Freightcar America, Inc.

Q4 2022 Earnings Conference Call


spk_0: greetings and welcome to for a car america's fourth quarter and full year twenty twenty two or each conference hall at this time all parts of events and listen only mode a question and answer session will fall the formal presentation if anyone's you require operator assistance during a conference fit for stars euro on your telephone keypad as a reminder that conferences being recorded it is now my pleasure to introduce your host stephen poll with alpha i thank you you may begin
spk_1: and you're welcome joining me today or jamire president chief executive officer like weird and chief financial officer in met on cheap commercial officer i'd like to remind everyone that statements made during the scuffle or relating to the company's expected future performance future business prospects are future of answer plans may include forward looking statements as the under the private securities litigation reform act of ninety ninety five a dispenser drag to defray car america's form ten caper description of certain business risks some of which may be outside of the control the company and may cause actual results materially different knows it's person or looking statements the expressway display in any duty to provide up there are forward looking statements weather as a result of new information each airbags or otherwise during today's all they're also be a discussion some items i you not informed us generally accepted accounting principles or get reconciliations of these non gaap measures they're most directly comparable gap measures are included in the earnings release issued yesterday afternoon earnings release for the fourth quarter twenty twenty two is postman the cup is once i had a car american that come on with our tuncay which has filed yesterday after market with that i mean out and the calibre gym for a few opening remarks thank you steve stephen good morning and thank you all for joining us today
spk_2: fraker america finished another very important year and it's transformation and transition from a turnaround story to a growth story here are some of our most important accomplishments for the full year we delivered revenues of three hundred and sixty four point eight million dollars an increase term eighty percent year over year and above our previously provided outlook on the low res or three thousand one hundred ninety four rail cars and increase of eighty four percent year over year we delivered for your adjusted ebitda have a point four million dollars versus a loss of seven point two million dollars and twenty twenty one and improvement or fifteen point seven million dollars we deliver in our first positive for year of operating cash flow since two thousand and seventeen generating eleven point five million dollars versus a use of fifty five point four million dollars and twenty twenty one and improvement of sixty six point nine million dollars including orders receive shortly after the end of the year our current production schedule for twenty twenty three is essentially for and we are now focused on our twenty twenty four order book while we continue to watch the rail industry with cautious optimism the fact is that demand for a rail cars built by freight car america is strong we continue to invest in and build a world class manufacturing on campus located at less than three hours by car from texas we now have three production lines of paint shop and fully capable fabrication and will axel shots by late summer this year we expect to have for production lines and a double or paint shop capacity and total we will then have a facility fully able to bring to produce five thousand plus units per year without undue stress also as announced yesterday we entered into a very important refinancing wedge when closed and may well extinguish all of our term debt and replace it with a non convertible preferred stock our current financing partner and affiliate of pacific investment manager my company here are several other more important aspects of this financial transaction first and foremost this transaction demonstrates the confidence of our financial partner pemco which has can tell you the support the growth and future potential of the business this confidence is especially true given the state of the capital markets uncertain economy and current volatility in banking next this transaction provide us with additional capital to invest in new initiatives to accelerate the next phase of girls the additional capital is provided by excess cash at the closing of the deal a significant reduction and she's tied to arabia facility and will you we will have the option to pay the and on the preferred stock on a payment and kind or pick basis this equates to approximately fifty million dollars in additional cash at closing pass an additional approximately ten million dollars per year and expected improvement and operating cash flows we were also moved from a variable rate long structure on a extinguishing term on to a fixed evident on a preferred which is obviously expected to be helpful and the current market environment finally by eliminating most of the dirt from our balance sheet this financial transaction places us and a better position for further and lower costs refinancings in the future while we are happy with us important first step to reshape our capital structure are still intently focused on achieving more conventional a lower cost financing in the future i will talk about our views on twenty twenty three and a few minutes but first i'll turn the call over to mad and mike starting with math for a few commercial comments math
