Westinghouse Air Brake Technologies Corporation · NYSE:WAB
Westinghouse Air Brake Technologies — Investor Presentation (March 2024)
64 slides from Westinghouse Air Brake Technologies's investor presentation, Mar 13, 2024
Slide 1: 2024 Wabtec Investor Presentation
2 0 2 4 WABTEC INVESTOR PRESENTATION
Slide 2: Forward-Looking Statements & Non-GAAP Financial Information
FORW ARD LOOKI NG S TATEM ENTS & NON- GAAP FI NANCI AL I NFORM ATI ON 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 Securitie
Slide 3: Table of Contents
W A B TE C 3 TABLE OF CONTENTS 4 Company profile & key growth drivers 9 Why Wabtec? 19 Global rail fundamentals are attractive 22 Leading the decarbonization of rail 27 Diverse portfolio with unique strategies to drive growth 40 Disciplined value creation 54 Wabtec’s business segments in more detail
Slide 4: Company Profile & Key Growth Drivers
1 COMPANY PROFILE & KEY GROWTH DRIVERS
Slide 5: Wabtec Operates Its Business in Two Segments
5 W A B TE C W ABTEC OPERATES I TS BU S I NES S I N TW O S EGM ENTS G L OBA L L E A D E R IN F RE I G H T A N D TRA N S I T R A I L T E C H N OL OG IE S 50+ ~29K C OU N TR I E S EM P L O Y EES TRA NS I T: 28% FRE I G H T: 72% 34 % Services P ORT F OLI O $9.7B 2023 R EV EN U ES 12% Components 18 % Eq
Slide 6: Attractive Revenue Profile
W A B TE C 6 ATTRACTI VE REVENU E PROFI LE 59% 37% 63% 46% A T T R A CT I V E EN D M A RK ET S RO B U S T A FT ERM A RK ET P OR T F OL I O B R OA D SCA L E I N G LO B A L M A RK ET S ST R ON G M I X OF REC U RRI N G REVEN U ES S TRO N G G L O B A L I N D U S TRI A L P O RTF O L I O W I TH TRA C K RE
Slide 7: Primary Growth Drivers
W A B TE C 7 PRI M ARY GROW TH DRI VERS (1 ) 1 Rail cycle recovery 2 International expansion 3 Increase customer productivity, capacity and safety Locomotive fleet renewal Innovative digital technology Lead decarbonization of rail 4 Integration 2.0 5 Strategic M&A Equipment Digital Intelligence Serv
Slide 8: Resilient Portfolio Through the Cycle
W A B TE C 8 RE S I LI E NT PO RTFO LI O TH RO U G H TH E CY CLE (1) Adjusted numbers represent non-GAAP financial measures. See Appendix for additional details and reconciliations FAVORABLE END-MARKETS ROBUST BACKLOG & RECURRING REVENUE DEMONSTRATED EXECUTION S OL ID OU T L OO K S U PPOR T E D B Y
Slide 9: Why Wabtec
2 WHY WABTEC
Slide 10: Wabtec Is Well-Positioned to Lead the Industry and Deliver Shareholder Value
W A B TE C WA BTE C IS WE LL- PO S I TI O NE D TO LE A D TH E I NDU S TRY AND DELI VER S H AREH OLDER VALU E W H E R E W E A R E WH ER E WE A R E G O I N G WH ER E WE H A VE B EEN 2019-2021 Lay the foundation 2022-2023 Lead the recovery 2024+ Deliver the future of sustainable rail 10
Slide 11: Accelerate Innovation of Scalable Technologies
W A B TE C VALU E CREATI ON FRA M E W O RK FO R DELI VERI NG TH E FU TU RE O F RA I L Lead decarbonization of rail Drive the industry in innovative, low-carbon technologies and transformative solutions Grow and refresh expansive global installed base Increase share across asset lifecycle (Locos/Mini
Slide 12: Accelerate Innovation of Scalable Technologies
