Westinghouse Air Brake Technologies Corporation · NYSE:WAB
Westinghouse Air Brake Technologies — Investor Presentation (March 2023)
67 slides from Westinghouse Air Brake Technologies's investor presentation, Mar 17, 2023
Slide 1: Wabtec Investor Presentation 2023
WabtecInvestor Presentation 2023
Slide 2: Forward-looking statements & non-GAAP financial information
WABTEC Forward-looking statements & non-GAAP financial information This communication contains “forward-looking” statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities L
Slide 3: Table of Contents
wabtec Table of Contents Company profile & key growth drivers Why Wabtec? Leading the decarbonization of rail Wabtec’s business segments in more detail Diverse portfolio with unique strategies to drive growth Disciplined value creation Global rail fundamentals are attractive 4 Page 9 19 22 28 43 57
Slide 4: Company profile & key growth drivers
We arewabtec 1 Company profile & key growth drivers 4
Slide 5: Wabtec operates its business in two segments
Wabtec operates its business in two segments 50+ ~27K countries employees Freight: 72% Transit: 28% 34% Services $8.4B ~60% Aftermarket portfolio 2022 review 11% Components 18% Equipment 28% Transit 9% Digital Intelligence Wabtec Global leader in freight and transit rail technologies 5
Slide 6: Attractive revenue profile and end markets
59% 38% 62% 44% Attractive revenue profile Attractive end markets Robust aftermarket portfolio Broad scale in global markets Strong mix of recurring revenues Strong global industrial portfolio with track record of innovation and significant recurring revenue Wabtec Freight Transit All Other (Industr
Slide 7: Primary growth drivers
Primary growth drivers(1) Wabtec Rail cycle recovery International expansion / share gains Increase customer productivity, capacity and safety Locomotive fleet renewal Innovative digital technology Lead decarbonization of rail Integration 2.0 Strategic M&A 1 2 3 4 5 Equipment Digital Intelligence Se
Slide 8: Resilient portfolio through the cycle
Strong 12-month and multi-year backlog provides resiliency and visibility despite macro volatility Significant recurring revenue base drives ~60% of profits WABTEC Resilient portfolio through the cycle Favorable end-markets Robust backlog & recurring revenue Demonstrated execution Strong outlook und
Slide 9: Why Wabtec?
We arewabtec 2 Why Wabtec? 9
Slide 10: Well-positioned to lead the industry and deliver shareholder value
Wabtec is well-positioned to lead the industry and deliver shareholder value Where we are Where we are going Where we have been 2019-2021 Lay the foundation 2022-2023 Lead therecovery 2024+ Deliver the future of sustainablerail wabtec 10
Slide 11: Value creation framework for delivering the future of rail
Accelerate innovation of scalable technologies Build high-margin, innovative and scalable products to increase customer productivity, automation, utilization, and capacity Grow and refresh expansive global installed base Increase share across asset lifecycle (Locos/Mining, Freight Cars & Transit) Le
Slide 12: Accelerate innovation of scalable technologies
ENHANCE EXISTING PRODUCTS ~6-7% target annual organic investment in technology as % of sales wabtec INVENT, TEST AND SCALE FUTURE technologies Accelerate innovation of scalable technologies #1 12
Slide 13: Grow and refresh expansive global installed base
Opportunity for pantograph pull through on FLXdrive High-margin friction products transit Pull-through content of up to $250K per new loco Recurring software services DigitalIntelligence 120+ service events over asset life >1,000 Mod units in operation Strong position with Class I customers Freight
Slide 14: Lead the decarbonization of rail
wabtec Lead the decarbonization of rail 2x Global demand for transport growing fast… freight and passenger activity projected to grow more than double by 2050 Growing demand 22x fewer deaths and injuries per year than trucking SAFER today ~300MTons Decarbonization drives strong customer returns FLXd
Slide 15: Expand high-margin recurring revenue streams
