Good morning, and welcome to the Wabtec First Quarter 2015 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Tim Wesley. Please go ahead, sir.

Thank you, Ted, and good morning, everybody. Welcome to our 2015 first quarter earnings call. Let me introduce the other Wabtec people on the call. We have Al Neupaver, our Executive Chairman; Ray Betler, our President and CEO; our CFO, Pat Dugan; and John Mastalerz, our Corporate Controller. We’ll of course make our prepared remarks and then be happy to take your questions. During the call, we will make our forward-looking statements. So, please review today’s press release for the appropriate disclaimers. Al, let’s get started.

Thanks, Tim. Good morning, everyone. We had an excellent operating performance in the first quarter with sales of $819 million and record earnings of $0.99 per diluted share. Our operating margin continued to expand nicely and was at 18.1%. The business is performing well. Thanks to our diversified business model, our strategic growth initiatives and the power of our Wabtec Performance System. We’re optimistic and excited about the long-term opportunities in our freight and transit rail markets. These markets are large, they’re global and they’re growing, and we are positioned well to participate in them. Today, we also increased our 2015 guidance. We now expect full year earnings per diluted share to be about $4.10. This is based on sales growth of about 10% for the year. Our guidance has the following assumptions. Modest growth in the global economy, taking into account current conditions in all of our key markets. Top line growth coming mostly from our freight group with about half of that growth coming from organic initiatives. Most of the growth in our transit group will be offset by headwinds from foreign exchange rates. We expect continued operating margin expansion. Our assumption is, there will be no changes in foreign exchange from the current levels that they are today. Tax rate of about 31.5% for the year. As always, we’ll be disciplined when it comes to controlling cost, focused on generating cash to invest in growth opportunities and always ready to respond if market conditions changed. Ray, can you talk a little bit about our current markets and growth strategy.

Thanks, Al. Good morning, everyone. It’s a pleasure to talk to you about our results and why we’re optimistic about Wabtec’s future. I will start by talking about our freight rail markets. In NAFTA freight rail traffic is was up 1.5% so far this year. It’s led by 2.2% increase in intermodal. Coal traffic is up about 3.6%, but all other major categories are increasing. Any growth is positive for our industry, but the growth rates are slower than they were in 2014. So we’ll continue to monitor those for further changes this year. On the OEM side rolling stock deliveries in 2015 should be above the long-term average. We expect about 1300 locomotives to be delivered this year compared to the 1,450 in 2014. The freight car market itself remains strong with a backlog of 140,000 cars at year end, our plan assumes deliveries of about 75,000 this year and an increase of about 12%. Globally, freight traffic is a mix depending on geographical location. In India, we’re seeing some increases while commodity markets such as Australia and Brazil currently are challenged. We remain focused on increasing our global footprint and our product offerings beyond our traditional NAFTA market. Remember that about 75% of the installed base of locomotives and freight cars are outside of NAFTA. Now if we move to the transit market. In our transit market stability is still the same both here in the U.S. and abroad. In U.S. and Canada, ridership was up about 1% in fourth quarter and for the year. In UK ridership was actually up 6.7% in the most recent quarter and in Germany it was up almost 1% to a record level. This year, we’re expecting North America transit car deliveries to be higher than last year, while bus deliveries should…

