Q2 2024 FreightCar America Inc Earnings Call
Attendee, James Meyer, Michael Riordan, Nicholas Randall, Nicholas Randall, Nicholas Randall,
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Operator: Thank you for watching; see you in the next video. Welcome to FreightCar America's second quarter 2024 earnings conference call. At this time, all participants are in listen-only mode.
Speaker Change: Welcome to Freight Car America's second quarter of 2024 earnings conference call. At this time, all participants are in listen-only mode.
Operator: For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comment. Please note that this conference call 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 Reverend Investor Relief. Thank you.
Speaker Change: For those of you participating on 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 Riverrun Investor Relations.
Chris O'Day: Joining me today are Nick Randall, President and Chief Executive Officer, Mike Riordan, Chief Financial Officer, and Matt Tan, Chief Commercial Officer. I'd like to remind everyone that statements made during the conference call related 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.
Chris O'Day: Thank you and welcome. Joining me today are Nick Randall, President and Chief Executive Officer, Mike Riordan, Chief Financial Officer, and Nat Tan, Chief Commercial Officer.
Chris O'Day: Some of these may be outside of the control of the company and may cause actual results to materially differ from those expressed in the forward-looking statement. 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.
Speaker Change: I'd like to remind everyone that statements made during the conference call relating to the company's expected future performance
Speaker Change: Future Business Prospects or Future Events or Plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.
Speaker Change: Participants are directed to freight car Americas Form 10-K for description of certain business risks, some of which may be outside of control of the company and may cause actual results to materially differ from those expressed in the forward-looking statements.
Speaker Change: We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: 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 GAP. Reconciliations of these non-GAP measures to their most directly comparable GAP measures are included in earnings release issued yesterday afternoon.
Chris O'Day: 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 second quarter 2024 is posted on the company's website and freightcaramerica.com along with 8k which was filed yesterday after market. With that, let me now turn the call over to Nick for a few opening remarks. Thank you, Chris.
Speaker Change: Our earnings release for the second quarter of 2024 is posted on the company's website at FreightCarAmerica.com, along with 8K, which was filed yesterday after market. With that, let me now turn the call over to Nick for a few opening remarks.
Nick Randall: Good morning, everyone. And thank you all for joining us today. As you may recall, over the past five years, we have undergone substantial transformative initiatives to diversify our product offering and deepen our existing customer relationships, all while strategically repositioning our operations at a significantly reduced cost. In the first half of the fiscal year, we are showcasing just that as we reap the benefits of our comprehensive transformation. We are delivering world-class operations and commercial excellence as we meet the needs of our customers' requirements.
Nick Randall: Thank you, Chris. Good morning, everyone, and thank you all for joining us today.
Nick Randall: As you may recall, over the past five years we have undergone substantial transformative initiatives to diversify our product offering and deepen our existing customer relationships, all while strategically repositioning our operations at a significantly reduced cost base.
Nick Randall: For the first half of the fiscal year, we are showcasing Just That as we reap the benefits from our comprehensive transformation. We are delivering world-class operations and commercial excellence as we meet the needs of our customers' requirements.
Nick Randall: Additionally, we are further developing our presence as a premier manufacturer of railcars with a proven runway for growth as we continue to execute on our strong momentum. In terms of our second quarter results, revenues grew 66% over the prior year on deliveries of 1,159 railcars, and we achieved a record-adjusted EBITDA of $12.1 million at our new facility. As a reminder, this comes on the heels of a strong first quarter in which we achieved record 99% growth in revenue and 192% growth in adjusted EBITDA.
Speaker Change: Additionally, we are further developing our presence as a premier manufacturer of railcars with a proven runway for growth as we continue to execute on our strong momentum.
Speaker Change: In terms of our second quarter results, revenues grew 66% over the prior year on deliveries of 1,159 railcars, and we achieved a record-adjusted EBITDA of £12.1 million at our new facility.
Speaker Change: As a reminder, this comes off the heels of a strong first quarter in which we achieved a record 99% growth in revenue and 192% growth in adjusted EBITDA.
Nick Randall: For the first half of the year, we have achieved historically high levels of orders and inquiries as well as made advancements in expanding our market share in line with our ongoing commitments to driving profitable growth. Industry data confirms that we are growing our market presence in the rail car segments that we operate, unknown.chau. We have also made significant progress in broadening our product offerings with a major multi-year tank car conversion order, which is a vital component of our next phase of growth. Finally, we recently celebrated the milestone of shipping our 10,000th railcar out of our Castaos facility, a remarkable milestone that highlights our vision to be the premier manufacturer in the industry.
Speaker Change: Through the first half of the year, we have captured historically high levels of orders and inquiries as well as made advancements in expanding our market share in line with our ongoing commitment to driving profitable growth.
Speaker Change: Industry data confirms that we are growing our market presence in the rail car segments that we operate in, including covered hoppers, which represents the largest product segment of car types in this space.
Speaker Change: We have also made significant progress in broadening our product offerings with a major multi-year tank car conversion order, which is a vital component of our next phase of growth.
