FreightCar America(RAIL) - 2024 Q1 - Quarterly Report

FORM 10-Q Quarterly Report Details FreightCar America's Q1 2024 Form 10-Q filing, including registrant information and common stock data Filing Information Outlines FreightCar America's Q1 2024 Form 10-Q filing specifics, including registrant details and common stock outstanding - The registrant is FREIGHTCAR AMERICA, INC., incorporated in Delaware, with its common stock trading under the symbol RAIL on The Nasdaq Global Market[2][3] Common Stock Outstanding | Date | Shares Outstanding | | :--------- | :----------------- | | May 1, 2024 | 18,710,586 | Index to Form 10-Q Provides a comprehensive overview of the Form 10-Q's organizational structure and content Report Structure Outlines the Form 10-Q's complete structure, detailing Part I (Financial Information) and Part II (Other Information) with item page numbers - The report is structured into two main parts: Part I – Financial Information, covering financial statements and management's discussion, and Part II – Other Information, detailing legal proceedings, equity sales, and exhibits[7] PART I – FINANCIAL INFORMATION Presents FreightCar America's unaudited condensed consolidated financial statements and management's discussion for Q1 2024 Item 1. Financial Statements. Presents FreightCar America's unaudited condensed consolidated financial statements and explanatory notes for Q1 2024 and 2023 - The financial statements are unaudited and prepared in accordance with GAAP and SEC rules for interim reporting, providing a fair presentation of the company's financial position, results of operations, and cash flows[9][26] Condensed Consolidated Balance Sheets (Unaudited) Summarizes the company's financial position, including assets, liabilities, and equity, as of March 31, 2024, and December 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :----------------------------------------- | :------------- | :---------------- | | Cash, cash equivalents and restricted cash | $13,977 | $40,560 | | Total current assets | $170,818 | $180,421 | | Total assets | $248,669 | $259,459 | | Total current liabilities | $122,066 | $137,361 | | Warrant liability | $52,454 | $36,801 | | Total liabilities | $222,026 | $222,207 | | Total stockholders' deficit | $(56,959) | $(46,206) | - The company experienced a significant decrease in cash and cash equivalents, and an increase in warrant liability, contributing to a larger stockholders' deficit as of March 31, 2024, compared to December 31, 2023[10] Condensed Consolidated Statements of Operations (Unaudited) Details the company's revenues, expenses, and net loss for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Revenues | $161,058 | $80,999 | | Cost of sales | $149,655 | $73,514 | | Gross profit | $11,403 | $7,485 | | Selling, general and administrative expenses | $7,493 | $6,388 | | Operating income | $3,910 | $1,097 | | Interest expense | $(2,391) | $(6,600) | | (Loss) gain on change in fair market value of Warrant liability | $(15,653) | $613 | | Net loss | $(11,571) | $(5,037) | | Net loss per common share – basic | $(0.54) | $(0.19) | - Revenues significantly increased by 98.8% year-over-year, leading to a 52.3% increase in gross profit and a 256.4% increase in operating income. However, a substantial loss on the change in fair market value of warrant liability resulted in a higher net loss for Q1 2024 compared to Q1 2023[13] Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Presents the company's comprehensive income or loss, including other comprehensive income items, for Q1 2024 and 2023 Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(11,571) | $(5,037) | | Unrealized gain on foreign currency derivatives | $207 | — | | Pension and postretirement liability adjustments, net of tax | $35 | $41 | | Comprehensive loss | $(11,329) | $(4,996) | - The comprehensive loss for Q1 2024 increased to $(11,329) thousand from $(4,996) thousand in Q1 2023, primarily driven by the higher net loss, despite a positive unrealized gain on foreign currency derivatives in the current period[16] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Outlines changes in stockholders' equity, including net loss and other comprehensive income, for Q1 2024 and 2023 Condensed Consolidated Statements of Stockholders' Deficit Highlights (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Mezzanine Equity (Series C) | $83,602 | $83,458 | | Common Stock | $214 | $210 | | Additional Paid-In Capital | $94,783 | $94,067 | | Accumulated Other Comprehensive Income | $2,607 | $2,365 | | Accumulated Deficit | $(154,563) | $(142,848) | | Total Stockholders' Deficit | $(56,959) | $(46,206) | - The total stockholders' deficit increased from $(46,206) thousand at December 31, 2023, to $(56,959) thousand at March 31, 2024, mainly due to the net loss of $(11,571) thousand during the quarter[19] Condensed Consolidated Statements of Cash Flows (Unaudited) Reports cash inflows and outflows from operating, investing, and financing activities for Q1 2024 and 2023 