Thanks, Ray and good morning, everybody. Sales for the first quarter were $819 million, which is 18% higher than last year’s quarter. This includes a negative impact from foreign exchange rates of roughly $39 million or about 5%. Of our reported increase for the quarter, 25% was organic growth. Looking at the segment sales, our freight sales increased 33%, mainly organic growth from increases in our electronics and our freight car components and also from acquisitions. Our Transit segment sales decreased 1% due to a number of elements, the changes in FX rates, the completion of certain locomotive contracts included in the Transit segment a year ago. If you excluded the impact of FX, the transit sales would have actually been up 8% mostly due to acquisitions. For 2015, we expect to see revenues increase in our Freight segment while the Transit segment is expected to be about flat again due to the dampening effect of FX offset by acquisition revenue. For the quarter, our operating income was a record $148 million or 18% sales. Again FX had a negative impact on the operating income of about $5 million, which – and that reduced our margin percentage by about 60 basis points. In 2014, our first quarter operating margin was 17.5% and we finished the year at 17.3%. So we have continued to find ways to improve despite these FX headwinds. Interest expense for the quarter was about $4.3 million and that’s the same as the year ago quarter. I just wanted to take a minute and talk a little bit about how FX impacts our results and we have three areas that we review. The first is our transactions in projects, in foreign currencies. The second is the translational of non-cash foreign currency accounts and that impact is recorded…

Okay. We’re prepared to answer any questions you have, but to summarize before hand, once again, we had a good performance in the quarter. As we look at the rest of the year, we have ongoing challenges like everyone else that includes the global economic uncertainty and FX headwinds. But as we stated, based on our first quarter performance and our outlook for the rest of the year, we’ve increased our guidance to $4.10 and on revenue growth of about 10%. We are extremely pleased with our strategic progress and the long-term growth opportunities that we see. As we’ve stated before, we continue to benefit from our strong team of employees and management, our diverse business model and the Wabtec Performance System, which provides the tools we need to generate cash and reduce cost. With that again, we’ll be happy to answer your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. Our first question comes today from Allison Poliniak with Wells Fargo.

Hi guys. Good morning.

Good morning, Al.

Hey, Al.

Just touching on the outlook, obviously EPS raise, you kept the revenue guidance the same, even though freight was much stronger. Should I just take into the account sort of the FX headwinds getting greater for you, is there something on the organic side there?

What we might do is, maybe Pat could explain how FX, FX are – our revenue and our results, but if you look at the rest of the year, it’s about a $125 million headwind as Pat said. And in the quarter, we had headwinds of about 39. So as you could see the, the amount going forward is still pretty large. Why don’t you explain how you get averages that affects the current quarter and forward as we’re using the spot rate.

Right. Well, just simply then – in the historical results, we’re using an average of the rates. And so, as you’ve seen these FX exchange rates decline throughout the quarter, we would have obviously reflect that in our top-line sales, in our results. So when we estimate going forward, we’re assuming that essentially today is the best guide of where we’ll be for the remainder of the year. And so if you just simply take the revenue forecasts and plan for the rest of the year using today’s exchange rate. You’re going to end up with a dampening effect from the top line and then obviously a reduced EBIT for the year.

Okay, great. And then just on positive train control, it seems like you are increasing your outlook for growth in that area, but just any impact with the obvious potential extension here on the deadline, are people changing their buying habits there?

No. I think, Allison it’s – obviously the deadline wasn’t going to be met. So, it’s – it’s – honestly, it’s pretty much business as usual. I think the Railroads are all trying to as hard as they can to implement BTC and there are some that are further ahead than others. Commuter agencies are still in very much in a catch up mode, some haven’t even started, because they don’t have funding. Others are underway. And we have a little bit of what pickup here with RCL now. RCL was – will also generate BTC revenues and that’s why we think we’ll be up somewhere around 15% to 20% this year.

Great. Thank you so much.

The next question comes from Justin Long with Stephens.

Thanks. Good morning guys and congrats on the quarter.

Thank you.

Thanks, Justin.

I wanted to follow up first on a question on PTC as well. At some point, PTC will be wholly installed in North America, but do you think that other PTC-related opportunities can help you avoid a cliff scenario in this revenue at some point down the line. I know you’ve talked about aftermarket, you’ve talked about international opportunities, but maybe if you could give some more color on the developments you’ve made with new products where you’ve made with new products where you could leverage that PTC installed base that would be helpful?