spk_3: thank you jane and good morning everyone we had a well coordinated year and twenty twenty two matching sales with be available capacity from to production lines for the full gear and then at their production line starting in the fourth quarter we have since done the same for twenty twenty three with that in mind for the four year twenty twenty two we took orders for three thousand two hundred and eight railcars of which one thousand and sixty six were booked in the fourth quarter gary importantly in an important internal metric for a company we also increase the number of new customers by thirty six percent in twenty twenty two which is a true testament to the strength of our product offering sales and technical down and after sales service we ended the year with the backlog of two thousand four hundred and forty five real power is valued at two hundred and eighty eight million and although we typically do not talk in advance or the next quarter close we booked significant orders in the first quarter of twenty twenty three ants even with the additional capacity we brought online of the end of this year last year at current production schedule for twenty twenty three is essentially for with book daughter's now extend it into twenty twenty four our focus is a company has been on orders for customers with unique product requirements and who plays a premium on quality in service this is our lane and as a result of our efforts we blew the free car american summit in itself as the preferred manufacturer in the industry while some economic uncertainty and headwinds remain overall rail car industry continues to demonstrate generally healthy fundamentals railcars georgia numbers remain below the five year average and real power retirements about a new car deliveries for the past three years but that said we continue to closely monitor key economic indicator hours and a financial impact on our business and sector so in short we are cautiously optimistic about the industry but much more optimistic about our own prospects within it
spk_1: but that are turning all over to mike for a few review of our financials mike
spk_4: thanks man in the morning everyone
spk_5: i'll begin with an overview the fourth quarter financials and and with such on the boy you're twenty twenty to highlight some of which gym our dimension in his opening remarks first let's turn to the fourth quarter results consolidated revenues for the fourth quarter twenty twenty two total of one hundred and twenty nine million compared to seventy five million in the fourth quarter twenty twenty one increase of seventy one point nine percent year over year with real car deliveries of one thousand one hundred fifty an increase of ninety point four percent year over year while we are pleased with the number unit in the quality the cars he produced in the quarter or gross margins and profitability were again impacted by deliveries of lower margin rail orders as we discussed on her previous earnings nice cars and continued supply chain crushers first brought in the fourth quarter twenty twenty two is four point six million compared to six point six nine and the same period the prior year and gross margin was three point six percent compared to a point eight percent last year directions taken by the company in the fourth quarter we'll see margin improvement beginning in the first quarter twenty twenty three with continued improvement across the bounds of twenty twenty three as in a for the fourth quarter of twenty twenty two total six point three million in line with six point four million in the fourth quarter twenty twenty one as reminder were committed to maintaining our current low costs as june a structured even as we continue to skill or production and and manufacturing capacity consolidated opry most for the fourth quarter of twenty twenty two with six point two million compared operating income a sixty three thousand in the fourth quarter twenty twenty one consolidated operating loss in the fourth quarter twenty twenty two was primarily driven by lower gross profit and a four point five million dollar impairment on least rail cars in the fourth quarter twenty twenty two we achieved a positive a just leave it at one point two million which was equivalent to the same period last year for the fourth quarter or just a net loss was a point one million or thirty one cents per share compared to an adjusted net loss of three point one million or forty cents per share in the fourth quarter last year a net loss expose the impact that certain noncash nonrecurring charges that just the four point five million dollar impairment on these railcars the one time mexican that part one point nine million and nine cash income a four point seven million due to the change in the fair market value the warrant liability as reminders to change and fair market value the warrant liability fluctuates each quarter i merely resulting from the change in our share price during the period interest expense in the fourth quarter twenty twenty two with seven point nine million compared to four million and a fourth quarter twenty twenty one this was primarily driven by an increase in noncash deferred finance if the amortization between the comparable period capital expenditures for the fourth quarter twenty twenty two were approximately four point four million as we continue to expanding our manufacturing footprint
