Q1 2022 Greenbrier Companies Inc Earnings Call

[music].

Yeah.

Hello, and welcome to the Greenbrier companies first quarter of 2022 earnings Conference call. Following today's presentation, we will conduct a question and answer session. Each analyst should limit themselves to only two questions. Until that time, all lines will be in a listen-only mode.

Following today's presentation, we will conduct a question and answer session. Each analyst should limit themselves to only two questions until that time, all lines will be in a listen only mode.

At the request of the Greenbrier companies, this conference call is being recorded for replay purposes. At this time I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin.

At this time I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts you may begin.

Thank you, Eileen. Good morning, everyone and welcome to our first quarter of fiscal 2022 conference call. Today, I'm joined by Bill Berman, Greenbrier's Chairman and CEO, Lorie Tekorius, President and COO, Brian Comstock Executive Vice President and Chief commercial and leasing officer, and Adrian Downes, Senior Vice President and CFO. Following our update on Greenbrier's performance and our outlook for fiscal 2022, we will open up the call for questions.

Morning, everyone and welcome to our first quarter of fiscal 2022 conference call.

Today, I'm joined by Bill Berman, Greenbrier, as chairman and CEO Lorie to Korea's <unk>, President and C O O.

Comstock Executive Vice President and Chief commercial only leasing officer, and Adrian Downes, Senior Vice President and CFO.

Following our update on Greenbrier is performance and our outlook for fiscal 2022, we will open up the call for questions.

In addition to the press release issued this morning, 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 today's conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the factors that could cause greenbrier as actual results and 2022 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. With that, I will turn the call over to Bill.

Matters discussed on today's conference call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Throughout our discussion today, we will describe some of the factors that could cause greenbrier as actual results and 2022 and beyond to differ materially from those expressed in any forward looking statements made by or on behalf of Greenbrier.

That I will turn the call over to Bill.

Thank you, Justin and good morning, everyone. Fiscal '22 is off to a good start driven by strong commercial performance. Disciplined management of our production capacity and continued growth of our railcar lease fleet. Momentum in our business is being sustained. The first quarter of fiscal 2022 continued our strong order trajectory. As a result, Greenbrier posted its fourth consecutive quarter with book to bill ratio over one times. New railcar orders and actually were at 1.5 for this quarter and new railcar orders of 6,300 units were worth 685 million across a broad range of railcars.

Fiscal 'twenty two there is off to a good start driven by strong commercial performance.

Management of our production capacity and continued growth of our railcar lease fleet.

Momentum in our business is being sustained.

The first quarter of fiscal 2022 continued our strong order trajectory.

As a result, Greenbrier posted its fourth consecutive quarter with book to Bill.

Ratio over one times new.

New railcar orders and actually were at 1.5 for this quarter and your new railcar orders of 6.6 thousand 300 units were worth 685 million across a broad range of railcars.

We ended the quarter with a backlog of approximately $3 billion the highest level in about three years. Our order intake for the first quarter alone represents 35% of new orders received during all of fiscal 2021. Our recent partnership with US Steel Corporation, Norfolk Southern railway to design and launch new high strength steel gondolas. Having multiple environmental benefits demonstrates this momentum.

Three years.

Our order intake for the first quarter alone represents 35% of new orders received during all of fiscal 2021.

Our recent partnership with U S Steel Corporation, Norfolk Southern railway to design.

And launch new high strength steel and gondolas.

Having multiple environmental benefits demonstrates this momentum.

In addition, I am honored our chief commercial and leasing officer, Brian Comstock, will share more about this in some other exciting customer-focused initiatives. And I should mention in terms of backlog that we have booked another $200 million re bodywork which is sizeable but not counted in our backlog. We are now ramping up '21 active production lines in North America. And approximately eight internationally.

Moment, our chief commercial Unleashing officer, Brian Comstock, well share more about this in some other exciting exciting customer focused initiatives.

And I should mention in terms of backlog do we have.

Another $200 million re body work.

There is a sizeable but not counted in our backlog.

We are now ramping up 21 active production lines in North America.

And approximately eight internationally.

Importantly, we are harnessing our flexible manufacturing footprint to extract more production for each line. We expect this to increase in deliveries to increase over the course of the year. To meet production requirements, we recently expanded our global workforce by about 10%. Intensive management and safety hiring and supply chain issues continue. Continued success in these areas is key to maintaining our strong start to the year. Specifically, on the supply chain, our global sourcing team continues to do an exceptional job mitigating disruptions to support increased production. Our wheels repair parts business is now known as maintenance services.

Extract more production.

Each line.

Yeah.

We expect this to increase in deliveries to increase over the course of the year.

Meet production requirements, we recently expanded our global workforce by about 10%.

Intensive management and safety hiring and supply chain issues okay.

Continued success in these areas is key to maintaining our strong start to the year.

Pacifically on the supply chain, our global sourcing team.

Can you just do an exceptional job mitigating disruptions to support increased production.

Our wheels repair <unk> parts business is now known as maintenance services.

The new name doesn't change the fact that this business unit endured a challenging quarter. Labor markets and supply chain disruptions have both impacted its profitability. Naturally, this lowered our consolidated margins, which were below our expectations, to begin with. [inaudible] will speak to the changes we're making to improve the performance of our maintenance services business unit. Greenbrier leasing continues to perform very well. Our investment activity is considerably outpacing initial targets. Asset utilization, a key performance metric leasing business, is high at 97.1%. With a portfolio that is well diversified across car types strong lessee credits as well as maturity ladders.

Labor markets are supply chain disruptions have both impacted its profitability.

In Florida, our consolidated margins, which were below our expectations to begin with.

Or he will speak to the changes, we're making to improve the performance of our maintenance services business unit.

Greenbrier leasing continues to perform very well our investment activities considerately considerably outpacing initial targets.

Asset utilization a key performance metric leasing business is high at 97, 1%.

With a portfolio that is well diversified across car types strong lessee credits as well as maturity ladders.

Additionally, we have exceeded the initial investment target for GB [leasing] by 200 million to a portfolio of $400 million in only nine months of operations. This reflects the strong momentum in the business and our core manufacturing markets in North America. I'm sure there may be questions on this or there other comments by management. But please make sure you read the footnote in our press release, having to do with this leasing supplemental information that's very informative. The Omicron variant of COVID-19 was suddenly following the end of the quarter. As a result of well-established safety protocols, our operations have not been significantly impacted our presence quite right the rise in cases globally and in North America.

The strong momentum in the business and our core manufacturing markets.

North America I'm sure there may be questions on this or.

Or are there other comments by management.

Sure you read.

The footnote in our press release, having to do with these leasing supplemental information that's very informative.

The old Crown variant of COVID-19 were suddenly following the end of the quarter as a result of well established safety protocols. Our operations have not been significantly impacted our presence quite right. The ryzen cases globally and in North America.

But we are closely tracking the rapid spread of this variant and we're taking all appropriate precautions. We continue with safeguard protocols. And we will enhance these dictated by best practices as well as adhering to local health authority requirements in the locations where we operate. In the US and Europe, it appears this wave might peak in the coming months. There are indications that the current variant carries milder symptoms than previous versions of the virus, particularly for this double or those who are double vaccinated and that's with boosters.

We continue with safeguard protocols.

And we will enhance these dictated by best practices as well as adhering to local health authority requirements in the locations where we operate.

In the U S and Europe. It appears this wave might peak in the coming months.

There are indications that the current maryanne carries milder symptoms.

Previous versions of the virus, particularly for this double or those who are double vaccination and that's with boosters.

Nonetheless, we must remain vigilant after two years of full contours of the pandemic remain dynamic and unpredictable. Our resolve is effectively to manage Greenbrier through the evolving COVID-19 challenges. And that resolve remains steadfast. Our outlook remains unchanged. Except that we believe is growing to be much more positive. We maintain a positive outlook for the fiscal year for a variety of reasons. These are supported by industry metrics. As well as operating momentum driven by a strong order book demand backlog and manufacturer ramping.

Our resolve is effectively to manage greenbrier.

Following COVID-19 challenges.

And that resolve remains steadfast.

Look remains unchanged.

Except that we believe is growing to be much more positive.

We maintain a positive outlook for the fiscal year for a variety of reasons.

These are supported by industry metrics.

Well as operating momentum driven by a strong order book demand backlog and manufacturer ramping.

For example, a portion of idle railcars in North America decreased 32% in July to just below 20% by December. History forecasts are '22 and 2023 are very encouraging as Brian Comstock will share with you. All of this suggests that industry fleet utilization is nearing 80% and again, Brian Comstock will add more on these points in a minute. And we can talk and question and answer. Lorie Tekorius, who will be Greenbrier's CEO in March, takes the helm and very important and exciting time in a long history of Greenbrier.

History forecasts are 'twenty, 'twenty, two and 2020 three are very encouraging as Brian Comstock will share with you.