W A B TE C ENHANCE EXISTING PRODUCTS INVENT, TEST AND SCALE FUTURE TECHNOLOGIES 11 ~6-7% target annual organic investment in technology as % of sales ACCELERATE I NNOVATI ON OF S CALABLE TECH NOLOGI ES #1
Slide 13: Grow and Refresh Expansive Global Installed Base
W A B TE C 13 GROW AND REFRES H EXPANS I VE GLOBAL I NS TALLED BAS E #2 IB Age (years) WAB% 2024-2026 NORTH AMERICA 30K 22 53% APAC 20K 20 14% CIS/EU 26K 25 8% LATAM 3K 22 61% SUB-SAHARAN AFRICA 5K 19 26% Customers projected to spend 1-1.5X the original price of loco on service alone MODS MAINTENANC
Slide 14: Lead Decarbonization of Rail
W A B TE C LEAD DECARBONI Z ATI ON O F RA I L #3 2x G R O WI N G DE MA N D T O D A Y E N V IR ON M E N T A L I M P A C T SAFER 22x fewer deaths and injuries per year than trucking CARBON REDUCTION 75% reduction in carbon emissions per ton-mile than trucking MORE EFFICIENT 3-4x more fuel efficient th
Slide 15: Expand High-Margin Recurring Revenue Streams
W A B TE C EXPAND H I GH - M ARGI N RECU RRI NG REVENU E S TREAM S #4 6 2 % OF C OM P A N Y P R OF IT IN 2 0 2 3 D RI V E N B Y RE C U RRI N G RE V E N U E S Driven by expansive installed base of locomotives and significant content on transit / freight cars Includes service businesses, replacement p
Slide 16: Drive Continuous Operational Improvement
W A B TE C 16 DRI VE CONTI NU OU S OPERATI ONAL I M PROVEM ENT #5 5.3 5.9 6.5 4.6% 5.2% 6.4% 2021 2022 2023 102% 93% 89% Continual Focus on Fixed Asset Productivity Operating Cash Conversion(1) in Line With Long-Term Targets C A PI T A L EF F I C I EN C Y M ET R I C S Improve ROIC (1) 2021 2022 2023
Slide 17: Wabtec Operating Model
W A B TE C W ABTEC OPERATI NG M ODEL … OPERATI ONAL EXCELLENCE E CULTURE Of shared values and mindset of problem solving and continuous improvement CADENCE Operating reviews monitoring pulse.... Site and division level STRATEGY DEVELOPMENT CORE OF COMMON KPI WABTEC MANAGEMENT SYSTEM C OPEORMAETIONAL
Slide 18: We're Committed to Creating a More Sustainable Future
W A B TE C W E’RE COM M I TTED TO CREATI NG A M ORE S U S TAI NABLE FU TU RE SUSTAINABILITY PRINCIPLES Innovating with Purpose We are committed to developing responsible and sustainable products that minimize the impact on the planet 17 SUSTAINABILITY PRINCIPLES Driving Responsible Operations We are
Slide 19: Global Rail Fundamentals Are Attractive
3 GLOBAL RAIL FUNDAMENTALS ARE ATTRACTIVE
Slide 20: Market for Rail Continues to Expand
W A B TE C M ARKET FOR RAI L CONTI NU ES TO EXPAND K E Y T R E N D S IN FL UE N C IN G G R O W T H Increased focus on environmental sustainability and decarbonization 20 Improved rail infrastructure … enabling economic growth in developing regions. In NA, increased government funding and Class I CAP
Slide 21: Railroads Well-Positioned to Expand Share vs. Truck
W A B TE C RAI LROADS W ELL - POS I TI ONED TO EXPAND S H ARE VS . TRU CK 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 the government
Slide 22: Leading the Decarbonization of Rail
4 LEADING THE DECARBONIZATION OF RAIL
Slide 23: Customers' Science-Based Targets for CO2 Reduction
W A B TE C 23 CU S TO M E R S CI E NCE- BAS ED TARGETS FOR CO 2 RE DU CTI O N TECHNOLOGY CO2 BENEFIT COST BENEFIT Trip Optimizer + +++ Engine Advantage + +++ Biodiesel 20% + + Renewable Diesel ++ - FLXdrive Consist ++ ++ Hydrogen +++ -/+ T E C H N OL OG Y B E N E F IT F O R C U ST O ME RS UPGRADE OP