Speaker Change: Finally, we recently celebrated the milestone of shipping our 10,000th rail car out of our Castaños facility, a remarkable milestone that highlights our vision to be the premier manufacturer in the industry.
Nick Randall: As we have just discussed, rail equipment demand remains healthy, with stable industry dynamics providing confidence in our ability to capture consistent inquiries and orders within our target market. This spans across our diversified portfolio and flexible production lines that provide us with the ability to execute in any market environment. In terms of order activity for the quarter, we received net orders of 2,916 units valued at $285 million, the highest we have seen since the fourth quarter of 2014.
Speaker Change: As we have just discussed before, rail equipment demand remains healthy with stable industry dynamics providing confidence in our ability to capture consistent inquiries and orders within our target market.
Speaker Change: This spans across our diversified portfolio and flexible production lines that provide us with the ability to execute in any market environment.
Speaker Change: In terms of order activity for the quarter, we received net orders of 2,916 units valued at $285 million, the highest we have seen since the fourth quarter of 2014.
Nick Randall: With replacement rates projected to be close to 40,000 cars for the full year, a stable industry demand outlook gives us continued confidence in our business model and our ability to further grow our pipeline. Now, I would like to now expand on an exciting update that I mentioned earlier regarding our product offering. With our long legacy in the rail car conversion space and expanded manufacturing capabilities, we were able to secure a significant multi-year tank car conversion order. This expands our portfolio of offerings even further and establishes our footing within the tank car sector.
Speaker Change: With replacement rates projected to be close to 40,000 cars for the full year, a stable industry demand outlook gives us continued confidence in our business model and our ability to further grow our pipeline.
Speaker Change: I would like to now expand on an exciting update that I mentioned earlier regarding our product offerings.
Speaker Change: With our long legacy in the rail car conversion space and expanded manufacturing capabilities, we were able to secure a significant multi-year tank car conversion order. This expands our portfolio of offerings even further and establishes our footing within the tank car space.
Nick Randall: This multi-year contract is a significant stepping stone for us and aligns with our strategic vision to further elevate our market presence, meet our customers' needs, and further optimize our production capacity for large-scale projects. The second quarter also marks the third consecutive quarter of shipping over 1,000 units from our Castaos facility.
Speaker Change: This multi-year contract is a significant stepping stone for us and aligned with our strategic vision to further elevate our market presence, meet our customers needs, and further optimize our production capacity for large-scale projects.
Speaker Change: The second quarter also marks the third consecutive quarter of shipping over 1,000 units from our Castaños facility.
Nick Randall: This demonstrates that the strategy and effectiveness of our operations are in full effect and provides confidence in our ability to realize our capacity thresholds to produce between 4,000 and 6,000 rail cars per year. Looking ahead, we remain committed to sustaining this momentum by capturing quality orders with a sharp focus on maintaining our commercial discipline. This means delivering the best value proposition tailored to individual customer needs, providing exceptional attention and service, while striking the right balance of backlog, quality of earnings, and order quantity.
Speaker Change: This demonstrates that the strategy and effectiveness of our operations are in full effect and provides confidence in our ability to realize our capacity thresholds to produce between 4,000 and 6,000 railcars per year.
Speaker Change: Looking ahead, we remain committed to sustaining this momentum by capturing quality orders with a sharp focus on maintaining our commercial discipline.
Speaker Change: This means delivering the best value proposition tailored to individual customer needs, providing exceptional attention and service, while striking the right balance of backlog, quality of earnings, and order quantity.
Nick Randall: I would like to conclude my comments by touching on our outlook for the remainder of the year 2024. With this course's impressive performance and strong order momentum, we are confident in our market position through the back half of the year and are raising our guidance accordingly. We are raising our forecasted revenue to between $560 million and $600 million, up approximately 62% year-over-year at the midpoint of the range. This expectation is based on expected deliveries, which we are also raising to between 4,300 to 4,700 railcars, an increase of approximately 48.9% at the midpoint of the range. We are also raising our forecasted adjusted EBITDA guidance to between $35 million and $39 million for the full year. This represents a year-over-year increase of 84.1% at the mid-term.
Speaker Change: I would like to conclude my comments by touching on our outlook for the remainder of the year 2024. With this quarter's impressive performance and strong order momentum, we are confident in our market position through the back half of the year and are raising our guidance accordingly.
Speaker Change: We are raising our forecasted revenue to between $560 million and $600 million, up approximately 62% year-over-year at the midpoint of the range.
Speaker Change: This expectation is based on expected deliveries, which we are also raising to between 4,300 to 4,700 railcars, an increase of approximately 48.9% at the midpoint of the range.
Speaker Change: We are also raising our forecasted adjusted EBITDA guidance to between $35 million and $39 million for the full year. This represents a year-over-year increase of 84.1% at the midpoint.
Nick Randall: Finally, we continue to expect positive operating cash flow for the third consecutive year. As we move forward, our focus remains on enhancing our robust product portfolio, gaining market share both with new and existing customers, and then continuing to leverage our proven manufacturing platform to drive sustained growth. We are well positioned to benefit from the current industry trends and execute our strategic initiatives with precision. With the solid foundation we have built and confidence in our ability to scale and seize new opportunities in the market,
Speaker Change: Finally, we continue to expect positive operating cash flow for the third consecutive year.
