Good afternoon? Thank you for joining us for Westinghouse Air Brake Technologies Corporation presentation. My name is Nick Heymann, and I'm the Research Analyst here at William Blair who covers Wabtec. I'm required to inform you that a full list of research disclosure and potential conflicts of interest are available on our website, www.williamblair.com. Today from Wabtec, we have Rafael Santana, President and Chief Executive Officer, and Kristine Kubacki, who's Vice President of Investor Relations. Wabtec is a leading global manufacturer of high value added technology based products and services for the freight and passenger rail sectors, as well as select industrial markets. The company, following its acquisition of GE Transportation in 2019, is also the world's leading producer of locomotives, with revenues expected this year to be slightly less than $8 billion. Together with GE Transportation's digital solutions business, Wabtec has become the leading provider of global freight rail logistics and digital predictive analytics. Wabtec expects to complete its integration with GE Transportation later this year. Earlier this year, it acquired Nordco, a leading right-of-way maintenance equipment supplier, offering railroads around the world a highly cost-effective solution to maintain the safety of their rail lines. Here to discuss Wabtec's increasingly bright equipment and service and solutions outlook is Rafael. Thanks, Nick, and well, good afternoon everyone? It's good to be here with you today. I thought I'd share some brief background on Wabtec. We have been in test for more than 150 years. For those who are not familiar with the industry, rail is, without question, what I call really the safest, the most efficient, the cleanest way of moving both freight and people overland. It's often called the most sustainable way of moving things overland. As the world's largest freight locomotive manufacturer, our locomotives move more than 20% of the world's freight, and our digital solutions help track more than 30% of all products that are moved through our nation's shipping ports. When it comes to passenger transit, our reach is equally vast. We've got products on virtually every transit system globally. I'd say in addition to our reach, our strong portfolio of businesses that really deliver a diversified and what I call a resilient revenue base that cuts across multiple segments. It cuts across multiple regions. We have a very strong aftermarket business. If you go to the next slide, we have continued to position the company to drive long term profitable growth. We have been really laser focused on differentiating ourselves through innovative and sustainable solutions that cut across our customer base, and it drives productivity for them. It also reduces carbon emissions. It drives reliability of their fleets and ultimately also improves safety. We continue to have opportunities to expand into the space. We've got some profitable adjacent growing markets. Well, there's a recent acquisition we did of Nordco. It's one of those areas. At the same time, we're taking on what I call a significant transformation of the company by really building a continuous improvement culture, one that is based on lean principles. I think the synergies we've been able to really deliver over the last few years, despite the downturn that we went through, are really a great example of what our teams will continue to accomplish through lean initiatives. We have a strong financial position which is supported by a robust cash generation. We're going to continue to balance investments in really high return opportunities along with paying down debt and returning cash to shareholders. Finally, I think very much aligned to our commitment to sustainability. As we highlighted in our sustainability report, more recently we established a green bond financial framework. We're very successful through that. We completed a $500 million green bond offering. This will fund strategic projects and new products that will ultimately reduce emissions across both the Freight and the transit segment. In the next slide, we're constantly looking at innovation. Innovation to help our customers find new ways to increase efficiency, to help our customers reduce costs, to help them with their carbon footprints. We're investing and we're delivering in the next generation of products. This will drive long term growth for the company. This includes things like Trip Optimizer, which is an intelligent cruise control system for trains that has saved over 400 million gallons of fuel, it has reduced carbon by over 500 tons annually. We're continuing to building on the success of Trip Optimizer. We recently signed a significant order in North America for what we call Trip Optimizer Zero to Zero. This is really advanced technology that allows a customer to start a train from 0 mph and stop the train automatically, really utilizing the various controls which are ultimately integrated with PTC Positive Train Control. I think another area that Wabtec's leading is the disruption in energy management. A good example here is the FLXdrive locomotive. This is the world's first heavy haul, 100% battery electric locomotive. This locomotive just completed a rigorous three-month demonstration. We did that with CARB, the California Air Resources Board, and with the BNSF. We ran the locomotive for over 13,000 mi of track, and through this pilot, we were able to reduce both fuel consumptions and emissions by more than 11%. This is a game changer in decarbonizing rail. This is the equivalent of more than 6,200 gallons of diesel fuel that were saved and nearly 70 tons of CO2. We're not done here. The FLXdrive, we're working with the next generation, in which we should overall reduce fuel consumption and emissions by the order of 30%. There's a significant interest in this next-gen technology. We're working with customers in North America, but also internationally, and