All of this suggests that industry fleet utilization is nearing 80% and again, Brian Comstock will add more on these points in a minute.

Hi, Andrew.

Talking question and answering.

Boy Lorie, if you're curious who will be Greenberg CEO in March takes the helm and very important and exciting time.

And a long history of Greenbrier.

Before I turn the call over to Lorie, I'd like to provide some closing remarks on where Greenbrier stands today. I became the CEO when we were founded, my partner and I co-founded the small asset leasing business in 1981. We entered manufacturing with the acquisition of Gunderson in 1985 and have continued to build on those two foundations. Today's manufacturing is our largest unit comprising about 80% of our total annual revenues. But manufacturing, both driven and complemented by a robust commercial and leasing business as well as asset management services. Today, our asset management maintenance services touch about one-third of our North American fleet.

Before I turn the call over to Lorie, I'd like to provide some closing remarks on where Greenbrier stands today. I became the CEO when we were founded, my partner and I co-founded the small asset leasing business in 1981. We entered manufacturing with the acquisition of Gunderson in 1985 and have continued to build on those two foundations. Today's manufacturing is our largest unit comprising about 80% of our total annual revenues. But manufacturing, both driven and complemented by a robust commercial and leasing business as well as asset management services. Today, our asset management maintenance services touch about one-third of our North American fleet.

I became the CEO when we were founded a my partner and I co founded the small asset leasing business 1981.

We entered manufacturing with the acquisition of Gunderson and 1985 and have continued to build on those two foundations.

Today's manufacturing as our largest unit.

Pricing about 80% of our total annual revenues.

But manufacturing, both driven and complemented by a robust commercial and leasing business as well as asset management services.

They are.

Our asset management maintenance services touch about one third of our North American fleet.

It's been a remarkable journey for me and for the company. Greenbrier has steadily grown its industry footprint and today is a leading railcar manufacturer in North America, allowing us to operate at scale. We also are now operated on four continents, serving mobile railcar markets worldwide, but similar market shares in each of these. All of this has been accomplished through a gap via hard work of remarkable people. Without guidance through their capacity for innovation disciplined management and unyielding focus on the needs of our customers. As well as our workforce and other stakeholders.

We also are now operated on four continents, serving mobile railcar markets worldwide, but similar market shares each of these.

All of this has been accomplished through a gap.

Hardware remarkable people.

Without guidance through their capacity for innovation disciplined management and unyielding focus on the needs of our customers.

As well as our workforce and other stakeholders.

We purposely built our company to grow at scale and prosper across business cycles. Under Lorie's administration, she plans to do more of that along with some new initiatives of her own. As global railcar markets emerge from a cyclical trough. One that was severely exacerbated by the pandemic. I am proud of what the Greenbrier team has accomplished and the market-leading positions we've achieved. I'm also proud of the significant value we've created for our shareholders. I expect that this will continue for many decades to come as Greenbrier continues to drive innovation in its industry. Broaden its footprint globally and by product line and expand its leasing and services business.

Under Lorie administration, she plans to do more of that along with some new initiatives are wrong.

As global railcar markets emerge from a cyclical trough.

It was severely exacerbated by the pandemic.

I am proud of what the Greenbrier team has accomplished and the market leading positions we've achieved.

I'm also proud of the significant value we've created for our shareholders.

Expect that this will continue for many decades to come as Greenbrier continues to drive innovation and industry.

Ryan its footprint globally and by product line and expand just leasing and services business.

I would take just a brief moment as others may do later to welcome our two newer directors subject to the vote of our shareholders today, James [inaudible] and [inaudible] Antonio Garza. Both are highly qualified and we welcome this step of board refreshment. I also would like to congratulate two directors who served throughout almost the last 18 years 20 years on our board. Duane Mcdougall and Don Washburn. Next week, we'll put out a brief congratulatory note marking this milestone, but I want to assure them that we remember them. They're always welcome to visit. And we thank them for their strong contributions over the years. I'll now turn the call over to Lorie Tekorius, Hreenbrier's incoming CEO. I have no doubt that Greenbrier will flourish under her administration. Lorie. Next time, you are going to be running this readiness call. So thank you and congratulations. Thank you, Bill.

To the vote of our shareholders today, James I'm buying and vascular Antonio Garza.

Our highly qualified and we welcome this step of board refreshment.

I also would like to.

Congratulate.

Two directors who served throughout.

Almost the last 18 years 20 years on our board Duane Mcdougall and Don Washburn next week, we'll put out a brief.

Graduate story note.

Marking this milestone, but I want to assure them that we remember them, they're always welcome to visit.

And we thank them for their strong.

Contributions over the years.

I'll now turn the call over to Laurie to Krish reimburse incoming CEO.

I have no doubt the Greenbrier will flourish.

Her administration.

Yeah.

Lorie.

Next time, you are going to.

It'd be running its readiness cough. So thank you and congratulations thank you bill.

Fair enough.

Good morning, everyone. And before I get into the details on the quarter you may have noticed and I think Bill referenced. We named two of our reporting segments. Our wheels repair parts segment and our maintenance services and leasing and services is now leasing and management services. The name suggests more closely reflect the customer solutions we provide and have no impact on our financial results. Greenbrier's fiscal Q1 reflected continued labor challenges in the United States. Competitive pricing from orders taken during the depths of the pandemic trough.

We named two of our reporting segments.

Our wheels repair <unk> parts.

And our maintenance services and leasing and services management.

Management there.

The meeting more closely reflect the customer solutions, we provide and have no impact on our financial results.

Greenberg fiscal Q1 reflected continued labor challenges in the United States.

And then pricing from orders taken during the depths of the pandemic.

And production inefficiencies from line changeovers and ramping up capacity. I'm proud of our employees around the world that continue to perform well even as uncertainty [inaudible]. It is certainly an understatement to say that increasing headcount basically by several thousand employees and increasing production rate by 40% to 50% is challenging. But with an experienced leadership team, we will meet this opportunity to scale our operations, all while keeping our workforce healthy and safe. Safety across our organization has been and will continue to be our number one priority. In the quarter just ended we delivered 4100 yen, including 400 units in Brazil. Deliveries decreased by about 9% sequentially, which primarily reflects the timing of syndication activity and line changeovers in North America.

I'm proud of our employees around the world. It continues to perform well even as uncertainty about.

It is certainly an understatement to say that increasing head count basically by several thousand employees and increasing production rate by 40% to 50% is challenging.

With an experienced leadership team will meet this opportunity to scale our operations, all while keeping our workforce healthy and.

Thank you across our organization has been and will continue to be our number one priority.

In the quarter just ended we delivered 4100 yen, including 400 units in Brazil.

Deliveries decreased by about 9% sequentially, which primarily reflects the timing of syndication activity and line changeovers in North America.

Our global manufacturing continues to take a measured approach to increasing production rate and activity as they work through orders taken during the trial. Our global sourcing team continues to perform minor miracles on a regular basis and certainly avoid significant production delays. Our maintenance service business was significantly impacted by labor shortages exacerbated by the COVID pandemic. These shortages impact throughput, milling efficiencies and profitability. We've made a number of changes to our hiring and training practices. We're seeing improved retention rate. Maintenance cycle times can be 75 to 90 day. So it will take some time for the benefits of big changes to flow through the operation.

Our global sourcing team continues to perform minor miracle on a regular basis and certainly avoid significant production delay.

Our maintenance service business was significantly impacted by labor shortages exacerbated by the Covid pandemic.

These shortages impact turns but milling efficiencies and profitability.

We've made a number of changes so our hiring and training practices.

We're seeing improved retention rate.

Maintenance cycle times can be 75 to 90 day. So it will take some time for the benefits of big change it to flow through to the operation.

Further, the business was impacted by lower real change of volume. I do believe the team has made the necessary changes that will lead to positive results over the course of fiscal 2022 and our maintenance services there. Our leasing and management services group had a good quarter with strong fleet utilization and the integration of our previously disclosed portfolio purchase in September. Between the portfolio asset and originations from Greenbrier, GBS fleet grew by approximately $200 million in the quarter. And as of quarter end, that fleet is valued at nearly 400 million nearly doubling in value across the quarter.

I do believe the team has made the necessary changes that will lead to positive results over the course of fiscal 2022.

Perfect.

Our leasing and management services group had a good quarter with strong fleet utilization and the integration of our previously disclosed portfolio purchase in September.

Between the portfolio asset and originations from Greenbrier GBS fleet grew by approximately $200 million in the quarter.

And as of quarter end.

And valued at nearly 400 million nearly doubling in value across the quarter.

Importantly, this growth reflects a continued disciplined approach to portfolio construction, underwriting and credit quality standards. We are not pursuing growth at all costs. Our strategy remains to create repeatable revenue and stable tax-advantaged cash flows that will take the edges of the dip and new railcar demand and are well known by all of this call. In addition to managing our lead fleet, our management services, our GMS growth continues to provide creative railcar asset for us. For over 450000 railcars in the North American industry.