Slide 24: Technical Solutions Impact
W A B TE C TE CH NI CA L S O LU TI O NS I M PA C T U P TO ~ 3 0 % reduction in emissions and fuel utilization 22% efficiencies today … 18% EPA certified P RO D U C TS I N TE GR ATE D F UE L OPT IM IZ A T ION Movement Planner system Locotrol distributed power Trip Optimizer Platform U P T O 30% TO TA
Slide 25: Alternative Propulsion Development Progress
W A B TE C 25 ALTERNATI VE PROPU LS I ON DEVELOPM ENT PROGRES S FL X D R IV E 2. 0 VS 1. 0 Energy Density Battery Life Cycle Cost Fuel & CO2 Reduction +++ +++ +++ H 2 F O R F RE I G H T Longer range option for low/zero emissions Fuel generation cost through public & private investment Complementar
Slide 26: Locomotive Technology Roadmap for Sustainability
W A B TE C 26 LOCOM OTI VE TECH NOLOGY ROAD M AP FOR S U S TAI NABI LI TY D I ES EL E NGI NE DI G I TA L 2016 2023 2026 2030+ P O TE N TI A L C O 2 R E DU CT I O N Our technologies, such as Trip OptimizerTM and LOCOTROL® enhance the rail industry’s sustainable journey 30% B A T T ERY (M A IN L IN E
Slide 27: Diverse Portfolio with Unique Strategies to Drive Growth
5 DIVERSE PORTFOLIO WITH UNIQUE STRATEGIES TO DRIVE GROWTH
Slide 28: Equipment - Primary Growth Drivers
W A B TE C EQU I PM ENT - PRI M ARY GROW TH DRI VERS 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 & po
Slide 29: Equipment - Increasing Visibility into 2024 and Beyond
W A B TE C EQU I PM ENT - I NCREAS I NG VI S I BI LI TY I NTO 2024 AND BEYOND Current active main-line locomotive fleet size W A B TE C N OR TH A M E R I C A L OC OM OTI V E S N EW & M O D ER N I Z A T I O N S D EL I VER I ES >500 units per year <350 units per year 2008 2017 2024 - 2026 ~15K ~25 yea
Slide 30: Spotlight on International Markets
W A B TE C S POTLI GH T ON I NTERNATI ONAL M ARKETS RESILIENT GROWTH IN THE INTERNATIONAL INSTALLED BASE 2017 2018 2019 2020 2021 2022 2023 *Excludes Canada & Mexico 2024 - 2026 LEVERAGING WABTEC PORTFOLIO AND LOCAL PARTNERSHIPS TO DRIVE PROFITABLE GROWTH IN 2024 AND BEYOND A U ST R A L I A Mining g
Slide 31: Equipment - North America Fleet Renewal Opportunity
W A B TE C EQU I PM ENT - NORTH AM ERI CA FLEET RENEW AL OPPORTU NI TY S TR A TE G Y I N A C TI ON Enable & support alternative fuels Continue to invest in fuel improvement technologies Hybrid battery upgrade for additional fuel & GHG reduction Enabling locomotive automation with Modular control arc
Slide 32: Services - Primary Growth Drivers
W A B TE C S ERVI CES - PRI M ARY GROW TH DRI VERS GLOBAL REMANUFACTURING 20+ global remanufacturing locations for critical components including engines & traction motors 31 PERFORMANCE UPGRADES Leveraging technology to deliver on fuel & emissions efficiency and reliability MODERNIZATIONS Fleet tran
Slide 33: Services - Modernizations
33 W A B TE C S ERVI CES - M ODERNI Z ATI ONS ~50% more tractive effort ~25% less fuel & emissions ~40% more reliability C U S TOM E R OU TC OM E S * WA B T E C I MP A CT Developed and scaled Mods business Turning underutilized assets into preferred fleet Significant content pull-through Customer pa
