Caterpillar Aktie

Okay. Good morning, good afternoon, and good evening. I'm Jerry Revich at Wells Fargo Securities, and I'm thrilled to welcome Joe Creed, Chairman and CEO of Caterpillar. Joe has 3 decades of service at Caterpillar. Also joining us from Cat is Alex Kapper, Vice President of Investor Relations; and Alex has nearly 2 decades of service at Caterpillar. Joe and Alex, thank you very much for joining us.

Before we get started, Alex has a few reminders for us.

Before we begin, we encourage those attending remotely to be mindful of your local safety protocols. Today, we'll make forward-looking statements, which are subject to risks and uncertainties. For a full list of risks that could cause our actual results to vary materially from the information we're sharing with you today, please see our most recent SEC filings, including our 10-K. We also may refer to non-GAAP numbers.

For a reconciliation to the appropriate U.S. GAAP numbers, please see the appendix of our most recent earnings presentation. In addition, please note that Caterpillar policy does not allow meetings to be recorded with smartphones or other devices unless specific approvals have been granted prior to the start of this meeting. And then finally, we'll post a video and a transcript on our website at investors.caterpillar.com.

Now I'll turn it back to our host.

Thanks, Alex. With everything [indiscernible]. So Joe if you look back to your Analyst Day roughy a year ago, you raised your revenue targets. Can you just [ complete the conversation ] update us on how the organization is tracking on these strategic pillars that you outlined in November from a high level standpoint?

Jerry, and thanks and I appreciate everyone dialing in [indiscernible] to everybody. Hardly, it's been just a little under a year since we had our Analyst Day and launched our refresh strategy, but I couldn't be happier with how the team is rallying around it and how things are going. As you know, even in the spring, just due to some continued increased demand and discussions with our customers, we even increased revenue CAGR to 6% to 9% in 2030 compared to 2024 and increased our capacity investment in our large engines to 3x 2024 levels.

But from our standpoint, we're off to a great start. We had a good year in 2025, but really off to a really amazing year start here in our first half in 2026. And we think we'll see mid- to high teens top line growth. Our organic growth has been tremendous, which is we say to everybody that our definition of winning. And so each of the segments has great tailwinds. I mean we have a lot of attention on Power and Energy right now, and we continue to have strong backlog growth. We're working really hard to increase capacity every single day for our customers, as many as we can and better throughput through our existing capacity. So that's been a challenge for the team, both on the turbine side and the large engine side.

Any time you're trying to increase capacity, but also increase your throughput and work the supply chain, those guys are really busy, but they're doing an amazing job getting that done. But we've also seen in Power and Energy, really, really strong years, both last year, a record year even and this year on pace to do better in oil and gas. I think power generation gets a lot of attention right now, but our oil and gas business is doing really, really well. particularly around natural gas and gas compression, all these -- the increase in power generation is going to have to be fed.

Most of it, a lot of it will be gas-fired in the future. And so we're going to move a lot of natural gas in the next few years, and I think that's also a very strong part of our Power and Energy business. And then when you look at CI, they had a really great second quarter and off to a great start this year. We've been able to outperform the industry over the last 18 months. Last year, we instituted some merchandising programs that really boosted us and got us off to a great start. And then those continue to pay dividends. And then our strategy around commercial excellence is paying off.

And I think there were some parts of the construction industry that frankly, we were maybe not paying as close attention to or underserving or our strategy maybe wasn't lined up to meet those customer needs and particularly Cat Compact, which we launched at CONEXPO. We're really excited about being a little more retail-friendly for that small customer who owns 1 or 2 pieces of equipment and buys every few years. It's a very fast-growing part of the construction industry for us. And then on the rental, in the last earnings call, we talked about the dealer JV on major projects. And so we're -- that will allow us to compete with our equipment on some of these mega projects where an individual dealer rental fleet maybe didn't have the fleet to support that type of project. And so we're seeing great sales to users growth this year, both retail and then rental fleet loading as well.

And then we've been pleased with RI. The orders in RI have been really strong. I think that's going to be a little steadier growth, but we're seeing great order intake on large mining trucks and then heavy construction is kind of a follow-on to CI. And then across the board, in particular, in RI as well, we're seeing great services growth and it start to pick up. There was about -- it kind of flattened out a little bit last year, but services is still a really important piece of our strategy and how we take care of our customers after they buy our equipment. Mining rebuilds are picking back up again and CI is seeing great services growth as well.

So when you look across the business, it's nice to see all 3 segments that are performing well. Our industries are in good shape and the strategy is starting to take hold. We've been spending a lot of time on the road as well as an executive team, having regional leadership conferences, spent before last was in Asia with the team and really talking about the strategy refresh and getting the teams rallied and leaders globally rallied behind it, and we're starting to see the benefits of it.

Super, Joe. And maybe we can dive in, in Power and Energy. You folks have been able to bring capacity online ahead of our expectations. And I'm wondering if you could just talk about if you've been ahead of your plan for reciprocating engines and turbines. And if so, what have been the drivers of that? And the pace that you're adding capacity, it feels like you're adding about 20% per year as the supply base ramps as we think about the 2030 targets, anything that we need to keep in mind in terms of any points that become lumpy as you bring additional supply online?

Yes. It's been -- like I said, the team is working really hard, both teams, the turbine team and the large engine team. They're doing a great job. I would say turbine capacity additions are on plan. We announced that one a little bit later than the large engine capacity increase. Large engines, we've been able to be slightly ahead, 2 or 3 months, I would say. But it's a hand-to-hand combat. As I said, you're adding capacity while we're trying to increase throughput. We're getting more through our existing assets.

There's a lot of work going on in the supply base as well, which is a lot of the investment is going towards the supply base. So that we can continue to increase our capacity for large engines, but also our services growth really depends on having large engine parts and components to support the aftermarket. So this capacity investment is really for our oil and gas and power generation and services growth objectives as well as the other diverse uses of the large engines. I think it's never -- it's not going to be a straight smooth line up and to the right, but it's also not going to be a cliff event.

So like I said, we've been ahead, things can happen if we have a machine go down in the factory, I mean we're hand to mouth every day. So we can see some -- there's not a lot of slack in the system. So we can see some bumps in the road as we go. But having said that, we're trying every quarter to get more product out to customers. We're talking to them on their deliveries and make sure we meet their needs. And I think we'll continue to -- every year, there won't be a cliff event, try to get more units out. So it's been -- the team has done an amazing job because there's a lot going on. And I think you were able to visit what was a year ago, we were in Lafayette, and we just had the new building up and now they are packaging units in there.

And we're trying to do some creative things as well to -- time is of the essence here because the demand is on top of us. We talked about using for turbine packaging, our Wamego facility repurposing it. We were able to do that in 12 months. We're looking at our existing assets. We brought back the 10-megawatt former MaK medium-speed engine, which is great for power generation that we're able to start shipping units here, hopefully later this year. And so we're going to look at all of our existing footprint because that's the fastest way for us to do this.

One of the things we're looking at now is we have an engine facility that does locomotive engines that's -- and that business is not at capacity by any means. So with some minor investment, can we do some large engine, Cat engines in there just to relieve some of the pressure. So we're still working on some of those things. But those are the types of things that the ideas that the team on the ground keeps coming up with, and I'm proud of how they've been able to react.

And that's a really interesting comment. Is that the 10-megawatt unit? Or is that the 3,500 to 2.5 megawatt units when you say repurposing those facilities?

Yes. I mean -- or if we can put them in there with existing capacity. So the facility Wamego was really PGM packaging for Solar. The 10 megawatt, we are using the footprint that we have, a lot of the supply base and the footprint that we had just stopped building those engines 3 years ago, I guess, 2022, 2023. What we're looking at potentially in our existing footprint, our 3600s because we are seeing strong demand for gas compression too, which is primarily what that engine platform is used in. So it's a great situation to be in. We -- one of the things we're doing is getting -- continuing to stay even closer to our customers.

Our oil and gas customers have been with us a really long time. So we want to make sure that we have a great position in that industry, particularly when it comes to moving natural gas, and we want to make sure we have the supply needed for those customers over the next 2 to 3 years as we see the build-out and the need to move a lot more gas just to feed all this additional power generation that's coming online.

And Joe, the big investor concern on power and energy is that there's a lot of capacity coming to market, 100 gigawatts or so, both reciprocating and turbines. And the concern is we could ultimately see discounting and also concerns about slower pace of permitting. Obviously, you folks have a history of operating and navigating cyclical markets.

What's your perspective on the supply/demand risk? And can you talk about how CA would respond whenever we get to the point where supply outpaces demand?

Yes. I think there's definitely a lot of news out there. We -- I've been with customers last week, I was on the West Coast with customers. We had a big power gen customer come in talking to us about future projects. Yesterday, I stopped to visit them. We're not seeing customers slow down right now in their need for power generation. I think -- we'll see how this all shakes out over time, but there's a lot more of bring your own power, which I think favors us actually in the industry from equipment supply at large. So from a demand standpoint, we're not really seeing customers change their behaviors right now.

So we continue to talk to them. We'll definitely keep an eye on it as we move forward. As far as everyone and competitors and ourselves bringing capacity online, I think that's true. We've been very, I would say, measured about how we brought this capacity online. And as you know, we -- in our Analyst Day, we said 2x, and that was based on customer discussions. You saw how the hyperscalers and everybody increased their CapEx forecast. We are talking to them. So that's when we moved to 3x. We brought the turbine investment online. We continue to stay really close to our customers.

For us, one of the advantages, I would say, is we didn't just look at data center demand, which is definitely driving a lot of demand for us. But we looked at our oil and gas, talked to our oil and gas customers. We look at these engines are used in mining applications, they're used in marine and tugboat applications. So they're used for diesel standby or natural gas prime. So the capacity is pretty fungible across the industries that we serve, which are pretty broad. And then don't forget a lot of the investment goes into the supply base and internal component capacity, which will serve our aftermarket needs moving forward. So -- and we have services growth planned and initiatives. It's an important part of our strategy.

So we've been pretty measured, I think, in how we've done this. We don't need to be at that full capacity we're installing to get the return. We expect a cash payback before the end of the decade. So -- and we have a really strong backlog into the next 2 years of line of sight, starting to take orders into 2029, even our first order into 2030 on turbines. Having said all that, what you said, I think, is true.

At some point, I think the industry wants and probably needs to be in free supply. And that's a standard mode for us. We've been very measured and we have industry-leading margins in Power and Energy. We've been very measured and taking what I think are appropriate price action given the supply-demand situation. But also we've been pretty measured about it. We have long-term customers that we want to serve for the next few decades that have been with us a long time. And I think we've generally proven we're a premium brand. We're close to our customers. We have a great value prop. And in a free supply market, we can be very competitive and maybe even grow share. So I think at some point, we'll get there. That's sort of, in my view, I consider that almost normal operating mode. This is what we're in now is sort of unusual times.

And Joe, maybe just to double-click on that last comment. So for Power and Energy as a segment, you folks have consistently pushed pricing over extended periods of time. And Caterpillar is obviously focused on service, and you mentioned that we're not taking outsized price increases. Is it fair to expect whenever supply outpaces demand, we'll still hold the line on price because you folks are obviously the market leader in a range of product lines that we're talking about here.

Yes. I mean I think it's tough to predict what the industry will be like. We need to be competitive. and we'll always be competitive. But our pricing really is based on the value prop that we bring to our customers. And so there's a lot of things that go into the pricing discussion, not just cost, not just supply/demand, but the value we add and the life cycle total cost of ownership for customers. We are the premium brand, the reliability and durability that comes with our products in these heavy demand, high-demand applications are highly sought after.

So I think as you've said, we've seen downturns and I wouldn't expect to be a downturn, but maybe we enter free supply situations. We'll be as disciplined as we can be in the pricing action. And I don't think from a pricing standpoint, what you would have seen historically is probably similar to what you would see moving forward. So I don't think it's a huge change.

I appreciate the color. And can we just pull on the thread that you mentioned a couple of moments ago. The way you folks manage backlog is unique in that you have framework customer agreements. And so you hold customer slots for those that you have customer agreements with. Can you just -- for those on this call that are less familiar with your approach, can you talk about what proportion of your turbines and high horsepower engines are typically purchased by framework customers? And just spend a minute, if you don't mind, around converting those slots into orders, how do you folks run that?

Yes. I mean this has been something that we really started 4 or 5 years ago when we saw data center demand really picking up for us, and that was really driven by cloud compute. And so data center business was driving great growth in Power and Energy before really this sort of onset of AI, which just really accelerated it. So our processes have been in place, which is great. The largest hyperscalers and large colos and data center customers and not just only data center customers and others that want to provide power.

We're starting to see oil and gas customers move into providing power for various applications because they understand the equipment and know how to run the fleets, and it's great growth for them. We have framework agreements with a lot of these customers. And you rewind prior to 5 years and how a lot of our business works is dealers will secure business and place orders on us and we transact through them. And a framework agreement on the reciprocating engine side, still transacted through the dealer network, but we have relationships with these large data center builders and operators who will operate in many territories and geographically diverse. That allows us to do a few different things.

One, make it easier for them to do business with us from a contracting standpoint. Two, we can coordinate support on site with our local dealer wherever their site is, which our local dealers bring a ton of value with their expertise, local knowledge, local contacts. And from our standpoint, it allows us to really get in front of demand planning in a constrained environment. And so each one of these framework agreements is a little different. They're tailored to what the customer needs, but we are definitely looking 3 years, sometimes 3 to 5 years out on a rolling demand planning exercise, and we sit down with these customers monthly and continue to look at that and adjust the forecast.

And then sort of on a rolling basis, there are commitments depending on how far out you are on the level of volume. And then those are sort of in the pipeline, not necessarily when you get further out in the backlog. So when we get close enough that they're like ready to make them a firm order, and then we convert them into the backlog, and that happens on a rolling basis.

So it's not super smooth. I think particularly now moving out, we've had 3 really strong quarters of backlog growth. I think that backlog growth, I worry about just getting super used to having that big number of backlog growth every time. There's a lot more we're looking at. And I think given where we're at and how far out we're planning, some of that will be lumpy in how we convert to firm orders. But it's been a great process and allowed us to really have a lot more confidence in how much capacity to put in, when do we need to have it in and then really allowed us to serve our customers a lot better on making sure they get the units when they need them.

And so you start to see extended lead times. I mean we're pretty full for 2027 on large engines and turbines. But customers will -- this also allows us to adjust our schedule if they need -- if they want to delay by a few months, and we can move the schedule around in the factory and allows us potentially to bring in last-minute orders if we see them. And we also reserve slots and are trying to plan a lot further out with our oil and gas customers who don't typically plan on that level of horizon. So we've engaged them a lot more. And so we're able to be pretty flexible, as flexible as we can to try to accommodate as many of our long-term customers as possible and meet all their demand.

And Joe, the interesting dynamic is with you holding slots before they become firm orders, the lead times that we're hearing for your customers are a lot longer than the length of backlog would suggest like you mentioned, 2030 for turbines and '29, '30 is what we're hearing for larger supercating engines as well. So the way you report backlog unlike others, you're essentially underestimating the visibility that you have in terms of we just look at the backlog, the underlying demand, it feels like it is higher than backlog as those commitments convert into orders. Is that right?

Yes. I mean I don't know if we're underestimating. I mean by the process, but I think that's the right way for us to think about it. But we have line of sight past the backlog is what I would say and farther than what we have in the backlog that we continue to plan with customers. And on a rolling basis, we kind of bring them in when we think it's, hey, we need to start thinking about firming up that factory slot and delivery date and start ordering material that allows maximum flexibility for us and our customers.

But yes, we have line of sight past what we have out there. If there are any customers dialing in as well, who happen to listen to this or watch afterwards. I mean that doesn't mean we can't take orders if we say we're taking orders that far out. We still, like I said, have some flexibility, schedules move around. And for oil and gas customers, we kind of do a level of allocation, and then we'll release those over time if, in fact, we don't need them. So it's a complicated process, but I think a very involved one that allows us to serve as many possible customers as we can, particularly in this constrained environment.

And Joe, this dynamic of moving schedules around, is that any more intense than usual given the power grab in the industry? Or is it pretty similar to what we would have seen 4 or 5 years ago?

It's been pretty consistent. I mean, in how we do it, just given the fact that we're full, it requires a little more intensity, right, of just truly understanding what we can, what level of flexibility we have and still be able to meet everyone's demands. But we're not seeing major changes in how we would typically schedule our factory or do those types of things.

And Joe, earlier in our conversation, you mentioned rising mix of behind the meter with all of the power solutions that you have for backup for front of meter and behind the meter, you're in a really good spot to see where data center architectures are headed. Can you just talk about what you think the mix will be for behind the meter based on work that you're looking at? And then within that, what do you think will be the mix between reciprocating engines and turbines, if you're willing to share?

Yes. I mean I don't think I can really say the exact mix. What I can say is we're seeing a lot more interest in natural gas sort of prime power behind the meter. And we'll see how that plays out. It doesn't mean that we're seeing less demand for standby diesel backup.

I think it's going to depend really project by project, region by region, what type of power access is available for the data center as it's being constructed and it's going to be operated. I think you're seeing a lot more push towards even if there is utility grid power available, we want to make sure that we're not -- the data centers aren't causing electricity rates to increase on the communities around them, make sure we're not increasing the risk of power failures or brownouts. And so that alone, I think, is going to drive a different level of discussion of if you're going to pay for the power, do you want to just go behind the meter and do prime gas? Or do you want to have diesel standby and back up?

I think more and more, you'll see -- and we're starting to see some regions where even if you're grid connected and you have diesel backup, don't need to -- you hear a lot more discussion around curtailment. So if, in fact, like in Texas, if we're having a hot day and the grid is feeling like it's starting to get to its capacity, can they curtail and go off the grid and run on their local gen for a while just to get through whatever peak of demand we're starting to see. If all those get kind of weighed into the best design for the site, what's available, how much gas is available.

But I think all that also tends to put us in a great position because of the diversity of our portfolio and between turbines up to 38 megawatts all the way down through our recent offerings now as big as 10 megawatt and you get to our 2.5, 3-megawatt offerings which are very strong. So we can mix and match, and we can also have modular solutions that allow data center to start at a certain power range and then grow over time. We can offer a lot of redundancy in the solutions that we have, given the flexibility we have, which they like.

So we're seeing a lot more discussions around what is the best option. And even yesterday, we had a customer in getting us in even early in how they design the site that way they can take advantage of the various offerings that we have. So I think it's something that's still evolving, but you're going to see -- what the trend we're seeing right now is a lot more requests to engage on behind-the-meter offerings.

And in terms of -- in those conversations, Joe, what are customers telling you is the long-term plan for these assets? What do you think will be the mix of perpetual behind the meter versus peaker plants? How do you think that all shakes out if we're having this conversation in 10 years?

I mean most of what we're seeing, and I don't want to say all, I mean we have units that will go in and then I think eventually a grid connect and then they become peaker units or they become curtailment or they'll get run more than standby, but maybe not prime forever. But the great majority of the sites that we're talking to, the plan is they're the prime power. It's the power plant that's going to be there to provide the power for the future.

And I think when you look at the economics of the investment that gets put in, we can be pretty competitive with the grid in some areas depending on rates. And so I wouldn't say it's the majority that are temporary. Majority of what we're talking about, at least with customers right now, will get installed and get run for prime power into the future. And that's part of our also capacity planning for the supply base and components. We'll hit overhaul cycles in the future. We need to be ready with our dealers to be able to handle that type of demand, which we really haven't seen in the past. That many units coming up for maintenance at one time, and it's a great opportunity for us. We want to make sure our customers stay running and get the most value out of the asset.

So I think a lot of it will come down to availability of grid, will it really get upgraded? And then not just once it's available, there'll still be economics behind it. And if you've made the investment and it's working well, I think we'll see those units continue to run. But I think there'll be a mix.

And Joe, earlier, you spoke about gas compression. Caterpillar has a really strong market position within that application. How big of a demand driver relative to data center is it? I think just based on the data center capacity adds, we will require roughly 2 to 5 gigawatts of annual gas compression demand for your turbines and reciprocating engines. Is that directionally the right ballpark that your teams are seeing? Can you put that into context for us with what's happening on the ground?

Yes. I mean we're definitely seeing increased demand for gas compression, both turbines, which we use for more gas transmission, interstate pipeline type of applications and then our reciprocating engines with gas gathering. I'm not -- it's definitely an increase in demand. I mean that's what customers are asking. I'm not sure yet that the forecast for natural gas have really caught up to because it's pretty evolving of more behind the meter gas-fired data center is going to require more gas to be moved. I mean I think that's still evolving. My opinion is probably not caught up yet on all the forecasting. It's going to be a great opportunity here.

Obviously, we're also seeing some disruptions in oil and gas, just given some of the issues and geopolitics going on around the world. So we've been moving a lot more gas to feed LNG export facilities here in the U.S. So I think natural gas has a very promising next few years and the long-term future. And really, when you look at any forecast, whether they've caught up or not, I mean, natural gas is going to be a huge part of the energy mix globally for the next 15-plus years. So it's a great opportunity.

As you said, we enjoy a very competitive situation there because we have the right mix of products were proven, very durable, and we have applications and engine applications that are bespoke designed to handle gas compression. So I think that's going to be a great opportunity for us as well.

And Joe, from a margin standpoint, really impressive incremental margins in Power and Energy in the second quarter over 40%. I know you won't run 40% incremental margins forever. But is that level of operating leverage sustainable in the near term for that line of business?

Yes. I mean I think 40% is a little noisy. I mean we have some at an enterprise level, we had some prior period tariff adjustments in there. We should have healthy incrementals. I mean one of the things we did over -- we really focused during Jim's tenure in those 8 years was putting a lot of discipline in the operating execution model into our business. We increased the profitability and margin profile of all 3 of the segments, and we intend to continue to operate in that disciplined fashion.

Our definition, winning is OPAC dollar growth. We believe and I think has proven that that's the best correlation to drive shareholder return over time. So that's what we're focused on. Having said that, we put the margin range out there for a reason just to kind of give everyone a band on how we want to think about operating. And that's -- my intention over time is to operate in the middle of that band, tariff pushed us towards the bottom. I think it's around 31% just as volumes increase as progressive with sales, just to kind of stay at that same part of the range.

We want to claw our way back up a little bit. It won't be every quarter straight line, but we're going to have to outperform that just to get back to the middle of the range. But we want to be in the middle of the range. Some of that will depend on product mix and region mix of where the business happens, but we have healthy operating margins in all 3 businesses, and we want to continue that. And as we get more volume and operating leverage, our intent is to try to improve that as best we can.

And Joe, let's shift gears to Construction Industries. And so you've been really focused on growing the rental business. We're hearing from a number of dealers that they are looking to double the size of their rental fleet with a 5-year view.

So can you just talk about why this initiative is so critically important to you folks now? And what does success for Caterpillar in the rental channel look like in 5 years?

Yes. I mean I think we love our dealers. They're amazing partners for us, and they're the ones who have the Cat assets sort of in the rental fleet and serve the rental part of the industry. I think it's an area where we've had varying degrees of performance. Some dealers are really good at it. Some dealers have struggled in that area. So we're definitely trying to push the performance. We don't have really a target fleet loading or target fleet size. We want -- we think we can do -- have better penetration into rental sales into the industry than we have today, and that varies by dealer.

The major projects, JV, I think, is also going to allow us to compete on some of these mega projects where maybe a local dealer doesn't have the fleet and we haven't had the fleet flexibility to participate in that. But rental for us and the way I think about it, if I step back, right, our mission statement is solving our customers' toughest challenges. And a lot of customers rent, a lot of customers own or buy and some do a mix of both. And the philosophy that we need to take and our commercial teams need to take is I want customers to have the best solution for them based on the job, and I want as many customers in the Cat machines as possible because that's good for our business.

And a lot of customers, particularly in smaller down the BCP type of class of product and size product will rent before they buy their first machine. And so we want customers to start in Cat machines and then most midsized contractors started as small-sized contractors and we want them to grow with us. So rental to me is part of the overall construction industry strategy where we've been good, but we've had pockets where maybe we haven't been able to compete as well as we think we can, and that's where the commercial excellence part of the strategy comes in is we want to be good at having flexibility for customers and meeting them where they're at for the particular job to make sure we have the right solution for them.

And so that will drive a lot of rental opportunity. I think a lot of customers will rent or they'll have a fleet and need to rent a little bit. And a lot of that just depends on the customer, the length of the job, their line of sight to jobs after the one they're on. I mean all those kind of go into a customer's decision process, whether to rent or buy, and we want to have the best solution to support them for their need.

Super. And Joe, in terms of -- when we look at the Cat dealer rental share, just based on industry statistics, it looks about 8%. That implies about 20% share for earthmoving equipment specifically. As dealers deliver towards growing their presence and if our checks are correct, they double their position in the rental fleet.

Can you step us through how they do that without disrupting market pricing? And I know Cat focuses on service, not discounting. So can we just double-click on how you folks can execute on that?

I mean dealers do the independent businesses, right? So they're going to set their rental rates. They need to be competitive to win, but I think that's where we have a lot of advantages of dealers knowing these customers because many of them own equipment, it allows a lot of flexibility in rent. Dealers can also a lot of times will roll a piece of rental equipment out as used if the customer needs it over time at a certain price point.

So dealers will control the rental pricing. I think we can be competitive. We want dealers to also -- the dealers are only going to do this if they're profitable. And I want our dealers to be profitable because that means they're healthy into the future as well. So I think they'll be disciplined in this as we do it. I think there's a lot of opportunity for us where customers will find it attractive to rent from Cat dealers. And Cat dealers have to have the full suite.

So as you mentioned, it's not all just Cat equipment they're renting. We have Allied programs for all the other light towers and equipment that we don't offer that they will have to have in their fleet. As we showed at CONEXPO, many of those additional types of equipment. We'll have Cat engines in them when we can because they're great customers of ours, which is also great. But dealers will utilize the rental business to get closer to customers, which is good for the overall CI business. It should drive also customers to want to come back and buy new equipment from us.

One of our big pushes at CONEXPO and continues to be is services commitment. So back to work in a short amount of time if a machine is down and the rental fleet is a part of that as well. So we want dealers to have the right parts inventory, the right technicians available to service equipment right away. If, in fact, it's going to be down longer, a lot of times, dealers can use the rental fleet to keep a customer running while they fix the machine. So when you think of CVAs and all the offerings that can go to a customer, that's why I hesitate rental is very important. It's an area we're putting a lot of focus on, but it's part of the overall commercial offering that we should -- that we should be offering customers to really satisfy their needs as part of the bigger system.

And Joe, on that point, I know it's super early on the enhanced services commitment that you folks have rolled out at CONEXPO. How is that program doing? It sounds like there's really good potential to drive customer value agreement adoption higher with the commitment. Are you seeing that translate or too soon to tell?

I think it's early, right? And there are so many customers in CI. But I think when you see the performance of CI overall, services are performing better. They continue to outperform the industry. We've had great STU growth. It's really hard to pinpoint is that the one thing that's driving the performance, but it's part of the overall supporting the customers.

And I think to your point, should drive better CVA adoption, which will be good for our customers. But the biggest expense for our customers is downtime that is the most costly thing that can impact them on a job site. And so the more we can put solutions in place that sort of guarantee customers that they're not going to have those long periods of downtime, I think it's going to be good for our business.

And in terms of the product scope, so you folks started making your own telehandlers to control the production. Do you have the product lines in-house that you need to have in-house to deliver on the rental strategy? How are you thinking about the product range?

Yes. I mean we have the right product mix for our equipment now, particularly, as you said, with the introduction of our telehandler here in the U.S. and North America. We have the Allied equipment program where we have partnerships to get the rest of the equipment that customers will expect to have when they come into a rental house. So from a portfolio standpoint, I think we have all the tools. We need to make sure that we can keep up with demand. And so we're ramping production in some of our CI facilities as well.

As you saw the backlog was up for CI and RI, and that's an area where we aren't in a similar situation necessarily for most of those products as we are in Power and Energy, where we're capacity constrained. So I'd like to see that backlog come in by us getting production more in line with STU growth. So I think there's an opportunity for us to catch up a little bit on how we're supplying our dealers for certain products, but we have the right portfolio.

And in terms of the JV structure that you mentioned, your dealers are really excited about the opportunities that, that drives for them. Anything else that you folks are working on delivering to the dealer base to allow them to take on the rental companies head on that's meaningful?

Yes. I mean each one of them, like I said, they're independent businesses. We believe we have a recipe that -- and it's a demonstrated recipe that we have some dealers who are really, really great performers at rental. And so it's just a matter of best practice sharing and driving the philosophy that we need that rental is part of the overall solution. And so I think from a strategy standpoint, we're in execution mode, and I think there's some opportunity here.

And then based on the resegmentation, and it looks like there's considerable margin opportunity within the rail business, Joe. What's the pathway to OPECC growth for Progress Rail?

Yes. So Rail, I mean, it's been an industry that's -- from a new locomotive standpoint, I guess I would separate it in how we look at it. Locomotives, particularly in North America, that's been a very depressed industry for almost a decade now with very limited new locomotive deliveries into the industry at all.

But when you look at the services side, Progress Rail, we've been able to grow services, whether that's through our track business or freight car business, the traditional Progress Rail services business has been healthy. From a locomotive standpoint, we've done some things to increase the throughput, sort of lean principles in our factories to improve the profitability. But at this point, we really need to see some volume before we'd see a big inflection in Rail.

But the services business is healthy. It's been growing for us. And it's -- moving that to RI, I think, also allows a lot of synergies from our standpoint, similar customers, we sell locomotives to mining customers around the globe, and they use a similar type of supply base and footprint.

And on the mining side, copper is at cycle highs. You mentioned order activity has improved. We're seeing rising replacement demand as well. Where do you think we are in the broader mining cycle? And how would you characterize the prospect list?

Yes. I mean we're -- I'm definitely happy with the order intake we've seen in RI in the last 2 quarters really this year. Backlog has increased. We're seeing good traction in large mining trucks. We're seeing customers request more quoting activity, and we have more autonomous trucks coming online. So we really have to execute for those customers who we've signed some recent deals with. But I think it's going to be a discipline in the industry as we move forward, but we are starting to see a lot more activity when it comes, particularly large trucks than we have in the past.

So mining, if you just look -- take a step back and you look at the minerals needed for the infrastructure build-out of the world, electrification of the world, mining is going to be a healthy business in the long term. And frankly, from our standpoint, particularly given where we're at, right, as I mentioned, the capacity increase in engines. So engines go into mining trucks, they go into power and energy, oil and gas and others. Steady growth for us is better than boom and bust that we saw 15 years ago.

So I'll take the discipline in the industry. And I think when you do the math long term, the need for minerals is going to drive demand, and it's going to be a great business for us over the next decade.

And Joe, let's wrap with a final question on technology. It's been a key enabler in terms of driving the ability to customer value agreements, uptime. What are the 1 or 2 most important updates that we should know about relative to your technology initiatives and progress since the Analyst Day that you would frame for our group?

Yes. I mean technology, it's the middle pillar of our growth strategy. And I think it's going to determine wins in the future. And I think the way we look at it is there's near-term technology. We have great technology on machines today.

And then obviously, we're working on autonomy, semi-autonomy, orchestrating the job site of the future, what are the digital planning tools, how do all those integrate to make customers much more efficient, particularly as physical AI becomes more capable. I think we can do a lot more moving from autonomy in mining. We've gone to smaller quarry sites now, but heading into construction, a lot of development work going on there.

So the medium to long term, we're investing pretty heavily in those solutions, and I think that's coming along well. In the short term, we have a lot of technology on machines that, frankly, we have what I would say is underutilization in the industry. And so we're doing a few things. One, training our customers, making our customers better awareness. We're trying to make a lot more of the existing technology standard on our premium machines so that they're just available for customers. They don't have to know at the time of ordering. And that will drive more scale and actually better throughput through some of our factories and efficiencies.

But the main focus, and we talked a little bit about this at CES and then carry that forward at CONEXPO as well from my standpoint is it has to be easier to use. So training operators in the cab, you can train an operator on the technology. And then next week, that operator may go to a different machine, you have a new operator in there. So it needs to be much more intuitive, and that's where the Cat AI assistant. And our digital teams are really working closely with on-machine technology teams to really make the technology features we have like Dig Assist, Swing Assist semi-autonomy command, all these -- our safety systems, our productivity systems make them much more intuitive for operators to use. And I think that will drive more adoption as well, and then that will lead to more comfortableness around technology and then you start to get to Cat Command, remote control, semi-autonomy and ultimately autonomy.

So technology is a huge part of our strategic plan for the future, and we continue to make investments and working on strides to getting our customers to use what we have today.

Super. Well, that's a great place to end it, Joe, on behalf of our community, thank you very much for joining our group for the conversation. I really enjoyed our time together. Thank you. Thanks, everybody.

Yes. Thanks, Jerry, and I appreciate everybody dialing in. Take care. Have a safe day.

Welcome to the Second Quarter 2026 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Kapper. Thank you. Please go ahead.

Thank you, Andrea. Good morning, everyone, and welcome to Caterpillar's Second Quarter of 2026 Earnings Call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, Chairman and CEO; Kyle Epley, Chief Financial Officer; Stephanie Baughman, Senior Vice President of the Global Finance Services Division; and Ryan Coleman, Senior Director of IR.

During our call, we'll be discussing the second quarter earnings release we issued earlier today. You can find our slides, the news release and a webcast recap at investors.caterpillar.com under Events and Presentation. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to Slide 2.

During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast.

A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides.

For today's agenda, Joe will begin by sharing his perspectives about our results and highlighting initiatives across our segments. Then he'll discuss our full year outlook and insights about our end markets followed by a strategy highlights. Kyle will provide a detailed overview of results and we'll share key assumptions looking forward. We will conclude by taking your questions.

Now let's advance to Slide 3 and turn the call over to Joe Creed.

All right. Thanks, Alex, and good morning, everyone. Thanks for joining us today. In the second quarter, sales and revenues were better than expected at $20.5 billion up 24% versus the prior year, driven by strong end market demand in all three of our primary segments. This is the first time in company history that we generated over $20 billion of sales and revenues in a single quarter. This milestone underscores both the essential work our customers do every day and the dedication of Caterpillar employees worldwide solving our customers' toughest challenges.

We delivered adjusted profit per share of $8.17, an increase of 73% versus last year. Our backlog grew sequentially by $9 billion to $72 billion. This is an increase of approximately $35 million or 92% compared to second quarter last year. All three primary segments contributed to both the year-over-year and sequential backlog growth. Strong order rates and a growing backlog reflect broadening momentum across our business.

In the quarter, we generated robust MP&A free cash flow of $5.1 billion and deployed $2.2 billion to shareholders through share repurchases and dividends.

Now I'll discuss second quarter results in more detail. As I mentioned, sales and revenues were $20.5 billion, and the increase versus prior year was primarily driven by strong growth in sales volume from higher sales to users in all three primary segments and favorable price realization. Second quarter sales and revenues were better than expected due to strong sales volume growth in Construction Industries and Resource Industries, while Power and Energy was broadly in line with our expectations.

Adjusted operating profit margin was 21.9%. Second quarter adjusted operating profit margin was better than we anticipated, primarily due to IEEPA tariff recoveries of $392 million and lower-than-expected tariff costs. The margin benefit from better-than-expected sales volume was mostly offset by higher SG&A and R&D expense. For tariffs introduced since the beginning of 2025, excluding IEEPA recoveries, costs were about $400 million in the quarter. This was lower than the estimate we provided in April due to favorable adjustments to the computation of tariffs previously incurred. Kyle will explain in more detail in a moment, including the impact to each segment.

Now I'll review second quarter retail statistics. Sales to users grew in all three of our primary segments. In Power and Energy, sales to users grew a robust 33%. We Power generation grew 72%, driven by very strong demand for large gen sets and turbines used in data center applications. Sales to users in oil and gas increased 6% and were driven by reciprocating engines, turbines and turbine-related services sold into gas compression applications. Industrial sales users were down due to a decline in engines sold in the marine application. Construction Industries total sales to users grew for the sixth consecutive quarter, up 22%.

Increases in North America were better than we anticipated as the growth was driven by very strong rental fleet loading, and equipment sold into nonresidential and residential construction. Dealers rental revenue continues to grow in North America, requiring more investment in their equipment fleets. This quarter, rental loading was a positive contributor to sales to user growth as compared to second quarter last year when rental loading was a headwind.

Sales to users increased in EAME due to strength in Europe and Africa, but were lower than we anticipated due to softness in the Middle East. In Asia Pacific, growth was driven by China, but softness outside of China kept the overall region below our expectations. Latin America grew as we anticipated.

For Resource Industries, second quarter sales to users increased 17%, which was in line with our expectations. Sales to users were higher year-over-year in mining as well as heavy construction and quarry and aggregates. Rail growth was driven by international locomotive deliveries.

Turning to Slide 4. I'll cover a few highlights since our last earnings call, starting with Power and Energy. To support the demand growth in power generation and oil and gas applications, we're excited to resume production of our 10-megawatt medium-speed gas reciprocating engine platform. This highly efficient platform is well suited for prime power generation and its power rating fits between our high-speed gas reciprocating engines and industrial gas turbines.

In 2022, we stopped manufacturing this product and focused on supporting aftermarket sales and services given the limited industry opportunity at that time. And now without significant investment, we're able to restart production by leveraging our existing supply base along with our internal capacity and capability. We plan to bring about 1.5 gigawatts of capacity back online, and shipments are expected to begin in the fourth quarter. This is a clear example of how our agility and diverse portfolio help us stay ahead of customer needs, respond quickly and turn opportunities into profitable growth.

Moving on to Construction Industries. In the second quarter, we delivered our first units to major projects, which is a specialized fully CAT dealer-owned rental joint venture focused on supporting customers with multibillion-dollar projects across North America. Major projects will serve customers developing large-scale infrastructure, including transportation, energy, manufacturing and data center builds. It's a supplemental national rental solution to help deliver larger size class construction equipment and capabilities where existing individual dealer rental fleets aren't sufficient to execute at scale.

We believe major projects will expand our presence in the rental industry and make it easier for large contractors to do business with us and our dealers. And finally, Resource Industries completed the acquisition of Skycatch in July. -- further enhancing our capabilities following the recent acquisition of RPMGlobal. Skycatch technology captures high-frequency, high-precision, large-scale spatial data and pairs it with a suite of AI capabilities. That allows customers to identify, measure and interact with the data, resulting in improved decision-making, reduced delays and greater confidence in daily operations. This is another example of investment in technology-enabled growth that will help our mining customers operate more efficiently and achieve better outcomes.

Now on Slide 5, I'll provide an update on our outlook. We continue to see strong momentum in our end markets despite ongoing uncertainty due to geopolitical events. We are increasing our full year 2026 sales and revenues expectations to mid- to high teens growth based on the healthy demand we are seeing across all three of our primary segments. We are also progressing on our capacity expansion plans, and we expect to increase our throughput in the second half of the year. As a result, we anticipate stronger full year growth across all three primary segments compared to the outlook we gave in April.

Services revenues are also expected to grow at a higher rate for the full year compared to our previous outlook. The improved outlook is also supported by the breadth and duration of our record backlog. As I mentioned, all three of our primary segments contributed to backlog growth. Power and Energy customers continue planning with us by sharing their long-term forecasts, and some are placing orders as far out as 2030. Currently, 59% of our $72 billion backlog is expected to be delivered over the next 12 months. This percentage has been fairly stable over the past three quarters, which demonstrates the momentum in all three primary segments.

Moving on to adjusted operating profit margin. We expect the full year adjusted operating profit margin to be higher than we expected during our last earnings call, reflecting the improved sales and revenues outlook. Excluding the favorable impact from our IEEPA tariff recoveries in the second quarter, we expect full year adjusted operating profit margin to be near the bottom of the target range. Our full-year margin expectation reflects the strategic investments we are making to execute our growth strategy as well as the ongoing impact of tariffs. While the situation around tariffs remain fluid, we continue to execute our mitigation plans. Kyle will provide more detail on our revised full-year estimate for tariffs in a moment.

I'm confident that we'll manage the impact of tariffs over time as we aim to operate around the midpoint of our adjusted operating profit margin target range. We are also increasing our MP&E free cash flow expectations to be in the top half of our annual target range, reflecting our improved outlook.

I'll now discuss our key end markets, starting with Power and Energy. Our positive outlook for 2026 continues to reflect strong demand in power generation and oil and gas. Strong second quarter performance has set a solid foundation for continued growth for the remainder of the year. We continue to anticipate full year growth in power generation for both CAT reciprocating engines and solar turbines, driven by increasing energy demand to support data center build-out related to cloud computing and generative AI. Additionally, prime power demand continues to trend higher as customers look to Caterpillar's turbine and reciprocating engine products and services to support their need for power solutions.

After a record year for sales in 2025, oil and gas is expected to grow moderately again this year. reciprocating engine sales are anticipated to increase driven by strong demand in gas compression applications. We also see continued momentum in demand for reciprocating engine aftermarket parts. Solar Turbines oil and gas sales are expected to grow while the backlog remains healthy. as we continue to see solid order and inquiry activity. Demand for products in industrial applications is expected to grow moderately in 2026.

For Construction Industries, we continue to expect full year sales to users growth, supported by strong order rates. Overall, the outlook for North America remains positive as sales to users are anticipated to grow versus last year. Construction spending remains at healthy levels, supported by the IIJA with the remaining funds to be spent over the next few years. nonresidential investment in critical infrastructure programs, heavy construction and data centers is contributing to overall construction spending levels. We expect dealer rental fleet loading will continue to grow including additional fleet loading for major projects in the third quarter. name, Europe is expected to remain stable, supported by nonresidential construction and construction activity in Africa is projected to remain strong. While the Middle East continues to be challenged, we currently anticipate only a limited impact on EAME sales to users.

In Asia Pacific outside of China, softer economic conditions are expected. In China, we anticipate moderate conditions with full-year growth in the above 10-ton excavator industry off of low levels of activity. We expect full year growth in Latin America. We're seeing continued positive momentum in Resource Industries with robust order rates and strong backlog growth. For 2026, sales to users are expected to increase, primarily driven by rising demand for copper and gold and positive dynamics in heavy construction and quarry and aggregates. Most key commodities remain above investment thresholds. Customer product utilization is high and the age of the fleet remains elevated. While some commodity prices have increased recently, customers remain focused on the long term. We now expect rebuild activity to increase moderately compared to last year. Rail services and locomotive deliveries are both anticipated to grow for the year.

Now let's turn to Slide 6 for a strategy highlight. Our refreshed enterprise strategy was built on our strong foundation of operational excellence, and we continue to operate under the discipline of the operating and execution model. As we invest in our capacity to meet customers' increasing needs, we're finding creative ways to reallocate resources and optimize our operations as we grow to record levels. Let me share an example. Last November, we announced an increase in our new turbine capacity of 2.5x 2024 levels. This capacity will serve oil and gas and power generation applications and be leveraged to provide rebuild and services for our growing installed base for decades to come. To help bring some of this capacity online sooner, we were able to repurpose an existing 250,000 square foot facility in Onaga, Kansas, which previously produced work tools for cat construction equipment. We converted the facility in under 12 months or substantially less than building a new factory.

From Onaga, we now package and ship our PGM130, product that is popular for data center power generation. This is one of many examples of how we are continuing to manage our business with discipline, and maximize the use of our existing footprint to serve our customers and grow profitably.

With that, I'll turn it over to Kyle.

Thank you, Joe. Good morning, everyone. I'm going to take a few minutes to walk you through our overall second quarter results, including details about segment performance as well as the balance sheet and cash flow. I will then conclude with remarks on our expectations for the remainder of the year, including third quarter and current full year assumptions.

Beginning on Slide 7. Sales and revenues were $20.5 billion, up 24% versus the prior year, which was better than our expectations. Adjusted operating profit was $4.5 billion, and our adjusted operating profit margin was 21.9%, both better than we anticipated.

Moving to Slide 8. The 24% increase in sales and revenues compared to the second quarter of 2025 was primarily driven by strong growth in sales volume and favorable price realization. The stronger sales volume was mainly driven by higher sales of equipment to end users across all three primary segments. Dealer inventory increased by $400 million in construction industries compared to a decrease in the second quarter of 2025. The increase was higher than we originally anticipated, supported by our expectation of stronger sales to users for the rest of the year, which reflects strong end market demand. Sales and revenues were above our expectations, mainly driven by stronger-than-expected sales volume in Construction Industries and Resource Industries. Power and Energy was generally in line with expectations.

Moving to operating profit on Slide 9. Operating profit in the second quarter increased by 50% to $4.3 billion. Adjusted operating profit of $4.5 billion increased by 54% versus the prior year, mainly due to the profit impact of higher sales volume. The adjusted operating profit margin was 21.9%, which was a 430 basis point increase compared to the prior year. Margin was better than we anticipated, primarily due to expected IEEPA tariff recoveries and lower-than-expected tariff costs. The margin benefit from better-than-expected sales volume was mostly offset by higher SG&A and R&D expense.

In the quarter, we recognized $392 million in expected IEEPA tariff recoveries with the majority of this amount reflected in corporate items, where the tariffs introduced since the beginning of 2025, excluding IEEPA recoveries, the second quarter tariff costs were approximately $400 million. And this was favorable compared to the $700 million estimate we provided in April. This favorability was primarily driven by adjustments to the computation of tariffs previously incurred.

The $400 million of tariff costs were recognized within the segments and corporate items. Segment margins were impacted by 90 basis points in Power and Energy, 340 basis points within Construction Industries and 260 basis points in Resource Industries. Within corporate items, there was a favorable adjustment for tariffs.

Moving to Slide 10. Profit per share was $7.77 in the quarter. Adjusted profit per share was higher than we had anticipated at $8.17. Restructuring costs in the quarter were $0.40 versus $0.10 last year. Excluding discrete items, the provision for income tax in the second quarter of 2026 reflected a global estimated annual effective tax rate of 23%. Finally, the year-over-year impact from the reduction in the average number of shares outstanding due to share repurchases resulted in a favorable impact on adjusted profit per share of approximately $0.15 compared to the second quarter of 2025.

On Slide 11, I will now review the second quarter performance of the segments, starting with Power and Energy. For Power and Energy, sales of $8.2 billion increased by 17% versus the prior year, which was generally in line with our expectations. The sales increase versus the prior year was mainly due to higher sales volume and favorable price realization. Second quarter profit for Power and Energy increased by 30% versus the prior year to $2 billion. The segment's margin of 24.6% was an increase of 250 basis points versus the prior year. The increase was mainly due to the profit impact of higher sales volume and favorable price realization, which was partially offset by unfavorable manufacturing costs.

Higher manufacturing costs were impacted by spend related to our capacity expansion, including a higher depreciation. Segment margin was higher than anticipated, primarily due to lower-than-expected manufacturing costs, including tariffs.

Now moving to Slide 12. Construction Industries sales increased by 35% in the second quarter to $8.3 billion, primarily due to higher sales volume and favorable price realization. Higher sales volume was mainly driven by higher sales of equipment to end users. The $400 million of dealer inventory increase and services revenue growth resulted in sales volume to be better than we expected. Second quarter profit for Construction Industries was $1.9 billion, a 57% increase versus the prior year. The segment's margin of 23.3% and was an increase of 320 basis points versus the prior year, mainly driven by the profit of higher sales volume. Price was also favorable in the quarter segment margin was higher than anticipated, primarily due to the profit impact of stronger sales volume, partially offset by higher manufacturing costs, including freight.

Turning to Slide 13. Resource Industries sales increased by 20% in the second quarter to $4.6 billion, primarily driven by higher sales volume. Price was also favorable versus the prior year. Sales were better than we anticipated due to higher sales volume, driven by favorable services revenues growth. Second quarter profit for Resource Industries increased by 23% versus the prior year to $693 million. The segment's margin of 14.9% was an increase of 40 basis points versus the prior year. This was mainly driven by the profit impact of higher sales volume, partially offset by unfavorable manufacturing costs. Segment margin was higher than anticipated, primarily due to the higher sales volume.

Moving to Slide 14. Financial Products revenues increased by 10% versus the prior year to $1.1 billion, mainly due to higher average earning assets across all regions. Segment profit increased by 32% to $328 million. The increase was primarily due to higher average earning assets and favorable impacts from equity securities and margins at insurance services partially offset by a higher provision for credit losses at Cat Financial. Our customers' financial health remains strong. Past dues were 1.31% in the quarter down 31 basis points versus the prior year, the lowest we have recorded since 1998.

The allowance rate of 0.84% surpassing the first quarter of 2026 as our lowest level ever reported in any quarter. Business activity at Cat Financial remains healthy. Retail new business volume grew by 9% versus the prior year. In addition, used equipment inventory levels continue to remain low and conversion rates remain above historical averages as customers choose to convert their leases into buying the equipment at the end of their lease term.

Moving to Slide 15. MP&E free cash flow was a record at $5.1 billion in the second quarter. This was about $2.8 billion increase versus the prior year, mainly driven by stronger profit. was about $600 million in the quarter. Moving to capital deployment. We deployed $2.2 billion to shareholders in the second quarter. Share repurchases accounted for about $1.5 billion, with the remainder reflecting our quarterly dividend payment. In June, we announced an 8% dividend increase, our sixth consecutive year with a high single-digit quarterly increase. Our balance sheet remains strong. We have ample liquidity with an enterprise cash balance of $6.7 billion. In addition, there is a $1.5 billion in slightly longer-dated liquid marketable securities to improve yields on that cash.

Now let's go through our outlook assumptions. Turning to Slide 16. The I will start with the third quarter. We are continuing to monitor the environment as geopolitical conditions remain fluid and complex. Based on what we see today for the third quarter, we anticipate another strong quarter of sales growth versus the prior year. We expect volume increases and favorable price realization in each of our three primary segments. We anticipate volume growth will be driven by higher sales to users across all three primary segments versus the prior year. If we look at the segments, we anticipate strong sales growth in Power and Energy in the third quarter versus the prior year, driven by continued strength in power generation and in oil and gas modest growth in industrial applications as it continues to recover and favorable price realization.

In Construction Industries, we expect strong sales growth in the third quarter versus the prior year mainly due to higher sales volume on strong sales to users and favorable price realization. We expect a slight increase in dealer inventory in the third quarter, but modestly lower than last year. As a result, the year-over-year impact from dealer inventory is expected to be a modest headwind to sales volume in the quarter.

In Resource Industries, we also expect strong sales growth in the third quarter versus the prior year. primarily due to higher sales to users and services growth. We also anticipate favorable price realization, but to a lesser extent than the second quarter.

Now I will provide some color on our third quarter margin expectations versus the prior year. We expect higher adjusted operating profit margin at the enterprise level versus prior year, primarily due to favorable price realization and higher sales volume, partially offset by unfavorable manufacturing cost including depreciation expense and freight, along with higher SG&A and R&D expenses due to the continued investment in strategic investments aligned with our 2030 goals that we rolled out at our last year's Investor Day. We anticipate tariff costs of around $600 million, which is similar to what we incurred in the third quarter of 2025. We expect about 50% of the tariffs to be incurred in Construction Industries and 25% in both Power and Energy and Resource Industries.

Now on the third quarter margin by segment. In Power and Energy, we anticipate a higher margin percentage compared to the prior year on stronger volume and favorable price realization. This is partially offset by higher manufacturing costs including depreciation and expenses related to our capacity expansion projects. SG&A and R&D expenses are also expected to be higher. In Construction Industries, we anticipate a higher margin percentage compared to the prior year, primarily due to favorable price realization and higher sales volume. This is partially offset by higher manufacturing costs, including tariff and freight costs.

Strategic investments related to technology are expected to increase SG&A and R&D expenses versus prior year. In Resource Industries, we anticipate a similar margin percentage compared to the prior year due to higher sales volume and favorable price realization, partially offset by higher manufacturing costs, including tariff costs and SG&A and R&D expenses. Higher compensation expense and strategic investments related to technology, including autonomy, are driving the higher SG&A and R&D expenses versus prior year.

