Good afternoon, everyone. Thanks so much for attending our virtual headquarters visit with Caterpillar today. I'm Nicole DeBlase. I'm Deutsche Bank's Multi-Industry, Electrical Equipment, and Machinery analyst, very pleased to introduce Jim Umpleby, CEO of Caterpillar. We're going to take a five-minute break after spending 45 minutes with Jim, then we're going to have another conversation with Joe Creed, who's Group President of Energy & Transportation. Before we kick it off, Ryan's going to go through a few remarks from Cat. Ryan, over to you. Great. Thanks a lot, Nicole, we, we're certainly excited to be here today. During today's meeting, we'll be making forward-looking statements which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different from the information we've shared with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in our release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. Any detailed discussion of the many factors we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. In today's meeting, we'll also refer to non-GAAP numbers. For reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of our earnings call slides. Additionally, please note that Caterpillar policy does not allow for meetings to be recorded with smartphones or other devices, unless specific approvals have been sought and granted prior to the meeting at the beginning of this meeting. Lastly, we'll post a transcript on our, our website as soon as we, we can. With that, Nicole, I'll turn it over to you. Thanks, Ryan. We're going to just dive right into the fireside chat here, Jim, and thanks again for participating today. You've been- Glad to be here, thanks, Nicole. Of course. You've been CEO of Cat for over six years now. What are you most proud of in your tenure so far, and what are you most excited about for the future? Well, Nicole, I'm most proud of the way our team has been executing our strategy for profitable growth that we introduced 6.5 years ago. I'm very excited about what we view as a very bright future, and I'll explain that in just a moment. Just as a reminder, you know, our strategy that we, that we introduced, was really based. Everything was focused on long-term profitable growth. We had some key focus areas, operational excellence, which is safety, quality, lean, and a competitive and flexible cost structure. Services, which is everything we do for our customer after the initial sale, and done right, it adds value to customers, it's good for our dealers, and it's good for Caterpillar. Expanded offerings, ensuring we have the right products at different value points for customers. Then we added sustainability a year, in 2022 at our Investor Day, and we think there's some tremendous opportunities, with the energy transition. One of the things we told our investors when we introduced this strategy is that we would achieve higher margins based, against the reference period between 2012 and 2016. Different levels of revenue, different levels of adjusted operating margin. We also said that we would produce higher, more consistent free cash flows at different levels of revenue. You know, I'm really pleased that between 2017 and 2022, we produced between $5 billion and $6 billion of free cash flow every year, except for 2020, when due to, due to COVID, we had more than a 20% decline in our top line. Even that year, we still produced $3 billion of free cash flow. Just, just at our Investor Day last week, we told investors that this year we expect to be around the top of the range for free cash flow, which is about $8 billion. We also said we'd be close to the top of our adjusted operating margin range as well. Again, couldn't be more pleased with how the company is performing, embraced a new strategy and really, really focusing on performing in the short term while also investing for the medium and long term. Just the second part of your question, what I'm most excited about in the company's future, as we look at the various that we serve, and most of our markets are quite healthy at the moment, and we look at what's coming, we're very excited about the way we're positioned. We think about the energy transition and all of the commodities that need to be produced to support that energy transition. The average EV takes 6x as many minerals as an internal combustion engine car. Think about the copper and all the other materials that have to be produced. Of course, our customers use our products to produce those commodities. You can decide how many EVs will be added. There's lots of projections. Pick what you believe in terms of how quickly this will happen. I don't think there's any way around the fact that more commodities will need to get produced, and of course, that's a good thing for our Resource Industries business over time. Data centers are a very strong part of our business with AI. You know, we sell backup generator sets for data centers, and that business is quite strong, and it's hard to imagine that slowing down in the short term, just given all the macro level issues that are driving that market. Oil and gas, gas compression is quite strong, with all the LNG facilities that are being built and commissioned. Of course, all that gas has to be both produced and compressed down to the LNG facilities on the Gulf Coast of the U.S. Caterpillar plays a, a, across a wide portion of that natural gas value chain, from drilling to well servicing to gas gathering near the well head with our recip engines and Solar gas turbines, and Solar compressors compressing the, the gas down pipelines. This is a whole. Then, of course, infrastructure. With the infrastructure bills that have passed in the last year or so, and the energy transition, that creates tremendous opportunities for Construction Industries. One more, it's global, growing global energy demand, and our, our, our customers use our products to produce the commodities that help satisfy global energy demand. Again, there's a lot of macro level trends in the markets that we're very excited about, that we believe will drive profitable growth for us. Great. That's a great answer, Jim. You really touched on a lot of themes that I want to dig into today. Good intro. Maybe let's start with some of the key initiatives that you guys laid out at the most recent Analyst Day, and start with service. Where are you on that journey to get to $28 billion of service revenue by 2026? Can you also refresh us on some of the key enablers that are going to drive you there? You bet. You know, we, we said we would double our services to $28 billion by 2026, from a starting point in 2016. One of the things that we said is it would not be a straight line, it'd be a bit back-end loaded. I'm really pleased that we, you know, we grew to $22 billion last year, and that was up 17% compared to 2021. We're really starting to get traction. Again, services is everything we do to make our customers successful after the new equipment sale. We invested in a whole variety of things to make that happen. We now have 1.4 million connected assets, significantly higher than when we started this journey. We've invested a lot in eCommerce as well. One of the things that, that we know is a big opportunity for us is those smaller customers that own, let's say, five to 20 machines. Our, our dealers do a very good job of focusing on the larger customers, big mining, big oil and gas, big construction. We really needed to find ways to reach and make it easier for those smaller customers to do business with us. Our eCommerce sales are growing quite rapidly, and we're really pleased at how that's going as well. We're starting to use AI, utilizing things that we call, prioritized service events, which is really helping provide leads to our dealers and also information to our customers as well, that they need service, and that, that, that's creating opportunity as well. Working very hard to sign more CVAs, Customer Value Agreements. Over 60% of the new equipment we sell now is sold with a Customer Value Agreement. Again, just a whole variety of things we're doing. You know, we're putting QR codes on machines and engines that are leaving our factory. The vision here is you have a, an app called Cat Connect. You're a small customer, you take your phone, you scan a QR code. It's serialized, so that when you need to buy a part, you can easily do it on your phone. If you don't have time to install it yourself, you can click a button, have a dealer do it. If you're in the right country, use a Cat Card, use financing. Again, a lot of those capabilities are being built as we speak, and some have already started, but they're ramping up. We're just really we're pleased again at, at the track record that we have. Again, $22 billion last year against that $28 billion target. we've made good progress. Yeah, absolutely. What has the customer response been to that technology? Are they adopting the technology? Are they excited about it as well? Yeah. I think that the proof of that is if we look at our eCommerce sales, they are increasing, you know, quite rapidly. We're, we're really, really pleased at that. Okay. When you think about the service initiative and the different businesses that Cat has, are all of these businesses going to be part of the, of the effort to get to $28 billion, or are there certain businesses where you see more service potential than others? Well, we're driving it across, across the company, and certainly the value proposition for a customer for, let's say, a very expensive gas turbine that runs 24 hours a day, seven days a week, or a large mining truck that once runs 24 hours a day, seven days a week, and a small skid steer that once runs two hours a day, the value proposition is different, and the way that the services look is different. There's really a continuum between those two examples. All parts of the business have been successful in growing services. The biggest opportunity, we believe, is with those smaller customers that I mentioned, those small customers that, you know, again, five to 20 machines. Sometimes we call them do-it-myself customers. There's a big opportunity there, the, the big organic growth opportunity that we can go after. You know, one of the things I, I failed to mention in your first question, when you asked me: What are you most excited about? The