we really expect the battery electric locomotive to be an important area of growth for the company over the long term. This will help our customers bridge into really a much cleaner footprint. On the next slide, you're going to see that we're also adding a lot of value here into the transit industry with high-value solutions that also deliver in what I'll call innovative low carbon technologies. These ultimately reduce energy consumption and reduce waste for our customers. A good example of that is Metroflexx. It's a braking system that really helps reduce the weight. It helps reduce the life cycle costs and ultimately also the braking distance of a train, making it lighter, for greater fuel efficiency. We've got innovation around air quality, BlueFilter filtration system, one that improves the quality of the air inside transit cars. This will be of increasing importance, especially as economies open up post-pandemic. Finally, we're further reducing greenhouse gas emissions and particulate pollution for our customers with our Green Air refrigerants and advanced friction materials for braking. A lot of innovation here, ones that bring high value solutions for our customers and for ourselves. The last point here, really as we go forward, we will continue to lean in to the long-term fundamentals of this industry and the company. We remain committed to executing on our strategic plan. We're very much really continuing to invest in technologies that will help us both transform and disrupt the rail industry. Customers are really at the center of what we do. We're strongly positioned to build further momentum with them. We'll always be looking for ways to improve our business. That speaks to this continuous improvement mindset through lean, which will ultimately make Wabtec even stronger by driving margin expansion across our segments. We're laser focused on driving strong cash generation. We will continue to invest in high return areas of opportunity, returning capital to shareholders, and ultimately delivering on improvement in our return on invested capital. I'm confident that Wabtec is well positioned to drive long-term profitable growth and to create significant shareholder value. With that, Nick, I'm ready to answer any of your questions. Okay. Well, that's a really good overview, Rafael. We got one question that came in here while you were talking, and it related to the tangible infrastructure bill that's currently being considered by Congress and proposed by President Biden, and it has significant funds for both the transit side impact and local rail as well as freight. Could you comment on how that might impact your business? Nick, I think we will benefit from the infrastructure bill along with the ecosystem. We're glad to partner with a number of companies to really help drive and increase the utilization of rail. At the same time, we make rail even more sustainable. We're excited about the opportunity here to accelerate a lot of the elements of the technologies that we're working on, and we see significant opportunities to create speeds for our customers to create better predictability on where freight is moving, giving really a broader visibility as freight's coming to ports. We can't do that alone, and we are working on a number of partnerships, and this is something we'll all benefit from. Okay. We got another question, and that was if you could discuss your international locomotive pipelines, and do you expect any material new orders this year? It's exciting to see some of the opportunities we have there, Nick. In fact, we're talking to some customers to increase some of the numbers associated with units they had in mind. That speaks to the strengths of the exports of some of the geographies that we serve. Whether if I talk about South America, whether if I talk about Russia, CIS, I think we're seeing increasing demand, and that's very positive in that regard. I think more announcements to come on that front. Okay. I know that you have been expanding your efforts to increase the rail's competitiveness versus trucking, and we have the localization of the North American freight and logistics system. Do you think as you go forward, you're going to be supplying these solutions yourself or in partnership with third-party logistics companies? How do you see that evolving? Nick, I think there's a number of areas that we have the expertise, we have the depth, and we have the capabilities to deliver solutions. Reality is, as we solve for really more share of freight to be moved through rail, we got to be partnering, and we are exploring some of that. Ultimately, we're looking at the entire ecosystem and enabling how to solve for different sets of variables. Sometimes you're solving for speed, but sometimes you're solving for costs. Sometimes it's really a balance of the two, and you can very often these days especially be solving for, hey, what's the path for less emissions? as you're looking through this. We are ultimately looking at partnering with a number of companies to look at the different modes and make sure that transparency and visibility is there. At the same time, we'll make sure we continue to work to make sure that rail is the most efficient and the most sustainable way of moving things over land. Okay, that's great. Could you give us a little state of the union update on the current utilization for North American rolling stock and locomotives? I think we've had significant excess capacity that's started to come down. How does that look to you in terms of both rail cars as well as the locomotives? Some of those are being modernized, the locomotives. Right. Nick, I think we've seen significant progress from the trough that we saw in May of last year. I think freight traffic has improved. We've seen locomotives and rail cars come out of storage to really meet sequentially improving demands. Rail cars in storage today are below pre-COVID levels, in the low 20s%. I believe