margin suggests Q4. We see some, you know, really strong year-over-year margin Improvement. I I know it's early but like is is that a good way to think about what 27 could look like.

Um, that exit rate.

Speaker #3: And that drove a higher expense than we had anticipated. The second area in last year was the fact that our transit business was level loading some production and move forward some benefit through production and moving production forward in the second and the third quarter.

Speaker #3: And consequently, we had a pretty weak margin in transit in the fourth quarter. And that was driven by the manufacturing inefficiencies as we rebalanced that.

Speaker #3: So we're lapping those two things that aren't going to repeat again this year. The other piece of it, again, goes back to tariffs. Right?

John Olin: Right. Our tariff expense is going to be pretty even between quarters this year and certainly in the back half. However, the comparable is very different. In the Q3 last year, we had very little expense. We just started to see some, but it was nominal at best. The Q4 though, we saw a large rise in our expense for tariffs as things came off the balance sheet, from when we incurred the tariff. The headwind in the Q4 is going to drop quite significantly between what we saw in the first three quarters. Between the confluence of those three things, we expect our Q4 to be up more than we would typically expect in a quarter with regards to margin growth.

Speaker #3: Our tariff expense is going to be pretty even between quarters. This year and certainly in the back half. However, the comparable is very different.

Speaker #3: In the third quarter last year, we had very little expense. We just started to see some, but it was nominal at best. The fourth quarter, though, we saw a large rise in our expense for tariffs as things came off the balance sheet, right, from when we incurred the tariff.

I would say looking at the the half, Scott is more indicative of that. Um, so let's talk about why why we're expecting what we're expecting, right? We're expecting the um probably significant majority of our margin growth to be in the um fourth quarter. We expect growth in the third quarter but that's going to be in the range of of around a half a point that we saw in the first half of the year. So why is the fourth quarter going? To be up so much? And I think, first we start with what happened to a year ago, um, in the fourth quarter. If you remember Scott, we had um, 1, heck of a, um, a cash flow, uh, in the quarter. And, um, actually, the cash conversion was just shy of 300%. And as, as I think, you also know as our comp plans. Um, and our focus on cash is, um, you know, throughout the organization but it is embedded in both our short term, and long term comp plans and that drove a, a higher expense than we had anticipated. Um, the second area, um, in last year was the fact that

Speaker #3: And so the headwind in the fourth quarter is going to drop quite significantly between what we saw in the first three quarters. And between the confluence of those three things, we expect our fourth quarter to be up more than we would typically expect in a quarter with regards to margin growth.

Our Transit business was level, loading, some production and move forward some benefit um, through production and moving production forward, um, in the second and the third quarter. And the consequently we had a a pretty um, weak margin um um in transit in the fourth quarter and that was driven by the manufacturing inefficiencies as we rebalance that. Um so we're Ling, those 2 things that that aren't going to repeat again this year. The other piece of it again, goes back to terrorists.

Speaker #6: Okay. Super helpful. Thank you, guys.

Scott Group: Okay. Super helpful. Thank you, guys.

Speaker #3: Thank you.

John Olin: Thank you.

Speaker #1: Our next question comes from Angel Castile with Morgan Stanley. Please go ahead.

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

Speaker #5: Hi. Good morning. And thanks for taking my questions. Just maybe wanted to start on components. I was hoping we could kind of unpack that a little bit more.

Angel Castillo: Hi, good morning, and thanks for taking my questions. Just maybe wanted to start on components. Was hoping we could kind of unpack that a little bit more. I guess, you still have rail cars down even though the outlook has improved a little bit, but just the 1% decline is quite notable, and you've talked about some of the pieces around flow. You also mentioned, I guess, industrials business. Can you just help quantify, I guess, how much has the flow business improved? How much is maybe the rail cars OE side down? On the industrials part of the business, we'd love to just hear a little bit more about how that's progressing, what changes you're seeing there.

Speaker #5: I guess you still have rail cars down, even though the outlook has improved a little bit. But just the 1% decline is quite notable.

Speaker #5: And you've talked about some of the pieces around flow. And you also mentioned, I guess, industrial's business. So can you just help quantify, I guess, how much has the flow business improved?

Speaker #5: How much is maybe the rail cars OE side down? And then on the industrial's part of the business, we'd love to just hear a little bit more about how that's progressing, what changes you're seeing there, in particular, I guess, the data center part of your components business.

and between the the Confluence of those 3 things, we expect our our fourth quarter to be up, um, more than we would typically expect in a quarter with regards to merging growth

Angel Castillo: In particular, I guess the data center part of your components business, just curious, one, what you're seeing in terms of demand there, and then just more broadly from data centers, how is your strategy kind of changing or evolving based on the demand you're seeing? I know there's a lot in there, but all kind of related to components.

Super helpful. Thank you, guys. Thank you.

Speaker #5: Just curious, one, what you're seeing in terms of demand there, and then just more broadly from data centers, how's your strategy kind of changing or evolving based on the demand you're seeing?

Our next question comes from Angel Castile with Morgan Stanley. Please go ahead.

Speaker #5: Sorry, I know there's a lot in there, but all kind of related to components.

Speaker #3: Always does, Angel. Angel, I'll start and I'll let John dive into a little bit of the details. We described, I mean, we saw North America freight volumes strengthening with that.

Rafael Santana: Always does, Angel. Angel, I'll start, and I'll let John dive into a little bit of the details. As we described, I mean, we saw North America freight volumes strengthening. With that, we saw really more of a demand for our full product suite on parts, some fleets being on park as part of that, and we've seen that continued strength on the transit backlog. When you talk specifically about the components business, I think despite of the lower freight car builds, I think our teams have continued to adjust, number one, the operations to align with that volume. I think they've driven significant cost discipline and margin improvement for the business.

Speaker #3: We saw really more of a demand for our full product rated on parts. Some fleets being on part as part of that. And we've seen that continue to strengthen the transit backlog.

Speaker #3: When he talks specifically about the components, business, I think despite of the lower freight car build, I think our teams have continued to adjust, number one, the operations to align with that volume.

Speaker #3: I think they've driven significant cost discipline and margin improvement for the business. And we are continuing to see strong demand in the industrial applications.

Rafael Santana: We are continuing to see strong demand in the industrial applications, and some of that is particularly visible in the heat exchangers, which go into some of the demand for power generation, which is a positive in that regard. John? Yeah. Specifically, Angel, the components was down seven-tenths of a percentage point. Actually, if you go back over the last six quarters, we've really seen pretty much the same thing, is we're bouncing around that flat. Certainly, the team has been absorbing a significant downstroke with regards to rail car business, which is about 60% of overall revenue. The other piece of it that we're finding this year or seeing this year is the exit of some non-strategic business and revenue in there.

Speaker #3: And some of that is particularly visible in the heat exchangers which go into some of the demand for power generation. Which is a positive in that regard.

Hi, good morning and thanks for taking my questions. Um, just maybe wanted to start on components was hoping we could kind of unpack that a little bit more, I guess. Um, you know, you still have rail rail cars down even though the the Outlook has improved a little bit, but just the the 1% decline is quite notable and you've talked about some of the pieces around flow. Um, and you also mentioned, I guess industrial business. So could you just help quantify? I guess how much has the the flow business improved? How you know, how, how much is is maybe the rail cars, OE side down and then on the industrial side of the business. We would love to just hear a little bit more about you know, how that's progressing. What changes you're seeing there in particular? I guess the the data center part um of of your components business, just curious, you know, 1 what you're seeing in terms of demand there and then just more broadly from data centers. Um, you know, how is your strategy kind of uh, changing or evolving based on the demand you're seeing? So I know I know there's a lot in there but

Speaker #3: John?