Not pursuing growth at all costs.

Our strategy remains to create repeatable revenue and stable tax advantaged cash flows that will take the edge it up to get a new railcar demand and are well known by all of this call.

In addition to managing our lead.

Our management services, our Gms growth continues to provide creative railcar asset for us.

For over 450000 railcars in the North American industry.

One other positive developments subsequent to quarter-end is that our leasing team successfully increased the size of our 300 million nonrecourse railcar warehouse facility by 50 million to 350 million. Our capital markets team executed well this quarter and we expect syndication activities to grow throughout the year. Similar to our overall [inaudible] delivery. Indication remains an important source of liquidity and profitability for Greenbrier.

359.

Our capital markets team executed well this quarter and we expect syndication activities to grow throughout the year.

Similar to our overall delivery.

Indication remains an important source of liquidity and profitability for Greenbrier.

Looking ahead, we see strong momentum for fiscal 2022 and beyond. We have talented employees and experienced management who are focused on driving results and shareholder value. I'm very excited about the long term opportunity for Greenbrier. And now, Brian Comstock will provide an update on the current railcar demand environment. Thanks, Lorie and I hope everybody had a great holiday season as there's a lot to be excited about as we move forward. As mentioned in October, I remain excited about the momentum we're seeing in all of our markets globally. In Greenbrier's first quarter, we had a book to bill of one five reflecting deliveries of 4100 units and orders of 6300 units.

Talented employees and experienced management, we're focused on driving results and shareholder value.

I'm very excited about the long term opportunity for Greenbrier and.

Now, Brian Comstock will provide an update on the current railcar demand environment.

Terry and I hope everybody had a great holiday season is there's a lot to be excited about as we move forward as.

As mentioned in October I remain excited about the momentum we're seeing in all of our markets globally and.

And Greenbrier is first quarter, we had a book to bill of one five reflecting deliveries of 4100 units and orders of 6300 humans.

This is the fourth consecutive quarter with a book to bill ratio exceeding one times and reflective of the strengthening environment. New railcar backlog of 28000 units with a market value of 3 billion provides strong multi-year visibility. These are the type of demand environments, where Greenbrier's flexible manufacturing is a vital differentiator. In addition to new railcar orders, we recently received orders to rebound 1400 railcars. Part of Greenbrier railcar refurbishment program.

New railcar backlog of 28000 units with a market value of 3 billion provides strong multiyear visibility.

These are the type of demand environments, where greenbrier is flexible manufacturing is a vital differentiator.

In addition to new railcar orders, we recently received orders to rebound a 1400 railcars.

Part of Greenbrier railcar refurbishment program.

The program is an important part of our growing partnership with our customers to sustainably repurpose North America's ageing fleet to ensure that rail remains the most environmentally friendly mode of service transport. As of November 30, our modernization backlog included 3500 units valued at 200 million. This is a valuable business that is additional to our new railcar backlog and absorbs production capacity. In addition to our railcar refurbishment program, we announced another sustainable initiative in early December. A collaboration between US steel Norfolk Southern and Greenbrier for a new gondola. Using an innovative formula for high strength lightweight steel developed by US steel. Each gondola's unloaded weight's $1 unloaded weight is reduced by up to 15000 pounds. Norfolk Southern will initially require 800 of these greenbrier engineered gondolas. The work done by Greenbrier and our partners promises significant benefits to all three companies and the freight transportation industry as a whole as we lead the way to a net-zero carbon economy.

As of November 30, our modernization backlog included 3500 units valued at 200 million.

This is a valuable business that is additional to our new railcar backlog and absorbs production capacity.

In addition to our railcar refurbishment program, we announced another sustainable initiative in early December a collaboration between U S steel Norfolk, Southern and Greenbrier for a new gondola using an innovative formula for high strength lightweight steel developed by U S steel each.

$1 unloaded weight is reduced by up to 15000 pounds.

Norfolk Southern will initially require 800 of these greenbrier engineered gondolas.

Work done by Greenbrier, and our partners and promises significant benefits to all three companies and the freight transportation industry as a whole as we lead the way to a net zero carbon economy.

One item worth clarifying is the 800 gondolas will be part of the Q2 order activity. In December we also announced Greenbrier is joining the rail pulse coalition. I'm personally excited about the prospects of this technology with the goal to aggregate North American fleet data onto a single platform. This has the potential to improve safety and operating efficiency while providing enhanced visibility to customers. Reinforcing rail competitive share of freight transportation. Greenbrier's lease fleet utilization ended the quarter at over 97%.

In December we also announced Greenbrier is joining of the rail pulse coalition I'm personally excited about the prospects of this technology with the goal to aggregate North American fleet data onto a single platform. This has the potential to improve safety and operating efficiency, while providing enhanced visibility to customers.

Reinforcing rail competitive share of freight transportation.

Greenbrier is lease fleet utilization ended the quarter at over 97%.

We continue to see improved lease pricing in churn on all new lease originations and lease renewals as well as continued strong demand for leased equipment. North American industry delivery projections show an increase of nearly 49,000 units in 2022 and to over 60,000 units in 2023. Given the strong reduction in railcars in storage, the continued congestion at the port, which is impacting traffic and overall economic growth. We believe these projections are very reasonable and see similar dynamics in Europe.

North American industry delivery projections show, an increase of nearly 49000 units in 2022 and to over 60000 units in 2023.

Given the strong reduction in railcars in storage.

Continued congestion at the port, which is impacting traffic and overall economic growth. We believe these projections are very reasonable and see similar dynamics in Europe.

As you can see from our recently announced initiatives, Greenbrier's global commercial and leasing team remains focused on providing innovative solutions to our customers. Now over to Adrian for more about our Q1 financial performance. Thank you, Brian and good morning, everyone. As a reminder, quarterly financial information is available in the press release and supplemental slides on our website. I'll discuss a few highlights and will also provide an update to our fiscal 2022 guidance. Highlights for the first quarter include revenue of $550.7 million, deliveries of 4,100 units, which includes 400 units from our unconsolidated joint venture in Brazil. Aggregate gross margins of eight 6%, reflecting competitive new railcar pricing from orders taken earlier in the pandemic and labor shortages.

Now over to Adrian for more about our Q1 financial performance.

Thank you, Brian and good morning, everyone.

As a reminder, quarterly financial information is available in the press release and supplemental slides on our website.

Ill discuss a few highlights and will also provide an update to our fiscal 2022 guidance.

Highlights for the first quarter include revenue of $550 7 million deliveries of 4100 units, which includes 400 units from our unconsolidated joint venture in Brazil.

Aggregate gross margins of eight 6%, reflecting competitive new railcar pricing from orders taken earlier in the pandemic and labor shortages.

Selling and administrative expense of $44.3 million is down 20% from Q4, primarily as a result of lower employee-related costs. Net gain on disposition of equipment was $8.5 million like many leasing companies, we periodically sell assets from our lease fleet as opportunities arise. We had an income tax benefit of $1.4 million in the quarter, primarily reflecting net benefits from amending prior-year tax returns. The noncontrolling interest provides the benefit of $5.2 million, primarily resulting from the impact of line changeovers and production ramping at our Mexico joint venture. Net earnings attributable to Greenbrier of $10.8 million or 32 cents per diluted share. And EBITDA was $42.2 million or 7.7% of revenue.

Net gain on disposition of equipment was $8 5 million like many leasing companies, we periodically sell assets from our lease fleet as opportunities arise.

We had an income tax benefit of $1 4 million in the quarter, primarily reflecting net benefits from amending prior year tax returns.

Noncontrolling interest provides the benefit of $5 2 million, primarily resulting from the impact of line changeovers and production ramping at our Mexico joint venture.

Net earnings attributable to Greenbrier of $10 8 million or <unk> 32 per diluted share.

And EBITDA was $42 2 million or seven 7% of revenue.

Moving to liquidity. Greenbrier has a strong balance sheet. Liquidity of $610 million is comprised of cash of over $410 million and available borrowings of nearly $200 million, we are well-positioned to navigate any market disruptions we expect to persist into calendar 2022. As mentioned last quarter, our tax receivable stands at $106 million as of November 30, and we expect to receive most of this refund in the second quarter of fiscal 2022. This refund is in addition to Greenbrier has available cash and borrowing capacity.

Liquidity of $610 million is comprised of cash of over $410 million and available borrowings of nearly $200 million, we are well positioned to navigate any market disruptions, we expect to persist into calendar 2022.

As mentioned last quarter, our tax receivable stands at $106 million as of November 30, and we expect to receive most of this refund in the second quarter of fiscal 2022. This refund is in addition to Greenbrier has available cash and borrowing capacity.

