Wabtec Reports 2Q Results, Updates Guidance; Raises 2019 GAAP Cash From Operations To About $900 Million

WILMERDING, PA, July 30, 2019 – Wabtec Corporation (NYSE: WAB) today reported earnings per diluted share of $0.54 and adjusted earnings per diluted share of $1.06 in the 2019 second quarter (see reconciliation table).  The company generated GAAP cash from operations of $413 million for the quarter and raised its 2019 GAAP cash from operations guidance to about $900 million. Wabtec also updated its full-year guidance for sales of about $8.3 billion and adjusted earnings per diluted share to between $4.10 to $4.20.

Rafael Santana, Wabtec’s president and chief executive officer, said: “Our second quarter results demonstrate a solid operating performance, with strong cash from operations and margin improvement, enabling significant debt reduction. In light of conditions in the North American freight market, we have accelerated our cost reductions and synergy initiatives. We are already beginning to reap strategic benefits from the merger of Wabtec and GE Transportation, completed just a few months ago.

“We are confident the company’s diverse business model, focus on aftermarket and services, technology capabilities and global presence will generate long-term growth.  We believe our efforts to improve costs, including a synergy target of $250 million by year four following the merger, will drive significant, long-term value for our customers and shareholders.”

2019 Second Quarter Consolidated Results

• GAAP sales were $2.24 billion; adjusted sales were $2.25 billion including accounting policy harmonization. The increase compared to the year-ago quarter resulted mainly from sales from GE Transportation.
• Income from operations was $201 million and adjusted income from operations was $320 million (14.2% of adjusted sales). Adjusted income from operations excluded pre-tax expenses of $119 million related to the GE Transportation merger, as follows:$89 million for one-time, non-cash purchase price accounting charges and $31 million for transaction and restructuring costs (see reconciliation table). In addition to the expenses noted above, the company also had pre-tax expense of $56 million for non-cash, recurring purchase price accounting charges related to GE Transportation merger which is not added back to adjusted income from operations.
• Net interest expense was $59 million, with adjusted net interest expense of $55 million.
• Income tax expense was $41 million for an effective tax rate of 28.7%. Excluding the net tax benefit from transaction costs related to the GE Transportation merger, adjusted income tax expense was $65 million for an adjusted effective tax rate of about 24.5%.
• Earnings per diluted share were $0.54 and adjusted earnings per diluted share were $1.06 (see reconciliation table). Adjusted earnings per diluted share excluded after-tax expenses of $0.52 per diluted share related to the GE Transportation merger, as follows: $0.35 for one-time, non-cash purchase price accounting charges; $0.14 for transaction and restructuring costs; and $0.03 for increased tax expense for non-deductible transaction costs (see reconciliation table). In addition to the expenses noted above, the company also had after-tax expense of $0.22 per diluted share for non-cash, recurring purchase price accounting charges which is not added back to adjusted earnings per diluted share.
• EBITDA, which Wabtec defines as income from operations plus depreciation and amortization, was $308 million and adjusted EBITDA was $428 million. Adjusted EBITDA excluded pre-tax expenses of $119 million related to the GE Transportation merger, as follows: $89 million for one-time, non-cash purchase price accounting charges and $31 million for transaction and restructuring costs (see reconciliation table).

2019 Second Quarter Segment Results

• Freight segment sales increased by 262% or $1.08 billion; the increase resulted from acquisitions of $1.1 billion which more than offset an organic decrease of $34 million and unfavorable changes in foreign currency exchange rates of $6 million.  Freight segment income from operations of $152 million was reduced by $99 million due to the merger-related expenses noted above.Excluding those expenses, income from operations as a percent of sales was 16.6%.
• Segment sales increased by 6% or $43 million; the increase resulted from organic sales growth of $81 million and acquisitions of $3 million, which was partially offset by unfavorable changes in foreign currency exchange rates of $41 million. Income from operations as a percent of sales was 9.6% mainly due to operating leverage from higher sales.

Cash Flow Summary

• The company generated cash from operations of $413 million for the second quarter compared to cash from operations of $44 million in the year-ago quarter, with the increase resulting from improved working capital performance and increased customer deposits. In the 2019 second quarter, cash from operations was reduced by about $20 million as a result of costs related to the GE Transportation merger.
• At June 30, the company had cash and cash equivalents of $461 million and debt of $4.63 billion. Total debt was about $330 million lower than at March 31 due to repayment of debt during the quarter.