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(25,322) | $(7,704) | | Net cash used in investing activities | $(966) | $(1,960) | | Net cash used in financing activities | $(295) | $(449) | | Net decrease in cash and cash equivalents | $(26,583) | $(10,113) | | Cash, cash equivalents and restricted cash equivalents at end of period | $13,977 | $27,799 | - Net cash used in operating activities significantly increased to $(25,322) thousand in Q1 2024 from $(7,704) thousand in Q1 2023, primarily due to changes in working capital, including a large increase in accounts receivable[22][94] Notes to Condensed Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 – Description of the Business Describes FreightCar America's core business activities, including railcar manufacturing and related services - FreightCar America, Inc. designs and manufactures a wide range of railroad freight cars, provides railcar rebody services, conversions, parts, and services primarily in North America[25] - The company's product offerings include bulk commodity cars, covered hopper cars, intermodal and non-intermodal flat cars, mill gondola cars, coil steel cars, coal cars, and boxcars[25] Note 2 – Basis of Presentation Explains the accounting principles and presentation methods used for the interim financial statements - The condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim financial reporting, and are unaudited[26] - Management's estimates and assumptions are used in preparing the financial statements, and actual results may differ[26] Note 3 – Revenue Recognition Details the company's policies and breakdown of revenues by major sources and performance obligations Revenues by Major Source (in thousands) | Revenue Source | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Railcar sales | $155,597 | $76,996 | | Parts sales | $5,330 | $3,400 | | Revenues from contracts with customers | $160,927 | $80,396 | | Leasing revenues | $131 | $603 | | Total revenues | $161,058 | $80,999 | - Total revenues increased significantly by 98.8% year-over-year, primarily driven by a 102.1% increase in railcar sales[27] - The Company had remaining unsatisfied performance obligations with an expected duration greater than one year of $14,850 thousand as of March 31, 2024[30] Note 4 – Segment Information Provides financial data for the company's operating segments, including revenues and operating income - The Company operates with two operating segments: Manufacturing and Parts, with Manufacturing being the sole reportable segment[31] Segment Revenues and Operating Income (in thousands) | Segment | Three Months Ended March 31, 2024 (Revenues) | Three Months Ended March 31, 2023 (Revenues) | Three Months Ended March 31, 2024 (Operating Income) | Three Months Ended March 31, 2023 (Operating Income) | | :------------------ | :------------------------------------------- | :------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Manufacturing | $155,728 | $77,599 | $8,279 | $5,628 | | Corporate and Other | $5,330 | $3,400 | $(4,369) | $(4,531) | | Consolidated | $161,058 | $80,999 | $3,910 | $1,097 | - All consolidated revenues for both periods were generated in the United States, while the majority of long-lived assets are located in Mexico ($68,715 thousand as of March 31, 2024)[35] Note 5 – Fair Value Measurements Outlines the fair value of financial instruments, including warrant liability and derivatives Fair Value Measurements (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :------------------------------ | :------------- | :---------------- | | Warrant liability (Level 2) | $52,454 | $36,801 | | Foreign currency derivative asset (Level 2) | $813 | $606 | | Assets held for sale (Level 3) | $629 | — | - The fair value of the Warrant liability increased significantly from $36,801 thousand to $52,454 thousand, reflecting changes in the Company's common stock price and other factors[37][51] Note 6 – Restricted Cash Details the nature and amounts of cash balances subject to restrictions Restricted Cash Balances (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :---------------------------------------- | :------------- | :---------------- | | Restricted cash from customer deposit | $282 | $282 | | Restricted cash to collateralize standby letters of credit | $103 | $103 | | Restricted cash to collateralize foreign currency derivatives | $700 | $320 | | Total restricted cash and restricted cash equivalents | $1,085 | $705 | - Total restricted cash increased by 53.9% from December 31, 2023, to March 31, 2024, primarily due to an increase in cash collateralizing foreign currency derivatives[41] Note 7 – Inventories Provides a breakdown of inventory components and changes over the period Inventories, Net (in thousands) | Inventory Category | March 31, 2024 | December 31, 2023 | | :----------------- | :------------- | :---------------- | | Raw materials | $75,249 | $65,639 | | Work in process | $21,703 | $31,138 | | Finished railcars | $7,712 | $23,196 | | Parts inventory | $5,114 | $5,049 | | Total inventories, net | $109,778 | $125,022 | - Total inventories, net, decreased by 12.19% from December 31, 2023, to March 31, 2024, driven by significant reductions in work in process and finished railcars, partially offset by an increase in raw materials[42] Note 8 – Product Warranties Details the company's product warranty reserve and changes during the period Changes in Warranty Reserve (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Balance at the beginning of the year | $1,602 | $1,940 | | Current year provision | $169 | $251 | | Reductions for payments, costs of repairs and other | $(173) | $(186) | | Adjustments to prior warranties | $(130) | $(71) | | Balance at the end of the year | $1,468 | $1,934 | - The warranty reserve decreased to $1,468 thousand at March 31, 2024, from $1,602 thousand at the beginning of the year, primarily due to reductions for payments and adjustments to prior warranties[43] Note 9 – Revolving Credit Facility Describes the terms, outstanding debt, and collateral for the company's revolving credit facility - Total outstanding debt under the revolving credit facility was $30,002 thousand as of March 31, 2024, slightly up from $29,415 thousand at December 31, 2023[44] - The facility has a maximum aggregate principal amount of up to $45,000 thousand, secured by a $25,000 thousand standby letter of credit and the Company's accounts receivable, maturing on October 31, 2024[45] - Interest rates are Prime + 1.5% (10% as of March 31, 2024) for the standby letter of credit and Prime + 2% (10.5% as of March 31, 2024) for advances secured by accounts receivable[47] Note 10 – Warrants Explains the company's outstanding warrants, their fair value, and accounting treatment - The Company has issued multiple warrants (2020, 2021, 2022, and 2023 Warrants) to OC III LFE II LP and its affiliates, with exercise prices of $0.01 per share for earlier warrants and $3.57 per share for the 2023 Warrant[49][50] Warrant Liability Fair Value (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :---------------- | | Warrant liability | $52,454 | $36,801 | - The Warrant is classified as a liability and is subject to fair value remeasurement at each balance sheet date, with changes reported in the condensed consolidated statements of operations[51] Note 11 – Mezzanine Equity Details the Series C Preferred Stock, its classification as mezzanine equity, and dividend terms - The Company issued 85,412 shares of non-convertible Series C Preferred Stock to OC III LFE in May 2023, classified as mezzanine equity due to potential redemption not solely within the Company's control[52] - Dividends accrue at 17.5% per annum on the initial stated value, are cumulative, and increase by 0.5% quarterly after the fourth anniversary if not redeemed[53][54] - The Company recognized discount amortization of $144 thousand during the three months ended March 31, 2024[55] Note 12 – Accumulated Other Comprehensive Income Presents the components and changes in accumulated other comprehensive income Components of Accumulated Other Comprehensive Income (in thousands) | Component | March 31, 2024 | December 31, 2023 | | :---------------------------------------- | :------------- | :---------------- | | Unrecognized pension income, net of tax | $1,794 | $1,759 | | Unrealized gain on foreign currency derivatives | $813 | $606 | | Total | $2,607 | $2,365 | - Accumulated other comprehensive income increased by $242 thousand during Q1 2024, primarily due to an unrealized gain on foreign currency derivatives[56] Note 13 – Stock-Based Compensation Details the stock-based compensation expense recognized and unearned compensation Stock-Based Compensation Expense (in thousands) | Period | Stock-Based Compensation | | :------------------------------------ | :----------------------- | | Three months ended March 31, 2024 | $760 | | Three months ended March 31, 2023 | $(91) | - Total stock-based compensation recognized was $760 thousand for Q1 2024, a significant increase from $(91) thousand in Q1 2023[57] - As of March 31, 2024, there was $2,129 thousand of unearned compensation expense related to restricted stock awards and $2,057 thousand for time-vested stock options, to be recognized over 27 months[57] Note 14 – Employee Benefit Plans Describes the company's pension plan and net periodic benefit cost - The Company's qualified, defined benefit pension plan is frozen, with participants no longer accruing benefits, and no contributions are expected in 2024[59][60] Net Periodic Benefit Cost (Benefit) (in thousands) | Pension Benefits | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Interest cost | $135 | $151 | | Expected return on plan assets | $(75) | $(81) | | Amortization of unrecognized net income | $35 | $41 | | Total | $95 | $111 | Note 15 – Derivatives Explains the company's use of foreign currency derivatives for hedging and their fair value - The Company uses foreign currency forward contracts to hedge Mexican Peso denominated expenses against foreign currency