Now on Slide 17. Let me provide a few comments on the full year. As Joe mentioned, we now anticipate sales and revenues growth in the mid- to high teens for the full year 2026. This is an increase versus our expectations from last quarter. The increase in our full year sales and revenue expectations is supported by strong sales and user growth across all three primary segments driven by healthy end markets, strong order rates across all three primary segments driving backlog growth and increased throughput from our capacity expansion plans in the second half. We expect strong sales growth across each of our primary segments, mainly driven by volume and price. For the enterprise, we typically see higher sales and revenues in the second half as compared to the first, and we expect to fall that trend this year. We also expect a more typical reduction in Construction Industries dealer inventory of over $1 billion in the fourth quarter.

We plan to end the year higher than last year in anticipation of future end market growth. As a result, the year-over-year impact from dealer inventory is expected to be a headwind to construction industry sales volume in the second half of the year.

Now on to adjusted operating profit margin for the full year. Due to the increased sales and revenues outlook, full year adjusted operating profit margin will be higher than we expected in April. Excluding the expected IEEPA tariff recoveries, our full-year adjusted operating margin would be near the bottom of the range at the higher sales level. Compared to last year, higher adjusted operating profit margin will reflect favorable price realization, higher sales volume, partially offset by higher manufacturing costs, including tariffs, depreciation expense and freight and higher SG&A and R&D, driven by compensation expense and strategic investments bed. Excluding the expected IEEPA tariff recoveries of approximately $400 million reported in the second quarter we now expect full year 2026 tariff costs of around $2.2 billion or at the low end of the range we previously provided. Our outlook does not include any additional IEEPA tariff recoveries in the second half of the year. As we lap incremental tariff costs, the tariff impact to the second half adjusted operating profit and margins is expected to be -- is not to expect it to be significant.

Moving on. We continue to expect restructuring costs of approximately $300 million to $350 million in 2026. Our estimated global annual effective tax rate remains approximately 23% for 2026 and excluding discrete items. With the improved sales and revenues and adjusted operating margin outlook, we now expect MP&E free cash flow to be in the top half of our annual target range of $6 billion to $15 billion. We expect second half MP&E free cash flow to be slightly higher than the first half despite higher CapEx spend. Our CapEx spend for 2026 is anticipated to be approximately $3.5 billion similar to our previous expectations.

Now turning to Slide 18. To summarize. We delivered a strong first half with better-than-expected sales and revenues and earnings. In this dynamic operating environment, we now anticipate mid- to high-teens sales and revenues growth in 2026 and anticipate adjusted operating profit margin and MP&E free cash flow to be better than we had previously expected. We remain disciplined and committed to operational excellence and the O&E model. We will continue to look for ways to optimize our footprint and invest efficiently. We are maintaining a strong balance sheet, and we will continue to return substantially all of our MP&E free cash flow to our shareholders through dividends and share repurchases over time. Finally, we will continue to execute our strategy for profitable growth.

With that, we will take your questions.

[Operator Instructions] First question comes from the line of Michael Feniger from Bank of America.

Quick clarification. The 10-megawatt reset that you're bringing back online and can ramp to 1.5 gigawatts. Is that part of the 65 gigawatt target by 2030? Or is this additive? And Joe, my core question is that there is a concern on AI and data center demand in the out years, when we think of that 65 gigawatt capacity target by CAT by 2030, are you more or less confident today on the visibility that there will be enough demand in the out years, even within the P&E segment, are you seeing order rates for engines and turbines outside of data centers like pipelines and gas compression, move higher, the demand broadening out, what are you hearing in recent conversations that shaping your view on the staying power through 2028, 2029 and 2030?

Mike, thanks for the questions. Maybe I'll take the first one. pretty quickly. The 65 megawatts is a round number will move around a little bit on mix, but -- or gigawatts, sorry, the 10-megawatt unit, that's our old MaK business that we -- it was primarily marine focused in the past and wasn't performing the way after many years with low industry demand, but it's well suited, and we did the gas engine development for power generation, and we been will bring that back. So it was not included in the 65. But again, it's a lower volume. They're well suited for this application and kind of fits nicely between or the top end of our high-speed reciprocating offering in the low end of our industrial turbine offering. So that's how you should think about that. And we were able to bring it back quickly because we just stopped production just a few years ago.

There is a lot of discussion around AI demand. We have constant discussions with our customers. And all I can tell you is what our discussions with them is no one is slowing down at the moment. In fact, if we can get more units out, they're asking us to give them more units but I think what you also point out is really important, I think and maybe a little different for us is we took a broad view when we analyzed putting this capacity in and took a major approach. We said last time we'll have cash payback by the end of this decade.

And as I mentioned, we're starting to take orders into 29 and 30 already. And we did this not just based on data center demand. That's obviously a big driver of it, but we have aftermarket growth objectives to take care of our growing installed base on large engines and turbines. These are used, as you pointed out, also in oil and gas. And remember, oil and gas had a record year last year, and we expect it to be -- we're on track for another increase this year. And when you look at the backlog, our oil and gas at the end of the second quarter, backlog compared to where it was a year ago, second quarter a year ago was not quite, but nearly 2x bigger.

So we are seeing great demand for oil and gas particularly around gas compression. I think we're going to move a lot of natural gas in the next few years. And then our large engines are also used in our mining equipment and marine applications as well. So we feel pretty good where we sit today. And we haven't seen any customers back off of demand. And in fact, we're starting to get even more extended when you look at the backlog.

We'll move next to Tami Zakaria at JPMorgan.

So a question on your sales standards was up about 20% for the first half. What do you look for the full year in terms of I know you're guiding to mid- to high-teens revenue growth for the year. Do you plan to produce to retail demand this year? Or how should we think about channel restocking as it relates to the back half of this year?

Yes. I think -- good morning, Tami. We expect STU's growth momentum, and I think that's reflected by both strong orders in RI and CI. And also in the second quarter, we mentioned dealer inventory was a little higher than we expected, and that's really due to the momentum we continue to see in to growth. When it comes to dealer inventory, we do think we'll have a more normal seasonal pattern. We'll have a drawdown in the fourth quarter on CI dealer inventory.

Last year, we didn't quite see as big of a drawdown, which was a little bit unusual. So we'll have those dynamics when you look at the back half of this year compared to the back half of last year. But when it comes -- we're seeing strong sees in all three segments. I think that's a good thing. We've also seen services continue to increase. So where we sit today and the backlog increasing. And you rightly also point out when it comes to the backlog, particularly in RI and I the backlog growth is great to see, but we're not in a constrained environment there.

So the backlog really there is somewhat of a function of us being able to produce to demand. So I'd like to see us produce more and keep up with STUs, and when we get that production in line with STU, you would see some of that backlog actually come in. And I think that's a good thing as long as we continue to see positive sales to users. So we're pretty pretty bullish on the back half of this year.

We'll go next to David Raso at Evercore ISI.

I'm just trying to think through construction versus power in the sense of just given we've kind of gone through the inventory swing from destock to restock a bit in construction. It looks like the volume growth there understandably from these high levels was better than I would have thought in 2Q will slow. But the power volume was a little less than I would have thought. And with the capacity coming on, you would think that might be able to ramp up. So can you just take us through your thoughts when you look out the next two, three, four quarters, the construction volume growth slowing and can P&E volume growth pick up? I mean they're roughly now the same size external sales even the margins are pretty similar. So just that sort of trade off a little bit.

Yes, David, I think you have to look at the seasonality of those two. Segments is much different. So as I mentioned, the inventory drawdown that we expect to see in the fourth quarter. We do expect dealer inventory. Right now, our planning assumption is that we'll end this year higher than it ended last year because as you point out, we have strong momentum here, but the base keeps getting higher on the growth. So we'll keep an eye on that. Power and Energy continues to ramp. I'm really pleased with the way that teams continue to get more production out of our existing asset base as well as bringing the capacity online. So I think it's not -- the capacity not coming online in massive cliff events. We're trying to get as many units out as we can. So we've been a little bit ahead of schedule. We think we'll be able to get more -- increase our production moving forward. But the percentage of increase in power and energy, as you rightly state, is not a demand issue right now. It's just going to be a matter of how fast we can continue to increase production.

And David, this is Kyle. Just one reminder on the CI perspective, we kind of had a slow start to the first half of 2025. and then it started picking up in the back half of 2025 into the first half of this year. And so that will be part of your comparison when you start looking at the second half of CI compared to the second half of 2025.

We'll now take a question from Jamie Cook with Truist Securities.

Congrats on a nice quarter. Joe, I just hoping if you could talk through the composition of the backlog growth in the quarter, which was fairly impressive. How much of it was like large, chunky, big awards like Pro Power versus broad-based? And then just a follow-up question is the incremental margins in Power and Energy were fairly impressive, given we're adding capacity, I think, at like 39%. So is that reflective of pricing or or capacity coming on quicker? I'm just trying to think of the setup for incremental margins in Power and Energy, just given how strong they are with everything we have going on with capacity additions.

Yes. Thanks, Jamie. I think we'll -- I'll start with kind of the first part. One of the things we were really happy about with the backlog was seeing an increase in all 3 segments. And you guys -- we don't really kind of talk about the specifics in there. But as you look at the percentage delivery in the next 12 months, Power and Energy is much more extended. So cash shows on a percentage basis, they continue to increase. As I mentioned, inside Power and Energy as well, we saw continued strong demand for oil and gas come in, in orders that are also contributing to the backlog. And as far as -- when it comes to the machine side of the business, CI is definitely much more broad-based.

As you know, when we take orders, I can come in a little bit lumpy and also the way deliveries work for our eye that can move around the backlog. And in Power and Energy, the industrial side continues to come in, in a pretty steady basis, but most of the growth was in oil and gas and power generation. And in power generation, they tend to be big orders when they come in. And you see a difference kind of when these prime power orders come in can move it. But we have a lot of customers asking for power and the months have been pretty consistent for us.

As far as the margins on your other question, I think tariffs were a little better than maybe we expected. So you would expect that to continue. We might see a little pressure on freight in the back half and some of the costs, just everything going on in the world. But we're also we're installing capacity that puts pressure on depreciation and maybe some of the efficiencies we see, but we are seeing great operating leverage and the P&E team continues to perform really well.

We'll take our next question from Rob Wertheimer at Melius Research.

You've seen obviously some power gen providers being sold out and you touched on taking orders in the '29 and '30. And some folks are maybe even sold out that far. And I guess I'm not sure if you're willing to say whether you are sold out for 2027 and '28. But my question is also how you're approaching it strategically as maybe gas recent becomes more attractive for either prime flex power but maybe back up as tight as well and you could do back up with gas, it can flex the prime. How are you approaching, are you saving any slots? Do you have slots up over the next couple of years? And maybe you could just talk generally about the the mood towards gas recip prime, how it's evolving?

Yes. Thanks, Rob. We've seen, obviously, lead times start to extend here. When it comes to gas prime, we're pretty extended. I mean, we're towards the back half of 2028 and into 2029 on turbines maybe just a little bit further than that. little less on maybe diesel standby. But we're constantly working with customers. And again, one of the things I think that we've been able to do is the closer we plan with customers, getting them the power they need when they need it. and making sure we schedule deliveries appropriately, allows us to take care of the maximum number of customers.

And so we're moving schedules around occasionally where we can to help customers. We do try to protect our long-time oil and gas customers who don't necessarily have the same level of planning horizon, we are trying to plan further out with them, but making sure that we take care of that customer base has been with us for a really long time. So we have some flexibility. But as you stated, I mean, I think particularly large engines, we're into '28 in gas prime, late '28 for sure and then turbines a little bit longer than that.

We'll move to our next question from Steve Volkmann at Jefferies.

I'm wondering if we can talk a little bit about CI, Joe, I think you talked about rental fleet loading in these major projects that you're doing as well. Just trying to see if I can think about breakdown sort of between what's going out to end users and what's going into the various rental fleets and sort of how you think about that going forward?

We've seen strong sees. And this has been the momentum we've had for, I think, we said the sixth quarter in a row, really strong sees for CI. So I'm really pleased with the way that team is performing and our dealers are performing in CI, particularly in North America, but we have other regions we're doing really well as well. The rental fleet loading has really picked up this year as opposed to last year. So it was a stronger portion of our to growth in the second quarter, I expect it to be a pretty healthy piece of STU growth in the third quarter as we really just started loading the major project fleet. And that will continue to grow, and we'll see how many projects we can get lined up with that -- with the new dealer JV and major projects.

So rental loading has definitely become a bigger piece of test growth for the moment. But we have great momentum started early last year when we put the merchandising programs and we've been able to outperform the industry, and we just carried that momentum through the first half of this year.

And moving next, we'll go to Kristen Owen at Oppenheimer.

Just a follow-up on that last one. Since you talked about the rental loading and the mega projects, those tend to go hand in hand. So could you help us understand what's happening in the rest of the construction backdrop, maybe private nonres, resi? Like what's still lingering out there? And any sign of improvement in those pockets of construction?

I mean I'll comment maybe on the second quarter, what's driving it, but we continue to see large infrastructure projects drive some of the growth. Obviously, data center demand as well drives has ancillary effect on CI. But the rental fleet loading, we think will continue, particularly with major projects. And as you said, you have a little bit of line of sight to major projects as they get rolled out. But one of the things as well, it's not -- one of the positives here is when you get to residential and other parts of CI, they aren't particularly strong. So to me, that provide some potential upside for us into the future. So right now, it's pretty heavily focused on nonresidential and major infrastructure projects.

Kristen, just to add some color, it's Kyle, just by region, we talked about North America continues to be strong and Joe talked about it from a construction spend standpoint and non-resi investment. Amy is strong, especially in Africa. So that's been a real positive for us, and we expect that to continue. And even in other parts of the globe in Latin America, has been strong and even in China off low levels, but China, we continue to see growth now for quite a few quarters in China above the 10-ton excavator off low level. So really, as Joe mentioned, a really positive across the board from a CI perspective on sales to users growth.

Our next question comes from Mircea Dobre of Baird.

I'm curious if you'd be willing to comment at all in Power and Energy on the service and aftermarket component of that business. not only sort of maybe where we currently are from a mix standpoint or sizing this business specifically. But as we look at the significant backlog and the deliveries that you have kind of thing into 2029-plus. How do you think this portion of the business, the aftermarket, the service component of the business will scale up over time?

Yes, I think we power energy generally has had stronger services component to it than maybe construction industries where we have a lot of opportunity to grow services and continue to work on it and -- but as you think about the way this is evolving and the prime power opportunities that are coming online, those will continue to create services growth opportunities for us. By the time those get in place, you go through top end overhauls you get to in frames and overhauls and major overhauls, that's going to be mostly 2030, beyond 2030 growth opportunities for us in services. So that's how we think about it.

Oil and gas is -- we don't have the sort of prime and standby type of nomenclature when we talk about oil and gas, but it all functions more like Prime, it's heavy-duty applications, drives great services opportunities for us. So as we grow the installed base, it definitely gives us great services growth opportunities. There will be some between now and 2030, but the lion's share of that will be beyond 2030, which is why having this capacity in place is also a good thing. The capacity is not just for full assembly and finished turbines and gensets and engines. A lot of that capacity goes into supply base as well as our internal component manufacturing and machining that allows us to support that aftermarket growth that we expect.

We'll go next to Angel Castillo at Morgan Stanley.

Just wanted to go back to the orders. So you mentioned 4Q deliveries of the 10-megawatt recip engine I assume that means you already have some orders for this product. Just could you talk about the magnitude of that and just also any kind of incremental costs in delivering or getting this capacity ramped up? And then just more broadly, you also talked about diesel engine orders out to '28 or nat gas recent orders out to, I think, late in turbines beyond that '29 and '30. Just any color on how the pricing backdrop on orders out that far is kind of shaping up and kind of evolving just given against supply and capacity additions from others.

Yes. Thanks, Angel. So the 10-megawatt units, we have taken our first orders on that, and we wanted to make sure we had orders before we actually made the decision to bring that engine platform back online because as I mentioned, we had made the decision to sort of shut that production down and really just support customers in the aftermarket. So -- we do have our first orders. We expect to deliver here in the fourth quarter.

We'll ramp over the next 18 months to that 1.5 sort of gigawatt number. But we're pretty confident that we're going to have the orders in those, at least in the next couple of years. or we wouldn't have made the decision to bring it back online and the investment to do it given we are supporting customers key components we've had available the supply base is available, and we've been able to use our existing internal capability and capacity to get that product back online, which I'm really excited about.

So pretty minimal investment really in the rounding to do that, which is sort of made it an easy decision once customers were willing to commit. As far as the extended orders, each one of them is a little bit different, but we do have -- typically have price escalators on those and they can be tied to economic indicators. And so we feel like pricing will be in line with kind of how we've been pricing in the past, but we do have escalators for those orders that are further out.

We'll go next to Kyle Menges at Citigroup.

Great. I wanted to focus on the diesel standby business and -- there's been some debate out there on the redundancy needed for training versus inference data centers. And then also if you're using behind-the-meter power versus grid connection. And I'm curious what you're seeing as far as redundancy between those different applications and prime power infrastructures. And then also just a quick follow-up. Are lead times also increasing for the diesel gensets?

Yes. I mean our diesel gensets are extended as well. I mean we're taking orders out into '28, well into '28 on diesel gensets. In fact, we're -- when it comes to diesel standby, we're actually seeing some customers ask us to inquire about moving down to the C32 platform, which is a bit of a smaller unit just because of the -- we have product availability there. So each data center is a little bit different, particularly now when you're moving to behind the meter, we're not hearing a whole lot of customers tell us they're just going to go to no backup or no redundancy. How they choose to do that. I mean traditional hookups to the grid and data centers are still moving heavily down the diesel reset for backup. Demand continues to grow for that. When you go behind the meter with gas solutions, sometimes they can still have gas recips also have some redundancy there. And it really just depends on the project.

Hi, Andrea, we have time for one more question.

Today's final question comes from the line of Jerry Revich from Wells Fargo.

I'm wondering if you could just talk about your vision for CAT rental, we're hearing from your dealers plans to double the fleet over the next 5 years. They have 30% to 50% mix of Alliance products. How do you see it playing out longer term in terms of the mix of business going forward, do you see their mix looking more like the national rental companies that we see? Just talk a little bit about where you envision the service offering for cat rental 5-plus years out and the opportunity from a market share standpoint since obviously, it's been a smaller part of the mix for you folks historically?

Yes. I mean it's one of the keys to our CI growth strategy is to be successful in rental with our dealers. I think our dealers are a great asset and great partners for us to help grow in the rental business. there are disparities in performance between some dealers or some regions, but our goal is to continue to work with them to capture a lot of this rental opportunity, our rental -- our dealer rental revenues continue to grow, and we're confident they can continue to grow that. That will lead to more fleet loading.

If they're going to be successful in rental, they're going to have to have the full suite of equipment to support customers. Customers, I don't think, are going to rush to cat dealers for our equipment, if they can't also get the other rental equipment that they need. So that will be -- continue to be part of the mix for our dealers and part of that strategy.

The major projects we really allows us -- it's a national fleet and allows us to move that fleet around to really supplement dealers where if a dealer has a major project infrastructure project in their territory for a couple of years or 3 years, it's tough for them to invest in the fleet, that size to keep up at that scale or knowing that, that job may be somewhere else a few years from now in this rental -- major project fleet is going to really help us supplement the dealers, which should allow them also to grow because they'll be the ones that are working on that project in a local territory, and then we'll use the major project fleet to supplement their existing fleet. So rental is a great opportunity for us, and we're going to continue to push forward with the strategy.

So with that, thank you all for joining us, and I really appreciate your questions. I'm really proud of our team and the record performance this quarter. in particular, the sales and revenues milestone we achieved the first time in our company history to exceed $20 billion in the quarter, with broadening momentum across all three of our primary segments will remain focused on operational excellence and delivering for our customers to create long-term value for our shareholders. With that, I'll turn it back to Alex.

Thank you, Joe, Kyle, Stephanie and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our Investor Relations website as soon as it is available. You'll also find a second quarter results video with our CFO and an SEC filing of our sales to users data. Visit investors.caterpillar.com and then click on Financials to view those materials. If you have any questions, please reach out to me or Ryan Coleman, the Investor Relations phone number is (309) 675-4549. Now let's turn it back to Andrea to conclude our call.

Thank you. That concludes our call. We thank you for joining. You may all now disconnect.

Good afternoon, and thank you for joining us today. I'm Michael Feniger, the Machinery, Engineering and Construction analyst at Bank of America. I'm excited to host Caterpillar to discuss the Power and Energy segment with Group President, Jason Kaiser.

Back to Alex to read the disclosures.

Thank you, everyone, for joining us. Before we begin, we encourage those attending remotely to be mindful of your local safety protocols. Today, we'll make forward-looking statements, which are subject to risks and uncertainties. For a full list of risks that could cause our actual results to vary materially from the information we're sharing with you today, please see our most recent SEC filings, including our 10-K. We also may refer to non-GAAP numbers. For a reconciliation to the appropriate U.S. GAAP numbers, please see the appendix of our most recent earnings presentation.

In addition, please note that Caterpillar policy does not allow meetings to be recorded with smartphones or other devices unless specific approvals have been granted prior to the start of this meeting. And finally, we'll post the video and a transcript on our website, investors.caterpillar.com.

Now I'll turn it back to our host.

Thank you, everyone, for joining us.

Jason, thank you for joining us today. Very excited to host you for this virtual event.

Great to have you.

Great. The Power and Energy segment is a key growth driver for Caterpillar. There's just a lot of momentum there. I'd like just to first kick it off with your background, how long you've been in CAT and some of the positions you've held before being Group President of the Power and Energy segment.

Yes. Thanks. Great to be here today. Thanks for having me join. I have been in CAT for 25 years, and I joined CAT as an electrical engineer, actually had a big interest in power engineering when I joined the company and have spent the majority of my career in our electric power business. I've had the opportunity to do lots of different jobs across that, lots of work with customers, but also engineering and even running manufacturing organizations over that time period. So a really great background for the growth that we're seeing right now. And I have a really fun job leading a big growth -- as you said, a big growth opportunity for the company, working closely with customers, executing our capacity plan and just making sure we deliver on the profitable growth possibilities that are ahead.

Great. And the Power and Energy segment includes three verticals. There's oil and gas, power gen and industrial. And even inside these verticals, there are different customers and products. If we could just start off with the power gen side. It's growing at a 30% CAGR. Is there any way for us to bucket the key products and customers inside power gen? How much is going to back up data centers, prime power, how much to non-data center customers?

Yes. There is a lot of diversity in the customer base across power gen. You think about what I would call the traditional business or the reliability business, we do a lot in standby. So think about anybody that needs to make sure the lights stay on all the time, a hospital is a great example of that. So hospitals, data centers and anybody that really needs that power reliability when the utility has an issue. There's a part of the business that's primary power or prime power as well. And we've done that for a long time.

There are places in the world where CAT gensets power industrial manufacturing plants, for example. Here in the U.S. We have cogen and other like a hospital or a food and beverage that runs 24/7. And then we have some things that are in between. So think grid support, maybe a unit that runs several days a month, supports the utility grid when it needs it. So lots of variation in application. Data centers have been a big and growing part of our electric power business, no doubt about it. The foundation of that has been the standby, making sure those data centers have the high levels of reliability that they need to serve their customers.

But more recently, we've seen opportunity growing in, people call it, you bring your own power. So the data center, they want to build, they're ready to build and the utility connections either not there at all, or it's going to be delayed. And we can bridge that gap with our solutions as well, temporary, long term. So that's been a great and growing market and comes with lots of services opportunity as well. So lots of variation and lots of growth across the different parts of electric power.

And Jason, on that, how do you see the next 5 to 10 years playing out with your customers on the power gen side? How are customers thinking about bring your own power and if grid connectivity improves, can turbines shift to backup? How about the recip engine side? And do you see any long-term trends on the backup side when we think of gas versus diesel? Just how do you see this market evolving over time when we think of these products, the customers and even the aftermarket compared to where it is today?

Yes. So let's start with the backup part of the business. Certainly, the signals that we're getting from our customers is backup gensets are just a great way for them to ensure reliability in their operations. That signal -- we get that signal strongly. We expect that to continue. They're asking us to do more, as you can see with our capacity increases that we're putting in play.

Gas versus diesel in that space, we've done some product development to ensure we're ready for either. And over time, there may be more gas. Certainly, as units start to interface more and support the utility grid, gas comes more into favor in those kinds of applications. And we've done some great product development to ensure that our gas standby units deliver the kinds of performance that a data center would need. So I think we're well positioned and eager to serve with either of those technologies.

If you switch over to the primary power space with data centers, we've seen lots of variation. It's a pretty new phenomenon. I think 1, 1.5 years, where we've had customers coming to us to be the primary power source. We see sometimes they're looking for a bridge, a very short-term solution. The utilities maybe not far away. We can serve that with temporary power solutions. So we have gensets on wheels. We have turbines on wheels. We can roll them up, mobilize them really quickly, provide that power for a short period of time.

Sometimes it's a longer-term bridge. So maybe it's a few years, and we can provide a solution that either transitions to be the backup power source or can be moved to another data center that needs the bridge solution when it wraps up. And then we see quite a few customers that are setting up for the long term. They see the efficiency, the performance, the systems we're able to deliver as being real positive as compared to the utility, and they're going to keep it there for the long term.

One thing that's really exciting about that on the primary side is the services that come along with it. We have great ability, parts, service, CAT dealers to support those systems and provide that power reliability and have services growth on our side as a result of that.

That's great. And with this growth, you guys have talked about the capacity expansion targets through 2030. And recently, you updated your large engine capacity target. Where are lead times today for recips and turbines? What's the ramp like on this capacity? And you're targeting nearly 65 gigawatts by 2030. Just Jason, how much of this is going to power gen, energy and even some mining trucks? How much can we think is prime versus backup? Any sense there?

Yes. So we're really excited to be able to make the investments that we're making. As you mentioned, we just upped our large engine target from 2x to 3x in last quarter's release. We're off and running with those capacity increases, both on the engine and the turbine side. We will add capacity every year kind of meaningfully until the conclusion of those programs towards the end of the decade. It's not a big cliff event or something that's going to happen all at once, something we're bringing on along the way. We've made some significant progress, particularly in the large engine space.

Turbines were about a year in, a little less than that, starting to get our footing there with the turbine increases as well. As you mentioned, one of the things that's great about our business and our products is we use common platforms for both engines and turbines to solve -- to serve multiple markets. So the same core engine we use in a mining truck, we use in the oil and gas business, we use for power generation. So it gives us a lot of diversity and ability to leverage those designs and leverage that scale across businesses. And turbines are similar. We have oil and gas and electric power opportunity there as well as we look forward in that.

All the key businesses are growing in that sense. So certainly, we discussed electric power and the growth of electric power. That's an important part of the capacity investment. It's both the backup and the primary power sources that are growing in that. But we're also seeing growth in oil and gas, particularly gas compression that we're able to leverage that same capacity for engines and turbines for as well.

So lots of diversity that we're able to take advantage of, and we're putting them in place for all and for the services that we need. So think about gas compression, think about primary power. Those units run 24/7. They run for a very long time. We need lots of parts to keep them up and running them and service and do rebuilds and overhauls and so the capacity helps us there as well and supports our ability to do that over time.

And Jason, a question we get on capacity expansion is, why is it on the recips is incremental expansion in the recips and not the turbines? Are you finding data centers preferring recip engines for prime power over turbines? What are the advantages for recips when it comes to that prime power?

Yes. We're truly seeing both. And so just to baseline back to our plans, we are increasing turbine capacity by 2.5x and recips now by 3. So major capacity increases on both that we have underway. We're seeing opportunities with both in the primary power segment, recips more in the standby segment. But what we're seeing is a lot of our customers are actually mixing the technologies together in order to meet their needs as well.

So data center loads can be pretty challenging with transient and then other parts of how they operate. And we're seeing our ability to provide complete solutions with engines, turbines, switch gear, controls and inverters, really full engineered solutions to customers to be a real advantage in the marketplace right now.

And Jason, CAT mentioned several times with the capacity expansion announcement on recips gas. They talked about gas, and how we're going to move a lot of gas in this country. I'm curious if you can talk about how CAT engines and turbines power most of the gas through the pipeline in this country. Can you give us some context of this? How much gas recip engines or turbines are on pipeline, on compressor stations, how big of an opportunity is this?

Yes. It's a significant business we're really successful at. And just maybe take a step back from that, and I talked about this in our Investor Day presentation, we have great products and really a great ability to serve across the whole value stream, anywhere from when you drill the first well, you find a lot of CAT power making that happen. When you prepare a well, CAT engines, transmissions, pumps, flow iron are there, gas starts thurst to move down pipelines. Our engines are out in the oilfield initially gathering the gas. So think about pulling it into the initial pipelines. And then as the pipelines get larger and larger, it moves to turbine solutions. So our solar turbines are there to compress down the large pipeline and move that gas across the country to where it's needed.

And then on the other side of that, whether it be assisting in the LNG plant, even burning that gas to make like electricity, we're there as well. So a really unique ability and perspective across that value chain. Certainly, gas compression is, and we anticipate we'll continue to be a great growth area. We talked about all this power gen so far. We've talked about how much electricity needs to be made. A lot of that is going to be made with natural gas. And so you put that on top of the LNG and other opportunities that are there, it's going to drive gas compression opportunity that we're really well positioned to take advantage of.

Makes sense, Jason. What we hear from investors is this worry around the risk of overcapacity down the road. You're raising capacity, other turbine players are raising capacity, other recip players are getting into the game. How are you balancing the strong demand outlook, but making sure CAT doesn't have too much capacity if the data center boom slows? Is there anything you're doing in contracts with terms and conditions or working with specific customers that you feel like protects your risk? And is the risk profile a little different when we think of recips versus turbines?

Yes, it's a really good question. So it's one we think about as well and really how we're running our business. We want to be disciplined. We want to take advantage of the opportunity, but be disciplined as we do that. And that's one of the reasons you've seen us set and then raise a couple of times our targets, particularly in the recip space. We've done that because we've gotten clear visibility from our customers to what they're going to need. Our backlog has grown. We've been able to put more in place with what we call frame agreements or longer-term agreements with customers that include at sometimes cancellation penalties, sometimes prepayments, things that help us build confidence.

That it's a good long-term opportunity that we can take advantage of. I think Joe mentioned this in the recent call we had, but our cash payback for the investment will be for the recip side, the full investments by the end of the decade. So we're excited to be able to make those investments. It's a profitable part of our business. And one other thing that we've done that helps give us confident is we just looked at ourselves. Our technology strategy as we implement AI and use technology more broadly across our business and on our machines moving forward, what technology growth we expect to see by the end of the decade. And whether that would support the kinds of investments that others are seeing and backstop the investments we're making, and we see it. We have very significant multi-times data usage targets on our side, too. So that helped give us some confidence as well.

And Jason, you touched earlier on the aftermarket portion. We keep hearing from these large turbine OEMs that are very excited about the service opportunity this long tail of the aftermarket stream. Are there any changes in terms of the long term service agreements that set up Solar Turbines for a bigger ramp in service profitability. Curious on your view if you could kind of help us quantify that opportunity when you think of turbines, prime recips and backup when you're looking at that aftermarket portion with this bigger installed base down the road.

Yes. We're excited about it, too. It's a great opportunity as we put more product out into these 24/7 operations that have super high reliability needs. Our ability to take care of it, either solar directly with our services team or on the CAT brand on the recips with our CAT dealers, we're really well positioned. We're really good at taking care of the product it operates through multiple life cycles, multiple rebuilds. Our service agreements, they really haven't changed a lot. I think we have a lot of history. We're really well positioned to do this kind of business with customers and it provides a lot of opportunity. So maybe to frame it a little bit, if a turbine goes out, in a primary power or a gas compression opportunity. It's going to run for decades, generally, if you look over the life cycle. So lots of services opportunity goes with that.

The other stat that I like to use that helps on the recip side is if you compare a standby diesel genset, and you look at the lifetime services opportunity and compare that to a gas genset that's running primary power, 24/7, there's 40x more services opportunity over the lifetime for that gas genset over that. So that kind of help scale why we're excited about that and really, why we're leaning into that primary power opportunity.

Great. And Jason, investor look at your oil and gas portion of the Power and Energy segment, they'll see revenues of $7 billion, which is at a record high. This is at a time when traditional oil and gas indicators are pretty weak when you look at the rig count and some offshore projects. So how much of this oil and gas revenue is going to that pipeline compression stations, midstream area? How should investors think about that oil and gas exposure in terms of product mix with recips and turbines, but just also the customer side of midstream and upstream and offshore, and if oil prices stay elevated, can you see these other areas this oil and gas portfolio start to pick up? Are you hearing anything there yet for 2027?

Yes, good question. So if you look at our first quarter oil and gas sales to users up 16%. So definitely seeing growth. That growth has been strongest in gas compression. We're seeing it both on the turbine and the recip engine side from a gas compression standpoint. As I mentioned before, we do serve the full value chain in oil and gas all the way from drilling the well to moving the gas to burning the gas on the other side. So we're well positioned for any and all growth that we see there. There's a lot that gets talked about around capital discipline in that marketplace right now. We do see that with our customers. A lot of the work that we do in that space is to help those customers be efficient right now.

So new solutions, new products to help them drill more wells, do more well servicing, help them improve that efficiency. That's a lot of our technology and focus there, and that drives growth in sales for us, kind of across gas compression and otherwise across the value stream. In terms of the future, we're very positive about gas compression for the reasons that I mentioned. You have the LNG dynamic. You have a lot more electricity, it's going to be made with natural gas. So we do think the fundamentals are strong moving forward. And again, we're positioned across the value chain to take advantage of that.

And just on this topic, Jason, obviously, the Iran war. I'm just curious what we should be thinking about potential implications here. We have energy infrastructure, energy security, potentially higher LNG prices and oil prices. What could be some of the implications? I mean how direct is the Middle East to your business? Could we see more FIDs in the Gulf Coast for LNG, what that could mean for you? Is there a threshold you think your customers are looking at in terms of incentive price if it settles there, that they would increase investments in areas like offshore or the rig count?

Yes. Good question. There's a little bit of grayness and fuzziness to all of that right now because of the recency of what's happening in that space. We've been focused on the safety of our employees, given the dynamics and then staying really close to that customer base and helping them ensure that they can keep their assets up and running. I mean we have our oil and gas business is truly global. We do business across the world in that space. So we do have customers. We have team members, dealers on site, helping them ensure that the in the Middle East, but their assets are up and running, and we'll continue to do that.

If prices stay high, certainly, that could drive investment, and we're well positioned to help customers with that. We really value both in the engine and the turbine space, those long-term relationships we have with those customers, and we work closely with them, again, with a multiyear view to ensure that we have the right products available for them if they see growth, that we're there to serve them over time.

Fair enough. And Jason, we're seeing this robust growth in Power and Energy, particularly on the top line. The margin expansion hasn't really been there yet. How much of that is related to tariffs, how much is the cost to ramp up this capacity. We keep reading about strong pricing from other peers in areas like turbines and generators. Is this more of a waiting game as it converts from backlog to P&L? Just any rule of thumb for investors to think about in terms of those incremental margins in Power and Energy as we move through the next few years?

Yes. Good questions. The -- I think we start from a position of strength. But if you look at our margins compared to our industry peers, we have really good margins in this business today. So something we're definitely proud of and want to continue. We faced a couple of headwinds right now. So we have tariffs as a headwind. You look at our first quarter results, our sales were up 22%, profit up 13%, but was down 170 basis points. Tariffs were part of that, manufacturing costs were part of that, but also the investments that we're making in order to increase capacity and some of the depreciation that we're starting to see come along with that.

So we will have that headwind, certainly. We will gain operational leverage over time. Certainly, our agreements allow us to take further price over time in the way that we work those with our customers. And at the end of the day, OPACC dollars is our goal. So growing absolutely OPACC dollars. That's how we set our goals for our business and very, very confident we'll do that through the capacity investments and growing the business over time.

And Jason, we touched on the power gen side, the oil and gas vertical. Industrial is a $6 billion revenue business. It doesn't get the same level of attention. Can you just unpack what the end markets are there, the customers inside industrial. Is this business operating close to a peak, or is there still runway if we do get broader economic recovery.

Yes. I appreciate you asking a question about industrial. We don't get any questions about part of that business, so thanks for asking about it. Great engines are a priority for us. You think about broader Caterpillar and our machines. Part of our success with those machines is having great engines. And in our industrial business that we use those engines, and we help other people solve their problems and challenges with those same engines. Lots of variations in the industrial engine space. So our marine customers are in that part of the business.

We have other construction customers, equipment that we don't make, think of wood chipper as an example, powered by a CAT engine or a snow groomer powered by a CAT engine, just tons of variations when you walk around somewhere like a CONEXPO, we have CAT engines and lots of different machines. So really cool business, lots of diversity, definitely room for growth there as well. As I said, we're committed to having great engines. We have room to grow.

We have capacity to grow in that part of the business. And we were up slightly in sales to users in the first quarter. We're seeing projecting modest growth in 2026, but definitely part of the business we remain focused on, and we have growth plans for through the end of the decade.

Great. And Jason, when we talk about the Power and Energy, we really focused a lot on North America because that's where this energy infrastructure build up happening on the gas side and this power boom in the data center. What are you seeing outside of North America in terms of power, energy and even data center demand?

Yes. We see growth very broadly in the space. Same drivers are driving the business globally. The need for more and more energy, the desire for reliable power and energy, backup power for data centers. Those are the big drivers. And we see growth in Europe, we see growth in the Middle East, we're seeing growth in Asia. So definitely points that we're going to grow. And we think that could grow even more over time.

We've seen some recent things like discussions in the EU and the U.K. around data sovereignty and people really starting to think about the implications of AI and having the data and the data centers in their own company -- in their own countries in a way to drive a very secure future for themselves, and we think that will be a great business driver in the data center space for us as well.

Great. And Jason, just we keep hearing from customers that CAT is in every power conversation. You've got the backup, the prime, the turbines. Just from your vantage point, what might be missing in this portfolio? Is there any white space CAT needs to develop a new product or partner with other players or engage in M&A to kind of have a more complete offering?

We're really fortunate with the capabilities we have for the customer needs and the market environment. We have great engines that go all the way up to 10 megawatts. We have a turbine portfolio that goes up to 38 megawatts. We're able to wrap lots of equipment around those engines and turbines to help customers apply them anything from an after-treatment system to switch gear to enclosures to house the equipment, even integrating things like batteries into the system in order to make sure that we meet customer needs. So a lot that we can do in that space.

We certainly are looking for adjacencies. We have an ear open to things that customers need from us more and more. One of the things that I'll mention is Vertiv partnership. Now it's a great example. They are very close to us in data center applications. Their products sit right next to our products. So the opportunity to work together to make us quicker to implement on customer sites, but more efficient as well from a system design perspective, we're really excited about. So we're very open to that and looking for opportunities in that space even on top of how well positioned we are currently.

Jason, we typically hear the solar turbines historically had a 70% to 80% of revenue exposure to that oil and gas side. Do you think that percentage evolves over time? Is there anything differently that solar turbines is doing to expand on the power gen side for those customers compared to the oil and gas, and how are you evaluating these emerging customers that might not have the same credit profile or legacy that we see on the oil and gas side entering the power gen space?

Yes. We've had a long history with oil and gas in our solar turbine business, and we have some great customers and long-standing relationships there, and they're signaling growth, as we've talked about a couple of times on the call, particularly in the gas compression space. That said, power gen has been growing rapidly within solar. It's one of the drivers along with that oil and gas business that's giving us the confidence to make a 2.5x capacity investment in the turbine business right now.

A lot of what we're doing is with customers we know or have known for a long time. And even some of our traditional oil and gas customers, both in turbines and recips are now becoming power customers for us. So there have been a few examples we talked about, PROPWR is one that we've talked about recently in the last results call. Framework agreement with them 2.1 gigawatts of power over the next 5 years. So they -- that organizations historically had a relationship with us in oil and gas and now expanding that to power oil and gas, but now industrial and data center opportunities moving forward. So a lot of existing customers.

There are some new customers for us in that space, contractually using some of the same things we've always done in order to be certain in that space, particularly in the turbine space, advanced payments, milestone payments through the process are an important part of how the business gets done. And we're leveraging our CAT financial organization with customers as well, another tool we have in our toolbox to help them be successful as they're trying to grow.

And Jason, just because we're on the turbines topic. Can you just talk about ramping up the capacity, the difference of the supply chain for recips versus the supply chain for turbines, and there's obviously larger turbines. Is there any issue scaling at this capacity when you come to recips or even the small turbine side?

Yes. The supply chain is really, really important to both plants. We need lots of support. We're doing lots of work with the supply chain, both in engines and turbines. Most of the suppliers are different, or a lot of the suppliers are different. There's some overlap, but a reciprocating engine is pretty different than a turbine at its core. We've been engaged with really specific capacity plans with that supply base. So we get into lots of detail with them, understand, can they grow with us? Are they willing to grow with us? And it's a big part of what we're doing, and how we'll support success moving forward. Not easy every day, but we've seen good success, and we've seen a supply base that's very willing to lean in with us in order to support our growth, and they see the opportunity that's at hand pretty clearly as well.

That's great, Jason. And just when we think of the competitive landscape, when you think of backup power, prime power or small turbines. Just we're seeing other players try to expand capacity, try to get involved. This is a growth market. I was just kind of curious if you could touch on the competitive landscape. Is it different between these types of power sources and markets of the project? Are you seeing that out there? And what is CAT's competitive advantage when we start talking about these other competitors entering space?

Yes. If you take it back to the customer and what the customer is thinking about, there's a speed to power element in a lot of the discussions that we're having. So that's the primary driver, how quickly can you get power from my site. High reliability, once it's installed, is a key element to the discussions we're having and then cost. How efficient is the solution, how efficient will it be over time? All those things factor heavily into the discussion. Our priority is to be the best option across those priorities. Engines and turbines are great solutions.

We have a lot of new products in that space that have high efficiency that helps with the cost side. We have a lot of products we can mobilize quickly that helps with the speed side. We have a long history with both CAT and our dealers are taking really good care of our products and delivering high reliability. So we're very well positioned in that space. And we stay very focused on the customers, say, solving those problems for them in ways that other people can't or better than other people can, and that has led to growth so far.

Helpful. And Jason, you touched on this earlier when we talked about the aftermarket. And then we also talked about it with capacity expansion. Can you just flesh that out? You talked about the capacity expansion is going to help you service the aftermarket. It's on a common platform. As we talked about, there's a lot of fears of overcapacity on the OE units. Just talk about how you're able to flex and be able to service that aftermarket with these capacity expansions?

Yes. If you think about the life cycle of an engine or a turbine, we'll deliver the product, we'll get it up and running for the customer, there'll be a period of, I think, kind of normal maintenance, then there'll be some heavier maintenance, we call it a top end overhaul, then there'll be some really serious major overhaul, remanufacturing type activity that happens over time. And those things happen through the cycle -- through the product's life cycle. The aftermarket comes along with that, the more heavier the service, the full overhaul of the engine, it's going to drive a lot more parts and services opportunities. So you see that come in cycles over the time period. The units run for a very long time. They're built to be rebuilt. And it takes a lot of parts capacity when we build that supply base in order to service those customers in that opportunity.

So it gives us an opportunity to use. It's the same parts, the same component facilities, the same manufacturing facilities that are making our parts for. Our new units are also sending them to the aftermarket. So it gives us that diversity, and we have to plan for both and make sure that we're set up to take care of the volume of new units we're going to see, but also this growing aftermarket. And I kind of go back to that 40x gas genset running all the time versus the diesel standby, it's a tremendous opportunity for us.

And Jason, that's helpful when we think of the aftermarket opportunity from prime, first back up. Can you just talk a little bit on the aftermarket side for the turbines? Because I believe you guys capture all that doesn't go through the dealer network. So what is the -- what are some of the nuances when we should think about the service opportunity when it comes to turbines, the overhaul. We've heard a lot about this one exchange fleet program you guys have that customers really like. Can you talk about what that is, why customers prefer that? And what that really means for you guys in capturing some of that service and aftermarket?

Yes. In the solar turbine space, we really pride ourselves on our services capability with customers. As we talked about, our history is in the oil and gas space, a lot of powering gas compression down pipeline. Those customers, they need high, high reliability and really excellent service. And so that's how we're wired. That's how we think. The exchange program is a great assets for us. So what we do there is we have turbine engines ready to go. And when a customer needs an overhaul, we'll swap them out quickly, which greatly decreases their downtime, and then we'll bring that other turbine engine back, we'll bring it through an overhaul rebuild process, bring it up to a great condition again and then use that again with either that customer or another customer in the future.

It allows us to, again, minimize downtime, keep customers up and running, help them control their other costs and really have the outcomes that they want to have. And our service business in solar is direct. So our technicians are out doing the work. We serve customers direct in our turbine business. This is a little different than our CAT brand engines, where we have our dealer partners that are doing that work with our customers as well.

And Jason, it's been kind of unique to see CAT announce these 6 over 1 gigawatt agreements with customers. It's something we don't normally see from CAT historically. Can you kind of talk about these agreements? I know there's one recently with Atlas Energy for 1.4 gigawatts of power equipment. It was mostly in the recip with some of that going actually behind the meter, just what are these agreements provide you? Do you get a higher capture rate on the services? Why are we seeing these agreements be announced with Caterpillar over the last 12 to 24 months, something that we just never saw before?

Yes. Good question. So one of the things I'm excited about is we've built a lot of capability to work more directly with our customers over the last few years. And we've done that, and power and energy, both in oil and gas and the power gen parts of the business. Our dealers are still very, very important for local execution. But a lot of these big customers, they value an OEM relationship, and we've leaned in to support that. They come to us because a couple of reasons. One, they really want to be able to plan for and have certainty on the equipment that they need to get in order to provide power to their customers.

And so by signing these framework agreements with us, it gives them that clarity and certainty for execution on their side. It gives us the clarity that we need in order to make the investments to support it. And oftentimes, it's a services element as well. So again, they're not looking just for the product, but they want to make sure that we're there to support them to take care of that product over time, ensure it stays reliable, ensure that they get the outcomes that they need with their customers as well. So lots of benefits for -- I think we're frankly up and our customers, and how we're putting those together.

And we're really excited to now have the 6 large agreements that we've been able to talk about. We have several other smaller ones that we haven't announced as well. So exciting time in the business.

And Jason, do you think the conversation around the grid and connectivity. Can we see this bring your own power outside of data centers? You talked before about hospitals, manufacturing sites. These mega projects are getting bigger and bigger. I'm just kind of curious if you're seeing a pickup in power gen, not just with backup and prime for data centers, but be in other areas, manufacturing, trucking sites, commercial building. What are you kind of seeing there as these conversations evolve?

Yes. I absolutely see an opportunity in that. Our grid will -- utility grid will continue to be challenged. It's going to need lots of support. Our customers are going to need lots of support with speed and reliability as well. Some of the customers we've worked with, even some of the frame agreements that we've signed are not just for data centers. They're also supporting industrial opportunities in the marketplace. And I continue to be excited about supporting the utility grid as well.

So I mentioned things like peak shaving, where a unit runs not all the time but when it's needed to support the utility grid that will continue to be important. I think that's going to grow in importance as the grid is more strained. And utilities are our customers as well. So when they need to add quick capacity or resiliency to their network, we work with them to do that again either through engines or turbines as well. So lots of opportunity all around that space for us moving forward.

And they're leveraging, Jason, the engine and the turbines to help with that peak shaving?

Yes, yes. We see opportunities for both of those technologies to support the grid and support peak shaving.

Interesting. And just late last year, Solar Turbines and Vertiv made an announcement. Can you -- I know you touched on it briefly, but can you expand on this opportunity? And what it really means at the end of the day, can we see CAT make other announcements around reliable power and cooling, and it is pull, Jason, coming from the developers, the hyperscalers, suppliers, who is pulling and asking for this when you guys are making these partnerships?

Yes, as I mentioned, with Vertiv, it's a great example. So if you think about where we sit in a data center and then what they do, their UPS systems, their cooling technologies, they're right around our genset turbines at the data center. But we're on the same site. We're working together to provide outcomes for the customer, but we have been doing that separately. By working together, what we plan to achieve is; one, help standardized offerings so that we can be faster to power for the customers, right? With speed to power being such an objective or primary objective now. It's a really strong way to serve customers by being faster.

The other thing we can do is be more efficient. Look at the system holistically provide power and the cooling together in a more integrated way and efficiencies and outcomes for customers over time, which again, make sense, say, that primary power data center as an example, more competitive, lowers the cost and again, helps our customers with outcome. So lots that we're excited about in that space with a Vertiv, certainly looking for other ways to do that with other companies that make sense. And we're really focused on customers, right? So it's a customer-back point of view, how can we help them be successful. And when we can do that with all of our own technology and equipment grade, when we can partner with others to help them even more, we're open to that as well as evidenced by that announcement.

Great. And Jason, just last question, and I'm getting it from the audience. We talked a lot about turbines and recips and gas and diesel. Just how much of an advantage is having this portfolio. But when you're going into these conversations, are you seeing an advantage of being able to mix a solution of diesel, gas, recip but also the turbine side as well compared to other players that maybe can just offer one of those solutions. I'm just curious if that's coming up in conversations as an advantage when you have some single source players out there that you compete against?

Yes. I really think it is. Our customers tell us that they appreciate that from us, not only the engines and fuel types with the engines plus the turbines, but our ability to provide switchgear, controls, inverters, battery integration, really provide a full system for them of technologies to solve their need and have a menu of technologies that we can put forward depending on what their primary focus is. And it depends on how quickly they need the power, what reliability levels they're looking for, what kind of loads that they're trying to support. All of those things factor in, and we're able to bring different technology solutions together to serve those needs. And every one, you mentioned those six agreements and some of the primary power sites that we're doing, a lot of them look pretty different because we mix those technologies together in a way that best meets the customers' needs based on those criteria that I mentioned.

Super helpful. All right. I want to thank Jason for joining us today. Thank you, everyone. I know we didn't get to everyone's questions that are coming in. If you have any more questions, please feel free to reach out to the CAT IR team. I'm sure we'll be able to help you. Jason, thanks again today for talking about the Power and Energy side. I appreciate it.

Yes. Thank you, Michael. It was a pleasure. Appreciate it.

Welcome to the First Quarter 2026 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Kapper. Thank you. Please go ahead.

Thank you, Adria. Good morning, everyone, and welcome to Caterpillar's First Quarter of 2026 Earnings Call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, Chairman and CEO; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of the Global Finance Services Division and incoming CFO; and Rob Rengel, Senior Director of IR. In our call, we'll be discussing the first quarter earnings release we issued earlier today. You can find our slides, the news release and the webcast recap at investors.caterpillar.com/eventsandpresentation.

The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited.

Moving to Slide 2. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We also make certain statements that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings.

On today's call, we also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides. For today's agenda, Joe will begin by sharing perspectives about our results and sliding initiatives across our segments. Then he'll discuss our full year outlook and insights about our end markets followed by a stat update. Andrew will provide a detailed overview of results and Kyle will share key assumptions looking forward. We'll conclude by taking your questions.

Now let's advance to Slide 3 and turn the call over to Joe.

All right. Well, thanks, Alex, and good morning, everybody. Thanks for joining us. Our team delivered a strong start to the year driven by resilient end markets and disciplined execution in operating environment. Sales and revenues were $17.4 billion, up 22%, and we delivered adjusted profit share of $5.54, an increase of 30% versus last year. Backlog grew to a record level of $63 billion, an increase of $28 billion or 79% compared to the first quarter last year.

All 3 primary segments contributed to both the year-over-year and sequential backlog growth. Also, total first quarter orders, an all-time record, providing a solid foundation positive momentum. Our strong balance sheet and MP&E free cash flow allowed us to deploy $5.7 billion to shareholders through share repurchases and dividends in the quarter. Solid sales and revenues growth combined with robust order activity demonstrate the strength of our business and our focus on solving our customers' toughest challenges.

Now I'll discuss first quarter results in more detail. Sales and revenues were $17.4 billion, an increase of 22% versus the previous year and in line with our expectations. Adjusted operating profit margin was 18%. First quarter adjusted operating profit margin and adjusted profit per share of $5.54 were better than we anticipated, mainly due to favorable manufacturing costs, including lower-than-anticipated tariff costs. Costs related to tariffs introduced since the beginning of 2025 were approximately $600 million in the quarter. This was favorable to the estimate we provided in January, primarily due to an adjustment to the computation of those in 2025. Andrew will provide a little more detail in a moment.