Speaker Change: As we move forward, our focus remains on enhancing our robust product portfolio, gaining market share both with new and existing customers, and then continuing to leverage our proven manufacturing platform to drive sustained growth.
Speaker Change: We are well positioned to benefit from the current industry trends and executing our strategic initiatives with precision.
Speaker Change: With the solid foundation we have built and confidence in our ability to scale and seize new opportunities in the market, our unwavering commitment to innovation, quality and customer satisfaction will guide us as we create value through continued growth.
Nick Randall: Our unwavering commitment to innovation, quality, and customer satisfaction will guide us as we create value through continued growth. 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. Thank you, Nick, and good morning, everyone.
Speaker Change: 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.
Matt Tan: We continue to see improved rail service metrics contributing to an overall healthy industry environment in the second quarter. As Nick mentioned earlier, we are aligned with the industry's forecast of railcar deliveries to be in the range of 40,000 to 42,000 railcars in 2024. Overall, we see a continuation of demand closely tied to replacements and in the range of 40,000 railcars annually for the foreseeable future. For the second quarter of 2024, we closed net orders for 2916 railcars valued at approximately $285 million.
Matt: Thank you, Nick, and good morning, everyone.
Speaker Change: We continue to see improved rail service metrics contributing to an overall healthy industry environment in the second quarter. As Nick mentioned earlier, we are aligned with the industry's forecast of railcar deliveries to be in the range of 40,000 to 42,000 railcars.
Speaker Change: in 2024. Overall, we see a continuation of demand closely tied to replacements and in the range of 40,000 railcars annually for the foreseeable future.
Speaker Change: For the second quarter of 2024, we closed net orders for 2,916 railcars valued at approximately $285 million.
Matt Tan: The first half of the year has shown robust activity as we experienced the highest level of orders since our transformation in Mexico, along with substantial growth in both our backlog and shipment. As expected, for many freight segments, customers are still taking longer to fully analyze the timing of their new rail car purchases, but overall, we are seeing consistent inquiries as a result of our flexible commercialization strategy, and with strong momentum in the first half of the year, our production line is essentially sold out.
Speaker Change: The first half of the year has shown robust activity as we experience the highest level of orders since our transformation in Mexico, along with substantial growth in both our backlog and shipments.
Speaker Change: As expected, for many freight segments, customers are still taking longer to fully analyze the timing of their new railcar purchases, but overall we are seeing consistent inquiries as a result of our flexible commercialization strategy.
Speaker Change: With the strong momentum in the first half of the year, our production line is essentially sold out. We are positioned well to close out the remainder of the fiscal year within our expected range. Additionally, our portfolio remains a healthy mix of car types, ensuring we meet diverse customer needs.
Matt Tan: We are positioned well to close out the remainder of the fiscal year within our expected range. Additionally, our portfolio remains a healthy mix of car types, ensuring we meet diverse customer needs. We ended the second quarter with a backlog of 3,833 railcars valued at approximately $382 million, representing the second-highest level we have seen since 2016. Within our North America addressable North American addressable market of existing car types, we realized market share gains during the quarter for orders across gondolas, flat cars, and open top hoppers. These car types serve a diversified customer base, are regularly in demand, and are critical to industrial and agricultural market segments of our economy.
Speaker Change: We ended the second quarter with a backlog of 3,833 railcars valued at approximately $382 million, representing the second highest level we have seen since 2016.
Speaker Change: Within our North American addressable market of existing car types, we have realized market share gains during the quarter for orders across Gondolas, flat cars, and open-top hoppers.
Speaker Change: These car types serve a diversified customer base, are regularly in demand, and critical to industrial and agricultural market segments of our economy. Our improved market share is a testament to our team executing a commercial strategy focused on delivering value in every step of the process.
Matt Tan: Our improved market share is a testament to our team executing the commercial strategy focused on delivering value in every step of the process. In addition to maintaining strong momentum within our existing car types, as part of our plans to grow our product portfolio, we have recently secured a significant multi-year deal to convert over 1000 existing DOT-111 tank cars to the federally mandated DOT-117R tank cars over a two-year period. Railcar conversions have been core to our business over our storied history, including the delivery of over 15,000 conversions and rebodied railcars.
Speaker Change: In addition to maintaining strong momentum within our existing car types, as part of our plans to grow our product portfolio, we have recently secured a significant multi-year deal to convert over 1,000 existing DOT-111 tank cars to the federally mandated DOT-117R tank cars over a two-year period.
Speaker Change: Railcar conversions have been core to our business over our storied history, including the delivery of over 15,000 conversions of rebodied railcars.
Matt Tan: This new agreement showcases one of our key competencies, while also expanding our capability as a reliable partner within the tank car market segment. Our Castano facility is equipped to handle large scale sale conversion projects efficiently, and our historical presence and expertise in rail car modifications were among the primary factors that helped us secure this win.
Speaker Change: This new agreement showcases one of our key competencies while also expanding our capability as a reliable partner within the tank car market segment.