Liquidity is important to support the working capital needs of the business as we significantly increased new railcar production beginning in '21 and into 2022. Liquidity also enables greenbrier to invest in growth. Administrated by the railcar portfolio purchase in Q1, and the expansion of GTX leasing at a pace exceeding our initial announcements. It has also allowed us to continue to pay a dividend throughout the pandemic during a time of economic uncertainty. Greenbrier Board of directors remains committed to a balanced deployment of capital and believe that our dividend program enhances the shareholder value and attracts investors. Today, we announced a dividend of cents 27 per share, which is our 31st consecutive dividend.

Liquidity also enables greenbrier to invest in growth.

Administrated by the railcar portfolio purchase in Q1, and the expansion of Gtx leasing at a pace exceeding our initial announcements.

It has also allowed us to continue to pay a dividend Trump pandemic during a time of economic uncertainty.

Greenbrier Board of directors remains committed to a balanced deployment of capital and believe that our dividend program enhance the shareholder value and attracts investors today, we announced a dividend of <unk> 27 per share, which is our 30 <unk> consecutive dividend.

As of yesterday's closing price, our annual dividend represents a yield of approximately 2.3%. Since 2014, Greenbrier has returned nearly $370 million of capital to shareholders through dividends and share repurchases. Additionally, you may have noticed an increase of approximately $17 million in Greenbrier as notes payable balance when compared to the prior quarter.

Since 2014, Greenbrier has returned nearly $370 million of capital to shareholders through dividends and share repurchases.

Additionally, you may have noticed an increase of approximately $17 million in Greenbrier as notes payable balance when compared to the prior quarter.

This non-cash increase is a result of Greenbrier adopting a new accounting standard, which simplifies the accounting for convertible notes and no longer requires the calculation of debt discount and associated equity components. We believe the standard provides better transparency into how the convertible notes appear on our balance sheet. And to be clear of Greenbrier does not incur any impact to liquidity or cash flows as a result of this adoption.

Any impact to liquidity or cash flows as a result of this adoption.

Based on current business trends and production schedules, we're adjusting Greenbrier's fiscal 2022 outlook to reflect the following. Increased deliveries by 1,500 units now to a range of 17,500 to 19,500 units, which included approximately 1,500 units from Greenbrier Maxion in Brazil. Selling and administrative expenses are unchanged and expected to be approximately $200 million to $210 million for the year gross capital expenditures of approximately $275 million and leasing and management services $55 million in manufacturing and it's $10 million in maintenance services.

Increased deliveries by 1500 units now to a range of 17500 to 19500 units, which included approximately 1500 units from Greenbrier Maxion in Brazil.

Selling and administrative expenses are unchanged and expected to be approximately $200 million to $210 million for the year gross capital expenditures of approximately $275 million and leasing and management services $55 million in manufacturing and it's $10 million in maintenance services.

Gross margin percent is expected to steadily increase over the course of the year from high single digits in the first half to between low double digits low teens by the fourth fiscal quarter as railcars ordered during the pandemic trough are delivered and conditions in the maintenance services business improve. We expect deliveries to continue to be back half weighted with a 45% 55% slabs.

We expect deliveries to continue to be back half weighted with a 45% 55% slabs.

As a reminder, in fiscal 2022, approximately 1,400 units are expected to be built and capitalized into our lease fleet. These units are not reflected in the delivery guidance provided. We consider a railcar delivered when it needs Greenbrier's balance sheet and is owned by an external third party. As mentioned in the commentary earlier on the call, momentum continues to build in our business and I'm excited about what the future holds for Greenbrier. And now we will open it up for questions.

Units are not reflected in the delivery guidance provided we consider a railcar delivered when it needs Greenbrier as balance sheet and is owned by an external third party.

As mentioned in the commentary earlier on the call momentum continues to build in our business and I'm excited about what the future holds for Greenbrier and now we will open it up for questions.

We will now begin the question and answer session. To ask a question you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. And again, please limit yourself to only two questions. To withdraw your question you may press star then two. Our first question today comes from Justin Long with Stephens.

People are using a speaker phone please pick up your handset before pressing the keys.

And again, please limit yourself to only two questions to withdraw your question you May Press Star then two.

Our first question today comes from Justin long with Stephens.

Thanks, and good morning. I wanted to start with a question on manufacturing gross margins. I know on the last call you were very clear about the timing of 1Q and that being the low point of the year, but I also know you were hoping for double-digit manufacturing gross margins than we were a bit below that. So can you help us kind of bridge what happened on that front relative to expectations? And any way you can help us think about the sequential progression in manufacturing gross margins moving beyond that in the next few quarters.

I wanted to start with a question on manufacturing gross margins I know on the last call you were very clear about the timing of <unk> and that being the low point of the year, but I also know you were hoping for double digit manufacturing gross margins than we were a bit below that so can you.

Help us kind of bridge what happened on that Brian.

Relative to expectations and any way you can help us think about the sequential progression in manufacturing gross margins moving beyond that in the next few quarters.

Sure, [inaudible]. Great. You're right, we really have very high expectations. I think that our manufacturing folks did an excellent job in the first quarter. And it actually exceeded some of our expectations, although we did run into some headwinds in certain areas as they work through as we said orders that were taken during the downturn and some of the overhead absorption during the ramping just wasn't quite as robust as we would've expected. So those are the issues and then we continue to face labor difficulties, particularly here in the United States. So our facility here in Portland, Oregon, as well as our operations in Arkansas, So it's not only the impact of COVID, but it's also attracting and retaining the labor to be able to be efficient in our shops.

Great.

You're right, we really have very high expectations, I think that our manufacturing folks did an excellent job in the first quarter and it actually exceeded them.

Some of our expectations, although we did run into some headwinds in certain areas.

As they work through as we said orders that were taken during the downturn and some of the overhead absorption.

During the ramping just wasn't quite as robust as we would've expected so.

Those are the issues and then we continue to face labor.

<unk>, particularly here in the United States. So our facility here in Portland, Oregon, as well as our operations in Arkansas, So it's not only the.

Pact of Covid, but it's also attracting and retaining the labor to be able to be efficient in our shop.

I'd only add that we have maybe just a bit of delay here and the second half should be strong. To the degree that our margins were to lag. We expect as has been indicated in guidance that our production rates will increase significantly than earlier guidance. So I think that it will certainly be offset. Okay, and so as we move into the second quarter, would your expectation be that manufacturing gross margins can get back to the double digits? And when we think about the full year, would you say that your expectation for margin is better than it was three months ago, given the production guidance increase? Or are the labor issues offsetting some of that? The labor issues are offsetting some of that. We are optimistic.

We have there.

Maybe just a bit of delay here.

In the second half should be strong.

To the degree that are.

On margins.

We're to lag.

We expect as has been indicated in guidance that our production rates will increase significantly than earlier guidance. So.

I think that it will certainly be offset.

Yeah.

Okay, and so as we move into the second quarter, would your expectation be that manufacturing gross margins can get back to the double digits? And when we think about the full year, would you say that your expectation for margin is better than it was three months ago, given the production guidance increase? Or are the labor issues offsetting some of that? The labor issues are offsetting some of that. We are optimistic.

Better than it was three months ago, given the production.

The guidance increase or are the labor issues offsetting some of that.

The labor issues are offsetting some of that we are optimistic.

I don't want to get into quarter by quarter specific guidance on margins. Our expectation is as we move across this quarter, I mean, sorry, across the year, margins will improve and get to that double-digit area. Sometimes the second quarter has a headwind of it's just you got more holidays and some more difficulties. We've seen what's happened with COVID cases popping up, weather and others difficulties. So, I would say that, we always have high expectations, but I don't want to get into that quarter-by-quarter guidance. I think the second half should look stronger for a variety of reasons. The operating momentum should drive the expectations, but I think the timing is really what's happened here, Justin. It's just been there's a little bit more of a lag than what we might have thought before. But again, we're going to have higher volumes than we expected before.

Our expectation is as we move across this quarter.

Sorry across the year margins will improve and get to that double digit area.

Sometimes the second quarter has the headwind, it's just you've got more holidays and some more difficulties we've seen what's happened with Covid cases popping up.

Other and other difficulties so.

I would say that we always have high expectations, but I don't want to get into that quarter by quarter expectation.

I think I think the second half.

Look stronger for a variety of reasons the operating momentum should drive.

Our expectations, but I think the timing is really what's happened here adjustments.

It's just been a there's a little bit more of a lagged in what.

What we might have thought before but again, we're going to have higher volumes than we expected before.

And things are going well in manufacturing so there is a bunch of glitches is really ramping up, and I've already said earlier, that's not a seamless matter by just going very, very well. Understood, I appreciate the time. Thank you. Our next question comes from Matt Elkott with Cowen. Good morning. And thank you for taking my question. I want to ask you about on the pricing side. Lorie and Brian, I think you mentioned, the cars that were taken during 2020 through, were the deliveries and the first full quarter were mostly those orders? Or if not, what percentage of the deliveries were orders that were taken during a very depressed pricing environment? And also, how many of those cars are still to be delivered in this fiscal year? This is Brian. It's great question. Your analysis is correct. At the end of the day, we had a bit of a tail on orders coming out of the 2020 that moved into Q1.

