FreightCar America (RAIL) 9 Aug 222022 Q2 Earnings call transcript

Greetings, and welcome to the FreightCar America Second Quarter Fiscal 2022 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Stephen Poe, Investor Relations for FreightCar America. Please go ahead.

Thank you, and welcome.

Jim Financial and Chief Officer; are Mike Executive Commercial today Chief Riordan, and me Meyer, Chief President Officer; Officer. Joining Matt Tonn, this statements the Act to call future future Litigation events like remind Reform may that of under or made I'd include the plans forward-looking Securities everyone business prospects relating defined expected company's during to or future as performance, XXXX. statements conference Private of results certain which FreightCar to Form for business America's the risks, of of expressed may some differ be Participants company are directed statements. those control may a XX-K the of to outside that description forward-looking from in the cause materially actual disclaim whether or expressly our otherwise. duty result to future updates forward-looking as events We statements to of any provide a new information,

there their discussion that a GAAP call, directly today's or of U.S. accepted be to also not measures do included issued Reconciliations the accounting will measures most items GAAP. non-GAAP generally earnings afternoon. principles to release conform in yesterday comparable are these some of During

Our now to the few market along on freightcaramerica.com remarks. of company's quarter which the call for the let second XXXX a Jim? at posted our that, me filed With is yesterday website close. XX-Q, was Jim after for turn over with release opening earnings

and Thank joining us you, all you morning, Stephen. today. Good for thank

positive second and by another margins quarter delivering As you line EBITDA. saw momentum double-digit in yesterday's earnings gross release, quarter build in of FreightCar America continued the to growth, top adjusted

XX and railcars EBITDA second positive the with that our are adjusted quarter, completion the exact second are the For trailing of we planned. X the up XXX% the first the in months. year-over-year delivered and of was revenues quarter, months produced year, now number XXX We for the

period. are and million. resulting you quarter, adjusted the the you still deliveries and product with quarter, we the associated with and X lines of as on an the the curtailment team informed changeovers lines the $X.X changeovers downtime both went last during major Even delivered extended operating know, just through production we As in EBITDA

second the on strong top up for was XX.X% year-over-year. gross again, And margin this than revenue achieved railcars. was million. of And XXX the and XX% $X.X Our less quarter profit line we gross of a growth, along with

very are profitability. results, demonstrate in that continue proud of efficiency and work We for Northern which and the manufacturing the is team's our built to Mexico footprint

the remain team that profit. our focused and ensure business a On for earn commercial sales accepted a is appropriate we the company business that on to good offer fair and front, the opportunity

orders, in awarded and detail, quarter, orders. discuss Matt number this of comparable were the as X,XXX we did more while will down During new and turning we a

a our discipline, the As scaling a at scale our manufacturing become these come we this time. achieving to shop business, shop high lines, simultaneously beginning our focused world-class and commitment company with we wheel to driving to Along and are company. square fabrication on online foot projects are expansion degree larger continue growth, The and profitable XXX,XXX run of progress. axle

of next the assembly our expect campus the have as production located XXX-acre will XXX envisioned, within currently complete the with million we to Additionally, X we new just feet months. X additional Pass, from still lines complete on roof and square When miles under building and Eagle Texas. cities approximately Laredo

inflationary the the in than we pressure types. of job history any we all are date, To felt results associated better at and are to headwinds headwinds challenge we point these our the on put headwinds in the to supply our us that least continue at us navigate has but While year. and Even so, expected through end to this positioned recent done effects, of both improving address substantive downward believe persist significantly, mitigating are and an financial and team chain excellent industry.

continue to which what production is impressed originally the be to close to anticipated. able footprint double also we produce, that our new We volume is by

provide can our we to reason, this further outlook. improvement For

For million up the previously XX% up XXXX, full revenue midpoint approximately the range million. at year-over-year stated to to $XXX the and of $XXX $XXX year and we range forecasting be million $XXX million from between are our of now

in to footprint of summary, quarter of are of additional from proof X,XXX our XXXX now manufacturing be the point approximately delivery serves an of guidance previously railcars. efficiency as and and We the at also projecting and up between railcars, and year-over-year deliveries X,XXX X,XXX our the between range of second stated XX% Castaños. In midpoint an of strength increase X,XXX the