Recurring Revenues 44% 56% Recurring Revenues wabtec Expand high-margin recurring revenue streams Driven by expansive installed base of locomotives and significant content on transit / freight cars Includes service businesses, replacement parts, software licenses, digital services and consumables ~6
Slide 16: Drive continuous operational improvement
Accelerate lean Drive cost competitiveness capital EFFICIENCY METRICS Continual Focus on Fixed Asset Productivity Improve ROIC (1) Operating Cash Conversion in Line With Long-Term Targets (1) wabtec Drive continuous operational improvement Deliver best-in-class manufacturing cost productivity and ma
Slide 17: Wabtec operating model
Wabtec operating model… operational excellence Of shared values and mindset of problem solving and continuous improvement Customer + Shareholder value Culture Operating reviews monitoring pulse.... Site and division level cadence Strategy development Core of common KPI Wabtec management system OPERA
Slide 18: Committed to creating a more sustainable future
Wabtec We’re committed to creating a more sustainable future SUSTAINABILITY PRINCIPLES Innovating with Purpose We are committed to developing responsible and sustainable products that minimize the impact on the planet SUSTAINABILITY PRINCIPLES Driving Responsible Operations We are committed to provi
Slide 19: Global rail fundamentals are attractive
We arewabtec 3 Global rail fundamentals are attractive 19
Slide 20: Key trends influencing growth
Source: Worldbank.org, SCI 2020 Worldwide Market for Railway Industries ; UNIFE World Market for Rail Supply, ITF (2021), ITF Transport Outlook 2021, OECD Publishing, Paris KEY trends influencing growth GLOBAL RAIL FORECAST Mainline Psgr ‘21-30 ‘21-’30: 2.8% CAGR ‘30-’50: 2.3% CAGR Rail Freight ‘21-
Slide 21: Railroads well-positioned to expand share vs. truck
Railroads well-positioned to expand share vs. truck Wabtec Global RAIL VS. ROAD OUTLOOK Sustain existing share and focus on customer needs to capture flexible freight commodities Create a diversified supply chain and railcar visibility to help shippers handle variability in demand Collaborate with t
Slide 22: Leading the decarbonization of rail
We arewabtec 4 Leading the decarbonization of rail 22
Slide 23: Customer science-based targets for CO2 reduction
Customer science-based targets for CO2 reduction TARGETS technology BENEFIT FOR CUSTOMERS Technology CO2 BENEFIT UPGRADE OPERATIONAL NEW ASSET + Trip Optimizer Engine Advantage + + Biodiesel 20% Renewable Diesel ++ ++ FLXdrive Consist Hydrogen +++ COST BENEFIT +++ +++ + - ++ -/+ CLASS 1 CUSTOMERS 20
Slide 24: Technical solutions for fuel savings
30% Technical solutions Fuel savings across the enterprise network 3% 4% Fuel savings on distributed power trains 4% 6% Fuel savings per locomotive 15% 22% MOVEMENT PLANNER DISPATCH SYSTEM Optimizes the use of slack time to reduce overall fuel consumption LOCOTROL DISTRIBUTED POWER SYSTEM Opti
Slide 25: FLXdrive development progress
FLXdrive development progress FLXdrive 2.0 vs 1.0 Energy Density Battery Life Cycle Cost Fuel & CO2 Reduction Wabtec + GM technologydelivering best in class: Safety Overall system performance Reliability Locomotive layout & maintainability Ongoing product evolution Life cycle cost & recycling +++ ++
Slide 26: Alternative propulsion – hydrogen for freight
Alternative propulsion – hydrogen H2 for freight Longer range option for low/zero emissions Fuel generation cost through public & private investment Complementary to FLX technology… hybrid unit + hybrid consist Technology options H2 Fuel Cells H2 ICE Dual Fuel technology Path to a zero-emission ra
Slide 27: Locomotive technology road map for sustainability
Locomotive technology road map for sustainability Diesel electric Battery (HYBRID CONSIST) hydrogen digital 2016 2023 2026 2030+ Co2 reduction MOVEMENT PLANNER LOCOTROL TRIP OPTIMIZER SUITE Tier 4 FDL Advantage EVO Advantage BEL Demo FLX drive 2.0 FLX drive 3.0 FLX H2 Demo FLX H2 HHP/tender Launch 7
Slide 28: Diverse portfolio with unique strategies to drive growth