A big bunch of glitches.

Really ramping up and it was already said earlier, that's not a seamless matter, but it's going very very well.

Understood I appreciate the time.

Thank you.

Our next question comes from Matt Alcott with Cowen.

Okay.

Good morning. Thank you for taking my question I wanted to ask you about the on the pricing side Lorie and Brian I think you mentioned.

The cars that were taken during the 2020 trough, where the where the deliveries and the first fiscal quarter, mostly those orders or.

If not what percentage of the deliveries were orders that were taken during a very depressed pricing environment and also.

How many of those cars are still to be delivered.

In this fiscal year.

This is Brian great question.

Your analysis is correct at the end of the day, we had a bit of a tail on orders coming out of 2020 that moved into Q1.

Looking beyond Q1, we don't have many of those orders left in the backlog. So, we start to get into what I call the newer price backlogs in Q2, Q3 and Q4. So, not a lot of tail beyond Q4, but certainly there was quite a bit of tail going into Q1, on some of the legacy price deals in the trough of the market. Okay. And Brian, the orders that are coming now, can you talk about how the pricing dynamic differs from the orders that you actually deliver today, adjusted for commodity cost obviously, coal pricing? Yes, I would say, it's markedly improved.  Okay. Now, I mean, the industry landscape looks really different from a couple of years ago. It's a lot more consolidated. You guys and Trinity have maybe about 75% or 80% of the manufacturing landscape. So, should, if you do have a robust upcycle in the next couple of years, could we see materially better pricing? And if so, what do you guys think the kind of peak margin at the peak of a cycle could look like in a couple of years? I know your gross margin peak in 2016 was 22%, but that was a highly anomalous time, deliveries from the crude by rail will probably not be repeated.

What I would call the newer priced backlogs in Q2, Q3, and Q4, so not a lot of tail beyond Q1, but certainly there was quite a bit of a tail going into Q1 on some of the legacy priced deals in the trough of the market.

Okay, and Brian with the.

The orders that are coming in now.

Can you just talk about how the pricing dynamic differs from.

The orders that you actually deliver even today.

Adjusted for commodity prices obviously.

Oil prices yeah.

Yes, I would say it's.

It's markedly improved.

Okay.

No I mean, the industry landscape looks really different from a couple of years ago. It's a lot more consolidated you guys in Trinity has maybe about 75 or 80% of the manufacturing landscape.

So we should if we do have a robust upcycle in the next couple of years.

You know cause.

We see materially better pricing and if so what do you guys think the.

Kind of peak margin at the peak of the cycle could look like.

And a couple of years I know the gross margin peak in 2016 or 22%, but that was a <unk>.

Really anomalous time.

Deliveries from the crude by rail Arrow will probably not be repeated.

But any color on what margins could look like at the top of the cycle? Was it deliberated the highest number of cars? Matt, it's a great question. And I think that's one of the things that keep many of us in this industry for a long time because you never know what's going to happen. So, we certainly think that there is a lot of opportunities over the coming years. And our manufacturing team continues to impress us with what they are able to achieve and you are spot on with as we get to higher production rates. And you get to see the benefit of that overhead being absorbed across a broader group of cars. So, a lot of it depends on mix, we have had a really disciplined approach to how we're taking orders and thinking about things. So I could see margin getting into the upper teens, be excited if they were in the mid-20s, but a lot of that does come down to mix. And while our competitive landscape here in North America has changed a bit, we also have some very strong customers that pay attention to what they're investing and these are long-lived assets. So you can only have that balance. I think the other thing is we have the benefit of having our leasing platform. So, we also look at how many cars we want to build and sell versus we're building cars, and we can put them into a fleet, where we will see that repeatable revenue and cash flow over the coming year. So, it's a nice layering effect, and it's a good blend of different activities that we have here at Greenbrier.

That's a it's a great question and I think Thats one of the things that keep many of us in this industry for a long time because.

You never know what's going to happen. So we certainly think that there's a lot of opportunity over the coming years.

And our manufacturing team continues to impress us with what theyre able to achieve and you're spot on with as we get to higher production rates and you get to see the benefit of that that overhead being absorbed across a broader group of cars. So.

You know.

A lot of it depends on mix, we have had a really disciplined approach to how we're taking orders and thinking about things so I could see margins getting into.

The upper teens.

Be excited if they were in the mid 20, but a lot of that does come down to mix and while.

Our competitive landscape here in North America has.

No change to that we also have some very strong customers that pay attention to.

What they're investing and these are long lived assets. So you can only have that balance I think the other thing is we have the benefit of having our leasing platform. So we also look at how many cards do we want to build and sell versus we're building cars and we can put them into our fleet, where we will.

See that repeatable revenue and cash flow over the coming years. So it's a nice layering effect and its a good blend of different activities that we have here at Greenbrier.

That's helpful. And Lorie just one last follow-up to this question based on all the dynamics together are seeing now. When do you think this production peak might occur actually, could it mid calendar 2023, late calendar 2023 or earlier?  I think you're right. We're probably mid-2023. I think some of us going to depend on supply chain. It's going to depend on the labor dynamics. Making certain that we can continue to operate across the North American market and getting some of the supply chain issues shook out. We have been fortunate to not really have any of those impacts us significantly. But it's definitely something that gets managed every day. Maybe Brian or Justin could talk to the data that supports 2023 and even beyond. Just in terms of the industry forecasts, I think we can do remind everybody what those industry forecasts look like.

Based on all the all the dynamics you guys are seeing now when do you think this.

Production peak might occur actually could it be mid calendar 2023 late calendar 'twenty, two 'twenty three or earlier.

I think I think you're right, we'd probably mid 2023, I think some of it is going to depend on supply chain, it's going to depend on the labor dynamics.

And making certain that we can continue to operate across the.

The North American market.

And getting some of the supply chain.

Issues chicken out we have been fortunate to not really have any of those impacts us significantly.

But it.

It's definitely something that gets managed every day.

Maybe bryan or Justin good talk to the.

The data that supports.

2023, and even beyond just in terms of the industry forecast. So I think it would be good to remind everybody what those industry forecast.

Uh huh.

Look like yes.

Yes, I think that's good Bill just to kind of remind everybody that is as you look at the projections, in 2023, they're projecting 60,000 railcars will be billed. The other interesting dynamic, as you think about where the future is headed for rail is that the North American fleet continues to contract. I think we're in the 21st month of contraction, which means that there's a heavy, heavy scrap rate that is going on even while new cars are being injected into the system. So as you know, as we think about the future, as the chip situation resolves itself as supply chain starts to become more fluid, you're going to see more and more pressure in demand on the railroads to ship more and more products. So, 60,000 right now is the industry's best guess, but you can see that extend beyond 2023, as well as demand comes on as we think it will. And just kind of move this to a little bit bigger picture and longer term also. Rail freight is the most sustainable form of transportation. 

<unk> in 2023, we're projecting 60000 railcars.

It will be built the other interesting dynamic as you think about where the future is headed for rail is that the North American fleet continues to contract.

We are in the 21 months of contraction, which means that there is a heavy heavy scrap rates.

Right that is going on even while new cars are being injected into the system. So as you know as we think about the future as the chip situation.

Resolves itself as.

Supply chain starts to become more fluid youre going to see more and more pressure and demand on the railroads to ship more and more product. So 60000 right now is.

As the industry's best guests, but you can see that extend.

And 2023 as well if demand comes on as as we think it will.

And just to kind of move this to a little bit bigger picture and longer term also.

<unk> freight is the most sustainable form of transportation.

And as the world continues to focus on carbon neutrality, zero-emission goals things like that, we continue to believe that there will be a medium to long-term growth in the fleet because there has to be a shifting of modal transportation. And that's not based on anyone's numbers or forecasts or anything at this point. So, we continue to believe that what we see for the next few years is great and it's going to be a great market. But there's also some long-term tailwind that are going to be dynamic that we haven't ever dealt with before. And that's especially true in our second-largest market, which is in Europe, where we have significant industry momentum to move to net carbon zero goals much earlier and removed congestion is reason, government mandates are really pushing this. So we see much stronger demand environment over there.

Zero emission goals things like that.

We continue to believe that there will be a.

Medium to long term growth in the fleet because there has to be a shifting of our modal transportation and that's not baked into anyone's numbers or forecast or anything at this point so.

We continue to believe that what we see for the next few years is great and it's going to be a great market, but theres also some long term tailwind that are going to be dynamic that we haven't ever dealt with before.

Especially true in our second largest market, which is in Europe, where we have significant.

