Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenues grew 66% year-over-year on deliveries of 1,159 railcars.
- Achieved a record adjusted EBITDA of $12.1 million at the new facility.
- Captured historically high levels of orders and inquiries in the first half of the year.
- Secured a significant multiyear tank car conversion order, expanding product offerings.
- Raised forecasted revenue to between $560 million and $600 million, up approximately 62% year-over-year at the midpoint.
Negative Points
- Gross margin decreased to 12.5% from 14.6% in the prior year.
- SG&A expenses increased to $8.5 million from $5.9 million in the prior year.
- Lower gross margin performance due to delivering all new cars versus car conversions.
- Customers are taking longer to analyze the timing of their new railcar purchases.
- No immediate inventory build or revenue recognition from the tank car conversion order until 2026.
Q & A Highlights
Q: When will your inventory numbers begin to reflect the tank car conversion order that's reflected in the backlog? Or maybe ask another way, when will the revenue get recognized from the order?
A: From the inventory perspective, the timing of the order is tied to our customers' demand. They are looking for delivery of the cars to be completed by the 2029-time frame, which is the federally mandated time frame. We look to start that program up substantially in 2026. You won't see any inventory build in the near term, not until very early 2026. (W. Matthew Tonn, Chief Commercial Officer; Michael Riordan, Chief Financial Officer)
Q: Could you elaborate on the path towards producing new tank cars? Do you think you would be ready by 2028?
A: The market for tank cars is around 8,000 units a year. We have design approval for about half of that, approximately 4,000 of the 8,000 addressable market. We are approved to receive orders at any time a customer wishes to place them. There's a period of work to be done to configure the plant for it, but that can be aligned with when customers want to place them. We expect to start conversion work in 2026 and be prepared to take on new tank cars after that period. (W. Matthew Tonn, Chief Commercial Officer)
Q: Are you able to provide any details on plans to recapitalize the balance sheet?
A: Recapitalizing the balance sheet is still one of our primary strategic objectives for this year. Completing this will be very beneficial to our free cash flow generation going forward. (Michael Riordan, Chief Financial Officer)
Q: Can you discuss the financial performance for the second quarter of 2024?
A: Consolidated revenues for the second quarter of 2024 totaled $147.4 million, with deliveries of 1,159 railcars, compared to $88.6 million on deliveries of 760 railcars in the second quarter of 2023. Gross profit was $18.4 million, with a gross margin of 12.5%, compared to gross profit of $13 million and gross margin of 14.6% in the second quarter of last year. Adjusted EBITDA was $12.1 million compared to $8 million in the second quarter of 2023. (Michael Riordan, Chief Financial Officer)
Q: What is the outlook for the remainder of the year 2024?
A: We are raising our forecasted revenue to between $560 million and $600 million, up approximately 62% year over year at the midpoint of the range. Expected deliveries are also raised to between 4,300 to 4,700 railcars, an increase of approximately 48.9% at the midpoint of the range. We are raising our forecasted adjusted EBITDA guidance to between $35 million and $39 million for the full year, representing a year-over-year increase of 84.1% at the midpoint. (Nicholas Randall, President and Chief Executive Officer)
Q: Can you provide more details on the multiyear tank car conversion order?
A: We have secured a significant multiyear deal to convert over 1,000 existing DOT-111 tank cars to the federally mandated DOT-117R tank cars over a two-year period. This new agreement showcases one of our key competencies while expanding our capability as a reliable partner within the tank car market segment. (W. Matthew Tonn, Chief Commercial Officer)
Q: How did the second quarter of 2024 compare to the second quarter of 2023 in terms of financial performance?
A: Consolidated revenues for the second quarter of 2024 were $147.4 million, compared to $88.6 million in the second quarter of 2023. Gross profit was $18.4 million, compared to $13 million in the second quarter of 2023. Adjusted EBITDA was $12.1 million compared to $8 million in the second quarter of 2023. (Michael Riordan, Chief Financial Officer)
Q: What are the strategic objectives for the company moving forward?
A: Our focus remains on enhancing our robust product portfolio, gaining market share with new and existing customers, and leveraging our proven manufacturing platform to drive sustained growth. We are well-positioned to benefit from current industry trends and execute our strategic initiatives with precision. (Nicholas Randall, President and Chief Executive Officer)
Q: How is the company positioned in terms of cash flow and balance sheet health?
A: We currently hold $39.4 million in cash, no outstanding borrowings on our revolving credit facility, and generate robust operating cash flow. The working capital headwinds we incurred in the fourth quarter of last year fully resolved themselves in the first quarter, resulting in the normalization of our working capital and the generation of $31.9 million in operating cash flow during the first half of 2024. (Michael Riordan, Chief Financial Officer)
Q: What is the current state of the railcar market and how is FreightCar America positioned within it?
A: We continue to see improved rail service metrics, contributing to an overall healthy industry environment. We are aligned with the industry's forecast of railcar deliveries to be in the range of 40,000 to 42,000 railcars in 2024. We have realized market share gains during the quarter for orders across gondolas, flat cars, and open-top hoppers. Our improved market share is a testament to our team executing the commercial strategy, focused on delivering value in every step of the process. (W. Matthew Tonn, Chief Commercial Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