Slide 34: Components - Primary Growth Drivers
W A B TE C COM PONENTS – PRI M ARY GROW TH DRI VERS DRIVE INNOVATION INTO NEW PRODUCTS & SOLUTIONS Sensing/digitalization to improve product performance Health monitoring to reduce maintenance cycles Apply advanced material technology to engine cooling STRENGTHEN OUR CORE IN NORTH AMERICA Package fr
Slide 35: Components - Well-Positioned on North American Car Build Volume
W A B TE C COM PONENTS – W E LL- POS I TI ONED TO CAPI TALI Z E ON NORTH AM ERI CAN CAR BU I LD VOLU M E Increasing railcar build over time + Strong share position + Operating leverage REVENUE GROWTH AND MARGIN ACCRETION 2019 2020 2021 2022 58K 33K 30K 41K 5 7 K H IS T O R IC A L 10 - YEA R A V ER A
Slide 36: Digital Intelligence - Primary Growth Drivers
W A B TE C DI GI TAL I NTELLI GENCE - PRI M ARY GROW TH DRI VERS 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
Slide 37: Digital Intelligence - New Technology Will Unlock Next Generation of Efficiency
W A B TE C 37 DI GI TAL I NTELLI GENCE - NEW TECH NOLOGY W I LL U NLOCK TH E NEXT GENERATI ON OF EFFI CI ENCY FOR CU S TOM ERS S A V IN G S 50% PO T E N T IA L PR O D U C T IV IT Y 75% R E D U C T IO N IN A C C ID E N T S D U E T O H U M A N E RRO RS 30% FU E L E FFIC IE N C Y IM PR O V E M E N T PT
Slide 38: Transit - Primary Growth Drivers
W A B TE C TRA NS I T - PRI M ARY GROW TH DRI VERS G O V E R N M E N T FUN D IN G … FUE L IN G T R A N S IT TR A N S POR T Investment in rail technologies to decarbonize transport and reduce congestion I NNO V A T I O N A ND S C A L A B L E T E C H NO L O G I E S Enhancing train performance; mainten
Slide 39: Transit - Government Funding, Decarbonizing Passenger Transport
W A B TE C TRA NS I T - GOVERNM ENT FU NDI NG, DECARBONI Z I NG PAS S ENGER TRANS PORT T A I L W I N D T O T R A N SI T SY ST E M S P OR T F OL I O U .S . $109B in 2022 -2027 for passenger E U R O P E AN U NI O N $63B in 2021-2026 for rail IN D IA $330B in 2021-2051 for passenger GE R M ANY $95B in
Slide 40: Disciplined Value Creation
6 DISCIPLINED VALUE CREATION
Slide 41: Path to the Future - Maximizes Shareholder Value
W A B TE C 41 PA TH TO TH E FU TU RE … M AXI M I Z E S H AREH OLDER VALU E IN V E S T IN T H E BU SI N E SS Driving long-term profitable growth D RI VERS Deploy proven strategies / accelerate growth drivers Execute on increasing backlog Mix headwinds driven by fleet renewal Invest in innovative tech
Slide 42: Expanding 12-Month Backlog While Converting Near-Term Orders
W A B TE C 42 EXPANDI NG 12 - M ONTH BACKLOG W H I LE CONVERTI NG NEAR- TE RM O RDE RS 12 - M ON TH A N D M U L TI - YE AR B AC K LO G P R O V ID E S ST A BIL IT Y A N D V ISIBIL IT Y $6.3 $6.8 $0. $7.5 $22.2 $22.4 0.0 $22.0 0 5 10 15 20 25 30 35 2021 2022 2023 $ 0 12-month backlog Multi-year backlo
Slide 43: Mix Dynamics Changing as Industry Renews Aging Locomotive Fleet
W A B TE C 43 M I X DYNAM I CS CH ANGI NG AS I NDU S TRY RENEW S AGI NG LOCOM OTI VE FLEET E Q UI P M E N T + D I GI TAL TO GR O W F AS TE R TH AN AV E R AGE A C RO SS W A BT E C P O RT F O L I O P R O D UC T MI X Margin Drivers Digital Intelligence Services Components Equipment Transit Sensitivity
