Q2 2020 Earnings Call
Thank you for standing by this time.
It just depends on today's call will begin shortly thank you and please continue to hold.
[music].
Hello, and welcome to the Green Briar company's second quarter fiscal year 2020 earnings conference call.
Today's presentation, we will conduct a question answer session each analyst to limit themselves to only two questions until that time all lines, we placed in a listen only mode.
The request a green Briar companies. This conference call is being recorded for instant replay purposes.
Hi, I would like to turn the conference over to Mr., Justin Robert Vice President and Treasurer Mr., Robert you may begin.
Thank you missing.
Morning, everyone and welcome to our second quarter fiscal Twentytwenty conference call on todays call I'm joined by Greenberg, Chairman and CEO Bill Berman.
Lord to Korea, President and COO and each write downs senior Vice President and CFO.
They will provide an update on greenbriers near term priorities as we manage to covert 19 pandemic and then we will discuss the results for the second quarter.
Following our introductory remarks, we will open up the call for questions.
In addition to the press release issued this morning, which include supplemental data additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website.
Matters discussed on todays conference call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Our discussion today, we will describe some of the important factors that can cause greenbriers actual results in 2020.
Beyond to differ materially from those expressed any forward looking statements made by for on behalf of Green Briar.
With that I'll pass it over to Bill.
Thank you, Josh and good morning, everyone.
As we begin I want to take a moment to extend a good wishes for the health of everyone aligned with us today.
I also called out the work of the many health professionals emergency responders government officials and individuals were on the front lines battling this pandemic.
It doesn't are armed forces and National guard around the world.
And here in America.
Finally, I think all the green bar employees in our factories offices in at home.
Now operating under essential industry status.
The world is not only in a severe health crisis, but obviously, an economic crisis affecting businesses differently.
As you will hear today, they ability to continue to operate our factories.
Well the strong backlog in hand, and allows us to protect liquidity and maneuver and away others and industry and other industries. Another business is cannot.
Under current circumstances.
We're now operating under two essential priorities number one to provide for the safety and security of our workforce and number two to provide for the liquidity and economic well being of the enterprise and its shareholders.
In the face of this pandemic management priorities in behavior immediately shifted to the extraordinary challenges ahead.
We quickly implemented contingency plans and assemble incident response teams.
We assess the restore business in real time.
And are taking swift actions to ensure green briar defensively positioned to manage through a period that presents arranged known and and knowable challenges.
We're safely operating.
And I emphasize safely operating all our manufacturing and essential service sites.
Including those sites that manage over a quarter of.
Industry railcars in the United States in North America, Greenbriers operations constitute essential infrastructure and essential businesses as defined by the U.S. Department of Homeland Security and other U.S. and International agency agencies, including all stay at home orders issued in the dredged.
Sections, where we operate at home and abroad.
For our supports operations vital to the National Transportation system, The department of defense other federal agencies.
We perform our functions under the statutory and regulatory Tory authority.
The Department of Transportation service surface Transportation Board, a fair Federal Railroad administration and under the Jones Act.
Marine operations Accordingly, Green bar will help maintain the delivery of vital goods, including food medical supplies and fuel communities in the United States and then all the nation's we supply around the world we will keep.
Our nations and those nations smoothly functioning in the reference system.
Along with the welfare of our employees.
We are determined to protect the economic well being of the enterprise securing unprecedented market and economic conditions as.
As discussed in our earnings release today, we're laser focused on liquidity. Our goal is to produce 1 billion in available reliable liquidity within the remaining five months of our fiscal year.
Ending in August.
2020.
Before the onset of and they make we had already begun to reduce the size of our manufacturing footprint due to anticipated lower levels of railcar demand and reduced.
After market activity.
Adjustments to production and staffing levels that began in September of last year continued into the second and third quarter.
As we idled excess capacity in North American manufacturing facilities, largely in Mexico, as well as at Greenbrier rail services locations.
Since we began this initial initiative we have adjusted the global operations through workforce reductions equal to approximately 20% of Greenberg total global workforce.
These reductions now exceed 3500 workers.
Yesterday, we took steps, which would add another 200 workers overtime.
Our colleagues, who left this fiscal year or people, who H made important contributions to our success many have spencer entire careers.
In this business.
They are leaving us through no fault of their own.
Each affected employees, a person will the name and a family.
As a fact, we never forget.
We recognize that this is a period of shared sacrifice as a result, I have taken a voluntary immediate reduction in my salary $250000 and for our board of directors each has voluntary reduce their cash compensation.
Weve frozen pay increases for members of management.
Moreover, Moreover, cash and earnings will automatically flow from curtailed bonus payments, if we do not meet targeted performance metrics and along with the discretionary reduction that I or the compensation committee of the board of directors.
Ken request.
All that remains to be seeing but it is an automatic release thousand more difficult times baked in to a company that is well seasoned.
In dealing with difficult time since it in a cyclical business. This is not our first rodeo.
Greenbriers business is flexible enough to quickly adapt to changing market conditions, our franchise is strong.
