Q1 2024 FreightCar America Inc Earnings Call

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Operator: Welcome to FreightCar America's first quarter 2024 earnings conference call. At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note that this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Chris O'Day with Riveron Investor Relations. Please go ahead.

Welcome to fight called America's first quarter 'twenty 'twenty four earnings conference call at this time.

Unknown Attendee: All participant lines are in a listen only mode for those of you participating on the conference call.

Unknown Attendee: He will be an opportunity for your questions at the end of today's prepared comments.

Operator: Please note. This conference is being recorded an audio replay of the conference call will be available on company's website within a few was after this quarter.

Unknown Attendee: I'd now like to turn the call over to Chris.

Unknown Attendee: Is it all Investor Relations. Please go ahead.

Unknown Attendee: Thank you, and welcome. Joining me today are Nick Randall, President and Chief Executive Officer, Mike Riordan, Chief Financial Officer, and Matt Kahn, Chief Commercial Officer. I'd like to remind everyone that statements made during the conference call relating to the company's expected future performance, future business prospects, or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside the control of the company and may cause actual results to materially differ from those expressed in the forward-looking statements.

Unknown Attendee: Thank you and welcome joining me today are Nick Randall President and Chief Executive Officer, Mike <unk>, Chief Financial Officer, and that's on Chief Commercial Officer, I'd like to remind everyone that statements made during the conference call relating to the company's expected future performance future business prospects or future events or barron's named.

Unknown Attendee: Forward looking statements as defined under the private Securities Litigation Reform Act of 1990 thought.

Unknown Attendee: Since our directly to break our Americas Form 10-K for a description of certain business risks some of which may be outside the control of the company and may cause actual results to materially differ from those expressed in the boiler.

Unknown Attendee: We expressly disclaim any duty to provide updates to our forward looking statements whether as a result of new information future events or otherwise during today's call. There will also be a discussion of some items that do not conform to U S. Generally accepted accounting principles or GAAP reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release.

Nicholas J. Randall: Issued yesterday afternoon, our earnings release for the first quarter 'twenty 'twenty four is posted on the company's website at freight car America Dot com along with the 8-K, which was filed yesterday aftermarket with that let me now turn the call over to Nick for opening remarks.

Unknown Attendee: During today's call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. The earnings release for the first quarter of 2024 is posted on the company's website, FreightCarAmerica.com, along with the AK, which was filed yesterday after market. With that, I now turn the call over to Nick for his opening remarks.

Nicholas J. Randall: Thank you, Chris. Good morning, everyone. And thank you all for joining us today. I would like to begin by saying how pleased I am to be joining you on my first earnings call as President and CEO of FreightCar America. I would like to recognize Jim Meyer for his support and mentorship as we look to continue to execute our strategic priorities. In just a few years, the company has undergone a significant transformation in both its earning potential and capital allocation.

Nick: Thank you Chris Good morning, everyone and thank you all for joining us today.

Nicholas J. Randall: I would like to begin by saying how pleased I am to join you for my first earnings call as President and CEO of freight car America I would like to recognize Jim Meier for his support and Mentorship as we look to continue to execute our strategic prioritize.

Nicholas J. Randall: And just a few years the company has undergone a significant transformation in both its earning potential and capital allocation.

Nicholas J. Randall: Achieving impressive milestones during our restructuring efforts as a pure play manufacturer. Today, we are at an inflection point with both the build-out of our new facility and right-sizing of our capacity. We have a proven manufacturing platform to build upon, coupled with FreightCar's long history of industry expertise, which allows us to remain highly focused on both our operational excellence and our commercialization strategy. We have laid the groundwork for our next phase of growth, and by diligently executing our strategy, I am confident we will be able to achieve the power of scale and leverage that I believe exists in this business.

Nicholas J. Randall: <unk> impressive milestones during our restructuring efforts as a pure play manufacturer.

Nicholas J. Randall: We are at an inflection point with both the Buildout of our new facility and right sizing of our capacity is now complete.

Nicholas J. Randall: We have a proven manufacturing platform to build upon coupled with freight cars long history of industry expertise, which allows us to remain highly focused on both our operational excellence and our commercialization strategy.

Nicholas J. Randall: We have laid the groundwork for our next phase of growth and by diligently executing our strategy I'm confident we will be able to achieve the power of scale and leverage that I believe exists in this business with that let me provide an update on the industry dynamics at play during the first quarter.

Nicholas J. Randall: With that, let me provide an update on the industry dynamics at play during the first quarter. As a reminder, demand for rail equipment depends on factors like downstream rail activity, the profitability of Class 1 railroads, freight volumes, and public policy. Industry volatility is rooted in the dependence on industrial energy and farm production, which can vary with changing economic and weather conditions. Volatility in the railcar industry is further influenced by fluctuations in commodity prices and the extended useful life of railcars.

Nicholas J. Randall: As a reminder, the Madison rail equipment depends on factors like downstream rail activity profitability of class one railroads freight volumes public policy indeed.

Nicholas J. Randall: Industry volatility is rooted in the dependence on industrial energy and farm production, which can vary with economic changing economic and weather conditions volatility in the railcar industry has further been influenced by fluctuations in commodity prices and the extended useful life of rail cars.