Industry momentum to move.

Move.

To.

Net carbon zero.

Coal is much earlier and remove congestion is read the government mandates are really pushing this so we see much stronger demand environment over there.

Got it. Thank you guys very much. I appreciate it. Our next question comes from Allison Poliniak with Wells Fargo. Hi guys. Good morning. I kind of go home that next, so I want make sure I understand sort of your industry view. So you're saying '23 that 60,000 industry view would basically just be a catch up to replacement with potential for real growth or net growth of the suite in '24? Is that the way to think of it? Yes, I think, this is Brian. I think that's a good way to think about it today. Again, think about the contraction you've seen as a fleet and how many cars are being added. There's a scrap rate, probably somewhere in the 40,000 car range per year. And so when you think about 60,000 cars, it's almost, depending on how many cars are scrapped a year, it really has almost just replacement to them versus organic growth. And, again, keep in mind that is today with a very light footprint in auto, because of the chip shortages. There's tremendous demand in the auto sector. And when that starts to free up, it's going to put more pressure on railroads and velocity and just moving equipment.

Our next question comes from Allison <unk> with Wells Fargo.

Guys good morning.

Okay got it.

Kind of go along that next day to make sure I understand sort of your industry view. So you are saying 23 that 60000 industry began with basically just be a catch up to replacement with potential for real growth or net growth of the fleet and 24 is that the way to think of it.

Yes, I think this is Brian I think that's a good way to think about it today again, if you think about the contraction <unk> seen as a fleet and how many cars are being added there as the scrap rate probably somewhere in the 40000 car range per year and so when you think about 60000 cars.

It's almost Japan.

Depending on how many cars are scrap that year. It really is almost just replacement demand versus organic growth.

And again keep in mind that is today with a very.

<unk> footprint in auto because of the chip shortages.

There's tremendous demand in the auto sector and when that starts to free up it's going to put more pressure on railroads in velocity and just moving equipment.

Got it, no, that's helpful  And on the leasing side, obviously, growing quicker, which is good better than you expected, fleet leverage at 65%. I think you're targeting it could be wrong and this is 75%. I guess what do you anticipate exiting difficult '22 in terms of fleet leverage this year? Is it sort of up at 65% or is it expanding? I think we would expect it to continue to increase as we put more assets into the GBX leasing warehouse out of kind of the legacy fleet and then out of our order book as well. So you'll see it kind of moving closer to that 75% rate. And then you think Brian, you had mentioned 200 million of modifications that in manufacturing that aren't part of like your deliveries? Is that all for fiscal '22 or is that spread over a multiyear kind of aspect?

Expanding.

I think we would expect it to continue to increase as we.

Put more assets into the GBS leasing warehouse out of kind of the legacy fleet and then out of our order book as well, so you'll see us kind of moving closer to that 75% rate.

Great and then I think Brian you had mentioned 200 million of modifications that in manufacturing that arent part of like your deliveries is that all for fiscal 'twenty, two or is that spread over a multiyear kind of aspect.

Yes, another great question. Most of it is in 2022 does have a tail into 2023, based on our fiscal year lays out that a lot of it is calendar 2022. Got it. Okay. Thank you. Our next question comes from Ken Hoexter with Bank of America. Good morning. And Lorie, good luck as you as you transition to the CEO role. Just want to follow up on that question on pricing where we talked about a great market. It looks like the order book went up about, 9%, 10% year over year in terms of price per car. Can you talk about kind of mix as you normally do? Is there any demonstrable change in that mix? Or is that can we consider that, a real impact on pricing on a year-over-year basis? And is that more a factor of looking at your labor costs going up? So I can handle the mix side of that equation. I've said this before and it continues to ring true, is that, the mix is the most diverse I've seen in my 41 or 42 years in the industry, which does not date me as a real man. But it's just the baby, just the baby when I started. But, it really is a little bit of everything, which is a fantastic for us growing our lease fleet as well from a diversity perspective, credit profile perspective, and just lease maturity perspective. But it is everything from multiple types of covered hopper cars, auto, intermodal, gondolas, box cars.

Got it okay. Thank you.

Our next question comes from Ken <unk> with Bank of America.

Hey, good morning.

But lorie good luck as you as you transition to that.

Just wanted to follow up on Matt's question on pricing, where we talked about.

A great market.

It looked like the the order book went up about 910% year over year in terms of price per car.

Can you talk about kind of mix as you normally do is is there any demonstrable change in that mix or is that can we consider that.

A real impact on pricing on a year over year basis and is that more a factor of looking at your labor costs going up.

So I can handle the mix side of that equation.

<unk> said this before and it continues to ring true is that the mix is the most diverse I've seen in my 41 or 42 years in the industry, which does not DBS a real band, but were just a baby the baby what I started but it really is a little bit of everything which is fantastic.

For us getting growing our lease fleet as well from a diversity perspective credit profile perspective, and just lease maturity perspective, but it is everything from.

Multiple types of covered Hopper cars auto intermodal gondolas.

Box cars.

Very, very, very diverse. There is no single particular area that is creating the demand cycle this time, which normally would be an ethanol boom. It would be crude boom. It's not the case this year. It's very, very diverse. And the other thing I would say that, it is obviously impacting ASP. It's going to be we do have commodity price and labor costs have gone up. So, those are flowing through and being reflected in those higher ASP. That's a good point to remember. We are doing a great job on hedging things like interest rates in our leasing products and also commodity prices. It is essential protecting ourselves in that sense. Thanks for that. And then, can you just address the refurbishment business as this really begins to scale on a car basis? Are you doing this at the existing facilities with this add-on business because of the ARI acquisition? Maybe talk a little bit about how that impacts the margin? Is that reflected in the managed services? Is that in manufacturing kind of, where should we see the, given the scaling and growth of that? Where do we see the impact of that and what should we expect as far as a margin contribution from that business relative to the incumbency?

Particular areas that is creating the demand cycle. This time, which normally it would be us ethanol boom it would be a crude boom.

Not the case this year, it's very very.

Diverse.

And the other thing I was looking at is obviously impacting asps. He is going to be you have commodity price and labor costs have gone up so those are flowing through and being reflected in those higher A&P.

That's a good point to remember is we are doing.

Good job on hedging things like interest rates.

Pricing.

In our leasing products and also commodity pricing.

Essentially we are protecting ourselves in that sense.

Thanks for that.

And then okay.

Can you also address the.

Refurbishment business does this really begins to scale on a car basis are you doing this at the existing facilities with this and add on business because of the AI acquisition, maybe talk a little bit about how that impacts the margin.

Is that reflected in the managed services is that in manufacturing kind of where should we see the given the scaling and growth of that where do we see that the impact of that and what what should we expect as far as the margin contribution from that business relative to the incumbent base.

Great question. And we are doing, because these are very large programs. And based on our customer needs, we are going to be running this work through our manufacturing facilities, because that kind of repetitive work that we think that we can do very efficiently and effectively at those facilities from a margin percentage perspective, it's going to flow through in manufacturing is what you are going to see on your financial statements. And it's going to be beneficial, because these are competitively priced transactions, and the work that's going through the facilities is going to add to the overhead absorption. So, we don't see it as a drag on manufacturing earnings. It's also not going to be something that's going to skyrocket at the other way. It's a nice blend with other new car work that's going on. It's interesting to note that, this is a fairly deep market given the modernization capabilities of the aging fleet. And both Trinity and Greenbrier are finding that, this modernization is becoming the ESG goals as well. So, I think it's a very attractive future market is going to go through this cycle. We are pretty much along the lines of what you talked about, that you might clarify your views on it, Brian?

And based on our customers' needs, we are going to be running this work through our manufacturing facilities, because it's that kind of repetitive work that we think that we can do very efficiently and effectively at those facilities from a margin percentage perspective. It is going to flow through in manufacturing is what youre going to stay on your financial statements and its going to be.

Official because these are.

Competitive.

<unk> priced transactions.

And the work that's going through the facilities is going to add to the overhead absorption. So we.

We don't see it as a.

A drag on manufacturing earnings, it's also not going to be something thats going to sky.

Skyrocket it the other way and it's a nice blend with the other new car work that's going on.

It's interesting to note that this is a fairly deep market given the modernization capabilities of the aging fleet.

And both Trinity and Greenbrier are.

Finding that this modernization.

Contributing to ESG goals as well.

I think it is a very attractive future market is going to go through this cycle pretty much along the lines of what you talked about you might clarify your views on that.