Let me take that. If you look at PTC and you try to estimate how much is done now today. And there is a report out that – I think it’s put out by the AAOR and it talks about where they’re at. And what they feel that they’ve done, they’ve spent about $5 million out of potentially $9 billion – $5 billion out of $9 billion of cost. And they’ve only have equipped about 60% of the required locomotives with either a full PTC capability or partial. And from a revenue standpoint, that probably means they’re less than 50% along the way. Only half of the required wayside units have been deployed and about a third of the antennas and a third of the radios. So, the – for the freight railroads, there is a long way to go, and up to this point, we’ve reported revenues between $900 billion and a $1 billion, half of which was related to freight. So, there’s still quite a ways for the freight to go. If you look at the transit market for PTC, there’s only a few transit agencies that are really that far long. And out of the 20 plus agencies that are going to be required to have some form of PTC, there’s only a few of them that have progressed that far and some of them were still not under firm contract with these agencies. So, there’s potential there. On the international basis, we continue net – international represents about 25% of what we’ve – revenues that we’ve reported, the other 25 would be transit, but on the international front, we will be finishing up our MRS project in Brazil. We’re talking to a number of railroads about the future potential projects, this project becomes I think a…

That’s really helpful Al, that’s great color and I guess the follow-up on. Some of the items that you listed and products that you listed, you could integrate into the system. Given the rails are very focused right now in North America on improving velocity on the networks, getting service back to “normal levels”. Are you seeing more demand from the rails for those types of products and you listed a few things, but at what point should we expect to see a benefit from some of these products, that be integrated into the PTC system. Is this something, we could see this year, is it next year, some kind of timeframe might be helpful.

I think the – somewhere it’s already been done. And I know that a lot of the railroads are already applying throttle control and getting some – seeing some advantages there. There’s other work on other enhancements. We will not be the supplier of all enhancements. However the computer will be the central brain of that operation, so we’ll have to have some kind of interface with some of these things and we are working on a number of these enhancements ourselves, I think the railroads are doing it as they can. They still have a monumental task to complete and get the safety plan approved by the FRA in the time period that they’re talking about. They are all honestly, earnestly working and as you know there is probably three versions or four versions of bills that are in the Senate that would extend the deadline. So we expect to, that’s going to have to clear itself up by the end of the year. But I think everyone’s still working hard to try to get a complete and at the same time, if we could integrate some of these enhancements, I see a great willingness and openness to look and evaluate everyone of them by the Railroads.

Okay, great. And last question just to clarify something on the foreign exchange impact. Pat, you mentioned the $125 million revenue headwind this year. The EPS headwind you are assuming, I know before it was $0.10, is it fair to say that’s closer to $0.12 to $0.13 now?

Yeah, I think that’s fair. It’s been, you obviously – this – the exchange is month-to-month, quarter-to-quarter or it could – it will adjust. But that’s probably about right.

Okay.

And just to clarify, this is Tim. The 125, that’s for the remainder of the year. So, we had 39 in the first quarter. 125 is for the remainder of the year. So the full year impact is larger than just 125.

Got it, that’s helpful. But still the $0.12 to $0.13 EPS impacted fair for – is that for the full year or for the remainder of the year?

That’s going forward.

That’s the remainder.

Yeah.

Okay. Okay, great. Thanks so much for the time today, guys.

Thank you.

The next question comes from Matt Brooklier with Longbow Research.

Hey, thanks. Good morning. So I just wanted to circle back to transit and revenue being probably a little lighter than we had anticipated. Are you able to kind of rank during the quarter, what the headwinds, how much of the revenue, maybe shortfall was related to FX. How much of it was related to, I guess the timing of contracts and then if there is anything else in the quarter that may be was a greater headwind than you had anticipated. If you could give us some color on that?