Speaker Change: Our Castagnos facility is equipped to handle large-scale conversion projects efficiently, and our historical presence and expertise in railcar modifications were among the primary factors that helped us secure this win.
Matt Tan: By entering the tank car space, we are not only expanding our market and customer base but demonstrating our ability to deliver tank car upgrades engineered for optimal safety and performance. I am pleased by our demonstrated capabilities to operate at higher capacity levels and meet customer demands. Our facility was purpose-built to maintain the agility needed to meet customer requirements.
Speaker Change: By entering into the tank car space, we are not only expanding our adjustable market and customer base, but demonstrating our ability to deliver tank car upgrades engineered for optimal safety and performance.
Speaker Change: I am pleased by our demonstrated capabilities to operate at higher capacity levels and meet customer demands. Our facility was purpose-built to maintain the agility needed to meet customer requirements and meet customer needs.
Speaker Change: And we are executing on these priorities while our sales team focuses on growing our pipeline to meet our expanded capacity for various car types. I'll now turn the call over to Mike for comments related to our financial performance. Mike?
Matt Tan: And we are executing on these priorities while our sales team focuses on growing our pipeline to meet our expanded capacity for various car types. I'll now turn the call over to Mike for comments related to our financial performance. Thanks, Matt, and good morning, everyone.
Mike Riordan: I'll begin with an overview of the second quarter's financial results. We are extremely pleased with our second quarter results as we deliver year-over-year revenue growth, record quarterly profitability, and record orders at our Mexico facility. Consolidated revenues for the second quarter of 2024 totaled $147.4 million with deliveries of 1,159 railcars compared to $88.6 million on deliveries of 760 railcars in the second quarter of 2023. Gross profit in the second quarter of 2024 was $18.4 million, with a gross margin of 12.5% compared to gross profit of $13 million and a gross margin of 14.6% in the second quarter of last year. Lower gross margin performance as compared to the prior year was primarily driven by the second quarter of 2024 delivering all new cars versus the prior year comparable period including deliveries of car conversions.
Mike Riordan: Thanks Matt, and good morning everyone. I'll begin with an overview of the second quarter's financial results. We are extremely pleased with our second quarter results as we delivered year-over-year revenue growth, record quarterly profitability, and record orders at our Mexico facility.
Mike Riordan: Additionally, we saw a sequential improvement of 550 basis points from the first quarter of 2024 as we saw a favorable mix of car types delivered, coupled with our fourth production line running at full capacity for the entire quarter. We expect our freight car gross margin to remain at industry-leading levels for the full year as we continue to realize the operational efficiencies of our facility running at full capacity. SG&A for the second quarter of 2024 totaled $8.5 million, up from $5.9 million in the second quarter of 2023, primarily due to the second quarter of last year having a favorable mark-to-market adjustment on certain stock-based compensation awards. Excluding stock-based compensation, SG&A as a percentage of revenue decreased 150 basis points from the prior year as we continue to maintain disciplined SG&A spend.
Mike Riordan: Consolidated revenues for the second quarter of 2024 totaled $147.4 million with deliveries of 1,159 railcars compared to $88.6 million on deliveries of 760 railcars in the second quarter of 2023.
Mike Riordan: Gross profit in the second quarter of 2024 was $18.4 million with a gross margin of 12.5% compared to gross profit of $13 million and gross margin of 14.6% in the second quarter of last year.
Mike Riordan: Lower gross margin performance as compared to the prior year was primarily driven by the second quarter of 2024 delivering all new cars versus the prior year comparable period including deliveries of car conversions.
Mike Riordan: Additionally, we saw a sequential improvement of 550 basis points from the first quarter of 2024 as we saw a favorable mix in car types delivered, coupled with our fourth production line running at full capacity for the entire quarter.
Mike Riordan: We expect our freight car gross margin will remain at industry-leading levels for the full year as we continue to realize the operational efficiencies of our facility running at full capacity.
Mike Riordan: SG&A for the second quarter of 2024 totaled $8.5 million, up from $5.9 million in the second quarter of 2023, primarily due to the second quarter of last year having a favorable mark-to-market adjustment on certain stock-based compensation awards.
Mike Riordan: Excluding stock-based compensation, SG&A's percentage of revenue decreased 150 basis points from the prior year as we continue to maintain disciplined SG&A spend. As a result of the business model we designed, this creates significant operating leverage to our bottom line as our production output reaches full capacity.
Mike Riordan: As a result of the business model we designed, this creates significant operating leverage for our bottom line as our production output reaches full capacity. For example, in the second quarter of 2024, we achieved adjusted EBITDA of $12.1 million, compared to $8 million in the second quarter of 2023, primarily driven by increased rail car deliveries between the comparable periods. For the second quarter of 2024, our adjusted net income was $6.3 million, or $0.05 per diluted share, compared to adjusted net income of $2.1 million, or $0.02 per share, in the second quarter of last year.
Mike Riordan: In the second quarter of 2024, we achieved adjusted EBITDA of $12.1 million, compared to $8 million in the second quarter of 2023, primarily driven by increased rail car deliveries between the comparable periods.
Mike Riordan: For the second quarter of 2024, our adjusted net income was $6.3 million or $0.05 per diluted share compared to adjusted net income of $2.1 million or $0.02 per share in the second quarter of last year.
