The Greenbrier Companies, Inc.

Hello and welcome to the Greenbrier Company's first quarter of fiscal 2023 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, MJ. Good morning, everyone, and welcome to our first quarter of fiscal 2023 conference call. Today, I'm joined by Lori Takouras, Greenbrier's CEO and President, Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer, and Adrienne Downs, Senior Vice President and CFO. Following our update on Greenbrier's performance in Q1 and our outlook for the rest of the fiscal year, we will open up the call for questions. In addition to the press release issued this morning, additional financial information and key metrics can be found in the slide presentation posted today on the IR section of our website. I'd like to remind you that 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 2023 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. Good morning, Laurie.

Thank you, Justin, and good morning, everyone. I hope everyone had a good holiday season. Our first quarter results showed areas of continued strength and identifiable opportunities to improve our operations. we produced 6,800 units in the quarter, a 10% sequential increase. Of these, 2,300 units are investments held on our balance sheet to be syndicated or capitalized into Greenbar's long-term lease fleet in a future period. Remaining customer deliveries totaled 4,800 units. Revenue was in line with expectations. However, the efficiencies expected from higher production levels have not yet been fully realized. Aggregate gross margin was impacted by higher cost of outsourced components driven by inflation, transportation expense, and other logistics challenges. Material shortages and delays and other lingering supply chain issues, including rail congestion in Mexico, created production disruptions primarily at our manufacturing operations in Mexico. We remain focused on managing our costs and supply chain. We're optimizing our internal fabrication capacity which will improve profitability by having more control over vital supply chains and address supply chain inefficiencies. Additionally, as disclosed in our earnings release, we'll cease new railcar production at our Portland, Oregon facility in May following the delivery of existing commitments. This is not a decision we've taken lightly given our history of manufacturing railcars in Portland. However, it's an action that reflects our commitment to optimize the efficiency of our manufacturing footprint and deliver stronger margins. We're undertaking a strategic evaluation of our marine business, which operates at the same facility. We're currently engaged in a range of discussions to determine both the future of marine operations and the overall use of the Portland facility. I remain confident we'll attain a good outcome for all of our stakeholders, which include employees, customers, and shareholders. Our maintenance services group continued their positive momentum and started 2023 with their strongest Q1 performance in five years as initiatives focused on increasing efficiency translated to results. Our wheel business, unfortunately, was negatively impacted by increased labor and transportation costs. We're currently working with our customers to modify contracts to address the current cost environment. Turning to the U.S. economy, While it continues to its resilience, rising interest rates and inflation now weigh on growth. The labor market has remained strong, and we're cautiously optimistic about the industrial sector as consumer spending softens. The economy appears to be normalizing after years of unprecedented demand caused by lockdown and subsequent government stimulus. As a result, economic activity will slow with an estimated annual U.S. GDP growth rate of only 0.2% in 2023. The lowered outlook projects an economic soft landing that will be characterized by a strong labor market, but with elevated inflation and interest rates throughout the year. Consumer spending, which makes up two-thirds of economic activity, will likely determine the timing and depth of the slowdown. We continue to believe the North American rail freight segment will be resilient through a mild recession. Rail labor negotiations in the latter months of calendar 2022 drew broad public awareness to the integral role the rail industry plays in our economy. The near-term threat of a railroad worker strike ended on December 2nd with President Biden signing preventative legislation. However, challenging railroad service conditions now follow us into this new year. We're optimistic the railroads will make steady progress on their service models over the course of the year, and increased hiring is an early positive step in this direction. Turning to our European business, despite an energy crisis caused by the Ukrainian war, high inflation, and a rising interest rate, the European economy appears to be holding up well. Energy prices are down from their peaks, due to a mild winter and gas storage facilities at full capacity. German industrial output grew in the last quarter, surprising most analysts. And rail traffic levels in Europe are high, and fleet utilization is nearly 100% for most wagon types. The one exception is international container traffic, where volumes are down due to the sluggish Chinese economy, which continues to struggle with COVID. Our European business performed well, despite the war and lingering effects of the pandemic. And now turning to some other milestones in Q1, on November 1st, we released the fourth annual edition of our ESG report, On Track Together. I'm pleased to report that Green Bear has been identified on the list of the most responsible companies in America, according to Newsweek and the global research and data firm, Statista. The third-party recognition validates Green Bear's commitment to our values and our pursuit of responsible corporate citizenship. On a company level, we continue to review and optimize our portfolio to create a stronger, more sustainable Greenbrier. As announced earlier this week, we've acquired the minority interest in GBX Leasing from the Longwood Group. This action bolsters Greenbrier's leasing platform, simplifies our business structure, and promises long-term value to our shareholders. Growing our leasing business provides us a broader, more holistic view of the railcar equipment market than that of solely an OEM builder. It also discourages the prospect of overbuilding, since an asset can be on our books for over 30 years. Despite the short-term operating challenges, momentum is good entering calendar 2023. With strong railcar order activity and elevated lease rates, we're confident in Greenbar's long-term strategy and our team's execution. On our last quarterly call, we mentioned we discussed the strategy further at our upcoming Investor Day. We're currently planning to hold that event in April and look forward to sharing additional details soon. And now I'll turn it over to Brian to discuss the railcar demand environment and our leasing activity.