Slide 44: 5-Year Outlook
W A B TE C 44 (1) Long-term guidance as of March 9, 2022 (on an adjusted earnings basis) Leading market position and innovative, customer-focused solutions across major rail and industrial segments Attractive end markets … building momentum, renewal of locomotive fleets, strong and growing backlog E
Slide 45: Future Revenue Growth Target
W A B TE C FU TU RE REVENU E GROW TH TARGET AN N UAL R E V E N UE GR O W TH E X PE C T A T ION S 2022 - 2026: MID- SINGLE DIGITS(1 ) 45 (1) Long-term guidance as of March 9, 2022 UNDERLYING RAIL INDUSTRY GROWTH TRENDS Freight carloads Railcar build Passenger ridership Economic strength (GDP) ACCELER
Slide 46: Sales Growth Expected to Drive Incremental Margins of 25-30%
W A B TE C SA L E S G ROW TH (1 ) E X P E C TE D TO D RI V E I N C RE M E N TA L M A RG I N S O F 2 5 - 30% BA S ED O N W A BT EC ’ S F I X ED - CO S T S T R U CT U R E 15-20% 80-85% 8 2 % OF TOTA L C OS TS 15-20% FIXED MANUFACTURING 80-85% FIXED SG&A 25-30% INCREMENTAL MARGIN C OS T OF G OODS S OL
Slide 47: Revenue Growth and Cost Management Expected to Expand Adjusted Margins
W A B TE C REVENUE GROWTH MSD annual growth CAGR Opportunistic pricing International expansion GROW I NG S ALES AND AGGRES S I VE COS T M ANAGEM ENT EXPECTED TO EXPAND ADJU S TED M ARGI NS 5 - Y E A R A D J U S T E D M A R G I N IM PR OV E M E N T 2022 – 2026: 250 – 300 BPS(1 ) CAPITAL & TECHNOLOGY
Slide 48: Investing in the Core Business
W A B TE C I NVES TI NG I N TH E CORE BU S I NES S H I GH RETU RNS O N CA PI TA L DEPLOYM ENT LONG - TE RM PRO FI TA BLE GROW TH DR IV IN G S T R ON G R E T U R N S ON C A PIT A L A N D T E C H N OL OG Y IN V E S T M E N T S 48 C A P I T A L TE C H N O LO GY Funding business model with capex of ~2%
Slide 49: Invest in the Future Through Strategic M&A
W A B TE C I NVES T I N TH E FU TU RE TH ROU GH S TRATEGI C 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 Compl
Slide 50: Capital Allocation Priorities
W A B TE C 50 CA PI TA L A LLO CA TI O N PRI O RI TI E S PR I OR I TI E S OB J E C TI V E S A C TI ON S Maintain strong balance sheet to manage through economic cycles & world crises Net leverage (1) ratio of 2.0 to 2.5x. Maintain investment-grade ratings Net leverage ratio of 1.9x (1) at end of 4Q2
Slide 51: Improving Returns on Invested Capital
W A B TE C I M PROVI NG RETU RNS ON I NVES TED CAPI TAL 4.6% 5.2% 6.4% 0 0% 0 12 2021 2022 2023 R E TU R N ON I NuVmEnS1TE D C A PI TA L (1 ) Revenue growth Margin expansion Cash efficiencies Working capital improvement Capital utilization Accretive M&A Return of cash to shareholders through dividen
Slide 52: Continued Disciplined Capital Deployment
W A B TE C CO NTI NU E D DI S CI PLI NE D CA PI TA L DE PLO Y M E NT A C C RET I VE EA RN I N G S → S T RO N G C A S H FLO W C O N VERS I O N → REI N VES T & RE T UR N C A PI TA L D E PL OY M E N T PR I OR I TI E S Maintain Strong Balance Sheet Maintain investment-grade rating Invest In Sustainable
Slide 53: Key Investment Highlights
W A B TE C KEY I NVES TM ENT H I GH LI GH TS Growth strategy driving strong cash flow and margin expansion Innovative, sustainable technologies expanding Wabtec’s market size Strong long-term business fundamentals driving long-term value creation for shareholders Portfolio positioned to drive long-t