Now I'll review first quarter retail statistics. Sales to users grew in all 3 of our primary segments. In Power and Energy, sales to users grew a robust 32% with growth across all applications. Power generation grew 48%, driven by strong demand for large gensets and turbines used in data center applications with an increasing mix towards prime power. Sales to users in oil and gas increased 16% and were driven by reciprocating engines, turbines and turbine-related services sold in the gas compression applications. Industrial growth was driven by engines sold into multiple applications.

Construction Industries total sales to users grew for the fifth consecutive quarter, up 7%, increases in North America were slightly better than we anticipated, mostly due to nonresidential construction. Rental fleet loading increased and our dealers' rental revenue continued to grow in the quarter. Sales users declined slightly in EAME and were below our expectations due to timing in key projects. Middle East was slightly lower, but was partially offset by a better-than-expected activity in Africa. Asia/Pacific was about flat and below our expectations due to timing of customer deliveries, while growth in Latin America was slightly better than anticipated.

For Resource Industries, first quarter sales to users increased 6%, which is below our expectations, primarily due to timing of customer deliveries. Mining sales to users were higher year-over-year with growth across most product lines. Heavy construction and quarry and aggregates were about flat. Rail remained at relatively low levels.

Turning to Slide 4. I'll cover a few highlights since our last earnings call from each of the segments, starting with Power and Energy. Yesterday, we announced another exciting opportunity to provide Pro Power up to 2.1 gigawatts of large gas generator sets for prime power generation in support of data center, oil and gas and industrial applications. The orders will enter the backlog on a rolling basis. We expect to deliver generator sets over the next 5 years and anticipate long-term services growth opportunities in the future. This represents the sixth agreement with at least 1 gigawatt of Caterpillar equipment for prime power applications.

Moving on to Construction Industries. Last month at CONEXPO, we launched CAT compact, a streamlined customer experience designed for small contractors and growing businesses that value simplicity and speed. It brings everything together in one destination, enabling customers to buy, rent and service compact equipment with ease. We believe this will expand our relevance in the compact equipment industry and make it easier for our customers to do business with us and our dealers fitting to our 2030 target for CI of 1.25x sales to users growth.

And finally, Resource Industries completed the acquisition of RPMGlobal in February, bringing a leader in mining software technology into our portfolio. As we highlighted at our Investor Day, RPMGlobal's capabilities complement our existing technology, strengthening our ability to deliver integrated solutions that help customers improve safety and productivity across their operations. We see this as a long-term investment in technology-enabled growth that will help solve our mining customers' toughest challenges.

Now on Slide 5, I'll provide an update on our outlook. While there is increased uncertainty due to geopolitical events and elevated energy prices, our end markets have been resilient. We are closely monitoring the environment, and we are not forecasting material impact to our 2026 outlook at this time. We now anticipate low double-digit growth for full year 2026 sales and revenues. The increased outlook is driven by resilient end markets and solid execution by our team. Notably, we're tracking ahead of our lending capacity expansion plans for the year. Order rates are very strong across a wide range of products, driving backlog growth in all 3 primary segments. We also expect growth in services revenues for the full year. As a result, we anticipate stronger growth across all 3 primary segments compared to the outlook we gave during our last earnings call.

With the improved sales and revenues outlook, full year adjusted operating profit margin will be higher than we expected in January. As a reminder, our operating profit margin target range is progressive with sales and revenues. Adjusted operating profit margin is estimated to remain near the bottom of the target range corresponding to the now higher top line expectations. Our full year margin expectation reflects the strategic investments we're making to execute our growth strategy as well as the ongoing impact of tariffs. The situation around tariffs remain fluid, while we continue to execute our mitigation plans. Kyle will discuss our revised estimate for tariffs in more detail.

I remain confident that we'll manage the impact of tariffs over time as we aim to operate around the midpoint of our adjusted operating profit margin target range. We're also increasing our MP&E free cash flow expectations to be higher than 2025, reflecting our improved outlook and strong top line growth. To further support our outlook, I'll discuss our key end markets starting in Energy.

The 2026 outlook remains positive. Robust backlog was driven by continued momentum in both power generation and oil and gas. We anticipate growth in power generation for both reciprocating engines and turbines, driven by increasing energy demand to support data center build-out related to cloud computing and generative AI. We continue to see demand for prime power trend higher as data center customers look for alternative power solutions to keep pace with their growth. Oil and gas expect moderate growth for the year. Reciprocating engine sales are expected to increase, driven by strong demand in gas compression applications. Solar turbines oil and gas backlog remains healthy with continued solid order and inquiry activity. As a result, we anticipate another year of strong turbine sales. Services revenues in oil and gas are also expected to increase in the year.

Demand for products in industrial applications is projected to grow modestly in 2026. For Construction Industries, we continue to expect full year sales to users growth, supported by strong order rates. Overall, the outlook for North America remains positive as sales to users are anticipated to grow versus last year. Construction spending remains at healthy levels supported by the IIJA with the remaining funds to be spent over the next few years. Also, investment in critical infrastructure programs and data centers is contributing to overall construction spending levels. Dealer rental fleet loading and rental revenue are both projected to increase compared to 2025.

In EAME, Europe is expected to remain stable, supported by nonresidential construction and construction activity in Africa is projected to remain strong. While softening in the Middle East is anticipated, as of now, we expect the impact on EAME sales to users to be limited. In Asia/Pacific, outside of China, softer conditions are expected. In China, we anticipate moderate conditions with full year growth in the above 10 ton excavator industry off of low levels of activity. Growth in Latin America is expected to continue. We're seeing continued positive momentum in Resource Industries with strong backlog growth. Robust order rates across most products drove the highest quarter for order intake since 2012.

For 2026, sales to users are expected to increase, primarily driven by rising demand for copper and gold and positive dynamics in heavy construction and quarry and aggregates. Most key commodities remain of investment threshold. Customer product utilization is high and the age of the fleet remains elevated. While some commodity prices have increased recently, customers remain focused on the long term. We continue to expect rebuild activity to increase slightly compared to last year. Rail services and locomotive deliveries are both anticipated to grow for the year.

Now let's turn to Slide 6 for an update on our strategy. Over the past year and even since our Investor Day last November, our largest customers in the broader data center industry have significantly increased their expectations for capital spending. That has translated to accelerated order rates for us. In fact, since we first announced our initial capacity expansion plans in January of 2024, our large reciprocating engine backlog has grown by more than 3.5x. Customers are committing to longer-term orders with some orders well into 2028.

In addition to order growth for backup power, we're also seeing higher demand for prime power applications, which will lead to long-term service opportunities and higher demand for aftermarket components. As we've discussed, our large reciprocating engine capacity also serves a wide range of applications in addition to power generation, including oil and gas and mining, which are all expected to benefit from long-term secular growth trends. As a result of these trends, I'm excited to announce that we are increasing our large reciprocating engine capacity from 2x 2024 levels to nearly 3x 2024 levels. Over the last 2 years, we've maintained a disciplined strategy of scaling capacity in direct alignment with our growing backlog and long-term order visibility.

By working closely with our customers to forecast their future requests, we ensure that our capacity expansions are additive to our OPACC growth. Today's announcement reflects the continuation of this disciplined and measured approach. The additional investment will begin as soon as possible but primarily occur from 2027 through 2029. As a result, MP&E capital expenditures are expected to average between 4% and 5% MP&E sales through 2030. Based on our record backlog and customer forecast, we estimate a positive cash payback on the entire reciprocating engine investment, including what was previously announced by the end of this decade.

As a result of the additional capacity, we're increasing our 2030 growth targets. We now expect the compound annual growth rate for total enterprise sales and revenues to be between 6% and 9% between within '24 to 2030. The target for power generation sales has increased to more than 3x sales by 2030 from a 2024 baseline. We continue to see attractive growth opportunities across all our segments due to our role in providing the invisible layer of the tech stack, the critical minerals, the reliable power and physical infrastructure that the modern world depends on. We believe we are well positioned to deliver long-term profitable growth.

And finally, earlier this month, we announced that Kyle Epley will succeed Andrew Bonfield as CFO effective tomorrow. It's been a very privilege to work with Andrew. His leadership has been instrumental to Caterpillar's success, and he's brought exceptional financial expertise and relentless focus on disciplined decision making and a deep commitment to our customers and shareholders. He's made our global finance organization a strategic advantage and has impacted long after his retirement. I've worked closely with Kyle for over 20 years and have great confidence in his ability to build on Andrew's legacy. He's an outstanding leader with deep institutional knowledge and a proven track record of partnering with the business to deliver results. Kyle is also deeply involved in developing our refreshed strategy and will help drive achievement of our 2030 growth ambitions.

With that, I'll turn it over to Andrew and Kyle.

Thank you, Joe, and good morning, everyone. I'll begin with a...

Pardon the interruption. We have lost audio to our speakers. Please stand by. [Technical Difficulty]

Sorry, I'll start again. Thank you, Joe, and good morning, everyone. I'll be doing the summary of the first quarter and then provide more detailed comments, including performance of the segments. I'll then discuss the balance sheet and free cash flow. Kyle will conclude with remarks on our expectations for the second quarter and our current full year assumptions. Beginning on Slide 7. Sales and revenues was $17.4 billion, up 22% to prior year, which was in line with our expectations. Adjusted operating profit was $3.1 billion, and our adjusted operating profit margin was 18.0%, both were stronger than we had anticipated.

Moving to Slide 8. The 22% increase in sales and revenues compared to the first quarter of 2025 was primarily driven by strong growth in sales volume and favorable price realization. The stronger volume was mainly driven by the impact from changes in dealer inventories and higher sales of equipment to end users. As we expected, dealers recorded a seasonable inventory build in Construction Industries compared to the slight decrease in the first quarter of 2025. The bill was slightly higher than we originally anticipated, supported by the expectation of stronger sales to users for the rest of the year.

Sales were in line with our expectations with favorability in Power and Energy and Construction Industries, offset by lower-than-anticipated sales in Resource Industries. One note before I move forward. We will now report changes in dealer inventories in total and for construction industries needs, removing the total machines analysis. Remember that typically over 70% of dealer inventory in Power and Energy and Resource Industries is backed by firm customer orders. So dealer inventory changes in these segments are mainly a function of timing within the commissioning pipeline and less indicative of changes in demand or demand planning.

Construction Industries products are generally more reflective of dealer inventory available on the lot. And this level of transparency along with sales to use should help you more accurately model this segment.

Moving to operating profit on Slide 9. Both operating profit and a adjusted operating profit in the first quarter of 2026 increased by 20% to $3.1 billion mainly due to the profit impact of higher sales volume and a favorable price realization, partially offset by unfavorable manufacturing costs and higher SG&A and R&D expenses. The adjusted operating profit margin was 18.0%, which was only a 30 basis point increase compared to the prior year despite higher tariff costs. Margin was stronger than we had expected. This was mainly due to favorable manufacturing costs, including lower tariff costs and beneficial cost absorption and lower freight. Excluding the impact from tariffs, our first quarter margin was significantly higher than the prior year reflecting the higher sales volume and favorable price.

For the tariffs introduced since the beginning of 2025, the first quarter costs were approximately $600 million. This was favorable compared to the $800 million estimate provided in January, primarily due to an adjustment related to the computation of tariffs incurred in 2025. This adjustment is reflected in operating profit within corporate items and only impacts the first quarter. Segment margins are not impacted.

Moving to Slide 10. Profit per share was $5.47 in the quarter. Adjusted profit per share was higher than we had anticipated at $5.54, excluding restructuring costs of $0.07 versus $0.05 last year. Data center profit per share included a discrete tax benefit of $0.15 in the quarter. The favorable adjustment to our tariff costs benefited the quarter by about $0.31. Excluding discrete items, the provision for income taxes in the first quarter of 2026 reflected a global estimated annual effective tax rate of 23.0%. Finally, the year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases resulted in a favorable impact on adjusted profit per share of approximately $0.13 compared to the first quarter of 2025.

On Slide 11, I'll review the performance of the segment, starting with Power and Energy. Keep in mind that our comments now reflect the realignment of the rail division moving from power and energy to resource industries. For Power and Energy, sales of $7.0 billion increased by 22% versus the prior year. Sales exceeded our expectations driven by strength in power generation. The sales increase versus the prior year was mainly due to higher sales volume. First quarter profit for Power and Energy increased by 13% versus the prior year to $1.5 billion. The segment profit -- 20.6% was a decrease of 170 basis points versus the prior year. mainly driven by tariffs, which had about a 270 basis point impact on the segment's margin.

As we expected, higher manufacturing costs were also impacted by spend relating to our capacity expansion including depreciation. Favorable volume and price were partially offset to the manufacturing cost increase. The margin was stronger than we had anticipated primarily due to the benefits of some litigation efforts to reduce tariff costs. Sales volume also supported the stronger-than-expected margin.

Now moving to Slide 12. Construction Industries sales increased by 30% in the first quarter to $7.2 billion. This was higher than we expected mainly due to stronger-than-anticipated volume from higher dealer inventory build supported by continued momentum in our end markets. The 38% sales increase was primarily due to the very strong sales volume growth and favorable price realization, which included the benefit from geographic mix. Higher sales volume was mainly driven by changes in dealer inventories with a more typical $1.5 billion increase in the first quarter as compared to a slight decrease in the prior year.

As Joe noted, sales to users growth was healthy with a 7% this quarter. First quarter profit for the construction industry was $1.5 billion, a 50% increase versus the prior year. The segment's margin of 21.4% was an increase of 160 basis points versus the prior year, mainly driven by the favorable price realization and the profit impact of higher sales volume. This was partially offset by tariff costs, which had an impact of about 550 basis points on the segment's margin. Margin was stronger than we had expected, mainly due to the lower-than-anticipated manufacturing costs, including cost absorption and the impact of stronger sales volumes.

Turning to Slide 13. Resource Industries sales increased by 4% in the first quarter to $3.8 billion, driven by higher sales volume and favorable currency impact. The year began a bit slower than we had anticipated, primarily due to timing as volume was affected by some short-term production delays. First quarter profit for Resource Industries decreased by 39% versus the prior year to $378 million. The segment's margin of 10.0% was a decrease of 700 basis points versus the prior year driven mainly by tariff costs and an impact of about 500 basis points on the segment's margin. The margin was lower than we had anticipated, primarily due to the lower-than-expected sales volume and the timing of discounts, which impacted price realization within the segment on a short-term basis.

Moving to Slide 14. Financial Products revenues increased by 9% versus the prior year to $1.1 billion, mainly due to higher average earning assets across OEMs. Segment profit increased by 14% to $245 million. The increase was primarily due to higher average earning assets and margins at Insurance Services, partially offset by higher SG&A expenses. Our customers' financial health remains strong. Past dues were 1.39% in the quarter, down 19 basis points versus the prior year. The allowance rate was 0.86%, matching the fourth quarter of 2025 for our lowest ever level reported in any quarter.

Business activity at Cat Financial remains healthy. Retail credit applications were roughly flat, while retail new business volume grew by 8% versus the prior year, our highest first quarter in over 15 years. In addition, used equipment inventory levels continue to remain low and conversion rates remain above historical averages as customers choose to buy equipment at the end of their lease term. Moving to Slide 15, MP&E free cash flow was nearly $600 million in the first quarter, which was higher than we had expected and about a $350 million increase versus the prior year, impacted by stronger profit. The course included our annual payment of 2025 short-term incentive compensation, CapEx spend was about $700 million.

Moving to capital deployment. We deployed $5.7 billion to shareholders in the first quarter. After the dividend payment to $5 billion was for share repurchases, which has included a $4.5 billion accelerated share repurchase, or ASR, that may last for up to 9 months. Our balance sheet remains strong. We have ample liquidity with an enterprise cash balance of $4.1 billion in addition to $1.3 billion in slightly longer-dated liquid marketable securities to employ our cash. So after more than 90 quarterly or biannual calls, it is finally time for me to retire. I could not have scripted a better set of results to be my final call.

It has been an honor and privilege to serve alongside the CAT team and to work with Joe and Jim, the Board, our executive officer and our employees and dealers around the world as we've delivered on our strategy through a wide range of environments. I'm extremely proud of what this team has accomplished, and I am confident that the foundation we built together and the growth opportunities ahead. I also want to thank the investment community for the thoughtful engagement here at Caterpillar.

Finally, Kyle has worked closely with me since our beginning Caterpillar, and I have watched his development as a key member of Caterpillar's leadership team. His knowledge of the business and involvement in the development of the strategy was an invaluable help to me as CFO, and I could not have been more pleased that the Board elected him as my successor. As I step away, I am confident that Caterpillar is well positioned for the future and that the finance organization is in very capable hands with Kyle Epley as CFO.

With that, thank you again.

Thank you, Andrew. And I'm honored to be the next CFO of Caterpillar, and Andrew, I am very grateful for you and all the guidance you provide to me over your years at Caterpillar. So now let's go through our outlook assumptions. Turning to Slide 16. I will start with the second quarter. We maintain a watchful eye on the environment as the geopolitical landscape remains complex. Our assumptions are based on what we see today and what we believe is most likely. Keep in mind that our assumptions reflect the realignment of the rail division and Resource Industries, we filed an 8-K in late March to recast historical periods and establish in a baseline for you to evaluate segment-level performance and expectations.

Based on what we see today, for the second quarter, we anticipate another quarter of strong sales growth versus the prior year. We expect volume increases and favorable price realization in each of our 3 primary segments. We anticipate volume will be driven by a higher growth rate in sales to users compared to the first quarter, with a minimal change in Construction Industries during dealer inventory. If we look at the second quarter by segment, we anticipate strong sales growth in Power and Energy in the second quarter versus the prior year, driven by continued strength in power generation, and in oil and gas and favorable price realization.

We expect strong sales growth in Construction Industries in the second quarter versus the prior year, mainly due to strong sales to users supported by the backlog and favorable price realization. We anticipate a more typical sequential sales increase in the second quarter as compared to the first. In contrast to the sizable sales increase we saw a year ago, following a lighter first quarter, which was impacted by the lack of dealer inventory build. In Resource Industries, we also expect strong sales growth versus the prior year primarily due to higher sales of users. We also anticipate favorable price realization with the primary driver being geographic mix.

Now I'll provide some color on our second quarter margin expectations versus the prior year. Excluding tariff costs, we expect higher margins at the enterprise level, primarily due to price realization and higher volumes. But partially offset by higher manufacturing costs and SG&A and R&D expenses. The higher manufacturing costs assume unfavorable cost absorption and investments to support higher volume and capacity investments, including depreciation. SG&A and R&D expenses will reflect investments and higher compensation expense.

Despite the ongoing impact of tariffs, we also expect higher margins in the second quarter versus the prior year. We anticipate tariff costs of around $700 million. This remains a headwind compared to the impact last year, which was around $400 million. We expect about 50% of the tariff cost to be incurred in Construction Industries and 25% in both Power and Energy and Resource Industries. Now on to the second quarter margins by segment. In Power and Energy, including tariffs, we anticipate a slightly higher margin percentage compared to the prior year on stronger volume and favorable price realization. This is partially offset by higher manufacturing costs including tariff costs and expenses related to our capacity expansion projects.

In Construction Industries, including tariffs, we anticipate a higher margin percentage compared to the prior year as stronger volume and price particularly offset by higher manufacturing costs, primarily driven by tariffs and SG&A and R&D expense. In Resource Industries, including and excluding tariff costs, they had a lower margin percentage compared to the prior year due to higher manufacturing costs and SG&A and R&D expenses. Higher compensation expense and strategic investments related to technology, including autonomy, are driving the higher SG&A and R&D expenses. Favorable price realization and higher volume are expected to be partially offset. Note that for Resource Industries, we anticipate the benefit from price realization to improve as we move through the year.

Now on Slide 17, let me provide a few comments on the full year. As Joe mentioned, we now anticipate sales and revenues growth in the low double digits for the full year of 2026. This is versus our expectations from last quarter. The increase in our full year sales and revenue expectation is supported by solid sales to users growth amid resilient end markets, the fact that Power and Energy is tracking ahead of our 2026 capacity growth plan and continued robust fundamentals and industry growth in North America. We've had strong sales growth across each of our primary segments, driven mainly by volume and price.

Now on to margins for the full year. Excluding tariff costs, we expect to be in the top half of the adjusted operating profit margin target range. Compared to the prior year, favorable price realization and volume are partially offset by higher manufacturing costs related to capacity and higher SG&A and R&D related to increased incentive compensation and strategic investment spend. Including tariffs, we continue to anticipate that the adjusted operating profit margin will be near the bottom of the target range. However, with the improved sales and revenues outlook, full year adjusted operating profit margin will be higher than we expected in January.

As I mentioned, the situation flex, but we now anticipate full year 2026 tariff costs in the range of $2.2 billion to $2.4 billion based on our current volume assumptions. This figure reflects adjusted 2026 full year impact of tariffs implemented since the beginning of 2025 and in place over the course of this year. This compares to the $2.6 billion estimate we provided last quarter. Let me provide some additional context on our tariff assumptions. The bottom line is our expectation for tariff cost in the second through fourth quarters has not changed significantly since January. Based on the recent ruling on IEEPA tariffs by the U.S. Supreme Court, we removed these tariffs from our estimate and added Section 122 tariffs. We expect to ramp up our actions to mitigate our tariff costs in the back half of the year.

The recent updates to Section 232 guidance have a roughly neutral effect, and we are not currently in any IEEPA-related refunds as a result of the Supreme Court's decision. Moving on. We continue to expect restructuring costs of approximately $300 million to $350 million in 2026. And our anticipated global estimated annual effective tax rate remains approximately 23% for '26, excluding discrete items. We now anticipate MP&E free cash flow will be higher than the $9.5 billion last year, an improvement versus our expectations last quarter, reflecting our improved outlook. While our CapEx forecast for 2026 remains approximately $3.5 billion.

As Joe discussed, we are increasing our large reciprocating engine capacity from 2x to nearly 3x 2024 levels with additional CapEx spend occurring primarily from 2027 to 2029. We now anticipate MP&E CapEx spend to average approximately 4% to 5% of MP&E sales through 2030. Capital spend for our large engine capacity expansion is supported by strong demand signals and confidence in a positive cash payback by the end of the day. We believe these investments will support future absolute OPACC dollar growth. which is our definition of winning.

So now turning to Slide 18. Let me summarize. We delivered a strong start to the year with better than expected earnings. In this dynamic operating environment, we now anticipate higher sales and revenues growth in '26 compared to a quarter ago. We will remain disciplined and measured in our strategic investments while maintaining our strong balance sheet and we will continue to return substantially all of our MP&E free cash flow to our shareholders through dividends and share repurchases. Finally, we will continue to execute our strategy for profitable growth.

With that, we will take your questions.

[Operator Instructions] Please note, we are only allowing 1 question per analyst. And your first question comes from the line of Rob Wertheimer from Melius.

Congratulations to Andrew and Kyle. It's been a pleasure getting to know you both. My question is on large engine capacity expansion. It sounds like most end markets for big engines are pretty good. But is there any one that kind of predominated in the additional capacity expansion decision whether prime or Bower, oil and gas, whatever. Do we think about the timing as being kind of linear or lump sum at the end of the expansion period in 2029? .

It's Joe. It's -- definitely you think of the size of those industries right now and where the growth is really happening. We are seeing -- one of the things I'm really happy about is it's not just power and energy, we've had really good oil and gas quarters as well over the past few quarters from an order standpoint and health of the business. But just the pure size of it is really driven by power generation and that's where we're putting the capacity. And even over the last 6 months, the last 2 quarters, we've seen the orders go up pretty consistently. And if you go back to the industry with data centers and just the amount of CapEx announced in that industry since a year ago is quite significant.

So that's the main driver of why we feel comfortable putting this capacity in place, we have the benefit that it does over multiple industries, and we do think -- I do think we're going to move a lot of natural gas, and I'm excited about the oil and gas business and what its outlook is over the next few years. It's still a lot of prime power. So we still see a lot of cloud. It's not just AI. When we move into use of AI, we're going to use a lot more data. So the backup power opportunity provides a good base for us. But it is fungible capacity. We're seeing a lot more mix towards prime. And then also that drives when it's gas compression or prime power drives a lot of aftermarket, which this capacity will also allow us to serve that aftermarket opportunity, which I think gives us great services growth opportunity beyond 2030.

From a timing standpoint, with the second part of your question, we're going to try to put this capacity in as soon as we can. The data centers are trying to move quickly. We've been talking to customers. So we're going to start right away. I think you should see heavy investment in '27, but we'll be investing still in '28 and '29. We also hopefully, our expectation is to get incremental units out of this latest capacity announcement as early as 2027. So it will happen fast.

We'll move next to Jerry Revich at Wells Fargo.

Congratulations, Andrew and Kyle. Joe, I'm wondering if we could just go back to your prepared remarks, you mentioned you booked Prime Power large recips for now 6 data center projects, considering just the full scope of products that you have for us behind the meter offering. Can you just talk about what you're seeing in the architecture plans. We're hearing about increasing use of recips plus turbines in series of projects going forward. And if that happens, you folks would be in a pretty good position. So I'm wondering if you just outlined, is that what you're seeing, what kind of developments are you seeing in architecture and if you're willing to give us the number of gigawatts booked for recip buying power, that would be helpful.

Yes. I think I don't know that we -- I even have on the top of my head the number of gigawatts on prime power, but from a trend perspective, I think when you step back, what you're saying is exactly what we're seeing from our customers, each side is a little bit different. So I think all that depends on the site, the size of the facility, their access to gas, the footprint and power demand. So our teams are in early with customers. And you're right, I think we do have an advantage of having -- when you're going to string together a number of products behind the meter and you need multiple products, us having turbines and recips is an advantage for us, we can configure it one way or the other or a mix and a lot of it's driven by timing to and how fast we can get on product. .

So each one is a little bit different, but it does present an opportunity for us. And I think we're seeing as a trend more and more data center sites asking for behind-the-meter power. And so that's translated into, as I said in prepared remarks, I think 6 announcements over 1 gigawatt, but also multiple projects as well that are less than 1 gigawatt where we're supporting customers with prime power.

We'll go next to David Raso at Evercore ISI.

I just want to thank Andrew, obviously, one of the best CFO runs I've seen in my career. So congrats, enjoy your retirement. And obviously, congratulations, Kyle. I want to talk long-term targets. The change from a 6% CAGR to now a 7.5%, you can account for that almost, really almost more than the change just from the increase in your target today for power gen sales going from double to triple over that same time frame. .

And just given the ecosystem around power when it's that strong, be it oil and gas, construction, mining, I'm just curious why you left every other part of the business with the same view. I would just think there'd be some ecosystem benefit if you're raising your power gen thoughts that dramatically.

Thanks, David. So when you think about it, you're right, when you do the math, it comes out to the increased power gen, but that's really what's different, right, today from where we were at our Investor Day. As I mentioned, you look at the amount of CapEx spent in -- by the data center industry, particularly as it relates to power, we need to add capacity to do that. So that's incremental opportunity for us. Keep in mind, we have healthy growth ambitions, and we projected those out when we had our Investor Day. So it wasn't like the other 2 segments didn't have growth. We have growth across all 3 parts of our business. So we're pretty comfortable with the new 6% to 9% raise, and we're happy to be able to raise it, particularly so soon after really putting those targets out just in November.

We'll take our next question from Tami Zakaria at JPMorgan.

So with an improved top line outlook for the long term that you just updated this morning. Wondering what keeps your view on the margin opportunity unchanged versus the Analyst Day. Wouldn't you expect better fixed cost absorption? Maybe D&A steps up, but I would expect pricing could also be better given surging demand. So trying to understand what underpins this sort of high 20% incremental margin versus historically you have seen higher.

Yes, Tami, it's Andrew. Just if you remember when we actually set the targets, the average progressive, remember, they're progressive margin targets. At the moment, they go out to $100 billion. Obviously, at some point in time, that may be updated as we get closer. But remember that we had progressive targets of around 31%, which is the same average that we had than the previous margin targets which we think is fair and reasonable. Obviously, the aim always is to do better, and that's always one of the things we'll continue to focus. But today, we have headwinds, for example, caused by tariffs. So our target is really to get back to the middle of the range over a period of time and to mitigate the impact of tariffs as we speak. But that's really the driver.

I think obviously, we're also in a situation when we add capacity because we do accelerate the depreciation. Just to remind you, that does have a drag on margins as well, particularly in Power and Energy over the next few years as they bring that on. So it's not all incremental margins based on the old capacity rate. So you don't get quite the same amount of leverage as you would have done previously.

Yes, I think that's an important point that Andrew made, right? The progressive targets as we're adding sales, it's a 31%. That's just to stay at the same point in the range that we are. We're at the bottom. And as we've said many times, our goal is to work our way back up towards the middle of the range. So to do that, we're going to have to have better pull-throughs in that 31% as we work our way out. So that's primarily the reason. And we are spending, right, and we're adding the capital to do this. If you look at where we've been in the past, the last 7 or 8 years, we've not needed the capital to increase our sales because it's come back within the footprint that we have before. Now we're moving to higher sales levels than we've ever had in the company. So we're going to have to spend a little money to get there. .

We'll take our next question from Angel Castillo at Morgan Stanley.

I just want to echo everyone's congratulations to Andrew, I wish you all the best, and Kyle, looking forward to working with you. I wanted to spend a little bit of time on the capacity addition. I guess, can you talk about just the decision to add more capacity in the large engines as opposed to perhaps increasing investments on the gas turbine side. I guess I'm trying to understand if at all, this is any kind of read-through on how you view the demand of either product?

And then I know you said essentially the capacity here is fungible between prime and backup. But curious if you could just talk a little bit about more specifically the backup supply/demand backdrop. I think we've been seeing some rising concerns that as we kind of move to an 800 BDC or behind the meter that you could potentially more and more of that being kind of displaced or designed out? And again, you have the benefit of having that fungibility, but just curious if you could talk about that supply/demand and what you're hearing from your customers on that backup opportunity.

Yes. I think part of the explanation there is a large part of the base increase in the capacity is backup power, right, which is what we've done to back up data centers, and we've been leading that for a long time, and we continue to grow. That will be driven by continued more data on the cloud. So more tokens are being used, more data is going to be needed. We look at our own internal -- look at what we're trying to do internally with automating our factories and automation, what we're doing in the office, what we're doing with autonomy and our machines, right?

We're going to use a lot more data and we just look at the growth and the use that we're going to have, and we're not the only company out there doing that. So I think useful need to go up. All these projects for right now that we're seeing for prime power, we're not seeing customers not have backup power or making sure that they have the ability to run with backup plans. They're not just going with one option. So we haven't seen that trend continue. So I think the backup power is going to continue to be there. Not every data center is going to go behind the meter either and those are going to drive a lot of backup demand.

So as we look at it, we feel pretty confident in this investment in raising in capacity. Look, I've been around a long time. I know there are no such thing as sure things. But when you think about all the capacity investments we've made in my career, this is a better line of sight to getting the return than anyone we've ever made. And we don't need to be at all this capacity to be OPACC positive and grow OPACC. So that gives us confidence to make this investment at this point in time.

We'll move next to Michael Feniger at Bank of America.

Andrew, congratulations. Just when we think of 2030, that 50 gigawatt number you guys laid out at the Investor Day, is there any way we can get an update on that given the announcement today? And Joe, just when we look at the pricing in Power and Energy, it's still around this 2% number. I realize there's going to be some new products and maybe there's not a lot of like-for-like, but just generally speaking, should we be expecting that number to gradually rise through this year and into '27 as we see some of this backlog get delivered? Just directionally, how should we kind of think about that figure going forward? .

I'll take the second one first. From a pricing standpoint, I think 2 things I would say, we're taking orders well out in the future. Those have -- we take orders that are multiple years out, they have price escalators in there typically that are agreed with frame agreements. So we plan to see -- it won't be today's pricing, it will be whatever the appropriate pricing at the time is. When it comes to the capacity increase -- well, the other thing on pricing, keep in mind, power and energy is a big segment. So that 2% is over the entire segment. So obviously, where we're capacity constrained, we're able to do a little bit more, a large part of that business is industrial and smaller power generation, marine, there are other parts of the business for the smaller product, where we aren't constrained. It's a competitive environment. So that number you're seeing is weighted across the entire segment.

When it comes to capacity, so the 3x and the way we've said 2x capacity now going to 3x, that's sort of factory output in the way we look at it in units. From a gigawatt standpoint, we gave the 50 gigawatts. The mix is a little bit different in this. So you can't really equate this increasing gigawatts to what's in the 50 base, but we estimate this will give us another 15 gigawatts capacity annually when we're done with this installation.

Our next question comes from Jamie Cook, Truist Securities.

Congrats on another great quarter, and thank you, Andrew, for all your help throughout the year. Congrats on a fantastic career and look forward to working with you, Kyle. Congrats as well. I guess my question, just to generate back on Power and Energy again. I guess Tami asked the question on why margins shouldn't be going up which you answered. I guess my other question with regards to margins. Should we assume the variability of margins narrowed relative to, I think, the 400 bps pegged on each revenue cycle or throughout the cycle just to power your visibility and service aftermarket becomes a larger percentage of the business you're thinking the volume margin should narrow.

And then just the follow-up, just again, you're announcing capacity increases, a top line increase relative to just where we were in December. Is there anything going on structurally from a market share opportunity for Caterpillar that perhaps we're underappreciating.

Yes. So thanks, Jamie, we probably addressed that margin question, right? We're really happy with Power and Energy operating margins. When you think about one of the reasons we sort of reorganize ourselves, there's a lot of synergies that we get with the rail group being with the mining group, but it also gives you a good view of our Power and Energy business. And I think if you compare where we're at from an operating margin standpoint to the industry, we are leading in that space, and we have a really, really healthy business and it's continuing to grow, and it's an area we continue to invest.

I don't know that as that business grows, I think that we have any intention right now on narrowing that operating margin range. There are a lot of things that can go in to make that happen. Just look at our backlog growth, in this quarter, one of the things that I'm excited about, we added another almost $1 billion sequentially. We did almost saying from the third quarter to the fourth quarter last year, and we saw the percent of backlog delivered in the next 12 months come down quite a bit because it was heavily Power and Energy was a big part of that. We're pretty similar this time, which shows that all 3 of the businesses are taking healthy orders right now. So our intent is to grow all 3 of our segments. And so we don't have any intention of narrowing the bandwidth on the margin targets.

And just to remind you, Jamie, remember, our definition of winning is absolute OpEx growth in not necessarily margins. So the margins will always be there to give flexibility to enable us to invest. I mean one of the great things we're doing is we are putting central investment of dollars behind to get to those growth targets, which I think is really a positive even in an environment where we are seeing higher costs as a result of tariffs.

We'll take our next question from Chad Dillard at Bernstein.

So how is CAT helping the Tier 1 and Tier 2 suppliers ramp power gen capacity along with CAT. Curious to get your perspective on where you see the biggest bottle next arm. And then also by 2030, what share of, I guess, now 65 gigawatts of large engine production will be prime vs back up?

Yes. I don't know in 2030, I'm not sure we'll -- we can tell you exactly the mix between prime and backup. What we're seeing right now is a trend much more towards prime, but backup is growing quite significantly at the same time, as we said, I don't know that you'll see a mix change. I think both of them are going to change. By then, the more prime we sell, the more gas compression we sell, the more oil and gas, we'll also see a heavy shift towards the aftermarket as well for 2030 and beyond for services growth opportunities.

We -- as far as working with the supply base, that is a big part of the investment is not only within our 4 walls, but it's also working with the supply base to make sure that they can ramp and we have a big team that's working nonstop with them to make sure a lot of it's forecast visibility. So the more visibility we can give them to the forecast, the better they can react. And that's one of the reasons, frankly, why we've been able to be running a little bit ahead of schedule on the capacity we're installing right now is we've had great performance out of the supply base. So right now, we don't see any major issues. And that's the first quarter and being ahead is allowing us to have more confidence, which is why we gave a little bit better outlook for this year as we think we can maintain that as we go throughout the rest of this year.

We'll move next to Kyle Menges at Citigroup.

Congrats to Andrew and Kyle. I wanted to follow up on some of the RI commentary. It sounds like in Resource Industries backlog is growing nicely at a pretty significant quarter of order intake. I'd just love to hear kind of what's driving that. How much of it is perhaps new mines versus existing mines coming back and replacing fleet? And yes, I just would love to hear more of what's driving the strength in the RI backlog.

Yes. I think you could -- I mean, when it comes to new versus existing, there aren't a tremendous amount of new mines that are going in, you kind of see where they're at. We continue to work with customers. The age of the fleet is pretty old. So we'll see customers continue to update their fleets. And as we look forward as well, the technology that we can bring in on new equipment, we think will help drive some of that fleet turnover as well. But it's really driven right now by strong mining, particularly copper and gold that's driving the backlog growth.

The other thing in RI to keep in mind, the North America construction industry has been very resilient when you think about what's driving it, and that has a carryon effect into heavy construction. So that's also in the RI backlog and contributing to the strength that we've seen in the orders there.

Adria, we have time for one more question.

Today's final question comes from the line of Mig Dobre from Baird.

Andrew, thank you, and all that in retirement. Maybe we can continue the conversation on mining here. Your comments on orders being the strongest since 2012 really kind of stood up. I mean it's a little bit at odd with negative pricing still with margins you're seeing impacted by tariffs near term. But I guess my question is, as you see this demand cycle manifest itself, how do you think about the segment operationally? Whether we're talking about the manufacturing footprint, whether we're talking about pricing, can we actually see mining get back to the kind of margins that you've experienced back at the prior feedback in 2012? .

Yes. I mean I think we had slightly negative pricing in the first quarter, and that's a little bit due to timing. And keep in mind, the mining delivery cycle is much longer. So as we take orders, delivery, what we're delivering now the orders from quite a while ago, when you look at the RI segment now, it has the rail group in it. So I think you just make -- going back to 2012 is not going to be apples-to-apples when we look at it. But we're going to continue to invest in the business. The strong orders are a great sign of what we think is to come. It's a competitive industry as well. So we want to make sure we're being competitive as we go into each tender.

The other thing I would keep in mind when it comes to margins, particularly right now, our eyes relative size to the other segments, a little bit smaller on the top line. So we're going to make the investments that we think we need to be competitive in autonomy and other things. So if you have an autonomy investment, in RI and you have an autonomy investment in CI, it's going to have an outsized impact on the operating margin percent in RI for now. But as we continue to build that segment and we get operating leverage back, we would definitely expect the operating margins to get better. We think they'll get better even this year from what you saw in the first quarter. But as we continue to grow the segment, our goal would be to get those operating margins up as we move forward.

So thank you for all the questions and your engagement today. One, I just want to say, congratulations to Kyle, I look forward to working closely with him executing our strategy. And Andrew, again, thank you for everything that you've done. You've been an amazing CFO. And if you look at the track record of the company during your tender is probably like no other CFO we've ever had. So you will be missed, and we appreciate everything you've done, but you're leaving us in a great place and in great hands. And thank you all for joining us. We truly appreciate your questions. I'm very proud of the Caterpillar team's strong performance in the first quarter.

Our first quarter results demonstrate the resilience of our end markets and our disciplined execution. With a record backlog and a focus on delivering for our customers, we're well positioned to continue creating long-term value for our shareholders. With that, I'll turn it back over to Alex.

Thank you, Joe, Andrew, Kyle, and everyone who joined us today. A replay of our call will be available online later this morning, we'll also post a transcript on our Investor Relations website as soon as it's available. You'll also find a first quarter results video with our CFO in an SEC filing with our sales to users dated. Click on investors.caterpillar.com and then click on Financials to view those materials. If you have any questions, please reach out to me or Rob. The Investor Relations general phone number is (309) 675-4549. Now let's turn it back to Adria to conclude our call.

Thank you. That concludes our call. Thank you for joining. You may all disconnect.

All right. Good morning, everyone, and welcome to the Caterpillar fireside chat here at CONEXPO 2026. We're welcome to have you join us today live from Las Vegas. My name is Alex Kapper, Vice President of Investor Relations.

Just a few quick reminders before we get started. Today, we will make forward-looking statements which are subject to risks and uncertainties. For a full list of risks which may have a material impact on our actual results, please see our SEC filings, including the 10-K, which was filed just last month. We'll also refer to non-GAAP numbers. For any reconciliation to U.S. GAAP numbers, you can see our appendix of our latest earnings presentation. And lastly, we've done our safety briefing here in the room. So we just encourage anyone joining remotely to be aware of your surroundings and your local safety protocols.

So with that, I'll hand it over to our host, Steve Volkmann.

Thank you, Alex, and good morning, everybody. My welcome as well to this fireside chat. I'm Steve Volkmann with Jefferies, and very pleased to be hosting this event. So obviously, joining me here today are Joe Creed, Chairman and CEO; and Rod Shurman, who is the Group President of Construction Industries, I think, for 32 days now.

32, 33.

All right. So looking forward to, I think, your first fireside chat in the role.

So why don't we go ahead and kick it off. Maybe I'll start with you, Joe. You've introduced a new strategy, and I think Rod will be a big part of its implementation as you move toward this 1.25 sales growth to users target. Can you talk a little bit about your history with Rod and what you expect from him as the new leader of CI?

Yes. Thanks, Stephen, and thanks, everybody, for joining us at CONEXPO. We're really excited to launch our strategy last year, head into CES, talk about the invisible layer of the tech stack. And the technology runs on physical infrastructure that all 3 of our segments are going to contribute to and are necessary to power and run today's technology-enabled world. And then this week, straight into CONEXPO to celebrate the construction customers and CI, our segment that builds that infrastructure.

So we have a lot of cool things here that we've talked about. Rod is a big part of all this. Before we do that, I want to make sure I thank Tony Fassino. Tony is retiring after 30 amazing years at Caterpillar. He's a great leader. I've worked with Tony a really, really long time, and he's driven CI to record results and leaves it in a great position for Rod to take over.

But Rod and I have worked together for -- when did we start working on it, 2009? Probably 17 years ago. We've known each other a long time. We've worked together in multiple divisions in different capacities, and he's going to be an amazing leader for CI. All the people I work with, Rod, he's run factories. He's done engineering jobs. He's great at all of them. But one thing I would say is he is amazing with customers and has just this intellectual curiosity to understand how our customers use our equipment and then really buys into the mission statement, right, solving our customers' toughest challenges. Rod is the kind of guy who likes to talk not just to loyal Cat customers, but to people who actually don't buy Cat equipment to understand how we can get them to buy Cat equipment and what their challenges are so we can serve them. So he's high energy. He's an expert. I'm excited to have him on the team.

Great. So let's turn to you then, Rod. What CONEXPO or Caterpillar keynote highlights should investors be focused on?

As investors, as you hear this week, a couple of things. Joe said it, it's our commitment to customers to solve their toughest challenges. And as you go through the show, you'd see if you're an operator stadium, you're in West Hall or you go to South Hall, it's how we're focused on those challenges for customer safety, labor, productivity. Mixed fleet challenges, common challenges for every CI customer that has big fleets. And even from a side of being easier to do business with, you'll see what we have in the West Hall, which is the launch of Cat Compact, which is focusing on those new customers coming into the business.

And how does your history with BCP signal an increased focus on smaller compact equipment? You have a lot in your booth in the West Hall, I noticed, on compact.

I think it signifies a really important part of our strategy in CI. We think of commercial excellence and how important commercial excellence is one of the pillars in our strategy we rolled out late last year. It is just taking that voice of listening to customers and what they wanted, and it was really clear for us. We've been in the compact construction equipment industry for over 20 years, and we still had customers that didn't know we made small equipment. And so having a channel that was very simple and easy to reach for them was really critical. And when you're over there in the Cat Compact booth, it's just a really simple omnichannel solution, connects digital with physical where they can really find what they need so they can try, buy, lease, rent, get service and get financing all in one spot. So it really kind of helps solve the challenges they gave us to go solve.

And the key thing about it -- and Joe hit it -- it was talking to people that bought Cat equipment, but it was also really listening to thousands of people that did not buy Cat equipment and what they wanted. And from that perspective, that's kind of what that's all about. So it's an important part of our strategy, and it's one of the areas of commercial excellence we're really focused on.

So I was at your keynote yesterday, and I think you told a story about accosting a customer at a gas station. I thought it was interesting. Maybe you want to...

No, my esteemed colleague, Jamie brought this up, right? And so we heard about as we work through this -- this is going to get me to laugh quite a bit, it's funny. So I'm a small Cat machine owner myself. We own a Cat 265, and we owned a 259 prior to that. And it was just stopping right and talking to people all the time, that becomes quite the challenge for if you have anybody with you in the vehicle, but it's kind of a really strange person, you're talking to all these strangers.

But the amount of feedback you need -- and you just meet people that use machines to make a living and you really understand from the lens of the customer back to Caterpillar, what we can do to really help them solve challenges, right? For small contractors, the challenges can be -- you can look at them, they're different. And we take a large civil contractor, they can have completely different challenges, but it's our commitment to be focused across the spectrum.

So CI has historically had more of a dealer inventory sort of stock, destock cycle. Is there any way to reduce that volatility?

For us, one, dealers are independent businesses, and so they'll focus on what inventory they need for their customers. But as we look through that, the opportunity we have as we continue to look at that is we're focused on growing services and rental. The rental is going to be some -- we'll see that kind of change going over to them.

But the opportunity we really have -- and again, this is the commercial excellence side of the strategy coming in is taking that, see what the customers need and what we need and how we drive it. As we look at those problems for our customers -- and they can have a big job come up and they need that flexibility to get into assets quick -- having the right equipment out there for them is going to be critical to solving that problem and continue to grow in CI.

Yes. I would say on that, add on, we've done a lot of work on our S&OP process and working with our dealers. Our dealers are independent businesses, but it varies by region of the world, by size of equipment, what application of equipment that our dealers are working on with customers in certain parts of the world. And we've done a lot to reduce that volatility, but we need to make sure we have the right inventory on the ground so that we continue to support our customers and not have them wait for equipment. So we've done a lot of work on that. The data that we have helps us with all that. And again, I think that was, I understand, an issue for us in the past, but I think we've done a lot to mitigate a lot of those impacts.

Okay. Good. All right. So you mentioned rental. What's your assessment of sort of the dealer rental business now? And does the dealer fleet size, composition, age need to change? And what can Cat do to help dealers grow this business?

A lot in that question right there, but we hit through this. One, it's -- rental for us is really focused on helping our customers solve challenges. And the other part is you think about rental from that simple to do business with. For many customers, it's their first experience with Caterpillar when they come into rentals. And so you look through that. You'd see here we launched catrentals.com, which is a really simple interface for customers to deal with.

And we look at dealers, it's not as much about fleet size, it's age, it's composition, it's how they're pulling assets in and moving those out. And for a lot of customers, it's really solving cash flow challenges they can have on the job site. They might not need a machine long term, but maybe there's something they need short term. And it's just a great way for us to continue to grow our financial portfolio and get some more stability in the business between cycles.

All right. Good. So I'm going to change the topic a little bit. [indiscernible] I mean, curious if you think Cat is a lean company? Which businesses stand out? Is there still significant upside? What are the best metrics for us to be watching?

I'll comment on Construction Industries, maybe let Joe comment on the rest of Caterpillar. But for Construction Industries for us, we are a lean business. We're focused on lean. I think it's important for you to understand lean isn't just a project, right? Lean is always taking place for us. And as we go through and continue to work on lean in our business -- Joe hit it -- as we look at demand, supply planning, focus on the intersection of where things come through from the commercial side of the business to our operational side and getting that dealer input. Those are opportunities we continue to have in the lean space to focus on improving that. And by doing that, it's a way for us to lower cost, become more efficient and ultimately improve total cost of ownership for our customers as we continue to improve that.

A journey, not a destination.

Yes, I agree.

It's an infinite type of a thing, not a finite thing.

Yes. If you're working on lean and you declare you're lean, I would contend you don't understand lean, right? Lean is a constant process of continuing to figure out how to be more and more efficient. And different parts of our businesses are definitely farther along than others, and some have their challenges like large engines and turbines, where we're trying to expand capacity and keep up with demand. It's probably not as lean as we'd like it to be. We still implement all the time and put all the philosophy and concepts in, but we have a lot of room to continue to improve.

Great. So let's maybe switch to some market trends. I think we need to make sure we make Alex an honest man about his forward-looking statements. So let's get your thoughts here. Maybe, Rod, you can chime in, too. 2025 was a massive year of backlog growth. What trends are you seeing by segment? Is pricing more robust than the backlog? Any risk of cancellations?

Do you want to -- our backlog has obviously grown tremendously year-over-year and even sequentially as we ended the year. So orders have been really strong. We're happy. And the good news is it was across all 3 segments. I think people had a lot of attention around the Power and Energy business, data centers. But fourth quarter, we had a record quarter in oil and gas. We're seeing good order trends in oil and gas. CI had a really, really good quarter when it comes to orders in the fourth quarter, one of the best -- one of the best ever, and then RI, even the best in a few years. So I think it's healthy across the board.

Risk of cancellation, I don't think so. We talk to customers all the time, right? And so does it never going to happen? I mean, you can never say never. We had a large customer in the middle of last year in Power and Energy come to us and say, "Hey, one of our big projects kind of get stopped or moved around, and can you work with us?" And we work with customers all the time to move slots and we have plenty of demand right now to sort of make sure we can cover everybody. The good news is we're taking orders farther out, and we're working with customers to plan.

One of the things we mentioned in the fourth quarter is I think it dropped about -- the percentage of backlog in the next 12 months is lower. So we're starting to see line of sight to demand farther out. That's a good thing because we're working with customers to make sure we get product to them, especially where constrained in large engines when they need it and not ahead of time, so that allows us to serve more customers. So I think we are -- we have healthy businesses. All 3 of them are in great shape, which is good to see. You can comment on CI, what you're seeing from an order and a backlog standpoint.

Yes. I think for CI, we -- our backlog is good for us as we think through tailwinds we still have coming from infrastructure. We think through all that's going on with the energy transition, data center build-outs for us. I mean, we are that invisible layer of the tech stack and just continues -- demand continues to be strong for us there.

We're close to the customers, as Joe said, and that's -- I'll keep saying it, that's a really important part of our strategy in that commercial excellence pillar as we work close with customers. It lets us be much more dynamic and understand what's going on so we don't kind of have these really late responses to what's changing, but we're not seeing anything like that right now.

Okay. So you didn't comment on the pricing part of that question.

About pricing in the backlog? Yes. I mean, we have -- most orders, we take current pricing. And most of our businesses are at normal lead time, normal availability, so it's not an issue. Power and Energy obviously is getting extended. On solar, we take progress payments. Those are specially priced, how that business works. And then in the large engine business, for our large customers, we have frame agreements. And in those frame agreements, there are generally agreed to escalators and things as we go into the future. So I'm confident in the pricing we have in the backlog and feel good about where we're at.

So maybe, Joe, let's just recap sort of your growth outlook for the 3 key segments for 2026. And specifically, I guess, maybe more for you, Joe, but are mining customers finally ready to refresh their fleets?

Mining has been, I would say, steady over the last few years. And that's a good thing for us. For us, if you think about mining when it was in the supercycle, it was kind of boom and bust. So you ramp the factory way up, volume would fall off and customers would slow down. And then we'd have to sort of restructure, we have a lot of inventory. This allows us to plan. Mining customers have pushed off some rebuilds, and that's put a little headwind to us in 2025 anyway on services. I don't think that business is lost. It's a timing issue. But from a mining standpoint, we saw strong orders in the fourth quarter. I don't think it's going to be the boom and bust that we saw in the past. It's been pretty steady, and that's a good thing for us.

And the world needs more minerals, right? I mean, I think -- I've learned over the last 10 years not to call the timing of when people are going to refleet. We want to stay close to our customers. And actually extending the life of their equipment is a good thing for them, and it's good for us. It's a good services business. It keeps them loyal. That way, when it is time to buy and refleet, they're going to come to us. We're working with them all, the new technology. We're excited to get Dynamic Energy Transfer out there. I think that's going to be a game changer for our mining customers. So we feel good about where it's at. And if you just look at mining is a long cycle business. If you look at the next 5 to 10 years, just the amount of minerals that are needed to support what's going on in the growth in the world, mining is going to have a good run.

And do you have data on sort of fleet ages?

Yes. I mean,, we track fleet age all the time. We track utilization. We track all those stats, right? I mean, I think that obviously, given the volumes that are out there and long as we've been seeing the fleet continues to age. But it's being utilized, continues to run, and we continue to support our customers with good services.