We arewabtec 5 Diverse portfolio with unique strategies to drive growth 28
Slide 29: Equipment primary growth drivers
Equipment primary growth drivers SURFACE MINING TRUCK ELECTRIFICATION & FLEET RENEWAL… VOLUME UP Trolley assist & power agnostic propulsion Sustained copper & iron ore production growth EXPAND FLXDRIVE WINS - CAPITALIZE ON GHG GOALS Product design fit for application, energy & power needs Investor o
Slide 30: Locomotive international markets
2011-2015 Locomotive international markets NAM Intl International fleet renewal & upgrades with EVO technology Expand battery electric mainline & switcher Drive supply chain productivity through regional footprint Strategy in action Revenue profile 2016-2022 NAM Intl Growth drivers AUSTRALIA Mining
Slide 31: North America long-term locomotive fleet renewal
Current active main-line locomotive fleet size Increasing visibility into 2023 and beyond Wabtec North America Locomotives New & Modernizations deliveries >500 units per year <300 units per year wabtec 2008 2017 2023 - 2025 ~16K ~25 years >600 locos North America long-term locomotive fleet renewal E
Slide 32: Continue to invest/grow the core diesel electric fleet
Continue to invest/grow the core diesel electric North America fleet renewal opportunity Strategy in action fleet by emission T1 T3 T4 T2 fleet by TRACTION DC AC Enable & support alternative fuels Continue to invest in fuel improvement technologies Hybrid battery upgrade for additional fuel & GHG re
Slide 33: Growth driven by fleet renewal & technology mix
Growth driven by fleet renewal & technology mix 2050 2030 2040 Efficiency w/ AC Fuel economy GHG SBTi targets Low impact to operations Operational flexibility 20% GHG Technology readiness Fleet productivity Net zero commitments Technology maturity Infrastructure availability Fleet renewal Mainline
Slide 34: Services primary growth drivers
Services primary growth drivers GLOBAL REMANUFACTURING 20+ global remanufacturing locations for critical components including engines & traction motors PERFORMANCE UPGRADES Leveraging technology to deliver on fuel & emissions efficiency and reliability MAINTENANCE TECHNOLOGIES Asset management, mate
Slide 35: Modernizations
Modernizations Maximize asset value and fleet performance by transforming 20+ year old locomotives to extend life and step-change their performance. Solutions jointly defined with each customer based on modular technology building blocks. Enabling structural changes in railroad dispatch strategies.
Slide 36: Components primary growth drivers
Components primary growth drivers INTERNATIONAL EXPANSION USING ONE WABTEC NETWORK Freight and loco opportunities in LATAM, APAC, India, and EMEA Industrial expansion and global partnerships to support ESG Scaling and developing new products for wind, grid solutions, carbon reduction, and energy sto
Slide 37: Increasing North American car build volume
Well-positioned to capitalize on increasing North American car build volume North American Car Build Volume 2019 2020 2021 2022 58K 33K 30K 41K 54K HISTORICAL 10-YEAR AVERAGE Increasing railcar build + Strong share position + Operating leverage REVENUE GROWTH AND MARGIN ACCRETION Components 2023F 40
Slide 38: Digital Intelligence primary growth drivers
Primary Growth Drivers digital Intelligence NEXT-GEN NETWORK SOLUTIONS Precision Dispatch 2.0, migrate to Cloud Pacing, Yard Planner system, & Service Design INTERNATIONAL MARKETS Expand digital capabilities across Latin America, Europe, and Asia Pacific EVOLVE LOCOTROL PLATFORM Locotrol Expanded Ar
Slide 39: Strong North America product penetration
Strong NORTH AMERICA product penetration TO New Products 98% Penetrated 16% Penetrated 93% Penetrated LOCOTROL New Products 45% Penetrated 73% Penetrated 12% Penetrated New PRODUCT Penetration Opportunities 100% Penetrated PTC International & Additional Features (US) 2% Penetrated New Network Produc
Slide 40: New technology will unlock the next generation of PSR