Nicholas J. Randall: During the first quarter, we saw an increase in service levels and throughput of railroads, allowing shippers to be more consistent and resulting in improvements to the supply chain. In a competitive industry environment, we maintained our market presence in the first quarter, which Matt will speak to in a few minutes. Overall, we continue to view these metrics as positive for a healthy rail environment that will drive more freight to rail, reinforcing our growing confidence in the secular trends we see important to this business.

Nicholas J. Randall: During the first quarter, we saw an increase in service levels and throughput of railroads, allowing the shifted to be more consistent and resulting in improvements to the supply chain.

Nicholas J. Randall: Based on the competitive industry environment, we maintained our market presence in the first quarter, which mark will speak to in a few minutes.

Nicholas J. Randall: Overall, we continue to view these metrics as positive a healthy rental environment that will drive more freight surreal reinforcing our growing confidence in the secular trends, we see important to this business.

Nicholas J. Randall: With that, let's turn to the discussion of our first quarter results. FreightCar America delivered a solid first quarter performance in line with our expectations. Revenue generated during the first quarter increased 99% year-over-year to $161 million on record quarterly deliveries of 1,223 railcars, which included roughly 200 cars from the year-end that were impacted by the border closure in December.

Nicholas J. Randall: With that let's turn to discussion of our first quarter results freight car market delivered a solid first quarter performance in line with our expectations revenue generated during the first quarter increased 19, 9% year over year to $161 million on record quarterly deliveries of 1200 and twenty-three railcars.

Nicholas J. Randall: Which includes roughly 200 cars from the year end that were impacted by the border closure in December.

Nicholas J. Randall: This marks our second consecutive quarter of producing and shipping more than 1,000 units at our newly completed facility in Mexico, which truly validates our operating capabilities. This record is also a testament to our expanded manufacturing footprint that is now capable of producing 5,000 or more railcars per year. Moving forward, it has always been our intention to bring build rates back to optimal levels to meet customer demand, which is in line with our guidance for the year.

Nicholas J. Randall: This marks our second consecutive quarter of producing and shipping more than 1000 units at our newly completed facility in Mexico, which truly validates our operating capabilities.

Nicholas J. Randall: This record is also a testament to our expanded manufacturing footprint that is now capable of producing 5000 or more railcars per year.

Nicholas J. Randall: Moving forward. It is always been our intention to bring build rates back to optimal levels to meet customer demand, which is in line with our guidance for the year with the Buildout of the facility complete we are well positioned to focus on operational excellence I E efficiency and scale in accordance with our market momentum.

Nicholas J. Randall: With the build-out of the facility complete, we are well positioned to focus on operational excellence, i.e., efficiency and scale in accordance with our market momentum. In addition to top line strength and robust deliveries, we reported gross margins of 7.1% in the first quarter of 2024, while adjusted EBITDA increased versus the same quarter of the prior year to 6.1 million. Turning to orders, as with other industry participants, activity picked up, albeit slowly, in the first quarter. We received orders for 384 units valued at 45.2 million.

Nicholas J. Randall: In addition to top line strength and robust deliveries, we reported gross margins of seven 1% in the first quarter of 'twenty 'twenty four while adjusted EBITDA increased versus the same quarter of the prior year to $6 1 million.

Nicholas J. Randall: Turning to orders as with the other industry participants activity picked up albeit slowly in the first quarter. We received orders of 384 units valued at $45 2 million, we anticipate orders to pick up in the second half of the year and our full year expectations for 'twenty 'twenty four unchanged continuing to support replacement rates.

Nicholas J. Randall: 35040 thousand units for the year.

Nicholas J. Randall: We anticipate orders to pick up in the second half of the year, and our full-year expectations for 2024 are unchanged, continuing to support replacement rates between 35,000 and 40,000 units per year. Switching gears now to touch on our operations, and echoing my opening comments, I believe that we are optimally positioned to drive enhanced earnings moving forward. As a reminder, the strategic repositioning we have undertaken over the last few years allows us to leverage the cyclical nature of the railcar industry, differentiating us from other industry players. Our variable cost structure enables swift adjustments in production and operational capacity to align with fluctuating demand and reduces risk during downturns by optimizing resource allocation.

Nicholas J. Randall: Switching gears now to touch on our operations echoing my opening comments I believe that we are optimally positioned to drive enhanced earnings moving forward as a reminder, the strategic repositioning we have undertaken over the last few years allows us to leverage the cyclical nature of the railcar industry.

Nicholas J. Randall: Differentiating us from other industry participants.

Nicholas J. Randall: Our variable cost structure enables swift adjustments in production operational capacity to align with fluctuating demand and reducing risk during downturns by optimizing resource allocation.

Nicholas J. Randall: With our facility now complete and the start-up costs associated with the fourth production line behind us, we are focused on driving further efficiencies at our plant. Now that we have two consecutive quarters of higher levels of production under our belt and have successfully tested our operations, I am extremely confident in our ability to produce a full array of rail car products at higher capacity to meet demand as the industry picks up.

Nicholas J. Randall: Without facility now complete and the startup costs associated with the fourth production line behind US we are focused on driving further efficiencies at our plants.

Nicholas J. Randall: Now that we have two consecutive quarters of higher levels of production under our belts and have successfully tested our operations I'm extremely confident in our ability to produce a full array of railcar products at higher capacity to meet demand as the industry picks ups. Likewise, we remain confident for the full year and reiterate our stated guidance for $2000.