And we hold the position as the number one or number two players in three core markets in South America, more specifically, Brazil, North America and Europe.
The strength of this franchise as demonstrated by the fact that half of this quarter's earnings were generated from abroad.
Orders I'm not sure not ordering earnings but orders.
And of that has about 1000 cars are to be built in North America by good customer in the Gulf co-operative Council.
We have a strong experienced management team Green bar again has navigated through difficult markets in the past.
Historically, we've come out stronger as a result of our combined.
Efforts not only did we recovered but we transformed in dramatically increased the scale of our business through hard work focused execution and diversification of our revenue stream.
Although this was it stressful time no matter how the remainder of this year plays out we know our role in the transportation industry remains lydall.
Beyond layoffs and other obvious reductions we're committed to take aggressive actions to shrink green bars cost profile its balance sheet to improve its balance sheet.
And Lorien Adrian will speak more to this a little later.
Based on our current backlog, we were left with very little opened production capacity for the remainder in both the fiscal and calendar year.
At Gunderson, our marine backlog extends through the fiscal year.
And the calendar year.
Our backlog in production.
Current production rate stretches into 2021 and beyond.
A large multiyear manufacturing backlog of railcar units provides one source of stability in difficult times as we operate our facilities.
These long term customers.
Our very reliable and have virtually never.
Waiver in fulfilling commitments, even if they have to at times put cars in storage.
Ill add provides resilience and a bridge to an industry dynamics and economic conditions improve.
In addition to the liquidity goals I mentioned.
We have stress tested greenberg balance sheet or insurer to ensure our liquidity.
And we have run very many scenarios to look at worst case.
While we have suspended earnings guidance, we expect to remain profitable.
We do not know nor can anyone know how this crisis will evolve and resolve.
Today. This is the biggest risk we all face together.
Scenarios may emerge that we cannot reasonably anticipate.
But we are confident we're managing those factors within our control and we're also.
To manage others through the worst of times.
This means we are prepared to adapt to the new economic realities, we'll take the difficult necessary actions to protect Greenbriers economic base River preserve its financial stability focus on our core business remove essential activities and restore shareholder value for years to come.
Now over to you Laurie.
Where your comments.
Thank you Bill good morning, everyone and thank you for joining us.
Ill briefly provide some additional detail in the corner, although I have to admit that February 29, the end of our corner seems like a lifetime ago.
The World has shifted very quickly and we pivoted to respond to the shifting global landscape.
Over the last six months, we've been rationalizing production capacity and overhead in response to anticipated levels as new frame railcar demand and reduced aftermarket activity.
Demand had weakened due to macroeconomic conditions, including trade dispute.
Faster train speed, resulting from the implementation of PSR and significantly lower freight rail loading which have dropped sequentially from a 15 month in nearly all commodity categories.
The industry remains supported by a backlog of over 51000 railcars.
But all builder in North America has taken steps to flow perhaps in line in 2020.
It's important to note that these conditions were present and we were adjusting capacity prior to the common 19 pandemic and the collapse in global oil market.
We continue to adjust operation that needed to ensure the long term how green briar.
As a brief recap to the quarter delivering this quarter for 4500 railcar and we received orders for approximately 8500 units valued over $815 million.
These orders originating from our international sources accounted for over 50% any activity in the quarter.
And about 1000 of those units were part of a joint international commercial effort, our customer in the Kingdom of Saudi Arabia, 11 dealt and service the North American market.
Our backlog worldwide remained strong at 30800 units valued at $3.2 million.
Operating performance and our air I manufacturing facilities improved in the corner.
And our North American manufacturing group continued to perform profitably producing high quality railcar safely even as production rates for adjusted and demand decline.
Our European and our Brazilian operations performed as expected in Q2 and order activity with strong.
Notably we received the first multiyear order in Brazil, and many here.
Both our European and Brazilian operations are benefiting from some rightsizing that we executed in fiscal 2019.
The continued improvement in our repair operation is a reflection of the remedial actions taken over the last 18 months.
The wheels and parts operations benefited from their higher seasonal volumes, although volumes were pressured compared to past winter.
And our leasing revenue in the quarter included externally sourced railcar syndication activity and as a reminder, this activity causes leasing gross margin percentage to be lower as a percentage of revenue and its typical 45% to 50% range.
Excluding the externally sourced syndication activity, our leasing segment's margin percentage was 47.2%.
And with respect to the this is response to the cobot 19 pandemic.
All global operations are currently meeting or exceeding the cdcs recommendations.
To protect our workforce Greenbrier has implemented health screenings, including daily temperature readings operating three let's shift.
Enhance social dispensing and expanded deep cleaning and all locations.
We're operating under a dual mandate at maintaining business continuity alongside insurance employee health and welfare.
As an essential business that support global infrastructure Greenberg dedicated to fulfilling its role to facilitate facilitate the continued stability of the transportation supply network.
Greenbrier and essentially take the responsibility of health and to ensure the delivery of idle vial goods, including food medical supplies and fuel to communities very seriously.
As you heard from Dell in addition to ensuring the business continues to operate.
We're focused on increasing liquidity.