Speaker #4: Yeah. Specifically, Angel, the components was down seven-tenths of a percentage point. And actually, if you go back over the last six quarters, we've really seen pretty much the same thing is we're bouncing around that flat.

John Olin: Yeah. Specifically, Angel, the components was down seven-tenths of a percentage point. Actually, if you go back over the last six quarters, we've really seen pretty much the same thing, is we're bouncing around that flat. Certainly, the team has been absorbing a significant downstroke with regards to rail car business, which is about 60% of overall revenue. The other piece of it that we're finding this year or seeing this year is the exit of some non-strategic business and revenue in there.

Speaker #4: Certainly, the team has been absorbing a significant downstroke with regards to rail car businesses. Business, which is about 60% of overall revenue. And the other piece of it that we're finding this year or seeing this year is the exit of some non-strategic business and revenue in there.

Speaker #4: So they're fighting as Raphael had mentioned from a cost standpoint. Certainly, from a market share and their offsetting a fair amount of what they can.

John Olin: They're fighting, as Rafael had mentioned, from a cost standpoint, certainly from a market share, and they're offsetting a fair amount of what they can, but also getting a little bit of help on the industrial side. We're not seeing a big shift in what we've seen in the industrial side for the last six or so quarters. It is up on a small basis. It's up pretty good, again, benefiting from some of the data center stuff. It's a small base, but it is enough to largely offset what we're seeing, that and the work of the team to offset what we're seeing with rail cars being down. We're hoping that that turns in 2027, and that's what the yearly forecasts are. We still got a couple more quarters that we expect rail cars to be down in the 20% range.

Speaker #4: But also getting a little bit of help on the industrial side. And what we're not seeing a big shift in what we've seen in the industrial side for the last six or so quarters.

All kind of related to components is angel, angel Shard, and I'll let uh John diving to a little bit of the details. So we describe them and we saw North America Freight volumes strengthening with that. We saw really a more of a demand for our full product read it on Parts. Uh some fleets be on part as part of that and we've seen that continue to strengthen the transit backlog. When you talk specifically about the components, uh, uh, business. I think the spite of the lower freight car bills. Uh, I think our, uh, teams have continued to adjust number 1, the operations to align with that volume. I think they've driven significant cost discipline in margin Improvement, uh, for the business, and we are continuing to see strong demand in the industrial applications. And some of that is particularly, uh, this 1, the heat exchangers, which are going to, uh, some of the demand for power generation, uh, which is, uh, a positive in that regard. Uh, John

Speaker #4: It is up on a small basis. It's up pretty good. Again, benefiting from some of the data center stuff. But it's a small base, but it is enough to largely offset what we're seeing that in the work of the team to offset what we're seeing with rail cars being down.

Speaker #4: Now, we're hoping that that turns in 2027. And that's what the yearly forecasts are. But we've still got a couple more quarters that we expect rail cars to be down in the 20% range.

Yeah specifically Angel. The components was down 7/10 of a percentage Point. Um and actually if you go back over the last 6 quarters, we've really seen a a um pretty much. The same thing is is we're bouncing around that flat. Um certainly the team has been absorbing a significant downstroke with regards to the rail card businesses. Our business which is about um um 60% of overall revenue and um

Speaker #5: Got it. That's very helpful. And maybe just as a follow-up, I guess, could we maybe unpack the data center portion of power generation? Maybe separate from what you might be seeing in heat exchangers and how that's progressing versus maybe any potential equipment demand and how your strategy if it's changing at all, how you're viewing that market, the attractiveness to potentially look to target that a little bit more readily, I guess.

Angel Castillo: Got it. That's very helpful. Maybe just as a follow-up, I guess, could we maybe unpack the data center portion of power generation maybe separate from what you might be seeing in heat exchangers and how that's progressing versus maybe any potential equipment demand and how your strategy, if it's changing at all, how you're viewing that market, the attractiveness to potentially look to target that a little bit more readily? I guess, just how are you thinking about that or what are you seeing?

Speaker #5: Just how are you thinking about that or what are you seeing?

Speaker #3: Angel, I mean, as you mentioned, I'll start with the positive heat exchangers. He is a positive for us. You're seeing that as I'll call a significant offset to some of the pressures we've got on the freight car side of the house.

Rafael Santana: Angel, as you mentioned, I'll start with the positive. heat exchangers is a positive for us. You're seeing that as, I'll call a significant offset to some of the pressures we've got on the freight car side of the house. In terms of the engine side, when you look at engines in specific, I mean, our engines are really built for some of the most demanding applications in the world. They're exceptional for reliability and fuel efficiency. With that being said, when we think about data centers, a large portion of that is connected to backup power-only applications, which our engines are generally not the most competitive solution for that application. We're continuing to look into selective opportunities for power generation application, especially where we have more restriction around emission standards. This is very much a niche segment of the market.

Speaker #3: In terms of the engine side, when you look at engines in specific, I mean, our engines are really built for some of the most demanding applications in the world.

Um, the other piece of it that we're finding this year or seeing this year is the exit of some non-strategic, um, business and revenue in there. Um, so they're fighting as Raphael had mentioned um, from a, a cost standpoint. Um, certainly from a market share and they're offsetting a fair amount of of what they can but also getting a little bit of help on the industrial side. And um, what we're we're not seeing a big shift in what we've seen in the industrial side for the last 6 or so quarters. Um, it is up on a small basis. Um, it's up pretty good. Um again benefiting from some of the data center stuff um but it's a small base but it is enough to largely offset what we're seeing um that and the the work of the team to offset what we're seeing um with rail cars being down. Now we're hoping that that turns in in 2027 and that's what the yearly forecasts are, but we still got a couple more quarters that we expect rail cars to be down in the 20% range.

Speaker #3: They're exceptional for reliability and fuel efficiency. With that being said, when we think about data centers, a large portion of that is connected to backup power.

Speaker #3: Only applications. We charge engines are generally not the most competitive solution for that application. We're continuing to look into selective opportunities for power generation application, especially where you have more restriction around emission standards.

Speaker #3: But this is very much a niche segment of the market. And at this stage, we have had really only very, very nominal sales. In the space.

Got it. That's very helpful. Maybe just as a follow-up I guess. Could could we maybe unpack the um, the data center portion or power generation uh maybe separate from you know what you might be seeing heat exchangers and how that's progressing versus maybe any potential equipment demand and how you know the your your strategy um you know if if it's changing at all how you're viewing that market the attractiveness to potentially uh you know look to to Target that a little bit more readily. I guess just how are you thinking about that? Or what are you seeing?

Rafael Santana: At this stage, we have had really only very nominal sales in the space.

Speaker #5: Very helpful. Thank you.

Angel Castillo: Very helpful. Thank you.

Speaker #1: Our next question comes from Bascom Majors with Stevens. Please go ahead.

Operator: Our next question comes from Bascom Majors with Stephens. Please go ahead.

Speaker #7: Yeah. Good morning. And thanks for taking my questions. I wanted to revisit the EVO Advantage modification program. I know you guys reported quite a bit of orders earlier this year in that space.

Bascome Majors: Yeah. Good morning, and thanks for taking my questions. I wanted to revisit the EVO Advantage modification program. I know you guys reported quite a bit of orders earlier this year in that space. Can you just give us an update on how the product is resonating with the Class I rails in North America, where you are on the ramp-up of actual delivery to where you think you'll be a run rate into next year, and how the pipeline compares to the backlog, and just a big picture of how you expect that to evolve as this product continues to route in the marketplace. Thank you.