thing I'm most excited about, for the reasons I've articulated, and there are some others, is we have significant organic growth opportunities ahead of us. You know, I said talk to some other CEOs in other industries. They're a bit worried that, you know, the way the market's going, their market's declining. Ours is actually increasing. I believe we have the opportunity to, to profitably grow our company organically, which again, and we're very well positioned competitively to do that. We can talk about that some more, but again, that's, that's, that's really exciting for us. Absolutely. Okay, thanks for adding that. Then just going back to the technology conversation for a second. I think investors struggle to understand the monetization aspect of technology. How is Cat monetizing the technology offerings today, and how do you envision that evolving over the future? Yeah. Well, I'll start with services. I'd argue that the technology that we're putting into eCommerce, artificial intelligence, connected assets, other things that we're doing to make it easier for us to do business with, has been a big part of the fact that we've increased services, up to $22 billion last year from our starting point. That's, that's clear evidence that, that we can monetize it, and that's working. Of course, you know, when, when we, in fact, invest in product features that allow our customers to, to be more successful, that's a good thing for us. Autonomy is probably a, you know, one of the best examples there. You know, it really, in my view, is creating a competitive advantage for us. I feel quite strongly that we have the best mousetrap out there in terms of autonomy. We've had customers tell us that their productivity has increased up to 30%. I was in Australia about a month ago and had the opportunity to visit a large customer of ours that has more than 60 trucks at an autonomous site. Just meeting with that customer and hearing, you know, their positive feedback of what that's done for them is really important. Again, what does that do for us then? Well, it certainly puts us in the driver's seat when it's time for a new, new truck purchase. The fact that with our autonomous solution, there are Caterpillar people there full time, helping make the customer successful, makes us more of a partner than a supplier in their business. It also creates the opportunity for us to sell more aftermarket services as well, because we're right there. Again, there's a lot of, lot of positive advantages of doing that. Okay, got it. We will definitely come back to autonomous mining later. I definitely want to dig into that. Maybe before, while we're on the topic of technology and big picture changes, I thought it might be interesting to spend some time on alternative powertrains. I'm going to ask you a very broad question: What is Cat doing to help customers reduce emissions and decarbonize? I just, we're doing a whole variety of things, and we're certainly very committed to helping our customers reduce their carbon footprint. You know, we, we feel strongly that we are contributing to a, to a lower carbon future. There's a whole variety of things that, that we're doing there. Firstly, obviously, we are working hard to reduce our own greenhouse gas emissions from our operation. We've had Scope 1 and Scope 2 objectives for a long period of time, and you can read about those in our sustainability report. We're pleased at how that's going. In terms of what we're doing to help our customers, so this is really a spectrum of things we're doing. People oftentimes go to batteries and machines, and I'll talk about that in a minute, but there's other things along that road that can help our customers as well. You know, we, we introduced our newest Next Gen X model. That's our excavator model. We've upgraded more than 50 of those models, and those new models reduce fuel consumption and obviously then emissions by up to 25% compared to the previous model. Lower efficiency, lower emissions, burns less fuel, and again, a payback for customers in terms of technology. That's one example. We're, we're, and I'll, I'll jump over to Energy & Transportation. We're doing a whole variety of things there. You know, we have gas turbines that can burn a high hydrogen fuel. We have gen reciprocating generator sets that can burn a hydrogen blend as well. We can burn biodiesels, renewable, renewables, a whole variety of things. One of the things that we are investing heavily in, that we're really starting to see good pull from customers, is things that help our Oil & Gas customers reduce their greenhouse gas emissions while they produce oil and gas. I think most people now have concluded that probably Oil & Gas will be around past next Thursday. So what customers are really focused on doing now is, is reducing their carbon footprint as they produce that oil and gas. There's a whole variety of things that we're doing there, from our DGB engines that are used in well servicing this Dynamic Gas Blending, that allows the customers to substitute up to 85% of the diesel with, with natural gas. Things like e-frac with our acquisition of Weir SPM, that gave us some great e-frac capabilities. Now what customers can do, as opposed to having a bunch of diesel gen sets and frac trailers, they can burn natural gas in a generator set and then use electric motor driving a frac pump, which again, reduces their carbon intensity. We bought CarbonPoint, an acquisition we made that helps. You know, that really, the vision there is to help customers with carbon sequestration over time. One of the things we're also continually doing on the Energy & Transportation side is expanding our ability to burn different kinds of fuel. We can burn renewable diesel today, it's a drop-in in all of our machines. That's something that can happen today without a capital investment by a customer and no modifications by us. We're also always working to try to burn more kinds of fuels. Where the most pull from customers is right now for alternative drivetrains is our big mining customer. You know, they're under pressure, frankly, from a lot of their stakeholders to reduce their Scope 1 and Scope 2 emissions. We're very committed to helping them do that. We demonstrated last November, a fully loaded very large mining truck operating on batteries. It's a prototype, but, you know, we are working that very hard with our customers, and it requires a really different way of thinking. It's not just about building a product and selling a truck, 'cause the whole site then has to be modified to be able to do that. A fully loaded mining truck, the battery wears down in about 90 minutes. What customers have to do, and we'll help them do this, is figure out a way to dynamically charge those trucks as they move around the job site. There's a lot of thinking. We have some, you know, some, some customers, the biggest mining customers in the world, have signed on with us in our program to move forward to do that. I believe that the adoption of these alternative drivetrains will occur at different rates by geography, by application, and by customer. Again, most of the, you know, the vast majority of the pull right now is with those mining customers. We aren't seeing a lot of it with construction customers yet for a whole variety of reasons. My sense is that'll be driven by legislation. When that finally happens, you stop and think about, you know, a city setting. One can very much imagine, let's say, in Manhattan, where if you, you had batteries and machines. Let's say, let's say that there was a regulation that said, "All right, island of Manhattan, no more diesel engines in automobiles, construction, everything else." In that city setting, you could certainly find a way to charge the machines overnight, have them operate during the day, and you could find a better way, a way to make that work. You think about an infrastructure project. Now, I was just looking at some photos this week of some high tension lines that are being built by Cat equipment, moving power that was produced by wind turbines from Utah into California. You look at that remote, mountainous, remote site, or you think about building a highway in the middle of nowhere, where do you plug in a machine? How do you charge it again? The machine goes dead at 2:00 P.M. What do you do? Do you fire up a diesel gen set for a fast charge, which negates the reason of having a battery in the first place? Do you have an extra machine, which doubles the customer's capital cost? Do you try to change batteries, and if they have a piece of equipment, that's not easy? Do you try to move the machine? Well, how do you do that? I think in construction, quite frankly, this journey is gonna take some time. Our strategy is, we're developing the products. We have them ready. We're also have our diesel products. The customers will choose how quickly this adoption occurs. We're there either way, depending on how the market moves. Makes total sense. I mean, you talked. That was really helpful commentary by business of what's going on from an alternative powertrain standpoint and where the customer pool is. The follow-up question that I would have is, when you think about all of the different types of alternative powertrains that exist today, are you seeing a gravitation towards any of those, or is it still pretty broad? Yeah, as we, as we sit here today, the vast, vast majority of our business is traditional business. Either, either diesel power, which again, those diesel engines can burn, can burn renewable diesel without modification, if in fact, that renewable diesel is available. We certainly sell a lot of generator sets, gas turbines, other products that can burn natural gas as well, that can burn biofuels. Today, there hasn't been a big shift, quite frankly, with, with the exception of natural gas. We sell a lot of engines that burn natural gas, and of course, a lot burns diesel. Again, the battery adoption, which I believe will be the first. Some people talk about hydrogen, and we're working on hydrogen, but I think that's a ways off for infrastructure, safety, and a whole bunch of other reasons. I think it'll be batteries first, but it's gonna take time. You know, one of the beauties of our business is that, you know, we produce engines, then we're able to use those engines in a whole variety of applications and markets. An engine can go into a piece of construction machinery, a mining truck. That same engine can be used for a generator set. That same engine can be used in Oil & Gas application. That same engine can be used for a marine application. That's one of the beauties of our business, is we have the ability to leverage the engines that we produce across a whole variety of products and applications. The alternative drivetrains, I believe, will be the same story when we get there. It's. Again, we'll see how quickly the market moves. Got it. Okay, I mean, it strikes me, and kind of I felt this way after being at CONEXPO and seeing the whole product line, which was really impressive at that show. Would you say that having a Power Gen business puts you in a unique position to win in the alternative powertrain space? Very strongly, that's the case with our mining customers. Again, as I mentioned earlier, it's not just about selling a truck. You know, we're the only company that can not only sell that truck, but then because we provide microgrids, we have gas turbine generator sets, we have reciprocating generator sets, and those gas turbines and recip gen sets convert a whole variety of fuels. We can help our customers electrify the mine site, and we're uniquely positioned to do that. One of the things that also I think is good to keep in mind is, we believe that it's very difficult to separate autonomy from alternative drivetrains. 