This will be accomplished through a variety of actions, including eliminating non essential capital expenditure.
Aggressively, reducing our overheads and general and administrative expenses.
And evaluating other strategic actions.
We expect to come through the current crisis, a stronger more resilient green Briar.
As a management team we remain confident in the long term strategy developed with our board of directors.
Our focus on executing the near term priorities that they'll described.
Now over to you a trend.
Thank you Laurie and good morning, everyone.
As a reminder, quarterly financial information is available in the press release and supplemental slides on our website.
Got it sort of second quarter included revenue of 624 million on deliveries of 4500 units, which includes 800 units in Brazil.
Well good gross margin of 13.8%.
Quarter included a contract modification payment of 9.2 million net of tax, which strengthened our backlog and profitability hallmark of green Briar, the flexibility to find win win solutions to our customers needs.
Net earnings attributable to Green Briar.
13.6 million, our 41 cents per share.
Excluding approximately 1.7 million net of tax our five cents per share of integration related expenses adjusted net earnings attributable to green Briar or 15 by 3 million or 46 cents per share.
And adjusted EBITDA in the quarter was 71.6 million or 11.5% of revenue.
We successfully achieved 4.3 million of pretax cost synergies related to the Eri acquisition in the quarter and 7.1 million year to date.
Because of the current uncertainties and shifting priorities, we are not reaffirming our synergy target of 15 million in fiscal 2020 at this time, although we will continue to work towards as targets.
Total liquidity at February 29 was 620 milligram, which includes 170 million of cash and we have no significant debt maturities until late 2023.
As you heard on the call already we are working to significantly expand liquidity through a variety of actions with a target of 1 billion.
We're also in the process of examining the various governmental programs available to green Briar, and our employees, including programs like the payroll tax deferral provision and employee friendly modifications of existing employees bonds as a result of the carriers out there.
We plan to utilize seems to the fullest extent possible were beneficial.
Reimbursed board of directors remains committed to a balanced deployment of capital to protect our business and simultaneously creates long term shareholder value.
Greenbriers declared a quarterly dividend for 24 consecutive quarters with break with periodic increases.
Today, we're announcing a dividend of 27 cents per share, which represents a yield of 7.5% based on yesterdays closing stock price.
As announced in our earnings release, where suspending our prior guidance for the year.
Greenbriers management team has a long history of managing through volatile times, while the Kogut 19 pandemic is without precedent that has created significant uncertainty on a global basis, we remain convinced that the proactive actions we've taken so far and the planned actions. We have described today will position the company for long term strength.
Now, we'll open the call for questions.
And is now time for the question and answer session of today's call.
I'd like to ask the question. Please press star one and please make sure that your phone is on muted. Thank you.
First question.
Comes from Justin Long your line is open.
Thanks, Good morning, and I appreciate you taking the questions.
Maybe to start just bigger picture or on the industry and what you're anticipating from a railcar production standpoint.
Our has recently lowered their forecast for 2020 in 2021 to that out low to mid 20000 unit range I'm curious as you think about kind of cutting back your capacity in some of the things you discussed in the prepared remarks is that that type of build rate from an industry perspective.
That you're planning on or do you anticipate any upside or downside to that and then also if you could just talk about cancellation redskin, the backlog or deferral risk in the backlog curious if you've seen any of that play out the last month or so.
Sure. So I'll start out and I'm sure that Bill will supplement that morning doesn't it's nice to hear your voice.
From an industry outlook perspective.
Our certainly has gone through several iterations of dropping expected deliveries in 2020 and 2021.
Right now with everything that's going on I think it is really hard to say specifically.
What delivering might look like the next couple of years.
I think it certainly is is reasonable that's the number of that they're projecting might be the numbers.
As you look across the years.
Absolutely there is upside we seeing that historically in our markets where we.
We can be predicting that the sky is falling and then the next thing you know something wonderful happens that's one of the things that we believe our management team and our manufacturing group in particular is very good at as being responsive to when opportunities present themselves. Our commercial team is very focused on working closely with our customers.
Remaining flexible so that we can take.
Advantage of those opportunities. So that's why you see a slowing production as opposed to stopping it all together if we can continue it at a fairly slow rate, we think that gives us optionality.
And then turning to your second question about risks in the backlog.
We as we poured through the backlog and looking at the different car types that we're building and it is a broad variety of car tires.
At this point in time, we don't have anything that were overly concerned about but then again how can you work in this point in time and not be overly concerned about something I think we have a good.
History, and working closely with our customers. If there is an issue that they raise or a concern that we may need to modify car types or look at delivery timing, but again at this point in time, we're feeling like our backlog is a very.
Ill and physician and a good indicator of future activity.
Do I think I would add and thank you for your question is that.
Obviously, we've had a number of things occur already mentioned a few but the oil market volatility is of concern not only for the chemicals on oil by rail business, but.
Our doesn't have a strong sand concentration many of our investors institutional investors for whom we manage cars do so we're focused on that but we're not seeing cancellations and essentially you mean it there obviously the qualitative aspects of the portfolio.