Nicholas J. Randall: Likewise, we remain confident for the full year and reiterate our stated guidance for 2024. With that, I will next turn the call over to Matt to discuss the market, and then to Mike for more detail on our financial results.

Nicholas J. Randall: 24.

Nicholas J. Randall: With that I will turn next turn the call over to Matt to discuss the market and then to Mike for more detail on our financial results.

Matthew Youssef Elkott: Thank you, Nick, and good morning, everyone. The improved rail service metrics the industry saw in 2023 have continued through the first quarter of 2024. Rail velocity remains above its five-year average, and drill times have seen a noticeable 3% decline year over year, also trending below the five-year average. These improved service metrics equate to better turn times of rail equipment and ultimately improve shipper confidence. Overall, the revised forecast models point to a 1.1% year-over-year improvement in car loadings for the full year 2024.

Matt: Thank you Nick and good morning, everyone. The improved rail service metrics. The industry saw in 2023 have continued through the first quarter of 'twenty 'twenty four rail velocity remains above its five year average and dwell times I've seen a noticeable 3% decline year over year also trending below the five year average these improve service metrics.

Matthew Youssef Elkott: To better turn times of rail equipment, and ultimately improve shipper confidence overall carload volume revised forecast models point to a one for 1.1% year over year improvement in car loadings for the full year 'twenty 'twenty four chemical.

Matthew Youssef Elkott: Chemical, agricultural products, and metals are driving much of the expected volume growth in the forecast, and we see this in our inquiry activities, growth of the pipeline, and recent order bookings. In summary, we see positive signs for rail and the associated drivers for new rail car demand. Moving to order activity for the first quarter of 2024, we closed orders for 384 railcars valued at approximately $45.2 million. As Nick touched on earlier, for many freight segments, customers are still taking longer to fully analyze the timing of their new railcar purchases.

Matthew Youssef Elkott: Chemical agricultural products and metals are driving much of the expected volume growth in the forecast and we see this in our inquiry activities growth of the pipeline and recent order bookings in.

Matthew Youssef Elkott: In summary, we see positive signs for rail and the associated drivers for new railcar demand.

Matthew Youssef Elkott: Moving to order activity for the first quarter 2024, we closed orders for 384 railcars valued at approximately $45 2 million as Nick touched on earlier for many freight segments customers are still taking longer to fully analyze the timing of their new railcar purchases as.

Matthew Youssef Elkott: As mentioned during our fourth-quarter earnings call, we expected this dynamic to continue into the beginning of 2024, which is reflected in our outlook. We ended the first quarter with a backlog of 2,075 railcars valued at approximately $238 million.

Matthew Youssef Elkott: As mentioned during our fourth quarter earnings call. We expected this dynamic to continue into the beginning of 'twenty 'twenty, four which is reflected in our outlook.

Matthew Youssef Elkott: We ended the first quarter with a backlog of 2075 railcars valued at approximately $238 million.

Matthew Youssef Elkott: Our record quarterly delivery performance of the Mexico plant underscores our ability to operate at higher capacity levels to meet customer needs when the industry picks up, and as our sales team continues to build our pipeline. As a reminder, our facility was purpose built to not only scale to industry demands but to remain nimble enough to meet niche customer needs around timing and our range of railcar types. On the commercial front, our inquiry activity remains steady with a healthy pipeline that includes a diverse mix of car types.

Matthew Youssef Elkott: Our record quarterly delivery performance of the Mexico plant underscores our ability to operate at higher capacity levels to meet customer needs when the industry picks up and as our sales team continues to build our pipeline as a reminder, our facility was purpose built to not only scale to industry demands, but to remain nimble enough to meet.

Matthew Youssef Elkott: Which customer needs around timing and our range of railcar types.

Matthew Youssef Elkott: On the commercial front, our inquiry activity remains steady with a healthy healthy pipeline that includes a diverse mix of car types. Our strategy to provide customers with tailor made solutions, coupled with a disciplined and straightforward approach to the deal has proven successful in our efforts to grow our market presence.

Matthew Youssef Elkott: Our strategy to provide customers with tailored-made solutions, coupled with a disciplined and straightforward approach to the deal, has proven successful in our efforts to grow market presence. Despite lower levels of order activity across the industry, as reported by ARCI, we expect to remain in the cycle of new railcar demand tied closely to replacement levels. We do not see any changes in forecasts calling for total railcar deliveries falling in the range of 35,000 to 40,000 railcars for the full year 2024. I'll now turn the call over to Mike for comments related to our financial performance.

Mike: Lower levels of order activity across the industry as reported by a RCI, we expect to remain in the cycle of new car, new railcar demand tied closely to replacement levels. We do not see any changes in forecast, calling for total railcar deliveries falling in the range of 35000 to 40000 railcars for the full year 'twenty two.

Mike: Before I'll.

Matthew Youssef Elkott: I'll now turn the call over to Mike for comments related to our financial performance Mike.