'Cause you stop and think about the complexity of charging that truck as it moves dynamically, and thinking about how you can get that all programmed in into our autonomous system to maximize the ability to charge the truck as it moves around and all of that coordination. We do think that we're uniquely positioned, and that does give us a competitive advantage in the mining space, certainly. Okay, got it. Perfect. Why don't we move on to another aspect of the key initiatives that you set forth at the Investor Day, which is the margin expansion bit. You know, Cat's already shown really impressive margin expansion under that plan. I guess when you think about, you know, the future, what are the main drivers of margin expansion from here? Yeah, well, certainly, you know, when we first introduced those, those margin targets, there was a bit of skepticism among the investment community. I'm very proud of the team that we're able to do what we said we were going to do, both on margins and on free cash flow. You know, one of the things that. Well, well, first of all, let's start with the second quarter was a record from adjusted profit margin of 20.3%. I believe that was the margin for the first half as well, and adjusted PPS of $5.55. First time we ever broken $5. Again, very, very, very proud of the team here. All that happened, with the China market relatively weak. Again, pleased, pleased at that as well. As we think about our margin targets, yeah, we did adjust those about a year or so ago, and one of the reasons for that was inflation, quite frankly. 'Cause the way our margin targets are set up is that higher levels of revenue, we expect to get higher margins, and that's really driven by the incremental operating leverage we get at higher volumes. If a higher percentage of the sales are due to just price because of inflation, then you don't get that operating leverage, which is why we modified it a bit. You know, we'll have to. I'm not gonna make any announcements today on the call. You know, what we'll do, of course, is we'll evaluate where we are at the end of the year and see if it makes sense to modify those targets. One of the things to keep in mind is what we're really driving to do is to increase what we call absolute OPACC dollars. OPACC is, again, our measure of profitable growth. It's Operating Profit After Capital Charge. We charge our businesses cost of capital, and they need to provide a return against that. When we set our strategy in 2017, we spent a lot of time looking at industrial companies and what really drives long-term total shareholder return. We concluded that the EBITDA kind of measure, really, but, but driving absolute OPACC dollars over time and growing the top line and doing that in a profitable way will really drive TSR. So, yes, we want to have higher margins, but but we're not just trying to squeeze higher margins out in every shrinking business. We're investing for the future. We're investing to grow the top line in a profitable way, and if we continue to increase absolute OPACC dollars over time, we're confident that will drive TSR. We've, we've more than doubled our OPACC over the, since 2017. Got it. Makes total sense. To maybe wrap up the strategy discussion, you also set forth the target for $4 billion-$8 billion of machinery, energy, transportation, free cash flow. I guess. You said that you expect to return most of that to shareholders. The question that I have is, you know, are acquisitions off the table? If so, why? Yeah, certainly acquisitions aren't off the table, but I'll go back to the fact that we see just a significant number of opportunities to organically grow our business. I start with that, and those are areas where, in my view, we have a competitive advantage. We're very well positioned from both a distribution and a technology and a product perspective. Again, the best way, in my view, the, the best way, if you have an excellent organic growth opportunity, and you're well positioned competitively, and from a product perspective and from a cost perspective, that's a great way to grow the business. We're very focused on that, but we are open, certainly to M&A as well. One of the reasons that we maintain a strong balance sheet is for M&A that may come along, and we ask our leaders to continually- search for opportunities. We're not in a situation where we have to, have to buy something, and we're not out there elephant hunting. Obviously, if the right opportunity came along at the right price, or we're confident we can get both, you know, cost and sales synergies, we'd certainly go for it. One of the, you know, we, we've made a number of small bolt-on acquisitions to help us with technology, and there's been a number of those, Marble Robot, Bot, CarbonPoint, and Tangent's really exciting. That's one that, that, you know, we believe will tie into another opportunity, which I failed to mention. You know, as more renewables are added to the grid, that creates grid instability issues due to the intermittent nature of those power sources. That really does provide an opportunity. This is more of a medium, long-term opportunity, although we're starting to see some of it already, for us to sell both the recip gensets and gas turbine gensets in what we call distributed power applications. Traditionally, the way the grid has worked, there have been very large power plants, coal, nuclear, natural gas, and that power has been distributed on high tension lines. Now that you're putting in more renewables, the whole grid is changing, and we believe it's a great opportunity for us to sell those recips and gas turbines in those distributed power applications. Those engines and turbines convert a whole variety of fuels, natural gas, hydrogen blends, biofuels, and all the rest. We think it's just a great long-term play. In terms of acquisitions, we did buy Weir Oil & Gas, now SPM. I mentioned that one earlier. That was a, a business that we had our eye on for a long time, and we moved when the time was right. I think when we were negotiating that deal, literally, when we were still talking about it, oil prices went negative. Our timing was good. Again, what we try to do is, is, is follow businesses that are interesting to us and then, then do it at the right time. Again, we have some outstanding opportunities to grow the company organically, which is, again, you know how this works. You make an acquisition, you know you have to pay a premium, then you have to get a return on that premium. If we have an outstanding opportunity to grow our business organically, why not do that? Which is we're really focused on those opportunities. Understood. Makes sense to me. Maybe we can shift the conversation to your view on some of the exogenous factors that you've brought up, some of these exciting growth drivers for Cat. The first thing I want to touch on is infrastructure stimulus. We get a lot of questions from investors around this, and I think the big debate is: With the amount of infrastructure stimulus that's coming in, you know, does this elongate the cycle? Does this offset some of the impact of rising interest rates on, on commercial construction? What's your stance on that, Jim? Yeah, well, certainly, I, I don't use that CYCLE word because I think, you know, oftentimes people will use that word as it applies to Caterpillar. What I look at is the diverse end markets that we serve. It's not one size fits all. Oftentimes, when people think about Caterpillar, they just think about construction, because that's what they know, because they see it when they drive down the street. The reality is that we serve a variety of relatively diverse end markets that are strong and weak at different times. So you mentioned commercial real estate. Just to, just to calibrate you, so North American commercial real estate is usually about 1% of total construction industry sales. Construction Industries, of course, is just one of our three segments, so it's not large. People tend to focus on that a lot, and really it's a non-starter. About 75% of construction industry globally is what we call non-residential, and 25% is residential. At the moment, residential, the growth rate is moderated, but it's still growing. Of course, you know, one of the things people often think about is, all right, well, if interest rates go up, housing, people can't afford more expensive mortgages, so housing is going to slow down. I think that started to happen a bit, but in my view, what's happening now is that people have realized there's a housing shortage, and so houses would build because people are willing to buy them. I feel good about residential. Non-residential, I feel really good about because of, again, you talked about some of the legislation that's passed, the CHIPS Act, the IRA, we're starting to see some benefit of that coming. You know, much of it, of course, will take time because permitting takes time. There's something like $1.2 trillion we're spending over the next five years. I do believe that positions us very well. Even if customers, customers have some projects now, they feel that there's a pipeline of business coming, they're much more willing to pull the trigger on the capital investment and buy a piece of equipment because they're confident they'll have work down the road. A number of our contractors are quite busy. I've talked to some contractors who said, "You know what? I can't take any more business because I can't execute it. I don't have the people. I just don't. There's not enough out there." Again, feel good about that. It's not just the U.S. I mean, I'm sure you're aware of what's going on in Saudi Arabia. I mean, it's, it's just unbelievable. Something like $1 trillion is being spent, huge mega projects, and that's, that's very good for construction as well. We're also seeing CapEx support in places like, like India. 