Yes. It is another thing, but I think the kind of nimble thus our commercial team showed in.
This deal that was done to work with the customer to not only improve our backlog, but improve our profitability and drug immediate cash flow.
It is something that we'll we'll try to do more of in the future and we have great customers. We think things are going to.
On the best backlog is a stronger saying we've got plus the fact, we can operate or factors are essential serves rules.
Okay. Thanks, that's really helpful. And then second question I had was on as DNA.
I get the suspension of guidance totally understandable on in this type of environment, but when you look at the things you can control and you think about some of the head count reductions that you've seen is there any clarity you can give us on what you're expecting for SDN, a this year or what's getting baked into that.
Comment you made bill that you expect to remain profitable.
Laura you should address that I think we want to be cautious, but through a numbers out there as I said, we expect to be profitable manufacturing operations are particularly resilient. We do expect to have a DNA instructions in all categories DNA reductions I mean, it's not just going to be factory people, we already have ad.
Okay.
But I don't think I don't know what you like to save Laurie.
Thank you Bill out with a good lead and we are looking across the more we don't take lightly the number of production workers that we've had to let go over the last six months I'm. So I would say, while we're not willing to put a specific target out there. Since we are suspending guidance I would say that it's going to be.
You know double digit percentage reduction is going to be that goal in our SGN, a coupled with looking at overhead costs, which are some of the things that.
Often time can get over less than elsewhere re sizing our manufacturing footprint, particularly here in North America. There our overhead types of activities that can also be scale down. So thats where were pleased that our manufacturing margins have remained in the double digits on them. We believe that's because we do know how to.
Scale, our workforce built a line workers as well as the overhead to adjust to reduce production rate and you will be seeing some reductions in SGN, a head count as well some of the other things that Bill mentioned regarding his compensation the board compensation clearly travel restrictions the way that they've played out that.
Going to have a big impact on SGN and going forward, we have a hiring freeze and we'll be looking at other areas, where we can.
Called back from cost.
Thanks, that's really helpful. Good luck out there I know its but stay healthy and Thompson.
Thank you Justin.
Thank you next question comes from Allison Poliniak. Your line is open.
Hi, guys good morning.
Well I just want to follow on that Trina side. Obviously, you guys were addressing operations to begin with you know, but trying to fix and support some of them.
As you step back I know, it's probably hard today can you just dealing with the general sort of impact you guys on the daily basis, but can you maybe comment in terms of what you think you can do structurally to support the foundation it make greenberg.
So much stronger coming out at this I mean are you guys even thinking about at this point.
Oh, absolutely we're thinking about when we come out of this covert 19 focus right now trying to make particularly our core operations and manufacturing in our commercial group a lot stronger I think one of the very interesting things about that pandemic in forcing us to.
Rethink how we work.
They view I think you've been hearing our offices and maintenance we go Allison its really amazing how much of our services. We can continue while probably 90% of our workforce telecommute.
So I think that we'll be at foundation for how we think about what is gonna be our core to support our operations, whether it folks that we have down in Dallas the folks that we have here in.
The Portland Metropolitan area, or even our workforce in Saint Charles to rethink how do we use technology to build on having a solid base and support our operations and really thinking how do we make certain that we've got the best and brightest supporting that and maybe there's some cost that that.
We were going to realize that we don't have to continue to to incur.
Great and then just anything you touched on a Europe, obviously be closing for two weeks, there and any color on Brazil light I guess it wasn't clear to me we've heard some industry shutting down in Brazil. Today, you know is there sort of a slip on or a stoppage. There that you guys are preparing for near term or is that just business as usual and in this environment.
Yes.
Right and yeah business as usual to the extent that you can today.
It is one of the more interesting things because we do operate around the globe every.
Country seems to have a different approach and other approaches can change on a daily basis as I understand it today, our operations in Brazil do continue to operate and the government officials do encourage our employees to go to work.
That would probably be one of the places that we started implementing additional.
Health screening managers early on.
Touch wood everything has been going just fine down there.
That will just continue to monitor monitoring that we believe that we have good governmental support.
Transportation via that route will be an essential service and our workers will continue to work as you know we right sized that operation last year. So they are able to operate like a fairly send bench and their production rates are a bit more modest than you would see here in North America. So.
Well the type of watching by just like emphasize that to us relationship with Brazil.
The current administration has shown a gradual interest in Brazil most of the countries.
In the world.
Our following us in western we on the essential industries. It's.
It is in central industry in Brazil, so much of their exports and there are economy realize and transportation.
We're the largest builder of equipment, we built in Brazil, So I think Brazil, and Europe, we expect.
Those rules should continue in place.
And we're working with diplomatically with our own government to.
Encouraged that to occur.
Great. Thanks, that's helpful. Stacy if everyone.
Okay.
Thank you next question comes from Basket Bascome majors your line is open.
Yeah. Thanks for thanks for taking my question here I wanted to talk a little bit that's how the syndication channel.
Yes, thats been a really important piece of your growth over the last several years is pretty embedded in the model now can you give us an indication of.
