The Greenbrier Companies, Inc.

Hello, and welcome to the Greenbrier Company's second quarter of fiscal 2022 earnings conference call. Following today's presentation, we will conduct a question and answer session. Each analyst should limit themselves to only two questions. Until that time, all lines will be in a listen-only mode. At the request of the Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin. Thank you, Chuck. Good morning, everyone, and welcome to the call. Today, I am joined by Bill Furman, Greenbrier's Executive Chairman, Lori Kikorius, CEO and President, Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer, and Adrian Downs, Senior Vice President and CFO. Following our update on Greenbrier's performance and our outlook for fiscal 2022, we will open up the call for questions. In addition to the press release issued this morning, additional financial information and metrics can be found in the slide presentation posted today in the IR section of our website. Matters discussed on today's conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2022 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. And with that, I'm going to hand it over to Mr. Furman.

Hey, thank you, Justin, and good morning, everybody. This past month has been an eventful time in the world and at Greenbrier. On March 1, Lori Chikorius assumed the role of Greenbrier CEO. Last week, our board of directors appointed Lori as our newest director. As we begin today's call, I want to first congratulate Lori on her new positions at Greenbrier. I'm very proud of Lori's development at Greenbrier, how we have managed this very important transition. I'm pleased that I now serve as executive chairman through the remainder of our fiscal year and as a board member and investor until 2024. With Lori's appointment, we've expanded our board's gender diversity. Four of our 11 directors are female. Further three of the directors identify as people of color. I'm confident that diverse representation at all levels of Greenbrier leads to better overall business performance. Omicron is still a factor in our operations, as you will hear today. But things are getting much better. Just as those impacts began to add, the war in Ukraine has impacted economies everywhere we operate. We are witnessing a true tragedy, and I pray for a swift end to the conflict and to all of the human suffering. While the word creates challenges for everybody in the near term, it also provides opportunities for major shifts in freight corridors and transportation modes that will enhance Greenberg's business as the world enters a reordered state. History demonstrates the integral role of railroads to support civilian life and economies in a heightened manner during wartime. The current war in Europe has created direct pressure on the availability and cost of commodities, ranging from minerals to food to fertilizer to crude oil, as well as coal and natural gas. Railroads and railway suppliers will help meet the challenge of keeping civilian life and economies functioning during the crisis. The commodity markets are traditionally leading indicators for expansion in rail freight. Most commodities shipped by rail are experiencing upward pricing pressure from demand constraints due to either sanctions on Russia or reduced production from Russia and in the Ukraine. We expect rising global commodity prices and shifting trade patterns to elevate rail car demand in North America and Brazil and elsewhere in the world. Already changing energy policies in North America and Western Europe are creating opportunities for rail transport of oil, ethanol, and other products. The impact will be similar on fertilizers and other items needed to produce food. Finally, the rising cost of diesel creates a distinct opportunity for modal shift from road to rail. Freight rail is one of the most sustainable and fuel-efficient modes of surface transportation. U.S. freight railroads with diesel electric power generation are three to four times more fuel efficient than trucks. Think about that for just a moment. One ton of freight can be moved by rail almost 500 miles per gallon of fuel. Additionally, moving freight by train instead of trucks reduces greenhouse gas emissions by up to 75% per ton traveled, and it reduces congestion and wear and tear on bridges and highways. As more freight shifts to rail, in many cases, this will induce longer rail car dwell times and lower railroad velocity. In turn, railroad congestion causes the need for more rail cars to make railroad service more efficient, notwithstanding the increase in demand we expect in major commodities like fertilizer, foodstuffs, and other products. We recognize the role and responsibility our industry must play in times of crisis, and as the geopolitical landscape shifts. The cruel irony of this war in Ukraine is that there will be ultimately beneficiaries. Now, we can't choose the exogenous factors that affect our business, but we almost always have to be ready to meet the challenges and opportunities that come with them. Free Bar has proven the ability to thrive on adversity and seize opportunities. I'm sure this legacy will continue for years to come under Lori's leadership. With that, I'll hand the call over to Lori to discuss our strong performance during the quarter. Lori?