Michael Anthony Riordan: Thanks Matt, and good morning everyone. I'll begin with an overview of the first quarter financials. We are pleased with our first quarter results as we delivered year-over-year revenue growth and record quarter deliveries for our Mexico facility. Consolidated revenues for the first quarter of 2024 totaled $161.1 million with deliveries of 1,223 railcars compared to $81 million on deliveries of 738 railcars in the first quarter of 2023. Gross profit in the first quarter of 2024 was $11.4 million, with a gross margin of 7.1%, compared to gross profit of $7.5 million and a gross margin of 9.2% in the first quarter of last year.

Mike: Thanks, Matt and good morning, everyone I'll begin with an overview of the first quarter financials. We are pleased with our first quarter results as we delivered year over year revenue growth and record quarter deliveries for Mexico facility.

Michael Anthony Riordan: The lower gross margin performance was driven primarily by startup costs associated with launching our fourth production line, which started late in the fourth quarter of 2023 and included natural labor costs and efficiencies as we completed the hiring of two shifts of new team members during the first quarter of 2024, which included a significant amount of training time. In addition, the mix of railcars delivered during the quarter was more heavily weighted towards lower margin profile cars.

Michael Anthony Riordan: Consolidated revenues for the first quarter of 2024 totaled 161.1 million with deliveries of 1223 railcars compared to $81 million on deliveries of 738 railcars in the first quarter of 2023.

Michael Anthony Riordan: Gross profit in the first quarter of 2024 was $11 4 million with a gross margin of seven 1% compared to gross profit of $7 5 million and gross margin of nine 2% in the first quarter of last year.

Michael Anthony Riordan: The lower gross margin performance was driven primarily by startup costs associated with launching our fourth production line, which started late in the fourth quarter of 2023 and include a natural labor cost inefficiencies as we completed the hiring of two shifts of new team members. During the first quarter of 'twenty 'twenty, four which includes a significant amount of training time.

Michael Anthony Riordan: Further the mix of railcars delivered during the quarter was more heavily weighted towards lower margin profile cars.

Michael Anthony Riordan: Despite the decrease year-over-year, we anticipate our freight car gross margin will remain at industry-leading levels for the full year as we realize the operational efficiencies associated with our fully staffed and built facilities. SG&A for the first quarter of 2024 totaled $7.5 million, up from $6.3 million in the first quarter of 2023, primarily due to an increase in stock-based compensation, as the first quarter of 2023 had a favorable fair market value adjustment for certain cash-settled awards.

Michael Anthony Riordan: Despite the decrease year over year, we anticipate our freight car gross margin will remain at industry, leading levels for the full year as we realize the operational efficiencies associated with our fully staffed and built facility.

Michael Anthony Riordan: SG&A for the first quarter of 'twenty 'twenty four totaled $7 5 million up from $6 3 million in the first quarter of 2023, primarily due to an increase in stock based compensation as the first quarter of 2023 had a favorable fair market value adjustment for certain cash settled awards.

Michael Anthony Riordan: In the first quarter of 2024, we achieved adjusted EBITDA of $6.1 million, compared to $2.1 million in the first quarter of 2023, primarily driven by increased rail car deliveries between the comparable periods. For the first quarter of 2024, our adjusted net income was $4.9 million, or $0.02 per share, compared to an adjusted net loss of $5.7 million, or $0.21 per share, in the first quarter of last year. Adjusted net income accounts for the impact of certain non-cash items and non-recurring charges, such as the change in fair market value of warrant liability, which fluctuates each quarter in line with the change in our share price during the period.

Michael Anthony Riordan: In the first quarter of 'twenty 'twenty four we achieved adjusted EBITDA of $6 1 million compared to $2 1 million in the first quarter of 2023, primarily driven by increased railcar deliveries between the comparable periods.

Michael Anthony Riordan: For the first quarter of 2024, our adjusted net income was $4 9 million or <unk> <unk> per share.

Michael Anthony Riordan: <unk> to an adjusted net loss of $5 7 million or 21 cents per share in the first quarter of last year.

Michael Anthony Riordan: Adjusted net income accounts for the impact of certain noncash items and nonrecurring charges such as the change in fair market value of warrant liability, which fluctuates each quarter in line with the change in our share price during the period.

Michael Anthony Riordan: Capital expenditures for the first quarter of 2024 were approximately one million, primarily related to the timing of payments for work that was finished at the end of 2023 to complete the fourth production line at our Mexico facility. I would like to reiterate that with the completion of our fourth production line, we expect future capital expenditures to decrease and to be in a maintenance cycle. We estimate the maintenance cycle to be approximately half to three quarters of a percent of revenue.

Michael Anthony Riordan: Capital expenditures for the first quarter of 2024 were approximately $1 million primarily related to the timing of payments for work that was finished at the end of 2023 to complete the fourth production line at our Mexico facility.

Michael Anthony Riordan: I'd like to reiterate that with the completion of our fourth production line, we expect future capital spend to decrease in the B and a maintenance cycle.

Michael Anthony Riordan: We estimate the maintenance cycle to be approximately half to three quarters of a percent of revenue.

Michael Anthony Riordan: Looking ahead, we expect to be well positioned to be on the path to free cash flow generation, allowing us to pay down the debt we took out to support our transformation. With that financial overview, I'd like to now turn the call over to Nick for a few closing remarks.

Michael Anthony Riordan: Looking ahead, we expect to be well positioned to be on a path to free cash flow generation, allowing us to service down the debt, we took out to support our transformation.