Okay. Do you think we can have a big AI boom without a natural gas cycle?

I'm glad you asked. We had a record quarter in oil and gas in the fourth quarter, and I think that's one of the underappreciated pieces of the Power and Energy portfolio was our oil and gas business. We play in the entire value chain when it comes to natural gas, from helping an extraction, and then we move gas and then we help burn gas, turn it into power on the back end. So we have a very good line of sight to natural gas, and gas compressions have been really strong. You can look at forecasts for LNG exports out of the U.S. You can look at a lot of forecasts on IA on what part of natural gas growth is going to be over the next 15 years, and it continues to grow. So I think it's going to be a part of the energy solution.

Personally, if you haven't been in the oil and gas business -- you were in the oil and gas business with me, so you know how this works. There are traditional ways we kind of forecast gas usage. When you really think about data centers and the amount of power plants, whether it's our equipment or someone else's, there's going to be a lot of natural gas-fired plants and power to satisfy this demand, which means we're going to move a lot of natural gas in the next 5-plus years. And I think it's probably more than people really realize when you really add up all the power demand that's going to be out there. So I'm very bullish on the natural gas and gas compression part of our business. I think it's going to be healthy.

Great. Okay. So maybe let's switch to your services focus. And obviously, you're looking for $30 billion in services revenues in 2030. I think you did something like $24 billion in 2025. What are the key drivers to achieve this?

I think you see a lot of those today. I mean, it's different by segment. As I mentioned, 2025, we've got a little pause on some of the mining rebuilds. I think those will pick up, and that's good services growth for us. The more mining utilization we have, the more services are going to grow in RI.

When you look at CI, we're showing off a lot of tools, services commitment 2.0, so increasing our services commitment. Rod can explain a little bit about that if we want to. Extending VisionLink to full fleet capabilities, so more customers use VisionLink, which get into our ecosystem and make it easy to do business with us in CI. I just think we have a lot of room to grow. We continue to connect assets, use our tools. Launching the AI Assistant is going to get us even closer to the customer. So CI is an area -- and Rod can comment on where we have a lot of opportunity to grow services.

In Power and Energy, the more we see a shift to prime power gas. Jason talked about this at our Investor Day. It's significantly more aftermarket to a generator that's running for prime power because it's running constantly, similar to our oil and gas business. When you're in a gas compression application, it's going to be running 24/7. So those require service that require overhaul cycles. And so as you start to see that business grow and the field population grow, as we head to the back part of this decade, it's going to lead to great services opportunities for us. But you can talk about CI because it is one of the largest opportunities we have.

For CI for us, it would -- like as Joe noted, it's one of the largest opportunities we think of the number of connected assets we have today that are out there and what we're doing with our new services commitment focus. Here for us now as we launch this year in North America and other countries around the world following it, that services commitment to a customer with the Caterpillar Customer Value Agreement is 24-hour parts, 48-hour return to work. In writing to the customer, the customer gets credits if we don't deliver on that.

So for us, that's a big change. We're putting in writing, what we guarantee what we're going to do for that customer to give them the support they need to support that machine through its life cycle and its next life cycle and next life cycle. And in addition -- and Joe hit on how we bring all that data together to make things really simple for a customer. As a customer myself, it could have been cumbersome a couple of years ago to go find the right part for your machine, for example, which can really impact our services business.

Today with how the data comes through in VisionLink with Cat AI Assistant, I could simply ask, "Cat AI Assistant, how do you change the oil on the Cat 265?" It will give me the instructions that will link me to the parts I need. So we're really making it simple for the customers to get what they need to service their machine and keep it running with genuine Cat parts. Would be some simplest examples of how we're solving that.

We can take the same thing out to big fleets around the world. And that mix fleet challenges we're solving for them brings all that data together, really helps them grow that, which brings them closer to us and helps us serve them better and drive their cost of ownership in the long term.

Okay. So when we get to the $30 billion, how much of that roughly would be sort of parts versus services?

I mean, we don't really split it. When you think about the Caterpillar branded business, right, we use the dealer network for service. So most of that's going to be aftermarket parts. When you go to the other parts of our business where we have direct model like Solar Turbines, our rail business, it's a heavy services model as well. We've seen terrific growth in those businesses, both of them. And in particular, Solar, as we're adding capacity for turbines, all those are prime applications and come with a great services opportunity. So that services aspect of Solar's business is going to continue to grow. So it's also a big part of how we get to $30 billion and beyond.

Okay. I guess where I'm going with this is that at the show here, you actually have quite a bit of interesting sort of AI assistants, both for operators and for upkeep and things like that. And so is there an opportunity to have a significant amount of sort of subscription base?

Yes. I mean, I think right now, the way -- it's early, right, in how we deploy technology and how -- whether it's AI, whether it's autonomy or task autonomy, and I think we'll be flexible on what sort of commercial models we want to have. And that's one of the advantages we have versus a startup or somebody who's just a tech company who wants to do it, right? For big customers, it's going to be part of a total package deal.

So right now, in the $30 billion that we've laid out, we continue -- we talked about in RI, growing autonomous fleet. I mean that's obviously part of it, but the lion's share of it is going to be around traditional services business for us or services opportunity for each of our segments because each one of those has an opportunity to grow.

Okay. Well, I probably would not endear myself to my community if I didn't ask you about Power and Energy. So let's spend a few minutes there. You've communicated plans to more than double your gas turbine business and double your large engine capacity to meet power demand. Can you talk about the ramp timing and sort of key execution risks?

Yes. So we started on the large engine and generator set side of the capacity investment a couple of years ago. And so we've made great progress. We were actually a little bit ahead of schedule last year, which I'm pleased with. Jason and his team are doing a really, really good job. We continue to get more units out almost every quarter. So it's not just one big step-up. But we will see, I think, a step change as we exit this year and head into next year on large engines.

When it comes to doubling or more than doubling our turbine capacity, we just announced that last year. We obviously have been started on that, but that one is going to be a little longer, so it will probably come more '28, '29 time frame. But those are longer cycle, longer orders. We generally have good line of sight to that. And we were already working on some of those things with the introduction of the Titan 350 and some of the new programs that we had in solar. So we've got a good start on it. We are on time or ahead of schedule so far, and I'm happy with the way it's going.

So it sounds like maybe a step-up in recips in '27 and then a step-up in turbine?

Yes, that's the goal. But it's not flat with a step. We want to continue to get more units out every quarter as we go.

Okay. And what are sort of the key gating factors here? Is it labor, suppliers, casting?

I don't think there's one key gating factor that we have right now. As we look at each of these projects, we're working to make sure we have the capability inside our 4 walls. We definitely are doing the labor planning for us. Machine tools probably that get ordered, those have to get here and get installed. And then when you start to install new machine tools, one of the longest things we have to do is validate components, right? We have a Cat brand promise that's going to be high quality coming out of the gate. So we have to get hours and validate these machine tools, that they're up to our quality standards before we launch products out to customers.

But all of that's in the works. And then obviously, we're working with the supply base to make sure that we have the right component supply. And that's a big part of this investment as well. When we think about capacity, it's not just -- it's going to help us with the data centers and this explosive demand that we're seeing. But again, we use on the large engine side and in the turbines, we use them in oil and gas. And then when it comes to large engines in our marine business and in our Cat machine business. So there's a diversified set of applications and volume demand for this. It's being driven largely by the data centers, but a lot of this is also in our component supply, internal component capability, as well as in the supply base. And when you think about services growth, which we talked about, and a lot of overhaul coming on for large engines and gas compression and prime power and solar, a lot of this is also going to help us with our services growth and make sure that as we put more and more units in the field, that we have the components to make sure we can keep up on the services side.

So you almost anticipated my next question, but I'll ask it anyway. So I think a lot of times, people don't realize that the large recips and the turbines are somewhat fungible in terms of what you use them for. And so you mentioned earlier, a fair amount of optimism around the nat gas cycle. But just talk about -- can you basically use the same equipment across nat gas and power gen and...

Yes. I mean, that's one of the reasons why it's a huge advantage for us to have just the breadth of the businesses that we do. And we do this development with sort of a core engine in mind. And Rod used to work with large engines with me, and the engineering group also ran some of those factories. So we try to have a really core set of iron when it comes to the engine. And then we have application engineering and application iron to sort of tweak it to an oil and gas application. Even in oil and gas, our compression application for a 3500 versus a fracking application is going to be a little different.

So you go to electric power, the same thing. Mining is a little different. But when it comes to the core iron and the core capability in the factory, which is where both of this capacity is going in for, that's an advantage for us. It supplies multiple applications, as well as the aftermarket.

So obviously, a lot of very strong demand across this type of equipment. What's your approach to sort of pricing this stuff?

I mean, we have -- pricing varies by each one of our businesses. And it varies by region of the world, right? And so we take a lot of things into account when it comes to pricing, mostly the competitiveness, and we price for value, right? We try to be the premium provider of value to our customers, and that allows us to drive a price premium in the industry because it's good for them when they look at their total owning and operating cost.

And so that's why all the tools that you see here when it comes to CI, especially where I would say it's really competitive -- and we talked about it last year, we introduced some merchandising programs that were very successful and got us some good momentum, but it's way more than just the merchandising program. I think VisionLink Full Fleet, Cat AI Assist, all the things that we're doing here, working with our dealers with services commitment 2.0, that's going to help us provide value to our customers. And that's the key really driving factor of our pricing. Of course, we take inflation and all the other things that are going on in each part of the world, the competitive situation, but we're in a different spot in each one of our businesses.

Okay. Good. So going back to your Analyst Day, I was actually struck when you said this, but you talked about how solar turbines are a good opportunity for bridge power as we get to sort of to some future state where the grid is bigger and more available. So it sort of begs the question -- and I get this a lot -- what happens in whatever, 2030, 2035, pick a year, when the grid sort of catches up and I don't need that bridge solution anymore?

Yes. I mean, I get this question, as you can imagine a little bit as well. The demand is here now, and these are great assets. They're very efficient. Our turbine lineup, especially 250 and 350, are very efficient because they're newly developed, our newest developed products in the lineup. We continue to work with customers and the closer we get to them, we know all these data center customers well on how we can continue to drive efficiency through using the heat to help with cooling and just -- we'll drive more and more efficiency.

I think 10 years from now -- I don't know what happens 10 years from now. But I think this bridge might be a long bridge. I'm not sure we're probably going to continue to add on to this bridge because if you think about the build-out that needs to happen, if it's really grid connects, it's more than just building a new power plant. You got to build a new power plant, and you need to have transmission to move the power and get it there and then we got everything connected.

So I think there are going to be more and more we have to upgrade the grid here in North America and around the world. I mean, I think that's a necessity. But the timing of that, I'm not sure. And then I'll put my former finance hat on and CFO days, right? Our asset will be in place, it will be running. It will be -- we're going to make them super efficient. I think then, you have to do the math equation if you're the owner of the site, are you going to do the grid connect? What do you need? What kind of business outcome or business case do you have? And more and more, what you see is as well, you hear this and read about it all the time that data centers are going to have to pay their way. We don't want electricity rates to go on to the consumers and on to households when it comes to electricity.

So if you're a data center owner and a site owner, if you're going to pay your way and you already have to do that, I think it helps us, right? You want to control your own destiny versus kind of pay and have a utility. Some of that's going to happen, I'm sure, and they'll work it out in the rates. But you can control your own destiny with your own power plant behind the meter, and that really -- we have the widest range of solutions if you're going to do that because we have turbines and recips, all the way from 38 megawatts down to a small size.

So it's an evolving industry and evolving trend. I think that's why it's hard to say what's going to happen 10 years from now. But I know right now, for the next 5-plus years, the demand is strong. And if it does happen down the road, keep in mind, we have a big overhaul fleet in solar, right? We have a huge reman business where we can take cores back in, and it helps our reman be more profitable as we remanufacture the components and put them back out for offerings in the aftermarket. So we have a lot of opportunities and flexibility to deal with that when it happens or if it happens. But I think that's a long way away.

Okay. Fair enough. I just wanted to switch a little bit to just talking about sort of the broader portfolio at Cat. You've deemphasized some underperforming operations, I guess, in my words, but things like underground mining changed your approach in China a little bit. I'm curious if there are other areas where you might be considering some refocus?

Yes. I mean, under Jim, when we launched the strategy in 2017, I was a big part of that with him and with my colleagues in the executive office to implement that strategy. And we put a lot of discipline in the business through the operating execution model. That's the lens with which we look at all of our businesses. It's how we do our resource allocation. It's what's driven the structural change in our margin profile and our cash flow performance.

And it's -- we focus on growing OPACC dollars, but we give those other metrics so people can see the impact that it has. And so we did look at some of the product lines and decide that our resources are better used elsewhere. That's what's really changed the performance of our business. We'll continue to use that discipline as we move forward.

But we have great opportunities in all of our segments. We have a regular cadence of reviews every year and how we look at our businesses strategically, and we'll continue to do that. Rod can comment on China. I'm not sure we really -- we have a huge presence and a set of factories, employees, dealers in China. I would say China demand has been down in 10-ton excavators, which is where we tend to participate. So it's not that I don't think we've drastically changed our approach there. I think we're not as dependent on that because we have grown our businesses everywhere.

So China, like other parts of CI, not every region of CI is really going strong. North America is going strong. Middle East is strong. China and other parts of Asia has been relatively weak the last few years. So I don't think we've changed our approach that much. We'll be there if that business picks up for our customers. But we use the only model through the whole business, and that's how we run it.

Okay. Rod, I wanted to give you a chance to talk about China a little bit.

I think for us in CI, like Joe said, we've got manufacturing footprint over there, several employees over there. We continue to see China as an opportunity for us. We're going to continue to focus on that and focus on it to grow there profitably. As we see those customer segments come back, where can we really participate and bring the value that we bring as Caterpillar and how can we work on that. And that's our commitment as we go through it. We've got a global footprint. We continue to serve customers around the world as we best can to continue to grow profitably, and that's a part of the world we're going to continue to be in.

Yes, I just don't view China as different than the Middle East or Australia or -- I mean South America. We want to compete everywhere and support our customers everywhere. And I think we can add value to our customers everywhere and continue to grow.

Okay. What about the rail business? Is that still sort of a central Cat business?

Yes. I mean our rail business, our services in rail have been growing very consistently. The North American locomotive market has been down for a really, really long time, being down to almost 0. I mean, there's occasionally a deal here or there. So we've done the rightsizing of that business. And John Newman, President of our Rail business, has done an amazing job with adjusting that business to lower demand. But we have great product development going on and be there for our customers when that buying opportunity happens. And until then, we continue to help with rebuilds and continue to grow services in rail. And so I think it's a good part of our portfolio right now.

And moving it to RI really makes a lot of sense because we have common customers, a lot of mining customers around the globe will buy locomotives internationally, great services opportunity. And we share a common footprint with our assets inside Caterpillar. So it's allowed us to kind of get some efficiencies between the two businesses.

Okay. So maybe I'll flip the question the other way. Obviously, you do return most of your free cash flow to investors. But are there any sort of dream assets out there where if you had the opportunity, you'd take advantage?

Well, I don't know if there's a dream asset, right? We continually look at what do we need, right? So what is -- what are the capabilities that each one of our segments needs to grow, right, and to take care of our customers and solve our customers' toughest challenges. We generally look lately for things like RPM. We're really excited about closing on RPM. It's a digital platform that can come in and enhance plug into the rest of our MineStar and other autonomy and other things we do in RI and provide a better holistic solution to our mining customers that's going to make them much more efficient and allow us to serve them in a lot better way.

So we look for assets that we can bring in and scale across the businesses that make sense. So we have a part of the O&E model, right? What does it take to continue to grow in the industry? What do we see in industry trends? We look at our portfolio, are there any gaps in technology or things that we need? So I don't think of it as looking for dream assets out there that are right now. But if the right opportunity comes along -- one of the great things about being a disciplined company, we generate a lot of cash. We have a lot of debt capacity. The balance sheet is in great shape. So we'll do the right thing at the right time to grow our business.

Okay. So two predecessors ago from you, I sat in Peoria and was told that the future of mining is underground, and that you're going to have to figure that out at some point. Does that still resonate with you?

I don't know what that conversation was with Doug. I have to ask him. It was a long time ago.

It was a long time ago.

I'll see him soon. I can ask him. But we stay close to our mining customers, right? And I think there's a ton of opportunity with the portfolio that we have. We do have -- where we do participate in underground is where I think we can add value to our customers. And so we're not going to kind of say, it's one certain subsegment of RI or mining or construction. We want to support our customers where we can add the most value and that way, it's a win-win for both of us and our dealers.

Okay. Good. So I sort of saved this one for last, but it's the one I get first. Probably you do too, but tariffs. Obviously, there's been a lot of noise around tariffs, and we're trying to figure out what the Supreme Court ruling might mean. Just any update regarding your view of tariff impact?

Yes. I mean, it's still -- and we've said this all last year, right? It continues to be a volatile situation. Obviously, the Supreme Court ruling came out. We have teams working very hard to try to digest it and understand their announcements coming out and what's going to happen next. And so we'll continue to monitor that. We don't have an update for anyone right now. We'll hopefully have more when we release our first quarter earnings here in a few weeks. But for now, we don't really have an update on it. It continues to be fluid.

The good news is if you look at our order trends in all 3 segments and kind of how we started when we talked about this, right? We had great order momentum in all 3 of our segments, great backlog in all of our segments and tremendous momentum in the business. And that's -- what we're doing right now is, of course, we're looking at all the tariff situation. But we have tremendous momentum in all 3 segments, and that's where we want to make sure we keep going.

So you have had a fairly big hit to margins in the short run around all these tariffs. So I'm curious about your sort of strategic approach. Is it more important for you to regain that lost margin over time or to gain sort of [ pin ] in the U.S. market?

Yes, I think we can do both. And that's how you run a healthy business, right? We want to grow business. We also want to have healthy margins. And I think, one, it's a testament to the discipline that we put in our business that we've been able to absorb that level of expense in that short amount of time and still be sort of in our margin ranges.

If you think about it, our goal is to grow OPACC dollars, but we want to operate towards the middle of the margin range, right? And we're going to work our way back there over time, but it takes a little bit of time when things continue to move around. But I think we can do both. I think we can operate solidly in the margin range and continue to grow our business at the same time.

So maybe for Rod in the same vein here. There's this perception, I think, that there's been a lot of price push through over the past few years and that contractors or customers are a little bit sick of price increases, to use a vernacular. You did see some negative pricing with some of your sales push last year. What's the outlook for you? Does pricing sort of stabilize? Is there an opportunity to push a little bit more through? Or is it an industry where there's just -- the competition doesn't allow it?

As we look through last year, we did talk about -- Joe mentioned earlier, we did some merchandising really focused on customers and some of the things they need to do, we need to do for them. We'll continue to have initiatives like that, that come out that are focused on segments of the business where we're seeing some demand, and we're really trying to work and show what we can do and drive the value that's out in the product. We're going to continue to work with our customers and help them understand the value that's there along with the dealers. And when we can demonstrate that value to the customer, and we'll see the price come through, we'll continue to stay focused on that. So we largely follow where the industry is going to be at, and we're in that position and we continue to just work on demonstrating solutions for us to drive that value prop that customers have always known through Caterpillar.

We'll do what drives value for our customers. We'll lap those merchandising programs this year and expect a more positive pricing environment as we go throughout 2026. So I think it's -- we continue to look at the situation. But right now, we have healthy margins, right? You look at the operating margins of our segments, sort of best in the industry, and that's a testament to the way we've been running the business, and we can continue to grow and have good margins in the ranges. I think it's great. That's the right sweet spot we want to be at.

Do you think there's been any market share shifts in this whole process?

I think we've outperformed the industry in CI last year, and I think we continue to do well in large -- with our large data center customers. So our goal is to continue to just gain more customers. What we're seeing with Cat Compact, the full intent of that commercial excellence in Cat Compact, getting close to the customers to speak to a smaller subsegment of the construction industry that really doesn't consider us as much as we'd like them to. So through those types of opportunities, I think we can continue to grow the amount of customers that want to use Cat machines and Cat equipment.

All right. Good. Well, I guess I can attest to the fact that you're a lean company because I'm out of questions. And if there's any final comment you'd like to add?

I think here for everybody who's here when you're out, take a chance to see everything we've brought because it's completely focused from what our customers have asked us for, solving safety, productivity, labor challenges, mixed fleet solutions that are out there. We've brought everything we have in that space to show. You can see some of that from our keynote we did yesterday.

But if you're at an operator stadium, go through the demonstration area, walk through the technology booth, take a chance to go over the West Hall and see all we can do to solve that. Just remember, Cat Compact is out there. When these first customers come, we're building the reputation and the brand that comes with Caterpillar with that loyalty and that first touch. We're doing the same thing with rentals and all the other solutions and technology are out there to really solve our customers' toughest challenges, and that's what we're committed to do. And we brought -- this is our big show in North America, and we brought everything out there to show our customers what we can do for them today and in the future.

Yes. I couldn't say it better, right? We are focused on the mission statement, solving our customers' toughest challenges. And when we do that, everything you see here lines up, whether that's through commercial excellence and being easier to do business with or whether that's through all the technology that we have to make them better and more efficient.

It's really exciting to see the strategy come to life. We have amazing opportunities in all 3 of our segments. And for me to come here at CONEXPO to feel the energy, I think you and I and Steve were talking before, the energy here, in particular, in our multiple booths, I think, has been incredible. And it's fun to see our customers, our dealers, and most of all, the incredible people at Caterpillar who make this happen every single day. So we have an amazing team. I'm proud to be part of it. And our -- we have a very bright future, and I think we're going to have a great year in 2026.

Great. Well, Joe, Rod, thank you on behalf of the investment community. We appreciate the time you've spent with us, and it's been fun.

Thank you. Thanks, everybody.

Thank you.

Welcome, everyone, to the Caterpillar fireside chat at the Barclays Industrial Select Conference. I'm Alex Kapper, Vice President of Investor Relations for Caterpillar. We just want to make a few quick reminders before we get started.

Today, we may make forward-looking statements, which are subject to risks and uncertainties. For a full list of the risks which may cause our actual results to vary materially. Please see our SEC filings, including our 10-K, which was filed just last week.

We may refer to non-GAAP numbers as well. So any reconciliation to U.S. GAAP numbers, please see the appendix of our earnings presentation.

And with that, I'll hand it over to our host, Adam Seiden.

Great. Thanks so much, Alex, and thank you to the Caterpillar team for being here. Both Alex, Rob, and of course, star of the show today, Andrew Bonfield. So the format of this session here is going to be a hybrid between a little bit of remarks from Andrew as well as some questions from myself. Like most of the presentations here and sessions here, we do invite your participation through the gadgets that are sitting on your table when we get to the audience response questions.

So with that, Andrew, good to have you back in Miami here.

Yes. Thanks, Adam, and good morning, everybody. Let me just start quickly just to recap a little bit about our strategy. So just to remind you, definition of winning is to grow absolute OPACC dollars. The reason why we call -- OPACC is operating profit after capital charge, it's the center of our strategy. The purpose there actually is, we believe that's got the highest correlation to free cash flow, which actually then creates total shareholder return. And if you look at our performance over the last -- since 2020, Caterpillar has generated top quartile total shareholder return and at the same time, grown OPACC dollars by 4.1x. So that strategy is working, that's the benefit and the effect that our shareholders have seen through that.

As you know, in November, many of you know, we set out our new Investor Day targets. There's a couple of new ones, which were there, which haven't been previously particularly around sales and revenues, which is to grow sales and revenues between 5% and 7% between now on average between now and 2030. Last year, we achieved 4%, slightly underneath that goal. If you remember at the beginning of the year, we actually expected sales to be about flattish or down slightly. So actually, it was a pretty good performance and reflects the benefit of some of the merchandising programs, particularly, we've been doing in our Construction business. Last year, our Construction Industry sales grew by -- underlying sales to users grew by around 5% in a down market. So a strong performance there.

We continue to deliver on operating margin within our operating margin target ranges, which I'll talk about in a moment. Last year, it was towards bottom end impacted -- that impacted us in 2025, without tariffs, it would have been towards the top end of the range.

Again, continue to focus on growing services. Services did grow modestly last year, just over $24 billion and on track to deliver our target of $30 billion by 2030. Free cash flow continues to be strong. We'll talk a little bit more about that in a moment.

We delivered -- returned about 84% of free cash flow to shareholders through a mixture of dividends and buybacks and grew the dividend by 7% last year. These are some of our additional targets we've given outside below into our segments. The top three related to sales targets, which relate to obviously help underpin the 5% to 7% growth. The balance really relates to our technology and digital activities, which is where a significant amount of our investment dollars are going as we move forward through the strategy and into 2030.

Operating margin target range has been changed. It used to be 10% to 22%, it's now 15% to 25%. We've upped the top end of the range from $72 billion now up to $100 billion. The pull-through at the top half of the range is exactly the same as the pull-through was at the bottom part of the range, around 31% on average. Obviously, one of the things that if you think about where we are going at the moment, we are expanding CapEx and capacity. So -- you won't get as quite as much operating leverage as you would have done historically at lower levels of sales and revenues. So that's part of the reason why we stuck to that range. We've always said you cannot grow margins to infinity and beyond. It is one of those things where, obviously, you balance out and that's why our real target, although the margin ranges are there for guidance is absolute OPACC dollars because that is, again, what we believe has the strongest correlation to total shareholder return.

We continue to invest for profitable growth. CapEx this year will be around $3.5 billion, still less than 5% of revenues. We are doubling CapEx over the next 5 years versus the previous 5 years, but still very affordable within the strength of both of the balance sheet and the cash flow generation that we have. So although we are expanding capacity, this is not a significant investment in the context of Caterpillar as a whole.

We continue to invest behind digital and technology, things like automation, connectivity, all of those things are important as part of our strategy and we'll improve our -- increase our investment by 2.5x between now and 2030. This is the chart, which actually is the one which I think is the real -- is the money shot it's the free cash flow chart, but it's one which actually shows the differentiation of Caterpillar versus many of our peers. Our free cash generation is really, really strong over the last three years. We generated in excess of $9 billion of free cash flow. It's the highest average free cash flow generation within the S&P 500 Industrials. We are a strong generator of cash. And that occurs even in times where even if you look in 2020 during COVID, we still maintain positive free cash flow that year. It is one of the strengths of the company. It is one of the things, the benefits of OPACC, which has helped obviously drive that correlation to shareholder return.

At the same time, we've grown the dividend for 32 consecutive years. We're a proud dividend aristocrat. Since 2019, we've grown dividend on average by 7.5x, 7.5%. At the same time, we've also talked about the fact that we expect that to grow high single-digit increases between now and 2030. And share repurchases have been revenue strong. So we've bought back since 2019. Part of the strategy was to be in the market more consistently with share buybacks. We have done -- we've actually, until last year, we returned 99% of free cash flow, 84% last year. We'll do a slightly bigger ASR, accelerated share repurchase in the first quarter than we did last year. It's a bit of a way to cover that up. but effectively reduced the share count by 21% over that time period.

We don't try market time. We're not looking to beat the market on average. We will look at it against a VWAP, the volume weighted average price, but actually just -- to give you context, the average price we bought those shares back is actually $226. So again, that's helped shareholder return as we go forward.

So key takeaways, strong financial performance. We continue to invest for profitable growth, which supports our shareholder value creation as we move forward. So with that, Adam, over to you for questions.

Thanks, Andrew. I appreciate that overview of the company a bit on the strategy. So maybe to start off here. Lots of folks in the room here, lots of folks talking about data center, power gen and certainly, I think folks appreciate what you guys bring to the table there. but maybe for those folks that are a bit newer to the CAT story and are looking at that angle. Can you talk a little bit more about some of the other [ legs ] that are still here?

Yes. So it's -- the point being is, actually, we actually have broad-based business and a very diverse business, which is one of the things that people sometimes don't appreciate. And obviously, the three segments: Construction, Resource Industries and Power and Energy now.

Within Power and Energy, it's not just a data center play. There's obviously particularly around oil and gas. If you think about the demand for the increased energy, that is going to require more gas. So we use recip engines, which is the same recip engines you can use for data center backup generation. It can be used in wellhead gas compression, and that can also be used in well servicing for actual oil exploration. Also, we have solar turbines, which you can use in, again, powered applications, but also principally actually using gas compression for pipelines. So if you think about the fact that, obviously, if we do need more electricity and electricity growth in demand is going to grow. Most of that in the short to medium term is going to come from gas. If it doesn't come from gas, coal may be another option. As you've seen, the administration here has talked about. Again, coal benefits mining business, our Resource Industries business.

Resource Industries. If you think about what's happening in the world today, there's two parts of that business is mining, and then there's heavy construction, quarry and aggregates. Again, a lot of infrastructure spend still going on. A lot of the IIJA money is still being spent as we moved out. And if you think about, again, infrastructure spend around data centers. Again, that requires heavy construction. And then on the mining side, if you think about copper, gold, all of those commodities are very strong, iron ore and so forth are all required to build out infrastructure. And we are in a point of time where if you look at the average age of the fleet, it continues to age. Some of that reflects the fact that obviously, it sort of depends where the life of the mines are. But obviously, at some stage, there will be a replacement cycle. It's been happening, but it's very, very slow, much slower than people anticipated. That's not necessarily a bad thing because what that does mean is you actually see a more steady progression rather than the boom bust that we have seen in the mining cycle before.

And then on the construction side, again, if you look around the world, North America construction remains strong. Nonresidential construction has been very strong. We've been doing particularly well, actually on the smaller side equipment, BCP, which tends to be used in residential construction. There's been some changes. And again, some of the merchandising programs we put back in place this year, have helped that particularly where we buy down interest rates for customers, which obviously isn't attractive. If you're a small landscape gardener and you want to buy a Skid Steer at a lower interest rate and a fixed payment is an attractive option. That's a good way of spending our merchandising dollars because we get a lot of that back through CAT Financial later on. But also, again, still infrastructure growth.

But around the world, actually, that's been a bit mixed. So Middle East has been strong. Latin America has been growing. Asia PAC has been sort of mixed. China very weak, and we expect some improvement this year in 2026. And Europe has been pretty weak, although we expect some improvement as we look through 2026 as well. So again, it's a broad-based business.

And then we haven't even talked to Power and Energy, things like transportation, which obviously is moving over to rail moving over to Resource Industries this year now as well. So there's quite a lot of activity. And again, that breadth of the portfolio helps and also obviously, the drive towards services helps reduce the amount of volatility you would see in a normal cycle.

Great. That's a great rundown. So you spoke a little earlier about some of the investments that CAT's been making. So how broad-based is that investment spend across CAT's portfolio these days? Or is it concentrated in one area?

Yes. It's -- I mean, obviously, from a CapEx perspective, a lot of the CapEx is obviously going today. A lot of the increases relating to the capacity increases we've announced for both electric powered -- large engines and also for solar. Effectively, within large engines, we're increasing our capacity by 1.25x. Large engines can be used in a number of different applications. They're not just for electric power. They can also be used for oil and gas applications and actually are used in large mining trucks as well. So they are multipurpose engines, which we're driving. And then in solar turbines with the -- now with the launch effectively of the TITAN 350 which is around a 38-megawatt turbine. We are seeing a lot of interest for that, and we are doubling capacity for solar turbines. That capacity will come in over a number of years. We started seeing a little bit last year, a little bit more towards the end of 2026, particularly on the large engine side, most of it in 2027 on the large engine side, and then solar probably '28 onwards.

Got it. And you're talking about the different parts of the portfolio a minute ago. So just does CI and RI get the same level of investment today versus when you first started as CFO at [ CAT ]?

Yes, they do. I mean it's -- for example, a lot of our digital investment is going on in CI. So not only do we have -- and also a lot of our technology investment is going into both CI and RI. For example, looking at the tech stack for our autonomous applications within RI as part of what we're doing to reconfigure that. We -- for those people who don't know, Caterpillar has moved over 7 billion tonnes of dirt autonomously over the years. We have over 700 mining trucks out there today operating autonomously. So again, that has been a strong part of the portfolio. But obviously, we're looking to make that even more efficient and then move that more into construction applications, which are different much more challenging in many ways. Lots, some of those are remote. We already have that, but obviously continue to invest to find ways of -- because one of the biggest pain points for many of our customers is labor and that skilled labor is a challenge. So looking at it again, we did a lot of the CES around technology, around some of the things we're working on.

And then connectivity is really important. So connectivity, it's really about making sure we know what the machine is doing, where it is. We can actually help customers maintain or increase their uptime. That is really important for our customer base. Remember, in construction, if you think about it, a lot of the activity works in parallel -- [ in a series ], not in parallel. So you have to have your piece of equipment ready available at that point in time when you're ready to, for example, soil compaction. You may have moved dirt, but now you want to do soil compaction. If the machine doesn't work, at that point in time, you actually lose time on your job. So it's really important to be able to have machine uptime. Connectivity helps that by actually enabling us to help people with things like fault codes and then AI as well applications on top of that to actually help customers maintain or improve their uptime, maintain the serviceability of their equipment.

Great. So when we think through the backlog a bit, right, you guys talked through, I guess, AIP actually, it's one of the largest power gen orders ever for CAT. And that seems to come on top of what was already, what, about $10 billion plus in backlog growth this quarter. So could you talk a little bit about the size of AIP and then maybe for like compare and contrast, if not dollars, but like -- like how does it compare versus the Joule and Hunt announcements earlier?

Yes. I think it's about a gigawatt of power that's being applied there, obviously. And so it is slightly smaller than the Joule size. But again, it's just a reflection of the fact that these are significant opportunities for us. If you're a data center today and you're looking for a grid connection, you know often that is now under scrutiny. All the reports going on about how data centers are struggling, particularly given the pressure it's putting on customer bills.

Having worked in a utility before. I know how much fun it is trying to go to the regulator to get a bill increase and to build out infrastructure is not easy. And so there's a cost to doing that for a data center. And there's also a time issue, either getting reconnection could take many years. and/or also you may be in a situation where you're waiting for a new power station and you're waiting for a GE Vernova turbine for '29, '30 before you can see one. So it means that the people are looking for other options. And one of the benefits of both our smaller turbines and research is availability compared to other options that are out there.

So that's really been a driver and AIP is exactly that sort of where you're sitting there as a data center provider, and you're being -- going to be told, it's 3 years before you can start generating revenue or there's an option to use other options from a time value money perspective that may actually drive you to look at, say, CAT as a way of actually closing the gap.

Good. And with AIP and some of the other order momentum that you've seen in the business, I guess, is there a good way to think about how backlogs grow in '26 or maybe Q1 just given the size of that?

Yes. I mean, what I would say to you is that, obviously, normally within that business, you would see in CI and RI an increase in backlog normally in the fourth quarter, that would be normal because ahead of the summer selling season. Those are shorter lead times, so they tend to work through. So you will see some of that work through a little bit in the first quarter for CI. So that would not be -- that would be a normal seasonal pattern.

Obviously, normally in power and energy, a lot of particularly things like solar tend to be orders which tend to get delivered towards the end of the year, given the packaging required around the turbine. So again, that tends to mean particularly in solar, you tend to have a buildup of backlog as you go through the year. Obviously, it's really around what orders can we take, what slots can we fill. If you saw historically, we've normally been able to provide around 70-plus percent of orders within one year. Currently, we're running at 62%. So again, slots are becoming more difficult to get and so there may be people putting out backlog orders later this quarter, AIP will be one which potentially will flow through into the first quarter.

And on those orders in the backlog that you spoke to, how are those set up in terms of like are there framework agreements, inflationary indices that they're set to? And what are those prices benchmarked to?

Yes. So I mean we have -- in a number of the longer-term contracts, you have an escalator in there, which may be an index or maybe related to future price increases. Again, it's a contract-by-contract basis. That is negotiated. Obviously, for -- and so most of the backlog has some form of price protection in it because, obviously, that's really important, particularly as you get to longer lead time items.

Great. You mentioned merchandising programs as well that paid off certainly for CAT quite significantly. So now sitting here in the first couple of months here in '26, what has been some of the feedback from dealers on that program from last year and how that's played out and what's the expectation set for this year?

Yes. I mean, again, as I mentioned, one of the great things last year was we actually saw end-user sales grow by 5% in the market in an industry that was generally flat to down last year. And part of that is the success of those merchandising programs.

If I look in CAT Financial, for example, what we -- or what the proportion of the custom machines refinance actually went up quite significantly last year. And part of that, again, also reflects the fact that the merchandising programs were seen as a success.

Obviously, for large customers, they have their own sources of finance. They don't necessarily always come to us. Some of them do because of the optionality. But obviously, for a small retail customer, it's a really a good option, particularly if you give a low single-digit interest rate for a 5-year. And that obviously helps their cash flows. And that's why, particularly within the small equipment, we actually saw a significant pickup of merchandising from that, which is good. And the aim is to continue to put those programs, keep those programs in place.

If you think about what happened during the post COVID area, we probably took them down a little bit, which helped price because obviously, that fed through into a better price. Obviously, for the last 18 months, we've been taking that down price down in order to put that back. But it gives us a better balance and a better competitive situation.

Remember always, from a CAT perspective, our brand promise is around the lowest total cost of ownership. That might not have a price premium may be higher upfront, but it's about quality productivity and actually the length of build to be rebuilt as part of our mantra as well, which means the machine life tends to be longer. And so that actually reduces your total cost of ownership. So again, having those things are important. And then obviously, our operating finance, particularly smaller customers would rather have a CAT Skid Steer than another brand.

I know a lot of folks in the audience tend to have questions on inventory. So maybe just thinking that the business -- if you think over the last couple of years, the business does feel a bit more comfortable running a bit higher than historical average dealer inventories. I don't know if you push back on that or not. Is that fair? And then I guess more of the bigger question that I'm after is, does that change the destock, restock dynamic that we've seen in prior cycles?

Yes. I mean I would push back a little bit because I think we still tend to -- dealers tend to think about the average of 3 to 4 months as the sort of level of inventory and we're still within that sort of normal range. There may be areas where we actually look within -- but again, that's a machine and we have a large portfolio of machines and not every machine is the same. And one of the areas where we might want to actually build inventory over time is say is having some more small equipment on the yard rather than just always having large excavators and big bulldozers because then that's a higher, faster moving piece of equipment.

So there's things we tend to look at. Again, we talk to the market about it as if it's one number. And it's 150 dealers around the world, probably they have 90 pieces of different type of equipment that they may be stocking on the yard, it's complex. So -- And so -- but I think that what we are trying to do is work closely with our dealers to make sure we never get into an excess inventory position. I think that would be the way I would frame it because obviously excess inventory does create an issue where we then end up having -- it causes us production issues because you haven't just slowed down the factories and then it also causes them to have issues on their end as well on clearing their inventory out.

So it's better for us to actually help work with them and try to manage their independent businesses than make their own decisions but try to work with them to make sure we don't end up in a situation where we have been in the past. I mean, that was back in the 2012 era. Yes, we're not -- we're trying to avoid those sorts of issues.

I appreciate you took the inventory number from being one number to two numbers. So at least we got a little bit of a bounce there. On the -- thinking through other topical stuff like tariffs, right? So what country-specific relationships should we be paying attention to? It feels like every day or week or so, we see another country in the headlines about a potential deal or not, India being one of them most recently. And then thinking about the other side of that, what -- how large is that basket of mitigation measures available to CAT on some of this stuff?

Yes. So I mean, obviously, what we always remember is CAT is a net exporter out of the U.S. So we are -- the administration is trying to encourage to manufacture more in the U.S. than it produces elsewhere. But obviously, we are a relatively low volume producer. So there are places where we have centers of excellence for individual products.

The tariff actually -- I think there's two parts to the tariffs, obviously, the 232, which relate to steel and aluminum, which are very different from, say, the IEEPA tariffs, which are a little bit more broad-based, country-specific. And there's some of the challenge around some of the IEEPA's tariffs. We have seen those fluctuate, and we'll continue to see those fluctuate. I'm not going to go country specific about which ones are bigger. But obviously, we keep a very close eye on things, obviously, India, as you say, has reduced the tariff and obviously, we'll update what we think that impact of that will be when we report our first quarter results in -- at the end of April. But if it was material enough, we would obviously come out as we did last August with a statement about what we would update the impact if it became material. But that stage is not -- India is not that material in the context of the total.

On the mitigation side, it's around looking at sourcing changes. It's looking about making sure you maximize the use of where there are exemptions or there are duty drawbacks and things like that, that you can use. Obviously, we've been trying to avoid doing too many sourcing changes straightaway because obviously, that is one thing which obviously we don't want to do something and then find out 6 months later, the tariff has gone down and then you regret the action. So we've been very mindful about doing that. But overall, we'll -- as we say over time, our intent is to mitigate the impact of tariffs and to be around the midpoint margin target range. So that's really -- obviously, this year, we still got a little bit of a way to go.

Got it. And just a really quick one first before we get to the audience response, it's going to be just on the capacity ramp, I think you gave a little bit of a progression earlier to tell us how you think things should be through. So just what's assumed in your guidance for 2026 for the capacity ramp in power gen?

Yes. We actually have built -- we've got some growth in -- obviously, in Power and Energy, we haven't specifically gone by capacity from that perspective, but we should see some capacity come online. Obviously, working really hard to see if we can bring it on a little bit faster. There will be always be part of it. This year is probably going to be our peak CapEx number, '26 and '27 are probably going to be the peak year for CapEx, $3.5 billion this year. somewhere around that, maybe slightly lower next year as we get into '27, but that was sort of our expectation. '26 to '27 will be peak years.

Fantastic. If we could just switch to the audience response questions here first. All right. So when the timer goes on, that's when to respond. Do you currently own the stock? Yes, overweight, market weight, underweight or no?

Timer, please. Okay. Lots of dry powder. About half the room that says no.

Next question? What is your general bias towards the stock right now, positive, negative or neutral? Half the room -- a little over half the room says positive.

Next question, please. In your opinion, through cycle EPS for CAT will be above peers, in line or below peers? All right, about 2/3 of the room, above peers.

Next question, please. In your opinion, what should CAT do with excess cash, both on M&A, larger M&A, repos, DVs, debt pay down or internal investment? Buy back shares, Andrew.

Next question. And the last one, and this one is not going to be a good one for this room. In your opinion, on what multiple of '26 earnings should CAT trade, less than 10x, all the way above, higher than 21x? You guys can mess with us here. All right. I'm going to throw that one now. But it's -- I led to the witness -- all right.

So maybe just Andrew, just to pass back to you. Anything you want to wrap up with here?

No, just -- obviously, this is an incredibly exciting time to be at Caterpillar. There's lots of opportunity. Our focus is, again, still continuing to drive strong total shareholder return. We're very pleased with the returns we've been able to drive for shareholders. But that is obviously part of the strategy is to continue to do that going forward. That's the most important thing.

Excellent. Well, please join me in thanking Andrew, Rob and Alex for coming here.

Welcome to the Fourth Quarter 2025 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Kapper. Thank you. Please go ahead.

Thank you, Adria. Good morning, everyone, and welcome to Caterpillar's Fourth Quarter 2025 Earnings Call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, CEO; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of the Global Finance Services Division; and Rob Rengel, Senior Director of IR.

During our call, we'll be discussing the fourth quarter earnings release we issued earlier today. You can find our slides, the news release and a webcast recap at investors.caterpillar.com under Events and Presentations. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited.

Moving to Slide 2. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast.

A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slide.

For today's agenda, Joe will begin by sharing his perspectives about our results and provide an update on our performance toward achieving our Investor Day targets. Then he'll share our full year outlook and insights about our end markets, followed by an update on our strategy. Finally, Andrew will provide a detailed overview of results, key assumptions looking forward.

We'll conclude the call by taking your questions. Now let's advance to Slide 3 and turn the call over to our CEO, Joe Creed.

All right. Well, thank you, Alex, and good morning, everyone. Thanks for joining us today. Our Centennial year marked a significant milestone, and we achieved full year sales and revenues of $67.6 billion, the highest in Caterpillar's history. In a dynamic environment, with net incremental tariff headwinds of $1.7 billion, we delivered full year adjusted operating profit margin within the target range at 17.2% and adjusted profit per share of $19.06. We also generated robust P&E free cash flow of $9.5 billion in 2025 allowing us to deploy $7.9 billion to shareholders through share repurchases and dividends during the year.

Our backlog grew to a record level of $51 billion, an increase of $21 billion or 71% compared to last year. All-time high sales and revenues, along with record backlog are evidence of the strength in our end markets and strong execution by our team. Now let me take a minute to walk you through our fourth quarter results.

Sales and revenues were $19.1 billion, an all-time record for a single quarter. The increase of 18% versus the previous year was better than we expected and reflects higher volumes in all 3 of our primary segments while price realization was about neutral. In particular, volume growth was better than expected in Power and Energy as we were able to ship more product than anticipated at year-end.

Adjusted operating profit margin was 15.6% and adjusted profit per share was $5.16. Fourth quarter adjusted operating profit margin and adjusted profit per share were better than we anticipated due to stronger-than-expected volume growth in Power and Energy. In the quarter, the net incremental cost from tariffs was near the top end of our estimated range.

Robust ordering activity across all 3 primary segments contributed to the very strong backlog growth. Now I'll review fourth quarter retail statistics for each of our 3 primary segments, starting with Construction Industries. Construction Industries total sales users grew for the fourth consecutive quarter, rising 11% and which exceeded our expectations.

Increases in North America were better than expected due to strong growth in nonresidential and residential construction. Rental fleet loading and our dealers' rental revenue also grew in the quarter. Sales to users declined slightly in EAME and Asia Pacific, in line with our expectations, and we saw growth in Latin America, which was better than anticipated.

For Resource Industries, fourth quarter sales to users declined 7%, consistent with our expectations. Mining sales to users were lower year-over-year as customers exercise capital discipline in response to weaker coal prices. In Power and Energy, our largest and fastest-growing segment, sales to users grew a robust 37% with another quarter of double-digit growth across all applications.

Power generation grew 44%, driven by strong demand for large gen sets and turbines used in data center applications. Strong sales to users in oil and gas were driven primarily by turbines and turbine-related services. Industrial grew from relatively low levels with the increase driven by sales to users in electric power applications.

And finally, transportation increased primarily due to international locomotive deliveries. Moving to Slide 4. Our full year 2025 results showed meaningful progress towards achieving the 2030 targets we outlined at our recent Investor Day. As I mentioned, we delivered record sales and revenues of $67.6 billion, resulting in 4% year-over-year growth.

This increase was led by record sales in Power and Energy. Notably, in addition to record sales in power generation, we also achieved record sales in oil and gas due to strength in demand for gas compression. Despite tariff headwinds, full year adjusted operating profit margin of 17.2% was within the target range for our level of sales and revenues.

Full year services revenues totaled $24 billion in 2025. We continue to connect more assets, growing the fleet to over $1.6 million and made great progress in other initiatives like condition monitoring prioritized service events, e-commerce sales and tech-enabled machines. Our digital and technology initiatives, along with a growing installed base, position us well to increase services revenues towards our goal of $30 billion by 2030.

Robust MP&A free cash flow allowed us to deploy $7.9 billion to shareholders through $5.2 billion of share repurchases and $2.7 billion of dividends paid. We're proud of our continued dividend aristocrat status paying higher dividends for 32 consecutive years and remain committed to returning substantially all MPE free cash flow over time.

Andrew will share more about our cash deployment plans for 2026 in a moment. Turning to Slide 5. I'll highlight the advancements we made towards our 2030 targets in our 3 primary segments. In 2025, Construction Industries growth outpaced the global industry, supported by the success of our merchandising programs.

As a result, full year total sales to users growth was 5%. The advancing our progress towards the 2030 goal of growing 1.25x the 2024 baseline. In Resource Industries, customer interest in our autonomous hauling solution remains strong. and we're making steady progress towards our 2030 goal to triple the number of cat autonomous haul trucks in operation compared to 2024. We ended the year with 827 autonomous haul trucks in operation, up from 690 at the end of 2024.

Adoption is expected to accelerate given our proven solution, our expansion into quarries and our ability to support mixed fleets. For example, last month, Caterpillar and [ Soltrak, ] our dealer in Brazil, announced an agreement to provide Vale an autonomy solution for a mixed fleet of more than 90 trucks.

Power and Energy delivered meaningful progress towards our 2030 goal to more than double power generation sales compared to 2024. In 2025, power generation sales exceeded $10 billion, which is year-over-year growth of more than 30%. We're also on track in our multiyear effort to double our large engine capacity and more than double our industrial gas turbine capacity.

As we've discussed, the additional capacity will serve a broad range of applications and the phasing will occur between now and the end of 2030. Now on Slide 6, I'll provide our 2026 outlook. Overall, we anticipate full year sales and revenues to grow around the top of the 5% to 7% long-term compound annual growth rate target. As I mentioned earlier, our record backlog of $51 billion provides strong momentum to start the year.

We're also starting to get multiyear visibility in power and energy as we work closely with our customers to schedule factory orders in line with their project time lines. As a result, approximately 62% of our backlog is expected to deliver in the next 12 months, which is lower than our historical average.

Strong backlog, coupled with healthy end markets supports our expectation for volume growth in all 3 primary segments. We also expect all 3 segments to benefit from positive price realization, about 2% of total sales and revenues and continued growth in services revenues.

Full year adjusted operating profit margin should exceed 2025 levels but remain near the bottom of the target range for our expected sales and revenues. Our adjusted operating profit margin expectation reflects the ongoing impact of tariffs as well as investments we are making to execute our growth strategy.

I remain confident that we will manage the impact of tariffs over time as we aim to operate around the midpoint of our adjusted operating profit margin target range. Capital expenditures are expected to be around $3.5 billion, driven primarily by our capacity expansion plans. And finally, MP&A free cash flow is expected to be slightly lower than 2025, reflecting the increase in capital expenditures.

Now I'll discuss our outlook for key end markets, starting with Construction Industries. Another year of sales to users growth was expected in 2026, supported by elevated order rates and a robust backlog. Overall, the outlook for North America remains positive as sales to users grow moderately versus last year with construction spending remaining healthy due to IIJA funding and other critical infrastructure programs. We also anticipate accelerated investment in data centers, which will further bolster overall construction spending.

Dealer rental fleet loading and rental revenue are both projected to increase compared to 2025. In EAME, economic conditions in Europe are expected to strengthen and construction activity in Africa and the Middle East is projected to remain strong. In Asia Pacific outside of China, moderate economic conditions are expected in 2026.

We anticipate positive momentum in China off of low levels with full year growth in the above 10-ton excavator industry. Growth in Latin America is expected to continue at a similar rate to 2025. Resource Industries had positive momentum in the fourth quarter with growing backlog supported by healthy orders across a broad range of products.

For 2026, sales to users are expected to increase, primarily driven by rising demand for copper and gold and positive dynamics in heavy construction and quarry and aggregates. Most key commodities remain above investment thresholds and customer and product utilization is high, while the age of the fleet remains elevated.

With modest increases in commodity prices projected in 2026, we expect rebuild activity to increase slightly compared to last year. And finally, for Power and Energy, the 2026 outlook is positive. Robust backlog growth in the fourth quarter was driven by continued momentum in both power generation and oil and gas. We anticipate growth in power generation for both CAT reciprocating engines and solar turbines driven by increasing energy demand to support data center build-out related to cloud computing and generative AI.

Additionally, we're starting to see orders for Prime Power trend higher as data center customers look for alternative power solutions to keep pace with their growth. For example, yesterday, we announced an order for 2 gigawatts of reciprocating generator sets for a prime power application from American Intelligence and Power Corporation.

Generators will be used to support the initial development phase of the Monarch compute campus, which has a total potential of about 8 gigawatts of power generation. This represents one of our largest single orders for complete power solutions. The value of the order will be reflected in our first quarter 2026 backlog, and we expect to deliver the generators starting in late 2026 through 2027. This exciting announcement is 1 of 4 orders we've booked with at least 1 gigawatt of Caterpillar equipment for data center prime power.

After reaching record levels in 2025, oil and gas is expected to see moderate growth in 2026. Reciprocating engine sales are expected to increase, driven by strong demand in gas compression applications. Solar Turbines oil and gas backlog remains healthy with continued solid order and inquiry activity.