X,XXX achieving We our deliver that, turn we meeting future would a continue the excellence. half while comments and new moving second build demand out now to the I railcars Matt few world-class manufacturing like quarter levels over of call to for with second With in related Matt? on the and anticipated the focus to commercial to of upwards expect forward. a to the year, footprint

morning, and Jim, everyone. you, good Thank

quarter, remained to largely the industry in with levels During and tied quarter our we the that robust replacement. activity with last strong inquiry line railcar demand experienced

activity customer railcars orders X,XXX increase in remains is which and in seeing robust I with traditional in inquiries terms we also the of diversity are of shipper quarter-over-quarter. in an XX% Class addition more to leasing quarter, In type, a with bump railroad customers. up the slight Order

and currently for is fiscal of are book beyond. we filled our and for XXXX order XXXX, the building remainder now our backlog Additionally,

flexibility our on on in disciplined business for optimistic. resulted The many have tight continued well our the and and rise can hold. is in the participants can button With speculative recent broadly, that market placed More be approach On buying Mexico rates the interest the suited as of the sentiment car scrapping largely and remain in said, that very railcar positive cautiously footprint of view, and we in some has in America. the characterized and size our us has rail FreightCar in front, customer pursue. pricing older sales business Again, congestion pause remains being types we we cost hitting on focus structure selective some so of supply. assets network provides

this easing by materials over now financial some increases remains supply freight we turn the raw overall has chain I'll front, Mike call results. for macroeconomic challenged. and specialty although offset the pricing, in material Mike? seen that, review With our costs other in to as somewhat the have of been a On

Matt, everyone. Thanks, and good morning,

far line opening exceeded Despite improvement quarter As significant Jim the remarks, financial deliveries margin what of expectations we even his high-quality continued year-over-year. changeovers, second being capacity. at and line cost with are units on focus business planned curtailed our can in while the alluded to that fewer full in results team's the than largely top our capable producing our and company discipline proves achieve by prudent internal production profitability

second deliveries XXX revenues for to million from railcars increased quarter million in XXXX to totaled consolidated XX% $XX.X XXX As year-over-year. $XX.X second XX% year quarter the The of compared increase Jim indicated, railcars, an company's of the a XXXX, up ago.

XXXX basis some from Our to gross profit significant mix. compared the favorable $X the to same second million, points compared which was amount of X.X% margin period the million $X.X in to prior product a of included quarter in year, increase benefit increased XXX XX.X% last Gross a year.

also the due our continue to in versus margin an expect manufacturing year expect While and normalization given of on this shift. our basis segments profile peers, gross mix half our to some perform a the margin facilities, of competitive lean we highly of well second to we manufacturing anticipated

XXXX. decrease the company's the half will quarter was share XXXX. awards behind now with down we of of for value, the significant However, in increase as second us price quarter the in $X.X a second second to during during The deliveries realize decreased changeover for fair SG&A year in which in stock-based sequential major compensation the during totaled the second the quarter of million, XXXX $X.X activity primarily of due SG&A XXXX tandem quarter. is million marketing to from

excluding adjusted the on of million XXX achieved second million line current even quarter our to In expect value positive while we potential As income loss to favorable of a capacity. our compared we the leverage while of loss to quarter run operating even million second performance SG&A in scale of our million we're rate a reminder, second going EBITDA stock-based benefit adjusted add of adjusted to structure, we SG&A Under directly SG&A an the less to fixed to period profile Consolidated was due manufacturing from XXXX relatively expect footprint decrease solid primarily a $X of structure we quarter operational certain expanded maintaining we second awards. a operating EBITDA Manufacturing to and and operating of the for driven compensation shows in in an revenue. remain the forward, this to second same income Castaños, quarter XXXX of while at cars. this measurement $X.X quarter proud production operating committed by income of of to of XXXX. second manufacturing $X.X are in XXXX in continue performance of we the Consolidated EBITDA XXXX. Again, in the in $XXX,XXX last year. compared $X grow the it related the year, operating certain was gains as adjustments value for awards, very million per the income quarter the top and $X.X compensation quarter $X.X million profitability the XXXX, to was the of million fair stock-based of compared half producing second $X.X fair than of