20, you know, there's over 20% growth in infrastructure, government-funded infrastructure, expected over the next 12 months or so. Again, lot, lot happening there. IIJA, CHIPS Act, IRA. At, at, at, at the moment, we just certainly don't feel a slowdown. That market's quite robust. Excellent. Okay, got it. Why don't we go ahead and shift to mining? What are you hearing from your customers right now on the mining side about their, you know, multi-year spending plans? Yeah, certainly, you know, we talked a lot in our earnings calls about the fact that our mining customers remain capital disciplined, and that's true. What we said is that what we expect is a more of a, a, a moderate increase over time in mining, and that's exactly how it's played out over the last five or six years or so, which is a positive thing, in my view, for both us and our customers. I'd much rather have that than the wild swings up and down, which we saw previously. A big peak in 2012, it all came kind of crashing down. A lot of that was driven by what was going on in China at the time. Having said that, you know, Certain factors are very positive for our business. Utilization of our, of our equipment is high. The number of parked trucks is low. The age of the equipment is high. All three of those factors certainly play in our favor when we think about Mining business going forward. It was exactly the opposite back in 2012, well, 2013, 2014. High number of parked trucks, low number of hours, low utilization. All three of those, those indicators are green. That's good news. We talked earlier about the fact that, you know, again, with the energy transition, if you believe any portion of that, in my view, there's no way around the fact that that will involve increased production of commodities, and not that many companies in the world make big mining trucks. You know, we think that we're well-positioned there to help our customers produce those commodities. Having said that, again, there is capital discipline, and it can take some time for mines to get approved. You know, it's not something you go out and you, you put in an application, and three weeks later, you get approval. It takes time, and so that's an issue there. Again, while those mines are manifesting themselves over time, business at the moment is strong. Again, we feel really good about the Mining business. One interesting point is, you know, stop and think about where we were in 2012. Our sales and revenue was about $66 billion. You know, that was a high point there. Resource Industries was about $20 billion, and my friends Ryan and Rob will jump in if my numbers are wrong here, but if my memory serves is that was $20 billion back in 2012. And you know what it was last year, and you know what it is the first 6 months of this year. There's a big opportunity there. We're, you know, we are, if you look at where we are this year and think about where we'll probably wind up, we'll probably. I'm not gonna make a prediction here, but you can, as you can imagine, one could predict that we'll be, you know, kinda close to that 2012 number, at a time when Resource Industries is still significantly less than it was back in 2012. Think about the opportunities presented by the energy transition for our Mining business. Again, if you add that up with the opportunities that we have in distributed generation, the opportunities in construction, I feel really good about the opportunity we have moving forward. All really exciting stuff. I wanted to come back to autonomous mining. I said that I would, and I think it's time that we delve into that. Where do you think we are on the adoption curve for autonomous mining globally? And can you talk a little bit about Cat's market position there versus competitors? As I mentioned earlier, I feel really strongly that we have the best mousetrap in terms of the autonomous solution. You say, "Well, why? What is that? Why is that? What makes it better?" Well, our trucks move faster, that the way our system is designed. You know, our system knows where everything is in the mine site, what that allows them to do. It also knows in five minutes and 10 minutes and two minutes and 20 minutes, where everything will be. What that allows trucks to do is move more quickly, so they don't have to slow down as much when they get near each other. They can move, and it's all about productivity for a mining customer. If, in fact, the equipment moves faster, you produce more, and it makes a huge difference on their economics. We feel really positive about that. Clearly, in my view, we have reached a tipping point in autonomous. I mean, we have around 600 mining trucks in operation, and that number continues to grow. We've got mining trucks in iron ore, copper, gold, oil sands, coal, lithium. When we first started deploying autonomous solutions, we really focused on large sites, and for it to pencil out, you had to have something like 70 or more trucks on a site. Since that time, we've worked really hard to get the cost down, the economics have improved. Now we're deploying at sites with as few as 12 to 14 trucks, and that opens up a whole, a much larger number of mines that can put in autonomy. Almost every conversation we have with customers when they talk about either expanding an existing mine or opening a new mine, there's autonomy as part of that solution. Some of the people that we're waiting, you know, I can think of a customer or two that we're waiting to see how it played out, people are starting to get on board. It's not just mining customers. You know, we, you may have seen that we made an announcement recently with a company called Luck Stone, which is a family-owned quarry and ag customer in the United States. You know, we're that's our first autonomous solution in a quarry and ag application. Again, by continuing to bring costs down, there's, there's more and more opportunities for us to provide that, that autonomous solution. Again, that, what that really does for us is it provides us a competitive advantage. That means more trucks out there, more equipment. That means more services after that. It's all, it's all very positive. Yeah, absolutely. All good news there. Okay, then, I mean, I'm hearing a lot of really exciting things here on exogenous growth drivers, technology, Cat's market position, I guess alternative powertrains. When you think about all of these things, does Cat need to take up investment spending to address all of these opportunities, or do you feel like you're already in the right zone? Well, one of the things we, we told investors at our May 22 Investor Day is that we were going to invest more in what we call AACE, which is at the automation, alternative fuels, connectivity, digital, electrification. We think that's a really key area, and we are investing more there. you know, we, we, we believe that we have, you know, some of the best products there, but we need to continue to get better. We'll continue to make targeted acquisitions, you know, to help, and, and investments as well, to, you know, to vertically integrate and enhance our technology. Again, I talked about some of the acquisitions we made previously, like Marble Robot and Lithos, and we'll continue to do those, and we're gonna work on the mine site of the future. Certainly we're investing more, but again, we certainly have the capacity to do that. If you look at the, you know, our financial performance, the amount of cash we're throwing off, again, we feel, we feel good about that. Okay, got it. Perfect. Taking a step back, the backlog is obviously very extended. It has been for some time, we even saw, you know, backlog step up another $300 million with earnings a couple weeks ago. I guess, how far are you now booking orders into the future, and within which businesses do you have the most and least visibility? Yeah. It does change by, it's different for different areas of the business. You know, typically, over many years, some of the products that have the longest lead time, I think, like, let's say, Solar Turbines, as an example. When someone buys a gas turbine from Solar, typically the lead time is, is something like seven to 10 or 12 months because oftentimes after the order is placed, the customer is still deciding what it is exactly they want to buy because each product is, is customized a bit. Those products, and the Solar business is quite robust. They're doing quite well. Again, they've got a, their order book is, it looks very healthy. Also, in areas like gas compression, business is quite strong. Our larger engines, whether it's data centers or whether it's gas compression, that all looks quite positive. Also, of course, there's RI as well. You know, one of the things about the backlog is, honestly, we're working hard to get our availability up, and if we improve the availability of our equipment, meaning that customers don't need to wait as long, our backlog, I would hope, would maybe go down a bit at some point, because, again, customers don't have to wait as long. You know, a bit of a decline in the backlog isn't necessarily a bad thing if it's driven by our ability to shorten lead times. We're still dealing with some supply chain issues, particularly around large engines and a bit even still with chips that are impacting things like displays and