And as a result, we expect another year of strong turbine sales comparable to our record 2025 performance. Demand for products and industrial applications is expected to grow moderately in 2026 as we see continued recovery from previous lows. And in transportation, we anticipate full year growth in rail services and locomotive deliveries. I'll close on Slide 7 with an update on our strategy.

Since our Investor Day in November, the executive leadership team and I have engaged our employees and dealers around the globe to launch our refreshed enterprise strategy for profitable growth. Our mission statement solving our customers' toughest challenges is creating strong alignment around keeping customer needs at the center of everything we do.

The strategy is centered on 3 pillars for profitable growth, commercial excellence, being the advanced technology leader in transforming how we work, all built upon a foundation of continued operational excellence. I look forward to advancing the strategy with regional leaders and dealers throughout 2026.

And finally, we were excited to kick off the year with a showcase and keynote at CES 2026 in Las Vegas, where we unveiled the next era of industrial AI and autonomy. This was an important opportunity to demonstrate our advanced technology leadership by highlighting Caterpillar's significant role in creating the invisible layer of the tech stack.

The critical minerals, reliable power and physical infrastructure that the digital world relies on to function. We made exciting announcements, including the launch of our new Cat AI assistant, which will allow customers to more easily buy, maintain, manage and operate their equipment. We also announced a commitment to the most important part of the invisible layer, people.

Caterpillar pledged $25 million to ensure the future workforce has the tools they need to make advanced technology possible. With that, I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward.

Thank you, Joe, and thank you, Joe, and good morning, everyone. As usual, I will begin with a summary of the quarter and then provide brief comments on the performance of the segments. Next I will discuss the balance sheet and free cash flow and conclude with comments on our high-level planning assumptions for 2026 as well as our expectations for the first quarter. .

Beginning on Slide 8. Sales and revenues of $19.1 billion reflected an 18% increase versus the prior year. As Joe noted, this was an all-time quarterly record. Adjusted operating profit was $3.0 billion, and our adjusted operating profit margin was 15.6%. We generated strong MP&E free cash flow of $3.7 billion in the quarter, and $9.5 billion for the full year.

This was our third consecutive year with more than $9 billion of MP&E free cash flow. Moving to Slide 9, I'll discuss our top line results for the fourth quarter. Sales and revenues of $19.1 billion exceeded our expectations, driven by stronger-than-anticipated volume in Power and Energy. Versus the prior year, stronger sales volumes supported the sales increase.

Price was about neutral and roughly in line with our expectations. Volume growth reflected a 15% year-over-year increase in total sales to users and a favorable impact from changes in dealer inventories. Total machine dealer inventory decreased by about $500 million in the quarter compared to a $1.6 billion decrease decline last year. The decrease in the fourth quarter was larger than we had anticipated, primarily due to stronger-than-expected sales to users in Construction Industries.

Services revenues increased in the quarter compared to 2024. Moving to operating profit on Slide 10. Operating profit in the fourth quarter decreased by 9%, while adjusted operating profit of $3.0 billion was about flat versus the prior year. As I mentioned, adjusted operating profit margin for the fourth quarter was 15.6%, slightly stronger than we had anticipated, driven by volume being better than expected, partially offset by higher incentive compensation expense.

Versus the prior year, the 270 basis points decrease was primarily due to higher manufacturing costs driven by tariffs. Excluding tariffs, our fourth quarter margin was higher than the prior year. For the full year, excluding the impact of tariffs implemented in 2025, margin was in the top half of the target range.

Moving to Slide 11. Profit per share was $5.12 in the quarter. Adjusted profit per share was better than we had anticipated at $5.16, excluding restructuring costs of $0.52 and mark-to-market gains of $0.48 for the remeasurement of pension and other post and deployment benefit plans. When you exclude the impact of mark-to-market gains from other income and expense, we had a headwind of about $73 million, which was mainly driven by the absence of foreign exchange gains related to MP&E balance sheet translation that occurred in the prior year.

Excluding discrete items, the provision for income taxes in the fourth quarter of 2025 reflected a global annual effective tax rate of 24.1% as compared with 22.2% in 2024. This was in line with our expectations. Finally, the year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases resulted in a favorable impact on adjusted profit per share of approximately 14% as compared to the fourth quarter of 2024 and benefited the full year by about $0.66.

Moving to Slide 12. I'll now discuss the segment results. Construction industry sales increased by 15% in the fourth quarter to $6.9 billion. This is roughly in line with our expectations as the stronger sales to users were about offset by a larger-than-expected decrease in dealer inventory and slightly unfavorable price realization.

Compared to the prior year, higher sales volume reflected stronger sales to end users and the positive impact from changes in dealer inventories. Dealer inventory decreased less during the fourth quarter of 2025 than during the fourth quarter of 2024. Fourth quarter profit for Construction Industries decreased by 12% versus the prior year to $1.0 billion.

The segment's margin was 14.9%, a decrease of 470 basis points versus the prior year. The margin decrease was primarily due to higher manufacturing costs, driven by tariffs, which had an impact of about 600 basis points on margins.

The margin was lower than we had expected due primarily to higher incentive compensation and a slightly unfavorable price realization, which offset the impact of stronger volume. Turning to Slide 13. Resource Industries sales increased by 13% in the fourth quarter to $3.4 billion, which was in line with our expectations. Sales volume was slightly more favorable than we had anticipated while price realization was a slightly larger headwind than we had expected.

Compared to the prior year, the sales increase was primarily due to higher sales volume, driven by the impact from changes in dealer inventories. Fourth quarter profit for Resource Industries decreased by 24% versus the prior year to $360 million. The segment's margin of 10.7% was a decrease of 510 basis points versus the prior year primarily due to higher manufacturing costs driven by tariffs, which had an impact of about 490 basis points.

The margin was lower than we had anticipated, primarily due to higher short-term incentive compensation higher tariffs and a slightly unfavorable price realization. Now on Slide 14. Power and Energy sales increased by 23% in the fourth quarter to $9.4 billion. Sales exceeded our expectations driven by stronger-than-anticipated volume, particularly in power generation and oil and gas.

Compared to the prior year, sales increased primarily due to higher sales volume and favorable price realization. Fourth quarter profit for Power and Energy increased by 25% versus prior year to $1.8 billion. The segment's margin of 19.6% increased by 30 basis points versus the prior year on the higher volume. The tariff impact was about 220 basis points. The margin was stronger than we had anticipated primarily due to favorable volume, price was also slightly more favorable than we had anticipated.

Moving to Slide 15. Financial Products revenues increased by 7% versus the prior year to about $1.1 billion, primarily due to a favorable impact from higher average earning assets partially offset by the impact from lower average financing rates. Segment profit increased by 58% to $262 million.

This was due in part to a favorable impact from higher margins and Insurance Services due to lower loss ratios, higher average earnings and a lower provision for credit losses also benefited profitability. Our customers' financial health remains strong. Past dues were 1.37% in the quarter, down 19 basis points versus the prior year and our lowest year-end on record.

The allowance rate was 0.86%, the lowest ever reported in any quarter. Business activity at Cat Financial remains healthy. Retail credit applications increased by 6%, and our retail new business volume grew by 10% versus the prior year. In addition, demand for our used equipment remains healthy on relatively stable pricing while inventories remain at historically low levels.

Conversion rates remain above historical averages as more customers choose to buy equipment at the end of the lease term. Moving to Slide 16. As I mentioned, we continue to generate strong MP&E free cash flow with $9.5 billion in 2025, which was slightly higher than 2024 despite an $800 million increase in capital expenditures.

In 2025, we deployed about $7.9 billion or 84% of our MP&E free cash flow to shareholders. We continue to expect to return substantially all MP&E free cash flow to shareholders over time.

This quarter, we expect to enter into a larger accelerated share repurchase compared to the $3 billion ASR we executed in early 2025. Our balance sheet remains strong with an enterprise cash balance of $10.0 billion at the year-end.

In addition, we held $1.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Now on Slide 17. Before I begin, I'll remind you that my comments today assume the Rail division is within Power and Energy, as was the case through year-end 2025. In March of this year, we will file an 8-K recasting our historical periods to reflect the movement of our Rail division to Resource Industries. This will establish an appropriate baseline for evaluating future segment level performance and expectations. If necessary, we will also update any of our segment-specific forward-looking assumptions impacted by this change. Obviously, there will be no impact on the enterprise-wide assumptions.

Now let me start with our expectations for the full year. As Joe mentioned, we expect enterprise sales and revenues to grow versus the prior year, likely around the top end of that 5% to 7% CAGR target on higher volume and favorable price realization.

We anticipate sales growth across each of our primary segments, with Power and Energy delivering the strongest year-over-year rate of growth, supported by the robust backlog. Growth in this segment will be paced by the timing of bringing our capacity increases online over the next few years.

Our planning assumption is that the $500 million decline in machine dealer inventory in 2025 will be offset by an increase by the end of 2026, a tailwind to 2026 sales. As Joe mentioned, we expect favorable price realization to account for a roughly 2% increase in sales for the full year.

For perspective on the quarterly sales cadence, we anticipate the lowest sales of the year to occur in the first quarter which aligns with their normal seasonable pattern.

On Enterprise adjusted operating profit margin, excluding the impact of tariff costs, we expect to be in the top half of the target range at our anticipated sales level, supported by favorable price realization and volume.

Specific to volume growth, we anticipated the attributable profit pull-through or incremental margin to reflect our recent operational performance which has been impacted by tariffs in contrast to prior years.

We are committed to investing for long-term profitable growth, which includes capacity investments, which will impact depreciation expense and higher technology and digital spend. We believe these investments will support future absolute back dollar generation, which I'll remind you is our definition of winning.

Including the impact to tariffs, we expect margin to be near the bottom of the target range. I'll provide some perspective, but let me explain how we intend to report to you about tariffs as we move forward. The absolute dollar value of new tariffs imposed in 2025 was $1.8 billion. Mitigating actions can come in 2 forms.

First of those that reduce the direct tariff exposure bill, which will include actions like sourcing changes. These reduced the actual dollar value of tariffs paid. And second, there are cost control actions and pricing, which helped reduce the impact on our profitability.

Most of the actions taken in 2025 related to cost controls, which could be specifically attributed to tariff mitigation, and these amounted to around $100 million, resulting in a net incremental tariff impact of $1.7 billion.

Looking forward, it will become increasingly challenging to parse out and track with the cost control or price action is directly tied to tariff mitigation versus being taken in the normal course of business. Therefore, going forward, we report absolute incremental tariff cost which will only take into account those mitigating actions that reduce the absolute value of the tariff exposure.

As a reminder, the incremental tariffs we report are measured against the 2024 base of the year. For the full year, incremental tariff costs are expected to be around $2.6 billion, which is $800 million higher than incurred in 2025. If we did not take the actions we plan to take in 2026, this bill will be around 20% higher.

We expect incremental tariff costs of around $800 million in the first quarter, a level similar to the fourth quarter of 2025. The run rate should improve towards the second half of the year as we take actions to reduce our tariff exposure.

Finally, please remember that tariffs are volume-sensitive. We will continue to take actions to manage our costs in the normal course of business and remain committed to operate within our adjusted operating profit margin target range with the goal of being around the midpoint of the range over time.

Now concluding our expectations for the year, we expect restructuring costs of roughly $300 million to $350 million. Our global annual effective tax rate is anticipated to be 23%, excluding discrete items, NPE free cash flow should be slightly lower than 2025, reflecting the higher CapEx of around $3.5 billion in 2026.

Now turning to Slide 18. To assist you with your modeling, I'll provide color on the first quarter. Starting with the top line, we would expect stronger sales and revenues versus the prior year. We anticipate stronger volume including sales to users growth and a tailwind from machine dealer inventories.

We expect a more typical machine dealer inventory build this quarter, aligning with a seasonable pattern, which is the first quarter build in excess of $1 billion. This compares to flash levels in the first quarter of 2025. We also anticipate a favorable impact from price realization.

In Construction Industries in the first quarter, we anticipate strong sales growth with the increase versus the prior year driven by volume and favorable price realization. We expect continued sales to users growth with our confidence supported by the strong order rates and backlog. In addition, we anticipate a sizable benefit from changes in dealer inventories given a more typical seasonable a build in the first quarter.

In Resource Industries, we anticipate strong sales growth versus the prior year driven by volume, including healthy sales to users growth and a favorable impact from changes in dealer inventory. Price realization should be relatively flattish, though we anticipate favorability as we move through the year.

In Power and Energy, we anticipate sales growth versus the prior year, driven by strength in power generation and other than gas along with favorable price realization. As is typical, we expect first quarter sales in Power and Energy will be the segment's lowest of the year and sequentially lower than the fourth quarter of 2025.

This expectation aligns the feasible pattern. Now I'll provide some color on our first quarter margin expectations. Excluding incremental tariff costs, we expect a higher adjusted operating profit margin percentage year-over-year, supported by strong volume and price realization. Partially offset by higher manufacturing costs and SG&A and R&D expenses tied to our strategic investments.

As a reference, we would expect some seasonable margin uplift in the first quarter compared to the fourth quarter of 2025. Including incremental tariff costs at a level similar to the fourth quarter or around $800 million, margin is expected to be lower than versus the prior year.

Now on to first quarter margin expectations by segment. In Construction Industries, excluding incremental tariff costs, we anticipate a higher margin percentage compared to the prior year on favorable price realization and volume partially offset by higher manufacturing costs.

In Resource Industries, excluding incremental tariff costs, we anticipate slightly lower margin percentage compared to the prior year as favorable volume is more than offset by unfavorable manufacturing costs and higher SG&A and R&D expenses, including spend on strategic investments in autonomy.

We do anticipate some unfavorable mix impact as we expect proportionately higher sales of original equipment compared to the prior year. In Power and Energy, excluding incremental tariff costs, we anticipate a higher margin percentage compared to the prior year, driven by a favorable price volume and price realization, partially offset by higher manufacturing costs particularly spend, including higher depreciation related to our capacity expansion projects.

During the first quarter, we anticipate around 50% of the incremental tariff costs will be in Construction Industries in Resource Industries and 30% in Power and Energy. All segment margins are expected to be lower than they were in the first quarter of 2025 after taking into account incremental tariffs.

So turning to Slide 19, let me summarize. In a year marked by uncertainty, our team delivered record sales and revenues, maintained adjusted operating profit margin within our target range and achieved a healthy adjusted profit per share of $19.06.

We generated $9.5 billion of free cash flow, our third consecutive year of generating over $9 billion. For 2026, we anticipate sales growth across all 3 primary segments driven by stronger volume and price. We also anticipate services revenue growth.

Excluding the impact of incremental tariffs, we expect adjusted operating profit margin to be in the top half of our target range but near the bottom, including tariffs. And we expect MP&E free cash flow to be slightly lower than 2025, reflecting slightly the higher capital expenditures. We continue to execute our strategy for long-term profitable growth. And with that, we'll take your questions.

[Operator Instructions] Your first question comes from the line of Mig Dobre with Baird.

The thing that obviously stood out most in the quarter was just a very impressive order growth and backlog growth that you have had. And I guess my question related to this, maybe twofold.

First, can you comment a little bit about what's happening in some of the other segments outside of maybe PNT or power generation and then as you sort of think on a go-forward basis, if I understand correctly, you've got roughly $20 billion of backlog that is not going to be delivered in the near term.

And it sounds like this figure might further grow as we think about Q1. So how do you think about these deliveries that now are stretching into 2017 and beyond? And I'm asking, through the lens of price cost, making sure that you are ensuring that you have the profitable margins and the proper pricing given how volatile just the cost picture and the tariff picture has been.

This is Joe. Thanks for that question. There's a lot in there. I'll try to get make sure I get to most of them. So we are really excited. I'm really excited about how we finished the year with our backlog at $51 billion, 70% higher than year-end prior and $11 billion higher than where we finished the third quarter.

So as you suggest, I'll talk about it and frame it in the way of order rates that we saw in the fourth quarter, and they were strong in all 3 segments. It's not just power and energy. CI had one of its best quarters from an order standpoint ever supported by both a growing industry that we think, confidence in the industry in '26 from us and our dealers and strength in our toes.

We've continued to outperform the industry and we hope to try to do that again here in 2026. I'd say for CI as well, just keep in mind, we're also returning to a more normal seasonal pattern. So the selling season coming in the spring and us getting ready for that, we entered 2025 at a much slower pace. And so we're getting back to more normal seasonal patterns in CI.

IR had a great order run rate in the quarter. It's one of the best quarters since 2021 that we've seen, and that's supported by strength in heavy construction in North America as well as some good mining orders, particularly in South America related to copper mining and then obviously, Power and Energy had a really strong order intake quarter as well.

Power generation continues to be strong. We're seeing more deals, a little more mix into prime power, like the 1 that we announced yesterday, which obviously wasn't in this backlog figure, it will come in, in the first quarter. We've had 4 now Prime Power orders of greater than a gigawatt. And we've had a handful of other sizable orders that were less than -- the other thing there is we're seeing strong orders in oil and gas, particularly for gas compression. So the more power that is needed out there.

We're going to move a lot of gas. We have to feed turbines and engines to continue to provide that power. So we had a really, really strong quarter from an order standpoint. And again, it was strength across the board. When it comes to visibility further out, I think that's a good thing for us.

One of the things that we're trying to do, particularly, most of that is in Power and Energy is work closely with our customers to schedule their orders in our factory to deliver when they need them in their project timing. And what that allows us to do is make sure we're not sending things ahead of time and we can satisfy more customers and make sure every order gets the customer when they need it.

Obviously, as you suggest, we're taking orders farther out for those type of orders, we have frame agreements for a lot of customers. Those will have inflationary indices tied in there for pricing and for non-frame agreements, we usually have escalators if they're out past the normal 12-month type period.

So again, really, really happy with the order performance that we had in the fourth quarter and the outlook that we have ahead of us.

We'll go next to Michael Feniger at Bank of America.

Just the 50 gigawatt of power by 2030, that number you guys provided at Investor Day, can you just give us a sense where that kind of finishes ended '26 and '27. And the [indiscernible] of the question is there's always worries that with everyone raising capacity, if data center slows, do we get into an overcapacity type of market, how much of this 50 gigawatt is going into other markets outside of data centers, energy, gas compression, downstream.

I mean you're booking these orders, I know Mig talk about pricing, but how are you also thinking about terms and conditions, service agreements, prime moves to back up? Just how are you guys thinking of also preparing yourself for down the road as you've seen boom and bust in the past?

Yes. Thanks, Mike. So when it comes to the capacity increase, we obviously work all of our industries kind of work with our customers and figure out what the forecast is. So there can be puts and takes, forecast to move around. But what we've we sort of gauge the capacity we need based on what we see in all industries.

We're going to make sure -- like I said, we're going to move a lot of natural gas in the next few years, so we're going to make sure we take care of our oil and gas customers as well as power generation. And I think rightfully, as you point out in there, some of the things that are also in that capacity, it's not all just assembling finished product, right?

Their supply base and there's components, machining and component capacity for us to make sure we can grow services. So when we take prime power or gas compression applications that run continuously, right?

Those will hit overhaul cycles, and those are great services business for us, and we need to make sure we have capacity in place to do that as well. So all that's taken into consideration. We have -- we're on schedule. We were able to ship a little bit more at year-end in our large engine facility than we anticipated, which is a great thing.

We need to be able to sustain that as throughout 2026, and we expect a big chunk of capacity, the first real big step up to come towards the end of this year and heading into 2027. And then the turbine investment started a little later, it will start to come on a little bit after that.

So we continue to stay close to our customers. I mean we talk to hyperscalers and large data center customers weekly. And make sure we stay in line with our plans. And like I said, we're starting to take orders farther out, and I think that's a good thing.

We'll go to our next question from David Raso at Evercore ISI.

I'm trying to reconcile the sales guide for '26, right, the roughly 7% if you look at the backlog that ships in the next 12 months, on a year-over-year basis, it's up about 44%. The orders for backlog that ships in the next 12 months are up 36%. And your view of retail being up in '26. Just trying to understand why such a low sales growth given the order momentum, the size of the backlog and you see retail up in '26.

And if you can indulge me just a clarification, maybe I missed it. The tariff impact, the $800 million, does that include expected pricing for '26 netting against a gross number? Or is it before any pricing actions?

Yes, David. So first, let me answer the second part of your question. That is -- it does not take into account any pricing actions, the 2% pricing action we talked about is completely separate. So this is just the incremental cost that we -- dollar costs that we will actually incur or pay for tariffs in 2026.

And then when you talk about the backlog and the sales guide, the one thing I'd just point out to you, and Joe mentioned it was last year, if you remember, we actually did, in particular, in construction, there was a very low -- there was no -- virtually no increase in dealer inventory in the first quarter, which was unusual. So one of the factors that you have to take into account when you're looking at backlog is the fact that, obviously, CI's backlog is stronger, but part of that is for the machines for the $1 billion plus increase in dealer inventory that we expect in the first quarter, which is a difference versus the prior year.

So that's 1 factor. Overall, just to remind you that in Power and Energy, we are capacity constrained. Obviously, we are basing our estimates based on the capacity we have today. As Joe mentioned, we are obviously trying and we've managed to build -- bring a little bit earlier online. But obviously, that is not certain at this stage.

So obviously, if we are able to bring something on, there will be some upside in the second half of the year.

We'll go next to Tami Zakaria at JP Morgan.

So the AIP announcement last night, could you give some color on what the battery energy storage system opportunity could be for an order of that magnitude in addition to recip engines, could it be half and half, 25-75, 75-25? Or any color on the revenue mix with an engine and DS would be helpful. And related to that, do you have enough capacity for best products? Should there be more deals like this? .

Tami, most of that order is going to be in generators and natural gas generators I think you saw as part of the jewel, it's a complete system, similar to Joule. So when we do have batteries in there, it's a small portion of the overall total. So most of it is gas generator sets. And as far as capacity goes, that's all part of our capacity planning.

So we feel like we can continue to keep up with the growth in prime power and hopefully continue to see more mix shift that way because, as we said, that would help from a services standpoint, and we'll have to look at components further out because it would obviously even be more upside to services in the kind of 3 to 5 years after delivery of those gen sets. So exciting opportunities for sure. .

Our next question comes from Chad Dillard at Bernstein.

A couple of questions for you on prime power. So for that application, what's the future role of backup diesel generators versus best. When you're talking to the customers, like how are you thinking about how that evolves over the next several years? .

And then also with regard to your capacity ramp in power gen, do you think you can keep the revenue momentum growing in '26 versus '25, I think it was up 30% or should we be angering more towards that 20% CAGR that you've laid out for Power Gen?

Yes. couple of questions there. I think the last one first, as Andrew stated, it's not a demand issue for us. It's really going to be can we bring on supply faster, kind of what we have in that revenue guide now is what we have high confidence in. If everything turns up heads, remember, it's not just us. We have to bring our supply base along with us. We're going to get out as much product as we can.

And obviously, that would provide a little bit of upside if we can continue to outpace our current plans for bringing the capacity online, when it comes to these prime power applications, most of what we're seeing so far is still having backup power and they're also with gen sets, not with batteries.

In fact, in these -- they're using our fast-start gas gensets for backup power versus diesel when they do a couple of the big orders we've seen for gas prime power. So right now, we're not seeing 100% battery backup. It's mostly generators.

We'll move next to Jamie Cook at Trust Securities.

Congratulations. Sorry, Joe, another question on backlog, just given the strength -- was there anything sort of onetime in that backlog growth number or pull forward perhaps an announcement that you weren't able to press release, my understanding the AIP that goes into next quarter.

But I was just wondering if there's a pull forward in your understanding they'll be lumpiness quarter-to-quarter, but do you still see an expectation where you can grow your backlog double digit as we exit 2026 for the full year?

And then just again, the growth you're seeing, is there any way -- do you think you're outgrowing the market for whatever reason, competitive positioning product dealer. I'm just wondering if you're getting a greater share of the market relative to your peers.

Yes. Thanks, Jamie. As far as orders in the quarter on your first question, I think nothing of significant note where we had something that we couldn't announce. I would there are a couple of things outside of Power and Energy. We talked about CI I would also say the strong orders in RI, again, those are -- I can be a lumpy business, and those orders come in big orders, and it's not steady.

So we're happy to see the orders that came in. I don't know that you can count on repeat every quarter of that. As we exit we'll see where we exit this year, right? We want to ship a lot of product. And I appreciate you asked this question last time as well. The backlog is a nuanced number. we needed to go up because we're adding capacity and other things.

But if I can slow that growth in the backlog because I can significantly get more product out, while orders are still increasing, that's obviously a good thing as well. So we're focused on winning as much of the business as we can.

We outpaced the industry in CI I think we are definitely a market leader in power and energy for what we provide in that space just from a scale standpoint. And we have the widest offering below 38 megawatts between turbines and engines and burn a lot of fuel.

So we feel really good in our competitive position. from a lead time standpoint, they are extended, but still we're able -- we're one of the fastest solutions out there for data centers who are trying to get up and running quickly. So we'll see how the year plays out, but we have great momentum and hopefully and planning on and expect the momentum to continue throughout this year.

Our next question comes from Jerry Revich at Wells Fargo.

I'm wondering, Joe, if you could just talk about for the turbine business, you have spoken about potential for it to be used in some peer plant applications by utilities. Any update on how those conversations are tracking when we might see those use cases?

And then in the prepared remarks, you folks spoke about comparable shipments in 2016 versus '25 for turbines, but you're ramping up really significant deliveries in Titan 350s, I thought 26% versus 25%. So I just want to make sure I'm not missing any outside shipments in the fourth quarter or any other moving pieces there?

Yes. I mean we're seeing most -- the 350 first units have gone out and we're trying to ramp 350. So it's relatively new product that's going out there. So solar had a record year in 2025. We expect something comparable in 2026. We announced the capacity increase for solar. But again, we just announced that middle of last year, late last year. So that's not going to really have a significant impact into 2026 results. I think we'll see a mix to the larger frames like the 350 as we're shipping a few more of those in 2026 as well.

And then we continue to work all the deals that we came in for power. And we're seeing -- traditionally Solar's business has been very heavy weighted towards oil and gas. That business is still really strong. But now we're starting to see more of the mix shift into power gen as well. So we're anxious to get that capacity program moving along in we'll provide updates as we move throughout it.

We'd love to get more product out. But right now, that's what we have line of sight to in 2026.

Our next question comes from Rob Wertheimer at Melius Research.

So the project scope at the Monarch data center looks interesting. And I wonder if you could give us a mini education. I think that they're going to use the waste heat from the Cat engines to provide cooling to power chillers.

There's been an argument that combined cycle in conjunction combined cycle turbines with steam term on attached or higher efficiency. I don't quite know how to compare the efficiency with this. But obviously, using the way seat is good. And in Joule, I think there was backup diesel with prime recips and gas. In this case, I think are you just over sort of overbuilding the gas recips and there's no diesel involved?

And last question, just do you get a lot of inquiries on this sort of thing? Or is there a robust kind of quoting and activity pipeline behind it?

Rob, I need my engineers or Jason to talk to you on the technical specs of it. But as you're looking at customers who are wanting speed to market, bringing your own power is definitely one of the ways that they can do that, and we can support them.

And I think once you make that decision to go to gas, prime power and kind of have your own mini power plant there with the gen sets, we've been able to sit with them and say, okay, let's make it as efficient as possible. So obviously, if we can use the heat to help with the cooling and use that energy on site.

It makes the whole project more efficient and the competitiveness of it much better from a financial standpoint. So we continue to work with all of our customers on that. And I think we'll continue to make headways. We also announced partnerships with Verdi.

We're trying to find ways to make these solutions as cost-effective and efficient as possible for our customers. And we're having a lot of these discussions. Joule, I think, in the early days, if I'm not mistaken, was diesel backup, but then switched to actually gas-fired fast-start backup power as well. So all natural gas. And I think the latest one is natural gas as well. So that's one of the great things about our portfolio. Up to 38 megawatts. We have all sorts of different solutions, and we can configure it however is best for that customer site, what type of fuel availability they have and the size and what they're trying to do to make it the most efficient.

So we have a team that really sits with customers and has turbine experts and recip experts on it. We have a lot of microgrid experience, and essentially, that's what these are. And so we're working with customers to put the best solution forward. And I think it's going to be exciting. We have more and more discussions around it daily.

Adria, we have time for one more question.

Today's final question comes from the line of Kristen Owen with Oppenheimer.

I'm going to ask a real question on Construction Industries. And just help us unpack the demand drivers that you're seeing there, how much of this is just a return to a normalized replacement level.

How much of this is actually supported by data center activity? And how much should we expect is embedded in your market share growth for 2026?

So I'll make some comments, Andrew. You can chime in here, but we expect North America to continue to be strong. Obviously, the data center build-out is not just good for power and energy, that drives a lot of construction activity as well.

There are a number of other construction projects moving along. And as we said in our prepared remarks, we continue to see that strength here in North America. IIA spending still continuing to go on.

The Middle East, in particular, continues to be really strong. And then we expect China has been really low, and we'll see -- hopefully see some positivity there in above 10-ton excavators coming off a low levels as we enter into this year. From a competitive standpoint, we made great progress and we're able to outperform the industry last year with the strength of our merchandising programs.

We have exciting things to continue to roll out. We continue to work on our rental strategy with our dealers. We'll have some things to share [ CONEXPO ] as well when it comes to our BCP equipment and the smaller part of the CI lineup, which has a ton of momentum in the industry. So we feel pretty good about our ability in CI. It is -- some of that order strength is getting back to that more normal seasonal pattern. But we have great confidence around the industry and where it's heading. So with that, I want to thank you all for joining us today, and we appreciate your questions and interest in Caterpillar.

I'm really proud of our team. We had exceptional performance in 2025 as they delivered record sales and revenues, adjusted rating adjusted operating profit margin that was within our range and robust MP&E free cash flow. These results demonstrate the strength of our end markets and our team's disciplined execution. So with a record backlog, we entered the new year with strong momentum and a continued focus on delivering long-term value for our customers and our shareholders. Now I'll turn it back to Alex.

Thank you, Joe, Andrew and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our Investor Relations website as soon as it's available. You also find a fourth quarter results video with our CFO and an SEC filing with our sales to users data. Click on investors.caterpillar.com and then click on Financials to view those materials. .

If you have any questions, please reach out to me or Rob Rengel, Investor Relations general phone number is (309) 675-4549. Now let's turn it back to Adria to conclude our call.

That concludes our call. Thank you for joining. You may all disconnect.

[Presentation]

Please welcome Executive Chair and CEO of the Consumer Technology Association Gary Shapiro.

Thank you, and good morning, and welcome to Day 2 of CES 2026. At CES, we talk a lot about the future. And occasionally, we welcome a company that shows how innovation moves from code and concepts to concrete, steel and even the ground beneath our feet. Caterpillar is one of those companies.

Now many of us grew up thinking of Caterpillar as the yellow machines that shape highways, mines and skylines. And yes, they still do that. But today, Caterpillar is here because they are redefining what heavy industry looks like in the age of data, autonomy and AI. Caterpillar is proving that the most mature sectors in the world like energy, construction, mining, infrastructure can also be among the most innovative.

This company is transforming everything from how equipment is built to how work sites are managed and it's doing it with the same precision and safety expectations that define the brand for more than a century. Think about this, Caterpillar had its centennial year in 2025. In addition to celebrating its past, Caterpillar leaders chose to come to CES to unveil their next century. This is the spirit of this show.

That is why Caterpillar belongs on this stage. And today, you'll hear about how Caterpillar is embedding AI and machine learning into fleets that operate in some of the harshest environments on earth, with no margin for error. It's turning data into decisions, autonomy into efficiency and sustainability into a core business advantage and doing it all at a global scale. More than 110,000 employees, operations in 63 countries and partnerships that reach from construction to energy, to defense, to space.

The leader driving this transformation is someone who knows the company from top to bottom. Joe Creed took over as CEO in 2025 after nearly 3 decades inside Caterpillar, shaping finance, operations, manufacturing and strategy. He isn't just running the company. He's rewiring it for the future. And today, he's going to share how Caterpillar is thinking bigger digging deeper and scaling smarter and what that means for the next era of industry.

So whether you're working in AI, robotics, sustainability, logistics or infrastructure, this keynote is for you. This is what it looks like when legacy meets leadership and when industrial power meets innovation.

Ladies and gentlemen, please join me in welcoming Caterpillar, CEO, Joe Creed.

All right. Well, good morning, and thank you, everybody, for joining us. We are so excited to be here with you today. So question. I wonder how many of you came to the show this morning because you're wondering why is Caterpillar of all the companies here on the stage, keynoting CES?

When most people think about CES, they think about what's on the surface, whether that's new devices that you all have in your pocket that you're going to see this week. New chips, new screens, things you can hold in your hand or download in seconds. And when people -- most people think about Caterpillar, they think about something very different. Big yellow machines that do the hard work of building the world's infrastructure.

So to me, I think it's a fair question. Why are the big yellow machines here with the tech heavyweights? And the short answer is this, the digital world depends on a physical layer most people never think about. Every device in this room that you have depends on minerals that had to be pulled from the ground. Every data center behind the AI, you're going to see this week or you're going to hear about this week, was constructed from the ground up and it stays online with power systems that provide reliable electricity.

Every road, every port, every power line connecting our economy had to be built.

That's the invisible layer of the tech stack, the physical foundation for modern technology. And that, it doesn't happen without Caterpillar. For 100 years, Caterpillar equipment is quietly built and powered the critical infrastructure that makes progress possible. So this morning, we're going to show you what happens when this critical invisible layer reaches a new level of intelligence. When AI, autonomy and advanced analytics move from the cloud into the actual physical infrastructure that the cloud depends on.

Today, you're going to hear first, how Caterpillar built this layer from construction then to mining and finally, to power. Second, how we're making it smarter with connectivity and data and now especially with AI. And finally, how together with partners, innovators like NVIDIA, we're turning some of the harshest environments on earth into the next frontier for advanced technology.

Because you may think you know Caterpillar. By the time we're done this morning, I believe you're going to see us very differently and you're going to have a much better appreciation for the invisible layer and the critical role that it plays is a foundation of today's modern tech stack.

So let's start with how the invisible layer was built. It's happened in stages. Caterpillar's reach expanded with the world's ambitions. As Gary mentioned, we're 100 years old. We started with construction, helping to build the roads, the bridges, the ports that modernize cities and connected communities around the world. Our yellow iron became the backbone of progress. We then extended into mining, helping to extract the critical minerals that our world just cannot live without. The copper, the iron ore, the lithium and rare earth elements behind every modern device in this room behind every electric vehicle and behind every battery pack.

Then once again, we expanded next into power. Engines and turbines that keep hospitals, data centers and essential services online when failure just isn't an option. So today, our portfolio spans millions of products and solutions across the globe. In every corner of the earth, working in extreme conditions from Arctic cold to the desert heat from the deep pits to the high planes.

So I think it's fine that you know us for construction equipment, that's amazing. But as you can see, that's just where we started. We've continued to grow from construction to mining and mining to power and power to a portfolio of solutions that quietly and reliably enable everything around us.

We've built the invisible layer of the tech stack. It's a foundation that we are honored to -- proud to continue building for the next 100 years.

So when people see the big yellow iron, we automatically think about the machines, I do too. I love the machines. But what you don't always see is the technology has always been part of our DNA at Caterpillar. Our employees have been innovating for 100 years since the very beginning of our company. In fact, at one of our centennial celebrations last year, we had a world tour we visit all our facilities.

I stumbled across a great example of this innovation when I was visiting employees.

It's from our archives. It's a cartoon of all things. But it was so amazing that I wanted to share with you today because it speaks to Caterpillar's culture. In 1930, so 95 years ago, we have to put this in context. One of our employees sketched what happens when a customer's Caterpillar tractor happens to break down with one day left to get the job done. That's a crisis for our customers. It was in 1930, and it is today.

But as you can see, instead of driving the town the customer stands in his living room and video calls the dealer on a television with incredible detail in 1930, remember, this is 1930. Keep in mind, over-the-air TV had barely been invented. I think it was invented in the 20s, and it definitely wasn't widespread in homes.

As you can see on the other end of that, the dealer is talking to the customer on screen managing some sort of computer for inventory, which apparently back in the day, requires a super cool helmet.

A robotic arm then grabs that required part off the shelf and 25 minutes later, it arrives at the job site with how do they get there. To me, that looks a lot like modern day drone delivery, pretty early version of it.

So think about that for a minute, put it in context. And the reason I bring this up is to me, that's amazing. Nearly a 100 years ago, someone at Caterpillar imagined video calling, connected diagnostics, automated warehouses and last mile drone delivery. Can you imagine working with that person in 1930 with the people around him? They had to thought he was out of his mind.

But it's that kind of visionary thinking with customer needs at the center that's what powers progress. It's the same spirit that underpins everything we do at Caterpillar today, just with a lot better WiFi, and we don't need that super cool helmet to get it done.

A great example of this is our autonomy systems. Back in the '90s, we started experimenting with autonomous mining trucks, machines the size of houses are bigger. You're going to see sort of a replica of that today behind us on screen, running 24/7 in massive operations on multiple continents in some of the most remote locations on Earth.

On construction sites, our 3D grade control systems turned digital blueprints into GPS-guided blade instructions, so material moves to exact specifications. Within a centimeter of accuracy the very first time, no extra measurements, no fixing low spots, no second passes, just precision from start to finish.

And our machines keep getting smarter and safer. Sensors, vision systems and predictive analytics can help distinguish a person from the background in real time and provide a warning before a close call becomes a life-threatening event for someone's loved one on a job site.

All of this rides on a connected fleet of over 1.5 million assets in the field, assets that generate data so that we get better with every hour of operation.

So put simply, we're making that invisible layer of the tech stack, the physical foundation that the modern world depends on more intelligent. Sensors, software, connectivity and AI, returning static infrastructure into systems that can see systems that can learn and now can adapt. That's how the Caterpillar you thought you knew starts to look really different.

Now let me zoom out and talk about the world Caterpillar is helping to build. Imagine a mine operator who can automatically push a software update to instantly change how an entire fleet of mining trucks navigates a pit wall or a power producer, spotting early turbine or engine stress adjusting load automatically and dispatching a technician with the right parts before anyone on the ground even knows there's an issue.

The riskiest jobs, they shift to the machines. While people, our people get to move into roles where their judgment matters the most. And as the system learns and optimizes in real-time efficiency increases and so does job site performance. And that's what's most critical to our customers. That's what it looks like when the invisible layer gains intelligence when the physical foundation can respond in real time to what's happening around it.

So that's great. Why bring all of this to CES? Well, interesting, because the biggest bottlenecks in technology today, they're not in software. They're actually in the physical world. AI needs more chips. Chips need minerals that are pulled from the ground. Data centers demand power more than today's grids can provide. In the entire digital economy, needs infrastructure that can be built faster, run harder and stay online, no matter what.

Those aren't software problems. Those are problems Caterpillar is uniquely positioned to solve. And solving them is actually central to our strategy.

In fact, last year, we launched a new strategy to the world in November. And our mission statement is solving our customers' toughest challenges. It determines everything we do at Caterpillar from how we invest to what we build and who we partner with.

And inside Caterpillar, we're transforming how we work. We're going to use AI to streamline our own processes, optimize our factories and use digital twins to design and test before we ever cut steel. We're focused on being the advanced technology leader in all of the industries that we serve. We're combining hardware and software, sensors and autonomy and data now with AI, so our customers can work safer do more with less, improve their sustainability and keep critical operations running when it matters the most.

So today, our goal is to bring that to life for you in very tangible ways. Including a first look at something we are really excited about. It's called the Cat AI Assistant. It's an AI platform that's designed to support our customers everywhere they work. Ogi is going to cover that in a minute. Then Jaime is going to come out and show you our vision for a new generation of autonomous and AI-enabled machines.

But before we get to that, I want to mention our partnership with NVIDIA. Behind every product and technology are companies whose contributions are often unseen, but they're absolutely vital. In my opinion, NVIDIA is that for AI. You all experienced the chatbot. You use the Copilot, you use the image generator.

But underneath all that, it's NVIDIA's accelerated computing platform that makes it all possible. Caterpillar is that for the physical world. As I mentioned earlier, every digital experience, every app that you use, every AI model that you're running, every connected device in this room ultimately runs on physical infrastructure. Minerals are extracted, data centers built, power generated and maintained. That is the foundation that we at Caterpillar help build and power. That's the invisible layer.

So when silicon meets steel, the physical world becomes as dynamic and data-driven as a digital one. We're creating that future with NVIDIA, and you can see it in several key areas of our collaboration. I mentioned it, you're going to get to see it momentarily, an AI system that serves our customers and dealers at scale.

Autonomous machines I think at the edge and digital twins that let us design smarter before we build anything at all, whether that's our own factories or designing and building new equipment for our customers. Rather than just hearing our version of that story, I thought it would be important for you to hear how NVIDIA sees this work and their perspective on Caterpillar's role was AI moves from the digital world into the physical world.

So at this time, I'd like to invite Deepu Talla, Vice President of Robotics and Edge AI at NVIDIA to come on stage with me for a quick conversation. So please join me in welcoming Deepu. Deepu, thanks for being here with us today.

Joe, thank you for having me. What an incredible story from [ 93 ] critical. Connectivity is in guarantee. Lowest latency is mission-critical. This is why Edge AI matters here.

NVIDIA has open robotics and Edge platforms, Isaac and Jetson Thor are built for this very specific purpose. Caterpillar can run your physical AI, perception, planning, control and safety models on these machines, running right at the edge ensures real-time feedback and no compromise on safety. And ultimately, you have a larger model running in your AI factory.

You're receiving your sensor data from unseen scenarios, you're learning from these new experiences. We're improving these models constantly, and then these are redeployed and updated on your machines. Caterpillar will operate an incredible robotics fleet at massive scale, and we are super excited to see that.

As our way, it opens up so much opportunity we didn't have before. So I mentioned just a minute ago, and we're getting close to being able to unveil at the Cat AI Assistant. Ogi is going to talk about it, but without stealing his thunder, what excites you the most about platforms like this one as they move into heavy industry? And where do you see them helping people and our customers the most?

Sure. As we all know, AI is more than just chatbots, right? Caterpillar sees this too, and we love what you're building. Caterpillar is inventing a new software-defined industrial vision for the heavy industry. It starts with people, your cab operators, technicians and fleet managers. This is real work done in the real world.

Decisions are physical and costly and downtime is expensive. Caterpillar has been digitalizing work for decades and Cat AI is the next step. This incredible assistant is a robot in itself, it perceives reasons, plans and acts. It's an expert in Caterpillar's knowledge base and sells as a critical companion to workers in the field. Cat AI will be the digital to physical bridge that will close the skills gaps, our onboard new hires with the knowledge virtually of a 100-year industry expert. This means more uptime higher levels of safety, fewer mistakes and avoids costly changes.

And that's music to my ears because that's solving real-world problems for our customers today. So Deepu, I just want to thank you. Partnerships like this don't come along very often. We're thrilled to collaborate with you and the entire NVIDIA team as we truly redefine what's possible as we move forward. So from an autonomous and AI-enabled machines to AI assistant and digital twins, we're taking innovation from concept to the actual job site.

And inside Caterpillar, one of the key leaders turning that potential into real solutions for our customers is our Chief Digital Officer, Ogi Redzic. Ogi and his team are building the digital foundation that puts these capabilities to work in our machines, in our factories and most importantly, on our customers' job sites. So Ogi come on out. Over to you.

Thank you, Joe, and thank you, Deepu, for a great partnership with NVIDIA. Amazing. You just heard how AI and accelerated computing are moving out of the cloud and into the physical world. At Caterpillar, we live in that world every day. Just like any good construction project, bringing AI into its starts with a strong foundation and in our case, a strong digital foundation.

That foundation is what allows the invisible layer to quickly come alive turning decades of machine and job site data into elevated intelligence, we can deploy anywhere our equipment works. Caterpillar's yellow icon -- iron is iconic, and our digital teams are proud to write the code and build the applications that go with it.

Think of an equipment manager arriving at a busy construction site at 5:00 a.m. A quick look at our app, tells which machines are ready, which need attention and what should happen first. Think of a technician standing in the mud, miles from the [ nearest ] shop, facing a drivetrain repair on a machine that simply cannot go down. Our tools can walk in through the job, get the required parts delivered that same afternoon. All of that runs in a single unified digital platform we call Helios.

Helios is fully cloud-native and event-driven. It brings together data from our global fleet of about 1.5 million connected assets. It sends and receives thousands of messages every second and triggers millions of data pipelines a day to ingest organize and deliver this data where it needs to go. It now houses more than 16 petabytes of reusable high-quality data. It was just recently featured by MIT Center for Information Systems Research as a case study in building digital assets at scale.

And that is a digital foundation that lets us move fast and deploy new AI capabilities where they matter the most. It's across the job site, in the cab of an excavator or on a large mining truck. But our customers' needs and expectations are changing. They have less time to train their employees. Their work is more complex and they expect simplicity and convenience.

And that is why today, I am very proud to introduce to you the Cat AI Assistant.

Can you play a short video showing us how you work?

[Presentation]

Cat AI Assistant will be a major leap forward in how Caterpillar supports customers through digital solutions. We'll make it easier for customers to buy, to maintain, manage and operate their equipment. Doesn't matter whether they're working from corporate headquarters or remote job site. Technically speaking, the Cat AI Assistant is a group of AI agents operating together on top of our digital ecosystem presented as a single, single assistant. And it's multimodal, so you can engage with it using speech, text, images or video.

Under the hood, we're building this with Helios on top of the latest AI tech. We're building a fleet of AI agents. that can see the state of our customers' fleets, understand what's happening and take actions through our applications or APIs. What matters most, however, is what this all feels like in real life. For a customer Cat AI Assistant is like a proactive partner. It flags machines that need attention, provides custom insights and makes actionable recommendations.

As an example, if a storm is coming, it can nudge you up to top up the fuel in your generators so you never caught off guard. If you're a condition monitoring analyst becomes an extra set of eyes on the customers' equipment, alerting them when the maintenance is coming due, recommending the right replacement parts and helping quickly answer questions so they can advise their customers more easily and with greater confidence. If you're a technician, it's like having a library of 1,000 manuals at your fingertips. If you're unsure about a repair, it can walk you through the steps, highlight common issues, and suggest parts required to complete the repair, ensuring that you fix it right the first time.

And finally, for an operator in the cab, Cat AI Assistant is like a knowledgeable Copilot can answer how do I do this or how do I do that questions on the fly, can offer tips to improve productivity and reduce errors. And that will work, whether you're a seasoned pro or it's your first day on the job. And that last point is very important. This technology will dramatically simplify operating a machine. It will improve productivity and will help keep people safe.

Let me show you what that looks like in real world. Let me join my colleague, Mark Perkes, over in the Caterpillar booths. Mark is sitting in the cab of a CAT 306 Mini Excavator a machine, you've probably seen at some point working along roads or in your neighborhoods, handling anything from utility work to landscaping.

Hi, Mark, I know you know this machine inside and out, but what if you didn't? How could Cat AI Assistant help you get started?

Hi, Ogi, if I was new to this machine, I'd start by asking for help. Hey, Cat, how do I get started?

You can see that kind of guidance, giving you operator, the confidence to get to work quickly, safely and effectively. And let's raise the stakes a little bit. Many of us start our day by turning on the light, grabbing coffee, streaming the news, checking e-mail. All of that depends on underground infrastructure maintained by utility contractors, quiet forces that keep cities running. Mark?

Exactly. And when contractors head out to repair buried cable or install new lines, they face tight time lines, live traffic and buried hazards. And an excavator of the size that I'm sitting in right now is perfect for that type of job, but it has to be run safely.

Now let me show you an example. I'm here at the booth. I hope everyone comes to visit. But on this booth, we have a simulated job site. And right overhead, I've got some power lines. Now I want to make sure that I'm absolutely not going to get too close to those power lines. Hey, Cat, set an e-ceiling to 13 feet overhead.

Okay. Let me show how this works. I'm going to raise my bucket. And you're going to see, as I get close to that boundary, the machine is going to automatically slow down and it's going to prevent me from getting too close to those power lines. Now that's the Cat AI Assistant working to keep me and everybody around me safe.

Thank you, Mark. That was amazing. If you'd like to see more, please visit Mark in the [ West Pool ]. It's right in the middle of West Hall, Booth 5019, and you can see our AI-enabled mini excavator in action.

So you can see how powerful this will be for operators. It will make complex machine easier to run, it will raise the bar and the safety on the job site. We're going live with Cat AI system this quarter. Our in-cap applications are in the final stages of validation with plans to roll this out in the near future. And we're not stopping there.

Earlier, you heard Deepu talk about the NVIDIA technology underpinning this work. We're proud to have their latest AI robotics platform Thor powering new generation of on-machine intelligence. Thor lets us run speech recognition, advanced AI models and control logic directly on the machine at the edge where the work is done. That means the assistance still works in remote off-grid locations in bad weather and tough environments.

We don't have to have -- we don't depend on the perfect cloud connection. Operators get real-time private and energy-efficient AI support on site. All of our digital technology has one goal in mind, and that's serving our customers, keeping them up and running, providing their operators and technicians with tools to work smarter and faster. And as you've seen here, Cat AI Assistant is about real-world usefulness, seamless integration and making AI a normal part of daily life.

The adage in the tech world is to go fast and break things. We move fast at Caterpillar, but we cannot break things, not but so much on the line for our customers and our communities. That's why we're so focused on pairing rapid innovation with safety, reliability and trust. And to share a little bit more about the future of safe, intelligent operations, I'd like to invite our Chief Technology Officer, Jaime Mineart to talk about autonomy and how we're pushing that future forward with AI. Jaime?

Thank you, Ogi. Earlier, Joe talked about the invisible layer of the tech stack, the physical systems that keep the world running. Ogi just showed how we're adding intelligence to that layer. Autonomy takes things one step further. From intelligence that assist the operator to intelligence that becomes the operator based on your instructions.

Imagine a machine, the size of a 3-story building, weighing more than a fully-loaded jetliner, moving mountains of earth without a single person in the cab. Now imagine 100 of them working in perfect harmony 24 hours a day, 7 days a week in some of the harshest environments on earth. That's not science fiction. That's Caterpillar autonomy today. People know us for our heavy equipment, building, mining, powering and connecting the world's infrastructure. But what most don't know is that Caterpillar has been at the forefront of autonomy for more than 30 years.

Our journey started in the 1980s with a bold partnership with Carnegie Mellon pioneering early software, GPS and perception systems that led to our first autonomous truck tests. In the 1990s, our team's advanced capabilities in sensing, positioning and control that became the foundation of what you see operating around the world today. By the mid-2000s, our work with the DARPA Grand Challenge helped us push the boundaries of perception, decision-making and real-world testing under extreme conditions.

And as a result, Caterpillar became one of the first to deliver Level 4 autonomy well over a decade ago.

Today, Caterpillar's autonomous mining fleet is one of the most proven and largest in the world, moving over 11 billion tons of material, traveling more than 385 million kilometers autonomously. That's over twice the autonomous mileage of the automotive industry without a single reported injury. Now we didn't take on automating the largest equipment in the world just for the thrill of it. So I have to admit working on these giants is pretty incredible.

We did it because the industry was changing fast and with a growing demand, labor challenges and a constant need for greater productivity. Autonomy helps our customers scale up control their costs and protect their people. At Caterpillar technology always has a purpose.

Our operators, our autonomous solutions move operators out of the cab and into safer, more comfortable, tech-enabled environments, delivering real improvements in safety and productivity. Driven by that purpose, we've continued to expand our autonomous solutions across surface mining and underground mining and even into new segments.

One of my favorites is the work that we've done with Luck Stone the largest family-owned producer of crushed stone, sand and gravel right here in the United States. We teamed up with them to bring autonomy to their Bull Run Quarry in Virginia. Our experts work side-by-side, redefining operations, training people and shaping a solution to best fit their site.

Just over a year ago, we launched a fully driverless fleet at Luck Stone. And since then, our 100-ton trucks have safely hauled more than 2 million tons with consistent, repeatable performance. Autonomy has done more for them than move rock. It has created safer jobs, greater productivity and new opportunities operators and site managers have moved out from behind the wheel and into new roles, managing fleets and optimizing site operations through data-driven decisions.

The real breakthrough here isn't just the technology. It's working side-by-side with Luck Stone to support their people and process changes to transform their operations and unlock the full value of autonomy. Autonomy is revolutionizing mines and quarries.