second quarter we was quarter in place This and million XX-month XXXX the sustainable the financing Additionally, where XXXX. driven quarter second with associated by XXXX. turned million, amortization first of deferred the that period after second our marks America supports a have first of of operating in quarter growth refinancing the $X.X following positive took an activities adjusted structure compared performance, that our noncash of FreightCar to strong Further important Interest our expense was XXXX. signaling basis corner the $X.X costs trailing was of that quarter since increase on this plans. EBITDA

million financing warrants issued the fluctuates value each a to expenditures fair financial of for it during change As the we that the Capital for noncash relates is directly quarter item XXXX $X.X $XX.X second this to warrant XXXX. million. Again, quarter our price the of were approximately recognized liability $X.X our due with statements, result change market that a a to million gain quarter of quarter. as the of stock impact in the transactions of compared our second primarily in the noncash

XXXX. axle to calls, complete Due along previous spend As and stated X for bulk increase we between timing internal spending our of our We we as we of $X and this half wheel in second these with the X. still shops, $X in capital the in and will projects, to million expect XXXX fabrication capital and in expect occur of million range lines year. CapEx earnings production the investments to believe

our the made providing Before especially we spend, like for to as significant our to company outlook year, regard I'd a have highlight cash full the with level. operating at improvement the fiscal

cash million of the in the $X.X second the was million by in to quarter XXXX financing second at Our costs from significant Interest amortization of quarter operating the of decreased This driven increase signal XXXX. took second quarter has does refinancing place first XXXX Not in with noncash quarter used million was the activities expense associated activities to only production in second quarter of that $X.X this deferred compared million, XXXX. after of in $X.X improvement XXXX. efficiency the only $XX.X of in

result financing to in is this transactions XXXX to our gain relates our for the quarter item of directly the XXXX. that due $X.X fair million fluctuates $XX.X with the each stock million. Capital quarter price change quarter. were expenditures the statements, a it approximately Again, value million financial our second compared the a second during in warrant for market noncash as of of warrants of a $X.X liability change As noncash the quarter that primarily recognized to issued of we the impact

and timing lines the capital We X million As previous our the and occur to spending XXXX and along capital internal stated in for shops, of in spend we wheel these earnings to second $X in as and in we fabrication bulk with of X. complete this believe calls, $X the XXXX. Due investments of million to axle will still CapEx half increase our we range projects, year. production expect expect between

regard to I'd Before the improvement made a spend, year, fiscal significant level. especially we providing like the for as to our with cash full operating the have highlight company outlook our at

significant XXXX. to the financing quarter cash footprint, is this in at improvement of activities to $X.X decreased Our in from also Not enhance the operating XXXX million further lower second explore the this of future expected to used has our million production ability $XX.X in Castaños second does in signal options. only only but improvement quarter efficiency cost

Turning to for year. the full our outlook

both guidance With to As X,XXX financial to X,XXX and now turn our mentioned, million Jim the closing and a like already million $XXX delivery over are revenue $XXX raising that we to railcars, and overview, and between few respectively. call for Jim remarks. back I'd

Mike. Thanks,

conclude the second me priorities XXXX. for stating expectations and Let fiscal of by our half

the America. is for FreightCar new standard profitability First,

axle Second, results. efficiencies we operating impact and bring with the that By Castaños expect remain new completed and have edition These the and will track committed our shop. shop on year-end, our expansion bottom wheel largely we significant be and of facility. line fabrication to our expansions directly

per expect and XXXX. and year. have expansion lines and outlook, is company. also are to during in will projects raising our double We of third The of production the on that trajectory optimistic the production With capacity these line quarter and to units fourth addition roughly clear our line pace are a start fourth a X,XXX it progressing the ready X,XXX are increasingly of production about revenue railcar to raising the our well to delivery we

to transition look have performance our and eventually our financial our our financial continue flexibility we to overall improves, when improve refinance expect and we debt as growth As structure. to we more

May; members Additionally, Boehm Stockholders José company's of our we new was at Annual new XXXX as elected a recently director X Directors, welcomed Rodger Meeting in the of to Board and America individuals Kelly in were will experience, bring growth. June. of FreightCar its and which De financial, extensive markets capital These appointed for leadership Travis next strategic in and era benefit Nigris