fluctuations, classifying them as cash flow hedges[63][64] Foreign Currency Derivatives (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | Notional Amount | $10,815 | $11,562 | | Fair Value (Prepaid expenses) | $813 | $606 | | Pre-tax realized gain (Cost of sales) | $(231) | $(3) | - The notional amount of outstanding foreign currency derivatives decreased, while the fair value of the derivative asset increased, and a larger pre-tax realized gain was recognized in cost of sales for Q1 2024[66] Note 16 – Earnings (Loss) Per Share Presents the calculation of basic and diluted earnings per share, including anti-dilutive shares Earnings (Loss) Per Share Data | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss available to common stockholders - basic | $(15,952) | $(5,037) | | Weighted average common shares outstanding - basic | 29,580,182 | 26,545,463 | | Net loss per common share – basic | $(0.54) | $(0.19) | - The net loss available to common stockholders significantly increased, leading to a higher basic and diluted net loss per common share of $(0.54) in Q1 2024 compared to $(0.19) in Q1 2023[67] - A substantial number of shares (4,781,274 in Q1 2024) were not included in the weighted average common shares outstanding calculation as they were anti-dilutive[67] Note 17 – Related Parties Details transactions and balances with related parties, including the Gil Family and CSTH - The Company engages in transactions with the Gil Family (owners of Fasemex, lessors of Castaños Facility, etc.) and Commercial Specialty Truck Holdings, LLC (CSTH), where a board member holds a minority ownership[68][70] Related Party Transactions (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Payments to Gil Family | $7,647 | $5,636 | | Sales to CSTH | $208 | $0 | | Related party asset (Mar 31, 2024) | $902 | $638 (Dec 31, 2023) | | Related party accounts payable (Mar 31, 2024) | $2,394 | $2,478 (Dec 31, 2023) | Note 18 – Income Taxes Explains the effective income tax rate and factors influencing tax provision or benefit Effective Income Tax Rate | Period | Effective Income Tax Rate | | :-------------------------------- | :------------------------ | | Three months ended March 31, 2024 | 18.2% | | Three months ended March 31, 2023 | (2.3)% | - The effective income tax rate significantly increased to 18.2% in Q1 2024 from (2.3)% in Q1 2023, primarily due to an increase in the mix of forecasted earnings and permanent items, predominantly from Mexico, taxed at higher rates, and a full valuation allowance in the U.S[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of FreightCar America's financial performance, condition, and liquidity for Q1 2024 compared to the prior year - The discussion contains forward-looking statements that are subject to potential risks and uncertainties, including cyclical business nature, adverse economic conditions, and fluctuating raw material costs[74] CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Warns readers about inherent risks and uncertainties associated with forward-looking statements in the report - The report includes forward-looking statements that involve potential risks and uncertainties, such as the cyclical nature of the business, adverse economic conditions, fluctuating raw material costs, and reliance on a small number of customers[74] - The Company expressly disclaims any duty to update forward-looking statements unless required by applicable securities laws[74] OVERVIEW Provides a general description of FreightCar America's business and key operational metrics like railcar orders and backlog - FreightCar America is a diversified manufacturer of railcars and components, offering design, manufacturing, rebody, conversion, parts, and servicing primarily in North America[75] Railcar Orders and Backlog | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total new orders received (units) | 384 | 1,960 | | New railcars (units) | 275 | 1,770 | | Rebuilt railcars (units) | 109 | 190 | | Total backlog (units) | 2,075 | 2,914 (Dec 31, 2023) | | Estimated sales value of backlog (millions) | $238 | $348 (Dec 31, 2023) | - The significant decrease in new orders received for Q1 2024 compared to Q1 2023 reflects mixed levels of confidence in the economic outlook[76] RESULTS OF OPERATIONS Details financial performance for Q1 2024 versus Q1 2023, focusing on revenues, gross profit, operating expenses, and net loss Three Months Ended March 31, 2024 compared to Three Months Ended March 31, 2023 Compares the company's financial results for the three months ended March 31, 2024, against the same period in 2023 Revenues Analyzes the changes in consolidated and manufacturing segment revenues year-over-year Consolidated and Manufacturing Segment Revenues (in millions) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Consolidated revenues | $161.1 | $81.0 | | Manufacturing segment revenues | $155.7 | $77.6 | - Consolidated revenues increased by $80.1 million (98.9%) year-over-year, primarily driven by a $78.1 million increase in Manufacturing segment revenues[77] - The increase in Manufacturing segment revenues was mainly due to a higher volume of railcar units delivered (1,223 units in Q1 2024 vs 738 units in Q1 2023), including those impacted by the U.S.