Slide 54: Wabtec's Business Segments in Detail
7 WABTEC’S BUSINESS SEGMENTS IN DETAIL
Slide 55: Equipment Segment Overview
KE Y C US T O ME R S 27% REVEN U E B Y GE O GR AP H Y 85% 15% REC U RRI N G REVEN U E 57% 43% 82% 18% A FT ERM A RK ET REVEN U E OE Aftermarket Locomotive Mining, Marine, Drilling, Other 36% 37% $1.8B 2023 R E V E N U E Non-Recurring Recurring Americas EMEA APAC 55 W A B TE C D I V E RS I F I E D EQ
Slide 56: Components Segment Overview
KE Y C US T O ME R S NATIONAL STEEL CAR 10% REVEN U E B Y GE O GR AP H Y 69% 31% REC U RRI N G REVEN U E 57% 43% 56% 44% A FT ERM A RK ET REVEN U E OE Aftermarket Freight / Other Industrial 75% 15% $1.2B 2023 R E V E N U E Non-Recurring Recurring Americas EMEA APAC 55 W A B TE C D I V E RS I F I E D
Slide 57: Services Segment Overview
W A B TE C KE Y C US T O ME R S REVEN U E B Y GE O GR AP H Y 68% 32% REC U RRI N G REVEN U E 74% 19% S ERVI CES REVEN U E B Y EN D M A RK ET 77% 23% A FT ERM A RK ET REVEN U E OE Aftermarket 82% 4% $2.8B 2022 R E V E N U E Non-Recurring Recurring 7% Freight Maintenance Modernizations Maintenance of
Slide 58: Digital Intelligence Segment Overview
KE Y C US T O ME R S REVEN U E B Y GE O GR AP H Y 72% 28% REC U RRI N G REVEN U E 42% 38% REVEN U E B Y EN D M A RK ET 73% $0.8B 2023 R E V E N U E Non-Recurring Recurring 20% Train Automation Offboard, Back Office Adjacencies 4% 8% 15% North America ANZ LATAM Rest of World 55 W A B TE C WELL - P O
Slide 59: Transit Segment Overview
KE Y C US T O ME R S 58% REVEN U E B Y GE O GR AP H Y 50% 50% REC U RRI N G REVEN U E Non-Recurring Recurring Americas EMEA APAC 32% 42% 45% 55% A FT ERM A RK ET REVEN U E OE Aftermarket 20% 22% $2.7B 2023 R E V E N U E 26% Energy, Comfort & Access Transit Services Brakes & Safety 55 W A B TE C S A
Slide 60: Appendix
APPENDIX
Slide 61: Cash Conversion Reconciliation
W A B TE C CA S H CONVERS I ON RECONCI LI ATI ON Set forth below is the calculation of the non-GAAP performance measures included in this presentation. We believe that these measures provide useful supplemental information to assess our operating performance and to evaluate period-to-period comparis
Slide 62: Operating Margin Reconciliation
W A B TE C OPERATI NG M ARGI N RECONCI LI ATI ON 62 In millions Reported Income from Operations $ 745 $ 876 $ 1,011 $ 1,266 Reported Margin 9.9% 11.2% 12.1% 13.1% Restructuring and Porfolio Optimization costs 116 78 52 79 Non-cash Amortization expense 282 287 291 298 Adjusted Income from Operations
Slide 63: Return on Invested Capital Reconciliation
W A B TE C RETU RN ON I NVES TED CAPI TAL RECONCI LI ATI ON Set forth below is the calculation of the non-GAAP performance measures included in this presentation. We believe that these measures provide useful supplemental information to assess our operating performance and to evaluate period-to-peri
Slide 64: Net Leverage Ratio
W A B TE C NET LEVERAGE RATI O 62 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
Westinghouse Air Brake Technologies — Investor Presentation (March 2024) on 6ix