Before emphasize of the the impacts are we economy about the I realistic in and the to how chain over a would disruptions. temporary emphasize we supply are the optimistic future. to call that time, like turning operator, the like At to I about same continuing just potential also slowdown would

the the this Castaños We second exactly did the and in will of in rate continue be envisioned. of the producing railcars half, first at with the we approximately than half will twice we build-out facility year as

remain footprint, costs We capacity in scaling sold out out capacity and we committed in we the burdensome. XXXX. our sold let to will We become the business again also and not to our and profitably fixed XXXX, scaled

turn concludes scale questions. so will We the our the I'll very we for the this continue the of to advantages future. operator remarks, mindful address we remain prepared to brings and as That now can call over

Instructions] Stephens Our first question the [Operator from line Justin of comes Long with Inc.

Just the with the you for start expect line just quarters there color pretty coming if to guidance Maybe updated in a quarter? mix couple curious of deliveries questions in provide Or on if fourth X on third and stair similar? a those third of given quarterly of on deliveries. expecting should the expect would we look can to and any more the XQ you cadence Is step? you're

add Jim. this then Justin, it. is maybe start will Michael I'll and to

comparable QX are QX think I approximately, units the going or in and coming to of out. fundamentally think terms I look pretty

third bringing QX in very we in on going that line will a we're to and As on fairly be but bring slowly way. controlled the indicated,

line And small that that. don't anything off so the if you coming be of know a is going factor. Mike, relatively incremental to volume I want to to else add third

Yes.

Just deliveries. we'll the increased year, have the the back half of

massive an QX a coming will As see expected spike, line would won't you compared on Jim to QX, with mentioned, third see in the -- QX. you see in you but increase

of to to there few comment? of Is any we the that And to back quarters, the last perspective? in That's think mix. year what margin a kind at that understand of us was about color help Okay. back the Can from a slip comment chance single into helpful. looking I a just back there is provide the gross a of means. So made us you other gross digits kind percentage Or a comment? margin due through normalization just margins you help think that can half

normalization the normalization. Sure. mix would going back specific the margin. to on and for percentages we mix. in half margin half, will QX of is terms consider back to QX run But gross based expect based a what with for back of see really give the rate product a on in steady industry see We've good not guidance. right now more We we margin we the where we're had product

the production Got year. X originally you these this Okay. alluded of to half couple implied Jim, delivery that almost think, second an is that's be annual the it. And a of from But your the basis, you it look just double units, this, lines. first rate On communicated times for X,XXX at and that in capacity I remarks. you if prepared run would

So And going to to range X,XXX know year, I you we're guess as unit number capacity, think is I the for initially that from at you and but get how end we understand that higher envisioned? just the versus capacity gave to benefits much that, than into be reasonable maybe to productivity high next that a above? of it is I and mix want this X,XXX of just

Well, it us of year. was speak. last we obviously me planned the we rearview us every reasons. better talking mirror. And year, in and for. second units Yes. per propelling the out, Castaños, it's keep of that And bunch call line thing frankly, that's of very first good of One production propelled started we factory if that's is with And that runs, pretty a XXXX half for the back when per about a reminding the than that I you help as approximately we conservative go as of think laid to

is process, some railcar a the rate of to cars have railcar, in the twice railcars. also frankly, mind not You other keep and

in terms a mix building. a a component what is running obviously shift, half shift or a whether There's shifts. component you're of in multiple whole there and a you're So

got put the think course, building, very, pedal it's there's scale it. and I well, terms the more or all we is very the products to the lot So especially the flexibility and to just way around run actually facility best the product. a it of metal we're out think to going construction a on facility we've you some but in up that of continues to new still help, need of of when consider fact put

just of of book the units, So exact we happy. at But higher. X,XXX the to X,XXX that question, more range be couldn't possibly up even your high to be we'd future lined business probably if so,

Understood. me activity quarter-to-date. And on last inquiry quick X just and from order is