like 22% of the fleet's parked, with some car types like especially intermodal flat cars being almost all out of storage. Positive fun news there. On the locomotive levels, I think we've also seen significant improvements. We're still slightly above what I call pre-COVID levels for the industry, going through a transition there, but I think the indications are positive on that regard. I think another element that it's relevant to say, North America today, when I look at the past couple decades, we sit at the oldest stage of the fleet ever. Yet when you think about the demand for reliable and available power, that continues to increase. This I think directly drives a lot of the need for aftermarket services, modernizations, the look into new as well. The locomotives are running out there. They're running hard. One of the things we're able to really follow up is the hours being put on that equipment. It's at the highest levels it's ever been when I look at the average of the fleets. The industry is currently also consuming, surplus power available, and some railroads are really getting to the point of having to look to consume some of the power that is out there. Looking forward, I think the combination of the fleet age and the lasting good of available power, I think will ultimately drive customers to continue to invest in their fleets. That's how we're seeing it. The last comment maybe just on the international markets. We're very positive. We're seeing strong support. Deals tend to take a little bit longer. I think there's continued positive momentum there. Okay. We had a question about how is India trending given the more significant COVID disruption and challenges for that economy and your significant presence in that market? Right. Nick, I think we spoke during earnings. That was one of the areas of concern we had. We still have concerns around India. I think things have significantly improved. When I last spoke during earnings, we had some real challenge scenarios in some plants with less than 30% attendance. That has changed significantly. I'd say the team is performing much better than we expected. With that, there's certainly going to be elements of challenges in the quarter associated with India. We believe we have the plans to manage that through the year, and we've also been able to accelerate some things that were maybe going to take place in the third quarter, make them happen earlier. Overall, I'd say moving very much aligned with the framework that we have laid out. We're very much committed to delivering on the things we said we would. Everything's still on track. Things are on track. Okay. We got another question here. It said, you're working to create the Freight Rail Innovation Institute in the U.S. Are there similar efforts globally where there is a path for government funding of Wabtec's clean rail initiatives? Nick, we do engage and work with Governments globally. That's really part of what we do. We have strong relationships, especially with the fact that we're local. We're really able to work with both the elements of all key stakeholders to move that needle forward. We have here an opportunity to lead this from the U.S. There's a number of international customers that have been engaged with us in order to support this initiative. We want to make sure we don't fragment the efforts but really concentrate that so we're able to really accelerate this transition, this energy transition into rail. I think we're very well positioned when I think about the install base that we have there, some of the work that we started earlier on with biofuels, renewable fuels, and now with battery electric, which I think we're really proud to see some of the results we have. We're certainly going to be pushing to moving to orders here. The interest is broad, and I think we're also working with hydrogen and fuel cells as part of that. We look at this as a portfolio of really solutions to help our customers transition into more efficient and cleaner ways of moving both freight and ultimately move passengers as well. Okay. I guess along those lines a little, one of the things we've all thought about was that the transition ultimately probably to a hydrogen economy for energy might take as long as 2050 to become economically viable. There's been significant breakthroughs recently, particularly from H2Pro out of Tel Aviv, that is looking at bringing a whole new process, they call it water splitting, instead of electrolyzers with membranes, to bring $2 a kg by 2023 and $1 a kg by 2030, which would be like 20 years earlier and half as expensive as originally thought by the Hydrogen Council. How do you see the industry moving as you work with FLXdrive and your battery electric solutions and your biofuel solutions? How do you see it transitioning? Are you able, if in fact green hydrogen becomes available sooner rather than later, to be able to accelerate the shift towards hydrogen-powered locomotives? I think you nailed it, Nick. We're in the business of making sure we accelerate some of these in an economic fashion. The short answer is yes, we are. I think there's alternatives along this bridge I described to you, which could include burning hydrogen directly into our engines. Yep. That's something we would be able to do it. We have LNG today operating in locomotives and trains here in the U.S., so that's something that we've got experience on. You're going to need batteries in order to ultimately move into fuel cells, being hydrogen-based. It's really making sure that not just you solve for the set of solutions, but you got to bring some partners along the way. We're not going to be doing all the elements of this. We're working with companies that have the electrolyzers and have some of these auto alternatives. We are seeing an appetite to actually sign up for some pretty, I'll say, aggressive numbers that would enable this to go faster. Okay. I think we can move faster here. It's going to