Okay. As we reported, and I think both Pat and Ray, and maybe Ray you could add some color to the actual numbers here. But with Transit flat year-on-year basically is $3 million down. If you look at FX year-on-year about almost $30 million of that was negative. And from acquisitions was a plus 60. The other major impact was we had a large contract that we completed in the first quarter of 2014 for the locomotives that we delivered. I think Pat mentioned that in his comments. That was about the $50 million contract that we completed and difference between quarter-on-quarter. So, if you look at Transit year-on-year and you adjust it for all those impacts, we would have been down about 11%. And if you adjust for that contract, we’d be slightly up. And that’s why going forward, especially with the – and if you look at the 125 FX that we’re considering as a headwind going forward, a lot of that is in Transit because of the fact that this is a more – they’re more international than they are – than we are here in the States. So we except to see those headwinds continue. The other thing that we mentioned was – we have a larger pending order backlog than we had in our previous quarter and that back – pending backlogs probably higher by about a $100 million, and what that entails is some options that we can’t include in the backlog and also some notices to proceed without a signed contract. And a lot of those are transit related. So I think, I gave some color maybe, Ray, you could talk a little bit of more about the transit markets.

Yeah. Without getting into too much detail, Matt. We have, really we have orders in transit and pending orders, as Al said around the world. We have a pretty significant order, we just picked-up, but it takes a while, you go from – the way it works in transit, normally you get a notice to proceed. You get a letter of intent before you get a final contract. So you basically get a notice to proceed to start working on the contract and for instance, just to give you an example. We have large order for a class of vehicles to overhaul class of vehicles in UK. We have a notice to proceed on that, we’re still, so we’re actually starting to work on that. We’re investing some capital equipment to support that order. That order hasn’t actually been signed yet, the final contract, and when it is, it will be booked and it will be a long-term order, like most of these three years, four years, five years. We have the similar situation in South Africa. We have one in Singapore. So there is a lot of orders that are in pipeline that are going to come to fruition. We are in a similar situation in China. I just got back from China and we have a couple of orders there that are in the same exact state. So, and all these have FX impacts. So I think in a transit side of the business, the transit market is five plus times bigger outside the U.S. than it is in international. We’re picking up orders internationally as we’ve said in previous calls and we’re dealing with economic environment in those regions.

Yeah. Obviously I’d like to add one of the things that we’ve always talked about the strength of our business model is the diversity of our business model. And that we feel that it is very important to have a good transit business, because we view it as being counter cyclic to demands. And right now, as everyone knows, there is a strong freight market and we’re definitely in position to take advantage of that opportunity. But at the same time, we’re also working hard to fill up our pipeline with projects on the transit side to support us, when we’re realistic, we’ve realized, there is going to be a downturn somewhere along the line. And we’re preparing our business model to support and work as best as we can through any change that happens.

Okay, helpful. And then oil and gas exposure, I think, it’s about 5% of your total revenue. Just curious to hear your thoughts on kind of what you saw in the quarter and if the headwinds that you did experience, if that was also in line with your expectations or if that fluctuated from what you had anticipated as we went through first quarter?

Yeah. The oil and gas business impacts, our record business, it impacts to some extent our heat exchanger business. And we’re, as I said in my comments, we’re monitoring changes there, it’s not a big impact on our business and we kind of anticipate the business as usual in that market sector.

Okay. And then just one last question, Al, of the $900 billion of PTC revenue that you’ve generated thus far, can you talk to how much of that right is being or has been derived from either aftermarket or services, and kind of your thoughts going forward on how much that could contribute?

Yeah. Keep in mind, a lot of – we can’t really answer your question precisely. But whenever we put the PTC equipment on other than new locomotive, we do classify that as aftermarket, and we haven’t really quantified for you all what our aftermarket revenue generated today. Maybe that’s something we could look at into the future. I think it’s important to point out that, of that $900 million to a $1 billion there, that’s not – some of that is installation and not an installed base. So an installed base is some fraction of that number as well. And I think it’s important to point that out.

Okay, helpful. I appreciate the time.

The next question comes from Samuel Eisner with Goldman Sachs.

Yeah, good morning, everyone.

Good morning, Sam.