Backlog 2019 Financial Guidance and Pro Forma Financial Information

• Wabtec updated 2019 GAAP sales guidance of about $8.3 billion, GAAP income from operations guidance of about $800 million and GAAP earnings per diluted share guidance to between $2.20 to $2.30 due to refined estimates for purchase price accounting charges and transaction and restructuring costs.  Wabtec updated guidance for EBITDA, which Wabtec defines as income from operations plus depreciation and amortization, of about $1.3 billion.
• Wabtec updated 2019 adjusted sales guidance of about $8.3 billion, adjusted EBITDA, of about $1.6 billion, and adjusted income from operations of about $1.2 billion. Wabtec also updated its guidance for adjusted earnings per diluted share between $4.10 to $4.20. The adjusted guidance excludes estimated expenses for the GE Transportation merger for transaction and restructuring costs, one-time purchase price accounting charges, and non-cash accounting policy harmonization.  Excluding these expenses, the company’s adjusted operating margin target for the full year is about 14% and its effective tax rate for the full year is expected to be about 24%. This guidance also includes a net synergy benefit of about $20 million for 2019.
• In addition to the expenses noted above, the company also expects after-tax expense of about $0.80 per diluted share for non-cash, recurring purchase price accounting charges which are not added back to adjusted earnings per share.
• For the year, Wabtec expects GAAP cash flow from operations to be about $900 million including expenses of about $100 million related to the GE Transportation merger.

Update on General Electric Company Stock Ownership

• Wabtec issued 47.8 million shares to GE in the GE Transportation merger, 25.3 million of which GE sold in the market in the second quarter of 2019.  GE has informed Wabtec that it is considering seeking to liquidate the balance of its stock holdings in the current quarter, subject to market conditions. While there can be no assurance that this will happen or the timing, Wabtec believes it would be beneficial to the Company.

Conference Call Information

Wabtec will host a call with analysts and investors at 10 a.m., ET, today.  To listen via webcast, go to Wabtec’s new website at www.WabtecCorp.com and click on “Events & Presentations” in the “Investor Relations” section, or to the old Wabtec website at www.wabtec.com and click on “Webcasts” in the “Investor Relations” section.  Also, an audio replay of the call will be available by calling 412-317-0088 (passcode: 466#).

About Wabtec Corporation

www.WabtecCorp.com or www.wabtec.com

Information about non-GAAP 2019 Financial Guidance and Forward-Looking Statements

Wabtec’s earnings release and 2019 financial guidance mention certain non-GAAP financial performance measures, including adjusted sales, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted income from operations and adjusted earnings per diluted share. Wabtec defines EBITDA as income from operations plus depreciation and amortization. While Wabtec believes these are useful supplemental measures for investors, they are not presented in accordance with GAAP. Investors should not consider non-GAAP measures in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. In addition, the non-GAAP financial measures included in this presentation have inherent material limitations as performance measures because they add back certain expenses incurred by the company to GAAP financial measures, resulting in those expenses not being taken into account in the applicable non-GAAP financial measure. Because not all companies use identical calculations, Wabtec’s presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. Included in this release are reconciliation tables that provide details about how adjusted results relate to GAAP results.

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 Litigation Reform Act of 1995, including statements regarding the acquisition by Wabtec of GE Transportation (the “transaction”) and statements regarding Wabtec’s expectations about future sales and earnings. All statements, other than historical facts, including statements regarding the expected benefits of the transaction, including future financial and operating results, the tax consequences of the GE Transportation transaction, and the combined company’s plans, objectives, expectations and intentions; legal, economic and regulatory conditions; and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue,” “target” or other similar words or expressions. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) unexpected costs, charges or expenses resulting from GE Transportation merger; (2) uncertainty of the expected financial performance of the combined company; (3) failure to realize the anticipated benefits of the transaction, including as a result of integrating GE Transportation into Wabtec; (4) the ability of the combined company to implement its business strategy; (5) difficulties and delays in achieving revenue and cost synergies of the combined company; (6) inability to retain and hire key personnel; (7) evolving legal, regulatory and tax regimes; (8) changes in general economic and/or industry specific conditions, including the impacts of tax and tariff programs, industry consolidation and changes in the financial condition or operating strategies of our customers; (9) changes in the expected timing of projects; (10) a decrease in freight or passenger rail traffic; (11) an increase in manufacturing costs; (12) actions by third parties, including government agencies; and (13) other risk factors as detailed from time to time in Wabtec’s reports filed with the SEC, including Wabtec’s annual report on Form 10-K, periodic quarterly reports on Form 10-Q, periodic current reports on Form 8-K and other documents filed with the SEC. The foregoing list of important factors is not exclusive. Any forward-looking statements speak only as of the date of this communication. Wabtec does not undertake any obligation to update any forward-looking statements, whether as a result of new information or development, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on any of these forward-looking statements.