Westinghouse Air Brake Technologies Corporation

Good morning and welcome to the WAB Tech third quarter 2021 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal 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 your telephone keypad. To withdraw your question, please press star then two. Please note this event has been recorded. I would now like to turn the conference over to Christine Kubacki, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Wabtec's third quarter 2021 earnings call. With us today are President and CEO Rafael Santana, CFO John Olin, and Senior Vice President of Finance John Mastelers. Today's slide presentation, along with our earnings release and financial disclosures, were posted on our website earlier today and can be accessed on the Investor Relations tab on wabtechcorp.com. Some statements we're making are forward-looking and based on our best view of the world and our business today. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentations. 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.

Thanks, Christine, and good morning, everyone. Joining me today is our new Chief Financial Officer, John Olin. John is a well-respected leader with broad operational and financial experience. He is already bringing a great perspective to our business and long-term strategy with a clear focus on growing shareholder value. We're thrilled to have him on the team. I also want to take a moment to thank Pat Dugan for his nearly 20 years of service to Wattac. We're grateful for all that he has contributed to the company. With that, let's turn to slide four. I will start with an update on our business, my perspective on the quarter, and our long-term value framework. And then John will cover the financials. Overall, we made significant progress against our strategy and delivered a strong third quarter, as noted by our sales growth, adjusted margin, and adjusted earnings per share, each of which were up year over year. Total sales for the quarter were $1.9 billion driven by growing demand in freight services and components, but offset by continued weakness in the North America OEM market. Adjusted operating margin was 17% driven by strong mix in productivity, ongoing lean initiatives, and cost actions. Total cash flow from operations was $244 million This takes year-to-date cash from operations to $759 million versus $458 million a year ago. This is a solid illustration of how the team is driving good operational performance. Cash conversion for the year is at 103%. Finally, we ended third quarter with adjusted EPS of $1.14, up 20% year-over-year. Today, we're also pleased to share that we have achieved our $250 million synergy run rate a full year earlier than expected at the time of the GE transportation acquisition. We have consolidated and optimized our operations, reduced costs to drive stronger profitability, accelerated lean across the enterprise, and created additional capabilities in vast cost countries. We're already feeling the benefit of these efforts, which will continue to improve our competitiveness. So overall, really strong execution by the team as we continue to deliver on our long-term strategy. Shifting our focus to slide five, let's talk about our end market conditions in more detail. Internationally, trade activity continued to improve in the third quarter across our major markets, and our order pipeline remains strong. We expect long-term revenue growth in Russia, CIS, Brazil, Africa, Asia, and Australia. Trade trends in North America weakened slightly year-over-year in the third quarter, not driven by lack of demand, but by global supply chain disruption that has impacted intermodal volumes and auto production. Consumer and industrial activity continue to spur volume growth in chemicals, metals, and materials. Locomotive partings continue to decline despite weaker freight traffic in the quarter. We expect demand for reliability, productivity, and fuel efficiency to continue to increase, placing our services business in a position of strength. When it comes to the North America railcar build, Demand for rail cars is improving. About 21% of the North America rail car fleet remains in storage, a slight improvement from the previous quarter and in line with pre-COVID levels. As a result, industry orders for new rail cars are starting to improve. We forecast the rail car bill this year will be in the neighborhood of 30,000 cars. Transitioning to the transit sector, Ridership remains a bit uneven in some markets. However, infrastructure spending for green initiatives continues to be a bright spot, especially as governments globally turn to rail for clean, safe, and efficient transportation. Overall, the long-term market drivers for passenger transport remain strong. Shifting to slide six, We are developing innovative solutions that address the main cost drivers for our customers, including fuel efficiency and increased velocity in the transportation sector. Our commitment to succeed in these efforts is underscored by our focus on continuing to position rail transportation as the safest and most sustainable way to move freight and people over land. Today, we have the capability and expertise to transition diesel-powered locomotives to battery power and drastically reduce emissions, as we're doing with our flash-drive locomotive. We expect to extend this technology further to hydrogen fuel cells and help lead the industry to a zero-emission rail network of the future. And we're not stopping there. We have extended battery technology to other areas of our business as well. And we are driving several technology breakthroughs to boost transit efficiency and reduce emissions and pollutants. An example of this is our green friction technology, which drastically reduces brake emissions by up to 90%, an incredible milestone in significantly improving the quality of the air in our metros. We're also leading the change to create a safer and more efficient rail network. A great example of this and a solution of growing interest among Class 1 customers is TRIP Optimizer 020. This advanced technology allows an operator to autonomously start a train from zero miles per hour and stop it using software integrated with positive train control. It builds on TRIP Optimizer's proven performance, which has saved railroads more than 400 million gallons of fuel since its inception and reduces emissions by over 500,000 tons per year. Looking forward, we will continue to advance efforts towards cleaner, more energy-efficient transport, and we'll share our progress on this front, as well as our broader environmental, social, and governance priorities in our next sustainability report, which will be released in a couple weeks. Next, let's turn to slide seven to discuss how our next-gen technology is helping us win in the market by covering a few recent business highlights. In the third quarter, we secured new orders for our Plex Drive locomotive. We also closed a significant order for international locomotive kits and won a digital contract in Asia to help our customers improve asset utilization and reduce emissions. In freight services, we won a significant long-term service contract as well as an order for 100 locomotive modernizations in North America. Overall, Mod's backlog remains strong, and we are showing good momentum on deliveries. Finally, in transit, we won new power collection, HVAC, and service contracts in Germany, Switzerland, and the UK. Looking ahead, we are confident WAPTEC will continue to capture growth with innovative and scalable technologies that address our customers' most pressing needs. We also will continue to control what we can and leverage this strength to combat the current challenges that we are facing due to supply chain disruptions, increasing metal and commodity costs, and labor shortages. These dynamics have adversely impacted our third quarter results and have resulted in significant cost increases. Across the board, our team is working hard to mitigate the impact of these pressures by triggering price escalations and surcharges, as well as driving operational efficiencies wherever we can. We anticipate that costs will continue to increase over the next few quarters, and we will continue to aggressively manage these challenges. I'll turn the call over to John now to discuss this in more detail, as well as review the quarter segment performance and our overall financial position.