Now a 400-ton truck is really something a 400-ton truck driving itself is really something you have to see to believe. And since most of you won't get that opportunity, I tried to have one roll up here on stage with me. Turns out the stage wasn't rated for [ GBP 800,000 ].

[Presentation]

I did my best to bring to life for you. That is to scale, to scale. Now you may all not get the opportunity to stand next to one of those giants. But you've all seen our construction equipment shaping the roads, bridges and infrastructure that move the world forward. This is where the story gets so exciting.

Construction represents a far greater opportunity for autonomy. These are the job sites you see every day in your communities, dynamic, complex environments where the work is highly visible, the volume is massive, and the impact on people's lives is profound. Construction is a tough business, tight margins, unpredictable schedules and the constant need for skilled labor. But the safety challenge is staggering.

Here in the United States, less than 5% of the workforce is employed in construction, yet the industry accounts for over 20% of workplace fatalities. A few years ago, fully autonomous construction sites felt like a fantasy. Job sites were considered too variable, too chaotic, too hard to map and predict. But today, thanks to advances in computing and AI many of them powered by partners like NVIDIA, machines can make split-second decisions based on billions of data points. This accelerates human validation and informed oversight, ensuring speed without sacrificing control even in the middle of chaos.

This is the breakthrough that will transform construction forever, making sites safer, faster, smarter, more efficient than ever before. And that transformation starts now. Today, I could not be more excited than to preview the next era of autonomy in construction, five machines engineered not just to move the earth, but to move the industries we serve into the future.

The cat wheel loader. The workhorse for heavy lifting, fast loading and nonstop productivity. Our iconic dozer powerful enough to move mountains of materials, yet precise enough to grade to perfection. The haul truck, off-road beasts that carry and distribute massive amounts of material, rock, soil, minerals. Excavators, big basements, trenches and beyond truly the jack of all trades for the job site and compactors to make sure your commute to work is smooth by preparing that perfect asphalt map.

Not a road map, not a concept. Here today and coming soon to our customers. These machines are the backbone of the invisible layer, the essential equipment that maintain and build the physical infrastructure that move the world forward. By integrating autonomous operations into them, we're not just automating equipment. We're orchestrating the workflows of complex job sites with precision and reliability.

From moving material efficiently to shaping terrain to achieving optimal compaction, autonomy ensures every step is executed with safety, consistency and productivity.

At the heart of this transformation is a new level of machine intelligence and site infrastructure, a digital nervous system for the job site. Fleets powered by AI, machine learning, computer vision and edge computing, the process sensor data in real-time. LiDAR, radar, GPS and high-res cameras work together to create a constantly updated digital view of the site.

With millions of hours of ground truth data, our machines don't just see the world. They understand it. These aren't just trucks and dozers. These are intelligent teammates working together, learning and adapting every single day. It's an incredible feat, and it comes from knowing these machines inside and out from the physics of their movement to the technology that amplifies their efficiency, combined with a clear understanding of our customers' operations and how to unlock that value of technology.

We are launching a new era of autonomy. Tomorrow's operators won't just run machines, they'll orchestrate entire job sites, intervening when human judgment matters most. We're creating new roles on the job site. Tech talent isn't just for Silicon Valley. It's in mines in Western Australia. It's in quarries in Virginia and soon to be on construction sites in South Korea and road crews right here in Las Vegas.

Now we know this transformation won't happen overnight. It's too big. There's too much at stake. That's why we're investing in a range of solutions that create value today while building toward tomorrow. We're thrilled to preview a customer collaboration live from the Caterpillar exhibit this afternoon at 2:00 p.m. in the West Hall. This is an exciting event, and we'll showcase how we're working together with WM to bring autonomy to the landfill.

It's another significant step forward in the evolution of autonomous solutions of all kinds of job sites, mines, quarries, waste, construction, all developed in close collaboration with our customers to unlock the value of technology and transform their operations.

The future of autonomy isn't something we're waiting for. It's here right now, and we're building it. One job site, one breakthrough, one bold idea at a time. With that, I'd like to invite Joe back to the stage to share some final thoughts.

All right. Well, thank you, Jaime. Thanks, Ogi and Mark. I mean I have to admit Jaime gets the coolest special effects of all of us. So that's pretty cool.

So today, you've heard a different kind of CES story. We started today talking about the invisible layer and how Caterpillar builds and keeps it running. You saw that layer is gaining intelligence with sensors, software, connectivity and now especially with AI. Platforms like our Helios and the Cat AI Assistant are going to help customers see more decide faster and work more safely. In autonomy, it's reshaping what's possible in mining. And now, as Jaime just showed you, it's moving straight into construction.

But here's what matters the most. As the invisible layer of the modern tech stack gets smarter, the people who build and run it don't disappear. In fact, they actually become more visible. New roles are going to emerge, skills are going to evolve and our people, our people, not the machines. We're going to stay at the center of what we do.

You saw in Ogi and Mark's demo. It's how a new operator can have a knowledgeable copilot in the cab instead of a steep learning curve on their first day on the job, that's a real-world challenge our customers have today. We have a ton of technology that's on machines the customers don't know how to use it.

And you heard about autonomy at Luck Stone's quarry and Bull Run creating safer jobs and new careers. We have a responsibility to help people grow with this change, to ensure the next generation of operators, technicians, data scientists and managers have a clear path to these new opportunities. Because we get that right, we help build the world is safer, more resilient and more sustainable for the communities that count on this work every single day.

That's why today, we're going to take one more step. We're committing $25 million to strengthen the workforce behind this invisible layer. We're going to fund training, education and partnerships designed to help people transition into the new roles that are created by the latest technology. We're going to work with our customers, our dealers, schools and local community partners to put this thank you.

We're excited about it. We're going to put this to work where our equipment operates and where the work has the greatest impact. So our message today is simple. As we make the invisible layer smarter, we're equally committed to investing in the people who make it all possible. So if you remember one thing today, I hope it's this.

Caterpillar still builds and powers the physical world. We always will. But now in partnership with innovators like NVIDIA, we're making the invisible layer of the modern tech stack much more intelligent. And we're investing just as boldly in the people who make it all possible. So on behalf of everyone at Caterpillar and our entire team, I want to thank you for spending part of your CES with us.

If you want to see more, I really hope you do or more importantly, if you want to talk to the amazing Caterpillar teammates that make all of this possible. Please come find us in the West Hall. Enjoy the rest of the show and stay safe, everybody. Thank you all for joining us.

All right. Well, good morning, everybody. It's great to be here with you. Thank you all for joining our 2025 Investor Day. This is an exciting day for us, one that for us and our team has much anticipated. So you all enjoy the day. For those of you who traveled here to be with us, thank you. I hope you have a chance to visit the tech tables, and we're showing off our team and the technology out there.

No better way to understand it than to ask our talented team members and see it for yourself. And many of you joining online, thank you for joining us. I know many of our employees are as well. Before we get started, I just want to say how truly honored I am to have the opportunity to lead this iconic company into its next century.

We have tremendous opportunities ahead, and we're going to show you that today. I've spent my entire 28 years of my career at Caterpillar and have a tremendous passion for our people, for our brand, for our products, for our dealers, for our purpose of building a more sustainable world. So this is really, really personal to me. So today is going to be a fun day. Our executive office teammates and I are excited to share our vision of Caterpillar's future.

So let's go ahead and jump in. I believe the title of this chart says it all. We have a strong past, but we have an even stronger future ahead. And over the next 25 minutes, I'm going to talk to you really and break it down into to 3 areas: one, our strong foundation, we've been performing at a very high level. And then two, how we're going to build on that strong foundation by evolving our strategy for profitable growth forward.

And then finally, Andrew will cover the financials in detail at the end. You'll get some KPIs through each of the group presidents presentations as well. But I'll talk to you about how we're going to raise the bar on our financial performance moving forward. So let's start with our strong foundation. We're a different company now than we were 10 years ago.

We're definitely a different company than we were when I hired in with the company 28 years ago. The strategy that Jim hopefully put in place in 2017 drove a step change in how we operate and put a discipline in our business that we didn't have before. And you can see it in our results. We have consistently delivered strong TSR. And whether you look at the 3-year, 5-year or 10-year comparisons, we have outpaced the S&P 500 industrials and capital goods over those time periods.

And the strategy that delivered those results is built on what we call the operating and execution model. The O&E model is how we run our company. It's how we allocate resources, and it guides all of our strategic decisions. That's what put the discipline into the financial results that you're seeing. Results have been great. Let's look at a few of them.

In 2024, which is our last full year reported results, we delivered $11 billion of OPACC. As you can see, that's up 90% from 2019. Remember, our true definition of winning. Our ultimate goal through all the metrics is growing OPACC dollars. We believe that has the highest correlation to total shareholder return and I think the results over the last few years have proven that to be true.

Services are a stable, a center point of our strategy for profitable growth. We set out to double services from a base of 2016. And in 2024, over that time frame, we added $10 billion of services revenue to our top line. That's up 71% from 2016. To grow services, we knew we had to be easier to do business with. So we set out to develop our own e-commerce platform. And in 2024, we delivered $18 million per business day of e-commerce revenue do the math, that's about $4.5 billion, $18 million per day is well ahead of the targeted ramp we had set out.

We went on this journey. We have over 1.5 million connected assets in the field reporting data to us every single day. That is a huge competitive advantage for us today. And when you hear throughout today how we're going to lean into technology moving forward, this is going to be incredible competitive advantage for us even more so into the future.

And finally, from 2019 to 2024, we delivered over $40 billion of ME&T free cash flow. And as promised, we returned 99% of that to shareholders over that time frame. So these are great metrics, metrics that we look at. What does that mean for our metrics to you all? How have we done on our commitments to you.

You can see we have consistently delivered. These are the targets that we put out in our 2019 Investor Day. And you can see for the top 2 metrics, adjusted operating profit margin that go along with the corresponding sales level and the ME&T free cash flow ranges, we raised the bar on those targets in 2024.

And over the last 6 years, we have consistently delivered on those metrics. And think about what's happened in the last 6 years. It's hard to believe that we've had the pandemic, we had ship shortages. We've had supply chain challenges. We've had hyperinflation. We've had some geopolitical tensions, all that going on in the world and through all of it, our team has consistently delivered.

And that's due to operating at a high level and the discipline from the O&E model. But our strong foundation is more than just how we're operating, the fact that we operate differently now. All 3 of our segments operate in growing industries that have enormous opportunities for us moving forward. And here's a few of the secular trends, the megatrends that we think will impact our business and give us opportunities moving forward.

Urbanization, it's expected over the next 10 years between now and 2035, over 800 million people are going to move to urban areas. That's going to drive the need for a lot of infrastructure. We all know what's happening with digitalization of the world, what's going on with data centers. I think it's easy. We sometimes forget the rapid acceleration. We were participating in it just with cloud computing and then you bring AI and Generative AI on top of it and the growth has exploded.

For data centers, it's estimated that 800 terawatt hours of compute power is going to be needed in the next 10 years. That's the equivalent of 15 New York cities when it comes to power. And not only do we see a world -- well, data center CapEx, remind you also, we expect to soon approach $1 trillion a year before the end of this decade.

And not only do we see a world where more electricity and energy is needed, it's going to take a growing mix of energy sources. Energy growth over the next 10 years, worldwide is expected to be 8x the U.S. annual household consumption of today. So tremendous opportunities as we move forward. So bringing that closer to home, what does that mean for Caterpillar?

Looking at CI, we expect in the next 10 years, forecast show global construction spending to be up 25% and at the same time, global infrastructure spending is forecasted to be up 35%. In that 10-year time frame, we expect the demand for critical minerals to increase almost 40%. And that's what we do in. We help our customers get critical minerals. In Global Mining sector CapEx, that forecast only is published through 2030, but it's expected to be up 50% between now and 2030.

And then we talked about data center growth, power demand from data centers is expected to triple in the next 10 years. And then also, not only is energy demand continuing to grow, but according to the IEA, 50% of the energy mix in 2035 is still going to come from oil and gas. Inside the oil and gas mix, natural gas becomes an ever more increasing an important fuel for our world. And you're going to hear Jason talk about that today.

That's a good thing for Caterpillar. And in fact, over the next -- by the end of this decade, U.S. LNG exports expected to double. And for Caterpillar, we play in the entire value chain when it comes to natural gas. So why do I put this chart up here, right? The data center opportunity in AI, you're going to hear about that today from it's a significant opportunity for us. We're excited about it. It's real, and we have good line of sight to it.

But that's not the only opportunity we have. We have opportunities in all 3 of our segments moving forward. And that's what you're going to hear about from our team today, how we're going to go get it. Even inside E&T, it's not just about power generation and data centers. We have great opportunities in our oil and gas business as well. So our foundation is strong. We're operating at extremely high levels.

We've changed the way we operate the company with financial discipline. We have great end markets and opportunities for all segments. How are we going to involve our strategy to take advantage of those opportunities. That's where I want to spend the bulk of my time with you on this morning.

This strategy gear in this picture represents the strategy we put in place under [ Jim ] up will be in 2017. The 1 that's delivered the results that you've seen. I was part of the 20-person team that put that strategy together, I was running our Finance and Corporate Strategy Group in 2017.

On that team also were group Presidents, Bob Long and Denise Johnson, who you'll hear from today. The 3 of us along with our executive office teammates have been executing this strategy to deliver the great results and momentum that you're seeing right now. So we believe in this strategy, right? It's working. This is our foundation, and we're committed to it. We're committed to our purpose.

It's still to build a better, more sustainable world. So it's time to build on that strategy. So let's talk about how we're going to build on that moving forward. The first thing we've done is added a mission statement. We have to be obsessed with our customer success if we're going to be successful moving forward. So our mission is solving our customers' toughest challenges.

This is the room. It's a little bigger than this. We're getting ready for this week, but we have our leadership conference in every year. So last year, in this very stage, in this room, we have our top 250 to 270 leaders globally. Come in and they get to spend time with the executive office. We talk about the strategy, what's going well, what's not, what do we need to do moving forward.

And during the 2 days, 2.5 days were together, a lot of times we'll bring dealers and customers to present to the group. Last year, we had the CEO of one of our largest and most loyal data center customers come to talk to the group. And it's an unscripted hour. We give them an hour when we say, tell us the good, the bad, the ugly of how it is going with us, why you buy Caterpillar, what do you need from us? What do you expect from us? And over that hour, he proceeded to talk about how he needed more than an equipment provider. You could go to a lot of suppliers of equipment.

What he was looking for was a partner that helped them solve this problem. And in fact, the words he used the exact quote, and it's stuck with our team, I'll tell you that is solve my problems, and I'll buy it. And I believe that's true whether you're talking about our largest customers all the way down to the retail CI customer who owns 1 skid steer.

They're running businesses they want a partner that can help them solve their toughest challenges. I spend as much time as I can with customers. It's hard to get to see them sometimes, but I spend as much time as I came with customers in all 3 segments. So do the group presidents. We spend time with our dealers and with customers, and we hear consistent themes from our customers when it comes to the challenges that they're running into today.

Things like safety risks. Everybody wants their workforce and their job sites to be safer. Productivity challenge or labor shortages. Customers consistently talk struggling to find skilled operators today and skilled technicians to work on their equipment. We hear about productivity challenges and job overruns that prove to be costly to their bottom line. And at the same time, their job sites continue to become more complex.

Customers still need help, particularly our mining customers on their sustainability challenges. They haven't abandoned their sustainability goals, and we need to support them on that journey. And then the latest one that we hear quite often is the need for reliable power. We hear that all the time.

You know that's happening from data center customers, but it's spilling over into the other segments as well. So our new strategy, a refresh strategy for profitable growth is really built on 3 growth pillars to help our customers solve these challenges. And this is how we're going to do it.

The first one is commercial excellence. Second, we need to be the clear leader in advanced technology, both on and off machine, and we're going to transform how we work internally to get the job done. So you're going to hear the group presidents talk to you today about all these growth pillars and bring it to life for their particular part of the business and how it applies.

But I want to spend a little bit of time giving you my thoughts at a higher level, so you see the types of changes we're talking about here. So let's talk about commercial excellence. We're going to get closer than ever to our customers. If we're going to solve their toughest problems, we have to understand their operations and their job sites, and we can't do that unless we get closer to them.

And one of the ways we're going to do that is driving more direct engagement with strategic accounts. Our largest customers who own large fleets that cross dealer territories, many of them want to have a relationship with Caterpillar and they do. We've done this with great success in E&T started in oil and gas, but we really have tremendous success in our data center business and power generation.

We have direct relationships with most of the hyperscalers in data center customers. It allows us to plan, understand their technology needs, solve their problems, drive a level of consistency. We do it with our dealers. It doesn't mean our dealers aren't critically important, they are.

The customer gets the best of both worlds here. They get a relationship with us, but they also get world-class dealer network on the ground with a local workforce, local contacts, all the technicians they need to serve their job site. We're going to replicate what we've done to great success in E&T and in data centers into mining and also into our largest construction customers moving forward.

We're renewing our commitment to services. When customers buy our equipment, they rely on us and our dealers to keep them running. Downtime is incredibly costly to our customers. Services is a good our customers. It's good for our dealers, and it's good for Caterpillar. And finally, we're going to have tailored solutions for our customers around the globe.

We can't be one size fits all world. Tony will talk to you a lot about this today, how we've reorganized our commercial teams internally to have more boots on the ground with our dealers regionally. Similar-sized construction customers and contractors have different requirements and different needs different challenges. When you're talking to them in the Middle East versus America versus the U.S.

We need to have our teams with them and tailor the solutions that will solve their challenges. And of course, we're going to do all this by growing with our world-class dealer network. Our dealer network is our single competitive advantage, and it will continue to be. But we're going to make sure that they're investing in modernizing with technology and they're investing to keep up with our growth ambitions as we move forward.

So that's a high-level commercial excellence. Second pillar, we are going to lean into technology in a heavy way moving forward. And I believe by integrating our off-machine digital solutions with our on-machine technology, we'll unlock tremendous value for our customers. So how are we planning to do that?

One, we're going to accelerate our world-class and industry-leading digital solutions by continuing to add features and to drive further adoption with our customer base and having our dealers help us drive that adoption. We need to continue to be easier to do business with and get our customers into our digital ecosystem.

We're going to help our customers with safety and productivity by continuing to enhance and release features on machines like operator assist, grade control, collision avoidance and task autonomy. If you have a second, if you haven't already talked to our team about grade control in one of the test station.

Denise will talk to you today about driving faster adoption of autonomy and mining. There's a lot of opportunity to continue to drive mining autonomy. And then many of you may have seen our partnership with NVIDIA, our plan to deploy the latest jets and for technology on our machines and expand autonomy to other parts of our machine portfolio.

One of the test stations talks about on an arm -- so you can see that in action out there today as well. And we'll move into other areas of construction that make sense and drive value for our customers. And then finally, as I mentioned, customers like our mining customer still need support on our sustainability journey.

So we're going to continue to invest to make sure they have the right power trains, whether that's more efficient diesel, diesel electric, battery electric, hybrids, alternative fuels. They have the powertrain they need to meet their ability goals moving forward. We believe that leading the way in digital and technology, not only is going to be good for our customers, it will be a differentiator for us as we move forward.

And you'll hear Bob talk a lot about that in his section today. So the third growth pillar, finally, transforming how we work. We're going to continue to win with our amazing people at Caterpillar. And we're going to do that by continuing to invest in their skill sets and upskilling them, making sure they have the right tools to do the job.

Many of you may have seen as part of our Centennial as well on our Centennial day, April 15. Along with our 100 years, we pledged $100 million to invest in the future. And I'm proud to say we made the first investment on that pledge 2 weeks ago and what a better place to do it than the workforce in Indiana.

We made that announcement at our Lafayette engine where many of you were able to visit with us earlier this year, we're trying to double capacity off of a 2024 base. We need a talented workforce there to help us grow. So that's the first of many exciting announcements of how we're investing in the workforce of the future.

Second, we're going to continue to invest and modernize our manufacturing footprint. We have to do this if we're going to keep up with our growth ambitions. This is another exciting area of our partnership with NVIDIA. Last week, NVIDIA had their conference in Washington, D.C. I don't know if many of you were able to tune in.

Jensen showed and mentioned on the stage, we have launched and he announced our first factory digital twin in partnership with them. That was from our large mining truck facility indicator, one of the manufacturing lines on there. This is -- we are at the tip of the spear at the very beginning of this journey, and there's tremendous opportunity to make ourselves more efficient and use this technology modernize our factories.

It's exciting work, and we're just getting started. And then finally, we'll have a continuous improvement mindset inside Caterpillar and deploy technology internally to become more in everything that we do. So these growth pillars are going to be critically important. Those pillars sit on a foundation of operational excellence. And operational excellence should look very familiar to you.

If you study the gear, I talked to you about at the beginning of the existing strategy that's not going away. That's what this is. We're going to continue to operate the company using the O&E model with the discipline we've instilled over the last 7 to 8 years. We're going to have a relentless focus on product quality, on lean, on having competitive costs and driving velocity through our factories to get customers the product when they need it.

That's not going away. And of course, the bedrock of all of this is our values in action. We will live our values every single day, and it will guide everything that we do. This is how we're building on our existing strategy for profitable growth. You're going to hear the group presidents, talk to you and bring this to life for each of their segments throughout the rest of this morning.

So we're excited today to get this launched. So we have our strategy set but we're also organizing ourselves for success. One of the things that we did this summer internally was reorganized a little bit. We moved our Chief Technology Officer and Chief Digital Officer and their teams closer together under one group president Bob De Lange.

That's meant to -- the teams were working together before, but it's meant to put them even closer together and unlock innovations and bring the physical and digital world together when it comes to technology. We've already made great strides and innovations in the short amount of time of having them closer together. Bob will talk to you about some of those things today. We're going to save some of those because I think the announcement went out today.

We're going to also keynote CES this year in January, where we want to unveil some of the great innovation that we're working on. So that's really exciting for us moving forward. Also effective today, we are announcing a name change for energy and transportation. We're renaming that segment to Power and Energy we believe that better reflects our largest segment and the largest growth opportunity we have right now and help people better understand what it is that segment does.

And to coincide with that name change, effective January 1, we're going to move our rail division from the Power and Energy team into RI. When you think about locomotives and what they do, they're a machine that moves resources. There are a lot of synergies to this move. So there are 2 benefits of this. One, it allows Jason and his team to focus on power and energy exclusively, which is engines generator sets and industrial gas turbines.

Two, it drives a lot of clarity for you all once we start reporting this way in profile and the growth opportunity and growth rates of Power and Energy. But also, there are tremendous synergies, I believe that will get unlocked by moving rail into ore. We have common customers today. Mining customers buy locomotives. There are common technology road maps when it comes to sustainability.

And internally, inside Caterpillar, we already share common components and some common manufacturing footprint. So we're excited about these changes I believe these are going to really help set ourselves up for success and to execute the strategy moving forward and drive greater focus for our teams on solving our customers' problems.

So we've talked about our strong foundation. We're operating at a different level than we ever have. We have tremendous opportunities in all of our end markets. We have a refreshed strategy for profitable growth. Now we've organized ourselves for success. So how does that translate to results? What does that mean for you all and how to measure us? We're going to continue to raise the bar on our financial expectations.

Andrew is going to cover this in more detail in a little bit, and you'll see some KPIs -- additional KPIs from each of the segments, but I want to cover the high-level metrics and how we're going to raise the bar here before I turn it over to the team. The first thing we're going to do is invest a lot of the growth we've been able to drive has been within the capacity and the constraints that we already have.

We've talked to you about starting our investment already in large engines in order for us to keep up with the growth. We're now going to have to invest in capacity moving forward. So we expect our CapEx for machinery, power and energy to be 2x when you look at the time period 2025 to 2030 when compared to 2019 to 2024. And that's on average because of the capacity, Andrew will talk to you but it will be heavier in '25 and '26 and then probably level off a little bit more in the outer years.

We're also going to continue to invest in modern manufacturing. That's going to require some CapEx investment.

We've talked to you about our large engine investment, no change to that previously announced capacity expansion. What we are announcing today, though, is we've started a capacity expansion for re-industrial gas turbine business to add capacity 2.5x the level of 2024 capacity. This is a really exciting time for us in Power and Energy. We're doing this based on the confidence we have, the momentum we have, the orders and backlog that we have and the tremendous interest from our customer base. And this isn't just the larger Titan 350. It's the entire product lineup that we're getting great demand for it's not just prime power for data centers.

That is a new and exciting opportunity, but it's also to support our oil and gas customers. As I mentioned before, oil and gas is still going to be 50% of a growing total energy mix in 2035. We're going to move a lot of natural gas. And Jason will talk to you about that, it's really important.

So this capacity expansion is really, really important for our growth ambitions. And it's exciting news. And those of you who get to go see our solar turbines Desoto facility today. I'm sure we'll have more questions for Derek York and the team when you're there. If we're going to lead the way in digital and technology, we're also going to have to increase our investments there.

The same comparative time periods to invest 2.5x more in digital and technology moving forward. Bob will talk to you about a lot of the things that we're working on and what that investment is going to go towards. So what do we get for these investments? Well, I mentioned these earlier, these are the targets that we set out and commitments we made to you all in 2019. And on the top 2, the ones are the cash flow and adjusted operating profit margin, we raised the bar 2024. And as I mentioned, we have consistently delivered great results against those targets. So how are we raising the bar moving forward?

Well, the first thing to do is based on the great momentum we have in the business, the backlog we have, the tremendous opportunities we see due to the trends in all the industries we serve and the confidence we have in our growth strategy that you're our team later today. We're adding a metric. From 2024 through 2030, we're targeting to grow our top line in the CAGR of 5% to 7%.

That's an increase from what we've delivered from the time period 2019 to 2024, which was 4%. We have great momentum in the business. And so we feel like it's time to put this metric out. Our teams are going to show you, as we move throughout today, how we plan to that CAGR. Based on that, we're going to extend our ranges for operating profit margin and the corresponding sales level.

So today, the range is from sales of $42 billion to $72 billion. inside that range, that sales range, no change to the margins. We're going to extend that from $72 million to $100 billion, and Andrew will talk to you about the details of these ranges a little bit later. But I would say 2 things for you. One, from 72 to 100, we've tried to keep the same profit to sales pull-through as we have from 42 to 72.

And the second thing I would say is the ranges that you're seeing here and Andrew will share are inclusive of the investments that we talked about on the prior slide. I mentioned our doubling down and recommitting to services. Our new target for services is $30 billion by 2030. Our current machinery Power and Energy free cash flow range is $5 billion to $10 billion.

We actually raised it to that in 2024. It used to be 4% to 8%. And moving forward, we're targeting a range of $6 billion to $15 billion. We have great momentum in the business and continue to generate great cash. And on the last 2, no change in our capital allocation methodology. We still plan to return substantially all M&E free cash flow to shareholders and to keep in line with our dividend aristocrat status continue to target high single-digit dividend raises high single-digit percentage dividend raises between now and 2030.

We have a great momentum in the business. We believe in the strategy. That's why we're raising the bar on these targets. We're really excited about our future. So what you're going to hear for the rest of the day is from my colleagues and the executive office my teammates. You're going to hear how they're going to use the growth pillars for their particular segment and how each of them contributes to this 5% to 7% CAGR that we're targeting.

In Power and Energy, Jason is going to talk to you about adding capacity to capture the historic growth that we're seeing. Tony will talk about commercial excellence, getting closer to our customers, tailoring our solutions to meet needs and Denise will talk about how we're shaping the future of mining with technology. And when Bob comes up, he'll talk about the investments in digital and technology, how we're blending the physical and digital and how we believe it's going to be differentiator for us moving forward.

It is a truly incredible time at Caterpillar. Our future is so bright, and we are excited about our strategy launch. We're excited about the opportunities we have all of our businesses. I'm confident by executing the strategy, we'll continue to grow OPACC dollars. Remember, that is our ultimate goal. And when we do that, it will continue to drive strong total shareholder return as we -- we're committed to this strategy, and we're excited about our future. So we have a lot in store for you today.

I'll be back up for Q&A. But right now, I'd like to turn it over to Jason Kaiser, Group President of Power and Energy. Thank you.

[Presentation]

Good morning. It's great to be here with you today. So I started at Caterpillar 25 years ago, and I was an electrical engineer. I was pretty interested in power generation. And I've had the opportunity over my career to work in our Power Energy segment, really the whole time with a significant amount of my opportunity in power generation.

So you can imagine with that background, how exciting it is to be here today. To share with all of you the recent success that we've had but more importantly, the great opportunities that we have ahead in Cat Power and Energy. You watched the video, you heard the new name, it's a great reflection of who we are but also where we're going to go.

It talks about our unique capability to serve customers through the full power and energy value chain at a time of really incredible growth and my objective is today to share with you our plan to capture that growth that we have ahead.

Power and Energy is Caterpillar's largest and fastest-growing segment. We've had good strong execution over the last 5 years, and that's led to higher sales, increasing profitability, and it's helped us be able to invest for the future. And those investments are really setting us up as we look forward to continue to deliver profitable growth.

Some highlights from the last 5 years. One, we've increased sales by 30%. We've been able to increase R&D and capital spending as well, up 75%. We delivered record operating profit margin in 2024 and we've seen our power generation sales grow by more than 70%. As I go through the presentation today, there are really 3 messages that I want you to take away when you leave.

The first is that we are in an incredibly supportive environment externally for growth. We're seeing strong increases in global energy demand, and we're seeing historic increases in the demand for power. The second is we are really uniquely positioned to take advantage of that growth.

We participate through the full power and energy value chain and the breadth and strength of our product and services portfolio positions us very well. The third key point is we have a clear and well-established execution plan.

Our execution is underway, and we have a lot of confidence in our success. We will more than double power generation sales by 2030. And in order to do that, we're making strategic investments in capacity. We will double our large engine capacity. The previously announced capacity program and excited today, as Joe mentioned, to announce we're going to increase our natural gas turbine capacity by 2.5x.

We're very close with our customers. We're working to understand their future needs, and we're excited about being able to utilize this capacity to meet those needs and to deliver profitable growth for Caterpillar.

So let's start and go into a little bit more detail about that external environment that really supports our growth moving forward. The world needs more energy. So a jewel is a measure of energy, pretty common one, and it's projected that the world will need 40x to jewels of additional energy by 2035.

So you may not know what x to jewel is but it's a massive amount of energy. It's 8x the energy that it takes to power every household in the U.S. At the same time that we see that growth -- we're also seeing an evolving energy mix. So oil and gas will remain important. It will remain at around 50% of the total mix. But within that, natural gas will accelerate. Particularly driven by the needs of natural gas to fuel power generation.

Renewables will continue to accelerate at a rapid pace. And as that happens, Renewables, they need a backstop. They need reliable, dispatchable capacity for the days where the wind doesn't blow or the sun doesn't shine, and distributed power solutions like we provide are perfect for doing that. So overall, this growth in energy, this evolving mix, it unlocks a lot of potential, a lot of growth for us, and I'll cover that as we go through the presentation today.

The second big area of growth is really a historic increase in the demand for electricity. So electricity demand is objected to increase 43% by 2035 and Data centers are a huge driver of that with their demand increasing 200% over that same time period. So that creates a number of challenges for our customers and a lot of opportunities for us to help them. So the customers they need capacity, they need electrical capacity. They also need to ensure reliability. Data centers are a perfect example of that.

They'll continue to need our backup power solutions to make that their data centers are always online and always available. But they're increasingly coming to us and asking us about primary power solutions. They're unable to get a connection from the utility based on constraints in capacity or distribution. And we have great products to fit those needs.

Utilities also need a system they need to add capacity. They need to make sure the grid stays reliable and they need to move really fast. And again, our distributed generation solutions are great for helping them do that. And then as we've mentioned a couple of times, natural gas is going to be critical as we move forward to powering this electrical demand that's happening.

And we get to participate not only in burning the gas to make electricity but through that full value chain from drilling to moving the gas all the way through. So that's a great segue. I kind of sets up the growth that we're seeing, the external environment, and so now I want to talk about how we're uniquely positioned to take advantage of that as Caterpillar.

The first way is the fact that we are positioned through the full power and energy value chain. So you can see that depicted on the slide, lots of yellow product and services all the way through the value chain. So from drilling a well to moving gas down the pipeline to burning that gas to make electricity, we have products and services that customers rely on. We're very unique in that ability to serve those customers and serve them well through that full value chain.

Let's go into a little bit more detail. In the upstream, our engines and our turbines power drilling, onshore and offshore. Our engines, transmissions and pumps enable well preparation, and our generator sets are key for oilfield electrification. Customers, they count on us to ensure efficiency, the lowest owning operating cost and improve sustainability. In the midstream, our engines in the oilfield, they start to gather the gas.

They start to move it down the pipeline. And then as the pipelines get larger, our solar gas turbines create the compression that it takes to move the gas across the country to where it's needed. So these are really tough applications. They run 24/7 all day every day and customers rely on our product reliability, durability and our strong services support to keep their businesses running.

The downstream is a newer segment for us. And our participation is really being enabled by our new Titan 350 gas turbine. It's a larger gas turbine and this larger turbine more allows us to serve customers in the downstream as their processing, refining and exporting natural gas and helps them meet growing energy demands globally. And then the last area is power generation.

We have comprehensive solutions. We're really good at power generation, all the way from backup power mobile power, primary power and really a full suite of solutions around it, control switch gear, inverters, energy storage, even the ability to interface with the utility. So we have tremendous capability to help our customers ensure that power is available and it's always reliable.

And think about customers like data centers, utilities and many, many other critical applications like for example. So if we zoom back out, again, take a look across the screen. You can see all the yellow iron from end to end. We're really unique in our capabilities and our strong customer relations to serve the full power and energy value chain.

The second area that we're unique is by the strength and the breadth of our product and services portfolio. We have the broadest product portfolio to serve the needs of these kinds of customers. We have reciprocating engines up to 10 megawatts, natural gas turbines up to 39 megawatts that new Titan 350 turbine.

We have excellent products, high-power density, high efficiency, key things for customer success. We leverage common platforms and that allows us to adapt to changes across multiple applications or industries, changes in demand and changes in customer needs. We have the scale and speed of implementation to help our customers at this time of rapid growth and we offer full solutions and those solutions help simplify design and speed commissioning for customers when they're trying to get power and get it fast.

So let me talk a little bit more about this with a customer example. We're really excited to be working together with a company called [ JUUL, ] who is an infrastructure developer and they're building Utah's largest data center. This data center is going to have on-site power, no utility connection and they're going to need multiple gigawatts of power.

We work together with [ JUUL ] and also our local Cat dealer Wheeler, and we came up with a power solution for them that contains the latest and Caterpillar product technology. And it helps solve a number of things for [ JUUL. ] It ensures that they can meet AI workloads, which can be difficult, but at the same time, have a system that's very efficient and very reliable.

The project includes natural gas engine-based gensets for both primary and backup power, and it's a full solution. It has controls, switchgear, inverters, energy storage full Caterpillar solution for JUUL. It's also services based. We have a 10-year services agreement with a and that features on-site support and remote condition monitoring -- this is the kind of application that can't go down.

We need to ensure that it's up all the time. So with that, let's hear a little bit more from JUUL directly on the project and their partnership with Caterpillar.

[Presentation]

Really exciting project for us. And working closely with customers like David at JUUL, it's really key for our future growth of success. So I want to transition now. We've talked about the external environment, its support for growth. We've talked about how we're uniquely positioned.

Now I want to get into some of the ways that we're executing to capture that growth. The first way is execution and advanced technology. So as we're developing products and technology, we're really focused on the intersection of improving customer economics and improving their sustainability. And when we do that, we know that we can deliver the maximum value for customers. Some examples of how we do that, first, in machine productivity.

So product efficiency is a really big deal here. An example of our work is our new Gas 35,200 gen set. It's the product that they're going to use at the JUUL site. That new genset product has leading levels of efficiency, and that allows customers to lower their cost of operation and, at the same time, improve sustainability.

We continue to build out our advanced power portfolio, new hybrid technologies, new battery-based technologies and we're using those with customers where those technologies best meet their business needs. And we continue to focus on automation and autonomy. And for us, that means advanced control systems.

One good example is our CES control system for power generation. It's a system that allows customers to integrate multiple power sources on one site. So maybe gensets, batteries, even solar PV bring that together, interface with the utility. That control system does that seamlessly, fully automated.

And at the same time, it's always looking to improve efficiency and sustainability and ensure reliability. We're also executing on commercial excellence, focused on customer needs, focused on meeting customers where they're at across a wide range of different projects and different applications.

So that key account management that Joe mentioned is one really important way we get that done. We have strong direct relationships with large customers, customers that span across multiple dealer territories. And by doing that, we're able to clearly understand their needs, help develop tailored solutions for them to meet those needs and build some really strong relationships along the way.

When we put that together with the local support from our cat dealers and they're great local execution, we really can bring the very best commercial experience. It's the combination of global scale from Caterpillar and strong local execution from the Caterpillar dealers. Our services are and continue to be a differentiator for us, and we remain focused on services.

It allows us to ensure customer reliability, uptime and the lowest in total owning operating costs across the full life cycle. Our services capability really ensures the very best for our customers in terms of their overall experience. And I'm excited that lots of you are going to get to go to De Soto later today. De Soto is a critical part of our services portfolio and our gas turbine business, you'll get to see that in action.

I want to share a video now about QTS, we're really fortunate to work together with QTS. They're a data center development company doing global data center development for hyperscalers, cloud computing and high-performance computing. And I really want to hear -- want you to hear directly from them what their partnership with Caterpillar feels like.

[Presentation]

We're really fortunate to have QTS as a customer, and you heard about our relationship with David. You also heard him say it's important for him to work together with a company that can scale right now in this time of rapid growth. And we're doing just that. As Joe mentioned, we are making strategic investments in capacity. The first part of that is doubling our large engine capacity, as we previously announced. That new capacity increase that project is underway, and it will help us meet the growing needs in power generation, oil and gas and also the parts we need for our services growth moving forward.

We're really excited today to also announce our capacity increase for industrial gas turbines. We're going to increase capacity by 2.5x in our turbine manufacturing. And that will help us meet the needs of gas compression customers, power generation customers, including data centers as we move forward. We have confidence to make these investments right now because we have a record backlog. We have frame agreements in place with many of our customers. And we're getting long-term forecast signals from our customers to help us understand their needs moving forward. And in my 25 years, I've never seen us have such a clear view of future demand that we have from our customers right now. These projects are well underway. We're making some initial gains. You've seen our power gen growth in 2024 and 2025 so far as evidence of that. We'll continue to add meaningful capacity year-over-year through the end of the decade. And once the programs are complete, we will have 50 gigawatts of combined capacity for large engines and turbines in place by 2030.

We're also excited about how this capacity increase can help us grow in services. So we're seeing a larger number of applications that require high run hours. So things like gas compression, primary power generation, those applications, they tend to run 24/7. And when that happens, it creates significant and long-lasting services opportunity for us. A couple of examples of what that means and how that works. So if you take primary power, natural gas engine gen set, running 24/7, and you compare that to a diesel standby unit, that gas unit has 40x more services opportunity over its life cycle. And in our solar turbines business, for gas compression, for primary power generation, those units are on 24/7, and our customers use them for decades once they're installed. Our capacity increase helps us serve more and more of these customers as we see that growing demand. And in doing that, we're able to grow our services opportunity not only through 2030, but well beyond. Our customers, they really rely on us for strong services and support and again, excited to show you that at [ DeSoto ] later today.

Let me share one more customer example, and I think this really brings together everything that I've talked about today. So Williams is a natural gas infrastructure company. They gather, process and move natural gas, transport natural gas. They operate 30,000 miles of pipeline in the U.S. They move about 1/3 of the gas in the U.S. They're also a longtime Cat customer. We have almost 1,000 pieces of equipment in their fleet, engines and turbines. And based on that long relationship, we've been able to show our services capability and build trust with them. Williams recently decided to expand their business into power generation. So they're looking to provide power to data centers moving forward. Based on our trusting relationship based on the breadth of our experiences, Williams came to us for help. They asked us what we could do. So we partner with them to put a power solution together for their first project. It includes both engine and turbine-based generator sets. It includes an exclusive service agreement or a very strong services agreement to keep them up and running. It's over 1 gigawatt of power. That solution allows Williams to solve a number of problems.

One is how do I support the AI workloads they were expecting. Those are difficult workloads. We were able to help them do that. They needed speed of implementation. We were able to give them a large amount of power quickly, and they were looking for a full solution. And so our capability to bring both engine and turbine-based power generation was a key differentiator.

Let's hear a little bit more from Williams about our relationship and the project.

[Presentation]

So I think these customer examples, Williams, QTS and [ JUUL ], they really illustrate our ability to provide excellent products and services, but also the commercial excellence we can provide to customers.

So I want to wrap up with those same 3 points that I started. These are the things that I really would like you to leave with today. The first is that we're in an extremely supportive external environment for growth. We're seeing strong global energy demand increases and historic increases in the need for electricity. The second key point is we, in Caterpillar Power and Energy, we're really uniquely positioned to take advantage of that, through our participation through the full power and energy value chain and the breadth and strength of our product and services portfolio. And lastly, we have a clear and well-established plan. We're off and running on execution and we really have high confidence and success. We will more than double power generation sales by 2030. And in order to do that, we're making strategic investments in capacity, both large engines and turbines. There's truly never been a more exciting time to be part of Caterpillar Power and Energy.

So with that, I want to thank you for the opportunity to talk about Power and Energy today and introduce our next speaker, my colleague, Tony Fassino, who will talk about the opportunities ahead in Construction Industries.

Ladies and gentlemen, good morning. My name is Tony Fassino, I'm Group President for Construction Industries here at Caterpillar. Our purpose is clear: to build a better and more sustainable world. I'm going to talk to you today about how we're going to grow and how we're going to do it profitably.

Construction Industries serves markets around the globe. You can see on this slide, we're everywhere from general construction to heavy, industrial waste, road construction, core in aggregates in addition to agriculture and landscape. Now the good thing about this slide is there's a lot of variety here. There's a variety of customers, there's a variety of applications. They need a variety of solutions. They need a variety of products to solve their toughest challenges. And again, the good news is we're here to do that. And having done that for the last several years, we've maintained a strong financial position. You can see on the left-hand side of the screen, we've taken that top line from $23 billion to $25 billion, and move that bottom line as margins have expanded from 17% to 24%.

Now we've done that in a number of ways. Keep your eye on the right-hand side of the screen. We've expanded that product line, that next generation of products has served these customers very well that you saw in that previous slide. In addition, we've added an entirely new compact track loader lineup that's been very well received by the market. Also building our own telehandlers. Generally when we build it and do it our way, we tend to be the most successful. We've added that to the portfolio. Also, strength in services, an additional 400,000 connected and reporting assets and more than doubling the number of customer value agreements. We'll talk about CVA's, customer value agreements as we roll through the presentation.

We wrap around that, 3D grade-ready options across much of the product portfolio and you bring that technology heavily into focus. Those elements have helped us deliver those results on the left-hand side. And the future is very bright. Joe talked about the plus 25% in global construction spend, very good news from a CI perspective. Let's dive into a little bit more detail. Let's talk about that residential construction piece of plus 25%. At residential construction, the urbanization housing needed for densification of populations, our building construction products team and those products and solutions they provide serves that very well. They're on the sites, preparing the house pads, getting things ready. Plus 51% in rental, customers don't always buy sometimes they need to rent. They just supplement their work. The products that we provide feed the dealer rental fleets as they grow that to satisfy the customer need that's out there.

Moving to the right-hand side of the screen for nonresi. We talk about nonresi quite a bit. Nonresi building and civil. Nonresi building, plus 15% and civil infrastructure plus 35%. Remember that nonresi building, that's the factories, the hospitals, the schools, that long list of nonresidential project takes places that we're always right there on those big dirt jobs, hits our core larger product line very intensely. And you can't miss the bottom right, plus 35% on the civil and infrastructure. Right there with our big tractors, dozers and loaders, the roads, the bridges, the tunnels, the water ways, everything you needed to get here everything you're going to need to go home was built by that larger product line, and we're out there every day. And that's positioned us very uniquely. It's positioned us uniquely to solve our customers' toughest set of challenges.

Let's talk about some of the reasons why that total cost of ownership you see on the center of the slide, TCO, a lot of times that customers or that, they need the lowest total cost of ownership that ensures their profitability success and gives them the ability to grow. That's been at the heart of Caterpillar for the last 100 years. It's going to be at the heart for the next 100 years. Also, product support down the center, 150-plus dealers around the world, basically serving every country. They're right there local. They know the people. They know the customers, the contractors, they know what's being bid led. They know what's going on. They support that with the largest service technician population in the world, educated and trained by us with the service tools and processes that we've perfected over time and continue to advance and hand them these new and different tools to do it better and faster.

Also on the right-hand side of the screen, that technology suite, a technology suite we built over many years have continued to pour the resources in to 3 lead stronger with the technology piece. From the onboard technologies, whether it be autonomous, semiautonomous, some of the features to help operators and the offboard a lot of the digital technologies that I'll dive into, and you're going to hear Bob dive into a little bit later this morning. All of that built across the foundation of 300-plus models and growing along with 1.4 million connected to reported assets and again, that digital and technology innovation that we do every day.

With that, I believe strongly in our 2030 goal of 1.25x sales to users. We can grow that to 1.25x from where we were in '24. And we're going to do that across a base of commercial excellence, the advanced technology leadership and the integrated solutions you see there in the bottom left-hand side. Joe and Jason touched on some of this. I'm going to dive into all 3 of those as we talk about what it means for CI.

So let's start with the commercial excellence piece, how we're aligning, scaling and how we're going to use that to grow. Essentially, it's all built around the customer. The industry itself has been accused many times and still is today of being somewhat product-centric, this product, that product. We've been a little bit that way. But right now, we're dramatically reshaping the commercial organization on the left-hand side of the screen in that first box. You see a world map, you've got the gray, you got the yellow. We're going to reshape the commercial organization to focus on 2 separate areas. One is that core region in gray, the growth region in yellow. When you go into those regions of the world and you talk to a customer and you sit with them, whether I'm sitting with customers in Zambia or Southeast China or Australia, India, South America, Europe, North America, wherever it is. A lot of times, they have very unique buying, bidding, oftentimes, payment is different in core than it is in growth. It requires a unique and reshaped commercial approach to address the customers' needs.

So we're creating a customer solutions core commercial organization and the customer solutions growth organization, each led by a Senior Vice President, focused exclusively on their individual regions. So they can give that intense customer focus and bring that back and be there every day together with the Cat dealers, again, solving the customers' toughest challenges as they go forward. In addition, down the center of the screen, you'll see a new customer approach. You see the rental sign. You can see basically a dealer's yard there, a lot of compact machines there. You got a customer talking to a dealer sales rep. One of the fastest-growing segments that compact construction area, right? Very positive for us. Those customers need a retail-friendly experience, and we're transforming. We're tailoring that to meet those needs. But it's not just the physical presence you see here. We are transforming that. We're also transforming that online presence. They need speed, ease of use, information. They need to be able to buy and rent it and do it fast. Very much a characteristic of they, as a customer set.

And as we tailor our solutions, we're going to provide that and satisfy that. Again, a transformation of that go-to-market strategy as we bring that retail, rental, online and physical together because they need a pretty unique set of solutions from a retail perspective. And on the right-hand side of the screen, you see services commitment. Customers like predictability. Customers like commitments. It takes a pretty unique set of tools to be able to commit. Fortunately, I've talked about and I'm going to talk more about a lot of those tools and skills we have, we can't provide outcome-based commitments to our customer base. Together with our dealers, we can commit to exactly when you'll get the part. We can commit to when that machine will be up and running and provide hard time lines. So your work is more predictable over time, which is really key from a customer perspective.

But it's best to walk through, well, how do you do that? Logical question you might want to ask. And this goes a little bit to the customer value agreements, this is going to build off of customer value agreements. We're going to talk about data. We're going to talk about the technology tools, but let's start with the data first. Obviously, to harness that data, the data that comes from those connected and reporting assets, our SOS analysis, that deep, rich information that comes from the analysis of every fluid compartment on a machine, we know those machines better than anybody in the world because we design them. We know the chemistry of every single piece of material in that machine. We know exactly how those machines behave and the SOS provides that information so we can add value to the customer. Along with all the inspections that take place around the world every single day through the Cat and [ spec ] app, it helps us understand the condition of the machines we've got running around the world.

When you combine all that into a data set, from a value-add perspective, you can begin scaling and scale the recommendations to the customers. But that's not that easy unless you have these predictive analytics powered by a number of AI tools, as you can imagine, advancing very rapidly just in the last 6 months compared to the last 2 years, advancing very rapidly what we can predict and draw from that data set. As we hand that information over to the Cat-led condition monitoring team working together with our dealers, we can provide tremendous value out to the customer base. And the important thing is it's timely. If it's after the fact, it doesn't really matter. If it's timely and predictive and proactive in terms of how you can prevent and use maintenance to be preventative, how you can plan the rebuild or plan the repair, it's an entirely different situation and if it's after the fact. When you do that, loyalty grows, the customer gets a more consistent quality experience over time. Because again, they want predictability. They'd like to know what's going to happen today. None of us like when we don't know that.

And when you do that, it's a lot easier to uphold these exceptional commitments and make these service commitments that I mentioned. Commit to when the parts there, commit to when the machine will be back up and running. Commit to an availability number of the machine. Again, so the customer knows and ultimately maximizing that total customer value. The base that has been laid here and other tools that we're working on exaggerates and scales across from left to right, ending in that customer value piece.

But I'm going to pause here for a second, and I'm going to introduce a video. JP Excavating uses customer value agreements, they use them for several years. As you listen to the video, listen to some of the keywords they mentioned, listen to some of the benefits they articulate and then listen as he summarizes really what it means to them from a business perspective. Let's listen to JP Excavating.

[Presentation]

We're going to hold this slide for just one second. What were those keywords he said? Better faster, over several years, 60-plus machines, more than you would expect. What was one of the most important points that he made there? When he woke up. When he woke up, he had the report, when you woke up, there was already a plan for a replacement machine to go out there to make sure he could see up and running. He wasn't doing a lot of worrying while he was asleep, that was being done for him behind the scenes in those customer value agreements. So again, tremendous value added with the CVAs.

Let's move to the advanced technology piece and how we're pushing forward on that in the job sites. And it's about the job sites of the future. There is a big element of the job site today because you look across the left-hand side of the screen, top to bottom, safety, productivity and labor, most common customer pain points as I travel around the world and sit with customers, safety, productivity of labor, safety, productivity. It doesn't matter where you are, what language, what country you're in, safety, productivity, labor. We've got solutions today across safety. People detect cameras, object detect an object avoidance tools along with 360 vision systems on the machines. The productivity side, you'll see in the technologies, we've got productivity in our VisionLink. We've got the next generation of products that actually commits the productivity, fuel consumption combination does worry well from a customer perspective. A lot of operator assistant semiautonomous features that help you load the bucket, helps you dig the slope, helps you go to grade autonomously and easier. Takes that less skilled operator makes them more scale and we've been scaling this across the industry.

So that safety productivity labor comes together, and these tools improve each one of those. It's about stitching together those tools, the digital and the physical world and providing that total job site solutions to the customer. As I set that up and Bob comes up a little bit later, he'll weave that together into the future and bring in some of the AI tools we're using to do that even stronger and more going forward. But again, the best way to get an example, the best way to understand is, well, exactly how do these technologies apply what happens in the field, how does it apply to the customer, the operator, is a listen to CBM talk about a unique problem they had how they use a set not on a set of customer solutions to solve their biggest problem. Let's hear from CBM.

[Presentation]

So give me a said it very well there at the close, building a better, more sustainable world. What was the important point, though? They're doing it safely. They had a situation where people just couldn't be there. It wasn't a safe environment. They took our solution and put it in place. He called them cockpits, they're basically operator stations, remotely located operators doing the work from an office somewhere. It could be anywhere in the world really.

Also, what they need do we scale them. There was one cockpit, one operator station after another, a row. And if you look closely, there was another role behind those operators, scaling up the number of operators they had in a safe, comfortable, air-conditioned, quiet, clean environment as opposed to what they have been challenged with. And what were they using? You saw a -- they have 3D grade running on the screen. They also were using -- you couldn't see it necessarily, but to semiautonomous features that enable remote operation from a distance, bringing a number of tools together to help them be successful.