Speaker #7: Can you just give us an update on how the product is resonating with the Class 1 rails in North America? Where you are on the ramp-up of actual delivery to where you think you'll be a run rate into next year?

Speaker #7: And how the pipeline compares to the backlog in just a big picture of how you expect that to evolve as this product continues to run out in the marketplace?

Restrictions around emission standards, but this is very much a niche segment of the market. And at this stage, we have had really only very, very nominal sales in the space.

Speaker #7: Thank you.

Very helpful. Thank you.

Speaker #3: Thank you. Hey, first, I think we've seen continued progress in terms of the EVO Advantage program. We've announced that in the first quarter. We've gotten our first order in North America in the second quarter.

Rafael Santana: Thank you. First, I think we've seen continued progress in terms of the EVO Advantage program. We've announced that in Q1. We've gotten our first order in North America in Q2, that's consistent with what we expected. We see that as an opportunity to really continue momentum with regards to refreshing our install base around the world, but especially in North America, providing what I call more value for our customers with fuel efficiency and really driving, I think, greater and better value outcomes for our customers. We continue to expand on the value that we can bring to our customers on fuel efficiency and continue to stay ahead and widen really the competitive advantage versus our competition. Positive from that perspective.

Our next question comes from Bassam Majors with Stevens. Please go ahead.

Speaker #3: So that's consistent with what we expected. We see that as an opportunity to really continue momentum with regards to refreshing our install base around the world, but especially in North America, providing what I call more value for our customers with fuel efficiency and really driving, I think, greater and better value outcomes for our customers.

Good morning and thanks for taking my questions. Um, I wanted to revisit the Evo Advantage modification program. Um, I know you guys reported uh quite a bit of orders earlier this year in that space. Uh, can you just give us an update on how the product is is resonating with the class 1 rails in North America. Um,

Speaker #3: So we continue to expand on the value that we can bring to our customers on fuel efficiency and continue to stay ahead and widen really the competitive advantage versus our competition.

Speaker #3: So positive from that perspective.

Where are you on the ramp-up of actual delivery compared to where you think you'll be at a run rate into next year, and how does the pipeline compare to the backlog? And just a big picture of how you expect that to evolve as this product continues to roll out in the marketplace. Thank you.

Speaker #7: And you said first order in two Qs. So just to be clear, the 1.3 billion in orders, you received later last year, that was not for the EVO Advantage.

Bascome Majors: You said first order in Q2. Just to be clear, the $1.3 billion in orders you received later last year, that was not for the EVO Advantage. The order conversion for this product is still mostly ahead.

Speaker #7: The order conversion for this product is still mostly ahead. All right. All right. Thank you.

Rafael Santana: Exactly. That's correct.

Bascome Majors: All right. Thank you.

Thank you. Hey, uh, first, I think we've seen continued progress in terms of the Evo Advantage program. Uh, we announced that in the first quarter, we've gotten our first order in North America in the second quarter, so that's consistent with what we expected. We see that as an opportunity to really continue momentum with regards to refreshing our install base around the world, but especially in North America, providing what a...

Speaker #1: Our next question comes from Rob Wertheimer with Melius Research. Please go ahead.

Operator: Our next question comes from Rob Wertheimer with Melius Research. Please go ahead.

Speaker #2: Thanks. Raphael, you just touched on some of the fuel savings, but just given the global uncertainty around diesel, could you remind us of kind of the fuel economy savings on mods and new, and then just how do your customers react to that?

Rob Wertheimer: Thanks. Rafael, you just touched on some of the fuel savings, but just given the global uncertainty around diesel, could you remind us of the kind of fuel economy savings on mods and new, then just how do your customers react to that? Do we have to see elevated prices for a year, then they think about doing more mods? Do they park older locos and run newer ones? Is there any impact from your business from diesel spiking now?

Speaker #2: Do we have to see elevated prices for a year and then they think about doing more mods? Do they park older locos and run newer ones?

Call more value for our customers with politicians and, uh, uh, really driving, I think, greater and better value outcomes for our customers. So we continue to expand on the value that we can bring to our customers, uh, on fuel efficiency and coaching to stay ahead and widen, uh, really, the competitive advantage versus our competition. So, uh, positive, uh, uh, from that perspective, uh,

Speaker #2: Is there any impact from your business from diesel spiking now?

Speaker #3: So let me start at a a high level. The short answer is we're much more efficient on moving goods through rail than by road.

Rafael Santana: Let me start at high level. The short answer is we're much more efficient on moving goods through rail than by road. That's favorable to the overall business as we see it, I think that drives positive dynamics. Whenever you look at it specifically in North America, I think some of the comments I'll make is you're seeing some of that movement of freight going into rail. I think that has translated into, I'll call, more visibly in our flow businesses, especially in freight, but we've seen that with especially parts. With that, we have not seen any, I'll call, shift on demand for mods or new units on that. It's remained consistent with the demand as we have described before. Fuel prices up, it's a positive for the overall business.

Speaker #3: And I mean, that's favorable to the overall business as we see it. And I think that drives positive dynamics. When we look at it specifically in North America, I think some of the comments I'll make is, I mean, you're seeing some of that movement of freight going into rail.

And uh, you said, first order in 2 cubes. So, just to be clear the the 1.3 billion in orders. You received later last year, that was not for the advantage. The order conversion for this product is still mostly ahead.

Exactly, that's correct. All right. All right. Thank you.

Our next question comes from Rob Worth.

This research, please go ahead.

Speaker #3: I think that has translated into I'll call more visibly in our flow businesses, especially in freight. But we've seen that with especially parts. With that, we have not seen yet any I'll call shift on demand for mods or new units on that.

Thanks. Uh, Raphael, you just touched on some of the fuel savings. But you know, just giving the, the global uncertainty around detail, uh, around diesel, could you could you remind us of the kind of the, the fuel economy savings on mods and new? And then just, how do your customers react to that? Do we have to see elevated prices for a year? And then they think about doing more mods, because they Park older, Locos, and run, newer ones, is there any impact from your business from, from diesel spiking now?

Speaker #3: It's remained consistent with the demand that has we have described before. But fuel prices up, it's a positive for the overall business.

Speaker #2: Perfect. And then just in your last question, you touched on EVO orders. Are people still doing work on mods on older FDLs as well?

Rob Wertheimer: Perfect. Just in your last question, you touched on EVO orders. Are people still doing work on mods on older FDLs as well? Are they kind of waiting for EVO to be exciting? I'll stop there. Thanks.

Speaker #2: I mean, or are they kind of waiting for EVO to be exciting? And I'll stop there. Thanks.

So, let me, let me start at a high level. The short answer is, we're much more efficient on moving, uh, Goods through rails than, uh, uh, by a road. And, I mean, that's favorable to the overall business, uh, as we see it. And I think, uh, uh, that tries positive Dynamics

When were you looking?

Speaker #3: Yes, they are. I think this is twofold. And keep in mind, it's not just a function of North America. It's a function of international as well.

Rafael Santana: Yes, they are. I think this is twofold, and keep in mind, it's not just a function of North America, it's a function of international as well. This program drives, I'll call it an average 5-plus percent advantage point on the fuel side, so very significant returns for our customers. It's very customer dependent. You've got to look at the application. You've got to look at how they run their fleets. This is a program that's going to advance our ability to continue to modernize the fleets, and that's how we think about it. It's continue to drive replacement, continue to drive modernization in that context. Early days on EVO mods, but it's good to see the first order here in the Q2.