How some of these financial buyer customers are you of yours are responding here.
And any indication of how much of the backlog today was what's sort of slated for that channel. Thanks.
Thank you Bascome ill, let lori or Adrian.
Possibly addressed the last question in general.
Hey, we still see a strong distribution network. There I think it's an interesting question because.
The railcar leasing business as MCU errors.
Business, we have evolved to the end the leasing business, we can create portfolios as well and we can also settlement effect I don't believe personally and.
Borrowing short and lending long a 40 year assets. These assets as Tiger Ehrler long ago in North American car can come back to my view.
And they consider share our system is set up so that we attach leases that are quality leases and those leases can be deployed to create cash flow and as you point out to create cash margins liquidity and extra value.
We have as late as last week, we just closed $48 million yield.
They are one of our existing portfolio.
Please.
Leasing portfolio companies.
As a loyal customer all of our customers, who have multiyear agreements, including leasing companies.
We work closely are fulfilling their obligations. So I think that we are in good shape. There. If we were relying on the ABS market or something.
Nature.
And where we are where we have partners who are in the fund business. They have a firm commitments and no ability to have their funds pull if we were solely in that market I think it would be much weaker position, but we have a mix.
Bag, we're still accepting orders.
And.
We think we're doing well Lori you want to talk a little bit more about them.
Sure and just doing a a quick scana our backlog detail I would say are at 29 backlog probably less than 10% of it is going into the syndication market at this point.
Yeah, that's great news so it sounds like some of the the building that inventory was was sold subsequent to quarter in the 50 million dollar deal you mentioned bill.
Right.
Yes.
Right and Bascome as you know when you look at that line item on our balance sheet railcar Telfer syndication. If you were to do some sort of a trend line over for the last.
I don't know.
Eight to 12 quarters. It does go move up and down I'm not necessarily an indication of anything that's going on in that particular market, but often times. It's more result of when the cars are being produced and asked where packaging a variety of different car types together to put together those syndication packages.
And again the vast majority of those the majority of those are attached to what a normal market would be money. Good leases, we do syndicated sell them and receive a margin for the origination of the today those are good customers and they have good five to seven year even.
And your eight your.
Cash flows attached so we're simply in the.
Leasing business, but in a modern way I'd also point out that our balance sheet.
With that embedded in it is still has a one to one debt equity ratio, we have a billion app and.
Net book value equity.
Setting aside our market cap, we also have the the a very.
Low amount of debt I guess at about 1 billion.
Or so so I think if you look at the leasing portfolio.
In the future going to have more clarity or industry for our shareholders. We're going to still continue to try to make this more transparent and clear.
The.
Attractiveness of our system.
Downturn like this as far as a way above.
Those who have these leases in the maturing rather rapidly.
Rapidly in rapid amounts.
Thank you for a further detailed answer if I could just back on a related question on the funding saga that your Bill you mentioned.
In short order, hoping to have access to a billion dollars' worth of liquidity I think you said today, you're at about 600 million can you just give us maybe a sneak peak.
What do you think that other 400 million could look like thank you.
I'm going to let Lori.
Walk through that unless you want me to take that Larry.
Generally make some comments capex.
I would say out thanks, Don I'm sure that yellow supplements or Adrian can as well or Johnson, our treasurer, we've all been up to our eyeballs and thinking about all the various ways that we can.
Look towards liquidity in this time on the uncertainty. So capex is one of them more significant items that.
We had already been thinking about putting on the brakes, we're putting on the breaks a lot harder on if you look at what we were thinking we would do as we entered this fiscal year versus where we're saying we're going to be now and even at that I would suspect that our capex can come down for their from what we're showing in the 10-Q when it gets filed later today.
Or if you're looking at the supplemental slides and I don't expect that when we had August 31, it's just kind of we're going to flip a switch and go back to business as usual I think that we're gonna be.
Focused on really making certain that we're deploying capital and the best way possible from a capital first from a property plant and equipment perspective for a time to calm. Additionally that like we talked about there would be overhead and DNA reduction.
I would say that could be.
Having nearly as much as what we're expecting in the Capex reductions some of that will take a little bit of time to.
Getting momentum we are seeing our spending levels being lower in the first half of actually this fiscal year than what we were initially anticipating and again a lot of that comes as we were making.
Adjustment to reduce production rates and lower demand.
The other things that we'll be looking at or what I consider strategic initiatives and some of that is.
Looking at our existing credit facilities and figuring out.
There are a couple of avenues, what are we can access additional capital under our existing credit facility. So these are not amendments these are not.
Going out for for new data suggest.
Utilizing what we currently have at our fingertips.
Well as evaluating our operating base.
And that particular bucket would be fairly sizable 100 150 million for example, there's a number of these things we don't have.
We're not talking about tapping the credit markets in any unusual way.
The markets are of course tightened up.
And there are some markets open we were not looking at a financing other than.
Maybe some top off financing if we find.
Good deals. So if you look at all of these things where we are.
Theoretically should be able to go over 1 billion.
But the strategic aspects of non core.
Businesses cutting costs conserving cash.