Let's talk and go a little bit deeper even of how you bring all that together. Actual customer job site, a customer had a bit of an issue, 5 different sites, 35 machines across 5 different sites, ran about 75,000 hour machine hours per year and needed help. Difficulty managing themselves and they needed a predictable cost, improved uptime across their fleet to get their work done and also reduce that total cost of ownership that I introduced earlier in the slide and they came to Caterpillar. A total site solution that we brought to them. Machine cost per hour, solution with availability commitments, like I talked about earlier, managed by Caterpillar. So this total site solution across all these machines in many hours running in a day, what did we do? A number of elements and you've got some more detail on your reading packs. Operator training and machine rebuilds a big focus on safety, rightsizing the fleet, VisionLink productivity condition monitoring, proactive maintenance repair across the entire fleet, but the most important box bottom center yellow, weekly collaboration.

Us on the site with the dealer sitting with the customer, talking about the challenges how we're going to lower TCO, how we're going to optimize the fleet, maximize productivity, ensure safety is #1, doing that together, again, for a total site solution. These have been very successful around the world. And as we scale these up with our advanced service and technology capabilities, it positions us very well for that 1.25x sales to user growth I talked about earlier. Because in the end, the customer got what they needed. 88% availability, lower total cost, operator incidents reduced. And again, that predictability in the bottom right, predictability, something that customers really, really want and need. Because their toughest challenges need somebody to be solved by. We can solve those toughest challenges. We can deliver, and I'm confident we can deliver the 1.25x sales to user growth using the elements on the right-hand side of the screen.

The commercial excellence piece leading with the advanced technology and those integrated solutions taking those to the customer together with our broad dealer network. But that's not the end. There's a lot more. Come see us at CONEXPO. It's a handful of months away. There's more to see. There's more products being launched. There's more services details and strategies that you're going to see us launch there. Come see AI, come see the product portfolio, come see the service technologies, come see us demonstrate that in the operator station live and on site. We love to host you. I hope you're there, talk to Alex get a time schedule. I look forward to seeing you, and I want to thank you for your time today.

I'm going to turn it over to Alex as we get ready for a break.

Thanks, Tony. So we're going to take a quick break, and we'll resume our broadcast at 10:40 a.m. For those in the room, just so you know, if you walk out the doors, you can actually find a restroom on either side, probably to the right is a bit closer. You saw refreshments and things for you during the break. So see you soon.

[Break]

Welcome back, everyone. Those outside there if you could come in and get settled and be receded. So I'm pleased to introduce our Group President of Resource Industries, Denise Johnson.

Okay. Well, thank you, Alex, and it's great to be here with all of you today. Again, I'm Denise Johnson, Group President for Resource Industries. Today, I'm going to discuss our plans for RI and show that by addressing the most fundamental needs of our customers that will grow.

So let's get started. Most of you know, Resource Industries is a global leader, and it's made up of 3 industries: mining, heavy construction, core in aggregates and beginning January 1 rail. These are the largest machines in Caterpillar's portfolio, operating in some of the most remote locations compared with Construction Industries, relatively low volume. But the duty cycle is much higher, running 24 hours a day, 7 days a week, 365 days per year. Extreme environments from minus 40 to 120 degrees Fahrenheit, high altitude to a mile underground, underscoring their durability and reliability. We cover the full spectrum of commodities from coal to copper to iron ore to coal to critical minerals and also gravel and rock. In January, rail becomes part of the RI portfolio, and it's an exciting evolution that really allows us to capitalize on the synergies as Joe spoke, shared customers, shared component manufacturing footprint, shared suppliers and shared technology road maps.

Turning to our financial performance. As you can see from this chart, it shows traditional RI sales and profitability improving, all underscored and underpinned by the O&E model. We're operating with a high-performing portfolio that delivers strong results and leads the industry in returns. Caterpillar is the industry leader in mining haulage and notably, autonomous haulage, which is poised to rapidly grow moving forward, helping our customers mine more sustainably while recognizing that every path to 0 emissions is different, is a top priority, and it certainly has been for our mining customers. We believe our pathways to sustainability program, working with customers to collaborate on a wide range of sustainability solutions is strategic, and our groundbreaking Cat dynamic energy transfer solution offers industry-first benefits, which I'll talk more about shortly.

Now as Jason mentioned, the world needs more. More power, more energy. Tony talked about the need for more infrastructure. This drives demand increases of nearly 40% for critical minerals such as copper and graphite and battery materials, and a 28% increase for construction aggregates. At the same time, we see ore grades for commodities like copper continuing to decline, meaning more materials need to be moved to extract the same amount of ore. All of this drives demand for more machines, higher asset utilization and a keen focus on cost. We've talked for some time about customers continuing to be disciplined with their capital. Many of them are stretching the lives of their machines beyond previous levels. And the average age in the industry for mining and core in aggregate is about 12 years. The average age of a Caterpillar large mining truck is actually 14, over 14 years.

We've seen a fivefold increase in the number of full machine rebuilds over the past 20 years. However, many aging fleets are entering a critical phase, and they are approaching almost 200,000 hours of life, and they will need to be replaced, especially if you consider technology. We're seeing similar dynamics in rail with many customers choosing to rebuild and repower but with replacement demand expected to begin. In addition, we are seeing the mining industry entering a new investment cycle. So based on the industry outlook, as you see here, we project mining capital expenditures to grow by 50% by 2030. While much of this increase will be invested in mine development, we also expect healthy investment for mobile equipment and technology. Our portfolio of machines, technology and services is aligned with these trends, and we believe reinforce our role to be a strategic partner.

As we outline our strategy in our eye, we're keenly focused in 3 areas, and I'm going to speak in detail about these next. First and foremost, and you've heard this already, commercial excellence. For RI, that means delivering industry-leading performance at site and increasing our presence with the customer focused on aligning our incentives with the customers such that we win together. Second, we're doubling down on our role as an advanced technology leader with rapidly growing autonomy and expanding our technology suite with something we're calling precision mining. We're also expanding our portfolio of sustainability solutions as customers are in very different places along the sustainability continuum. Our vision, our vision is to build an ecosystem, an ecosystem of products and services enabled by technology to help our customers become safer, more productive, efficient and lower their total cost per ton.

In mining, like other industries, our customers' ability to use data to drive insights and efficiencies in operations will be a key differentiator. At Caterpillar, we are uniquely positioned in our ability to integrate data from machines, from energy systems and infrastructure and especially as we move further into autonomy and precision mining to help customers be successful.

So let's dig in and talk about the first of our 3 priorities: commercial excellence. I want to start with an example of how we're working with customers differently. Many of you know Suncor as an integrated energy company operating in the Canadian oil sands. Over the past few years, we've worked closely with them on a very different approach to how we collectively drive the lowest operating cost. So let's hear more about it in this video.

[Presentation]

So our success at Suncor can and will be replicated with other customers as we increase our focus on providing outcome-based solutions and really being on site with customers. As you heard in the video, autonomy is one of the technology solutions that Suncor is using to support their improvement journey, and it's one that we're hearing a lot of pull from many customers.

Increasingly, they really want to turn to autonomy and technology in general, which brings me to our second focus area, advanced technology. So autonomy and automation are the fastest-growing trends in mining. We projected 12% CAGR, driven by declining ore grades, rising input costs and certainly continued labor. We believe the Caterpillar Autonomy Solution is superior. And we're delivering new solutions to create even more value, such as flexible pricing and customized deal structures. We're developing a new tech stack and software enhancements to not only improve the user interface, but also improve productivity. We deliver a mixed OEM fleet solution, and we're deploying economy enabled trucks straight from the factory. We are confident with this approach that we're in, we are committed to tripling the number of autonomous trucks in operation by 2030.

Now let me give you an example, demonstrating this approach in action. We had a large customer looking for an autonomy solution to help them overcome productivity and utilization challenges in 2 of the largest iron ore mine sites in South America. They also needed technology to work across their mixed fleets, which included both Cat trucks and competitive trucks on site. We worked with our dealer to design a customized proposal. And in that, we developed a mixed fleet solution, putting our autonomy on Cat and the competitive trucks, a very flexible commercial model moving from what would be traditionally a CapEx to an OpEx model and an accelerated time line for technology deployment. The solution was our differentiator, and we won the award to put our autonomy on more than 90 trucks. Deals like this position us well for future fleet replacements. Many sites around the world have mixed fleets and are looking to activate technology immediately.

We're working to take our proven autonomy expertise and expanded in the quarter, and we announced this previously. Our teams are implementing a customer-backed solution, which is lighter touch and lower cost to really be viable in this industry. And there's no better way to do the development than with a customer at site, and that's what the team has been doing with Luck Stone in Virginia. And you'll see this in action with a video that Bob De Lange will show you shortly. We're meeting with [indiscernible] customers every day, and I'm confident we all will see a healthy uptick in autonomy adoption in the core space between now and 2030.

So autonomy positions us to go deeper with customers at site. And going deeper positions us to go wider, and that's where precision mining comes into play. Precision mining is a technology approach to help customers mine more efficiently and productively at the total lowest cost. The competition for technology in this space is strong, but the solutions are very fragmented and they're siloed, and they don't deliver the value that our customers need. Our vision is for precision mining to be an end-to-end solution delivered by Caterpillar internal capability, combined with venture capital and acquisitions to help our customers optimize their complete value chain.

And we're not waiting to work to build out the value chain solution. Today, we do have solutions primarily in the load and haul space, but we're planning to expand across the value chain that I just mentioned. The first step in that build-out, as announced, is that we have entered into an agreement to acquire a company called RPM Global. RPM has 50 years of deep mining expertise in the industry. Their technology solutions are focused on mine and financial planning, maintenance execution and simulation expertise. Many of our existing customers and dealers use RPM today. And in fact, Caterpillar uses it as part of our solution set. We plan to integrate RPM solutions with our technologies in the future to enable improved performance for our customers.

Many of you may not be familiar with RPM and their technology solutions. So I thought today, I would show you a promotional video that RPM had developed so that you get a flavor for exactly what they do.

[Presentation]

The transaction is expected to close in the first quarter of next year, and we look forward to the value that we'll deliver together for our mining customers.

So next, I'd like to speak with you about the ways that we're integrating technology into solutions that support our customers' sustainability journeys.

So Caterpillar is delivering commercially viable solutions today, solutions that balance the need to be more sustainable while also addressing immediate operational needs. I spoke earlier about rebuilds and life extension initiatives. They're very important to many of our customers. We're also working to identify alternative fuel options. We have [ HBO ] and biodiesel solutions today. And with Vale, we're working on an ethanol diesel, dual fuel solution. That's part of their plan to reduce greenhouse emissions by 33% by 2030.

Our fleet management systems and our assignment engines are designed to optimize energy across complex sites. Many of you know autonomy drives fewer working assets to meet the same production requirements, thereby improving sustainability and reducing greenhouse gas emissions. Through hybrid powertrains, we deliver solutions that really stepped down the customers' carbon footprint while maintaining productivity. An example of that is the D11 XE Dozer. It's capable of reducing up to 25% fuel consumption, which is about 100 gallons per day while also delivering improved productivity.

These solutions are available today and in the near future. We're going to have even more. We're very focused on solving for the entire site because what will work for each customer will be unique. In a minute, I'll talk about our groundbreaking Cat Dynamic Energy Transfer System, or DET.

Next, we have our 793 diesel electric and battery electric mining trucks. They share a large percentage of the same components and support future retrofit such that if you start with a diesel 793 and you want to swap it out for a battery, powertrain instead that capability is available. Through partnerships with Cat Electric Power, we're also offering micro grids, energy storage systems and gensets to support holistic site energy management solutions.

And then finally, we are in process of validating our full battery electric solutions, which we announced at the last Investor Day, 793 XE, we have 4 early learners in the field today that are being validated. So remember, these solutions are not one size fits all. They're designed to support each customer's unique pathway.

So with that, I'd like to go into a little more detail with you on CAT DET. DET is expected to be commercially available in the fourth quarter of 2026. It is a versatile solution for both diesel electric and battery electric machines, offering immediate productivity gains up to 2x speed on grade and significant greenhouse gas reductions.

CAT DET is comprised basically of 3 core elements, if you think about it. First, an energy transfer module that converts AC to DC to power the truck, a 3 rail transmission system that delivers energy effectively across the mine site. An onboard machine technology that interfaces seamlessly with the trucks powertrain. The rail system is mobile, and that's unique. It's not like an overhead trolley. It can be customized to the customer-specific site layout that includes high-speed or curve call roads.

The connecting arm can be installed on either side of the truck and on multiple truck models. So it's a very flexible system that can be moved and expanded to allow maximum mine coverage. It integrates with autonomy. And also electrification to provide holistic site solutions. This is a breakthrough innovation, and we're super excited to get it out in the field and with customers.

So to wrap things up for Resource Industries. I'm confident in our future because, because of our unique ability to integrate technology and machines. Our future isn't just about building machines. It is about building smarter, more connected operations at site for our customers. By offering outcome-based solutions and advanced technologies and by supporting our customer sustainability journeys or helping them to mine safer, more efficiently and predictably. We're investing, innovative and reaffirming our leadership as the premier provider of mining technology and solutions.

And now I'd like to turn it over to my colleague, Bob De Lange. Thank you.

Thank you, Denise, and good morning. It is really exciting to be here with you today, and have an opportunity to share with you that for us, VisionLink technology is not just about tools and application we develop. But more importantly, for us, it's an engine of change. We're using it to transform Caterpillar, create even more competitive differentiation and will be a key driver for growth in the years to come.

But before we dive in, let's take a minute and look back to the past few years because we've already made significant progress in the last 5 years. If I start on the left, connectivity. We have 1.5 million connected and reporting assets today, one of the largest in our industry and up from about $1.1 million when we talked to you in our last Investor Day. In the last Investor Day, we also talked about PSE's, prioritized service events, the aftermarket sales leads we generated and sent to our dealers. But going forward, we're going to zoom in on a subset of those PSE's condition monitoring PSEs where we don't just use our theoretical models, but also the full array of sensory input we get to create even more accurate PSEs to help predict issues that are going to occur in our equipment and where we then also see the highest win rates when we send them to our dealers.

We didn't really have those in 2021. Last year, we achieved $1.1 billion in closed one sales based on those commission motoring PSEs.

Next on e-commerce. We met at our last Investor Day, we told you we had about $10 million per business day in e-commerce sales, and we committed to grow that by 50% by 2025. In reality, we did even better than that. Last year, we already achieved $18 million per business day or about $4.5 billion for the full year in e-commerce sales.

And then last, like you already heard from Denise, at the end of last year, we had 690 autonomous mining trucks in operation, traveling together about the equivalent of 3x around the world on a daily basis. So a pretty solid foundation to start building on.

This is my most important message for today, which is that we see digital and technology shifting from being enablers for our business, to increasingly becoming sources of competitive differentiation. And why do I say that? It's because if you look at our traditional updates to our equipment, changes to the hydraulics, the drivetrain, the engine, we usually get incremental improvements in performance, a couple of percent. Whereas with digital and technology, they hold the promise of making transformational change, step changes in solving our customers' toughest challenges. And I'll give you some examples of that transformational change here in a minute.

But the challenges are real. If you look at them that I listed here, safety, less than 5% of the U.S. labor force is employed in construction, yet it represents 20% of workplace fatalities. Skill labor shortages, like you already heard from Tony, consistently among the top 3 issues that we hear from pretty much all our customers. 30% of construction is rework. 40% of construction projects are over budget. So real challenges to which we can give real solutions. So let's dive into some examples, and I'll start with Vision.

First one, our condition monitoring PSEs, like I mentioned before, highly qualified, data-driven leads we send to our dealers. Now why can we as Caterpillar be so good at it. I already mentioned, we have a very large connected fleet. But I would say our true competitive differentiation or secret sauce, if you will, probably is our data platform Helios. [ 16 terabytes ] of data that we collect from all our connected assets from inspection reports from our dealers and from customers, work order history, our theoretical models, engineering recommendations, all the dealer invoices. I mean in total, 30 different data sources, over 50 billion records, we ingest on a monthly basis, all of which gets fed into our AI engine, generating those proprietary qualified sales leads that we send straight into the dealer CRM.

Now how will those help us grow? We believe it will help create customer loyalty over time because we help them avoid downtime. The one thing we do not want on our job site. And we do that by turning unplanned surprises, unplanned failures into planned events, maintenance, preventative repair and overhaul. So customers avoid downtime for Caterpillar, it creates incremental services opportunities, and we want to be proactive and quick with our customers, so we can get the work done even before our competition shows up.

To give you a small example, we recently created a new digital twin for our line of Caterpillar turbochargers. They sit at about 1/3 of our total connected fleet for which we created that digital twin with our knowledge of the machine design, the engine design, all the sensory input. To date, it already allowed us to create 2,500 condition monitoring PSEs, allowing customers to avoid downtime. For us, it was an incremental $7 million sales opportunity.

So that was the first example. Next one, e-commerce. And the key here, this is more than about buying parts. This is about making it easy to do business with Caterpillar.

Now why can we do this better? Lots of people can create a website or you can buy parts. We make it an integrated digital experience. What do I mean with that? It starts with a customer that can scan a QR code on a machine so that afterwards you look up on the e-commerce and you look for a fuel filter. It doesn't show you 17 different fuel filters you can buy, it only shows you those parts that are guaranteed to fit on your specific serial number. Or if you are a do-it-yourself customer, and you're using our service information system, SIS to troubleshoot the your machine, trying to identify which repair you need, inside our SIS, service information system. It includes a link you can click that will then pre-populate your e-commerce card with all the necessary parts to perform that repair in a number of cases, even the tooling.

For our large corporate accounts, we have a dedicated e-commerce system that integrates straight into the customer's ERP system, again, making it very easy for them to work with us. And then of course, we have an industry-leading parts distribution network, fast delivery in pretty much all corners of the world.

So how will this help us grow? I believe it's just like in our personal lives. If you make it easy, customers come back. And if you look at our growth rates over the last few years, that is exactly what has been happening.

Third, and my last example for digital is about VisionLink, our flagship application that help customers manage all aspects of their fleet. Now why can we do this better? I mean you can go and there's other providers that might say, well, we can do fluid sampling for you and then display the report on the website. What we do is make 1 easy-to-use solution that brings it all together in 1 place. You can monitor machine health, get fault codes, also see those SIS fuel sampling results, inspection results history from your operators from the dealer. It also includes a 2-way communication tool with our dealers or your local dealer, if you want to schedule maintenance, ask for a quote for repair, approved the repair online, get live status reports of the progress of your overhaul, a fleet manager who was interested in efficiency can manage idle time of the different machines, monthly utilization, track fuel consumption.

There's also a safety module in there, which of my operators [indiscernible] seat belts yesterday, what are the high-risk areas where I had near misses on the job side I have. There's a productivity module in there as well, for those wanting to optimize productivity, where you can measure and analyze cycle times, track productivity. And so all in one single easy-to-use application. And also keep in mind, we're not just showing information or alerts. We can also give recommendations because we have access to all the data. We know our machine design. We have the domain expertise. So we can do it all in one place for the customer.

How will it help us grow? We believe that by creating a very easy-to-use ecosystem of applications for the customer, that customers will want to stay in that ecosystem, again, growing loyalty for both prime product and services over time. But to make it real, let's maybe listen to an example. One of our customers, BDC Construction, a great customer of ours in the Pacific Northwest.

[Presentation]

So those are some examples of the digital end. Let's now switch gears and talk about technology and how technology can help us solve our customers' stuff as challenges and unlock value at the site level. And I'll put them here in 3 main categories.

First one being safety. And here, we have solutions for object detection, collision warning and mitigation. We have a system for driver fatigue detection or like on our excavators, we have a system where you can maximize the limit height for your front linkage, if you would be working on the new power lines or you can also set a maximum digging depth if you would be working, for example, above underground utilities.

Second one being productivity. Here, we have systems like for our loading tools, excavators, reloaders, of a payload measurement system. If you're focused on productivity, it can help you make sure that when you're loading a truck, you fully load the truck, maximize productivity. You can, at the same time, avoid overloading the truck and avoid the risk of future damage or in some applications like in [indiscernible] you can even, in some instances, avoid the need of an extra weighing bridge that is usually used to weigh the trucks before they get back on the road because you can do it while you're loading the truck.

Another example is what I've shown here in the picture is our 3D grade control. And you can think of that as autopilot for machines with the blades for excavators, motor graders, track-type tractors and to make it real, imagine a test we have done like you're seeing on the picture with an excavator, where we had to finish grade with precision, just a business of 10 meters, 30-degree grade, you can imagine the side slope of a motorway or an irrigation canal. If you do that job with no technology, first thing you will do is do your measurements, make sure you know where the 30-degree trade is. Next, you'll put some pieces of wood usually, just some visual indications of where you want the end results to be. Then to be sure most customers also have a great checker, a person that will be next to the excavated just as the work progresses, checks whether it's correct on the grade and you're, of course, introducing safety risk with that.

And then you have to hope you also have a qualified experienced operator to do the work because otherwise, you still have the risk to get the right grade with the right accuracy that you'll either do another pass or if you're not careful that you're overcutting? When we did this test with an experienced operator took us 38 minutes. Then we did the same test with the excavator with 3D grade control. First thing you do is you get the engineering drawing for the job site design, with our VisionLink application, you can download it over the air straight to the machine. So the machine knows what you're trying to achieve. Next, you don't need to do measurements, machine has GPS. It knows exactly what precision where you are. So you also do not need to put visual indications. You do not need a second person doing the grade check, so we're already working safer.

And then while you're working, the machine will actually help you with the autopilot, stay on grade. You also get visual indications in the cab. I mean it becomes so easy. You don't need a third year experienced operator with minimal training, even somebody like me would be able to do a job like that. In result, from 38 minutes down to 12 minutes for the exact same job. And that's what customers are telling us consistently. You use 3D grade control, you get the work done, finish [ creating ] jobs in less than half of the time.

And that's a perfect example of what I mentioned before, with our traditional updates on drivetrain, hydraulics and the engine, we get incremental productivity improvements. Technology holds the promise of making transformational step change in addressing customer challenges, safety, productivity, cost.

Last bucket then is on autonomy. Here, we have line of sight remote control solutions. We have non-line of sight remote control solutions like you see in the picture here. In case you want to pick the operator out of a hazardous situation or you wanted to work in a more comfortable work environment, or it also has the benefit that if an operator works in such a station, that they can actually operate multiple machines at the same time, again, improving productivity.

Then we have task autonomy, for example, for drill tramming or auto compaction on a compactor. And then we have our autonomous mining hauling solution like Denise already showed, which actually is also an area where we continue to invest. Denise mentioned that we are working very hard to expand the potential reach of our autonomy solutions well beyond mining in a number of applications. And the one we're working on right now with Luck Stone is to bring autonomy also to quarries, a very large market, a very large opportunity where we're partnering with them on our 100 [indiscernible] platform, our 777.

So let's listen to what Luck Stone have to say.

[Presentation]

So as we are convinced that digital and technology is key to our competitive differentiation going forward, we're also stepping up our investment. Joe already mentioned it, we're planning a 2.5% increase in vigilant technology in the coming 5 years as compared to the last 5, which was already very significant.

In addition to that, as a technology environment is changing very rapidly or in some cases, even by the month, we're also partnering with some of the leading companies in the world like with NVIDIA to bring AI to manufacturing and on to our machines. Microsoft has been a long-standing partner for everything related to cloud and productivity. And for organizing Helios, everything related to organizing our data, we are working with Snowflake.

On top of that, to even further accelerate, as you've seen in the example with Luck Stone, we are working with some key corporate accounts around the world on early learner strategies to accelerate the development of our new technologies.

Now before closing, I also wanted to take a second to reinforce once again that we are fully embracing AI to create a differentiated customer experience. Everything from a simplified engagement across our digital ecosystem, think of increasing number of onboard and offboard agents, autonomous machine features, predictive analytics for condition monitoring, as you've seen before, into manufacturing. And so as we announced this morning and Joe already mentioned, please come and join us in January at CES for our keynote so that you can hear for yourself on how we are fully embracing the power of AI.

With that, and in summary, as I said, digital and technology are transforming Caterpillar. And to make that clear, we have also set some ambitious goals for us for 2030. As you can see on the screen, we want to achieve at least 2 million connected and reporting assets no later than 2030. We want to double condition monitoring PSEs closed $1. We want to increase e-commerce by yet another 50% from where we were last year. We want to achieve at least 500,000 tech-enabled machines. And with that, I mean machines that have at least one or more of our advanced technologies on board. And then we want to triple the number of autonomous trucks.

So with that, I hope you now see how, in our view, VisionLink technology are increasingly becoming our key competitive differentiators while we are focused on the biggest customer challenges, making our customers safer, more productive and even more successful.

So with that, I thank you for your time, and I'll turn it over to Andrew. Thank you.

Good morning, everybody. My name is Andrew Bonfield, and I'm going to wrap up the presentation part of today, talking about our financial framework.

We have delivered strong performance over the last 5 years, and we're going to be investing for profitable growth to drive and to continue to drive strong shareholder returns. Let me start by going through our financial performance over the last 5 years.

As you know, our focus is on profitable growth. That's at the heart of our strategy always has been and will remain there. That's not growing margins, not growing top line, it's growing profitability and our measure of profitable growth is OPACC, operating profit after capital charge. And a measure of success is to grow absolute OPACC dollars. If you look over the last 5 years, we've grown OPACC dollars by 1.9x. That's allowed us to generate total shareholder return of 22% per annum over that 5-year period. We believe OPACC is a great measure and is very correlated to shareholder return effectively it is a form of cash flow.

Over this time period, we've outperformed the S&P 500 Index, the S&P 500 Capital Goods Index and the S&P 500 Industrials Index. And we have delivered on our margin and free cash flow targets. We've met or exceeded those. And we've also delivered higher margins and P&V free cash flow over that time period. We've grown services by $10 billion since 2016 and we've outpaced our competitors, both on an adjusted operating margin basis and a free cash flow margin basis.

And adjusted operating margins, our performance is 420 basis points compared to the competitor group. And on free cash flow margin, some 390 basis points higher. And we've achieved structurally higher margins through this time period. You'll recall back in 2017, the company set out a goal of delivering structurally higher margins 300 to 600 basis points higher than they were in the 2010 to 2016 time frame. It was based on a range of 10% to 22% between $42 billion and $72 billion of revenues. Over that time period, we delivered average margin improvement of 480 basis points against those original margins of 2010 to 2016. So above the midpoint of the range.

How we delivered that? Structural cost reductions have been a key part of it, only adding capacity were justified, and focusing on services with their attractive margins.

And then free cash flow. Many of you will have heard me talk about before. I think one of the things that's most underappreciated about Caterpillar is its ability to generate strong cash flow even in periods of time with declining revenues. The consistency of our cash generation has really been one of the things that I always appreciated when looking at the financials. That strong profitability generates a lot of cash. In 2019, we introduced a free cash flow target of $4 billion to $8 billion. And in 2024, we adjusted that to $5 billion to $10 billion. We have generated $40 billion of free cash flow over the 6 years since 2019. We have averaged more free cash flow over that time period than anybody else in this S&P Industrials Index. And last year, we were #1 on performance low.

Services have grown by 70% to $24 billion in 2024, a 7% CAGR. Attractive for us for a number of reasons. One, it is a more stable source of revenue than the original equipment, and it has attractive margins. It's been enabled by many of the digital offerings that we've talked about before. And obviously, continued progress will be used by the digital offerings that Bob just talked about.

And we've returned 99% of free cash flow or just under $40 billion to our shareholders between 2019 and 2024. And actually, if you go through the third quarter of this year, it's now $45 billion of free cash flow, and we've returned just over 100% of that.

Our dividend increases have been substantial. You'll recall back in 2019, we grew the dividend by 20% and has set a target of growing the dividend by 4 successive years at high single digits. We've managed 5 high single-digit years since then, and on average, the dividend has grown by 7.5% per annum between 2019 and 2024. We are very proud of our dividend aristocrat status and we've grown the dividend by 32 consecutive years.

And then share repurchases. Back in 2019, again, we set the target of being in the market more consistently and to return substantially all free cash flow, which meant we were going to be in the market more on a consistent basis from a share repurchase perspective. We've reduced our share count between 2019 and 2024 by 18%. The average per share price we paid is $209 and benefited profit per share by $3 per share. If you take into account what we've actually done since then -- from this year, the share count reduction is now 21%. And the profit per share benefit is closer to $3.50. Our first quarter ASR this year delivered over 8 million shares at an average price of just under $375 per share, and that's just concluded.

The importance about our share repurchases is to be in the market consistently. We don't try and market time. We don't try and outperform. What we do try to do, though, is to beat the volume-weighted average price on average for the year, and that's part of the way we operate using accelerating share repurchases and good structures as a way of doing that. But that consistency has really rewarded shareholders over this time.

So we've delivered in the past and we are very confident about our ability to continue to deliver on our 2030 goals. We will need to continue though to make investments in the business to achieve those goals. And we'll give you a number of measures to track our progress. First, we set out and Joe showed you these our new targets. I'm going to discuss each one of those in a little bit more detail with you as we go through.

So first, let's look at the top line. Sales and revenue compound annual growth rate of between 5% and 7% through 2030. 2024 will be the base share. We're assuming growth across all segments, relatively steady year-over-year growth rates. We do assume obviously stable economic conditions, that means we don't expect either an acceleration of growth, global growth or a significant deceleration of global growth. So assuming relatively stable conditions, nothing substantially changing from where we are today.

And we still grow services, growing services by $30 billion by 2030, and particularly as there's much more opportunity there. And as Bob mentioned, the digital and technology priorities will continue to help us grow services. Also, longer term, by actually seeding the field population with more original equipment, we do expect longer-term services opportunities, as Jason talked about over the period beyond 2030 and beyond.

So we are investing. Jason talked about the investment in large engines and behind solar capacity. We are also, as Bob mentioned, investing in digital and technology, growing that by 2.5x. Just to remind you, that spend, part of that is in SG&A, the digital spend. And part of the technology is a part of the R&D spend that we spend. So it's not the whole of R&D or the whole of the SG&A. We will invest in customer solutions and commercial excellence. So we'll be putting money behind for the field to make sure we can actually drive those customer solutions what the customers want to us drive top line growth.

And we continue to invest in sustainability. That's important for many of our customers, and obviously, we've invested significant dollars behind that, and we will continue to do that in the future. Our CapEx spend should be now twice as large in the period 2025 to 2030, as it was from 2019 to 2024. Very affordable given the strength of the cash flows that we generate. In addition, some of that CapEx spend will be more front-end loaded, particularly as we look at the solar and large engine capacity investments. And as a result of the solar investment, we now expect CapEx for this year to be closer to $2.8 billion than our previous guidance of $2.5 billion. Remain all this investment is designed to help us grow absolute OPACC dollars. That is our measure of winning.

And we've updated the margin target ranges. You remember the original range went from $40 billion to $72 billion, margins from 10% to 22%. We've taken the range of $60 billion to $100 billion and change in margin targets from 15% to 25%. So still progressive margins and assuming that we can continue to grow margins as we grow the top line.

As Joe mentioned, the pull-through we're using for the new margin ranges, it's around the same as we did for the midpoint of the previous range. Why are we using that pull-through rate, if you may ask. Well, first of all, we are investing. So we are investing in capacity, which will have an impact on gross margins. So we will need some headroom there. So we won't get as much leverage as we would normally have done. We are investing in commercial solutions. We are investing to make sure we have digital and technology solutions for our customers. We will always continue to look for cost efficiencies. Operational excellence remains at the heart of the strategy, and we'll continue to look for opportunities to manage the cost base most effectively.

But keep in mind always when you think about margins, margins are important. They're a good measure. These are targets that set there really for investors to be able to measure our performance, but ultimately at the end of the day, OPACC generation is our definition of winning and because we do believe that is more highly correlated to total shareholder return. And we need to make these investments to grow the top line.

On free cash flow, the strong profitability we expect means that we actually are changing the range from $5 billion to $10 billion to $6 billion to $15 billion. That reflects the $15 billion reflects the high end of the sales range and margin range. The $6 billion really does reflect a challenged economic scenario. And the only reason we have it there is just because when we look at the dividend, our target is to only pay 60% to 65% of free cash flow out as dividends even in a challenged economic scenario. It is really there just as a low base, and we would expect to be comfortably above that, even if we are making substantial investments in CapEx over the next couple of years.

So now let me talk about how this all supports shareholder value creation. Again, resource allocation framework is really the same as we've shown before. Our focus is consistent. We maintain a strong balance sheet, mid-A credit rating, which enables Cat Financial to offer competitive financing to our customers. We maintain ample debt capacity for M&A. And just to remind you, M&A is always treated as an exclusion from free cash flow for purposes of shareholder returns.

The strategic growth investments will continue to be assessed using the O&E model, the operational and execution model will still be there. And we are committed to returning substantially all cash flow to shareholders through a mixture of dividends and share buybacks. And the dividend, we believe that we can grow the dividend by high single digits for the next 5 years and comfortably remain above the 60% of the low end of the cash flow -- free cash flow range. Obviously, that is always subject to Board approval, but we are confident that we will be able to continue to grow the dividend for another 5 years. On top of that, we expect to be in the market consistently on our share repurchases, and use that part as well.

So effectively, you have the positive algorithm of shareholder returns, helping to drive total shareholder return across the business as a whole.

And let me just give you a little bit of an idea of what we think -- how the total shareholder return will actually play out over the next 5 years. So this is an illustration. It's not exact. So don't try and measure it. It is an illustration of where we think those components that we control in total shareholder return because obviously, there's the multiple, which we don't have a control over. That's the market. But effectively, if you look at it, its cash returns to shareholders, its revenue and its margin. If you look over the last 5 years, we've achieved more performance from margins than we have done from revenue growth. That's effectively reflecting performance that we've seen. And obviously, the margin expansion has been a really big driver for us over this time period. However, as we look out, what we do expect is because we're now driving OPACC growth more from revenue rather than from margin expansion, the revenue growth will be a more important driver of our total shareholder return algorithm.

And so that's just to illustrate to you why that focus and why we need to make sure we continue to invest in the business to be able to drive that because that's where we believe we're going to maximize OPACC dollars and drive returns to you. So as we get to the close, just to remind you, we will be giving you new targets, not just the financial targets, but also segment growth targets, which will help you to measure our performance against those targets.

Some of those will be annual reporting, some like services will continue to be on an annual basis. Others, obviously, things like the revenue CAGR, you'll be able to see on a more quarterly basis and so forth. And obviously, growth you see quarterly.

So at the end, we are committed to the plan, and we are committed to drive profitable top line growth, including services, supported by strategic investments. We've updated and expanded our margin -- extended our margin target range. We've increased our free cash flow target range. We expect to increase the dividend by high single digits, and we remain committed to return substantially all free cash flow to shareholders over time. The future is bright.

And with that, I'll hand back to Alex.

All right. Thanks, everyone. We're going to now take our break before the Q&A session. So we'll promptly resume the broadcast at 12:00 Central Time.

[Break]

All right. If everybody can start to make your way back in the room and close the doors here, a couple last-minute logistics before we start Q&A. So we'll take questions here in the room. [Operator Instructions]

All right. Welcome back to the Caterpillar Investor Day 2025. This is now the Q&A portion of today's agenda. So if you're joining online, there is a way to submit a question through the webcast. There's a question mark icon on the top left. You can click on that and submit questions. We'll try to pull as many of those into the room here today. And with that, we'll kick off with a question. [Operator Instructions] Looks like maybe here in the front first, Jamie?

Jamie Cook from Truist Securities. I guess just my first question on Power and Energy. You talked about doubling that business by 2030. It seems like an aggressive goal, but just trying to understand how much visibility you have. I know you have backlog, but you also have uncommitted backlog. So my guess is there's more visibility than we think. And then my just follow-up on that is, how are you -- obviously, you're adding a lot of capacity. Your peers are adding a lot of capacity. Does that concern you over the long run?

Yes. Thank you for the question. we're going to more than double power generation over that period. That was what we put out here today. We have a lot of visibility. I mean, backlog is high. It doesn't take us through the whole period. But in addition to the backlog, we have frame agreements in place with key customers that give us a good line of sight. And we also have really strong forecast from customers through that period as well.

So the combination of that gives us really high confidence in making the investments. The other thing we talked about in the presentation was the services impact of some of those higher run hour projects and that same capacity is going to be needed to serve the services needs, not only through 2030, but really well beyond that. So all things that make us confident in making the investments that we're making.

All right. Angela, front.

I was just wanted to go back to maybe the margin side and 2 sides to this. I guess the first is, as you think about your next kind of progression here that you provided on the operating margin, does that include the assumption for tariffs, meaning that's been a little bit of a headwind this year. So as you kind of progress, would you assume that, that kind of keeps things toward the lower end? Or does it already account for that and therefore, you can kind of be more in the middle of the range with tariffs?

And then kind of second, just related to services, given how much more progression or kind of services there is with Prime Power, just curious, I guess, why -- how much of a benefit is that to the margin profile of the business? And is that time line-wise, kick in more materially at a different point in kind of the next 5 years?

So let me just remind you that the actual margin target ranges remain the same up to $72 billion. And as we're not there yet, there is no relief in that for any tariffs. As we said last week, our assumption on tariffs is that once there is more certainty and the situation stabilizes, we will take and manage the impact of tariffs as we go forward. So that will be there. But the margin ranges up to $72 billion are exactly the same as they are today.

No change to that.

Yes. And I'd say the extension, just to add on to that, right, is that the similar profit sales pull-through. It takes into account the investment. I mean it's a range for a reason, right? We'll operate -- we intend to operate in the range. We'd love to get towards the higher end of the range, but some of the things will get it to move around during the time of the investment when the investments come in. We're committed to managing tariffs over time, but we really try to not have that influence what the range is for the long term.

And I think, Jason, there's maybe a question on the power gen Prime power services opportunity.

Yes. For the Prime Power, the high run hour applications that I talked about, it does take a few years to kind of ramp into those services. You see some impact initially. But as you get multiple years out, you get into overhauls and rebuilds, which are bigger drivers of the services opportunity. So we'll see some impact, some positive impact through 2030, but the exciting part of that is its opportunity well beyond 2035 as we look forward.

It looks like over here, Kyle.

Kyle Menges from Citi. A 2-part question. Thinking about understanding the op margin slope a little bit weighed down by some of the investments you're making and then also services revenue growth a little bit slower than what it's maybe been in the past. Curious what your confidence is that in that op margin range, that slope may be increasing over time and then services revenues also maybe reaccelerating as you get through more of these capacity investments.

Yes. I think -- I mean, one thing to remember, and Andrew can comment on this, from the time we set the operating target margin ranges, even at 42% to 72%, we said it wasn't -- I think the term was wasn't to Infinity and beyond, right? It wasn't going to be a straight line, particularly the higher we got in there that there would be some bend to that curve.

So we're comfortable with those margin ranges. We're definitely going to have to cover some investments to grow. As I said earlier, we haven't had to make a ton of investments. Most of the growth we've had has been within our capacity that we have. So we're excited to make these capacity investments, and those have to be taken into account in the margin ranges. I'll let the team maybe make some comments on services, but we flattened services a little bit this year.

We've talked about the rebuild slowing a little bit in mining, particularly confined to coal and what we're seeing in coal and some of those park but we are still committed to the services growth. I think when we set this goal at the beginning of the strategy, when Jim came in here, there was some low-hanging fruit, which allowed us to kind of make progress. And now we need to drive more adoption of the digital tools that we've seen here. I think the mix of products and the more growth we have on new equipment out there and the more prime power applications, the more mining trucks we have running, that's definitely going to drive demand for services higher. So we see this $30 billion, we think, is achievable. And so we're going to put the strategy work to go get it.

And let me just remind you on the margin targets. And those of you who are here when we did our Investor Day in 2022, the progressive margin targets were over 40% at the top end of that range. Our gross margins are around 30%. So that gives you an indication of the challenge around delivering margins at that level.

And finally, just to say, our goal of profitable growth is absolute OPACC dollars. It is not margins. And so if we are able to grow OPACC dollars faster and we go above the margin ranges, there is no problem, and we have done that in the past before as well. So the margin targets are there, just to give you a guide, it's absolute OPAC dollars, which is really the most important thing that we measure.

Okay. Good. Question over here, looks like Jerry.

Jerry Revich, Wells Fargo Securities. In power and energy, you folks are in a unique position between turbines and standby generators to have a really good sense for data center plans multiple years out. Can you just talk about what you're seeing in terms of configurations? What percentage of the power are you anticipating to be behind the meter for the data centers based on the plans that the customers have shared? And if you could talk about just the range of outcomes relative to the $16 billion target for power gen, what's the range of outcomes that you're assuming for data centers within that build, please?

Yes. So as I think about the growth as we move forward in power generation, the standby will continue to be a big part of it. So data centers are going to continue to need standby power, standby generator sets when they're connected to the utility to provide power. utilities are going to need solutions to back up the grid and add capacity. Sometimes that's prime power, sometimes that's maybe a few thousand hours a year to back up the grid. Data centers, they're kind of early in the evolution of understanding the on-site power needs.

We definitely see a pull from them, both engines and turbines. They're building data centers faster, they can get utility connections, and we're excited about that growth. We think that will continue. But as I think about the opportunity ahead, all parts of power generation really are seeing positive growth moving forward.

Yes. I mean this is kind of how I think about that opportunity. We're at the early stages. And I think data center customers and a lot of customers who are trying to build sites that need power are trying to figure out how they're going to get that power. And they're talking to utilities, obviously, I think that's their first.

And some of them, it's kind of an evolution to what it's all going to be utility power with backup standby from us. Now you're seeing some behind-the-meter stuff, but also some saying, okay, I want temporary prime power because the utility and I have said, "Hey, we'll get to you in 4 years. And I think that -- we'll see some of that type of solution as well.

And then we'll see if 4 years is really 4 years, 4 years is longer, right? I mean there's going to be a certain level of capacity and how those connections go to the utility grid, and we'll just have to see how this plays out. But I think from my standpoint, we're in the early stages of this. It's tough to quantify it right now. We have a great portfolio to support our customers whichever way they go, which is what we're really excited about.

Yes. And the data we shared on energy demands, electricity demands through 2035, you're thinking 10 years out, along with the growth of data centers in that period, I mean, that's going to support the need for of power generation solutions through that time period.

I mean there has to be transmission, too, right? If you're going to go to the utility, it's not just is there utility power available, it's got to get to the right place. So there are a lot of things that go into the equation for customers when they think about where their site is going to go, where they're going to get their power, what type of equipment do they want and what type of support do they want from us.

And we have a great team. And that's one of the reasons why we started early with that group when we talk about commercial excellence and having more direct relationships with them. That's why we started with them, right, just to really help them understand what they need and figure out what part of our portfolio makes the most sense for them.

Great. Rebeca there's a question from Jairam.

Jairam Nathan with Daiwa. I just wanted to follow up on the earlier question with regard to high-voltage DC power. Like do you need to make any changes to your products or invest in your to kind of enable high-voltage DCs as data centers move to that kind of an architecture?

Yes. So far, limited customer kind of pull or customer questions around that. Certainly something that we'll continue to keep an eye on from a technology standpoint, but we're not getting a pull from data centers or utility customers at this point in time to make big investments in that space.

I think maybe you were -- I think next, you had your hand up for a while. So if you can walk up here.

Mig Dobre from Baird. Maybe we can talk a little bit about mining. And I'm curious to put a finer point on this, understand how you guys are thinking about 2030 here. You're clear as how you think about power gen, maybe you can be specific. And I'm curious as to how you think about the energy transition contributing to higher CapEx towards equipment. Is it just a function of you having the right powertrains available and have it be certified and so on and so forth before we start seeing customers really deploying capital in that regard?

Yes. No, it's a great question. And I would say it's evolved over the last few years. I think as mining companies have recognized what it takes to put zero emissions mining equipment on site, they've learned that it's much more than about mobile equipment. It's about the infrastructure that's required to stand that the mobile equipment up at site and keep it running.

And so as we've talked to mining customers, without a doubt, the time line for most has moved out a bit from where it was a few years ago. There still is definitely interest, which is why we're continuing all of our development. As we look at what it's going to take to get real pull, it is going to definitely take an environment where the power and the energy to take the infrastructure, that investment is made first and then the mobile equipment comes on.

And that's why we have to be ready for when that's going to happen. we see our bridging strategies, and I talked a lot about CAT DET today as a great way to get power to site, not quite have the same kind of power requirements that would be needed if you had a full battery electric fleet, but that would step you into having a diesel electric fleet that would take your emissions down considerably, start to get the infrastructure on site and step you through and into that more sustainable and better economic environment.

I think until the economics switch such that all of that investment can pay off, you're not going to see a big huge pull. So it has to all match what the customers are needing. And so it's going to evolve. And I think it will be -- the solution set will be different depending on where you are in the world and what the cost of electricity is and what the cost of diesel is.

Steve...

Steve Volkmann with Jefferies. I'm curious to think about how you sort of stress tested your investment plans. And I think, Andrew, you said that you really weren't expecting much from end market growth here. But if we do have a cycle over the next few years that's a little more robust from an end market perspective, would you have to invest more? Or have you kind of covered that in your current plan?

Yes. I think we -- where we've announced the capacity, we obviously know we need more. One of the things that I'm really encouraged about and why we're leaning so heavily into modern manufacturing is I think we can get a lot more out of our assets by leaning into technology and modernizing the facilities that we have. We have some very modern plants.

We have some plants that have been around a long time that probably need a little work, and we see the difference already. And that's before you put technologies like factory digital twins and that we're starting to just at the early stages of. It'd be a great problem to have. I think we have the ability to invest.

And I think we're looking at a runway of -- and that's one of the reasons why in the -- even in the power and energy investments we have, right, we have made the investments based on what we know, but the runway is such that if we need to increase it, we can and still -- I think we can react. So that would be an amazing point for us to get to is where we're investing more capacity because we have line of sight to that. Right now, I think we're going to try to get more efficient. I think we have the headroom to do that.

I think Chad here.

Chad Dillard from Bernstein. So my question is on the prime power opportunity in data centers. So as you talk to your customers, what are they saying about the mix between turbines versus reciprocating engines? Is there a preference in terms of just profitability for cat? And then also, what's the role of standby power in that environment? And then lastly, as you talk about your 50 gigawatts of capacity, how does that split between solar and reciprocating?

Yes. So that's a lot of questions. Let me -- so if we think about the -- how we're serving the prime power needs, that was a big part of your question and what we're hearing from customers. I shared some examples today across the range.

And right now, I think they're still, in some ways, trying to figure out what designs are really optimal for a prime powered data center. We're in the as we mentioned. [indiscernible] is a great example. They're using engine-based generator sets. That helps them get power really quickly, and we're happy to be able to help them do that. They're also doing something which is pretty unique as well as they're using some of the heat from the engines to actually cool the data center. So the overall efficiency of that site will be higher, and it's going to help their economics. So we're really excited to see how that turns out as we implement that technology with them.

We have customers that are doing turbines only, and they think that's a good solution for what they're trying to accomplish. And then we have customers like Williams that I mentioned that are -- they have a combination of both. Some of it depends on the speed that they're looking for.

Some of it depends on the load profiles that they're trying to serve. And so it's kind of a speed and technology and economic equation for all of them. And the good thing about our situation is we can serve all of them depending on how that turns out when they do the math.

As we look forward, again, I kind of go back to the capacity increases, 2x for large engines, 2.5x for turbines, and we'll use that not only for power generation, but also a big part of that is the natural gas compression business, both with engines and turbines, and we see growth there, and we'll use the capacity to support that as well. So I think a little bit to be determined on what the best solution is, but we're really well positioned because we have the ability to provide multiple different kinds of technical solutions to help them be successful.

Rob in the front.

Sorry, also on power gen. Should we think about the [indiscernible] side capacity expansion being kind of more or less complete in '27. You mentioned that the power capacity comes online for turbines and recips through 2030. And then one thing that surprised me was the mention of downstream of refining. I don't know whether the Titan 350 is bringing you into LNG trains or what that exactly means, but it sounds new to me.

Yes. In terms of the timing, so the 50 gigawatts will be online by 2030. So kind of set the target there. The engine capacity is moving faster. We started that earlier. But also bear in mind, we upped it along the way. If you think back to the journey that we've been on, we started at a level, we got more customer feedback, and we actually upped the target for capacity along the way.

We'll see some nice steps in terms of capacity increase, '26, '27. We'll still be able to continue to increase a little bit beyond that. The turbines will be a little bit more backloaded. But in combination, we'll have a meaningful capacity increase year-over-year through the decade. Your second question when it comes to downstream, those larger power blocks just really help us -- we didn't have a turbine that was big enough for some of those downstream applications, and it just helps us get in the game to be able to serve them. A lot of it's power for their facilities in the downstream.

Mike, over.

Mike Feniger, Bank of America. Just 2 questions. The first one, I realize you guys have a goal of doubling power gen revenue, which is great. But the fact that you're doubling the capacity. I'm just curious if the pricing per megawatt from the base case 2024 out to 2030, are we assuming that's unchanged?

Is there any reason why Cat wouldn't also be benefiting from the pricing dynamics that we're hearing in the market out there? Because doubling power gen revenue makes sense, but is it really just units? Or is there some pricing dynamic that we should be considering that could also the fold? And does that flow in more in 2027, 2028? And the second question, just on the financial targets, Andrew, the pull-through, we talked about in line with CAT's historical 34%, 35%. Is that for the overall company? Or do you try to drive that by division? So where I'm asking is, is there a view, hey, ENT is going to have much higher flow-through, which allows maybe construction to drive OPEC dollars a little differently? Or is the goal for all divisions to kind of be marching in that range? Or is there a mix that kind of gets us overall to that 35%.

You want to start with the second part pricing?

Yes. So on that, you will recall back in 2017, we did have margin targets by business segment. I think that tends to reduce the amount of flexibility that we have to operate efficiently as a company. A couple of things back to Steve's point a little bit. Not all end markets are operating in exactly the same way.

And so when you're looking for a multiyear guideline, you really have to think about it in terms of there may be one business segment, which is driving faster than the other one at that point in time. So it gives you that flexibility, which is why there's the range. And also at the same time, wanting to make sure that we have sufficient capacity to invest in the appropriate areas that we need to continue to drive those OPEC dollars.

So it's really about having that in that way, that's the way we've tended to look at it rather than trying to build it up segment specifically, then it becomes very complex and then becomes much, much harder to manage because obviously, the different businesses are at different stages of growth rates and so forth. So it's that way we tend to look at it.

Yes. And I think maybe just to add on that before Jason jumps in here on pricing, I think it's the wrong way to look at it to try to say, okay, each of the segments having a similar margin profile, right? I mean there's a ton of synergies we drive in our business through the 3 segments.

But I would look at it more as, hey, we intend to have the best-in-class margins in Power and Energy compared to power and energy competitors and players, right, in that industry, mining and RI in there and construction and construction. So we're in different dynamics in different industries. They have different margin profiles, just frankly, in the segments and the industries that they play in. So the mix of all that, we try to manage it into the overall margin profile, but there'll be some puts and takes depending on which segment is driving some of growth. Jason, go ahead on that.

Yes. And I think when it comes to pricing, certainly, both the capacity and pricing come into the equation as we think about the future. We'll look at the market dynamics as we always do on a year-over-year basis individually within the businesses, not in aggregate, and we'll look at that in terms of power generation or power and energy in total and make those decisions. And when pricing makes sense, we'll take pricing along the way.

And we've been doing that, right, pretty regular price increases. You can see it in our results now in the segments. It's much different. Power and Energy is not seeing similar types of merchandising programs that we have going on in CI just because of the competitive nature of the business. We have escalators in our frame agreements that go out.

And I think also you have to keep in mind where our margins are relative to -- we've had strong margins, right? And so we'll continue to take price where we can. But maybe where you're seeing some bigger increases, the margins quite to where our level has been. And I think once we get into '26 and we start reporting as Power and Energy, you'll see a little bit of that strength come through in those margins as well.

Let's take one question from online. So is your CI target for 1.25 SKUs growth in line with your expectations for the overall industry growth? Or is it ahead of it, behind it?