Mike Riordan: Adjusted net income accounts for the impact of certain non-cash items and non-recurring items, such as the change in fair market value of our warrant liability and a favorable non-recurring cash item during the second quarter of this year associated with the litigation settlement related to our former lease lease.
Mike Riordan: Adjusted net income accounts for the impact of certain non-cash items and non-recurring items, such as the change in fair market value of our warrant liability and a favorable non-recurring cash item during the second quarter of this year associated with the litigation settlement related to our former lease fleet.
Mike Riordan: Capital expenditures for the second quarter of 2024 were approximately 1.3 million, and our full year forecast of capital expenditure remains unchanged at 5 to 7 million. Finally, I'm pleased to report the progress of one of our primary strategic objectives, strengthening our cash flow generation capabilities, which we have made remarkable progress on during the quarter. We currently hold $39.4 million in cash, have no outstanding borrowings on our revolving credit facility, and generate robust operating cash flow.
Mike Riordan: Capital expenditures for the second quarter of 2024 were approximately 1.3 million and our full-year forecast of capital spend remains unchanged at 5 to 7 million.
Mike Riordan: Finally, I'm pleased to report the progress of one of our primary strategic objectives, strengthening our cash flow generation capabilities, which we have made remarkable progress on during the quarter.
Mike Riordan: We currently hold $39.4 million in cash, no outstanding borrowings on our revolving credit facility, and generate robust operating cash flow.
Mike Riordan: The working capital headwinds we incurred in the fourth quarter of last year fully resolved themselves in the first quarter, resulting in the normalization of our working capital and the generation of $31.9 million in operating cash flow during the first half of 2024. With our balance sheet in a healthy position and the continued execution of commercial and operational excellence initiatives, our business is poised to efficiently service the debt we incurred to support our transformation and ultimately positions us favorably for continued growth and value creation for our shareholders.
Mike Riordan: The working capital headwinds we incurred in the fourth quarter of last year fully resolved themselves in the first quarter, resulting in the normalization of our working capital and the generation of $31.9 million in operating cash flow during the first half of 2024.
Speaker Change: With our balance sheet in a healthy position, and the continued execution on commercial and operational excellence initiatives, our business is poised to efficiently service the debt we incurred to support our transformation, and ultimately positions us favorably for continued growth and value creation for our shareholders.
Mike Riordan: With that financial overview, I'd like to now open the line for Q&A. At this time, we'll 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'd like to withdraw your question from the queue. However, when choosing speaker equipment, it may be necessary to pick up your handset before pressing the start key.
Speaker Change: With that financial overview, I'd like to now open the line for Q&A.
Speaker Change: Thank you. At this time, we'll be conducting a question and answer session.
Speaker Change: If you'd 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.
Speaker Change: You may press star 2 if you would like to withdraw your question from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, while we poll for questions. Thank you. And our first question is from Mark Reichman with Noble Capital Markets.
Speaker Change: One moment, please, while we poll for questions.
Speaker Change: Thank you. And our first question comes in the line of Mark Reichman with Noble Capital Markets. Please proceed with your question.
Mark Reichman: I was curious, when will your inventory numbers begin to reflect the tank car conversion order that's reflected in the backlog, or maybe ask another way, when will the revenue get recognized from the order? From the inventory perspective, Mike, I'll let you address that. But the timing of the order is really tied to our customers' demand.
Speaker Change: Yes, I was curious, when will your inventory numbers begin to reflect the tank car conversion order that's reflected in the backlog, or maybe ask another way, when will the revenue get recognized from the order?
Nick Randall: They're looking for delivery of the cars to be completed by the 2029 timeframe, which is the federally mandated timeframe. We look to start that program up substantially in 2026. Mike, do you want to say the piece?
Speaker Change: From the inventory perspective, Mike, I'll let you address that, but on the timing of the order is really tied to our customers' demand.
Speaker Change: They're looking for delivery of the cars to be completed by the 2029 timeframe, which is the mandated, the federally mandated timeframe. We look to start that program up substantially in 2026.
Mike Riordan: Yeah, so 2026. And as we noted, it's a two-year program. So you'd be modeling that for 26 and 27. So you won't see any inventory build. In the near term, you won't really see anything of that nature until very early 2026. And then could you just elaborate on the path toward producing new tank cars? I mean, do you think you would be ready by 2028?
Speaker Change: Mike, you want to say a piece? Yeah, so 2026, and as we noted, it's a two-year program, so you'd be modeling that 26 and 27, so you won't see any inventory build in the near term. You won't really see anything of that nature until very early 26.
Speaker Change: And then could you just elaborate on the path towards producing new tank cars? I mean, do you think you would be ready by 2028?
Nick Randall: Mark, let me answer that in two steps. One is the market for, excuse me, the market for tank cars is around about 8,000 units a year. We have design approval for covers about half of that, so about 4,000 of the 8,000, excuse me, is the addressable market. So we are approved to take or receive orders at any time a customer wishes to place them. There's a period of work to be done to configure the plant for it, but that can be aligned with when customers want to place them, but we would expect that they would typically do the conversion work in 2026 and then, in parallel, be prepared to take on new tank cars after that period.