some other things. You know, again, as we sit here today, most of our end markets are healthy. Our dealer inventory, we believe, is we're quite comfortable where it is. Some products our, our customers wish, or excuse me, our dealers wish they had more, more inventory. With some, they have enough, like excavators, and that's due to the downturn in China. Again, we have a healthy backlog, and as I mentioned, most of our end markets are quite robust. Perfect. Got it. On the topic of pricing, obviously has been very robust for many years now. You guys have done a good job of passing along the rampant inflation that we've seen. I've heard some concern among investors that if we start to see inflation moderate at some point, deflationary environment, is there a risk that some of those price increases could go the other way and perhaps Cat could decrease price? What would be your approach in that kind of an environment? You know, we look at a whole variety of factors when we make a price decision. Certainly, we look at input costs, but we also look at our competitive position. There's a one-size-fits-all. We look at by product, by market, by application, then we make a decision based on what we see. You know, in the second quarter of this year, prices was favorable about $1.4 billion. It was in about the line what we expected. You know, certainly, because we put in some significant price increases in the second half of last year, that'll start to lap in the second half of this year. You know, there'll still be some positive benefit of price, but of course, it'll moderate just because we're lapping those significant increases that we took last year. Again, one of the reasons we continue to invest in technology, we continue to invest in finding ways to provide more value to our customers. It is not just about competing on price. It's about providing value to them. Yes, we have to be competitive, there's no question. With some products, it's easier to demonstrate the value than with others. It's a continuum, but I, again, I feel quite comfortable that we'll be able to, to remain competitive in the markets that, various markets that we serve and still, you know, meet the shareholder commitments that we've made. Understood. Fair. Shifting to China. What is your view on the potential for a rebound driven by stimulus or otherwise in China? Can you give us a refresher on Cat's competitive position versus some of the local players in that market? Yeah, we had a couple of very strong years in 2020 and 2021 in China. We saw a decline in 2023. We expected a decline, a further decline in 2023. It was more of a decline than we had anticipated. You know, we talked in our first quarter earnings call about the fact that sales in China typically are 5%-10% of our total sales. We told investors in that first quarter call that we would be less than 5%. Just last week, we said it's gonna be even lower than we thought before. Keep in mind, our market in China is primarily hydraulic excavators, 10 tons and above. When we talk about the China market, that's mostly what we're talking about, and that market does tend to move up, move up and down. At this point, you know, we haven't seen an improvement. I'm not gonna try to call one of those. Obviously, a lot depends on the actions the government takes in China. The really good news is that even with China relatively weak, as I mentioned earlier, we just produced, you know, record results. Again, that's the beauty of the fact that we serve a variety of diverse end markets, and we're not just dependent upon, let's say, construction in China. We're not just dependent on, you know, another, one particular market. We're, we're, we're, we're pretty diverse. In terms of competitiveness, you know, I'm, I'm, I'm confident in our ability to continue to compete in the markets that we serve. Certainly, there are some local Chinese manufacturers, particularly on the smaller end, particularly that are really focused on being number one in terms of market share. You know, our. Certainly, our strategy is to be competitive, to make money, and I feel, well, I feel good about the way we're positioned. We've been in China for more than 45 years. We've got about 20 facilities, about 11,000 employees. We've introduced products at different value points. You know, what we used to try to do is take a premium product, meaning the product that moves the most during a 24-hour period, and try to sell it to a customer that either didn't need or couldn't afford it. By being in China, it's made us better, quite frankly. We've got we first introduced the GC product, now the GX product, which targets a different customer segment. We started with a clean piece of paper and learned how to design lower-cost products. Again, there's a whole variety of reasons to be, to remain in China, to be competitive, and, and we're pleased at how it's going. Excellent! Great answer. Thanks, Jim. Final question for you today, cognizant of time. What keeps you up at night? Then please feel free to leave us with any messages that I didn't address today. One of the things that keeps me up at night is why investors, why our multiple isn't higher, just given the amount of cash that we're providing and the way our markets look moving forward. You can all help me with that later, but I, I scratch my head, and I look at, I look at our results, and I look at the fact that we've been consistently able to produce higher cash flows and higher gross margins, and the fact that we had, you know, that big downturn in 2020, and it's not the Caterpillar. It really isn't, isn't your grandfather's Caterpillar. The fact that we were able to produce $3 billion of, of free cash flow that year without putting a bunch of inventory. You know, we, we were positioned for that upturn in 2020, in 2021. What keeps me up at night is why everybody on this call doesn't give us a higher multiple. That's, that's that one. Again, as I think about our markets, as I think about the way we're positioned for everything I've talked about, the energy transition, driving mining, growing global energy demand, driving the distributed generation opportunity, the fact that with all these infrastructure bills driving the CI business, you know, one of the things that keeps me up at night is, all right, are we positioned from a supply chain perspective to meet potential future increases in demand? Again, that's a wonderful thing to keep me up at night as opposed to a declining market. Again, I've never been more confident about our future, and I'm not just saying that. I really do believe that for the reasons I've described. Excellent. Thanks so much, Jim. Well, I think we're gonna wrap it up there, but thanks to everyone for joining, and thank you, Jim, so much for your time. I really enjoyed the conversation today. That's great. Well, Nicole, as I told you, I'm running to the airport to go and around the world Death March. I will sign off now. Thank you. Safe travels. Take care. Goodbye. You too. Welcome back, everyone. Very happy to introduce Joe Creed, who is Group President of Cat's Energy & Transportation business. Joe, thank you so much for spending some time with us today. Great to be here. Nice to see you. Likewise. You've led the E&T segment since January of 2021, a little over two years now. What have you changed since you've held the role, and what are you most excited about for the future of the business? Well, I mean, you heard Jim. As far as what we're excited about, I'm excited about a lot of the, the same things. You know, the opportunity that we have in front of us, now and well into the future. You know, the energy transition, as Jim mentioned, and he's talked about many times before, presents a great opportunity for us as far as just total energy demand. More and more renewables and the intermittency that we- we're starting to see, you know, into grids in the developed world, not just in the developing world, which will increase opportunities for distributed generation. In Oil & Gas, you know, all of the energy sources, just with the increase in energy demand, are gonna be needed in the future, and, and we're investing in all of the technology to really help our Oil & Gas customers be more efficient as they move forward, lower the carbon intensity of operations, out in the oil patch. And so we're really excited about the near term and, and the long-term opportunities. You know, our, our traditional customers today are asking us to continue investing in diesel, and that's what they're buying, and we're doing that as well. We introduced a new diesel engine for our industrial customers that's going to be in our Cat machines as well at CONEXPO. You know, it's more fuel efficient, more power dense, we're making investments across our portfolio to really take advantage of the neat things that are going on in the industries that we serve that Jim mentioned as well. You know, what I've changed, I inherited a terrific business taking this role. My predecessors, a number of them positioned us well. I'm grateful for that. I was part of the business, you know, before moving into this role. We're really leaning in with our dealers to help our dealers, particularly around larger, you know, customers. You think about the big data center customers and Oil & Gas customers across territories, particularly in this environmental warning, longer lead times as to as much as they can give us, you know, insight into their volumes. Really leaning in on the commercial side. We've also, you know, stood up an electrification division to really focus on the things you and Jim talked about earlier. You know, how we're preparing ourselves for electrification, I think it's a long road when it comes to adoption. We want to be there with our customers and take that journey with them. Mining is kind of out in front right now, we're working closely with Denise and her team, not just on electrifying the equipment, which is wonderful. You know, we demonstrated the mining truck for customers in February. That was a great demonstration. Also, you know, leveraging what we think is a competitive advantage, having a captive distributed power group, you know, inside the same company as the OEM and bringing a full solution, site solution to our customers. We also created remanufacturing, Reman as its