On the 60 basis points of year-on-year margin expansion, is there a way to parse out what is the driver of this? Obviously freight is growing faster than transit. So it seems like there is a good amount of mix benefit there. But just want to understand productivity savings, pricing gains, anything of that nature that you can help us kind of bucket out these – the margin expansion on a year-on-year basis?

Yeah. One thing Sam though we only talk about mix when it’s negative. When it’s positive, we just take – we say, it’s because of our good operating capabilities. So, I think it’s across the Board. There is no specific item. I think it’s continued effort by Ray and his entire team to focus on margin improvement. As you point out though and you have more sales as a percentage in freight than in transit. You’re going to have the mix effect that’s positive. So, – and I think that there is another positive that happens when you look at FX and more of the transit is affected more by FX. So, again, it’s a same thing with the margin. So there is a positive impact from that. But I think there is a lot more there to have that kind of margin improvement, really takes a focus on continues improvement, which we’re just not going to quit, we’re going to continue.

And maybe Sam just real quickly. So we’ve talked in the past about the different business counsels we have in all of our key business areas they are on process of consultancy across our corporation. So, there is productivity improvements, the continuous improvements that we’re focused on in each of our key business processes across the business. We also, across the corporations, we also have the continual portion or Wabtec Performance System, our lean process, so we have expectations for improvements, their cost efficiencies and we have the sourcing savings. We have the cost of core quality initiatives that we talked about in the past. Let’s just take this [indiscernible] oil question and map them out a minute ago. So we anticipate the challenges in those businesses that I mentioned, the rubber business for instance. So we don’t just let the downturn in the market happen and we react to it are proactive, we are taking costs out of our rubber businesses. So we have targeted initiatives that we’re addressing that put part of base in the market. So we have corporate wide uniform programs that we’re addressing overall productivity improvements, operational efficiency and costs and then very specific programs in the areas, that we anticipate is going to be changes downturns in our business. So restructuring headcount reductions, all those things, we are reacting in a proactive way as we anticipate that changes in the market.

And just a follow-up on that, relating to Fandstan, I think for those that were able to that event. I think we saw, there was a lot of I guess opportunities within Fandstan. Can you just maybe give us an update of where potential improvements in working capital dynamics or even the cost structure of Fandstan stand?

We’ve had already a lot of significant improvements in Fandstan business. Karl-Heinz, Colmer and Michael Bruneau who will lead that organization and Group Exec and Head of Fandstan have really done a tremendous job in those areas. Just bringing those business together to collaborate in product development areas as well as customer delivery areas. We also have initiatives in place to rationalize product lines to move production to lower cost countries, so there is, there was no commonality in the sourcing organization [indiscernible] for that’s then put in place. So there is a lot of very specific actions that have been taken.

Got it, that’s helpful and then if you think about the backlog and I think if you breakdown the orders in that backlog, it seems as though that the freight orders for the past two quarters have actually declined on a sequential basis, so I was just curious if you can give some context behind what you are seeing on the ground within the freight segment in regards to your levels. On a sequential basis the backlog now is down from a $1 billion last quarter to now $900 million, its back to third quarter level. So I just want to understand how orders are trending within the freight segment?

Yeah, I think the freight segment, there is a lot of competition there, and, maybe there is a small change, but we don’t anticipate at least in a short term any significant changes, we’re still picking up a lot of business on the freight side and there is lot of discussions going on the freight side so.

Yeah, and it might point out. We are seeing the, the headwinds from the international commodity pricing. So that is a negative impact and those typically have a longer lead time. So if you look at the U.S. freight market, we truly don’t get a lot of visibility beyond couple of weeks to deliver something. So I think, the only change or impact that I think might be real is the fact that, as you know, the demand for commodities, iron ore, coal and such from Brazil, Australia, South Africa are down, and I think some of that’s reflected in what you’re seeing, Sam.

I will hop back in queue. Thanks.

The next question is from Scott Group with Wolfe Research.

Hey, thanks. Good morning, guys.

Hi, Scott.

So, I’m not sure you said this or not, but the 10% revenue growth for the year. What’s the latest thought on what freight’s up and what transit’s up within that?