Speaker #3: This program's drive I'll call it an average five-plus percent advantage point on the fuel side. So very significant returns for our customers. But it's very customer-dependent.

Speaker #3: You've got to look at the application. You've got to look at how they run their fleets. But this is a program that's going to advance our ability to continue to modernize the fleets.

Speaker #3: And that's how we think about it. It's continue to drive replacement, continue to drive modernization in that context. Early days on EVO mods, but it's good to see the first order here in the second quarter.

Simply in order to America. I think some of the comments I'll make is, I mean, you're seeing some of that movement of freight going into rail, I think that has translated into I'll call more visibly in our flow businesses, uh, especially in Freight. But we've seen, uh, uh, that with especially Parks. Uh, with that, we have not seen if you had any alcohol shift on demand for mods, or new units on that it's, it's remained consistent with the demand that has, uh, we have described before but uh, fuel prices up. It's a positive uh, for the overall business.

Speaker #2: Thank you.

Rob Wertheimer: Thank you.

Perfect. And then just in the last question, you touched on Evo orders. Are people still doing work on mods on older FDLs as well? Or are they kind of waiting for EVO to be exciting? And I'll stop there. Thanks.

Speaker #1: Our next question comes from Ben Moore with Citigroup. Please go ahead.

Operator: Our next question comes from Ben Moore with Citigroup. Please go ahead.

Speaker #5: Hi. Good morning, Raphael, John, Kaira. Thanks for taking my questions. And congrats on the quarter and the raise. I just wanted to continue on Ken's and Scott's questions there on revenue-related backlog.

Ben Moore: Hi. Good morning, Rafael, John, Kyra. Thanks for taking my questions, congrats on the quarter and the raise. Just wanted to continue on Ken's and Scott's questions there on revenue-related backlog. Your midpoint of your revenue guide raise of up 1%, can you help us parse out how much of that is related to the rail volume strength in North America rails in Q2 that could help generate non-backlog revenue? You got your Q2 organic revenue up 8.5%. Sounds like you are guiding to H2 organic revenue being roughly closer to mid-single digits. How much are you embedding continued rail volume strength to generate non-backlog revenue in H2? Is it assuming the up 4% car loads is still there, or is it more bringing that down to flattish, and anything above could be upside?

Ben Mohr: Hi. Good morning, Rafael, John, Kyra. Thanks for taking my questions, congrats on the quarter and the raise. Just wanted to continue on Ken's and Scott's questions there on revenue-related backlog. Your midpoint of your revenue guide raise of up 1%, can you help us parse out how much of that is related to the rail volume strength in North America rails in Q2 that could help generate non-backlog revenue? You got your Q2 organic revenue up 8.5%. Sounds like you are guiding to H2 organic revenue being roughly closer to mid-single digits. How much are you embedding continued rail volume strength to generate non-backlog revenue in H2? Is it assuming the up 4% car loads is still there, or is it more bringing that down to flattish, and anything above could be upside?

Speaker #5: Your midpoint of your revenue guide raise of up 1%, can you help us parse out how much of that is related to the rail volume strength in North America rails in two Q that could help generate non-backlog revenue?

Speaker #5: You've got your two Q organic revenue up 8.5%. Sounds like you're guiding to second half organic revenue being roughly closer to mid-single digits. How much are you embedding continued rail volume strength to generate non-backlog revenue in the second half?

Yes, they are. I think uh, this is true fold and keep in mind, it's not just a function of North America, it's a function of international as well. This programs drive, I'll call you an average 5 plus percent, uh, advantage point on the fuel side. So very significant returns, uh, for our customers, but it's very customer dependent. You got to look at the application. You got to look at how they run their fleets. Uh, but uh, uh, this is a program that's going to advance our ability to continue to modernize the fleet. And that's how we think about it. It's uh, continue to, uh, Drive uh, a replacement continue to drive modernization in that context, early days on Ava mods, but it's good to see the, the first order here in the second quarter.

Thank you.

Go ahead.

Speaker #5: Is it assuming the up 4% carloads is still there, or is it more bringing that down to flattish? And anything above could be upside?

Speaker #3: Yeah. So going back to when we look at the revenue raise, of the 110 billion 110 million dollars, it's largely driven by the flow business.

Rafael Santana: Yeah. Going back to when we look at the revenue raise of the $110 million, is largely driven by the flow business. Ben, as we have talked about 30% of our business is flow, 70% is backed up by long-term agreements. That is really just executing against the orders that we have. Where we have seen the growth is coming strictly from that. As I mentioned, it is coming from two places. One is on the freight side, and that is driven by that increase that we saw in H1. Overall, car loads were up about just shy of 3% on the half, 4% on Q2. What we have done is we have looked at that

Speaker #3: And Ben, as we've talked about, about 30% of our business is flow. 70% is backed up by long-term agreements. And so that's really just executing against the orders that we have.

Speaker #3: So where we've seen the growth is coming strictly from that. And as I mentioned, it's coming from two places. One is on the freight side, and that is driven by that increase that we saw in the first half.

Speaker #3: Overall, carloads are up about just shy of 3% on the half, 4% on the second quarter. So what we've done is we've looked at that and held what we're seeing in the second quarter throughout the back half.

Hi, good morning, Rafael John, Cairo. Thanks for taking my questions and, uh, congrats on the quarter in the Rays. Uh, just wanted to uh, continue on Ken's and Scott's questions there on um, Revenue related backlog, uh, your midpoint of your Revenue guide rays of up 1%, uh, can you help us? Parse out, how much of that is related to um, the rail volume strength in North America rails in 2 q that uh could help generate non backlog Revenue. You got your 2 Q, organic Revenue up 8.5%. Sounds like you're guiding to second. Half organic Revenue being, um, roughly closer to the mid single digits. Um, how much are you embedding continued? Real volume strength to generate non backlog, uh, Revenue in the second half. Um, is it assuming the up 4% car loads uh, is, is still there? Or is it more? Uh, bringing that down.

Down, down to flattish, and anything above could be upside.

John Olin: Held what we are seeing in Q2 throughout the back half. Looking at the revenue that is behind us, driven by the flow business in Q2 and adding on what we believe is a similar run rate in H2, that is delivering the $110 million of additional benefit.

Speaker #3: And looking at the revenue, that's behind us, driven by the flow business in the second quarter and adding on what we believe is a similar run rate in the second half.

Speaker #3: And that's delivering the 110 million dollars of additional benefit.

Yeah, so um, go going back to um, when we look at the revenue raise of the 110 billion, 110 million dollars, um, is largely driven by the the flow business and then as we've talked about about 30% of our our, um, businesses flow, 70% is backed up by, um, long-term agreements.

Speaker #5: I appreciate that. Thank you for that color. That's very helpful. And then maybe looking further ahead, can I just ask and congrats on this $1 billion Australia order.

Ben Moore: I appreciate that. Thank you for that color. That is very helpful. Maybe looking further ahead, can I just ask, congrats on this $1 billion Australia order. It seems like it is across equipment and services and other segments as well. Has that entered into your Q2 backlog? Related to that.

Ben Mohr: I appreciate that. Thank you for that color. That is very helpful. Maybe looking further ahead, can I just ask, congrats on this $1 billion Australia order. It seems like it is across equipment and services and other segments as well. Has that entered into your Q2 backlog? Related to that.

