Freightcar America, Inc.

Greetings. Welcome to the Freight Car America second quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Lisa Fortuna. Thank you. You may begin.

Thank you and welcome. Joining me today are Jim Meyer, President and Chief Executive Officer, Terry Rogers, Chief Financial Officer, and Matt Ton, Chief Commercial Officer. I'd like to remind everyone that statements made during this 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 2020 Form 10-K for description of certain business risks, some which may be outside of the control of the company, that may cause actual results to materially differ from those expressed in the forward-looking statements. 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 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 press release issued this morning. Our earnings release for the second quarter 2021 is posted on the company's website at freightcaramerica.com, and our 10Q will be posted later today after the market close. With that, let me now turn the call over to Jim for his opening remarks.

Thank you, Lisa. Good morning and thank you all for joining us today. Over the last year, we have talked extensively about the transformational journey that we are on and that our investors should measure us by the progress we make each quarter. I'm proud to say that the second quarter was a very strong example of making progress and also in continuing to build momentum. To execute such a sizable transformation, which has included the radical overhaul of our manufacturing footprint and creating our Castanos Mexico facility, there will always be successes and challenges along the way. However, in order to claim victory, the successes will need to significantly outweigh the challenges. And our second quarter was a great example of this. Let's go through the quarter and talk about what it means for the future. First, our revenue was up 114% year over year and 15% sequentially. We delivered 313 rail cars versus 100 in the same period last year. What does this mean to us? It means that our brand new footprint is up and running and capable. It also means that our customers are embracing the new footprint. We delivered our third consecutive quarter of positive gross margin at $3.6 million. This is significant in that our cost structure is now right side up instead of upside down. Our factory size and fixed costs are much more closely aligned to our needs. Also significant, and for the first time in three years, we were profitable at the manufacturing operating income level. That's right, and that is also significant in that it is the next step in our return to company-level profitability. The significance of this is that we are now approaching a phase where a little more of the right volume can push us across the line. And a final thought on the progress of our financials. For the first half of fiscal 2021, our adjusted EBITDA loss decreased to $2 million compared to a loss of $23.2 million in the same period of 2020. This improvement in the face of multiple supply chain constraints and significant raw material inflation truly highlights just how far we have traveled in a year. Shifting topics. The demand environment across almost all of our end markets continues to gain strength. And as Matt will tell you about in a few minutes, our order intake and sales inquiries remain robust. Our customers are very excited about what we have built in Castanos and truly want us to succeed. They have worked with us in countless ways in order for us to get to where we are and it is very appropriate to say thank you to all of our customers. We are increasing our guidance for railcar deliveries for the second quarter in a row and now expect to deliver between 1,750 and 1,850 railcars in fiscal 2021. This is up 20% at the midpoint compared to our original outlook of 1,400 to 1,600 rail cars at the start of the year. During the quarter, we continue to make progress in the construction of our own fabrication shop, as well as our new wheel and axle shop at Castanos, which we have spoken about in previous calls. When these work streams are completed in early 2022, They will allow us to take a large majority of our fabrications in-house and do additional finishing operations on our wheel and axle assemblies. Each of these new additions will bring additional and meaningful efficiencies. And in another indication of progress and where we are ultimately headed, I'm very happy to announce that our board of directors has approved our plans to enter the next phase of expansion at Costanos, namely two additional manufacturing lines, numbers three and four. When completed, this will expand our production capabilities from approximately 2,000 cars per year to 4,000 cars per year. What the new lines will do is dramatically improve the earnings profile of the company. What the new lines will not do is cause us to stray off the target of being a much leaner company with a much lower cost structure that we worked so hard to achieve. We will be finalizing these plans over the next month or so with our partners in Mexico, the Gill family, and we would expect to be operational in late 2022. As a reminder, the Gill's family continues to be a strong partner to FreightCar America and are invested in our success as one of our largest shareholders. They will be providing a large portion of the capital required to build out the facility, and we will lease the new addition just as we are now leasing the current footprint. FreightCar America's portion of the CapEx will be fairly modest and is expected to be in the $5 million range. This next step is fully consistent with the vision we outlined for you late last year, namely building the Castanos facility with the ability to flex as the market demand dictates. We are now preparing for when we will flex. Shifting gears, I want to talk about another benefit and important reason for our commitment to Castanos. You have undoubtedly heard other public companies talk extensively about labor shortages and wage inflation throughout this earnings season. I am pleased to report that we have been able to avoid such issues. We have built one of the best and most experienced teams in the region and within our industry. Furthermore, I am extremely proud of the team's response to COVID-19 through ever-changing health and safety protocols. Our workforce's vaccination rate is high, increasing each week, with one age group now at 100% vaccinated. In short, our workforce is on board, well trained, committed, and healthy. In line with my opening comments, this is a strong list of successes for Q2, And I'm extremely proud of our entire team who have embraced and led all of the changes to help build a much stronger freight car America. Now let's talk about a few of the challenges we had to work through in the second quarter. First, our industry continues to face significant inflationary pressures and various supply chain constraints. Higher steel prices have persisted and acted as an operational headwind to our business, along with significant increases in ocean freight cost. As global demand for ocean freight is far outpacing available capacity, we have seen prices at triple historical levels, adding significantly to our COGS. This is obviously not unique to freight car America nor to our industry, but rather a broad reaching fact of life for the moment. As we navigate an extremely unfavorable inflationary environment, our team is taking the necessary steps to combat material and freight cost increases the best they can. This includes renewed focus on material cost reduction across the board, price adjustments where possible, and being more selective on the business we accept. Given our now smaller size and lower fixed cost structure, not every piece of business needs to be treated as must-win business. During the second quarter, we also had some extra expenses and inefficiencies related to the launch of a new car type. Without this, we would have likely delivered a higher number of rail cars this period. Lastly, we also addressed our growing working capital needs as the business continues to expand. Much of the new needs stem from the fact that we have a large outstanding Mexican VAT receivable that totaled $21.3 million as of the end of Q2. We expect the associated refund payments to start flowing back to us soon. In the interim, we are fortunate to have a strong financial partner willing and able to step in. Terry will outline the details in a few minutes, but as you saw in our SEC filings a week and a half ago, our financial partner has amended their agreement with us, which opened up a $25 million line of credit. In summary, we are pleased by the progress and results in the second quarter and are confident in the prospects for the second half of 2021. With that said, I'd now like to turn the call over to Terry for a review of our financials.