Freight Margins Outlook
Q: What drove freight margins between Q3 and Q4, and what's the 2024 outlook?
A: Management explained that the perceived decline from Q3 to Q4 was due to seasonality. Company margins were up 1.7%, with Freight segment margins increasing by 2.3 percentage points in Q4. They expect both Freight and Transit segments to grow revenue and margins in 2024.

Revenue Growth Guidance vs. Backlog
Q: Why is revenue growth guidance at 5% when the backlog is up 10%?
A: Despite a 10% increase in backlog, the conservative 5% revenue growth guidance accounts for factors like low North American carloads, increased parking, and a decline in freight car builds. The company aims to overdeliver, with improved backlog coverage extending beyond 2024.

Mods and New Locomotives Growth
Q: Will mods and new locomotive orders continue double-digit growth in 2024?
A: Yes, both mods and new locomotives are expected to grow faster than average revenue in 2024. Strong growth is anticipated, supported by recent orders and the oldest fleet on record, creating opportunities domestically and internationally.

California Regulations Impact
Q: How might California's new locomotive regulations affect demand?
A: The regulatory outcome is uncertain, but Wabtec is well-positioned. Their entire installed base can utilize bio and renewable fuels, and they are testing alternative fuels like hydrogen. Regulatory changes are not included in current guidance, so any impact would be a tailwind.

Capital Allocation and Share Buybacks
Q: How will cash flow be used between repurchases and M&A in 2024?
A: The company will prioritize M&A over share repurchases if strategic opportunities exist; otherwise, excess cash will go to buybacks. They have a new $1 billion share repurchase authorization, and the guidance includes expected use of cash for share buybacks and M&A in 2024.

Integration 2.0 and Cost Savings
Q: What's the expected impact of Integration 2.0 on cost savings?
A: Integration 2.0 is progressing well, with a run rate of $22 million in savings exiting 2023. They expect to exit 2025 with a run rate of $75 million to $90 million in savings, implying significant ramp-up over the next two years.

International vs. Domestic Growth and Margins
Q: How does international growth compare to domestic, and what's the margin impact?
A: Stronger international growth is expected, especially beyond 2024, driven by a robust pipeline. Margins are project-dependent, but faster growth in new locomotives and mods may create headwinds.

Digital Intelligence Business Outlook
Q: What's the outlook for the digital intelligence segment?
A: While North American demand is softer due to discretionary OpEx cuts, the pipeline remains strong internationally and in digital mining solutions. Entering the railcar telematics market, a multibillion-dollar opportunity with 1.6 million freight cars, is expected to propel growth.

North American Rail Volumes Impact
Q: How could declining North American rail volumes affect service revenue?
A: Muted carload expectations are included in guidance. Continued customer investments in productivity and cost reductions are expected to offset potential volume declines, keeping the active fleet stable.

Cash Flow and CapEx Expectations
Q: Is 2% of sales a sustainable CapEx rate, and how does it affect free cash flow?
A: CapEx is expected to remain around 2% of sales over the investment horizon. This supports strong free cash flow conversion, with operating cash flow over 90% of net income.