own division as well. It's a great sustainability story. It helps us grow services. It's great for our customers, our dealers, and us. We put a lot of emphasis on Reman as well and helping get more competitive machine rebuilds for customers using Reman. We think it's a great opportunity for us. You know, I haven't made wholesale changes. We made some of the small acquisitions that Jim mentioned as well, in his section, to really bolt on to our portfolio, but we're really just trying to lean in and, and take advantage of the great trends we're seeing in the industries. Understood. Great answer. E&T is comprised of four applications, and from my experience, it seems like investors, I think, have the least deep knowledge about the E&T business. I'd kind of like to spend time with you digging into each of those four, maybe starting with Oil & Gas. Oil & Gas price per barrel has kind of been in the $65-$75 range for a while now. I guess, what are you hearing from your customers when it comes to the level of investment that they expect to be putting in over the next few years? And maybe you could speak to, like, Solar versus reciprocating engines versus well servicing as well. Yeah, the oil prices have been kind of in that range. They've actually been up here recently in the last few days. As Jim and Andrew both mentioned on the call as well, sort of what we're hearing from customers right now, and you hear their earnings calls. On the well servicing side and drilling side, in the near term, I think we might see a, a slight slowdown. On the compression side, we're, we're seeing no slowdown at, at all. You know, Jim mentioned the LNG facilities coming online, and we're gonna need to move a lot more gas, natural gas in the next few years. Solar plays a heavy piece in, in gas transmission, as well as our reciprocating business in gas gathering and gas compression. Those orders are robust, and a lot of those are longer lead time. When we talk about Solar Turbines, you know, those orders are starting to come in, and we're seeing that backlog remain really healthy. The compression side, really, really strong. You know, when it comes to drilling and well servicing, maybe a little bit of a slowdown in, in the second half, but I don't see this as an elongated trend. Customers have been very disciplined in this cycle, which I think is a great trend, compared to some of the past cycles in Oil & Gas. You know, I don't think this is a something that we expect to last very long, and I think it's more of a slowdown than, you know, than a stop or a hard pause. We think long term, these are great. That's a great market and industry for us, and, you know, as we mentioned, we've made some investments to really help have the most, you know, high-tech fleet out there and equipment options for our customers to lower their carbon intensity in Oil & Gas. We continue to talk to our customers to stay close to them on what's going on. This is a, a great business, a healthy business for us, and one that we think has great medium and long-term potential. Got it. Okay, and you brought up how you're helping customers reduce carbons emission, carbon emissions. Mm-hmm. Can we talk a little bit about- Sure. some of the Cat technologies that you're excited about that enable that? Sure. It kind of goes across the spectrum as, you know, we participate in powering drill rigs and, you know, on the frack side, as well as in, in moving gas. Maybe if I just start with, with drill rigs and, you know, drilling typically has been done in the past with, you know, four diesel generator sets on a drill rig that powers the drill. We've been able to, you know, almost move to what we call a hybrid drill rig, setup, where we can use three natural gas generators and energy storage or a battery, and then our smart microgrid controller to seamlessly shift between power sources. That allows, where typically those generator sets and diesel would have idled before, we can use the battery on sort of when they're not pulling a lot of power. We can use the battery when they're actually drilling and need that excess power. We can shut down one or two of the generators. The ability to burn natural gas and other fuels, as Jim mentioned, is really important as well. We can burn conditioned field gas, which can help customers reduce flaring, using the gas that would have been flared and conditioned and to run the generators. It's really a microgrid type of setup. We can tie in. We could substitute one diesel and have natural gas and batteries. We can highline power in and substitute, it's a really neat solution that, you know, the drilling has not been a huge demand for us just because of the amount of equipment that's out there. We feel like we're ready when that does pick up with the most advanced solutions. On the well servicing side, if you move to a frack site, that's where really the acquisition of SPM was really important for us. It helps us really create a solution on traditional fracking fleet, but we can have an integrated solution. No one else has the engine, the transmission, the frack pump, and flow iron. We can integrate the whole system from trailer to wellhead, monitor all of it, and we have what we call Frac Fleet Optimizer, which is a digital solution that really sits on top of that. It'll run every trailer and engine at the optimal gear and speed to really optimize that whole site, and it helps drive a lot of fuel efficiency for customers. We put our DGB engine in there, we can displace up to 85% of diesel with natural gas. SPM also brought us higher horsepower frac pumps. Jim mentioned the 5,000 horsepower pump with our G3520 generator set for an e-frac application. That's become very popular with a number of our customers as well. You're really having this. That was sort of a missing piece to really put an integrated solution together. We're really the only supplier that, to the industry, that has the engine and transmission and the frac pump. If you think about what we do, you know, we, we E&T and we, Caterpillar, that's, that's what we do. We integrate our pieces of equipment and optimize for the industries that they're in. That's what we do with our Cat machines, right? We take an engine and transmission and optimize it for the application. We have a ton of experience in really how to do that integration, and we've taken that knowledge and really applied it into our well Servicing and Oil & G as business. I'm proud of the team for doing that. Then on the gas compression side, we can burn a variety of fuels, and we mentioned CarbonPoint Solutions. Small acquisition, but it's, you know, carbon capture technology that's not large scale. Carbon capture, like, has been out there for a while, but more tailored to our applications on our turbines and our engines and compression. I'm really excited about all the investments the team has made and really positions us, I think, as we move forward and we think about not just. I try to think past, you know, the next six months and whatever might be happening there. As customers continue to update their fleets and want to have more sustainable solutions moving forward, we're trying to be in front of that with the right technologies. Okay, great. Good overview of Oil & Gas, what's happening there. Maybe let's go ahead and move on to power gen. Mm-hmm. The business has been growing really strongly, so 15% growth in 2022, followed by 33% growth year to date. What is driving the strength, and how much of it is all about data centers versus what's going on in other verticals? It's pretty strong across the board and has been. We, you know, data centers is a huge piece of it, and I would say if you looked kind of under the hood and distributed generation and, and electric power is, has been strong, both on the small end. You know, as our generator sets can go behind a number of industrial buildings or a number of commercial buildings. That business, we call it sort of the retail side for us, their smaller generator sets has been robust. But on the large side, you know, data centers has been probably the fastest growing when you think about just what's the biggest growth rate that you see in there. That's really all the connecting, all the digital connections that are going on in the world to drive the need for data centers. You guys can read about that, do your research. What we're hearing from customers now is, you know, with the, with the onset of AI, you know, the potential for that to continue to grow, even accelerate more for the next few years. We don't, you know. Based on what we're hearing, that's a great opportunity for us. Data centers are why that's such an important deal for us. They are huge consumers of power, if you do your research around them. You know, they want uptime, they want quick response, in a power event to make sure they're continuing to run and, and that we don't lose connectivity in our, in our personal lives. You know, it's what we do for them is backup power, and it's, it's critical, and it requires, you know, it's not just one unit behind a data center. The amount of power that it consumes, it's, it's many units, every time they build a data center. So if you think about the growth that's coming there, it's just really exciting for our business. Then the medium to longer term, you know, trend as well, with all the onset of all the renewables that are supporting the grid and retiring of some traditional, you know, coal plants and other traditional generation, you know, we think and we're starting to see, you know, grid instability and more intermittency issues or peak load concerns just because renewables are very sustainable, but they're not consistent. The, the traditional forms of power and power plants, whether it's going to be a coal or, or natural gas, are very consistent. It's very, they're very reliable, and you know what, what level of power the utility has to distribute. You know, when you put renewables in there, that changes the mix. You have more and more demand on power, EVs coming along, coming along, and at the same time, you have intermittency being introduced to the supply side of that. That's where we really believe, and this is more of, as Jim mentioned, a medium-term to long-term opportunity, distributed generation, filling that gap and helping to support some of that intermittency or peak load. 