If you look at the materials there, we talked about a few minutes ago, that 1.25x sales to user growth, we said on the slide, they're outpacing the industry. So when you take the commercial piece that we're reshaping in addition to moving forward with the technology piece and those integrated solutions, I believe, is going to allow us to outpace the industry and achieve that 1.25 sales to user growth.

I think, Adam, you had your hand up for a while here.

Adam Seiden from Barclays. I wanted to start actually on mining. So you talked about expanding across the value chain. Is that limited to digital solutions? And then how do you think that CAT can play in the crushing, milling and processing parts of that area within RI? And the second part is also RI related. Within the new segment that includes transportation, are all the businesses OPACC positive?

Okay. I'll start with the vision of our precision mining. So while we are always looking at M&A opportunities physical assets. Most of what I talked about is a digital technology solution that allows insights that allows data to flow across all of those sectors of the value chain such that it provides efficiency overall in the operation. So it is primarily a technology investment.

RPM is the first of the technology investments we intend to do in this space. Some will be organically developed, but we are looking at additional opportunities to connect that end-to-end value chain to help miners be more productive. So that's kind of how we're thinking of it now, but we're always assessing whether there's something physically we can do.

There's a lot in the sensor technology space that we're also looking at that could help to aid then the digital space even more moving. And then as far as OPACC margins, we don't disclose that by the individual subsets of where we're at. Now you'll be able to have some visibility to that when we restate in '26 as rail moves over into RI.

The one thing I would say is -- yes, we'll recast in April next year. So you'll see the rail business move across. That will have a positive impact on Energy & Transportation, Power and Energy margins, negative on RI. But remind you that we've always used the O&E model to use a way of actually looking at what we the so-called challenged businesses, which is about assessing their ability to perform and actually achieve OPACC positivity, and that includes the present value of future parts sales. And remember, rail also includes a very strong services business. So that is something we will continue to evaluate and continue to operate. And remember, we have disposed of businesses where we don't see the ability to do that. We haven't disposed of rail.

Yes. I would just say when you're looking at profitability of RI, right, and this is a testament to Denise's leadership and her team and what they've done, look at the revenue of RI now relative to when it was in its super cycle in 2012 and look at the operating margin profile of the business. So Denise and her team have done an amazing job with profitability in that business.

Raise your hands Kristen?

Kristen Owen from Oppenheimer. I wanted to come back to the 1.25 increase in SKUs in your construction business. You highlighted a lot of white space globally or yellow space globally. So how much of that growth is coming through just geographic expansion? And when we think about the dealer network that's necessary to support that, what kind of investments do you need in the dealer network?

I'll follow -- my follow-up question is related to the technology there. So we've seen a lot of competitive technologies come into the construction space, particularly on the digital side. Would you look to get more acquisitive there to help the end-to-end solution in construction?

Okay. So geographic, a little bit of the digital piece and then also kind of that technology piece. So geographic first, Obviously, with that customer back reshaping of the commercial organization, we've got those 2 individual senior vice presidents in their organizations focused on that core and the growth customer solutions region.

So obviously, equal focus around the globe, customer-centric, bringing that back. Like I said earlier, in that core region and the growth region, customers have quite a few different needs in terms of how they buy, acquire, how much they rent, how much they don't rent, how they want to rent and when.

Also, how they get paid is oftentimes very different and how they do the work is different. So we've got unique customer requirements within each one of those -- so we have a tremendous opportunity in both, right? The growth regions with the urbanization and housing demands, infrastructure that's needed there. Obviously, the expansion of the compact construction equipment line and further infrastructure expansion as you've seen in not just the United States, but other parts of those growth regions is very healthy. So across, we feel very good about that and both contributing to the $1.25 billion. Now the digital piece and what we're doing.

Before you go to the digital, I think the question is also -- was also do we need more investment in our dealers. I think there, the key point is our dealers are independent companies or independent from -- we have about 150 of them worldwide. Apart from the a few embargo countries where we're not allowed to do business, we are present in pretty much any country in the world already today.

And our dealers have been very successful. I mean it's a key part of our competitive advantage, and we're working very closely with them to make sure they invest alongside with us to make sure we achieve the growth goals that we laid out today.

I think the changes here are going to be well received, right? I mean today, where we can give attention, like having a regional team that's more focused on dealers and have boots on the ground with them to understand their unique needs, like Tony said, really getting after the unique needs. Sometimes I think maybe we've been taking a solution that works in a lot of the world and try to use that in certain parts of the world where it's just missing the point a little bit.

And so we're going to get a lot closer to our customers this way.

Yes. And technology is really the same way. One of the big benefits from a technology perspective, because I think you're hinting at that a little bit in your question is from a CA perspective, a lot of our technology solutions have taken into consideration the entire customer.

We see a lot of competitors and options come to customers with point solutions and trying to sell the value of that. And more and more of the customers are saying, that's just a lot to deal with. I've got these solutions from CAD here, VisionLink as an example that Bob articulated earlier. It covers the end-to-end. It helps you manage the feet. It helps you manage productivity, fuel hours, condition of the machine. It's broad and it helps, again, manage the entire business. And that works and plays worldwide from a customer basis. So again, a very worthwhile technology to take out to the customers.

Steve Fisher, UBS. Just on the solar capacity expansion, to what extent is that really focused on the large turbines? Or will that be across the product set there? And then from a competitive perspective within this sort of power gen opportunity set, I mean, clearly, there's so much demand right now.

Capacity is super constrained. I guess I'm curious to what extent there are actually competitive processes that are going on to win this work today? And then how do you see that competitive landscape evolving as the capacity comes on over the next several years?

Yes. Good question. So first on the capacity increase, biased towards the larger turbines, but not exclusively a Titan 350 across the entire Titan family. We'll see increases. The Titan 130 as an example, has been a great product for Prime Power and Prime Power data really that whole Titan family, we will respond. It's going to take a lot of work in the supply base to do that in addition to ramping up in our own facilities, and we've got really good plans in place to do that.

We see that whole range of turbines really being helpful to customers, either mobile in some cases in the bridge solution that Joe mentioned or the permanent solutions that they're going to use for decades to come with the different turbine solutions. In terms of competitiveness, I mean, time will tell.

Certainly, with the close relationships we have with customers, we're there with them to help them plan and meet the needs that they have. We also provide product to energy companies that are kind of there helping -- also helping those customers whenever they need power even in the short the long term.

Yes. The way we'll think about that is always competitive, right? We want to take care of our customers and not have them buy our equipment just because we have the available equipment. We want to buy our equipment because we have the best product, services solutions to meet their needs and solve their problems. And I think that's why they're going to continue to come to us. So we view it as competitive the whole time.

Yes. If you think about our legacy with solar turbines and particularly serving oil and gas customers, our strengths are durability, reliability, really strong services support, making sure that, that uptime is always there. And you couple that with the Titan 350, which has really exceptional efficiency on top of all those characteristics, and we've got a great value prop for customers and we're looking for.

Shine in the tour this afternoon, hopefully, you'll ask some questions about it.

Yes.

Tami?

This is Tami Zakari from JPMorgan. I wanted to get -- ask for some help to build our models. How should we think about the 3 segments as it relates to the 5% to 7% CAGR through 2030? Is P&E growing above that, but RI and CI growing below? And related to that, now that we have multiyear numeric targets, do you plan to give specific sales and margin guidance in terms of numbers as you think about 2026?

Yes. So we'll get to what we do on guidance in January as per our normal process. that regard. I mean, obviously, as Alex mentioned, we will go -- he will give you a more detailed modeling session. But obviously, if Power and Energy is growing faster than the 5% to 7% range, obviously, then that implies that the other segments are growing slightly lower than that.

The good point about this is all the segments are growing. That's the most important thing from our perspective. And there's opportunities in all. We are not a one-shot pony just relying on power and energy or electric power. There are lots of opportunities in our other business segments. And that's that breadth of the portfolio that we continue to talk about, which actually helps Caterpillar to continue to drive and maximize shareholder.

I wouldn't expect a significant change in our quarterly type of guidance and things that we give. We gave you guys a lot more metrics today to really give you a guide for how we're thinking of the business strategically over the long term, and we'll update you though, as Andrew said in his presentation, pretty regularly, and you'll be able to see it yourselves in the results. But we're pretty confident in the strategy, and we're excited about the opportunities we have in all 3 of the segments.

Sabahat Khan from RBC. Just a question on sort of the digital side and getting more units connected over the last few years. While it's helped individual repair events, have you seen a notable uptick in rebuilds at all now that customers are more embedded in your system?

And then secondly, on construction side, significant uptick in spend globally, I think you pointed out. I guess when you look outside your core markets into the more growth, or do you feel the equipment and the offering you'll have out there will be well suited for what some of those markets outside of North America might need?

I can maybe start on the first one. It's clear. If you think of turning unplanned surprises into planned events, I mean, making sure you help customers avoid downtime, we have a keen focus on helping customers identify the optimal time for an overhaul for rebuild.

I mean it helps avoid a big repair that is unplanned and at a time that is not convenient while maximizing the life of the piece of equipment. So a lot of our modeling and digital models we're building are focused on exactly those rebuilds and helping customers. I mean I'm sure Denise and Tony and Jason can comment on it, but it's also been one of the key drivers of our services growth in the past years has been that focus on rebuilds.

Yes. And I would say, I mean, I mentioned it, we're seeing some customers rebuild 4, 5, 6x up to what traditionally would have been like an 80,000 hour unit retirement now is extended out to 200,000. And they've had to rebuild along the way in order to do that. The nice thing is that our machines are built to do that and that the ability to do that, depending on whether you have a lot of CapEx or you want to use OpEx, it really depends on the situation that they're in and then the life of mine also comes into play.

So those decisions continue to be made depending upon the situation. The one thing that I think will be an enabler, though, for future replacement will be the advent of technology and adding a lot of technology on new machines. You certainly can retrofit technology, but there are limits to that. And so as we start to see the advent of really wanting a lot of technology on machines, you're going to have to build or buy new.

Don't assume that the -- because RI has a very strong rebuild story. CI has a very strong rebuild story, too. It's not uncommon for these machines in CI to have multiple rebuild lives, too, just as extensive as you see in RI.

So RI and CI have a lot in common from a rebuild perspective and that services opportunity. Now your second question was -- just to make sure I'm clear on it, is that product readiness for the core and the growth markets and are we prepared to do that. So this goes back to the presentation material, right, getting closer to that customer, having those commercial organizations out with the customer and understanding what they want from a product services technology perspective.

And we've been doing that for some time now, and the products are definitely tailored to their unique needs, in fact, fairly different needs in each one of those regions. So the XE models that we've got out there, the most technologically advanced, productive, fuel-efficient machines in the industry, generally serving the high productivity demands. That could be in either region. A lot of times, it's more core, but not always. In addition, you've got more of a mainstream, not necessarily as advanced technological capability, et cetera, more for your mainline job that can also occur in the core -- in the growth regions.

So we've got that tier of products available for whatever solution those customers want. And as you've seen, we've had really good experience with that with the customer base, obviously, as recently as this year in the results.

I'm confident we have the right products and dealer reach to serve the growth markets, right? I mean if the question though is if a customer is solely making it on first cost and price of the machine, then that's probably not going to be us, right? That's not our brand.

So -- but there is a significant amount of the customer base to Tony's point, that I think we have the right offerings, the right dealer support. And by listening to them and understanding what their unique challenges are, we're going to be the company of choice for them.

I think Mike up here.

Mike Shlisky of D.A. Davidson. A couple of quick resource questions. First, I wanted to clarify the video you had with Suncor. Are they paying you per barrel or per hour in the contract? Is that going to be common going forward? I just want to ask about risk, whether you're going to be taking on weather risk now or risk that there's no oil in the actual sand. Just what are the structures about on those contracts going forward? And then secondly, on RPM, could that software that they have be used across construction or other areas that Caterpillar works with in the future? Or Joe, is it an area you might want to consider making another M&A deal, helping your construction customers plan their projects?

Both really good questions. So the initial agreement with Suncor is a cost per hour agreement, but we're working towards a cost per barrel or cost per ton agreement. So it is something that's in evolution, and we're continuing to expand our relationship with Suncor. They've been a great partner to look at how do we really -- and we talked about aligned incentives, but how do you make sure that what we're doing to improve our performance at site is actually helping them be more successful.

And so tying that into things that you can control, but that you still have aligned an alignment around. Moving on to your second question, which is RPM. There's quite a bit in the suite that RPM provides around asset management that we can leverage contracts that we have with customers that allow us to really have visibility into not only how much it costs from a maintenance perspective and work order management with our dealers, but also really allow us to optimize when we're replacing components.

So they do have a fairly large suite of what we call asset management tools that complement, they don't duplicate what we do with our condition monitoring tools that as we continue to build out our engines for advanced analytics will really allow us to unlock the value for both mining and for construction products.

Yes. And think about that constructive -- think about that RPM video and think about the technology and AI work that Bob talked about. Take that and the planning to plan the job. That's kind of what RPM was about, right, and put that on a construction job. I was on a recent job where it was a very large job, multi-warehouse location where they had a pretty big cut and fill they had to do, soft underfoot conditions, actually over a part of it former landfill and they had shot rock, a very complex job, and they walk up to that thing, okay, how are we going to do this?

What's the key building block for precision mining?

That's the answer is how to plan that job out because that's the question they have. Every time they walk up to these bigger complex jobs, if we can help them do that, more efficient, lower TCO, more profitable, better sustainability from a customer profitability perspective.

So I think that's a key message is a key building block for precision mining, but we see a lot of opportunities to apply it in other places and as well.

Yes, because watch construction jobs, I'm sure you've watched some of the bidding things. You see more and more jobs in that $1 billion range. In fact, quite a few more jobs in that $2 billion range. Those are big jobs. Those jobs of that size require pretty detailed planning, which, again, anything that RPM can do, we can borrow from that knowledge. Of course, the tools that Bob talked about, you combine those 2 together, you got a great solution.

And just a reminder, RPM is not closed. So we're still seeking approval. So we'll wait for that to all close before we get too far into it. So I think we're right at time. I'd like to give maybe the stage to Joe to close out some final thoughts, and then we'll close the project.

Juan, I appreciate everybody that joined us online today and those of you who made the trip here to see us in person. I hope you again get a chance or had a chance to see the tech stations. I think you're going to really enjoy the tour at our DeSoto solar turbines facility.

We have -- this is a really exciting time. And I know my teammates up here and I, we've been anxious to get to this date to tell our story. We've been working on this a really long time. At the same time, we have amazing momentum in the business. We have tremendous growth opportunities in all 3 of the segments. And we're going to make the investments we need to make in capacity.

We're going to make it in digital and technology to differentiate ourselves, and we're going to continue to drive OPACC dollars, which we think will result in strong total shareholder moving forward. So we really appreciate your interest and you taking the time to come and see us today, and we look forward to, hopefully, we'll talk to you in our normal cadence, but hopefully see some of you at CES and then again at [indiscernible] as the guys talked about today. So thank you very much.

Alex, back to you.

Thanks, Joe. Thanks to the full EO for your participation. We will have the slides at a transcript and a full replay on investors.caterpillar.com, and that concludes our broadcast for today.

Thank you, everyone.

Welcome to the Third Quarter 2025 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded.

I will now hand the conference over to your speaker today, Alex Kapper. Thank you. Please go ahead.

Thank you, Audra. Good morning, everyone, and welcome to Caterpillar's Third Quarter 2025 Earnings Call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, Chief Executive Officer; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of the Global Finance Services Division; and Rob Rengel, Senior Director of Investor Relations.

During our call, we'll be discussing the third quarter earnings release we issued earlier today. You can find our slides, the news release and a webcast replay at investors.caterpillar.com under Events and Presentations.

The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited.

Moving to Slide 2. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different from the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings.

On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides.

Now let's advance to Slide 3 and turn the call over to our CEO, Joe Creed.

Thank you, Alex, and good morning, everyone. Thanks for joining us today. Solid performance from our team generated strong results this quarter, driven by resilient demand and focused execution across our 3 primary segments. And as a result, sales growth and adjusted operating profit margin were both slightly above our expectations.

Sales and revenues increased 10% to $17.6 billion, an all-time record for a single quarter. Backlog grew by about $2.4 billion, driven by strong orders in Energy & Transportation. The backlog is now $39.8 billion, which is also an all-time record and positions us for sustained momentum and long-term profitable growth. We also generated $3.2 billion of ME&T free cash flow and we deployed about $1.1 billion to shareholders through dividends and share repurchases during the quarter.

I'll start with my perspectives about this quarter's performance. Then I'll discuss our outlook, along with insights about our end markets. And finally, Andrew will provide a detailed overview of results and key assumptions.

Turning to Slide 4. Sales and revenues were up 10% versus last year. The increase was primarily due to higher sales volume, partially offset by unfavorable price realization for machines. Higher sales volume was driven by higher sales of equipment to end users across our 3 primary segments.

Third quarter adjusted operating profit margin was 17.5%. For the quarter, the net impact of incremental tariffs was near the top end of our estimated range of $500 million to $600 million. Despite the tariff headwind, adjusted operating profit margin was slightly above our expectation, primarily due to better-than-expected sales volume in Energy & Transportation. We achieved quarterly adjusted profit per share of $4.95.

Compared to the third quarter of 2024, sales to users increased 12%, led by 25% growth in Energy & Transportation, while machine sales to users increased 6%. For Construction Industries, sales to users were up 7% year-over-year, broadly in line with our expectations.

Let me take a minute to walk through the sales to users by region. North America increased 11% over the prior year and was better than we anticipated due to growth in both residential and nonresidential construction. While rental fleet loading was down slightly, dealers rental revenue continued to grow in the quarter.

An increase in the EAME was primarily due to growth in Africa and the Middle East. We saw a decline in Asia Pacific, which was below our expectations, resulting from softness in a few key subregions. Latin America increased, but slightly lower than we anticipated.

In Resource Industries, sales to users increased 6% year-over-year, which was slightly above our expectations. Mining was better than expected due to the timing of deliveries to end customers for large mining trucks and off-highway trucks. Heavy construction in quarry and aggregates were in line with our expectations.

In Energy & Transportation, sales to users increased by 25% year-over-year with double-digit growth across all applications. The largest growth came from power generation with a 33% increase, primarily due to demand for reciprocating engines for data center applications. Turbines and turbine-related services also contributed to power generation growth.

Sales to users in oil and gas, industrial and transportation all increased about 20%. The increase in oil and gas was primarily driven by higher demand for turbines and turbine-related services. Industrial grew from a relatively low level and was driven by sales into electric power applications. Transportation increased due to international locomotive deliveries.

Moving to dealer inventory and our backlog. In total, dealer inventory increased by approximately $600 million versus the second quarter of 2025. Machine dealer inventory increased approximately $300 million, about in line with our expectations. As I mentioned, backlog increased sequentially by $2.4 billion, driven by robust order activity in power generation and oil and gas. Since the third quarter of 2024, our backlog has increased 39%, with growth across all 3 primary segments.

Moving to Slide 5, I'll now discuss our outlook. I'm pleased with the continued positive momentum in our business. With a record backlog, strong order rates and continued growth in sales to users, our outlook has improved since last quarter. For the fourth quarter, we anticipate strong sales growth versus the prior year. Sales growth is expected to be driven by higher volumes in all 3 segments. We also expect the year-over-year impact of price realization to be about flat in the fourth quarter.

Excluding the net impact of incremental tariffs, fourth quarter adjusted operating profit margin is expected to be higher versus the prior year. When taking into account the net impact from incremental tariffs, we expect fourth quarter enterprise adjusted operating profit margin to be lower versus the prior year.

Given the strength of our 3 -- across our 3 primary segments, we now expect full year 2025 sales and revenues to be higher than we previously anticipated, resulting in modest growth versus 2024. We continue to expect full year services revenues to be about flat versus 2024.

Based on the incremental tariffs announced in 2025 and expected to be in place by November 1, we expect the full year net impact from tariffs to be between $1.6 billion and $1.75 billion. Tariffs and trade negotiations remain fluid. Our team is continuously evaluating options to further reduce the impact of tariffs going forward, and we fully intend to implement longer-term actions once there's sufficient certainty. I remain confident that we'll manage the impact of tariffs over time.

Excluding the net impact of incremental tariffs, full year adjusted operating profit margin is expected to be in the top half of our target margin range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to be near the bottom of the target range, corresponding to our current expectation for full year sales and revenues. This margin estimate includes the initial mitigating actions already implemented and currently planned throughout the rest of the year.

We also expect ME&T free cash flow to be above the midpoint of the $5 billion to $10 billion target range. Andrew will provide more details on key assumptions for the fourth quarter and full year in a moment.

To further support our sales outlook, I'll now share the latest view of our end markets, starting with Construction Industries. As I mentioned earlier, we're encouraged by another quarter of growth in sales to users and strong order rates across many of our regions. Customers continue to be responsive to the attractive rates we're offering through Cat Financial. We continue to anticipate full year growth in Construction Industries sales to users despite softness in the global industry.

In North America, overall construction spending remains at healthy levels, and infrastructure projects funded by the IIJA continue to be awarded. We continue to expect full year growth for sales to users. Full year dealer rental revenues are also expected to grow, and we anticipate dealer rental fleet loading will increase in the fourth quarter compared to the prior year.

In Asia Pacific, we anticipate full year sales to users to be about flat. China has shown positive momentum to start the year, and we expect full year growth in the above 10-ton excavator industry, but from a very low level of activity. In Asia Pacific outside of China, we expect economic conditions to be soft. Any EAME, we expect growth for the year, driven by healthy construction activity in Africa and the Middle East and improving economic conditions in Europe. With ongoing weaker construction activity in Latin America, we now expect to be about flat for the full year.

Moving to Resource Industries. We anticipate lower sales to users in 2025 compared to last year as customers continue to display capital discipline. However, we see positive momentum with healthy orders for large mining trucks, articulated trucks and large truck-type tractors. Although most key commodities remain above investment thresholds, declining coal prices have caused an increase in the number of parked trucks. As a result, we continue to expect slightly lower rebuild activity compared to last year.

Overall, customer product utilization remains high and the age of the fleet remains elevated. We also continue to see growing demand and customer acceptance of our autonomous solutions.

And finally, in Energy & Transportation. We expect strong growth in full year sales for power generation compared to last year. Demand remains robust driven by data center growth related to cloud computing and generative AI. We are also pleased by healthy orders for the prime power applications as evidenced by recent announcements with Joule Capital Partners and Hunt Energy Company. We continue to stay close to our largest data center customers and receive regular feedback on their long-term demand expectations.

In oil and gas, we expect moderate growth in 2025. For reciprocating engines and services, we continue to expect softness in well servicing due to ongoing capital discipline, industry consolidation and efficiency improvements in our customers' operations. We do see positive momentum in demand for reciprocating engines used in gas compression applications. Solar turbines oil and gas backlog remains strong, and we see healthy order and inquiry activity.

With our ongoing investment to increase large reciprocating engine capacity, we're continually improving manufacturing throughput to meet customer needs across a broad range of applications. Demand for products and industrial applications is improving from previous lows, with order growth being driven by engines sold into electric power applications. Transportation is expected to remain stable.

The strong momentum we achieved in the third quarter, combined with the anticipated growth through year-end, sets the stage for exciting opportunities ahead. As a result, I look forward to sharing more about our long-term outlook at our 2025 Investor Day on November 4.

And now I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward.

Thank you, Joe, and good morning, everyone. As usual, I will start with a brief overview of our third quarter results, followed by our segment performance. Then I'll discuss the balance sheet and free cash flow, before concluding with our current assumptions for the full year and the fourth quarter.

Beginning on Slide 6. Sales and revenues were $17.6 billion, a 10% increase versus the prior year. This was slightly better than we had expected on stronger volume. Adjusted operating profit was $3.1 billion, and our adjusted operating profit margin was 17.5%. Both were slightly better than we had expected.

Profit per share was $4.88 in the third quarter, compared to $5.06 in the third quarter of last year. Adjusted profit per share was $4.95 in the quarter, compared to $5.17 last year. Adjusted profit per share excluded restructuring costs of $0.07 in the quarter, compared to $0.11 in the third quarter of 2024.

Other income and expense was favorable by $132 million, primarily due to the absence of an unfavorable ME&T balance sheet translation impact, which occurred in the prior year.

Excluding discrete items, the global annual effective tax rate was 24%, an increase versus our prior expectation of 23%. The higher rates had an unfavorable impact on our performance in the quarter by about $0.18. This is due to changes in recently enacted U.S. tax legislation. While the changes have a negative impact on the tax rate in 2025, they benefit 2025 cash flow. In 2026 and beyond, we would expect a positive benefit to the tax rate versus the previous estimated tax rate for 2025, subject to a consistent mix of profits.

The year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.17.

Moving to Slide 7, I'll discuss our top line results for the third quarter. Sales and revenues increased by 10% compared to the prior year, driven by higher volume, which was primarily due to stronger sales of equipment to end users. Changes in dealer inventory acted as a slight tailwind to sales while price realization was a slight headwind. As I mentioned, sales were slightly better than we had expected in August.

Moving to operating profit on Slide 8. Operating profit in the third quarter increased by 3% to $3.1 billion compared to the prior year. Adjusted operating profit increased by 4% versus the prior year to $3.1 billion. Stronger volumes -- stronger sales volume and favorability in other operating income and expenses was more than offset by unfavorable manufacturing costs, unfavorable price realization and higher SG&A and R&D expenses. The unfavorable manufacturing costs largely reflected the impact of tariffs.

You'll note that there was a headwind of $127 million in corporate items and eliminations this quarter compared to the prior year. The unfavorable impact was driven by higher short-term incentive compensation expense and accrual for incremental tariffs and corporate items, which I will discuss in a moment. This was partially offset by the proceeds from an insurance claim.

The adjusted operating profit margin was 17.5%, a decrease of 250 basis points compared to the prior year. The margin was slightly higher than we had anticipated mainly due to better-than-expected sales volume in Energy & Transportation.

As Joe mentioned, the net impact from incremental tariffs was near the top end of our estimated $500 million to $600 million range for the third quarter. Excluding tariffs, adjusted operating profit margin was slightly higher versus the prior year. This compares favorably to our expectations of a similar margin to the prior year, excluding tariffs.

Tariffs impacted all 3 primary segments. And as I mentioned, part of the charge was recorded in corporate items, similar to what we saw in the second quarter. This timing impact reflects the additional tariffs that were announced within the quarter, which we noted in the 8-K filing on August 28.

Moving to Slide 9, I'll review the performance of the segments. Starting with Construction Industries, sales increased by 7% in the third quarter to $6.8 billion. The sales increase was about in line with our expectations. The 7% sales increase was primarily due to higher sales volume and favorable currency impacts, partially offset by unfavorable price realization.

By region, Construction Industries sales in North America increased by 8% versus the prior year. Sales in the EAME region increased by 6%. In Asia Pacific, sales increased by 3%. And in Latin America, sales decreased by 1%.

Third quarter profit for Construction Industries was $1.4 billion, a 7% decrease versus the prior year. The segment's margin of 20.4% was a decrease of 300 basis points versus the prior year. The decrease was mainly due to unfavorable price realization and increased manufacturing costs, largely due to tariffs, while the profit impact of higher sales volume provided a partial offset. The net impact of incremental tariffs in Construction Industries had a negative impact on the segment's margin of around 340 basis points. Excluding this impact from tariffs, the margin was slightly higher than the prior year and about in line with our expectations.

Turning to Slide 10. Resource Industries sales increased by 2% in the third quarter to $3.1 billion. Sales were about in line with our expectations. Note that sales to users were slightly stronger than we had expected due to timing as shipments originally expected to occur in the fourth quarter were delivered to customers early. This resulted in a decrease in dealer inventory. Compared to the prior year, the 2% sales increase was primarily due to a higher sales volume, partially offset by unfavorable price realization.

Third quarter profit for Resource Industries decreased by 19% versus the prior year to $499 million. The segment's margin of 16% was a decrease of 430 basis points versus the prior year. The decrease was primarily due to unfavorable manufacturing costs from tariffs and unfavorable price realization. This was partially offset by the profit impact of higher sales volume. The net impact of incremental tariffs on Resource Industries margin was approximately 260 basis points. Excluding the impact from tariffs, the margin was lower versus the prior year and about in line with our expectations.

Now on Slide 11. Energy & Transportation sales of $8.4 billion increased by 17% versus the prior year. Sales were stronger than we had expected due to higher sales volume. The 17% sales increase versus the prior year was mainly due to higher sales volume, including higher intersegment sales. Also price realization was favorable. By application, power generation sales increased by 31%; oil and gas sales increased by 20%. Sales in industrial and transportation each increased by 5%.

Third quarter profit for the Energy & Transportation increased by 17% versus the prior year to $1.7 billion. The increase was primarily due to the profit impact of higher sales volume and favorable price realization, partially offset by higher manufacturing costs primarily due to tariffs. The segment's margin of 20% was an increase of 10 basis points versus the prior year. The net impact of incremental tariffs on Energy & Transportation's margin was approximately 140 basis points. Excluding this impact from tariffs, the margin was higher versus the prior year and slightly stronger than we had expected.

Moving to Slide 12. Financial Products revenues were approximately $1.1 billion in the quarter, a 4% increase versus the prior year due to a favorable impact from higher average earning assets in North America. This was partially offset by an unfavorable impact from lower average financing rates across all regions except Latin America.

Segment profit decreased by 2% to $241 million. The decrease was mainly due to a higher provision for credit losses at Cat Financial, higher SG&A expenses and an unfavorable impact from equity securities at insurance services. This was partially offset by a favorable impact from higher average earning assets.

Our customers' financial health remains strong. Past dues were 1.47% in the quarter, down 27 basis points versus the prior year, the lowest third quarter in over 25 years. The allowance rate was 0.89%, remaining near historic lows.

Business activity at Cat Financial remains healthy. Retail credit applications increased by 16% and retail new business volume grew by 7% versus the prior year. In addition, used equipment levels remain low and conversion remain above historical averages as customers choose to buy equipment at the end of their lease term.

Moving to Slide 13. ME&T free cash flow was about $3.2 billion in the third quarter, approximately $500 million higher than the prior year as stronger operating cash more than offset higher CapEx spend. We continue to anticipate CapEx spend of around $2.5 billion this year.

Moving to capital deployment. We deployed about $1.1 billion to shareholders in the third quarter. Our quarterly dividend payment was $700 million, with the remainder reflecting share repurchases in the quarter. Average balance sheet and liquidity positions remain strong. We ended the third quarter with an enterprise cash balance of $7.5 billion. In addition, we held $1.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash.

Now on Slide 14, let me start with a few comments on the full year. Based on what we see today, we are optimistic about our top line momentum, supported by healthy demand signals, including a robust backlog and growth in sales to users. Against this supportive backdrop, we now expect full year 2025 sales and revenues to increase modestly versus 2024, a slight improvement compared to our expectations last quarter.

Now moving on to margins. Excluding the net impact from incremental tariffs, the full year adjusted operating profit margin is expected to be in the top half of our margin target range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to remain near the bottom of the target range. Given our improved sales and revenue expectations, adjusted operating profit margin should be slightly higher than we anticipated when we filed the 8-K on August 28.

Based on the tariffs announced in 2025 and expected to be in place on November 1, we expect the impact from incremental tariffs for 2025 to be around $1.6 billion to $1.75 billion, net of some mitigating actions and cost controls. This assumes that the net incremental impact of tariffs will be greater in the fourth quarter than in the third, primarily due to the timing of tariff rate changes.

As Joe mentioned, we expect ME&T free cash flow will be above the midpoint of the $5 billion to $10 billion target range. We continue to expect restructuring costs of approximately $300 million to $350 million this year.

On taxes, as I mentioned, we now anticipate our 2025 global annual effective tax rate to be 24%, excluding discrete items.

Turning to Slide 15. To assist you with your modeling, I'll provide our fourth quarter assumptions. Based on what we see today, we anticipate strong sales growth versus the prior year, with higher sales volume across all 3 primary segments. We expect machine dealer inventory to decline slightly in the quarter, compared to a $1.6 billion decrease in the prior year, which should result in a sales tailwind for the fourth quarter. We expect price to be roughly flat for the enterprise.

By segment, in Construction Industries, we expect a strong sales increase in the fourth quarter versus the prior year on volume growth, driven mainly by the dealer inventory tailwind previously mentioned. Higher sales to users should benefit volume as well, while we anticipate the year-over-year price impact to be about neutral.

In Resource Industries in the fourth quarter, we expect stronger sales versus the prior year, primarily due to higher volume driven by changes in dealer inventory. Note that we anticipate unfavorable sales to users in the fourth quarter in Resource Industries due to the timing impact that I mentioned a moment ago. The impact of price in Resource Industries is expected to remain unfavorable, but to a slightly lesser extent compared to what we saw in the third quarter versus the prior year.

In Energy & Transportation in the fourth quarter, we anticipate strong sales growth versus the prior year, driven by continued strength in power generation. We also expect higher sales in oil and gas driven by solar turbines and turbine-related services. Price realization should remain favorable as well.

Let me provide some perspective on our expectations for Energy & Transportation. While we expect sales to increase sequentially in the fourth quarter, the increase will likely be different than the typical seasonal pattern. This reflects the impact from robust third quarter sales, which have tempered the usual fourth quarter uplift. As a result, the sequential sales growth rate between the third and fourth quarters is projected to be slightly lower than last year's level.

Now I'll provide some color on our fourth quarter margin expectations. Excluding the net impact from incremental tariffs, we expect the fourth quarter enterprise adjusted operating profit margin will be higher versus the prior year. We anticipate stronger sales volume will be partially offset by higher manufacturing costs. As I mentioned, price realization for the enterprise should be roughly flat in the fourth quarter.

Including the net impact from incremental tariffs, we anticipate a lower enterprise adjusted operating profit margin in the fourth quarter versus the prior year. As I mentioned, the tariff headwind should be larger than it was in the third quarter. We anticipate a net cost headwind of about $650 million to $800 million in the fourth quarter. At this point, we expect tariffs to have a minimal impact to corporate items in the fourth quarter as our current assumptions are based on tariffs announced and expected to be in place on November 1.

Now I'll make a few comments regarding our segment margin expectations for the fourth quarter. In Construction Industries, excluding the net impact from incremental tariffs, we expect a higher margin compared to the prior year. This is driven primarily by the profit impact from higher sales volume, though the benefit within volume is lessened by unfavorable product mix compared to the prior year. Now including the net impact from incremental tariffs, we anticipate a lower margin in Construction Industries versus the prior year. We expect about 55% of the fourth quarter net incremental tariff impact will be incurred in Construction Industries.

In Resource Industries, excluding the net impact from incremental tariffs, we anticipate a higher margin versus the prior year, mainly due to higher sales volume, partially offset by unfavorable price realization. Including the net impact from incremental tariffs, we anticipate a lower margin in Resource Industries versus the prior year. We expect about 20% of the fourth quarter net incremental tariff impact will be incurred in Resource Industries.

In Energy & Transportation, excluding the net impact from incremental tariffs, we anticipate a higher margin versus the prior year, mainly due to a higher sales volume and favorable price realization. Higher manufacturing costs should act as a partial offset. Including the net impact from incremental tariffs, we anticipate a slightly lower margin compared to the prior year. We expect about 25% of the fourth quarter net incremental tariff impact will be incurred in Energy & Transportation.

So turning to Slide 16, let me summarize. We remain optimistic about our underlying business and now anticipate modestly higher sales for the full year, including a strong fourth quarter. Business activity and customer financial health remain strong as do our balance sheet and liquidity position. Including the net impact from incremental tariffs, we expect to remain near the bottom of our target range for adjusted operating profit margins, and we expect to be above the midpoint of the target range for ME&T free cash flow. We continue to execute our strategy for long-term profitable growth.

And with that, we'll take your questions.

This is Alex. Just one quick clarification before we jump into the Q&A. The operating profit in the third quarter actually decreased by 3% to $3.1 billion compared to the prior year, and adjusted operating profit actually decreased by 4% versus the prior year to $3.1 billion.

And with that, we'll take your questions.

[Operator Instructions] Your first question comes from the line of Kyle Menges from Citi.

It sounds like backlog growth was driven by power gen, and you alluded to orders for data center prime power applications as well. So could you just talk to the emerging data center prime power opportunity? How much latent capacity you think you have at solar to meet this demand? And what do you think you could actually deliver in the next year given we've heard some big numbers getting thrown around by some of your customers? And then also just curious what that data center prime power backlog is looking like today.

Kyle, this is Joe. So we're definitely really excited about the prime power opportunity with data centers and, more broadly, just the demand for power that data centers and broader trends in the industry are putting onto the grid. And we're going to see a lot more of this, I believe. Prime power is a great opportunity for us because it creates services opportunity as we move forward as well. So definitely, you saw the Joule announcement that's in our recip. Part of our capacity addition there will go to serve some of that.

And with solar, we're seeing a lot of ordering activity, and it's really healthy as you suggest. It's not just power generation. Power generation is seeing more activity, but oil and gas has been really strong too, because we're moving a lot of natural gas and I think that trend is going to continue. So definitely a really positive outlook at solar turbines.

We're able to keep up with the orders that we're seeing right now. Lead times are starting to get a little more extended at solar. They're not to the extent of those super large class turbines that -- more utility scale, but they are starting to get extended. And I would say, the way we're -- it's shaping up in our backlog, the larger turbines, the Titan 250, Titan 350, are longer lead times than the smaller ones, where we're able to react a little faster and have a little more.

As it comes to capacity and things, we are always evaluating capacity. That would be a great thing when we need it. We're prepared to act when we feel like we need it. But we're in -- we feel like we're able to meet the orders that are coming in right now.

We'll move next to Angel Castillo at Morgan Stanley.

Congrats on the strong quarter here. Just kind of following up on that E&T conversation, obviously, growth year remains quite robust. I wanted to touch a little bit more on the kind of price realization and margins for the segment. Those have remained a little bit more stable, and I think you talked about a 140 basis point kind of headwind from tariffs. And maybe just to kind of expand on that topic a little bit more, just 2 quick questions.

One, is there anything else kind of capping prices and margins for E&T as a whole? I don't know if it's mix versus services or anything else that you would note. And then related to that, for power gen, in particular, should we be assuming something kind of greater than the 30% type of incremental margins you typically see in E&T given the strong pricing and volume trends there for the next 2 years? Or how would you kind of characterize that contribution to margins from power gen?

I'll make a comment and I'll let Andrew maybe talk about the margins. But we're definitely, each of our businesses and segments, in a little bit of a different position. In the machine part of the business, we're in an unconstrained environment, we were constrained before and we've returned to a much more normal competitive pricing environment. In E&T, as you know, we're putting capacity in. Demand is really strong. And so we've been able to take pretty regular price increases, and we expect that trend to continue.

Tariffs as well are not evenly spread across there. So we're a very heavy North America footprint in E&T. And so when you look at the margins, they've hung in there a little bit better than maybe a couple of the other segments. So pricing across our businesses, we take into account many different things, and E&T is definitely in a better position just given where that business is in the cycle and where we are from a demand standpoint and the outlook moving forward.

Yes. And on the margins, I mean, if you look this quarter, I think it was very impressive that E&T was actually able to manage flat margins despite the impact of tariffs, and actually would have grown substantially without that. And I think that gives you an idea of the strength of the pull-through that is occurring.

Just to remind you that if you look at our margin targets as a whole, and we manage margins at the enterprise basis, obviously, our focus, is always on absolute OPACC dollars and growing OPACC. So if there's a volume opportunity, which may not be necessarily as margin accretive, that doesn't mean necessarily we will pass on it, because absolute OPACC dollars actually drives the total shareholder return in our mind. But if you look at our margin targets, that requires a pull-through over 30% across the whole of the range when you look at where they are. So that gives you an idea of what we would be expecting from all our businesses when we're looking at the margin increase.

We'll go next to David Raso at Evercore ISI.

Yes. Building on that, I mean, given the backlog, retail activity, lower rates, secular growth, I mean, the revenues, the expectations on the Street for '26 could go higher. The real debate is going to be the incremental margin. And building on what you just discussed, not looking for '26 guidance, but just some puts and takes thinking about 2026 at a high level. Obviously, I was intrigued by the price realization comment about being flat in the fourth quarter. I'd be curious, in particular, when you think about that going to '26, especially for construction.

Also the capacity expansions out there, the efficiency of that capacity coming on. Should we think of some potential headwinds, adding be it turbine or even more recip capacity? Or maybe you can do it more efficiently. The sales mix, geographic, a little on product?

And maybe last, of course, Andrew, anything helps to consider puts and takes that we're not thinking about, incentive comp, even things below the line, tax rate? It's just that's going to be the debate, right, the margins, the incrementals? So anything you want to answer from those, I'd really appreciate it.

Yes, David, I think you've asked -- I think your question actually covers about the whole of 2026 guidance. So I think, as you know, we will talk a little bit more about that when we get to January when we update you. We're still in our planning process, so it's still very early.

And obviously, just stepping back though, obviously, demand across the business is strong with the backlog that positions as well. Obviously, as you look out, we are now lapping the impact of price. That's why we don't expect price to have an impact on the fourth quarter. So that's obviously a positive, which we don't have that headwind. Tariffs will still obviously be a headwind as we move into 2026.

And you asked about the tax rate, and as I indicated in my comments, this year we did see an increase in the tax rate. That's just due to the changes in the way the legislation works, from the capitalization of R&D, in particular, to the immediate expensing. That obviously is cash benefit to us but booked tax negative. That obviously goes away. And then you'll start seeing some of the benefits of some of the foreign tax adjustments that were made in the legislation, which will be a positive for the tax rate as we move forward.

But we'll give you more details, and hopefully, we'll give you a little bit more color on our expectations as we talk in Investor Day as well next week.

And we'll move back to Tami Zakaria at JPMorgan.

Curious about your thoughts on what drove the acceleration in sales to end users in the quarter in every segment and every region except APAC. It seemed like some light switch got turned on. Did you anticipate this acceleration maybe because you had product launches or dealer incentives planned? So my question is, are you gaining share or the end markets have just been getting better on all sides?

Thanks, Tami. We're definitely pleased with the momentum we have in all 3 of our segments and seeing positive [ STUs ] and momentum continue. Definitely in E&T, as we mentioned in here, we're trying to get out as much product as we can, particularly on large engines. So we were able to get out a little more product in the third quarter through the factory, and I'm happy with the way the capacity expansion is coming on. Many of you were able to see that earlier this year in Lafayette. But as we're bringing that capacity online, we continue to work with our supply base and the team there to get out as many units as we can. So that's creating some positive momentum there.

I think -- and when you get to RI, some timing in some of the [ STUs ] as to when some of the things get commissioned, and just remember that we've got great momentum in orders and the way that business is going, but from quarter-to-quarter, things can move from 1 quarter to the next. And we continue to see just great pickup, particularly in North America, on our merchandising programs with CI.

So we mentioned the industry dynamics are a little softer, and we're continuing to perform and able to make strides. And I think that what we have in place is working and generating great momentum. And that gives us, obviously, the backlog going up as well, gives us good momentum heading into the fourth quarter and into next year. So we're just really happy with the way the business is performing right now.

We'll take our next question from Mirc Dobre at Baird.

I'd like to go back to Construction, if we can. It's interesting that sales to end users are accelerating. I am curious, how much of this do you think is simply a function of the various incentives that you put through rather than just the end market getting better? It sounds like your dealers are looking to add more fleet to their rental operations. So maybe you can talk a little bit about that. .

But perhaps the bigger picture as we think about '26, as demand does look to get better, this segment has been absorbing the brunt of these tariff headwinds, how do you think about the puts and takes next year? Do you think that you have the ability to manage these tariffs on the cost side? Or should we be thinking that the trends here are solid enough to where you can actually start pushing some price to be able to offset some of these very real cost headwinds that you've experienced in '25?

Well, there's a couple of different questions there. I'll start maybe on the demand side. I think the performance of the business has been better than the general industry, and I believe that's due to the strategy we have in place and the merchandising programs that are out there. As we finish the year this year, as you point out, I think we'll be in a great shape on dealer inventory. So heading into next year, we'll see what happens. But we've got great momentum, and we're hopeful that continues into next year. And we'll talk to you more about that in our fourth quarter earnings call.

As it comes to pricing, keep in mind, the fourth quarter we said is flat at the enterprise level. So we're lapping the impact of these programs that are put in place. The way we're thinking about pricing is sort of our normal annual process, and we're heading into that time period. Now each of our segments, as I mentioned before, E&T is in a much different place than RI and a much different place than CI. And then different regions of the world are also in very different positions competitively.

So we take a lot of factors into the consideration. Cost inflation is one of them, but also market conditions, competitive situation. As Andrew said, our goal is to grow OPACC dollars. So any volume impacts to these decisions, we'll obviously take that into account as well.

When it comes to tariffs, we've been able to really put some mitigating actions in, I would say, on the margins. There have been no regrets actions, same thing we talked to you about last time. Short-term cost reductions, more belt tightening type of things. We've made limited sourcing changes where we have the ability to move sources without investments in our supply chain, but that's fairly limited. We work on certifying more USMCA compliant products.

But when it comes to longer-term actions, we've sort of talked about this before, we're a global business with a very complicated supply chain. We are heavily U.S.-based. It's our largest footprint here. We have over 50,000 employees, 65 locations, in 25 states. We're a net exporter. We've increased exports 75% over the last 9 to 10 years. And at the same time, our hourly workforce has grown 29%.

But we have a broad and diverse portfolio that's very global and the supply chain is complicated. If we're going to make longer-term adjustments to really offset tariffs in that way, it will require investments to do that, and that will take time. Because we'll have to certify components, we have to buy tooling, we have to validate them and test them. And so for us to make those types of decisions, we really need to have a greater level of predictability and stability in the situation. As we know, trade deals are still being negotiated, and we're watching that very closely, and we have a lot of scenarios at play. We'll use everything in our toolkit when the time is right to react to the tariffs or to mitigate the tariffs. But I'm confident we'll manage it over time. It's just right now, if we do something that requires investment, I don't want to have to spend that money and then turn around and spend money to reverse it. So we're trying to take a measured approach.

But we have great momentum heading into 2026 and as we finish this year, and we're really happy with the way the business is performing. So we'll continue to update you as we move forward.

Next, we'll go to Rob Wertheimer at Melius Research.

Wanted to ask, I guess, around the shape of demand in Resources, which you've touched on a couple of times. And is the order strength largely in gold, which obviously is going nuts, copper, or is it a little bit more broad-based? And then if you had any comments, we've seen a couple of industry, including Cat investments in technology software economy, is there any upshift or change in customer orders on autonomy and/or advanced powertrains or anything else notable changing there?

Yes. So I mean, obviously, order rates have remained pretty strong. As you would expect, where order rates are principally is around large mining trucks. That is the area of strength. From a commodity perspective, I would say to you, rather than any commodity is strong, obviously, gold prices and copper prices are high, it's coal which is probably the little bit of the drag, as you would expect, and particularly in Indonesia.

With regards to autonomy, we continue to see greater acceptance by our customers of the need for autonomous solutions. And I think we'll be talking to you a little bit more about RPM and also about where we think the industry is headed next week, Rob. So if you don't mind, I'm sure Denise will be giving you guys an update and you'll be able to ask more questions there about some of the things within RI in particular.

And next, we'll go to Kristen Owen at Oppenheimer.

Two that are related to the backlog. First, can you comment on the contribution of CI and RI to the sequential backlog growth? I know you made some comments on the year-over-year, but if you could hit the sequential backlog growth.

And then second, when you talk about backlog or even revenue growth in oil and gas, would that include any turbine sales used for those prime power data center applications? Or should we anticipate that those will be allocated to the power gen backlog commentary?

Thanks, Kristen. So the consecutive sequential growth in the backlog primarily came from E&T, and that was largely power generation and oil and gas contributing to that. As you did mention, year-over-year, we saw our [ I&CI ] up. So we're following a little bit of a seasonal pattern in those while still growing. The backlog order activity across all 3 segments has been really strong in the quarter, and we're really happy with the momentum we have.

When it comes to solar and where those sales go and where you see them in the backlog and sales to users, if it's a data center application, it goes in power generation. If it's traditional offshore oil platforms or gas transmission, then it would be in oil and gas. So that's how you should look at where those end up in the numbers.

We'll move to our next question from Michael Feniger at Bank of America.

Joe, just in 2010, there was a filing, a Cat [ head out ] that put turbines at $3.3 billion of revenue. That was 15 years ago. Is that business closer to like $7 billion today? Is that $7 billion too low, too high? And just the fact that some areas of oil and gas CapEx like offshore has been weak, is that why you have some capacity to meet the orders on power gen? Does that change at all to meet this demand when you open the order book for Titan 350? When does that kind of plan happen? And does that change the equation at all as you got to kind of think about capacity going forward?

So with regards to revenues, we are not going to disclose solar revenues. Obviously, you are referring to a period very long time ago. We split the business into oil and gas applications and power generation and where it's mixed up with reciprocating engines for obvious reasons. But solar is a very strong business. It's a very good business for us, as you know, and one that we will continue to support very strongly.

With regards to capacity, both actually oil and gas applications are doing pretty well as well. So there's a lot of pipeline orders, particularly around gas transmission. And so that doesn't -- so there's not necessarily weakness, which allows us to continue to meet [ either ] demand. It's really about prioritization. And as Joe said, we will discuss and make capacity decisions when we're ready and when we see the need to do that, we'll notify you accordingly.

Yes. And just, I mean, as you're thinking about -- it was a long time ago, going back 15 years to 2010, the world in oil and gas is much different now as well, right? So you would have had a lot more offshore power in the solar oil and gas business, and now, post shale, we are moving a lot of natural gas, and that's where we are very, very strong, is in the gas transmission side.

So I think the business is different now. We continue to grow services and services footprint. It's the first business where we really leaned in on the digital front with long-term service agreements. And that's obviously, with Jim's background, helped shape our strategy that's made us successful here in the last few years.

So we're excited about the business. We're seeing a lot more demand in power generation. We -- when we announced the Titan 350 and put that program through, we obviously had room to produce those units. So we're excited that we're getting good uptake on them even sooner than we had thought when we started the program a few years ago.

We'll move next to Jamie Cook at Truist Securities.

Congrats on a nice quarter. I guess 2 quick ones for me. Joe, I guess what struck me about the quarter is just the backlog growth that you saw. I mean, to what degree do you think -- the Street should continue to expect backlog to grow? Because on one side, you have these projects like Joule, there could be more of those coming online. The other side of it is you have the [ well ] large numbers and potentially capacity coming online. So just the ability to grow the backlog because it just provides such earnings visibility.

And my second follow-up is just, understanding what you're saying on tariffs by segment, et cetera, but should the Street expect the fourth quarter to be the peak of tariff cost headwinds? Can it get better from here as we think about 2026?

Yes. So when we look at -- you want to take the last one first, then I'll come on the first one?

Yes. So with regards to tariffs, I mean, obviously, it really does the timing of mitigation actions, as Joe mentioned, will really be determined by the greater degree of certainty that we get out there. Obviously, all factors are on the table, and that will include potential for price. But obviously, that -- we'll make those decisions as we would normally do within our normal time frame. .

With regards to, obviously, the $650 million to $800 million is based on most of the -- all the tariffs that will be in effect on November 1. So there is 1 month for some of the tariffs for the 232s. Obviously, the other factors which impact tariffs are the degree of imports in any quarter. But that would be the sort of run rate on an unmitigated basis that you would expect to see.

Yes. And Jamie, it's a good question on the backlog and I think you expressed it well, right, there's a nuance to it. We continue to see significant demand, particularly in E&T. We're seeing more -- I think we're at the early stages of the prime power opportunities. So we're excited to have more of those come online. We talk to our large data center customers, both hyperscalers and colos frequently, monthly mostly even to manage that forecast. So we have great confidence in the pipeline that's out there, and that's why we're putting the capacity in, and we continue to raise the capacity.

So I think it kind of depends on the circumstance. We like the fact that the backlog is going up. I'd like to maybe -- if the reason the backlog goes up a little less is that I'm able to get out more and more product and keep up, I think that's a good thing. So we think it's positive. I would expect us to continue to see momentum in there. But we are getting pretty extended on some of our products in E&T, and I'd like to try to at least get that stabilized or brought back in, if we can.

We have time for 1 more question.