spk_6: oh year it was seven point eight million
spk_5: looking ahead to twenty twenty three will have a step up and capital expenditures is expected to be approximately eleven million dollars per year this increasing cat that will support additional investments including increased blast and painted as a or fourth production mine and further expansion of our in house fabrication capabilities for the full year twenty twenty two we are proud of our achievements which included significant expansion project hotline growth and improve profitability adjusted ebitda for the full year was a point four million a thirteen point seven million dollar improvement from twenty twenty one we did this in spite of producing a large number of orders taken during a particularly challenging period for pricing coupled with inefficiencies generated by supply chain challenges this therefore speaks directly to the positive operational leverage favorable cause structure or to years of friends as of a highlighted the last two quarters gym touched on early are operating cash flow had significantly improved with cash generated from operate activities of eleven point five million and twenty twenty two positive for the first time she's twenty seventeen and compared to cash used in operating activities a fifty five point four million and twenty twenty one a sixty six point nine million dollar improvement without financial overview i like now joined the call back over to gyms are you closing remarks
spk_7: thanks mike
spk_2: let me conclude by providing an overview of our outlook and priorities for twenty twenty three once again we are cautiously optimistic on the market and were quite positive on our position within the market and demand as it relates to our rail cars our production schedule for twenty twenty three is essentially for and the number of inquiries we continue to receive as very encouraging we will continue to expand and twenty twenty three and will prepare for even more growth and twenty twenty four for the four year twenty twenty three or four casting revenues or between four hundred million and four hundred and thirty million dollars up approximately fourteen percent year over year at the midpoint other range this projection is based on expected deliveries of between thirty four hundred to thirty three thousand seven hundred rail cars and increase of approximately eleven and a half percent at the midpoint on the range additionally we are introducing adjusted ebitda guidance of between fifty million dollars and twenty million dollars for the full year this represents a very significant year over year increase of one hundred and eight percent at the midpoint and further demonstrates the fruits of our turn around finally we expect positive operating cash flow for the second consecutive year we have better clarity on are anticipated results for this fiscal year that we have had and a very long time and are increasingly confident and the outlook the key focus our team this year will be to execute and deliver the business and hand continue to build backlog for next year and create opportunity for further improvement and our capital structure outside of these important priorities we continue to have discussions around the future and how best to leverage the impressive manufacturing campus and dedicated workforce i we have put together and mexico that concludes are prepared remarks and on i'll turn the call over to the operator so that we can address or questions
spk_0: thank you ladies and gentlemen at this time will be conducting a question and answer session if you like ask you questions you may press star one on your telephone keep had a confirmation tone and a kicker line is into question que you may press start to if you like remove your question from the que for participant using speaker equipment it may be necessary to pick up your handset before pressing the starkey our first question comes from line of just along with stevens please proceed with your question
spk_8: thanks and good morning
spk_9: martin has been
spk_8: so maybe that start with the commentary around year to date orders when i think about a guide and stages laid out for delivery than twenty twenty three and a backlog you ended year when it seems to imply to keep receipts somewhere around a thousand orders so far this year so i just wanted that
spk_10: double back in and that is correct
spk_11: get justin are we will get into the specifics but it's significantly more than that
spk_8: okay got it at at helpful and i guess in terms of that delivery guidance your you mentioned it's an increase from twenty to twenty two bank it feels like your capacity to produce rail cars could be significantly higher than and guidance so maybe can help a thing
spk_12: you you potential for upside to that delivery outlook for affairs at strategic read and why and your kind of anything else within that range
