Westinghouse Air Brake Technologies Corporation

Good morning and welcome to the Wabtec fourth quarter 2018 earnings release 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 Mr. Tim Wesley, Vice President of Investor Relations. Please go ahead.

Thank you, Sean. Good morning, everybody, and it is a good morning. The sun is shining here in Wilmerding. Welcome to WAPTEC's Investor Call. We're going to discuss a lot this morning, our 2018 fourth quarter and full year results, our guidance for 2019, and, of course, the closing of our transaction with GE Transportation. Along with our press release, we've also provided slides for our presentation this morning. You can find those on our website at www.webtech.com. Go to the Investor Relations tab. Click on the link for the February 25 investor presentation. And as Sean mentioned, of course, following our remarks, we will do a Q&A session. We do ask that you limit yourself to one question and one follow-up. If we can't get to everyone's questions in the allotted time, we will be reaching out following the call. And again, as a reminder, the call is being recorded for replay purposes. We will make forward-looking statements during the call, so I would just ask that you review today's press release and slide one of the presentation for the appropriate disclaimers. During the call, we will also discuss non-GAAP financial metrics and performance measures. I encourage you to read the bottom of slide one before considering those metrics. With that, if you would turn to slide two, I'm going to introduce you to the others who are here with me in Wilmerding and will be presenting during the prepared remarks this morning. Al Newpaver, our executive chairman, our president and CEO, Ray Bettler, our CFO, Pat Dugan, and Rafael Santana, president and CEO of our freight segment. Also here is John Massilers, our corporate controller. With that, let me turn the call over to Al for some comments and an overview of our agenda this morning. Okay, thanks, Tim, and good morning to everyone. Today is a very, very important day for the new Wabtec. We started this process well over a year ago, and before we get into the presentation, I want to take this time to really acknowledge and thank the entire team for all their hard work and dedication to get to this point. And I especially want to identify the people in this room who were just introduced, as well as Dave DeNino, our general counsel, that has spent endless hours trying to get us to where we're at today. So, we're really excited about the opportunity, but it didn't get here without a tremendous amount of effort and work by a great team. Today, we're even more convinced in the strategic logic and the value of this transaction. The combination of our uniquely complementary capabilities creates new opportunities for growth well into the future. We have the ability to advance technologies to improve the safety, the efficiencies, and the productivity of both the freight and transit industries. will be better positioned to perform through the business cycle with expanded margins and expected double-digit earnings growth supported by a run rate of synergies of $250 million by the fourth year of this combination. Overall, we couldn't be more excited about the future of Wabtec. As you can see on slide two, Ray and Raphael will discuss in more detail the new Wabtec and our future plans. Pat will follow up and provide a review of our fourth quarter and full year 2018 performance, followed by our 2019 outlook. I now turn it over to Ray Bettler, our president and CEO. Okay, thank you.

So, folks, we're really excited and happy to be here at this point today. to finally be completing this merger so that we can focus on the future. The merger brings together two companies with rich heritages in many areas, engineering, manufacturing, technology, innovation, and over 4,400 years of combined experience within this industry. It brings together a corporation that will be a diversified global leader that's ideally positioned to address the opportunities, needs of the future in transportation worldwide. Our company will be a Fortune 500 company with business operations in over 50 countries around the world. We'll be listed on the S&P 500 index. So if you look at page four, you can see the complementarity of the companies. The companies have both demonstrated historically strong financial performance. Wabtec has a comprehensive technology-based portfolio that leads in many sectors of the market in which we operate, freight car products, locomotive electronics, brakes, heat exchangers, and so on. We also have a very strong market share position worldwide in transit. We have a successful track record financially and a diversified revenue base with extremely strong aftermarket positions in our core businesses. And as you know, we have a leadership position in positive train control and finally, a very strong backlog across our total business. GE Transportation is also a leader in their market segment. into this merger leadership position in freight rail technology. They're a diversified engineering company just like us. They have state-of-the-art diesel freight locomotives globally. They've demonstrated strong financial performance with a robust aftermarket business, and they have a diversified electronics digital portfolio. with a demonstrated history in innovation. It's important to note here that our combined business will have over 60 percent aftermarket, and we will have about 55 percent of our business internationally. So we really are well positioned for the future. If you turn to page five, we can talk a little bit about the strategic rationale and benefits of this merger for our shareholders. Our existing shareholders of Wabtec will now own 50.8 percent of the combined entity. GE and its shareholders will receive 49.2 percent of Wabtec shares. So, GE will receive 24.9 percent ownership, and its shareholders directly will own 24.3 percent at the time of closing. WAPTEC, under the final agreement, will issue 3.3 million shares fewer than at the time of the announcement earlier this year. And GE will receive $2.9 billion in cash. As you can see from the table in the middle of slide five, GE will complete the sale of their ownership by the end of year three. Our company will be called Wabtec, will be headquartered in Pittsburgh. I will remain president and CEO of the combined company and in the interim president and CEO of our worldwide transit group. I spent 41 years of my career in transit and joined Wabtec, as you know, in 2008 when I headed up the transit group. So I know that part of our business and our customers very well, as well as the freight part of our business. Rafael Santana will be the new president and CEO of the freight segment. Rafael has worked now for about 30 years of his life. He's been with GE for almost two decades. He's been with GE Transportation for a decade and has been in executive management for a dozen years. So Rafael, is a very strong executive with international experience and capability, and he brings with him an extremely strong expert team in his management team. We also are fortunate to continue to have Al remain as our executive chairman. While Al didn't mention it in the introductory comments, he led this overall negotiation and ultimate merger process along with Pat and Dave and other senior members of our executive team. If you go to page six, you'll see, as we explained in May, that the strategic rationale and the financial logic for this deal are quite Our belief in the now has only increased since we announced in May, and we want to reiterate a few of those points. From a strategic perspective, we're more diverse in global business than we were prior to this merger. Both companies are. We have significantly enhanced our overall electronic and digital portfolio. and we're well positioned to approach our customers to continue to support them in terms of increasing their ability to improve their safety, productivity, and efficiency. We also believe we're well positioned to leverage our collective position in the overall PTC business to start to grow a phased approach toward full automation in the rail industry. Financially, we have very strong portfolios and are targeting a synergy run rate of $250 million with significant tax benefits and expect to generate strong free cash flow that will enable us to deliver our company and to maintain our dividend and investment grade rating. We continue to view this as a highly attractive opportunity because of where both companies are in the cycle. We're both experiencing teal winds on the freight and locomotive side of our business. So there's a lot of reasons for why we brought this organization together under this merger. And we have a 150-year history we're celebrating this year, and we strongly believe that there's great opportunity for every employee in this company to enjoy an equal opportunity for another 150 years in the future. So with that, I want to turn it over to Rafael to make some detailed comments about the freight segments.