Just curious relative if the you that saw there's quarter? second any any to change update or in strength the

the activity Yes, by having that previous healthy. with has by Overall, pipeline we’re encouraged say Justin, with customers, would activity seen the and keeping in conversations say I’d what we’ve the quarters. in that we’re been remains I

remain I that happening think mentioned customers in optimistic. I in my watching are marketplace. the overall, what’s But comments

we’re have from anticipating an continuing So to performance perspective. order inquiry solid and

the next Instructions] and of Company. question Elkott from comes [Operator Our Matt Cowen line with

Just high the year. the delivery of start we a even this for if maintenance guidance Jim, end couple take questions. with, To of

delivery second have potential the cars X,XXX but Does deliver in I to is to end You X,XXX the there's half, cars. would your you outlook that in upwards mean high think the year? of this Jim, upside of this guidance mentioned commentary

Matt. consistent with No, of to think, with I is meant The a I qualitative upwards the go guidance, be statement very would that XXXX, guidance.

Got it.

some the second in what beyond delivery percentage, the the your on orders any, if current backlog half for the to just In you for same will of And in same-year 'XX? gauge 'XX the for clarification is of for Thanks I'm XXXX? percentage deliveries trying Okay. -- assuming you of is versus are get guidance, year what delivery? this. guys

just turn sales There's, production over start let to no and incremental I'll support for it at with our just assumptions Yes, loaded of frankly, Well, and year. schedule to in gave. locked is of this delivery the point balance the that, Matt. guidance me the we terms needed

day. produce fundamentally you. a I'll Matt, place is course with point So give sales call that every year at beyond of backlog obviously, what normal discussions we'll this pipeline the to a the backlog over lot this XXXX take

Yes.

think Jim thoroughly. answered I those questions pretty Matt,

earlier, remains The car customers we're kinds pipeline a with and diverse types. with strong mentioned the and having I conversations. of diverse As both right pipeline healthy the --

look As having to we backlog, space and filling space, of are are the about we are 'XX, right discussions long-term we we filling kinds line commitments.

just and change the a to that then balance is And decrease which of increase can the helpful. cadence related quick we that quarter-over-quarter cash half? -- second expect in primarily question. That's it. the sheet to The Got in is in because inventory, delivery

That's deliveries, spot as will what we we exactly inventory right, into capital working so on. a It's had -- of ramp second heavy be a been Matt. very you're up heavy infusion half for

I might of one Okay. but it I And you. or -- or if I you're that don't you maybe said Jim, definitely if know -- then to you, have don't exclusively it, Mike, think been of be one of remember it's Matt said too, X it the

wondering the do are I low think I whatever you now I But mean guidance there's you for is, of think might industry internal to what XXs think industry risk -- also versus expectation about today production it months range ago, and incremental incremental you're the mentioned I the X but cautious what outlook the in XXXX? production is was think risk for probably recessionary you there know industry. don't the optimistic, XXXX for that macro the mid-XXs, if the to in is. your estimates to concerns

made we're on a think by adjustments what we're couple I we industry produce different year Matt, overall, an industry. that, to as at of going different think looking this seeing insiders

think I early. a little it's

seeing what the rail relief. We some network still we're are the don't customers overreacting happens There's with unknowns we're pause what customers are seeing I we're mentioned, right hitting now. that marketplace seeing I that in some believe to button, are congestion but -- as with

new had that. significant a have I -- is car scrapping the effort years X Class and on still outpaced we got demand. You've working by We almost of

is half I were that's our think the us really a in down or take plant allows And and So conditions. scale we're the overall, capacity efficient have market away I footprint demand be at And production depending to healthy. facility market that to we conditions. on roughly remains, up operations what's with previously important Shoals manufacturing to for that built think, of we line have railcars moved

not it's more for perspective, our for sure but we're our it from our and about only needs, as relates us that the customers making So production meeting capacities to efficiencies.

it I but we sales to just everyone, and its deal best very, a we that, to a And the and we with would my closing sold conditions in of when commensurate XXXX, And our in business keep our the that that's going out. to with we Matt, activity. careful obviously, do does -- comments, -- was be helpful we position see macroeconomic scaling add pay we're like business what industry great said attention I in as planning business the helpful as our very our to sales activity. based XXXX, -- it's on

but all, we're based on paying it discussions. sales to we're planning attention So

so helpful. can turned orders them or That's Jim, What of you are orders down? kind you that Okay. down? turn And the they? about talk X,XXX you did Why

to scaled today. fill. That's fixed more frankly, the the then variable our to we've helpful I adjusted, specific where margins much helpful highlight bottom from too was felt being trying need the has not and for now. everybody not And that. footprint the been to of mindset not it's to cost industry chase just because into capacity. I'm a gross endemic every and this our had we've There we're order a in way not both us, the too extra and our We're that having And a No, line. everybody that's which our has they way going business mix were to open simply benefiting mindset it's capacity variable helpful, obviously cost unused get much business. day because between will

think you as be competitors? Do from still a can some whole Or more industry seeing you the your are that aggressive pricing disciplined?