Michael Anthony Riordan: With that financial overview I'd like to now turn the call over to Nick for a few closing remarks.

Nicholas J. Randall: Thanks, Mike. I would like to comment briefly on our outlook for the remainder of 2024. We would like to remind everyone that the first quarter played out as we expected, and we anticipate a progression throughout the year. Reiterating my earlier comments, our first quarter performance supports our initial outlook, and we remain positive regarding our market position. This has given us confidence in reaffirming our previous stated guidance ranges. As a reminder, we are maintaining our forecasted revenues between $520 million and $572 million, up approximately 52.5% year-over-year at the midpoint of the range.

Nick: Thanks, Mike I would like to comment briefly on our outlook for the remainder of 'twenty 'twenty four we.

Nicholas J. Randall: We would like to remind everyone that the first quarter played out as we expected and we anticipate a progression throughout the year.

Nicholas J. Randall: Reiterating my earlier comments, our first quarter performance supports our initial outlook and we remain positive regarding our market position.

Nicholas J. Randall: This is giving us confidence in reaffirming our previous stated guidance ranges.

Nicholas J. Randall: As a reminder, we are maintaining our forecasted revenues between $520 million and 572 million.

Nicholas J. Randall: Approximately 52, 5% year over year at the midpoint of the range.

Nicholas J. Randall: This expectation is based on expected deliveries between 4,000 and 4,400 railcars and an increase of approximately 39% at the midpoint of the range. We are also maintaining our forecasted adjusted EBITDA guidance of between $32 million and $38 million for the full year, representing a year-over-year increase of 74.1% at the midpoint and further underscoring the power of our transformation strategy. Finally, we expect positive operating cash flow for the third consecutive year. With the heavy lifting of plant expansion and testing behind us, we remain committed to executing our operational and commercial strategies to continue building our backlog into the fiscal year, with the benefits of higher productivity at our fingertips and excited about the year ahead.

Nicholas J. Randall: This expectation is based on expected deliveries between 4000 to 4400 railcars, an increase of approximately 39% at the midpoint of the.

Nicholas J. Randall: Our range.

Nicholas J. Randall: We are also maintaining our forecasted adjusted EBITDA guidance of between $32 million and 38 billion for the full year, representing a year over year increase of 70 174, 1% at the midpoint and further underscoring the power of our transformation strategy. Finally, we expect positive operating cash flow.

Nicholas J. Randall: Two consecutive years.

Nicholas J. Randall: With the heavy lifting off palms expansion in testing behind US we remain committed to executing our operational and commercial strategies to continue building our backlog into the fiscal year.

Nicholas J. Randall: With the benefits of higher productivity at our fingertips and excited about the year ahead, I believe we will drive progressively better results as we realize the benefits of our business model, we remain focused on incremental cash generation and creating profitable growth for all of our shareholders with that I will ask the operator to open the lines for some Q&A.

Nicholas J. Randall: I believe we will drive progressively better results as we realize the benefits of our business model. We remain focused on incremental cash generation and creating profitable growth for all of our shareholders. With that, I will ask the operator to open the lines for some Q&A.

Speaker Change: Thank you.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Justin Long with Stephen Inc. Please go ahead.

Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your questions from the queue for participants using speaker equipment, it may be necessary to pick.

Justin Trennon Long: Comprehensive before placing the stock east one moment, please while we poll for questions.

Operator: The first question comes from the line of Justin Long with Stephens Inc. Please go ahead.

Justin Trennon Long: Thanks and good morning. I wanted to start with production levels. You mentioned the 200 units that were pushed from the fourth quarter into the first quarter in terms of sales activity. So if you take that out, production was right around a thousand units. Are you assuming that the quarterly cadence going forward continues around that thousand unit level, or is there any reason to think we will flex up or down meaningfully in the quarters ahead?

Justin Trennon Long: Thanks, and good morning.

Justin Trennon Long: So I wanted to start with production levels. You mentioned that 200 units that were pushed from fourth quarter ended the first quarter in terms of sales activity. So if you take that out production was right around a thousand units are you assuming that the core.

Justin Trennon Long: Lee cadence going forward continues around that 1000 unit level or is there any reason to think we flex up or down meaningfully in the quarters ahead.

Nicholas J. Randall: Hey Justin. Sorry mate. Mate, mate, mate, I was just saying good morning Justin, but he's going to answer that question for us.

Speaker Change: Sorry, Mike Mike I was just saying good morning, just didn't but makes good answer that question for US Hey, Justin Yes based on the guidance you can see out there you know 200 in the first quarter 4200 at the midpoint, we would expect the production levels to be right around 1000 or higher per quarter going forward for the remainder of the year.

Matthew Youssef Elkott: Hey Justin, based on the guidance you can see out there, you know, 1200 in the first quarter, 4200 at the midpoint, we would expect the production levels to be right around 1000 or higher per quarter going forward for the remainder of the year.

Matthew Youssef Elkott: Sure.

Justin Trennon Long: Okay, I got it. So we should be pretty steady on that front. And I guess from a gross margin perspective, to get to my second question, Mike, you mentioned mix maybe being a little bit of a headwind here in the first quarter. Can you talk about what changes you will make going forward to improve gross margins? Is this solely a function of a better mix that's secured in the backlog, or is there anything else that's driving that? And I think you talked last quarter about an expectation for full-year gross margins to improve relative to 2023. So I'm curious if that's still your expectation.