Speaker Change: Well, let me answer.
Speaker Change: that in two steps. One is the...
Speaker Change: The market for tank cars is around 8,000 units a year.
Speaker Change: We have design approval for about half of that, so about 4,000 of the 8,000, excuse me, is addressable market.
Speaker Change: So we are approved to take
Speaker Change: will receive orders at any time a customer wishes to place them.
Speaker Change: This is a period of work to be done to configure the plant for it, but that can be aligned with when customers want to place them, but we would expect that
Speaker Change: Typically do the conversion work in 2026 and then in parallel be prepared to take on new tank cars after that period
Mike Riordan: And then my final question is, Michael, are you able to provide any details on plans to recapitalize the balance? Yeah, so I'll say that that is still one of our primary strategic objectives for this year, to complete that this year, which will be very beneficial to our free cash flow generation going forward. And everything we've done through the first two quarters is setting us up nicely for that.
Speaker Change: My final question is, Michael, are you able to provide any details on plans to recapitalize the balance sheet?
Yeah so I'll say that that is still one of our primary strategic objectives for this year is to to complete that this year which will
Michael Riordan: be very beneficial to our free cash flow generation going forward and Everything we've done through the first two quarters is setting us up nicely for that
Mike Riordan: Thank you very much. You're welcome. Thanks, Mark.
Michael Riordan: Thank you very much.
Operator: As a reminder, if you'd like to ask a question, you can press star 1 on your telephone keypad. At this time, this concludes our question and answer session. This will also conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time and have a great day.
Mark Reichman: You're welcome. Thanks, Mark.
Speaker Change: As a reminder, if you'd like to ask a question, you can press star 1 on your telephone keypad.
Speaker Change: You
Speaker Change: i
Speaker Change: Thank you. At this time, this concludes our question and answer session. This also concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time, and have a great day.
Speaker Change: You You
Operator: Welcome to FreightCar America's second quarter of 2024 earnings conference call. At this time, all participants are in listen only mode. For those who are participating in the conference call, there are an opportunity for your questions at the end of today's prepared comments.
Operator: Please note that this conference is being recorded. In order to replay the conference call, we will be available on the company's website within a few hours after this call.
Chris O'Day: I would now like to turn the call over to Chris O'Day with Reverend Investor Relations. Thank you and welcome.
Chris O'Day: Joining me today are Nick Randall, President and Chief Executive Officer, Mike Riordan, Chief Financial Officer, and Nat Thon, Chief Commercial Officer. I'd like to remind everyone that statements made during the conference call related 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 security litigation reformat of 1995. Participants are directed FreightCar America's Form 10K for description of certain business risks, some of which may be outside of control of the company that may cause actual results to materially differ from those expressed in the forward looking statements.
Chris O'Day: We expressly displaying 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 US generally except accounting principles or gap. Reconciliation of these non-gap measures to their most directly comparable gap measures are included in earnings release issued yesterday afternoon.
Operator: Artings released for the second quarter of 2024 is posting the company's website at FreightCarAmerica.com, along with AK, which was filed yesterday after market.
Nick Randall: With that, let me now turn the call over to Nick for a few opening remarks. Thank you, Chris.
Nick Randall: Good morning, everyone, and thank you all for joining us today. As you may recall, over the past five years, we have undergone substantial transformative initiatives to diversify our product offering and deepen our existing customer relationships, all while strategically repositioning our operations at a significantly reduced cost-based. For the first half of the fiscal year, we are showcasing just that as we reap the benefits from our comprehensive transformation. We are delivering world-class operations and commercial excellence as we meet the needs of our customers' requirements.
Nick Randall: Additionally, we are further developing our presence as a premier manufacturer of rail cars with a proven runway for growth as we continue to execute our strong momentum. In terms of our second-course results, revenues grew 66% over the prior year on deliveries of 1,159 rail cars, and we achieved a record-adjusted EBIDAR of 12.1 million at our new facility. As a reminder, this comes off the heels of a strong first quarter in which we achieved a record 99% growth in revenue and a 190% growth in adjusted EBIDAR.
Nick Randall: For the first half of the year, we have captured historically high levels of orders and inquiries as well as made advancements in expanding our market share in line with our ongoing commitments to driving profitable growth. Industry data confirms that we are growing our market presence in the rail car segments that we operate, him, including Covid Hoppers, which represents the largest product segment of car types in this space. We have also made significant progress in broadening our product offerings with a major multi-year tank car conversion order, which is a vital component of our next phase of growth.
Nick Randall: Finally, we recently celebrated the milestone of shipping our 10,000th rail car out of our factory in the industry. As we have discussed before, rail equipment demand remains healthy with stable industry dynamics providing confidence in our ability to capture consistent inquiries and orders within our target market. This spans across our diversified portfolio and flexible production lines that provide us with the ability to execute in any market environment. In terms of order activity for the quarter, we received net orders of 2,916 units valued at $285 million.
Nick Randall: The highest we have seen since the 4th quarter of 2014. We've replaced and raised projected to be close to 40,000 cars for the full year. A stable industry demand outlook gives us continued confidence in our business model and our ability to further grow our pipeline.
