Westinghouse Air Brake Technologies Corporation

Good day and welcome to the Wabtec second quarter 2022 earnings conference call. All participants will be in a 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 Christine Kubacki, Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Wabtec's second quarter 2022 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 presentation. We will also discuss non-GAAP financial metrics, and I encourage you to read our disclosures and reconciliations tables carefully as you consider these metrics. I will now turn the call over to Rafael.

Thanks, Christine, and good morning, everyone. Let's move to slide four. I'll start with an update on our business, my perspectives on the second quarter, progress on our long-term value framework, and then John will cover the financials. We delivered a strong second quarter, which is evidenced by another quarter of adjusted margin expansion of 1.5 percentage points and adjusted earnings per share growth of 16%. More importantly, we continued our progress against our long-term strategies as evidenced by a significant expansion in the total backlog. Sales were roughly $2 billion, which was up modestly versus prior year. Revenue was driven by strong performance in the trade segment, but partially offset by lower year-over-year revenue in the transit segment. Excluding foreign currency exchange, consolidated revenues would have grown by roughly 5.5%. Total cash flow from operations was $263 million for cash conversion of over 90%. Total multi-year backlog was over $23 billion, up $1.7 billion, and excluding the headwinds from foreign exchange, backlog was up $2.3 billion from last year. Finally, we closed two strategic acquisitions in the quarter, Benavision and Air Inc., and deployed over $100 million in share repurchases and dividends. So, all in all, we had a very good quarter. We continue to invest for the future as we execute commercially and operationally with discipline and rigor, and we're well-positioned to continue to drive long-term growth, even with uncertainty and volatility in the overall economy. Shifting our focus to slide five, Let's talk about our end market conditions in more details. As we look at key metrics across our freight businesses, we are encouraged by the continued momentum in our end markets and the strong pipeline of opportunities. North America car loads are expected to improve in the second half of the year, and locomotive parkings have continued to decline despite lower year-to-date freight traffic. We continue to see significant opportunities in demand, for new locomotives and modernizations as our customers invest in their aging fleets and place a greater demand on reliability, productivity, and fuel efficiency. When it comes to the North American railcar build, demand for railcars is increasing from what we believe are trough levels. Railcars in storage are below pre-COVID levels with about 18% of the North American rail car fleet in storage. As a result, industry orders for new rail cars continue to improve, and the industry outlook for 2022 is for over 40,000 cars to be delivered. Overall, we believe we have the opportunity to build significant long-term momentum with growth in modernizations, in new locomotive sales, in rail car builds, and in rolling stock. Internationally, freight car activity also continues to show positive signs. We have been growing our international fleet to meet single digits on average over the last five years, and we are currently executing on a strong pipeline of border opportunities. Overall, we expect long-term revenue growth in the majority of our end markets. Finally, transitioning to the transit sector, the long-term market drivers remain positive with continuing global infrastructure spanning for clean, safe, and efficient transportation solutions. Our team is committed to driving growth across both freight and the transit segments. Next, let's turn to slide six to discuss a few recent business highlights. We recently secured some strategic orders, including a significant agreement with Union Pacific for 600 locomotive modernizations. This agreement totaling more than a billion dollars will begin delivery next year and run over the next three years. It is the largest order for modernized locomotives in rail industry history. The modernizations will enable Union Pacific to move more freight efficiently and sustainably, including a fuel efficiency improvement of up to 18%. a more than 80% increase in reliability, and a haulageability increase of more than 55%. This total order will eliminate nearly 200,000 tons of emissions per year, roughly the equivalent of 45,000 passenger cars per year. We also closed the significant order with Canadian National for 10 new Tier 4 locomotives which will begin delivery in 2023, and 50 modernizations. The mods will be equipped with our FDLA advantage technology, which will deliver the best in class fuel and emissions reductions. This wins built on several recent announcements we have shared with Canadian National, including their purchase of the FlexDrive battery electric freight locomotives in a digital order for our precision dispatch system, which will help accelerate network optimization for CN and the entire rail industry. Finally, in transit, we won a significant order for heating, ventilation, and air conditioning units across Atlanta's metro system. This order marks the latest win in our longstanding relationship with Stadler and marks the first subway order with the car builder in the U.S. Turning to slide seven, I wanted to briefly touch on Wabtec's operating system, which drives many aspects of our culture and our performance. Starting with our people and teams, addressing our customers' most critical business needs, and developing operating plans, systems, and processes to deliver best-in-class performance. We use this operating model to guide what we do, to measure how well we execute, and to tackle where we need to improve. One of the critical elements of our operating system is our annual strategic planning process, and we are in the midst of this process right now. The goal is to look at opportunities across our markets and our company and identify those areas where we can further leverage our leadership and technology position, build on our expensive install base, capitalize on trends such as electrification, digitalization, automation, and sustainable transportation, which will all create positive outcomes for our customers. We also look to accelerate investments across the company through our integration 2.0 efforts, as well as driving lean operations, continuous improvement, and best-in-class productivity, all of which delivers long-term shareholder value. It's also a critical process in aligning our talents, our products, service, and software investments to drive long-term profitable growth. We are confident that we're well positioned for the future, and we expect to continue to deliver profitable growth ahead. Since 2019, this process and the Wabtec operating system have been the foundation for driving rigor, strategic alignment, and efficiency, especially while navigating profound volatility. As a result, we have been able to bring the full power of Wabtec to our customers. while balancing the need for agility with a clear focus on strategy and execution to own the opportunities before us. With that, I'll turn the call over to John to review the quarter segment results and our overall financial performance.