Let me see whether if I understand your question. We said that freight was going to carry almost all of the 10% and half of that would be from acquisitions. The other half from internal growth. And if you’re asking how much of the FX is associated with freight and transit, is that what you’re asking, Scott? I did...

No, I guess – that would help too and you’ve kind of answered the first part of the question, but yes, you have – how much of that $120 million of FX from here is transit versus freight?

I don’t have that in front of me, maybe someone else does, but I think a majority – by majority I mean greater than two thirds would be transit, the other third or so would be freight. Is that about right, Pat?

I think that’s right. I think you’d have to do a little more analysis, but I think over two thirds of it is going to be in the transit segment.

Okay. So you’ve got currency a bigger headwind than we – than you thought initially and probably some of the energy markets and rail volumes doing worse than people thought, what’s the offset here that’s doing better than you thought to even keep the revenue guidance unchanged?

I think that our performance in the first quarter really is a strong reflection of our business model and that we’ve got a lot of tailwinds associated with the headwinds and the fact that we could manage our business because it is diverse and we keep focusing on the things that we could control. We can’t control the FX, but we sure, we can control, how we fill the pipeline, how we fill the backlog. Right now, freight especially in North America is strong and there is a lot of activity around, trying to meet the deadline on the train control, which – that should continue as we progress forward. So I think that those kind of things are very positive and it’s really related to our business model and the diversity that we have.

Okay. And then maybe last question again for you, Al. So the currency is a headwind, but the weaker euro presents, present some opportunities, right, because you were to do acquisitions in Europe, they’re cheaper today than they would have been. Do you think about that as a driving factor of a deal that you’d like to do that maybe makes more sense today than it did six months ago or a year ago?

It’s not of the major factor. I mean, we look at deals on the basis of strategic fit and secondly we are – you got to be opportunistic. So, I think that it really doesn’t change our view, being more aggressive or less aggressive. There is more activity in the acquisition area. The pipeline is pretty active right now and it is more competitive than it was a year, two years ago. So we continue to one of the opportunistic and keep our pipeline full and active in the acquisition arena.

And sellers are smart enough to adjust for FX too, so, I am going to take that into account.

Okay. All right. Thank you, guys.

Thank you.

Our next question comes from Mike Baudendistel with Stifel.

Thank you. I just wanted to ask you, I was intrigued by your comments that you have plenty of capacity on ECP to ramp that up if need be, if that’s part of the safety regulations. If you had discussions with Tim, so that lead you to believe that there is going to be likely be part of the upcoming safety regulations?

We have no indication, we don’t – we’re in the total dark as to what’s the regulation like probably everyone else at this point.

Okay.

And from the capacity standpoint, I just want to remind everyone, I mean, last time I gave a little review on ECP, I just want to remind everyone, I mean, we have, there is greater than 40,000 units out there, that are operating around the world right now and those have been shipped over the years, so it’s not.

And Mike, we did not say that we expect ECP to be part of regulation, as a matter of fact we expect it not to be, and we haven’t anticipated in the guidance. So all we’re saying is, if a decision is made where a position effectively to support our customers, that’s basically the message.

Great. Great. Thanks. Thanks for that clarity. And then also wanted to ask related to the other question on acquisition opportunities. Does the lower energy prices at all set up better acquisition prices around the world, just related to energy specifically?

We haven’t, I haven’t really thought about that and I haven’t measured it, but my guess would say that it’s probably has not created any opportunities, because it’s not, as you know, it’s only 5% of our business. I think not, but I didn’t really have to think about that a little bit more.

Okay, great. Those are the only questions. Thank you.

Thank you.

The next question is from Liam Burke with Wunderlich.

Thank you. With the stronger dollar, are you seeing any pricing competition outside the U.S. on pending deals?

We haven’t seen much of it. I can’t say that it’s non-existent, but it has not been a major factor up to this point.