spk_2: yeah i just er nurses jam are the morning where the guidance were given we've given his ah what we see and expect to build at this time obviously it's guidance and volume that's associated with three production lines running for the full year is there opportunity or upside beyond that that is really going to come down to a question of when we decide to start ramping up ah production line number for and if we decide the shared to start ramping up production line and
spk_13: nber for
spk_2: every time we bring on a new production line we add and train one the two chefs worth of people so it's a significant investment and
spk_14: in i will make that decision
spk_2: yeah now at the right time depending on that just you know near term orders and hand but what the longer term outlook looks like so so the guidance we've given the summarize as for the three production lines are that we have up and running and whether we move off of that upwards are really as are gonna depend on kind of a longer term view on
spk_14: investing and are ramping up the fourth line
spk_10: gay guy that's helpful and i guess in terms of be adjusted ebitda guidance did you provided for twenty twenty three any way to help us think through gross margin assumption akin to that outlaw can the level of infidelity in terms of sanity supply chain issues getting better
spk_2: yeah other than just don't let me start and then i'll pass it over to my ah in other were all start his on as a company ah we are focused very much on a to priorities one is iba generation and the other is are operating cash flow and in also as we sank about plan and operate our business that's where our to priorities are ah i'll let you know my comment further as it relates to your question on gross margin
spk_5: i just
spk_10: so what i'd say is we were given revenue in adjusted either and we've talked previously about her as dna and how we keep that a low cost and relatively fixed amount by things from those you can kind of back into gross margin remodeling purposes
spk_5: i bet any colors you can provide on the cadence of those gross margins we progress to read year and a you alluded to in the supply chain issues continues to the first quarter and getting better there after just wanted to make sure i can understand that progression sure go ahead thursday as i mentioned were going to see at relative the for pretty significant increase in que one in our margin rate as we taken several actions in the fourth quarter twenty twenty two to better ourselves for this and address as supply chain issues and then the bounds of the year will continue to see ever ability to
spk_0: the marginal even see in ah q one
spk_15: got it thanks
spk_2: and thanks
spk_16: our next question comes from the line of matt alcott with tt town police received your question good morning thanks guys i'm a a helpful commentary on the on the gross margins for less it's like the year is it anyway you can give us maybe just a jet like a ballpark of where you expect maybe the exit the year as far as the gross margin
spk_17: ah the matt hi good morning mrs jam i'm where we've not given guidance on gross margin
spk_15: you're supposed to congratulate us forgiving guidance on and on either done congratulations that's the
spk_3: definitely
spk_1: meredith i i like seeing that
spk_5: it certainly helpful i'm okay so
spk_15: yeah get that he that is either die ah guidance
spk_18: is there any way he does can give us navy at least direction only where you think because the you know the
spk_15: capital structure side has been a a bit too complex obviously ah what you know direction leo what the interest expense lime might look like and twenty twenty three
spk_1: sure so it's as you seen the release we traded out our dirt we issued the preferred stock and trade it up for the term loan both of those are relatively close in the rates as we mentioned the given and seventeen and a half percent which from the and gave balinese is pretty close to the interest rate on our term loan now but
spk_14: the key there is treated a variable structure for a thick structure and then in addition we're gonna see a lowering of are borrowing costs an interest expense related to the reduction in eighty else fees which is approximately three million dollars a year on an annual basis as part of this refinancing
spk_2: okay
spk_13: got it arm and i i guess your account that he is a any color on the share current as is or any volatility there
spk_14: there shouldn't be any volatility on this your account
spk_2: okay i'm i'm in the switching back maybe or to some operational scarf i know you guys have a tank or authorization or application
spk_19: in in progress year or is there any update on that and didn't give us a bit more color as to what the and markets for that tank car might be when you eventually get it i know this is my the near term thing it's a long time thing but any color on the and my gets an update on where it stands
spk_20: the mattresses jam again
spk_2: so i guess the the first up day as we now have ah
spk_21: a our approval for three
spk_2: a car designs ah three card types that really are the the core of the market if you're well and cover a disproportionate lee favorable ah
spk_14: percentage of the tanker market
spk_2: so we've got designs approval
spk_20: this year