'Cause you don't have to put all the transmission in, you can put it in closer to source. Having the right set of products, both in our turbines and generator sets is a great mix for us. Burning all kinds of fuels is a great for that. For Tangent, and that's why the acquisition of Tangent is so important for us. It gives us, we call it, it's an energy service company, but really it's a proprietary digital software and solution that we can help with customers that really can monitor and dispatch a distributed generation asset to help monetize that at the right time for customers who buy the distributed generation asset. Also, can help utilities when needed during peak loads or intermittent issues to help firm up the grid. You know, it's something we wanted to get in front of. Again, trying to be ahead of maybe when we see huge demand. We're starting. We've had a few orders, we're talking much more to utilities than we would in the past. Those wouldn't have been typical customers of ours. Mostly would have been commercial and industrial customers, who are still great customers, but now you add utilities to the mix. As many of them, even here in the U.S., are starting to put programs out for distributed generation to help with intermittency issues. The power generation is probably the fastest-growing segment that we have in E&T at the moment. Okay. Okay, got it. Thanks for that. If I could ask a very primer-level question- Sure. Please forgive me, but there is a ton of interest from investors in data center exposure right now and how all of this works, and I think that it's a bit of an underappreciated part of Cat's story, to be honest. Mm-hmm. Can you just explain a little bit, in, like, very layman's terms, what you're providing to a data center? I guess, you know, theoretically, would every data center need some sort of Cat-like backup power unit? Yeah, I mean, almost every data center that goes in will have backup power and redundant power, enough to power the entire data center. You know, maybe if I try to equate it to a lot of times a commercial building, like the one you're in, or potentially you're in, or an apartment building, or even homes, right, will have backup generators in the event of a power outage. Many times in those, we will only put enough power in to run, you know, we'll load shed some things and, and run the essential parts of the house that you need or the building that you need, but not 100% of the, the power. Data centers want to be able to run the entire operation. They want quick response time so that, you know, when we're on our phones or you're consuming, you know, data, that there's really no interruption. Every data center has backup power. Like I said, you know, they vary in size, but you can have, you know, data centers that are 50 MW, 100 MW. It's not one unit that goes behind a data center. It's many, many units when they build a data center to provide that backup power. You know, having the redundancy of having multiple units is also a good thing. Really kind of getting to that sweet spot of our large engine portfolio is right where data center customers, you know, are coming to us, and we're really, really leaning in to help them. It's, you know, as data centers continue to grow and the build-out happens, it's, it's an opportunity for us, and, and like I said, that's one of the reasons why we're really trying to help our dealers, and we're talking more and more to the big hyperscalers, especially, just so that we're, we're getting a view of what we see coming and can supply them with what we need. Okay. Okay, perfect. That's very clear. Thanks for that. Mm-hmm. just on the subject of grid investment in the U.S., you did bring some of this up earlier. Are you starting to see the impact of some of these infrastructure stimulus bills within PowerGen? I guess, have you thought about, like, what the potential impact could be to Cat's business over time and quantifying it? Yeah, on the, on the infrastructure bills, you know, I would say it takes time for those to roll out. You know, like Jim said, we'll, we watch that a lot closer on the construction side of the business than Tony. As it relates to an impact to us, we haven't really quantified it. I think the bigger one for us really is, as I mentioned before, one that's a little farther out and harder to quantify because it's really emerging right now. It's just the instability and intermittency issues that we see with the grids. We've talked to a couple of utilities. There's a couple in the southeast and the northeast where they're contemplating what type of programs and how does distributed generation play a role in helping them? The way I look at it is distributed generation is really an enabler, enabler of renewables, because renewables, just by their nature, as we talked- as we mentioned, are intermittent. To put more renewables on, we need to be able to deal with that intermittency, and potential peak load concerns. We're, you know, I'm not really in a position to quantify it today, other than I can tell you, it's not a huge piece of what we've been seeing as far as growth right now. That's more of an emerging opportunity that will really just accelerate on top of the things that we're already seeing in our business, because it's early days. I think it's, it's pretty evident, even here in the U.S., you know, utilities that didn't struggle in the past are, are dealing with intermittency issues and, and peak concerns, and I think that trend will continue. Okay. Okay, got it, perfect. Shifting to transportation. Mm-hmm. The recovery here has clearly been a lot more muted than it has been in other areas. What are you seeing globally, like U.S. versus international, OE versus aftermarket, could there be a recovery coming at some point in the near future? Yeah, there's two real sort of segments under the transportation, what we call transportation. There's marine, then there's our rail business, and I think I would handle those two maybe separately because we're seeing slightly different things. You know, on the marine side, it's sort of been depressed, but we're starting to see a little bit of demand come back. Ports are being built out. We're really strong in tug fleets. You think about offshore supply vessels and, you know, even offshore wind and, you know, a little bit of offshore oil starting to come back. We believe there's some opportunity there, and we've seen our business better this year than it was last year. That part of the business, we think, has modest growth. I don't, you know, I don't think it's, it's not, you know, the size of business, probably not the opportunity of power generation, but it's, it's a nice business for us, and one that I see, you know, we're seeing some positive trends in right now. On the rail side, it's a little bit of a, of a mixed story. On rail services, we're seeing growth and strength, that business is doing real well. It's a, it's a locomotive business that, you know, has been pretty depressed, particularly in North America. Not a, not a lot of new locomotives being purchased in the industry in the last few years. It doesn't appear there's any, you know, anything imminent there as far as, you know, a huge comeback. Internationally, there are, you know, deals out there, we've been participating in those. You know, a significant amount of that volume in that industry lies on the freight side, on, on the North America. We have the products available if, if or when our customers decide to replenish fleets, you know, our tier four offering is, is available. We'll continue to talk to those customers to see if we, you know, to make sure we're ready to meet their needs when the time is right. That one, I think, is the one area for us, it's still, still pretty slow. Okay. Okay, got it. Just maybe taking a step back and talking about alternative powertrains and electrification. If you look across E&T, what technologies is Cat bringing to market to kind of drive us through or, or to that transition? Yeah, and that's the, the, the fun part about this, and the challenge at the same time, in our segment, is the diversity of the businesses that we have. So, it isn't gonna be one solution for us when it comes to the energy transition. We're investing in many different solutions, alongside our customers to really, because each industry has a little bit of a different feel. On the electrification front, obviously, we're, you know, leading with mining. Our mining customers have made some commitments, and we have that early in our program. We're looking at holistic solutions. As Jim mentioned, it's not just powering the equipment with batteries, but also site solutions to charge and make sure that they have enough power and infrastructure on site to actually operate, charge the, the machines. We see the full spectrum, though, through alternative fuels. We have requests on hydrogen and hydrogen blends, biodiesel, biogas, ethanol, methanol. You know, burning a variety of alternative fuel is really important, and our team's really good at development, and so we're having all those ready. You know, we can run 20% off-the-shelf hydrogen blends with natural gas in our generator sets today, and our turbines, we're pushing them even higher. We did even release, it's around a 1-megawatt unit, reciprocating generator set that can burn 100% hydrogen. It's a design to order product. Not a lot of demand for it, but, you know, customers are asking about it, and what that does is really instills confidence in our customers because they know the answer isn't really known as far as timing and in many industries, what technology is actually going to win out. For us to be a good partner and for them to have confidence we're going to be there with them, it's important that we can show capability in all these different solutions. I think, you know, my personal opinion is there will be, you know, opportunities for all these technologies, depending on the market, and I don't see one that, you know, wins across the whole diverse set of industries that we serve, just because of the challenges and different requirements of our customers. Okay. Okay, that makes sense. Shifting to pricing, so pricing at E&T has been a little bit less robust than what we've seen in Cat's other two