Speaker #5: Seems like it's across equipment and services and other segments as well. Has that entered into your two Q backlog? And then it related to that, it has.

And, um, so that's really just executing against the orders that we have. So what we're seeing the, the growth is, is coming strictly from that. And it, as I mentioned, it's coming from 2 places. Um, 1 is on the freight side and that is driven by that, um, increase that we saw in the first half. Um, overall car loads were up about just shy of 3%, on behalf 4% um, on the second quarter. So what we've done is we've looked at that.

Speaker #5: Great. Related to that, are you still looking ahead in one to two-year negotiations with some of those regions? I'll quickly list them out. Australia, East Asia, Uzbekistan, Mongolia, Pakistan, Brazil, parts of Africa.

Rafael Santana: It has

Rafael Santana: It has.

Rafael Santana: It has. Great. Related to that, are you still looking ahead in 1 to 2-year negotiations with some of those regions? I'll quickly list them out. Australia, East Asia, Uzbekistan, Mongolia, Pakistan, Brazil, parts of Africa. Are you still excited about potential orders from these in upcoming quarters where you're still in 1 to 2-year negotiations?

Rafael Santana: Great. Related to that, are you still looking ahead in 1 to 2-year negotiations with some of those regions? I'll quickly list them out. Australia, East Asia, Uzbekistan, Mongolia, Pakistan, Brazil, parts of Africa. Are you still excited about potential orders from these in upcoming quarters where you're still in 1 to 2-year negotiations?

Speaker #5: Are you still excited about potential orders from these in upcoming quarters where you're still in one to two-year negotiations?

And held, um, what we're seeing in the second quarter throughout the back half and looking at the revenue that's behind us, um, driven by the, um, the flow business in the second quarter and adding on what we believe is a similar run rate in the second half, and that's delivering the $110 million of, um, additional benefits.

Speaker #3: Very much. And that's why I mentioned really continued strength in the pipeline of opportunities. I feel like we've been talking about Australia for more than a couple of quarters.

Rafael Santana: Very much. That's why I mentioned really continued strength in the pipeline of opportunities. I feel like we've been talking about Australia for more than a couple of quarters. It has materialized. We're continuing to progress. Those international deals can take a bit longer than you would normally see. We feel very strong about more than a couple of significant deals happening here in the H2 of the year. They're exactly tied to what you described there. They're meaningful in that context. The pipeline remains strong, and I think it's providing us stronger and stronger coverage as we look at the years ahead for Wabtec.

Speaker #3: It has materialized our continued progress, those international deals can take a bit longer than you'd normally see. We feel very strong about more than a couple of significant deals happening here in the second half of the year and their exactly tied to what you described there.

Speaker #3: And they're meaningful in that context. So pipeline remains strong. And I think it's providing us stronger and stronger coverage as we look at the years ahead for WATEC.

I appreciate that, thank you for that color, that's very helpful. Um, and then maybe looking uh, further ahead, um can I just ask uh, uh, and congrats on this 1 billion dollar Australia order seems like it's across equipment and services and and other, uh, segments as well has that, uh, entered into your 2q backlog. And then it um, and related to that. Um it has great uh related to that. Are you still looking ahead in 1 to 2 year negotiations, with some of those regions, I'll I'll quickly, list them out, Australia East a East, Asia usbekistan, Mongolia Pakistan,

Speaker #5: Fantastic. Thanks for the time and insights as always.

Ben Moore: Fantastic. Thanks for the time and insights, as always.

Ben Mohr: Fantastic. Thanks for the time and insights, as always.

Speaker #3: Thank you.

Rafael Santana: Thank you.

And Brazil, parts of Africa. Uh, are you still excited about, uh, potential orders from these in upcoming quarters where you're still in one- to two-year negotiations?

Speaker #1: Our next question comes from Steve Barger with KeyBank Capital Markets. Please go ahead.

And that's why.

Operator: Our next question comes from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Speaker #6: Hello. Good morning. This is Christian Zila on for Steve Barger. Can you just give us a sense of the current breakdown of the backlog for freight?

Christian Zila: Hello, good morning. This is Christian Zila on for Steve Barger.

Christian Zyla: Hello, good morning. This is Christian Zila on for Steve Barger.

Rafael Santana: Good morning.

Christian Zila: Can you just give us a sense of the current breakdown of the backlog for freight? Is it primarily equipment and services in there, or does it look more like the product mix for freight? Then, I guess, just following up, which category are you seeing the most growth in the backlog?

Christian Zyla: Can you just give us a sense of the current breakdown of the backlog for freight? Is it primarily equipment and services in there, or does it look more like the product mix for freight? Then, I guess, just following up, which category are you seeing the most growth in the backlog?

Speaker #6: Is it primarily equipment and services in there, or does it look more like the product mix for freight? And then I guess just following up, which category are you seeing the most growth in the backlog?

Speaker #3: Christian, the backlog would be made up of more of the equipment side. They've got long lead times. And not so much on the flow stuff.

John Olin: Christian, the backlog would be made up of more of the equipment side. They've got long lead times, not so much on the flow stuff. That doesn't fall into the 12 or the multi-year backlog because it's more of a term product. Again, about 70% of our revenue falls into that backlog category, either 12 or the multi-year. It is predominantly on the longer lead time equipment.

Speaker #3: That doesn't fall into our 12 it doesn't fall into the 12 or the multi-year backlog because it's more of a turn product. And again, about 70%.

I mentioned, uh, really continued strength in the pipeline of opportunities. I feel like we've been talking about Australia for more than a couple quarters. It has materialized, our continued to progress. Those International deals can take up a bit longer than you would normally. See, we feel very strong about more than a couple significant deals Happening Here in the second, uh, half of the year. And they're exactly tied to what you described there and uh, their their medical in in that context. So pipeline remains strong. And, uh, I think it's providing us the stronger and stronger coverage as we look at the years ahead. Uh, uh, for WC,

Fantastic. Thanks for the time and insights, as always.

Speaker #3: Of the revenue falls into that backlog category, either 12 or the multi-year. But it is predominantly on the longer lead time equipment.

Thank you.

Our next question comes from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Hello, good morning. This is Christian Zila on for Steve Barker.

Speaker #6: Got it. That makes sense. Thank you. And then just second question, kind of switching gears on the international opportunities and the regions you talked about.

Christian Zila: Got it. That makes sense. Thank you. Then just second question, kind of switching gears on the international opportunities and the regions you talked about. Are you guys starting to see a deeper penetration for the digital offering in international, or is it still mainly core equipment, mods, service, et cetera?

Christian Zyla: Got it. That makes sense. Thank you. Then just second question, kind of switching gears on the international opportunities and the regions you talked about. Are you guys starting to see a deeper penetration for the digital offering in international, or is it still mainly core equipment, mods, service, et cetera?

Speaker #6: Are you guys starting to see a deeper penetration for the digital offering in international, or is it still mainly core equipment, mods, service, etc.?

Morning. Can you just give us a sense of the current breakdown of the backlog for Freight? Is it primarily equipment and services in there? Or does it look more like the product mix for Freight? And then I guess just following up. Which category are you seeing the most growth in the backlog?

Speaker #3: No, we are. And I think that's very exciting part of what we're seeing is this if you think about the technology and the strong momentum in digital innovation and automation, you ask specifically internationally, I mean, this is we're seeing meaningful advancements.