Speaker Change: Okay got it so we should be pretty steady on that front and I guess from a gross margin perspective to get to my second question.

Justin Trennon Long: You mentioned mix, maybe being a little bit of a headwind here in the first quarter.

Justin Trennon Long: Can you talk about what changes going forward to improve gross margins is this solely a function of better mix that took care of it in the backlog or is there anything else. That's the trading that and I think you talked last quarter about an expectation for full year gross.

Justin Trennon Long: Margins to improve relative to 'twenty to 'twenty three so I'm curious if that's still your expectation.

Michael Anthony Riordan: Yeah, as you know, the guidance for the full year hasn't changed. And given our SG&A, as mentioned before, is relatively flat, you can kind of back into where we expect the gross margin percentage to be on revenue and adjusted EBITDA. So that hasn't changed.

Mike: Yeah as you know the the guidance for the full year Hasnt changed and given are you mentioned before SG&A is relatively flat you can kind of back into where we expect gross margin percentage to be on the revenue and adjusted EBITDA. So that hasn't changed. So we expect sequential improvement from Q1 into Q2, Q3, Q4, that's going to be driven by.

Michael Anthony Riordan: So we expect sequential improvement from Q1 into Q2, Q3, and Q4. That's going to be driven by two things. One, the mix of cars in the backlog shifts after Q1. And second, you know, in Q1, as mentioned, we had startup costs and a slower ramp on our fourth production line, which, you know, actually held back production levels from where they could have been. And so that's fully ramped up now with the full hiring of both shifts. You'll get natural labor cost efficiencies and production efficiencies for the balance of the year on that production line, which will, in turn, be accretive to gross margin.

Michael Anthony Riordan: By two things one the mix of cars in the backlog shifts after Q1 and second you know in Q1 as mentioned, we had startup costs in a slower ramp on that on our fourth production line, which actually held back production levels from where they could have been and so is that fully ramped up now with a full high.

Michael Anthony Riordan: Hearing a bullshit, you'll get natural labour cost efficiencies and production efficiencies for the balance of the year on that production line, which will in turn be accretive to gross margin.

Michael Anthony Riordan: Okay.

Justin Trennon Long: Very helpful. And I guess the last one for me is on the inquiry and order levels that you're seeing in the market. I think you made a comment that things are pretty steady, but I was wondering if you could expand on what you're seeing thus far in the second quarter on that front. And Nick, I think you made a comment about the backlog building. So should we read into that you feel like demand is strong enough to support a sequential improvement in the backlog over the remainder of the year?

Speaker Change: Very helpful and I guess the last one for me is on inquiry and order levels that you're seeing in the market I think he made a comment that things are pretty steady, but I was wondering if you could expand on what you're seeing thus far in the second quarter on that front and Nick I think he made a comment about that.

Justin Trennon Long: Backlog building, so should we read into that that you feel like demand is strong enough to support a sequential improvement in the backlog over the remainder of the year.

Nicholas J. Randall: So just now, I'll let Matt comment on the industry and the market. I'll just reiterate kind of what Mike said that we've issued our guidance, we're still holding our guidance for between 4,000 and 4,400 units. So that's where we expect us to be able to ship this year, but Matt can give us a bit more color around the industry and inquiry levels.

Speaker Change: So just I'll, let I'll, let Matt comment on the industry and the market I'll just reiterate what Mike said that we've issued our guidance, we're still holding our guidance at between 4000 and 4400 units. So that's that's that's where we expect those to be able to ship this year, but Matt can you give us a bit.

Matthew Youssef Elkott: Yeah, good morning Justin.

Matt: A little color around that.

Matt: The industry and our inquiry levels yeah. Good morning, Justin So a couple of comments on the on the inquiry level side. When we look at year over year activity. It's been on par with what we saw in 2023, which was pretty robust so haven't seen significant changes year over year in terms of the type of inquiries I would.

Matthew Youssef Elkott: Yeah, good morning, Justin. So a couple of comments on the inquiry level. When we look at year over year activity, it's been on par with what we saw in 2023, which was pretty robust. So I haven't seen significant changes year over year in terms of the type of inquiries. However, I would say that the car mix has changed somewhat. But overall, you know, our demand continues to be driven by a replacement market.

Matthew Youssef Elkott: Say that the car mix has changed somewhat.

Matthew Youssef Elkott: But overall you know our demand continues to be driven by a replacement market and if you think about where we are in the in the current marketplace.

Matthew Youssef Elkott: And if you think about where we are in the current marketplace, and you go back even to the last 20 years and the cycles of order activity, we always had a demand catalyst which we simply don't have today, right? If you go back to the 2000s, and early 2000s, you had energy, plastics, and coal. In the mid-19teens, you had crude by rail, and you had the fracking boom, which drove up significant demand.

Matthew Youssef Elkott: And you go back even looking at the last 20 years and the cycles of order activity, we always had a demand catalyst, which we simply don't have.

Matthew Youssef Elkott: Today right. If you go back to the 2000 early two thousands you had energy plastics and coal mid teens you had.