Nick Randall: I would like to now expand on an exciting update that I mentioned earlier regarding our product offerings with our long legacy in the rail car conversion space and expanded manufacturing capabilities. We were able to secure a significant multi-year tank car conversion order. This expands our portfolio of offerings even further and establishes operating within the tank car space. This multi-year contract is a significant stepping stone for us and aligned with our strategic vision to further elevate our market presence, meet our customers needs and further optimize our production capacity for large-scale projects.
Nick Randall: The second quarter also marks the 3rd consecutive quarter of shipping over 1,000 units from our custanious facility. This demonstrates that the strategy and effectiveness of our operations are in full effect and provides confidence and our ability to realize our capacity thresholds to produce between 4,000 and 6,000 rail cars per year. Looking ahead, we remain committed to sustaining this momentum by capturing quality orders with a sharp focus on maintaining our commercial discipline. This means delivering the best value proposition tailored to individual customer needs, providing exceptional attention and service, while striking the right balance of backlog, quality of earnings and order quantity.
Nick Randall: I would like to conclude my comments by touching on our outlook to the remainder of the year 2024. With this course's impressive performance and strong-ordinate momentum, we are confident in our market position through the back half of the year and are raising our guidance accordingly. We are raising our forecast of revenue to between 560 million and 600 million, but approximately 62% year-over-year at the midpoint of the range. This expectation is based on expected deliveries, which we are also raising to between 4,300 to 4,700 rail cars and increase of approximately 48.9% at the midpoint of the range.
Nick Randall: We are also raising our forecast as adjusted EBITDA guidance to between 35 million and 39 million for the full year. This representing the year over the year increase of 84.1% at the midpoint. Finally, we continue to expect positive operating cashflow for the third consecutive year. We are well positioned to benefit from the current industry trends and executing our strategic initiatives with position. With the side foundation we have built and confidence in our ability to scale and seize new opportunities in the market. Our unwavering commitment to innovation, quality and customer satisfaction will guide us as we create value through continued growth.
Matt Thon: With that, I will next tell a column to Matt to discuss the market and then to Mike from all detail and financial results. Thank you Nick and good morning everyone. We continue to see improved rail metrics contributing to an overall healthy industry environment in the second quarter. As Nick mentioned earlier, we are aligned with the industry's forecast of rail car deliveries to be in the range of 40,000 to 42,000 rail cars in 2024.
Matt Thon: Overall, we see a continuation of demand closely tied to replacements and in the range of 40,000 rail cars annually for the foreseeable future. For the second quarter of 2024, we close and net orders for 2,916 rail cars valued at approximately 285 million. The first half of the year has shown robust activity as we experience the highest level of orders since our transformation in Mexico, along with substantial growth in both our backlog and shipments.
Matt Thon: As expected, for many freight segments, customers are still taking longer to fully analyze the timing of their new rail car purchases, but overall we are seeing consistent inquiries as a result of our flexible commercialization strategy. With the strong momentum in the first half of the year, our production line is essentially sold out and we are positioned well to close out the remainder of the fiscal year within our expected range. Additionally, our portfolio remains a healthy mix of car types ensuring we meet diverse customer needs.
Matt Thon: We ended the second quarter with a backlog of 3,833 rail cars valued at approximately 382 million, representing the second highest level we have seen since 2016. Within our North America-addressed American-addressable market of existing car types, we have realized market share gains during the quarter for orders across condolas, flat cars, and open-top hoppers. These car types serve a diversified customer base, our regularly in demand, and critical to industrial and agricultural market segments of our economy.
Matt Thon: Our improved market share is a testament to our team executing the commercial strategy focused on delivering value in every step of the process. In addition to maintaining strong momentum within our existing car types, as part of our plans to grow our product portfolio, we have recently secured a significant multi-year deal to convert over 1,000 existing DOT 111 tank cars to the federally mandated DOT 117R tank cars over a two-year period. Railcar conversions have been core to our business over our storied history, including the delivery of over 15,000 conversions and rebody rail cars.
Matt Thon: This new agreement showcases one of our key competencies while also expanding our capability as a reliable partner within the tank car market segment. Our custodial facility is equipped to handle large-scale conversion projects efficiently, and our historical presence and expertise in railcar modifications were among the primary factors that helped us secure this win. By entering into the tank car space, we are not only expanding our adjustable market and customer base, but demonstrating our ability to deliver tank car upgrades engineered for optimal safety and performance.
Matt Thon: I am pleased by our demonstrated capabilities to operate at higher capacity levels and meet customer demands. Our facility was purpose built to maintain the agility needed to meet customer requirements, and we are executing on these priorities while our sales team focuses on growing our pipeline to meet our expanded capacity for various car types.
Mike Riordan: I'll now turn the call over to Mike for comments related to our financial performance. Mike. Thanks, Matt.