Reduction inTrain delays 25% PotentialProductivity Savings 50% Reduction inaccidents Due tohuman errors 75% Fuel efficiencyImprovement 30% PTC Energy Management (EM) Distributed Power Optimized Dispatch PTC + EM integration Zero-to-Zero SmartHPT Pacing Full Situational Awareness High Availability Sy
Slide 41: Transit primary growth drivers
TRANSIT Transit primary growth drivers GOVERNMENT FUNDING … FUELING TRANSIT TRANSPORT Investment in rail technologies to decarbonize transport and reduce congestion INNOVATION AND SCALABLE TECHNOLOGIESEnhancing train performance; maintenance optimization through digitization for transit operators SH
Slide 42: Government funding, decarbonizing passenger transport
transit Government funding, decarbonizing passenger transport Tailwind to transit systems portfolio Uniquely positioned to capture growth across vast portfolio and geographical reach U.S. $109B over 5 years for passenger EUROPEAN UNION $63B in 2021-2026 for rail INDIA $330B in 2021-2051 for passenge
Slide 43: Disciplined value creation
We arewabtec 6 Disciplined value creation 43
Slide 44: Path to the future… maximize shareholder value
INVEST INTHE BUSINESS Driving long-term profitable growth DRIVERS Deploy proven strategies / exploit growth drivers Execute on increasing backlog Mix headwinds driven by fleet renewal Invest in innovative technologies that drive profitable growth Best-in-class productivity & integration INVEST IN TH
Slide 45: Expanding long-term backlog while converting near-term orders
$9.0B in orders in 2022 … strong order intake across both Freight and Transit segments 7.8% increase in 12-month backlog 76% of 2023 midpoint revenue guidance covered in backlog… 2 points higher than 2022 2022 BACKLOG DYNAMICS wabtec Expanding long-term backlog while converting near-term orders MULT
Slide 46: Mix dynamics changing as industry renews aging fleet
PRODUCT MIX Digital Intelligence Services Components Equipment Transit Margin Drivers Sensitivity to the cycle Equipment High Digital Intelligence Medium Services Low Transit Low Components High Margin accretion 5-year GROWTH expectations(1) wabtec Mix dynamics changing as industry renews aging loco
Slide 47: Attractive long-term financial profile
Resiliency tested and validated … proven track record of delivering growth Attractive end markets… building momentum, renewal of locomotive fleets, strong and growing backlog Leading market position and innovative, customer-focused solutions across major rail and industrial segments Exceptional qual
Slide 48: Future revenue growth target
+2.0-3.0% UNDERLYING RAIL INDUSTRY GROWTH TRENDS Freight carloads Railcar build Passenger ridership Economic strength (GDP) Annual revenue growth expectations: mid-single digits(1) ACCELERATED GROWTH Share gains in portfolio International expansion Technology-driven growth Digital revenue growth 2-3
Slide 49: Incremental margins of 25-30% on fixed-cost structure
15-20% 80-85% 82% of Total Costs 15-20% FIXED MANUFACTURING 80-85% FIXED SG&A 25-30% INCREMENTAL MARGIN COST OF GOODS SOLD SG&A 18% of Total Costs Variable Costs Variable Costs wabtec Sales growth(1) expected to drive incremental margins of 25-30% based on Wabtec’s fixed-cost structure 15-20% 80-85%
Slide 50: Expanding adjusted margins
250 – 300 bps(1) CAPITAL & TECHNOLOGY INVESTMENT Strong IRR capital projects Technology to expand margins REVENUE GROWTH MSD annual growth CAGR Opportunistic pricing International expansion +150 TO 200 BPS COST IMPROVEMENT Continuous improvement, lean Integration 2.0 savings of $75-$90M Manufacturin
Slide 51: Investing in the core business
HIGH RETURNS ON CAPITAL DEPLOYMENT LONG-TERM PROFITABLE GROWTH Capital Technology Funding business model with capex of ~2% of revenue Managing working capital investment below 20% of sales Continue to invest in engineering & technology at ~6-7% of sales Invest-in-the-future technology breakthroughs
Slide 52: Invest in the future through strategic M&A
Bolt-ons/adjacencies focused on: Highly engineered products Rail & industrial services Digital technologies & solutions Secular growth profile/sustainable end-markets Geographic reach High aftermarket & recurring revenue streams Complimentary customer base & technologies Accretive earnings within 2