It all starts mounting up pretty quickly. So we think that target is realistic and achievable in the next five months of this year.
Thank you all for that detail.
Okay.
Thank you next question comes from Ken Heck, Sir Your line is open.
Great.
Good morning.
And thanks for taking the call just can you talk about maybe Lori about based levels of production given your contracts usually you see a bounce in the second half is that production line capabilities or demand for car types that that scale in the second half I guess, you've gotta go back to maybe 2013 before we saw real weakness in that and that fiscal third.
Quarter, So I guess, what I'm asking is if the backlog is so strong and ops are ongoing what do you need to slash.
The backlog have greater deferrals on your target can you cancel your own self orders, but that's kind of doesn't make sense. If you noted all slots were filled for production. So maybe just talk about how we should think about that railcar builds going into the rest of the year.
Sure and we have been as things have reducing production rates I wouldn't say right now in North America were probably.
Maybe 75% of our theoretical capacity is where we're operating we would see that coming down maybe another five or 10% as we exit the fiscal here and not knowing what we know today.
You know obviously, there's a number of things can change we don't believe that we've got any significant issues with any of our scheduled production or any of our customers looking to defer that further amount of actually have some customers who are pretty excited to.
Accelerate production, but we're trying to balance out with our workforce, we don't want to.
Let people go and then pull them back and then I'll, let them go again, one of the way we're able to maintain good manufacturing margin is having steady production rates and extending workforce. So.
As we look at the rest of the year, we're looking at things like reducing where we were running on three shifts at some of our facilities and pulling that back to running just to ship.
Maybe working for days instead of five or six days a week. Those are the kinds of measures that are manufacturing team is looking at to balance our headcount with the production rates and again as you think about it when you have strong backlog, but overall demand have subsided and we want to make certain that we.
Our appropriately pacing our production to meet our customers' needs, but also to take us through the next year and a half or so yes. Unfortunately, if you. If you look at that production you've got to increase inventories were gonna constrict inventories, we'd like to page things as Lori said.
If you take a step back a couple of steps back, though and you see the government policy is it sorts out at different levels, it's quite clear what the intent is deep people home break the back of the virus level occur all those things, but I'm not sure everybody understands.
Why they're doing it what you gave is.
There are various scenarios of course as we get the peak in this but they are basically trying to push this down to maintain our hospital and a gig capabilities to deal with patients there will be therefore, an effort to return to normalcy are already you're seeing in Europe.
Benefited that vision from two or three months ago, what happens if theres success, even Italy is having some some now green shoes as reported this morning.
I think that if you look at whats going on here you can have more comfort that there might be a return to normalcy.
Closer something closer to normalcy by the middle of this summer.
It's really hard to predict though whether demand will come back for some of the things we normally see the.
The last few quarters, our fiscal year, we're not expecting that we're managing for cash and our resolve is very for we're looking to protect the downside and hold very.
Okay very helpful for the upside and will be.
Willing and capable of responding to it when it comes.
And it will come.
Thanks, Bill and more I guess, what I'm just confused by the answer maybe just to clarify it a little bit more is is if every slot is filled and nothing has changed on that what what changes on the that the second half right. You've said every every production slot is filled.
Slowing down because customers don't want it.
Right, let me interrupt use from wanting just say, what we're saying I think what I'm, saying is.
Every slide is filled but we're reducing does flow through so we can reduce our.
Overhead and we can optimize cash. So this is something we are working with our customers to do.
I don't think the last two quarters of this year will be.
So certainly following the pattern over the last over the last few years.
Okay, Thats simple answer Jay I think I know that makes a lot that makes sense I got now appreciate that thanks.
We are doing isnt itself, we're self opposing so a lot of this ourselves.
Yes, no I get it slowing production.
And that's where you just to clarify on what you were talking with Bascome about the leased railcars for syndication or does that mean, you're you're keeping more of what you built or I just wonder stand the temporary view of what Bill said was the 50 million dollar sales is that just you had some extra at the end of the quarter and then you've sold that Mark I don't understand or are you building more because you said the backlog wasn't that great in terms of what you're keeping.
But looks like with those lease car leased railcars for syndication on that's on the balance sheet jumped up so is that.
Bernie keeping more of what you built.
Right. So again, what I was trying to say to Bascome and thanks for the question is the timing of syndication is not necessarily linear and so as you look at the February balance sheet had a higher than normal value and number of units in railcars held for syndication what bill was referencing is something.
That happened in March, meaning that the syndication and our partners.
Our still open for business and some of that moved off of our balance sheet in the month of March we expect that to continue to the question about how much is in our backlog associated with leases that we expect to syndicate and being a fairly small number I think what you're seeing is what has been happening over the last six months where.
Lease originations have slowed it's not that we're expecting to keep those on our balance sheet. It's just that side of the market slowed down a little bit.
And with the broader demand for new railcars.
And our scenarios I anticipate that we may have to key.
A large amount on our balance sheet and that's why we think we need the extra capital our downside scenario, our downside scenarios and we did post quarter.
Do a lot more in clearing syndications and assets a lot much more than 38 million I was a single deal we did.