be a bridge. It's not going to be a total flip overnight, and I think we're well positioned to do that. Perfect. We've got a lot more questions here from interested participants. Could you discuss the revenue synergy opportunity with Wabtec and Nordco? Okay. Well, it's early days. I'm very excited about the addition of Nordco to our Freight Services group. I think we've been public about the fact that we have mapped by year three more than $10 million of synergies for that company. That's a significant step up in the profitability of the company. That's exciting. I got to tell you what's more exciting to me is the kind of orders we're discussing for Nordco right now, and I'm talking about taking it internationally. We've got right now two customers that we're working through finalizing some things. In fact, one of them, it's one region of the world, last time we got an order was more than 10 years ago. We know we have the opportunity here to accelerate upper growth for Nordco. We see this as an exciting, profitable area for the company, one that we can help customers also ultimately win with efficiency. Things are moving away. We're very focused on the integration. The teams are getting along very well. I had a review with them just last week into the details of how that's working. We're on track to deliver on the numbers we set for the year, and just a good segment ahead, Nick. If I'm not mistaken, Nordco is largely North American focused organization. That's right. What you're trying to do is bring this to the 58 different countries or whatever it is that you operate around the world. Yeah. We'll start with the first three, which we're progressing very well. You got it. It's about taking this in a broad sense. At the same time, I think building off of the legacy we have in North America, I think there's a lot we can do there in terms of automation, in terms of just improving our controls overall, in terms of the equipment they do, and expand a little bit on the product line. That's the focus right now. The other question came with your strong free cash flow. Will you return to repurchasing your stock this year? I think you did expand your authorization late last year and bought some stock back, but are you likely to continue to repurchase shares this year? We're committed to the highest return to our shareholders, we're going to be looking at that framework. At the same time, well, make no mistake, we will look at share buybacks. We are looking at inorganic opportunities, and if they present really, I'm going to call special opportunities like we saw with Nordco, we're going to be looking at that. We're also committed and making sure that ultimately we maintain investment grade. With that all being said, there's significant opportunities here for organic growth. We'll be talking more about some investments on that path as well. Okay. I guess we have just a few minutes left. As we think about where you thought you might be as you exited 2020 and what you see today ahead of you now, particularly as things begin to open up around the world, what is going to be the pressure points for Wabtec to be able to manage the opportunities that are starting to emerge? Nick, I think to think about pressure points, like immediate pressure points right now, I mean, you touched the first one, which is certainly some of the dynamics that we still have, and we'll still have for a little bit of time here. India is a good example, a lot of countries are not out of the woods yet. What if I go to Brazil? Similar challenges there. There's certainly elements of inflation that are a pressure right now. I look at the price of copper or steel. We're really working with prices that are 50% higher than we had on our budgets. The good news is I think we've been able to pass a large part of that through. Sometimes there could be an element of a delay tied to when some of the escalation index kick in into our contracts. On the other side, the teams are working hard to make sure they find offsets through productivity, lean projects, and things like that. Those are maybe a couple areas, and there's always, with the pent-up demand that's out there, making sure that you're protecting supply chain and you're able to really guarantee supply and maintenance for your customers. The first two are really the ones that are probably higher in the radar screen right now. Okay. As you think about this inflection that's occurring in the global economy and certainly in many local economies, some are slower. Emerging markets seem to be a bit behind. This morning I was reading the U.S. GDP growth for 2025 is now expected to be higher than it was in January of 2020 before the pandemic started. How do you see this evolving? Is it, Rafael, a more pronounced inflection, or is it gradual inflection, or is it a series of inflections? How should we think about what lies ahead for the company over the next few years? Nick, I'll definitely not speculate there. Whenever we have speculated, we've always got it wrong. I mean, one thing for sure is that we really operate efficiently, that as we see volume, we have the right discussions with customers to make sure that we're able to sustain those volumes over time, and they're not elements of one-time events that we end up over-investing on CapEx in order to support them. I like where we are right now with the homework we've done in terms of rationalizing footprints, the cost outs that we've done. I feel like we should be able to take significant advantage and growing profitably. We should have significant leverage here to increase the profitability of the franchise as we progress. Excited about this. Hey, Rafael, it's always great to hear from you. Thanks so much for spending the time with us today. We really appreciate your insights and thoughts, and we hope you have a great continued outlook here as we progress in 2021. Nick, thank you so much. Great connecting with you. Thanks for having me on.