Rafael Santana: No, we are, I think that's a very exciting part of what we're seeing is this, if you think about the technology and the strong momentum in digital innovation and automation, you asked specifically internationally. I mean, we're seeing meaningful advancements. You saw our win on PTC 2.0. That's becoming more of a vital element of how you run the railroad internationally. You combine that with Zero-to-Zero, this really brings great advantages to our customers. Significant advantages there. We're continuing to also advance versus competition. I think we mentioned about EVO Advantage. We're continuing to advance on hybrid battery programs. A lot of those things are really driving, I think, significant opportunities for us to continue to win internationally.

Speaker #3: You saw our win on PTC2.0. That's becoming more of a vital element of how you run the railroad internationally. You combine that with zero to zero, this really brings great advantages to our customers.

Lie on the longer lead-time equipment.

Speaker #3: So significant advantages there. We've continued to also advance versus competition. I think we mentioned about Evo Advantage. We're continuing to advance on hybrid battery program.

Speaker #3: So a lot of those things are really driving, I think, significant opportunities for us to continue to win internationally.

Got it, that makes sense. Thank you. Um, and then just a second question, kind of switching gears on the international opportunities in the regions. You talked about, are you guys starting to see a deeper penetration for the digital offering internationally, or is it still mainly core equipment, mods, service, etc.?

Speaker #6: Great. Thank you.

Christian Zila: Great. Thank you.

Christian Zyla: Great. Thank you.

Speaker #1: Our next question comes from Harrison Bauer with SIG. Please go ahead.

Operator: Our next question comes from Harrison Bauer with SIG. Please go ahead.

Speaker #2: Great. Thank you for taking my questions. As you've implemented some of your tariff mitigation actions, have any of those changes proven structurally beneficial enough that they're likely to remain permanent regardless of how tariff policy evolves?

Harrison Bauer: Great. Thank you for taking my questions. As you've implemented some of your tariff mitigation actions, have any of those changes proven structurally beneficial enough that they're likely to remain permanent regardless of how tariff policy evolves? Specifically regarding sourcing, localization, supplier diversification, stickiness of pricing processes. Thank you.

Speaker #2: Specifically regarding sourcing, localization, supplier diversification, stickiness of pricing processes. Thank you.

Speaker #3: Thanks, Harrison. I would say that some are and some are waiting to be implemented once we see the some of the shifting of tariff rates to become more concrete.

Rafael Santana: Thanks, Harrison. I would say that some are and some are waiting to be implemented once we see some of the shifting of tariff rates it'll become more concrete. Right? Some of these moves on the supply side. Harrison, we talk about a four-point plan to minimize these. One of those is working with the supply chain. Yes, where we can, we've moved products from higher tariff areas to lower tariff in the United States. A lot of these require a fair amount of investment to move. There's still opportunity ahead of us once we get some stability in the overall rates before we start to change things around. Yes, some have proved to be good moves and that will stay that way if rates change again.

No, we are, and I think that's, uh, very exciting. Uh, part of what we're showing is this, uh, if you think about the technology and the strong momentum and digital Innovation and automation, you asked specific specifically internationally, I mean, this is, we're seeing meaningful advancements. You saw our win on PTC 2.0. That's becoming more of a vital. Uh, uh, element of how you run, uh, the railroad internationally you, uh, combine that with zero to zero. This really brings great advantages, uh, to our customers. So, uh, significant, uh, advantages. There we continue to also, uh, Advanced versus competition. Uh, I think we mentioned about the Evo Advantage, uh, we're continuing to advance on Hybrid battery, uh, programs. So a lot of those things are really driving. I think significant opportunities for us to continue to win. Uh, internationally,

Speaker #3: Right? So some of these moves on the supply side. So Harrison, we talk about a four-point plan, the minimize these. One of those is working with the supply chain.

Great. Thank you.

Our next question comes from Harrison Bower with Sig. Please go ahead.

Speaker #3: So yes, where we can, we've moved products from higher tariff areas to lower tariff in the United States. And a lot of these require a fair amount of investment to move.

Speaker #3: So there's still opportunity ahead of us once we get some stability in the overall rates before we start to change things around. But yes, some have proved to be good moves in that stay that way if rates change again.

Great. Thank you for taking my questions as you've implemented. Some of your tariff mitigation actions—have any of those changes proven structurally beneficial enough that they're likely to remain permanent, regardless of how tariff policy evolves? Specifically regarding sourcing, localization, supplier diversification, and the sticking of pricing processes. Thank you.

Speaker #2: Okay. Great. Thank you. And maybe just to follow up on some of the discussion regarding your mix, within your long-term margin framework and I know you don't separately disclose the freight component of margin growth, but can you help us understand what the relative contributions are from operational improvements mix and synergies from some of your recently acquired businesses?

Rafael Santana: Okay, great. Thank you. Maybe just to follow up on some of the discussion regarding your mix. Within your long-term margin framework, I know you don't separately disclose the freight component of margin growth. Can you help us understand what the relative contributions are from operational improvements, mix, and synergies from some of your recently acquired businesses, and maybe just the natural maturation of your installed base toward a higher margin aftermarket and digital revenue, and how each of those contributes to steady freight margin expansion over time? Thanks.

Harrison Bauer: Okay, great. Thank you. Maybe just to follow up on some of the discussion regarding your mix. Within your long-term margin framework, I know you don't separately disclose the freight component of margin growth. Can you help us understand what the relative contributions are from operational improvements, mix, and synergies from some of your recently acquired businesses, and maybe just the natural maturation of your installed base toward a higher margin aftermarket and digital revenue, and how each of those contributes to steady freight margin expansion over time? Thanks.

Speaker #2: And maybe just the natural maturation of your install-based toward a higher margin aftermarket and digital revenue, and how each of those contributes to steady freight margin expansion over time.

Speaker #2: Thanks.

Speaker #3: So Harrison, number one, in terms of strictly mix, over the long term, we would expect there to be a mix headwind as we grow our mods and locos at a faster rate than the average.

John Olin: Harrison, number one, in terms of strictly mix, over the long term, we would expect there to be a mix headwind as we grow our mods and locos at a faster rate than the average. Harrison, what I would like to say is there's two kinds of mix in this world. There's good mix and bad mix. What we have here is a case of really good mix, right? Because putting these out, even at a lower margin than the average, allows for us to garner service revenue off those for the next 20 to 30 years, and the components and certainly the modernizations that come from that. When we look at overall the margin growth that we expect in our long-term plans, we've talked about 350-plus basis points of margin growth.

Um, thanks Harrison. I, I would say that some are, um, and, and some are waiting to be implemented once we see, you know, the, um, some of the shifting of of tariff rates, um, you know, to become more concrete. Um, right. So some of these moves on the supply side. So, uh, here is then we, we talked about a 4 point, um, um, plan the, the minimize these 1 of those is working with the supply chain. Um, so yes, where we can, we've moved, um, products um, from uh, higher tariff areas to lower tariff in the United States. Um, and, and a lot of these require a fair amount of investment to move. Um, so there's still opportunity ahead of us. Um, once we get, um, some stability in the overall rates, um, before we we start to change things around. Um, but yes, um, some have proved to be, um, um,

good moves, and that will, um, um,

Stay that way. If rates change again?

Speaker #3: And Harrison, what I would like to say is there's two kinds of mix in this world. There's good mix and bad mix. And what we have here is a case of really good mix, right?

Speaker #3: Because putting these out even at a lower margin than the average, allows for us to garner service revenue off those for the next 20 to 30 years.

Speaker #3: And the components and certainly the modernizations that come from that. When we look at overall the margin growth that we expect, and our long-term plans, we've talked about 350-plus basis points of margin growth.