Mike Riordan: Good morning, everyone. I'll begin with an overview of the second quarter's financial results. We are extremely pleased with our second quarter results as we deliver year-over-year revenue growth, record quarterly profitability, and record orders at our Mexico facility. Consolidated revenues for the second quarter of 2024 totaled 147.4 million with deliveries of 1,159 rail cars compared to 88.6 million on deliveries of 760 rail cars in the second quarter of 2023. Gross profit in the second quarter of 2024 was 18.4 million with a gross margin of 12.5%, compared to gross profit of 13 million and gross margin of 14.6% in the second quarter of last year.
Mike Riordan: Lower gross margin performance as compared to the prior year was primarily driven by the second quarter of 2024 delivering all new cars versus the prior year comparable period including deliveries of car conversions. Additionally, we saw sequential improvement of 550 basis points from the first quarter of 2024 as we saw a favorable mix in car types delivered coupled with our fourth production line running at full capacity for the entire quarter. We expect our freight car gross margin will remain at industry leading levels for the full year as we continue to realize the operational efficiencies of our facility running at full capacity.
Mike Riordan: SGNA for the second quarter of 2024 totaled 8.5 million up from 5.9 million in the second quarter of 2023 primarily due to the second quarter of last year having a favorable mark-to-market adjustment on certain stock based compensation awards. Excluding stock based compensation, SGNA is a percentage of revenue decreased to 150 basis points from the prior year as we continue to maintain discipline SGNA spend. As a result of the business model we design discrete significant operating leverage toward bottom line as our production output reaches full capacity.
Mike Riordan: In the second quarter of 2024 we achieved the just a debita of 12.1 million compared to 8 million in the second quarter of 2023 primarily driven by increased rail car deliveries between the comparable periods. For the second quarter of 2024, our adjusted net income was 6.3 million or 5 cents per diluted share compared to adjusted net income of 2.1 million or 2 cents per share in the second quarter of last year.
Mike Riordan: Adjusted net income accounts for the impact of certain non-cash items and non-recurring items such as the change in fair market value of our warrant liability and a favorable non-recurring cash item during the second quarter of this year associated with the litigation settlement related to our former lease fleet. Capital expenditures for the second quarter of 2024 were approximately 1.3 million and our full-year forecast of capital spend remains unchanged at 5 to 7 million.
Mike Riordan: Finally, I'm pleased to report the progress on one of our primary strategic objectives, strengthening our cash flow generation capabilities which we have made remarkable progress on during the quarter. We currently hold 39.4 million in cash, no outstanding borrowings on our revolving credit facility, and generate robust operating cash flow. The working capital headwinds we incurred in the fourth quarter of last year fully result themselves in the first quarter resulting in the normalization of our working capital and the generation of 31.9 million in operating cash flow during the first half of 2024.
Mike Riordan: With our balance sheet and healthy position and the continued execution on commercial and operational excellence initiatives, our businesses poised to efficiently service the debt we incurred to support our transformation and ultimately positions us favorably for continued growth and value creation for our shareholders.
Operator: With that financial overview, I'd like to now open the line for Q&A. Thank you. At the time when we conducting the question and answer session, if you'd like to ask a question, please press star one on your telephone keypad and confirmation tone to indicate your line is in the question Q. You may press star two if you would like to withdraw your question from the Q. If the difference is in speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please will we pull for questions. Thank you.
Mark Reichman: In our first question, there's a line of Mark Reichman with Noble Capital Markets.
Nick Randall: Please just use your question. Yes, I was curious. When will your inventory numbers begin to reflect the tank car conversion order that's reflected in the backlog or maybe ask another way, when will the revenue get recognized from the order? From the inventory perspective, Mike, I'll let you address that, but on the timing of the order is really tied to our customer's demand. They're looking for delivery of the cars to be completed by the 2029 timeframe, which is the mandated, the federal and mandated timeframe.
Nick Randall: We look to start that program up substantially in 2026. Mike, do you want to say it up please? Yes, in 2026, and as we noted, it's a two-year program, so you'd be modeling that 26 and 27, so you won't see any inventory build in the near term. You won't really see anything of that nature until very early 26.
Nick Randall: And then could you just elaborate on the path towards producing new tank cars? I mean, do you think you would be ready by 2028? Mark, let me answer that in two steps. One is the, another market for, excuse me, market for tank cars is around about 8,000 units a year. We have a design approval for covers about half and that's about 4,000 of the 8,000, excuse me, is a vegetable market. So we are approved to take the receive orders at any time a customer wishes to place them.
Nick Randall: There's a period of work we've done to configure the plant for it, but that can be aligned with when customers want to place them, but we would expect that to be the conversion work in 2026 and then in parallel be prepared to take on new tank cars after that period.
Mike Riordan: Okay, and then my final question is, Michael, are you able to provide any details on plans to recapitalize the balance sheet? Yeah, so I'll say that that is still one of our primary strategic objectives for this year is to to complete that this year, which will be very beneficial to our free cash flow generation going forward and everything we've done through the first two quarters is setting us up nicely for that. Thank you very much. You're welcome. Thanks Mark.
Operator: As a reminder, if I ask a question, you can press star one on your telephone keypad. Thank you.
Operator: At this time, this concludes our question and answer session. Let's also conclude today's conference. Thank you for your participation. You may not disconnect your lines at this time and have a great day.