Okay. And Pat, you highlighted the $60 million in CapEx this year. Are there any specific projects that you can highlight outside of PTC or ECP that are going to that are on the front burner for higher than average return?

We have a couple – we have a couple really good projects going through right now. One is associated with expanding our friction business. The friction business, I’ve talked a lot about is it relates to new technology, because sometimes people don’t really think about that as a high tech area, but it really is, and so we have a very significant investment in Europe in that area as one example.

Great. Thank you.

Next question is from Kristine Kubacki with Avondale Partners.

Hi, good morning, everybody.

Good morning.

Most of my questions have been answered, so on the fly. Ray you talked a little bit, that you just got back all the way from China and a little bit about a new order there. Can you talk a little bit about what’s going on the ground there and what’s, what your longer term strategy is in that market?

Yeah it depends on how much time you have Kristine for discussion. But let me give you just highlights. It’s really pretty dynamic situation that China always is, but in particular right now because CNR and CSR are being merged together into a new sort of mega transportation organization called CRC. That company is being merged basically to be able to focus now internationally, to compete internationally. They already essentially dominate the entire market within China. We supply into them, in several different areas. We set up a JV for Brake Bright Systems for instance and the order I was referring to was, new order for metro rake system to be supplied through CRC. We also mentioned in an earlier call that the Chinese in this case, it will see NR1, in order, we are selected, little better, bigger for an order in Boston. We believe, we have a good opportunity to supply the major subsystems for that people, vehicles. We have couplers on vehicles that are being supplied into Brazil, Argentina. We have break systems that are being supplied for locomotives in China. Those are all companies associated with this mega Company CRC. So we met with obviously all of our businesses, but we also met with the customers over there. They have pretty aggressive strategies in place and plans to grow their share worldwide and I think it will be interesting to see how that evolves. There focus is, let’s say on the [indiscernible] they are on other parts of the world.

Okay. That’s very helpful. And then just my last question, on the non-rail piece of the business, can you remind us what percentage of your total business that is and kind of ex-oil and gas that you talked about that at length, how is that business doing?

Our industrial business, we refer to our industrial businesses, nominal portion. It’s about 15% of our overall business. And we are seeing headwinds from on the oil and gas, but the other parts of the business there kind of flat a little bit under pressure.

Okay. So, that’s helpful. Thank you very much guys. I appreciate the time.

Thank you.

Our next question is from Tom Albrecht with BB&T.

Hi, guys.

Hello.

Good morning, everyone. I wanted to just clarify a couple of questions from earlier on, I don’t remember, if it was Pat or who, but when you’re talking about organic growth was 25% of the total, I wasn’t sure if that was 25% of your consolidated revenue growth or if you were talking about within freight, which grew 32% and 25% of that was organic and only 7% acquisitions, is that the way you meant that?

Yes. The 25% was looking at the total – the total sales for the quarter and the 33% was in the specifics of the freight area. But then the rest of the change is going to be a net of acquisition and FX and other impacts.

So freight is much more organic, is that what you’re saying?

Yes the growth is from existing businesses and not – just when you go and do a comparison of period-over-period, you don’t have as much of an impact of acquisitions in the freight area.

If you adjust for FX and acquisitions on freight...

Yes.

...15, is plus 27%.

Okay, okay. And then I’m assuming that the SG&A which was quite a bit lower than what I was looking for, is also impacted by the FX. But do you have some thoughts on that, just for the second quarter, Pat?

Yes. So we were – when you do a comparison to the fourth quarter it’s lower than the fourth, but that really comes down to some discrete items. We have – we will have some items related to compensation or benefits that one quarter versus another will be a little higher, a little lower than they were in a comparison but when you look at a kind of run rate for your model, I think we’re right around that about an $88 million to $90 million per quarter and I think that’s the guidance we gave the last call and I think that’s a good number to work with going forward.

Okay. Yes that’s what we’ve been modeling. So the discrete was just incredibly more discretionary I think is ultimately what you’re saying.