No, it's absolutely correct. This is not something that is a short-term phenomenon. This actually is something that as you see, scrap car rates go up and you see the value in repurposing components. You are going to see a long life process here that will extend for multiple years. Great. Appreciate the thoughts. I guess just one round it there, Lorie, you kind of mentioned accretive so I just want to understand, is that going to be accretive to existing margins to the upper teens you were talking about long-term potential? I just want to, are you putting a kind of factor on that? I've heard that too many people. Yes, it's going to be, I think, it's going to be positive for our overall margins. Obviously, we don't look to take work into our shops, that isn't going to be positive overall, for Greenbrier and for our shareholders. Just look at it this way, another 200 million of backlog. If you look at it that way, but we're not calling the industry convention and we're including it in our manufacturing backlog is being done in our manufacturing plants, not principally in our repair facility system. It's really new car type work of major project nature.

Process here that will extend for multiple years.

Great I appreciate the thoughts I guess, just one rounded that lorie you kind of mentioned.

Accretive so I just want to understand is that going to be accretive to existing margins to the upper teens you were talking about long term potential of trial are you, putting a kind of factor on that.

Okay.

I'm, sorry, I've got too many people.

Yes, it's going to be I think it's going to be positive for our overall margins obviously are.

We don't look to take work into our shops that isn't going to be positive overall for Greenbrier Empire shareholders.

Just looking at it this way it's another $200 million backlog, if you look at it that way.

According to industry.

Industry Convention and were not including it in our manufacturing backlog is being done at our manufacturing plants.

Not principally in our repair.

Facilities, it's really new car type work.

Major project nature.

Yeah.

I appreciate the time. Thanks. Our next question comes from Bascome Majors with Susquehanna. Brian, you talked a few times about the 60,000, 2020 delivery projections for some of the industry forecasters. When you take a step back, is that something that you feel like you have conviction in and can manage the business too based on your conversations with customers and railcar management and leading indicators? Is that really just here's what the experts say, so that could happen type situation? So, we do our own analysis. Obviously, we take guidance from exterior entities as well. But we've really, for the last few years, relied more on our internal consensus, which is built up by a multiple number of touchpoints we have with customers, and outreach programs that we have in the industry. And we feel very confident that those numbers look good into the future.

Okay.

Our next question comes from basketball majors with Susquehanna.

Brian you talked a few times about the 60000 in 2020 delivery projections for some of the industry forecasters.

When you take a step back is that something that you feel like you have conviction in and can manage the business to based on your conversations with customers and.

Railcar management, and leading indicators or is that really just a you know here's what the experts say.

So that could happen type situations.

Yes, Thanks <unk>.

We do our own analysis.

Obviously, we take guidance from exterior.

Entities as well, but we've really for the last few years relied more on our internal and consensus which is built up by a multiple number of touch points, we have with customers.

Outreach programs that we have in the industry and so we feel very confident that those numbers.

Look good into the future.

Thank you for that and to triangulate that further Lorie your comment about you know as the cycle strengthens.  We think we can generate high-teens margins, again, is a 60,000 kind of environment, whether or not that happens exactly in '22 or '23. Is that the kind of backdrop you would need for overhead absorption and pricing assumptions and other things to drive that? I think yes, that's, I think that would be fantastic, that would be great to be at that kind of that 60,000 level and stay at that steady level for a while. Because obviously, the ramping up or ramping down or things that can be headwind to efficiencies. So getting to that sort of a demand and delivery environment and then being able to stay there is going to be very beneficial to margin.  Thank you and not to leave anyone out here. Adrian, you talked about the tax receivable the last couple of quarters. And helping cash flow obviously consumes cash as you ramp up production and invest in the lease fleet. But can you help us think about full-year cash flow and some of these things even out? I don't know if it's an operating cash basis or free cash flow before some of the lease investment. But how do you think about the cash assumption, the business on kind of a sustainable more run-rate basis versus some of the quarter-to-quarter volatility?

We think we can generate high teens margins again, as a 60000 kind of environment, whether or not that happens exactly in 'twenty. Two 'twenty three is that the kind of backdrop, you would need for overhead absorption and pricing assumptions and other things to drive that.

I think that's I think that would be fantastic and great to be at that kind of that 60000 level and and stay at that steady level for a while because obviously.

The ramping up or ramping down or things that can be headwinds to efficiency, so getting to that sort of a demand and delivery environment.

And then being able to stay there is can be very beneficial to margin.

Thank you and not to leave anyone out here Adrian.

You talked about the tax receivable the last couple of quarters coming and helping cash flow obviously.

But consumed cash as you ramp up production in and invest in the lease fleet, but can you help us think about full year cash flow and some of these things even out I don't know if it's an operating cash basis or free cash flow before some of the lease investment, but how do you think about the cash consumption of the business on kind of a sustainable more run rate.

<unk> versus some of the quarter to quarter volatility.

We'd expect quite, quite positive cash flows in the back half of the year. We're, as you say, your supporting ramp up and our business and our working capital at the moment. We're being cautious there with the supply chain issues. So, that's not maybe as efficient as it would be in normal times, where we're protecting ourselves by having extra inventory on hand. But I'd expect to see that normalized out as our production stabilizes at these higher levels and back half of the year and our cash flow to be positive. And when you say a quite as in the back half a year, just to clarify, are you talking free cash flow or operating cash flow? Operating cash flow. Thank you for the time.

We are.

As you say supporting ramp up in our business and our working capital at the moment, we're being cautious there with the supply chain issues. So.

You know that's not maybe as efficient as it would be in normal times.

Clearly, we're protecting ourselves by having extra inventory on hand.

I would expect to see that normalize out as our production stabilizes at these higher levels in the back half of the year and our cash flow to be positive.

And when you when you say quite positive in the back half of the year just to clarify are you talking free cash flow our operating cash flow.

Operating cash flow.

Thank you for the time.

Thanks, Bob and thanks for asking.

Our next question comes from Steve Barger with KeyBanc Capital Markets. Good morning everyone. Brian, you said not a lot of lower-margin cars left in backlog, but I believe Adrian said gross margin would be single-digit in the first half. So first, did I hear that margin comment correctly? And if so, does that mean we should expect another tough quarter from maintenance and lower sequential margin and leasing in 2Q? Well, I'll answer that one. This is Justin, Steve. I think what we would say is, Q2 was always a challenging quarter for our maintenance business because of weather, typically. I mean, you know, the locations have to deal with inclement weather, snow, rain, freezing temperatures. And if you kind of look back at years, it's many times, that's our most challenging quarter in our business. So we see that as normal seasonality, we would expect it to be better than first quarter.

Keybanc capital markets.

Hey, good morning, everyone.

Good morning, Brian Yeah. Thanks.

Brian You said not a lot of lower margin cars left in backlog, but I believe Adrian said gross margin would be single digit in the first half. So first did I hear that margin comment correctly and if so does that mean, we should expect another tough quarter for maintenance and lower sequential margin in leasing and <unk>.

Well I'll answer that one this is Justin Steve I think what we would say is.

<unk>.

Q2 is always a challenging quarter for our maintenance business because of weather typically I mean, you know that.

Acacia has to deal with inclement weather snow rain freezing temperatures and if you kind of look back at year as it is many times that our most challenging quarter in that business. So we see that as normal seasonality.

We would expect it to be better than first quarter.

Which was much more challenging than we expected. But with the manufacturing piece, we do see that there's opportunities for improvement and growth in the margin in Q2. And while most of the competitively priced cars are out of it, we are still ramping up various production lines and that's where you see as more of the overhead under absorption that we're trying to be maybe cautious around a little bit. Yes. So I guess, I mean, I hear you on seeing better momentum in some of the lines of business. But the tone on this call seems much more conservative versus the last call, as we think about some of the 1Q tailwinds from tax and equity earnings this quarter, Q2 be down sequentially? Are you getting me really because I thought we were much more conservative last call? Maybe we're just not articulating our story very well. But before I what do you think you make your way more conservative? I talked about double-digit margin in the first half last quarter.

Various production lines, and Thats, where you see it as more of the overhead under absorption that we're that we're trying to be maybe cautious around a little bit.

Yeah.

Yeah. So I guess I mean, I hear you on seeing better momentum in some of the lines of business, but the tone on this call seems much more conservative versus the last call as we think about some of the <unk> tailwind from tax and equity earnings this quarter.

Yes be down sequentially.

Are you getting me really because I thought we were much more conservative last call. Maybe we're just not articulating our story very well, but lorie.

Lorie why do you think do you think we're more conservative.

You're talking about a double digit margin in the first half last quarter.

Yes, we did. That's right. And we had a little bit disappointing start in half, but it was dragged down by maintenance and some of the things that I think are self-correcting. But go ahead, I didn't, I don't mean to jump in. You should ask this. I've just taken aback by that. Obviously, and I would have to go back and I probably shouldn't admit this, but sometimes I have a hard time remembering last week, last quarter's call and what we might have said, but we are a lot more positive. We have come through this first quarter and have performed better than what we expected. When we put together our initial expectations for this fiscal year, we see a lot of opportunities where we are ramping or adding lines more quickly than what we expected. But we are still doing it at a moderate pace. So it's time to feel like they were talking out of both sides of our mouth. But we, as Brian had said, we're seeing broad demand on a variety of car sites and we're figuring out how can we address that demand solve our customers problems. And I think that's all going to be positive. Now, does it actually work its way out into double-digit margins in the first half, or is there some bleed over as we move into the second half? Again, that's getting into trying to parse quarter by quarter and that's part of why we try not to get into. We are running a business day to day.

