Westinghouse Air Brake Technologies Corporation

Good day and welcome to the WAB Tech fourth 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 of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Wabtec's fourth 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 wabtexcorp.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. Let's move to slide four. I'll start with an update on our business, my perspectives in the quarter, our progress against our long-term value creation framework, and then John will cover the financials. We delivered a strong fourth quarter which is evidenced by strong sales growth and increase in adjusted earnings per share. We achieved this despite significant headwinds, including a volatile macro environment, supply chain disruptions, and negative effects. Sales were roughly $2.3 billion, which was up 11% versus prior year. Revenue was driven by strong performance across the freight segment but partially offset by unfavorable effects. Total cash flow from operations was $410 million, which brings year-to-date cash flow to over $1 billion, achieving a full-year cash conversion rate of over 90%. Overall, our financial position remains strong. We continue to allocate capital to maximize shareholder returns by investing for future growth, executing on a strategic M&A, and returning cash to shareholders. Total multi-year backlog was $22.4 billion, up $272 million year over year, and excluding the headwinds from foreign exchange, backlog was up $680 million, or up 3% from last year. We continued our progress against our long-term growth strategies. Overall, we had a strong finish to the year despite a number of challenges. As a result of this strong performance and our confidence in the future, our board of directors reauthorized a $750 million share buyback and approved a 13% increase in the quarterly dividend. We entered 2023 with strength and momentum across the portfolio and we're well positioned to continue to drive profitable growth even with near-term uncertainty and volatility in the global 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 remain encouraged by underlying business momentum and the strong pipeline of opportunities. North America car loads were down slightly in the quarter, but locomotive parkings are down from the same time last year, despite lower freight traffic. We continue to see significant opportunities in demand for modernizations and new locomotives as our customers invest in their aging fleets, and they also place a greater focus on reliability, productivity, and fuel efficiency. Looking at the North American railcar build, demand for railcars continue to show strength with industry backlog about 60,000 cars. Railcars in storage are below pre-COVID levels with about 18% of the North American railcar fleet in storage. As a result, industry orders for new railcars continue to improve and the industry outlook for 2023 is for about 40,000 to 45,000 cars to be delivered. Overall, we believe we have an opportunity to continue building significant long-term momentum with growth in modernizations, in new locomotive sales, in railcar builds, and in rolling stock. Internationally, activity has also continued to show positive signs, and we continue to execute on a strong pipeline of opportunities. Finally, Transitioning to the transit sector, the long-term secular drivers are positive as the globe continues to increase investments in clean, safe, and efficient transportation solutions. Next, let's turn to slide six to discuss a few recent business highlights. We recently secured additional Tier 4 locomotive orders in North America. These orders now total over 100 units to be delivered across 2023 and 2024. We also signed two international deals in Asia and South America to deliver new rolling stock and also won two international long-term service contracts in South America and in Kazakhstan. Finally, WAPTEC's FlexDrive locomotive was recognized for sustainable innovation by the Business Intelligence Group and awarded Commercial Technology of the Year by S&P Global. Looking ahead, all of this demonstrates the strong pipeline of opportunities we continue to execute on. WAPTEC is well-positioned to continue to capture profitable growth with innovative and scalable technologies that address our customers' most pressing needs. Turning to slide seven. I want to briefly touch on why we're strongly positioned to deliver resilient and more predictable earnings in volatile times. We believe our demonstrated execution combined with favorable end markets and our leading technologies and solutions will enable us to remain resilient during times of increasing volatility. This resiliency comes in part from our multi-year backlog and strong base of recurring revenues. Our multi-year backlog of over $22 billion provides visibility and support for both short and long-term growth. Similarly, our base of recurring revenues of 44% of total sales, which grew by three percentage points in 2022, provides high margin and stable earnings. And finally, we have a track record of strong operating margin expansion across the business as evidenced by our ability to realize price, deliver productivity, and aggressively manage costs. Now let's turn to slide eight. To further illustrate the point of our ability to drive consistent, predictable earnings, I wanted to provide more color of our combined new locomotive and modernization deliveries in North America. Over the past six years, North American new locomotive deliveries have been challenged due to weak car load growth, PSR, and COVID. Over that period, the investment in the fleet has come primarily through modernization of locomotives, but this still remains below historical replacement levels. As we have discussed in past calls, the core North American active Mainline fleet of heavy haul locomotives is made up of roughly 16,000 locomotives. With a replacement cycle of roughly 25 years per locomotive, we estimate the annual replacement rate over time to be over 600 new locomotives and or modernizations per year. As you can see, the industry has been operating at roughly half of that level for the past six years. Yet, looking forward, we expect a growing need for refreshment of that fleet. And with record fleet age and growing obsolescence driven by next-gen technologies, along with the expectation of rail share gains versus truck, and the need to reduce greenhouse gases by 2030, that the demand for reliable and efficient power is increasing. This expected demand provides Wabtec the opportunity to fill our existing capacity for delivery of new and modernized locomotive solutions in an effective and efficient fashion over the next several years. Looking forward, we believe our execution combined with strength of our business, leading products, and technologies result in Wabtec being resilient through economic cycles, delivering more predictable earnings, and superior shareholder returns. And with that, I'll turn the call over to John to review the quarter, segment results, and our overall financial performance. John?