businesses. Why is this, and do you think there's maybe scope for a bit of a longer tail of price increases in E&T as you seek to kind of recoup the inflation that we've had for several years? Yeah, we were a little later in being able to sort of take some of the pricing action, and you think about right when inflation sort of took off a couple of years ago. The reason for that is, you heard Jim mention a little bit before, you know, our engines, we sell into many different end markets. That's a great advantage for us, 'cause it gives us scale, and it gives us all the opportunity that comes along with that. The one challenge with that was we saw strength in some of our end markets and some of the others weren't quite robust enough yet. That's why, you know, if I sell the same engine in the multiple areas, we didn't see the market as strong to take pricing as early as the other ones did. As sort of Oil & Gas started to come back and other and the industry started to recover at the same time, and inflation started to pile up, you know, our costs, we needed to take some action. We did. I feel like we're, we're in a much better position today, and have been able to make up a lot of that. You know, we continue to monitor that. I think feel good about our pricing right now, and we're in a healthy position, and we're talking to our customers, and our margins have sort of gotten back in, in line with where we were at the higher end of our prior ranges. It took a little bit longer. We'll continue to assess, you know, the situation, and depends on the industry that we have, and, and we'll continue to look at pricing and price appropriately. You know, we've done a pretty decent job in the last 12 months, getting back, clawing back a lot of those inflationary costs, for sure. Okay. Okay, understood. Maybe shifting to supply chain, where would you say we are on the path to recovery in supply chain? Maybe you could talk a little bit about some of the constraints you're still seeing and maybe where things have kind of cleared up. Yeah. Things are much better for us on what we would call our Medium and Small Engine business. Probably 18 L and below. Actually, probably 32 L and below. We've been able to kind of overcome some of the supply challenges. Where we're really still struggling a bit is in the Large Engine business, and there's two things going on there. There are constraints, and there have been constraints, at the same time, our orders were going up faster than we could ramp up. We've been able to increase our production every quarter, just not at the pace that the orders were coming in. We're making progress, I would say, there. If you look at the number of suppliers that were causing us, you know, some challenges, we put teams on it. We worked closely with those suppliers. It's getting significantly better. The challenge is I need every component on time in order to build it and get it out. You know, I would say we are making great progress there. There's still pockets, maybe some specialized components here or there. Then occasionally things pop up because we are. You know, one of the things when you get in this situation is your supply chain can't really absorb things that would normally happen in a normal situation, where you would kind of absorb that shock and keep going and recover. We kind of feel every little hiccup that can happen in that business. It's getting better. We're continuing to, to ramp as fast as we can, to take care of our customers, and, we're making some progress. It's kind of a mixed bag, depending on, on the business, for E&T. Okay. Okay, got it. Another broad question for you- Mm-hmm. is across the four applications, where are lead times most extended? Maybe this is just a total E&T question, but how is backlog coverage looking relative to where it would normally be? Our backlog is healthy. It's really healthy. Lead times are pretty extended, particularly in our Large Engine business. That really is at the heart, kind of our Oil & Gas, the Data Center business and large electric power. Our lead times are pretty extended. Our backlog is really healthy. That's where, you know, as long as demand is there and our sales to users continue to be strong, you know, personally, I would like to see our backlog come down, come in a little bit, as long as the end user demand is there, and that means we're able to get product out faster and get better availability for our customers. You know, to combat some of that, that's, again, why we're really leaning in on the commercial side with our dealers to kind of try to communicate with customers and get as long of a window or a picture as to what they think is happening so that we can really take care of them as best we can in this period of extended lead times. That's one of the reasons we're really working hard on the supply side. We wanna bring that, those lead times in, and when we do that, you know, part of that may be, you know, a bit of contraction to backlog, and that's not a bad thing. Customers, when they have more confidence that they can get the product in a shorter amount of time, just will place the orders a little bit later. That's, that's okay. That's healthy. Okay. Okay, yeah, that makes sense to me. Maybe just on the topic of profitability- Mm-hmm. Your margins have been recovering quite a bit year to date, which is good to see, but I think we have a little ways to go before we get to prior peak. Any reason why we couldn't see E&T margins return to prior peak? Maybe you could talk about some of the margin expansion initiatives that you're working on today. Yeah, I mean, I think we could get to our prior segment peak margins, and we're pretty close now. If you look at trailing 12 months, we've been around 17, and that's with even still ramping. I think we were up less than 16 in the third quarter of last year. If you look at trailing 12 months, we're definitely climbing. Pricing's been a big piece of that. We work on cost reduction as well. There are certain parts of the portfolio where, you know, we can always continue to strive to get better and be more efficient. As lead times come in and, you know, what we just talked about, really, there's efficiency in the factory that I expect we would see. I'm-- overall, I'm pretty happy and comfortable with where, you know, our margins are trending at the moment. Keep in mind, you know, when, when we talk about increasing in AACE, as Jim mentioned, really the alternative fuels piece of that, the electrification piece of AACE. E&T sort of has the bulk of those investments on the front end because that's where a lot of that development work gets done. We are spending more money on investing in the future, which I think is a great, great thing for us to be in, and pretty healthy. Even some of the digital spend, you know, we have, we're trying to connect our assets as well, and, and, and really get out and push some of those tools. When you couple all of it together, you know, we've been able to kind of get back where we, we wanna be on pricing. We'll continue to work on efficiencies and as the supply chain gets better, but we will spend a little bit more money just because of the diversity of the technologies we need to invest in. When you put all those together, I'm, I'm pretty comfortable with the trend that we're on. I would always love to get better, but we also wanna make sure we're making the right investments for the future. Absolutely. There's a lot of growth to come, right? Yes. Okay. I'm, I'm down to my last question for you, Joe. Mm-hmm. I'll ask you the same thing that I asked Jim. Hopefully, you've been thinking about the answer when, when you watched Jim's segment. What keeps you up at night? Please feel free to mention anything that I didn't ask about that you think we should talk about today. Well, no, I appreciate the time today and the questions and the interest in Caterpillar and E&T. I, I sleep pretty well at night, but we always worry about, you know, how can we be better and in the future? A couple of things. In the short term, really, you know, I'm laser focused on kind of increasing our throughput and getting products to our customers quicker. I wanna bring, you know, the availability in, because I think that's healthy. I want our supply chain to get healthy and, you know, we. It's not just the factory. We need to support our dealers and our customers in the aftermarket. We, we have some work to do to get ourselves where I would feel comfortable and like to see us. That's in the short term. Then in the long term, it's really balancing all of these investments that we need to make and all the different technologies along with the pace. The energy transition is an exciting time, but it's an uncertain one, unlike an emissions tier change or some sort of investment that's a big investment that you would make, that has a due date and a known sort of technology outcome. Here it's a lot of different technologies. As Jim mentioned, depending on even in the same industry, depending on the region of the world and regulation, you know, the pace of adoption on some of these technologies will be different. So I wanna be ready. I wanna be ahead in the technologies. Hopefully, through our discussion today, you've seen we've been making the investments to, to think ahead. At the same time, we want it, we want healthy margins, and we wanna pace that investment. I think we're finding the right balance now. You know, it's an the pace is uncertain, and we have a diverse set of industries that we serve, and I wanna make sure we're, you know, lockstep with our customers, and we're making the right investments to be ready when they are, to really fuel some of this growth. I mean, you know, it's an exciting time to be in the energy space. Total demand for energy is growing. I believe we're in some really great industries and have, you know, great momentum and the right products and have made the right investments to capitalize on that growth. It's really all about executing that and, and keeping that right balance. Got it. Well, thanks so much, Joe. Joe, thank you so much for your time today. This was a really interesting conversation. With that, we're gonna wrap up our virtual headquarter visit. Thank you. Thanks again to all the attendees for listening in as well. Nice seeing you. Likewise.