Slide 53: Capital allocation priorities, objectives and actions
PRIORITIES OBJECTIVES ACTIONS Maintain strong balance sheet to manage through economic cycles & world crises Debt leverage (1) ratio of 2.0 to 2.5x. Maintain investment-grade ratings Current leverage ratio at 2.2x (1) Appropriately invest in the business for revenue & profit growth CAPEX ~2% of sale
Slide 54: Improving returns on invested capital
RETURN ON INVESTED CAPITAL 2020 2021 3.7% 4.6% Revenue growth Margin expansion Cash efficiencies Working capital improvement Capital utilization Accretive M&A Return of cash to shareholders through dividends and share repurchases DRIVERS OBJECTIVE: INCREASE ROIC TO DOUBLE-DIGIT RETURNS wabtec Improv
Slide 55: Capital Deployment Plan (2023-2026)
Capital Deployment Priorities Maintain Strong Balance SheetMaintain investment-grade rating Invest In Sustainable GrowthR&D and CapEx Increase Dividends $0.02 quarterly dividend increase in Q1 ‘23 Supplement Organic Growth with M&APortfolio optimization; accretive investments Repurchase SharesReturn
Slide 56: Key investment highlights
wabtec Key investment highlights 02 Innovative, sustainable technologies expanding Wabtec’s market size 03 Growth strategy driving strong cash flow and margin expansion 04 Strong long-term business fundamentals driving long-term value creation for shareholders 01 Portfolio positioned to drive long-t
Slide 57: Wabtec's business segments in detail
We arewabtec 7 Wabtec’s business segments in detail 57
Slide 58: Equipment
Equipment 28% REVENUE BY GEOGRAPHY 85% 15% Recurring Revenue Non-Recurring Recurring Americas EMEA APAC 56% 44% REVENUE BY END MARKET 81% 19% Aftermarket Revenue OE Aftermarket Locomotive Mining, Marine, Drilling, Other Diversified global base to drive growth 46% 26% Key customers $1.5B 2022 revenue
Slide 59: Components
Components 74% 8% 18% REVENUE BY GEOGRAPHY 69% 31% Recurring Revenue Non-Recurring Recurring Americas EMEA APAC 60% 40% REVENUE BY END MARKET 57% 43% Aftermarket Revenue OE Aftermarket Freight / Other Industrial Diversified portfolio brings new growth Nationalsteel car Key customers $0.9B 2022 reven
Slide 60: Services
Services 79% 11% 4% 6% REVENUE BY GEOGRAPHY 68% 32% Recurring Revenue Recurring Non-recurring North America EMEA LATAM APAC 74% 7% REVENUE BY END MARKET 77% 23% Aftermarket Revenue OE Aftermarket Accelerating growth across the portfolio Key customers 19% Freight Maintenance Modernizations Maintenanc
Slide 61: Digital Intelligence
Well-positioned for growth Digital Intelligence Key customers REVENUE BY GEOGRAPHY 42% 42% REVENUE BY END MARKET Train Automation Offboard, Back Office Adjacencies 16% 76% 6% 14% 4% North America ANZ Rest of World LATAM 71% 29% Recurring Revenue Non-Recurring Recurring $0.7B 2022 revenue 61
Slide 62: Transit
Safety, efficiency & passenger comfort Transit Key customers 58% REVENUE BY GEOGRAPHY 54% 46% Recurring Revenue Non-Recurring Recurring Americas EMEA APAC 41% 33% REVENUE BY END MARKET 47% Aftermarket Revenue Energy, Comfort & Access Transit Services 22% 20% OE Aftermarket 53% 26% Brakes & Safety $2
Slide 63: Appendix
wabtec Appendix 63
Slide 64: Cash conversion reconciliation
wabtec Cash conversion reconciliation 64
Slide 65: Operating margin reconciliation
wabtec Operating margin reconciliation 65
Slide 66: Return on invested capital reconciliation
wabtec Return on invested capital reconciliation 66 Set forth below is the calculation of the non-GAAP performance measures included in this press release. We believe that these measures provide useful supplemental information to assess our operating performance and to evaluate period-to-period comp
Slide 67: Leverage
wabtec Leverage 67 Set forth below is the calculation of the non-GAAP performance measures included in this press release. We believe that these measures provide useful supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial measu
Westinghouse Air Brake Technologies — Investor Presentation (March 2023) on 6ix