You are through two or three times that I imagine two or three other big deals and so the March to open to us.
In the fixed terms are changing profitability might change, but yes, we think we've got to good handle on that and that is however, most.
That is the other big risk we are managing besides keeping our factories running under the protection that we have and other car builders may have.
As essential industry.
Appreciate all the answer is inside.
And just to underline what what Bill said earlier again.
Even if these assets down the balance sheet, they're generating lease income.
Yes, so like I appreciate all the answers in time.
If I could just got one housekeeping just in what the marine backlog for the quarter.
It was probably around.
60 to 70 million.
I think was sick and I understand there's a gap so about 60 million.
Hi, wonderful appreciate the time and stay healthy and while everybody. Thank you extend and you're trying to next year.
Thank you next question comes from Steve Barker Your line is open.
Hi, good morning, everybody.
R&D.
Understandable why you would want to reduce capacity, but how did you decide which plans to close and I'm, specifically thinking about seeing more of the reductions coming from the lower costs Mexican facilities are their supply chain issues down there or or anywhere in North America.
Or are you refocusing on the U.S. to avoid potential border issues.
Hi, partly the second one but mainly it was the product mix the big hit was the general type.
Cars.
Yes, it in a plant our plan to and.
Segment.
In.
Well go the state of novel.
Our joint venture plant.
As a very good specialization.
Tank cars.
We produce tank cars that are clients free which is a scalable.
Steve Scala infill, Scotland cities plus column. So I think it was more for selected product mix coupled with.
At the time, some some concerns about moving a bit more to the U.S. footprint and testing the efficiency of the A.R.I. facilities and they are reasonably efficient, but it is true that the Mexican base in normal circumstances is.
Is very very efficient base, and we expect with normal sheet returns to.
Go back to business as usual in all three factories in Mexico.
And I would say.
At this point.
We're not having any significant supply chain issues on for the North American markets, we had actually.
Plan to had as many companies do before the lunar new year and had stopped on inventory that we would have been getting elsewhere.
The essential business that we're operating under actually impact our suppliers as well so we've been able to maintain.
The supply chains. The one exception is a little bit in Europe, where that part of what led to a two week.
Closure for the year and extended Easter holiday it to allow the supply chain to get caught up they do transport more via the roads versus on the rails and I'm sure everyone saw the picture as partners were shot and they INTECH a little bit of time for them to figure out how to expedite the transportation of some.
Oh, no supply cross border.
It's really important to understand what happened in Europe and compare it here you can imagine what would occur Interstate commerce in each state put up roadblocks and barriers and delayed Interstate commerce from a one state to another or in the case of Europe from one city to the other.
In in Italy. For example, the individual columns are have blockades you can't go and you can't go out and we don't have come to that in America. Yet we're prepared if it were to come to deal in that environment.
And we've issued credentials to all of our essential employees so that they can.
They can continue business operating.
As a central U.S. industry, and we believe our supply change through the railroads system. This is a great advantage rail as just spectacular advantage of rail as they don't have to stop in the borders and they're protected. This is a very big thing to understand is going to give us a real yet in the rail sector in Europe in these in essentially.
Heavy uplift so I think that's kind of this silver lack lining this cloud.
We don't hope, we hope that this or that can occur in America Buddy.
It happens we're ready for it and the rail is going to be solution.
That's great color. Thank you.
And just to the the point on the mix for the south of the border facilities, how should we think about modeling minority interest in the back half will you see lower production from Joseph.
I would I would suspect if you want it modeling, we're not giving guidance, but I think one of the things you might notice in our press release today is minority interest was that lower than normal that is tied into the timing of railcar syndications, so less of the jumped the joint.
Sure up in revenue and gross margin, therefore last going out as our partner share I would expect that to turn it'd be more normalized like in the first quarter, probably next couple of quarters as the syndications work their way out. However, can I just make one comment we are working with our partner there given these special circumstances.
To correct that imbalance and if we succeed in reaching an accord.
We'll have an uplift in that category. So all lori's comments, we may have a more favorable picture and thats a bucket of cash that we expect that we might be able to also obtained in that relationship that we have a very supported partner there.
I'm really pleased with their cooperation on so source of cash and I think.
We'll see.
I'm pretty positive we'll have some good news to announce on that we probably will be very transparent when we when we finish it Jim.
Okay.
And just for clarity around liquidity and cash flow, you've given a lot of detail around being able to generate cash savings from the actions, you're taking and but as you think about production expectations managing working capital timing of syndication activity do you expect positive operating cash flow this year.
Yes, yes, we do.
And with lower Capex will you generate free cash flow this year.
I would say that we feel pretty confident that will be.
I think at this point based on what we see that the is.
Strong possibility again barring builds phrase we.
Don't know what we don't know at this point and but from what we see a delay the land currently that the the plan that we're working towards.
The great thing and you can operate your factories is it just kind of business throws off cash flow is you liquidate inventories.