Okay, great, thank you. And maybe just, uh, follow up on some of the discussion regarding your mix within your long-term margin framework. I know you don't have separately disclosed the freight component of margin growth, but can you help us understand what the relative contributions are from operational improvements, mix, and synergies from some of your recently acquired businesses, and maybe just the natural maturation of your installed base towards higher margin aftermarket digital revenue, and how each of those contributes to steady freight margin expansion over time? Thanks.

Speaker #3: I think the way to think about that, Harrison, is about two-thirds of it is going to come from the hard work that we do on managing the company's productivity and driving the company's productivity.

John Olin: I think the way to think about that, Harrison, is about two-thirds of it is going to come from the hard work that we do on managing the company's productivity and driving the company's productivity. Right? Those are things such as everyday productivity and lean. We got a lot of opportunity to continue to propagate lean throughout the organization. There's the integration programs, which are more structural changes that are driving significant margin expansion. We got portfolio optimization as getting rid of some of the things that aren't going to take us to the future that we aspire to. That's how we see a fair amount of that 350 basis points going forward. The rest of it is on adding more value, which is recovering the cost and the inflationary aspects that we have.

Speaker #3: Right? And those are things such as, every day, productivity and lean. We've got a lot of opportunity to continue to propagate lean throughout the organization.

Speaker #3: Then there's the integration programs which are more structural changes that are driving significant margin expansion. And then we've got portfolio optimization. As getting rid of some of the things that aren't going to take us to the future that we aspire to.

Speaker #3: So that's how we see a fair amount of that 350 basis points going forward. The rest of it is on adding more value, which is recovering the cost and the inflationary aspects that we have.

Um, so here's here's the number 1, in terms of strictly mix, um, over the long term, we would expect there to be a mix headwind, um, as we um, um, um, grow our mods and um, locals at a faster rate than the average. And, and here are some of what I would like to say is there's 2 kinds of mix in this world. There's good mix and bad mix. And what we have here is a case of really good mix, right? Um, because putting these out even at a lower margin than the average um allows for us to the the Garner service Revenue off those for the next 20 to 30 years and and the components and certainly the modernizations that come from that. Um, when we look at overall, the, the margin growth that we expect in our long term,

um,

Speaker #3: Most of our contracts are 60% of our revenue have long-term contracts, and they have predominantly price escalators in. And so that, along with the innovation that we're investing in, in the selectivity that we're displaying, certainly on the transit side, would drive the extra third of that margin expansion over our time horizon.

John Olin: Most of our contracts, or 60% of our revenue, have long-term contracts, and they have predominantly price escalators in. That, along with the innovation that we're investing in, and the selectivity that we're displaying, certainly on the transit side, would drive the extra third of that margin expansion over our time horizon.

Speaker #2: Thanks.

Harrison Bauer: Thanks.

Speaker #1: Our next question comes from Jerry Ravich with Wells Fargo. Please go ahead.

Operator: Our next question comes from Jerry Revich with Wells Fargo. Please go ahead.

Speaker #5: Yes. Hi. Good morning, everybody. Nice quarter. Rafael, I wanted to ask on service as we've seen these really good freight volumes this year. Has your service business picked up steam, or are you looking for the pure service part to accelerate?

Jerry Revich: Yes. Hi, good morning, everybody. Nice quarter. Rafael, I wanted to ask on service, as we've seen these really good freight volumes this year, has your service business picked up steam? Are you looking for the pure service part to accelerate? Back on the mods part of the conversation, we've got obviously a product line transition here, or lifecycle transition here. Are we thinking about mods being down again 2027 versus 2026, given that FDL to EVO transition? Can you just calibrate us on that lifecycle? Thanks.

Speaker #5: And then back on the mods part of the conversation, we've got obviously a product line transition here. Or life cycle transition here. Are we thinking about mods being down again 27 versus 26, given that FDL to Evo transition?

Speaker #5: Can you just calibrate us on that life cycle? Thanks.

Is, um, getting rid of some of the things that aren't going to take us to the Future that we aspire to. Um, so that's how we see a fair amount of of that 350 basis points. Um, um, going forward, the rest of it is on, um, adding more value, which is recovering the cost and the inflationary aspects that we have, uh, most of our contracts are 60% of our Revenue, have long-term contracts, and they have, um, predominantly price escalators in. And, um, so that along with the Innovation that we're investing in, um, I'm in the selectivity that we're um, displaying certainly on the transit side, would drive the extra third of that margin expansion over our time Horizon.

Speaker #3: Yeah. Jerry, I mean, I think we've been quite clear in terms of the benefit we've seen from the full business, which is tied to this volume golf in North America.

Rafael Santana: Yeah. Jerry, I think we've been quite clear in terms of the benefit we've seen from the full business, which is tied to this volume growth in North America and on parking of locomotives. That's a positive. It's kind of early to comment on 2027 at this point. What I'll tell you, as we look at the balance of the year, the things we're watching are, if you think about upside where it could come from, it could come from customers continuing to unpark units and sustaining that unparked fleet. I think that's something to watch. It could also come from as we continue to advance Integration 3.0 and simplification, if the productivity that we get from these initiatives materialize faster.

Thanks.

Speaker #3: And on parking of locomotives. So that's a positive. It's kind of early to comment on 27 at this point. But what I'll tell you is we look at the balance of the year.

Our next question comes from Jerry Rach with Wells Fargo, please go ahead.

Speaker #3: The things we're watching are if you think about upside where it could come from, it could come from customers continue to unpark units and sustaining that unparked fleet.

Speaker #3: So I think that's something to watch. It could also come from, as we continue to advance integration 3.0 and simplification, if the productivity that we get from this initiative is materialized faster.

Yes. Hi, good morning everybody, nice quarter, uh, Rafael. I I want to ask on on Service, uh, you know, as we've seen these really good Freight, uh, volumes, uh, this year, has your service business, picked up steam, are you looking for the Pure service part to accelerate and, and then back on the mods, part of the conversation, you know, we've got, obviously a product line transition here, uh, or life cycle. Transition here are are we thinking about mods being down? Again, 27 versus 26. Given that FDL to

Speaker #3: Now, we've got to take into consideration the risk side, which we continue to be mindful of. Well, I guess inflation pressures, especially on the container side.

John Olin: Now, we've got to take into consideration the risk side, which we continue to be mindful of, I guess, inflation pressures, especially on the container side. We mentioned chip shortages with electronics. We're closely watching here the North America rail car build in this context and manage through tariff-related changes. Execution remains always a key variable to watch, but it's been a positive so far.

Vote transition. Can you just calibrate us on that life cycle? Thanks. Yeah.

Speaker #3: We mentioned cheap shortages with electronics. And we're closely watching here the North America rail car built into this context and managed through tariff-related changes.

Speaker #3: But execution remains always a key variable to watch. But it's been a positive so far.

Speaker #5: Okay. Super. And then can I ask on transit really nice margin performance? Can you just talk about out of the legacy business, excluding the acquisition, where are we in terms of the proportion of backlog that's at your target margin levels?

Jerry Revich: Okay, super. Can I ask on transit, really nice margin performance? Can you just talk about out of the legacy business, excluding acquisition, where are we in terms of the proportion of backlog that's at your target margin levels? Is it fair to think about the margins in backlog as higher than what's flowing through margins through sales this year?

Speaker #5: And is it fair to think about the margins and backlog as higher than what's flowing through margins through sales this year?