Matthew Youssef Elkott: Our crude by rail and you have the fracking boom, which drove up significant demand and as we look forward and over the course of the next several years in our forecast we don't see that catalyst, we see replacement demand continuing so for us as we look at inquiry activity levels and we look at what the forecast looks.

Matthew Youssef Elkott: And as we look forward and over the course of the next several years in the forecast, we don't see that catalyst; we see replacement demand continuing. So for us, as we look at inquiry activity levels and we look at what the forecast looks like, I think we stay in that, you know, 35 to 40,000 vehicles a year demand cycle, with some changes based upon fleet aging out, some changes in the overall mix of cars, but overall, we're seeing some steady inquiry activity from quarter to quarter.

Matthew Youssef Elkott: Like.

Matthew Youssef Elkott: I think we stay in that 35 to 40000, a year demand cycle.

Matthew Youssef Elkott: With some changes based upon fleet aging out some changes in the overall mix of cars, but overall we're.

Matthew Youssef Elkott: We're seeing some steady inquiry activity from quarter to quarter.

Justin Trennon Long: Got it. Thank you. I appreciate the time.

Speaker Change: Got it. Thank you I appreciate the time.

Speaker Change: Thanks, Justin.

Operator: Thank you. The next question comes from the line of Matt Elkott with TD Coven & Co. Please go ahead.

Justin Trennon Long: Thank you next question comes from the line of Matt Alcott with P D Cowen and company. Please go ahead.

Matthew Youssef Elkott: Good morning. Thank you.

Matthew Youssef Elkott: Good morning. Thank you I think this question is for Matt.

Matthew Youssef Elkott: I think this question is for Matt. Matt, could you maybe give us a general idea of the customer mix and how it's trended over the last few quarters, the split between Shipper and Lessor? The reason I'm asking this is with capacity having been ramped up to over 5,000 cars now and you have a more diverse product portfolio, can we expect maybe more multi-year supply agreements with Lessors in the coming years than you've had in recent years?

Matthew Youssef Elkott: Matt can you maybe give us a general idea on the customer mix and how it's trended over the last few quarters.

Matthew Youssef Elkott: The split between a shipper and lessor. The reason I'm asking this is with capacity having been ramped up to over 5000 cars now and you have a more diverse product portfolio portfolio.

Matthew Youssef Elkott:

Speaker Change: Can we expect maybe more multiyear supply agreement with lessors.

Matthew Youssef Elkott: And the and in the coming years than you've had in recent years.

Matthew Youssef Elkott: Good morning, Matt. A couple of things. So on the mix, we continue to hit, you know, the three primary segments, right? You've got class one shippers and lessors. We're actively engaged with all of those customer segments, and we see pretty good activity. Historically, you know, from a multi-year perspective, I won't speak to specific deals.

Matthew Youssef Elkott: Good morning, Matt a couple of things so on the mix. We continue to hit the three primary segments right. You've got class one shippers and lessors were actively engaged with all of those customer segments and we see pretty good activity. Historically, you know from a multiyear perspective.

Matthew Youssef Elkott: You know I wont speak to specific deals, but clearly there's there's always interest.

Matthew Youssef Elkott: Among multiple customers that look to expand their plants expand.

Matthew Youssef Elkott: Their fleets and address the looming AR aging fleet profile that they have where those types of opportunities do exist.

Matthew Youssef Elkott: Okay, good. That's helpful. And then Matt, I think

Matthew Youssef Elkott: Okay.

Matthew Youssef Elkott: And then math I think.

Matthew Youssef Elkott: It might've been.

Matthew Youssef Elkott: Over a year ago, when you guys filed for.

Matthew Youssef Elkott: Tank car authorization from the E. R can you update us on where that stands if you're still pursuing tank cars and how that would fit into the 5000 car capacity you have with <unk>.

Matthew Youssef Elkott: Incremental to that or would it be.

Matthew Youssef Elkott: The existing footprint to the flexibility to switch some of the existing 5000 car capacity to tank cars.

Matthew Youssef Elkott: Yeah, so a couple things, Matt. We've got multiple tank car designs that are AR approved, and we're watching that market very closely, and we'll enter it at the appropriate time with the right customers that really fits with our capabilities. So there's more to come on that.

Matthew Youssef Elkott: Yeah. So a couple of things Matt we've got multiple tank car designs that are a R approval, we're watching that market very closely and we will enter at an appropriate time with the right customers that really fits with our capabilities.

Matthew Youssef Elkott: So there's more to come on that.

Nicholas J. Randall: It's the question you asked, Matt, about capacity. So we've got a current capacity of about 5,000 units a year, which we're forecasting between 4,000 and 4,400 this year. If, you know, tank cars, we can include in that 5,000, and there are some opportunities for, with additional capex, to increase that 5,000 for any additional tank cars as we see fit. But the short answer is yes, they could fit within the 5,000. There'll be some capital expenditure to support that, but if we needed to, there's an opportunity to flex higher than that if the demand would justify it.

Speaker Change: Yes, No question Ive asked Matt on the on the capacity wise. So we've got a current capacity between states about 5000 units a year, which was forecasted between 4400 this year.

Nicholas J. Randall: If oh tank cars. We can include in that 5000, and there are some opportunities for with additional capex to increase beyond that 5000 for any additional tank cars as we see fit but it's.