All right normally in normal cycle, you wouldn't have this issue with cash because you've dropped a lot of cash. So it should be positive. However, if you can't operate your factories, which is a situation. Many companies are and then you get run it up and everything is on its turned upside down we expect to keep our factories operating safe.
Finally, and Thats, a core thats a core restore threat we're managing.
Understood. Thanks.
Good.
Thank you last question comes from Matt Telecom. Your line is open Sir Thank you.
Good morning. Thank you once we've made it out of the spend that make in it so while we're in the rear view mirror.
Are we looking at a manufacturing footprint that is just.
Adjusted in Rightsized on a permanent basis, meaning total production output less than three pandemic levels.
We would call it optimized yes were.
Optimizing our total footprint.
For the expected market longer term I, we have a great franchise, we have great markets.
We simply need to prune the tree a bit and we look very very hard in the strategic bucket that Larry is talking about about non core non as non essential businesses to Greenberg.
Non essential in the nature of the business, but those businesses that are central to our new footprint, just tying to prune the tree create cash run the company for cash improve shareholder value over the immediate future I might remind you that after that and the great depression.
For the last endemic of the scale after World War, one great work.
Hi, everybody came back.
They had great casualty rate from that and then came Roaring twentys.
So with people.
Housebound.
Enabled by once they get out.
Going to be shopping I think at least some other well.
Many of them, but I know well.
Yep.
Oh, no and also just wanted to make sure I understood something on the cadence in deliveries I know you guys.
Removed for see some cars from.
Backlog.
It was supposed to be delivered future periods and historically your second half deliveries are are all higher than your first half deliveries at least in the last couple of fiscal years now given the fact that it seems like you guys are not currently engaged any further conversation.
About.
Further cancellations or deferments will these second half's deliveries be higher than the first half the luxury is yes, no more cancellations occur.
Hi, I.
I think that's a good estimation as is the second half would be stronger than the first half honor delivers perspective. Some of its just again the timing of syndications and stuff that's on the balance sheet, which will flow through and be counted as a delivery in the second half that will offset some of the production.
Options that were doing but all in I would say at least what we know today second half deliveries, possibly a little bit stronger than first half some of that being driven by international operations not necessarily North American operations. So and again. This is part of why we are suspended.
Guidance as everyday brings.
New activities and by new activities, I don't mean conversations with customers about potential cancellations, but edicts by government municipalities and not creating ester and stress.
On workforce and whether or not people can go to work et cetera, et cetera, we feel very comfortable and strongly that we are in a central business and we will continue to operate but that doesn't mean that were not a little bit less efficient as you continue to deal with some the unavoidable stress associated with it.
Yeah.
Got it so you mentioned Lori the international deliveries. So you know when when all this is seven done when you are we likely to look back and save all the fact that youre the only north American manufacturer will.
Significant international operations.
How do you kind of soft in our mitigate the blow.
The apex, given the you know rolling.
Inception, apexs around the world. So as one places on and lock down on our place may not be so is that going do you think place your advantage when Midland August when this is all seven Don.
I would say that our strategy of expanding our footprint internationally, absolutely is going to help us be a stronger and more resilient and more liquid entity going forward. Unfortunately, it's not like you can shift production out of let's say, the United States down to Brazil to bring back to unite.
At stake so, but we do think having manufacturing and aim rail freight presence in some of these markets that we believe we'll be very strong markets for railcar production and freight loadings, So, Brazil, and Europe does make us a stronger company going forward.
I just give an example that laurie.
In Europe.
The.
Differences post crisis that favor rail are going to be dramatic because of the issues with border crossings ad.
And Ah that's quite clear, but theyre already is a very healthy green movement.
And a very large.
Investment in rail in the billions to take traffic.
Away from showed.
Highways and other business. So the this is going to be very positive for Europe.
Brazil Similarly, as those kinds of course is going on.
So I think that the diversification as Europe comes out of this earlier than we do.
I will help Greenbrier are very great deal.
Got it and just one final question Bill it related to what you were just style.
Plano.
Recession, you guys adults with losses.
Great recession.
In 2013 can you maybe summarize for us how greenbriers different today than it was.
In 2013 on them during the great recession.
[noise] sure I'll take a shot as Lori can add.
But basically our product mix is dramatically different our industry leadership is different we have a.
Spectacularly different franchise.
Number one.
Or number two and three major markets to internationally North America, we've diversified our footprint to have more optionality in the United States. We have some efficient plants were getting goes.
Not to into shape.
Making progress every quarter in Arkansas, So I think that company is dramatically different than it was our management team is together it's experience.
Lowering the financial team are doing a.
Great job Lori is also getting great deal of experience and operations turned around a lot of.
Some of the last year's issues and I think the of the company is really on a very solid strategic footings. This point, we have to go through this crisis like everybody else.
Great. Thank you them up.
Thanks, Matt Mcgrath.
Thank you very much everyone for your time today and your attention. If you have any other questions you cannot reach out to myself, Justin or Adrian Downs or Laurie and we also have the investor relations email address on our website as well thank you and.
Stay safe and healthy out there washer hand.
Mhm.
Thank you that does conclude today's conference. Thank you for joining and have a great day.