spk_2: as we've already noted or a factory is essentially for and so we don't expect of a building tank cars and the current calendar year
spk_15: and dom
spk_22: you know when we do move into that direction
spk_15: you know well obviously talk about it at that time are not prepared to die ah i'm in terms of how we enter a website you know in terms of and subside mentor the market you know obviously we were like to do song arm and the non hazardous ah cargo space ah ah vegetable oils and other types of like was that
spk_23: you know obviously prevent present day i are are significantly reduce risk profile
spk_11: so campbell or city it's at this point it's about timing and sequencing with our other priorities including the continued building out of the campus and how we choose best to use it ah near term as well as
spk_1: partnering with the right customers on you know when we honor at we want to believe that we're entering and investing in a ah enough with a long term relationship
spk_24: okay that's helpful eso no flammable liquid tank cars i guess ah
spk_15: the well that is our our goal would be nice to enter into the market and that flammability you know okay thesis or initially initially a night in that market do you think the yeah you know the push to move up the dates or the retrofitting or replacement of the
spk_23: non deal with you on seventeen cars do you think that could create opportunities in non flammable liquids ah thank our that you guys can take advantage of maybe next calendar year as everybody else is busy you know of making the audio and seventeen j audio deal to us have a deal are you might
spk_2: have an opportunity and a non flammable liquid area
spk_25: matt good good russian ah the say that
spk_26: we believe that that that regulation is likely to occur in that with that will probably be creates matter to me is in into gyms comments are we intend to be prepared for but i do believe that it's going to have an impact on the demand for cars that are in the non as map service
spk_27: which would vote no cap off of recruiting
spk_28: okay
spk_2: and then just one fall by know just as about this but damn the air supply chain are issues easing in beyond one que a can you just give us an idea on what the supply chain issues are are they are what labour and components are some of the other builders have had issues on those two
spk_29: france and he ido do you expect the easing to be you don't sudden and and and units dramatic or is it gonna be a gradual process meaning even to queue is not going to be optimal and then we'll get to towards a more optimal space by the end of the year
spk_2: ah
spk_14: a mantis is i'm it's going to be ah ah a little faster than
spk_2: gradual
spk_14: as know what that
spk_30: the
spk_31: the
spk_14: our beginning to pinpoint as your arm a lot of our supply chain issues are not all of on been a lot of on our with the tear ones in the united states that have struggled with ah labor and hiring ah they and to
spk_2: turn have also struggled with their material suppliers who would be our tear twos and threes ah i'm sorry it's just it's the whole assortment of issues that everybody reads about my papers every day
spk_14: ah i'm and it's affecting everybody's output and on time delivery and obviously
spk_2: when parts don't comment on time
spk_14: our cars don't get built the way they were intended to get build and they don't ship you know when they're intended to be shipped so it it just adds all sorts of unwanted inefficiencies on our and
spk_2: to some of the ah the the positives an ad is
spk_14: first of all by having in our full visibility for all practical purposes and to what we're building this year and frankly at this point even what we're going to be building you know as we look at kew on twenty twenty four gives us a much much longer planning horizon with our suppliers and and that is tremendously have
spk_29: falter both parties ah so that's an important improvement
spk_15: ah i'm a second piece is in our we've got our fabrication shop online
spk_32: as might mention than has comments around where will be investing further money's this year
spk_5: ah were were essentially planning to double the capacity or to internal capability of our fab shop over the course of this calendar year and the more that we can make them more that we can travel control ah the better it is far on time performance
spk_6: so that's a second big opportunity and again the first piece which is now in effect is the fact that we have a fab shot or fab shop up and running and feeding you know our assembly lines but coming as as we proceed across the air will be additional capability
spk_15: the that so those are two big factors and that are course through the history and what we went through all of last year we have yeah obviously very good understanding of where the
spk_33: chronic pain points are and
spk_0: in all of the supply chain team has worked around that to some extent so it doesn't leave us completely
spk_2: but you know we expected to be substantially better managed
spk_0: you know this calendar year okay that's do that very helpful insights and then maybe switching back to the the balance sheet i'm sorry i missed it but you guys had at twenty million dollar reduction in balance sheet inventory can just walk us through what

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