By maintenance and some other things that I think are self correcting.

But go ahead I didn't I don't mean to jump in you should answer that.

I'm just I just taken aback by.

I would say.

And I would have to go back in time.

Probably shouldn't admit this but sometimes I have a hard time remembering last week months last last quarter call and what we might have said.

But we.

We are a lot more positive we have come through this first quarter and have performed better than what we expected when we put together our initial expectations for this fiscal year, we see a lot of opportunities where we are ramping are adding line more quickly than what we expected but we.

We're still doing it at a modest pace. So at times it feels like maybe we're talking out of both sides of our mouth that we have.

As Brian has said, we're seeing broad demand on a variety of car types and we're figuring out how can we.

Address that demand solve our customers' problems and I think that's all going to be positive now does it actually work its way out into double digit margins in the first half or is there some bleed over as we move into the second half again, not getting into trying to parse quarter by quarter and that's part of why we.

Try not to get into we're running our business day to day.

We think that we have got a lot of momentum. We think we are going to have, as we move through this year, it's going to increase and you are going to see the margins improve. Let me just elaborate on the economics of that. As we look at the backlog and that's really significant factor in our business. We look at the leasing moment. Those are two areas for momentum that are significant. With backlog, we are able to ramp and increase production in every line or many of the lines. In one case on a car type, we've got a good strong backlog, we're tripling production, that absorbs overhead, as Lorie said. So the timing of it is more problematic, but we are still very optimistic about the year and the financial results for the year. Okay. Thanks. Our next question is a follow-up from Matt Elkott with Cowen. Thank you for taking my follow-up questions. So, shortly after you guys acquired American Railcar, I think in July of 2019. Obviously, the world changed and the production cycle got cut short basically have for the industry in 2020 and stayed at 30,000 in 2021, which is below replacement. So, I guess this production upcycle this year and much more so next year, if you are at 60,000 ARI. It will be the first time you have a major up-cycle with ARI. Can you talk about how different this could look from your prior extensions for you guys, how the mix will be different, what the impact on pricing and margin will be?

Let me just elaborate on the on the economics of that as we look at the backlog and that's.

Really significant factor in our business, we look at the leasing momentum those are two areas where momentum that are significant.

With the backlog, we are able to ramp and.

Increased production and every line or many of the lines in one case on a car type, but we've got a strong backlog, we're tripling production that absorbs overhead as lorie said, so the timing of it is more problematic, but we're still very optimistic about the year and the financial results for the year.

Okay.

Okay. Thanks.

Our next question is a follow up from Matt Alcott with Cowen.

Thank you for taking my follow up questions. So shortly after you guys acquired American railcar in I think July of 2019, obviously, the world changed and the production cycle.

Put short basically halved.

For the industry in 2020 and stayed at.

At 30000 in 2021, which is below replacement. So I guess this production up cycle this year and much more so next year, if you're 60, thousands correct will be the first time you have a major up cycle with a right can you just talk about how this could how different this could look from.

Yes.

<unk> expansion for you guys, how the mix will be different what the impact on.

Pricing and margin will be and.

And I realized that this could be more at 2023, calendar 2023 dynamics than calendar 2022. Let me try. Just as referenced, Lorie and Brian can address this question. The acquisition of ARI, you're right, the timing, we got hit by COVID. We also had the driving efficiency by the Class 1 railroads so that volume or velocity had gone up. So, we were hit by a mini-recession when that shift occurred and utilization on the railroad, then COVID-19. So, we have been operating in unusual times. ARI is a real asset and we are very positive about the addition that ARI has made to our product portfolio, which is reflected in ability to attract stronger backlog and stronger customers. This expanded our customer base, enhanced our cost efficiency through geographic dispersion. So, I think that's just a general background for how we see ARI today. We are a U.S. company that gives us a production capability, in the Heartland, and it's a positive thing for Greenbrier. But Lorie, why don't you go into the grant, the other things. The other things, you're exactly right. I mean, the timing of that acquisition, what followed on that timing was difficult. I think you've done a nice job managing through the last couple of years. I am excited about having that footprint.

I'm going try and just just set a preference I think lorie and Bryan can address this question.

The acquisition of <unk>, you're right the timing I, we got hit by Covid, but we also had the.

The <unk>.

Driving of.

Efficiency by the class one railroads.

So that.

What volume are.

<unk> had gone up so we were hit by a mini recession when that shift occurred.

Our utilization on the railroad than COVID-19, So we have been operating in unusual times.

<unk> is a real asset and we're very positive about the.

Ambition.

He has made to our product portfolio, which is reflected in our ability to attract stronger backlog.

And stronger customers this expanded our customer base enhance our cost efficiency through geographic dispersion.

So I think that's just a general background for how we see <unk> today.

Our U S company it gives us.

Production capability in the Heartland and it's a positive thing for Greenbrier Lorie why don't you go into the grants and other things.

No and I think that that's you're exactly right I mean, the timing of that acquisition followed on that timing was difficult and I think we're done.

A nice job managing through the last couple of years I'm excited about having that footprint.

As we go into this uptick in demand, we do have a strong-skilled workforce there. They've got experience, building a variety of covered hoppers and tank cars. They have got a lot of experience delivering rail cars to shipper-base customers that have been a nice addition to our portfolio, and an enhancement of our portfolio of customers. And as you mentioned in the location is great from a delivery and transportation to our customers. So, these are all things that are going to be positive. You took the opportunity during the downturn and during lower production rates to be able to get into those facilities and take some of the efficiencies that we have grown in the Greenbrier organization and start putting those into the Arkansas facility. So, we actually see that this upturn in demand turning into something that we should see more positive growth got out. From a purely mixed perspective, is it favorable or a headwind? We believe it's favorable going forward.

Delivering railcars to shipper based customers that has been a nice addition to our portfolio and an enhancement of our portfolio of customers.

And as you mentioned the location is great from a delivery and transportation to our customers. So these are all things that are going to be positive.

We took the opportunity during the downturn and doing during lower production rates to be able to get into those facilities and take some of the.

Efficiencies that we have.

Growth in the Greenbrier organization and start putting those into the Arkansas facility. So we actually see that this upturn in demand turning into something that we should see more positive growth out of.

Got it from a purely mix perspective is it favor.

Favorable or a headwind.

Yeah.

We believe it's favorable going forward.

Got it. And then, sorry, if I missed it earlier, guys, but did you say anything about the inquiry and order activity about after quarter ends? No, no. We haven't, this is Brian. I would say, again, very strong order activity, even through the holidays, which is unusual for the month of December, we're continuing to look. I would say our cadence is still in line and strong with what we're projecting. And then just one final question. Bill mentioned, Lorie, you will have existing and new initiatives. Can you maybe talk a little bit about what the new initiatives might be might look like or what lease of fleet? I think you're going to see, we'll get into more detail that as we move a little bit further into the calendar year. But you're going to see us continuing to grow and enhance the foundation that we've created over the years with strong engineering and manufacturing coupled with leasing and commercial. You're seeing that some of this already with the leasing strategy that we have and focusing on how we can continue to anticipate and solve our customers issues in creative manner.

And then.

Sorry, if I missed it earlier guys, but did you say anything about the inquiry and order activity after quarter end.

No. We haven't this is Brian I would say again, a very strong order activity even through the holidays, which is unusual for.

For the month of December, but we're continuing to look I would say our cadence is still is still in line and strong with what we're projecting.

Okay.

And then just one final question Bill mentioned Lorie, you will have.

Existing and new initiatives.

Can you maybe talk a little bit about what the movie initiatives might be might look like or what areas at least.

I think youre going to see.

We'll get into more detail of that as we move.

A little bit further into the calendar year.

But.

Youre going to see us continuing to grow and enhance.

The foundation that we've created over the years with strong engineering and manufacturing coupled with leasing and commercial you're seeing that some of this already with the leasing strategy that we have and focusing on how we can continue to anticipate.

<unk> and solve our customers' issues and creative manner.

Thank you very much. Thank you, Matt. This concludes our question and answers session. I'd like to turn the call back over to Mr. Justin Roberts for some closing remarks.  I just want to say thank you very much everyone for your time and attention. And if you have follow-up questions, please reach out to investor relations at gbrx.com. Have a good day. Happy new year. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Thank you Matt.

This concludes our question and answer session I'd like to turn the call back over to Mr. Justin Roberts for some closing remarks.

I just wanted to say thank you very much everyone for your time and attention and it would be a follow up questions. Please reach out to Investor relations at G. B R X dot com have a good day happy new year.

Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.