Speaker #3: I'll start. When we think about transit, I mean, it's great progress. Our teams are continuing to drive a lot of the actions around productivity and simplifying the operating footprints.

Rafael Santana: I'll start. When we think about transit, it's great progress. Our teams are continuing to drive a lot of the actions around productivity and simplifying the operating footprints. I think we see here a clear path towards the high-teen margin performance that we've described before. Mix was a positive for the quarter. I think the other positive point here is the acquisitions. The Dellner acquisition, still early days, but it's going very well. In fact, when we think about the acquisitions overall, they're on track to deliver on the synergies. When we think about the overall dynamics, it's positive. They're ahead of plan.

And I think we've been quite clear in terms of the benefit we've seen from the full business, which is tied to this volume growth in North America, and honor parking of locomotives. So that's, uh, a positive. It's kind of early to comment on the 27 at this point. But what I'll tell you, as we look at the balance of the year, the things we're watching, uh, are like, if you think about upside where it could come from, it could come from uh POS customers. Continue to 1 part units and sustaining that on part Fleet. So I think that's something to watch. You could also come from, uh, as we continue to advance integration 3.0 and simplification if the productivity uh, that we get from this initiative is materialized faster now. And we got to take in consideration the risk side which we continue to be mindful of. Well I guess inflation pressures especially on the container side. Uh we mentioned chip shortages with electronics. Uh and we're closely watching here at the North America rail.

Speaker #3: I think we see here a clear path towards the high TN margin performance that we've described before. Mix was a positive for the quarter and I think the other positive point here is the acquisitions.

Car built in this, uh, uh, context and managed through, uh, tariff related, uh changes. But, uh, execution remains, uh, always a key variable to watch. But it's, uh, it's, it's been a positive, uh, so far.

Speaker #3: The downer acquisition still early days, but it's going very well. In fact, when we think about the acquisitions, overall, I mean, they're on track to deliver on the synergies and when we think about the overall dynamics, it's positive.

Speaker #3: They're ahead of plan.

Speaker #5: Okay. Thanks.

Jerry Revich: Yep. Thanks.

Speaker #1: Our next question comes from Tammy Zachariah with JP Morgan. Please go ahead.

Operator: Our next question comes from Tami Zakaria with J.P. Morgan. Please go ahead.

Operator: Our next question comes from Tami Zakaria with JPMorgan. Please go ahead.

Speaker #6: Hey. Good morning and congrats on very impressive results. I wanted to double-click on a prior question on freight traffic because in North America freight traffic accelerated quite notably in the quarter.

Tami Zakaria: Hey, good morning, and congrats on very impressive results. I wanted to double-click on a prior question on freight traffic, because North America freight traffic accelerated quite notably in the quarter. What are some of the factors you believe drove that? Was it driven by any specific industry, or was it broad-based? Do you believe this is sustainable going forward? It's probably great news for your flow business then. Any color would be helpful.

Speaker #6: What are some of the factors you believe drove that? Was it driven by any specific industry, or was it broad-based? And do you believe this is sustainable going forward because it's probably great news for your flow business?

Okay, super, and then can I ask on Transit really? Nice margin performance. Um can you just talk about out of the Legacy business? Including the acquisition? Uh where are we? In terms of the proportion of backlog, that's at your target, margin levels. And is it fair to think about the margins and backlog, as higher than, what's flowing through margins through sales? Um, this year, I'll I'll start when we think about transits. I mean, it's great progress. Our teams are continuing to drive the, a lot of the actions around productivity and simplifying the operating, uh, Footprints. Uh, I think, uh, we see here a clear path towards the high, uh, TN margin performance, that we've described uh, before mix was a positive, uh, for the quarter. And uh, I think the other, uh, positive Point here is the Acquisitions the downer acquisition still early days, but it's going very well. In fact, when we think about the acquisitions,

Speaker #6: Any color would be helpful.

Speaker #3: Tammy, I think we've certainly seen movement into rail. And I think there's a combination of factors there, which tied to the dynamics on the truck market, fuel prices being up, some still driver shortages there.

Rafael Santana: Tami, I think we're certainly seeing movement into rail, and I think there's a combination of factors there which tie to the dynamics on the truck market, fuel prices being up, some still driver shortages there. I think some of those dynamics are connected with better service in rail and I think are kind of well driving some positive results so far. Now, that's certainly very visible in Q2. As I mentioned, I think we'll continue to watch that, and that's where I'd say upside could come from, as customers continue to unpark units and continue to sustain that level of unparked units in that context. That's something that you need more than a couple of quarters, and that has not yet translated into any shift in terms of demand for mods or new units in North America.

Overall, I mean, they're on track to deliver on the synergies. And, uh, when we think about the overall dynamics, uh, it's positive. They're ahead of plan.

Thanks.

Speaker #3: And I think some of those dynamics connected with better service in rail and I think our kind of well-driving some positive results so far.

Our next question comes from Tammy Zachariah with JP Morgan. Please go ahead.

Speaker #3: Now, that's certainly very visible in the second quarter. As I mentioned, I think we'll continue to watch that. And that's where I'd say upside could come from.

Hey, good morning, and congrats on very impressive results. I wanted to double-click on a prior question on free traffic, because in North America, free traffic accelerated quite notably in the quarter.

Speaker #3: It's customers continue to unpark units and continue to sustain that level of unparked units in that context. But that's something that you need more than a couple of quarters and that has not yet translated into any shift in terms of demand for mods or new units in North America.

Uh, what are some of the factors you believe drove it? Was it driven by any specific industry, or was it broad-based? And do you believe this is sustainable going forward? Because it's probably great news for your flow business. Any color would be helpful?

Speaker #3: The demand there continues, but to be very consistent with how we've described before.

Rafael Santana: The demand there continues, but to be very consistent with how we've described before.

Speaker #6: Understood. Thank you. That's all I had for today.

Tami Zakaria: Understood. Thank you. That's all I had for today.

Speaker #3: Thank you.

Speaker #2: Thank you.

Rafael Santana: Thank you.

Kyra Yates: Thank you.

Speaker #1: This concludes our question and answer session. I would like to turn the call back over to Kyra Yates for any closing remarks.

Operator: This concludes our question and answer session. I would like to turn the call back over to Kyra Yates for any closing remarks.

Operator: This concludes our question-and-answer session. I would like to turn the call back over to Kyra Yates for any closing remarks.

Speaker #7: Thank you, Bailey. And thank you, everyone, for your participation today. We look forward to speaking with you again next quarter.

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

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

Uh, into Rail. And I think there's a combination of factors there, which tied to the Dynamics, on the truck Market fuel, uh, prices being up, uh, some still, uh, driver shortages there. And I think some of those Dynamics, uh, connected with, uh, better service in Rail and, uh, uh, I think are, uh, kind of well, uh, uh, driving some positive, uh, uh, results so far. Now, that certainly, uh, very visible in the second quarter, as I mentioned, I think we'll continue to watch that and, uh, that's where I'd say, uh, upside could come from, its customers continue to, uh, on part units and continue to sustain their level of 1, part units in that contacts. But that's something that uh, you need more than more than a couple quarters and that has not yet translated into any shift uh, in terms of uh demand for

Mods or new units in North America—the demand there continues, but to be very consistent with how we've described before.

Understood. Thank you. That's all I had for today.

Thank you. Thank you.

This concludes our question and answer session. I would like to turn the call back over to Kyra Yates for any closing remarks.

Thank you, Bailey. And thank you, everyone, for your participation today. We look forward to speaking with you again next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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