Yes. I mean we get impacted by like I said compensation, healthcare costs, those kind of go up and down but – so we tend to look at on a full year basis and I think that guidance would be good.

Okay. And let me see here, okay that’s all I’ve got. Thank you very much.

Thanks, Tom.

Thanks, Tom.

[Operator Instructions] Our next question comes from Cleo Zagrean with Macquarie.

Good morning, and thank you for your patience and also for your insight into project wins and the foreign currency impact. I’m following up on the couple of prior questions. On currency – on Scott’s question, can you help us understand again the drivers of your improved view ex-currency since last quarter, since you’re able now to raise guidance despite the higher FX headwind, is it the areas hit by foreign exchange that are growing stronger than you expected at the end of last call – last quarter or is the U.S. that’s performing above the expectations free transit, productivity improvement, anything you can help us understand and move on from here on a mix foreign currency basis? Thank you.

Cleo the – I think we’ve said and I’ll reemphasize it a little bit here is that, the freight markets in North America are obviously strong and helping us drive that top line growth. We also are getting the benefit of growth in our new product area. Some of which, majority of it is PTC-related. And thirdly is the growth of the acquisitions, it’s accounted for, I think we just pointed out about 75% of the total growth for the quarter. So I think those are probably the best thing that we have going for is, from the growth standpoint, is that the answer to your question, Cleo?

Yes, yes, that is very helpful. To just focus us on the biggest drivers.

Right.

And to follow-up on acquisitions, you did mention and the pipeline remains active even as the competition is also intense, where do you see the most promising opportunities if you can go into any detail as to freight versus transit, U.S. versus ex-U.S., any detail to help us understand how...

Yes.

[Indiscernible] at this point going forward?

It’s the whole universe of opportunities that we’ve really – we must remain solid on what we’re working on, because none of which, nothing you can’t on anything until it’s completed. And so what I will say is, we’re pretty active. We’re very active right now on a number of areas and hopefully we’ll be able to have something, we could report on to you shortly.

Yes. What we can say is, as we have opportunities in every one of our market sectors and there is more opportunities and we have capacity to pursue. So we have a very disciplined process that we go through to funnel those opportunities and prioritize on them and we have some really good ones, we’re focused on right now.

Can you go may be into a little bit of detail as to what creates these opportunities, I mean, is it that bigger companies looking to sell out of private equity, shops for just growth overall, what drives opportunities now versus let’s say the prior year?

I think we’ve always had good opportunities anyway for – I have been with Wabtec almost seven years, Cleo and I don’t – I mean it goes up and down a little bit, the strength of our pipeline, but I don’t ever recall...

The only factor that is just common sense, I mean, I think everyone realizes that people want to sell when things are good, and there is a list and a rising where they stay good otherwise they don’t maximize the value of what they’re offering to the marketplace. So that’s why you would see a peak in the middle of the recession on the downturn there obviously is less opportunities going to be presented at that time and what is presented at times are normally things that you wouldn’t want because they’re in distress.

Appreciate it very much. Thank you.

Our next question is a follow-up question from Samuel Eisner with Goldman Sachs.

Hi, guys. Just a quick follow-up here on free cash flow. So it seems like you have pretty good free cash flow on a year-on-year basis in the first quarter. What is your expectation for free cash flow as a percentage of net income this year, and then if you could comment about free cash flow in the face of transactions, in particular are you looking at only proprietary or private transactions or is there anything in the public domain that has sparked your interest? Thanks.

Yes, the second question we can’t answer. The first question is that obviously from a cash standpoint the one thing that we’re really focused on is having our cash flow generated from our operations to exceed our net income and that’s something that I think that we are very focused on repeating that after last year we had a year-on-year. Obviously, come up a little short on that in the first quarter because some of the items – discrete items that it had some kind of seasonality with it, but the overall goal is still to do that.

Thanks.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Again, we want to thank you for your continued support, questions and we look forward to talking to you, again. Thank you.