The Greenbrier Companies, Inc.

Hello, and welcome to the Greenbrier Company's fourth 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 Company, 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, Sarah. Good morning, everyone, and welcome to our fourth quarter and fiscal 2023 conference call. Today, I am joined by Lori Ticorius, 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 2023 and our outlook for fiscal 2024, 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. 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 2024 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. And with that, I'll hand it over to Lori. Good morning.

Thank you, Justin. Good morning, everyone. It's hard to believe that we're nearly two months into our fiscal 2024, which means which we entered with significant momentum after a transitional period in 2023. I'm going to underscore several accomplishments beyond our strong financial performance, including record annual revenue. Execution of several key financial targets in 2023 was aided by the multi-year strategy we presented at our inaugural Investor Day in April. Internally, we've named our multi-year strategy Better Together. The plan sets three fundamental priorities. First is maintaining our manufacturing leadership position across geographies. Second, we will meet our customers' needs as we optimize our industrial footprint for efficiency and margin enhancement. And third, and of equal importance, we will grow at scale in leasing and services to reduce the impact of manufacturing cyclicality on our overall enterprise. As part of our footprint optimization, we analyzed our global production capacity, and the outcome of the analysis resulted in the sale of our Gundersen Marine operation and a small foundry in Texas, as well as our exit from a manufacturing joint venture in Turkey. Further, we acquired the minority stake of our leasing joint venture partner in North America to take full ownership of our lease fleet. Underlying these actions and others is our fundamental approach to make Green Bear simpler and more profitable. And we're extremely pleased with our accomplishments and strategic progress in fiscal 2023, but we're really never fully satisfied. And in some cases, we're ahead of our internal schedules. In others, we're laying the foundation to execute the plan. The recap of our results comes with a caveat. We don't expect our progress to be linear, and our goals target a five-year completion window. So now turning to our results. First, I have to commend our commercial team for their outstanding performance throughout fiscal 2023, and particularly this past quarter. In the face of muted demand for intermodal units, the breadth of our product offerings and our strong business origination abilities resulted in a very high share of North American rail car orders the last few quarters, culminating in a 40% share of the industry backlog as of June 30th. This provides us with excellent visibility and confidence that we're on the right track. For the fourth quarter, we generated revenue of $1 billion, unchanged from the prior quarter. As revenue remained durable, aggregate gross margins expanded to 12.5% from 12.3% in the third quarter. For the full year, aggregate gross margin was 11.2%, which is a 50 basis point improvement from the trailing 12-month aggregate gross margin as of our investor day when we established a mid-teens aggregate gross margin target by fiscal 2026. Fourth quarter manufacturing gross margin of 9.3% was relatively unchanged from the prior quarter. However, there was positive movement behind the static percentage. The negative margin impact of a strengthening peso was partially offset by achieving certain manufacturing footprint efficiencies. As I mentioned earlier, the evaluation of our manufacturing footprint resulted in the sale of Gundersen Marine and our Texas Boundary, bringing approximately $20 million of permanent annual savings as we step into the next fiscal year. Green Bear's flexible manufacturing footprint allows us to create value and generate returns while solving our customers' problems. For example, we recently adapted production lines for new railcars to accommodate large railcar refurbishment programs for multiple customers in North America. And similar to the railcar conversions we've previously discussed, this business activity is accretive to earnings but is not included in new railcar deliveries. Railcar refurbishments and conversions allow customers to extend the life of their railcar fleet while improving the overall operating efficiency of the North American fleet. Additionally, this work benefits the environment through the reuse or recycling of components like wheels, axles, and brakes, and significantly reduce steel consumption. For example, stretch conversions use approximately 65% less steel than newly built railcars with similar dimensions. Our insourcing initiative also occupies line space previously dedicated to new railcar production. The first phase of bringing fabrication in-house for basic primary parts and sub-assemblies as part of our make versus buy strategy, was completed in the fourth quarter. We expect to achieve our full cost savings targets of $50 to $55 million from this initiative in fiscal 2025. And moving across the business, maintenance services continued its positive momentum even though wheel volumes declined compared to the prior quarter due to seasonality. And while revenue in maintenance services decreased by about 23%, Gross margin increased by 430 basis points, resulting in earnings from operations that fully offset the reduced revenue. This was accomplished through improved pricing and the impact of the operating efficiencies we've been driving over the last two years in this business. And now, as Brian will explain shortly, we have a solid foundation in place for our expanded leasing strategy and are advancing it thoughtfully. This is a critical component of our multi-year plan and is expected to result in the doubling of recurring revenue within the next five years. The market conditions for rail car leasing remain very positive, and we're in a great position to execute our plan. Returning capital to shareholders is integral to our approach to capital allocation. I'm pleased to report that our board declared a quarterly dividend of 30 cents per share last week. And you may recall that the dividend increased 11% in Q3, Our dividend has doubled since its reinstatement in 2014, and the Q4 dividend represents Greenberg's 38th consecutive quarterly dividend. We also repurchased shares during June at attractive levels. For the full year, we repurchased 1.9 million shares for $57 million at an average price of approximately $29 per share. And the broader economy is dynamics. and geopolitical strife again commands our attention and our concern. However, our outlook remains positive. We expect North America and Europe to continue to see strong demand across railcard types, underpinning both new bills and lease renewals. We have excellent near-term visibility for fiscal 2024 and are focused on maximizing our platform's potential as we progress towards our multi-year targets. We're confident in the long-term strategy we've presented at the Investor Day because it's focused on the things we can control and not reliant on an overly optimistic demand scenario. I and the rest of the team look forward to sharing our progress on future calls. And now I'll turn it over to Brian, who will elaborate on railcar demand and our leasing activity.