but And capacity whole can is we've would think that change couple would the to capacity of disagree and pricing a would would it right be I step on obviously, And business. pretty aggressive. there more only We do very manufacturers disciplined. that's taken industry, better way -- the supply/demand that the industry dynamics, supply don't last over what's right in not but the be now. served if years, like for I is or dramatic I the was in fashion. anyone our see

of Got people And higher, big we question. has have Steel from Steel then for keeping had being but been just issue final concerns slowdown think do or these all still to we concerns railcar take have the a the of If and the net and economy. together, rates X it. production wash? macro about you and tailwind picture factors or is now kind the demand impact pulling moderated, while. we the interest basically trigger a a headwind a

think don't we know give this know. will I'll more intelligent thing don't big is We you future. I But the the and Matt response. the then start Well, probably really

in as but the actual industry, business. we And that there's Matt activity directions. papers signs, that ordering then are then other with every sales the So things congestion our we a see and there indicators signs and both day, mentioned. in read the the to macro There's specific there's

question, So Matt, your correctly I think all from we'd if all do that. we answer benefit But you? could

I When in point, are whole seeing think I some manufacturing go there's there versus doesn't your tell the to that But offsets are manufacturing of easing we HRC cost looking about some picture, I'll steel costs. the railcars, into really multiple just used steel plate guess. But other just add steel. aspects pure you that with thicknesses there. at and to think steel types the grades, you that, of not and is other

remains chain remain I a or that point, supply kind a challenged, of we toss tailwind the headwind overall, it's it at -- up. So whether was think a

steel both peaks. but coil plate Well, come down add its point to We consume has good pretty coil steel that's significantly recent from a and just that. I'll steel,

For some reason, so. plate has not yet done

really also so overall the chain. in of then, pinches And you I rush And all I your keep chain to you you moment. with on inefficiencies know too whenever of other time you, how factories for guess, the the a interest, but your steel bifurcated dynamics don't thing challenges more. There's got sourcing, running, is which X the every that best cost you moment. quantify rush the at to you. story global mind, do alternative to Everybody knows you do hidden in a keep just Matt, supply do kind also it to kind or of well And and it alternative supply sourcing it and to cost at

also to just follow-up, X the makes quick No, Maybe industry. that related sense.

is You guess, demand rail service the have a more. the been to of rail so. last or the for suboptimal velocity lower higher service think or driver And and the the of expected improving kind as railcar year -- I railroads begin

As improving demand? rail way tailwind headwind starts to subsides, Is that the when for improve you the volume and XXXX improved and, there offset make service, theoretically, service volume there up any we get service headwind should from Matt, service into growth. Jim, to to with you to do enough is railcar that -- let's say, gauge, and think significantly,

continues than they're again, itself demand. for railcar value see to customers great lower fewer, And there improvement of proposition. improve back I to is and It dwell. an more and once modes service that ultimate takeaway product transportation in able that on right? is velocity, up track. towards a absolutely sets railroads get working efficient all here overall levels, shipping goal improved rail, are by point So And think rail the there's far be

out coming several cars consecutive there's exiting at the online. than We cars years a all know of faster aging fleet new rate been

at catch up some point So certainly, itself and all this is to going Matt. here, reverse

the Ladies I'll and floor our concludes for Thank time questions. for to any comments. final turn back that allowed management you. gentlemen,

Thank today’s you call. all joining for

grow as about increasingly half and you to the the of excited we forward FreightCar America year with beyond. second Thank manufacturing we and our are future of capabilities We the you. continue to look our successes in sharing

today's conference. Thank you. This concludes

participation. You time. disconnect at your lines for Thank may you this your