Thank you, Bill, and good morning, everyone. Before I discuss our results for the quarter, I'd like to express my gratitude to Bill and the rest of Greenberg's board for the opportunity to serve as CEO. We have an outstanding team at Greenberg who work hard and smart every day. While it's difficult to predict the specific opportunities or challenges that may arise, I know the Greenberg team has the experience, knowledge, and tenacity to make the most of any situation with a focus on increasing shareholder value. Greenberg posted strong results this second quarter, and while not all of our operating segments performed as expected, our business is highly diverse and in the aggregate performed very well. In the quarter, we delivered 4,800 railcar units, a 17% increase from the prior quarter, driven by our core North American market. Our lease fleet utilization increased to 98% and our leasing team generated robust cash proceeds and gains through regular lease fleet optimization and monetization transactions. Our leasing business is operating ahead of our expectations as we achieve growth at scale. Our strong quarterly performance was achieved as the Omicron variant of COVID-19 reached peak levels in the United States. Sadly, In February, Charles Wallace, a longtime employee in our maintenance services group, passed away due to COVID. Charles is survived by a son and four sisters. We send them our condolences for their loss. Further, we experienced significant absenteeism in the quarter as approximately 12% of our workforce contracted the virus. Recently, the infection rates have declined, and we're hopeful the worst of the pandemic is now behind us. Our manufacturing growth margin percentage was below our expectations in the quarter, impacted by supply chain and labor issues. Our global sourcing team continues to do an exceptional job of mitigating severe disruptions to support increasing production rates and simultaneously minimizing production delays. We have avoided any line shutdowns across our network due to material availability. Additional expenses were incurred in connection with sourcing spot materials and expediting deliveries. Operating momentum is increasing, and we expect improved performance in the coming quarters due to improved pricing and overhead absorption on higher production. In Europe, the situation is fluid. The period leading up to and the subsequent war in Ukraine have created a highly disruptive environment for many European manufacturers. Our operations have been impacted by rapidly rising energy costs and now finished steel and components in our supply chain. Ukraine and Russia are among the biggest suppliers of iron ore, finished steel, and wheel sets to European wagon builders. As Bill mentioned, railroads are an integral to supporting the economy during wartime. Our management team is working together with our customers and suppliers to maintain production and ensure the best outcomes for all parties. Our maintenance service business continues to be impacted by higher material costs and labor shortages during the quarter, with the Omicron variant having an outsized impact on the network of smaller workforces. We are beginning to see improving financial results from the action plan implemented to mitigate these headwinds in Q1. We expect to sustain our momentum in the second half of the year as we remain focused on executing our plans while also looking for additional opportunities to reduce costs and improve margins. Our leasing and management services group had another strong quarter driven by increased fleet utilization and regular asset optimization and monetization transactions. Our own fleet has grown by over 25% from the end of fiscal 2021 to around 11,000 units. And in addition to managing our lease fleet, our management services, or GMS group, continues to provide creative railcar solutions for over 25% of the North American rail flight rail, freight, fleet. Within GMS, we're launching an initiative to redevelop the service platform used to manage equipment and data. One of the goals of this important initiative is to ensure scalable support for our leasing and syndication business, as well as our external customers, as we continue to execute on our leasing strategy. Looking ahead, we see strong operating momentum continuing throughout fiscal 2022 and beyond. We've been able to maintain our market-leading position through discipline execution and by maintaining our strong liquidity position. These were hallmarks of our management team's plan at the start of the pandemic, and they continue to serve us well. There's no doubt that the market backdrop will remain dynamic, particularly with the war in Europe. Inflation, supply chain issues, and the continuing human impact of the pandemic will persist for some time. We are managing the business accordingly and maintain our optimistic market outlook. We expect our operating metrics to continue to improve as we move through the next several quarters and beyond. As we've said before, the market recovery won't follow a straight line, and there will be challenges along the way. We're managing our business to get ahead of these challenges wherever we can to continue to provide solutions to our customers and ultimately deliver value to our shareholders. As I said before, our leadership team has the experience, knowledge, and tenacity to make the most of any situation. And with that, I'll hand the call over to Brian Comstock to provide an update on the current railcar demand environment and our leasing activity.