Nicholas J. Randall: Sensors, yes, they could fit in the 5000 there'll be some capex to support that but if we needed to theres no change to flex higher than that if the demand would justify it.

Matthew Youssef Elkott: Makes sense, Nick, thank you. Just one last question on the broader market. It is good to see rail service improving, and that should eventually be a tailwind for a shift from the highway. But, as you guys I'm sure would agree, rail velocity improving could be a headwind in the intermediate term for railcar demand. Are you expecting that to be a factor at any time in the coming few quarters where we see, you know, you need fewer railcars to ship the same amount of freight, and that could be a headwind to orders?

Matt: Makes sense nice. Thank you just one last question on the broader market. It's it is getting to see rail service improving and that's eventually should you know be a tailwind for shift from the highway but as you guys I'm sure would agree that you know well.

Matthew Youssef Elkott: So the improvement could be a headwind that intermediate term to railcar demand.

Matthew Youssef Elkott: Are you expecting that to be a factor are at any time in the coming few quarters, where we see you know you need fewer railcars to ship the same amount of freight and that could be a headwind to orders.

Matthew Youssef Elkott: Yeah, I think I would, I would go back to my earlier comments on the overall market and the efficiency that railroads bring versus trucking, right? I know you're familiar with the ability for railroads to carry a ton of freight 450 miles on one gallon of diesel, and I think that's a compelling argument and continues to be one of the most efficient modes to carry freight. I see where you're headed.

Matthew Youssef Elkott: Yeah, I think I would I would go back to.

Matthew Youssef Elkott: Yeah, My earlier comments on the on the overall market and the efficiency that the railroads bring AR versus trucking right. I know you are familiar with the the.

Matthew Youssef Elkott: The ability for railroads to carry a ton of freight 450 miles on a one gallon of diesel and I think that's a compelling argument and continues to be one of the most efficient modes to carry freight.

Matthew Youssef Elkott: I don't I see where you're headed I will tell you that I think the only real impact. We're seeing is it's just taking a little bit longer as customers make decisions as they analyze their fleets and what they need but I think the better story is that the growth opportunity as service metrics are continuing to.

Matthew Youssef Elkott: I will tell you that I think the only real impact we're seeing is that it's just taking a little bit longer as customers make decisions, as they analyze their fleets and what they need. But I think the better story is that the growth opportunity as service metrics continue and improve present a really compelling argument for shippers to look to growth and maybe take some of that freight off the highway. We see it as an upside, not really as a near-term downside, and I would say our inquiry levels support that.

Matthew Youssef Elkott: Approved present, a really compelling argument for shippers to look to growth and maybe taking some of that trade off the off the highways.

Matthew Youssef Elkott: We see it as an upside not really as a near term downside and I would say our inquiry level support that.

Speaker Change: Got it just one just one last follow up related to interest rates.

Matthew Youssef Elkott: Just one last follow-up related to interest rates. It's been somewhat of a rollercoaster ride with interest rates over the last few quarters here. Have you seen any, can you attribute any? orders or cancellations or, you know, conversations you were having with customers and, and they want to pause now because of interest rate concerns. Yeah, I was

Matthew Youssef Elkott: It's been somewhat of a roller coaster ride with interest rates over the last few quarters here have you seen any can you attribute any.

Matthew Youssef Elkott: Borders or lack thereof, or cancellations or conversation.

Matthew Youssef Elkott: Conversation you were having with customers in and they want a pause now because.

Matthew Youssef Elkott: Because of interest rate concerns.

Matthew Youssef Elkott: Yeah, I would say that from the lessor community, which is obviously watching that closely, you know, if you talk to the lessors, they'll tell you that from a majority perspective, each are in 98% utilization of their fleets right now, which is great.

Speaker Change: Yeah, I would I would say that that from the lessor community, which is obviously watching that closely.

Matthew Youssef Elkott: If you talk to the lessors they'll tell you that from a majority perspective each are in the 98%.

Matthew Youssef Elkott: Of our utilization of their fleets right now.

Matthew Youssef Elkott: And which is great.

Matthew Youssef Elkott: But what is what is happening as it relates to the interest rates I think is the.

Matthew Youssef Elkott: Fact that they are all looking very carefully at any speculative build so I think that's where you're seeing.

Matthew Youssef Elkott: But what is happening related to interest rates, I think, is that they are all looking very carefully at any speculative bill. So I think that's where you're seeing some more discipline in the marketplace because previously we had seen a significant ramp-up of bills based on speculation. And I think the smaller community and the shippers, as well, are a lot more careful about speculating on the demand for rail versus not having a lease in hand before they make that decision.

Matthew Youssef Elkott: <unk> seen some more discipline in the market places that previously we had seen significant ramp up of builds based on speculation.

Matthew Youssef Elkott: And I think the lessor community and the shippers as well are a lot more careful about speculating on on the demand for rail versus not having a lease in hand before they make that decision.

Matthew Youssef Elkott: Great. Thank you guys very much. I appreciate it.

Speaker Change: Great. Thank you guys very much appreciate it.

Nicholas J. Randall: Thanks Matt. Thanks Matt. Thank you.

Speaker Change: Thanks, Matt Thanks, Matt.

Nicholas J. Randall: Yes.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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