-Mexico border closure in December 2023[77] Gross Profit Examines the changes in consolidated and manufacturing segment gross profit and contributing factors Consolidated and Manufacturing Segment Gross Profit (in millions) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Consolidated gross profit | $11.4 | $7.5 | | Manufacturing segment gross profit | $8.7 | $6.4 | - Consolidated gross profit increased by $3.9 million (52.0%) year-over-year, and Manufacturing segment gross profit increased by $2.3 million (35.9%)[78] - The increase reflects a favorable volume variance, partially offset by an unfavorable product mix[78] Selling, General and Administrative Expenses Discusses the changes in consolidated and segment selling, general, and administrative expenses Consolidated SG&A Expenses (in millions) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Consolidated SG&A expenses | $7.5 | $6.4 | | Manufacturing segment SG&A expenses | $0.5 | $0.8 | | Corporate and Other SG&A expenses | $7.0 | $5.6 | - Consolidated SG&A expenses increased by $1.1 million (17.2%) year-over-year, primarily due to a $0.9 million increase in stock-based compensation expenses[79] - Manufacturing segment SG&A decreased by $0.3 million due to lower consulting expenses, while Corporate and Other SG&A increased by $1.4 million, mainly from stock-based compensation[79] Operating Income (Loss) Analyzes the changes in consolidated and segment operating income or loss Consolidated and Segment Operating Income (Loss) (in millions) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Consolidated operating income | $3.9 | $1.1 | | Manufacturing segment operating income | $8.3 | $5.6 | | Corporate and Other operating loss | $(4.4) | $(4.5) | - Consolidated operating income increased by $2.8 million (254.5%) year-over-year, driven by improved gross profit, partially offset by higher SG&A expenses[80] - Manufacturing segment operating income increased due to higher railcar deliveries, while Corporate and Other operating loss slightly decreased[80] Income Taxes Reviews the income tax provision or benefit and the effective tax rate for the period Income Tax (Benefit) Provision (in millions) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Income tax (benefit) provision | $(2.6) | $0.1 | - The Company recorded an income tax benefit of $2.6 million in Q1 2024, compared to an income tax provision of $0.1 million in Q1 2023, primarily due to an increase in the mix of forecasted earnings and permanent items[81] Net Loss Examines the net loss and basic net loss per common share for the reporting period Net Loss and EPS | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Net loss (in millions) | $(11.6) | $(5.0) | | Net loss per common share – basic | $(0.54) | $(0.19) | - Net loss increased to $(11.6) million in Q1 2024 from $(5.0) million in Q1 2023, primarily due to the significant loss on the change in fair value of the warrant liability[82] LIQUIDITY AND CAPITAL RESOURCES Analyzes FreightCar America's liquidity, capital resources, cash flow activities, and future capital expenditure plans - The Company's primary sources of liquidity are cash and cash equivalent balances and its credit and debt facilities[83] - Management believes current cash balances will be sufficient to meet liquidity needs for at least the next twelve months, but long-term liquidity is contingent on operating performance and access to additional financing[91][92] Revolving Credit Facility Details the company's revolving credit facility, including outstanding debt and terms - Outstanding debt under the revolving credit facility was $30,002 thousand as of March 31, 2024, with a maximum aggregate principal amount of $45,000 thousand, maturing on October 31, 2024[84] - The facility is secured by a $25,000 thousand standby letter of credit and the Company's accounts receivable, bearing interest at Prime + 1.5% (10%) for the standby letter of credit and Prime + 2% (10.5%) for advances[84][85] Warrant Describes the 2023 Warrant issued, including shares, exercise price, and term - In May 2023, the Company issued a warrant to OC III LFE to purchase 1,636,313 shares of Common Stock (the '2023 Warrant') with an exercise price of $3.57 per share and a ten-year term[86] Preferred Shares Explains the Series C Preferred Stock, its classification, and dividend accrual terms - The Company issued 85,412 shares of non-convertible Series C Preferred Stock to OC III LFE in May 2023, classified as mezzanine equity[87] - The Preferred Stock ranks senior to Common Stock, accrues cumulative dividends at 17.5% per annum, and the rate increases by 0.5% quarterly after the fourth anniversary if not redeemed[88][89] Additional Liquidity Factors Discusses other factors influencing the company's liquidity, including restricted cash and future financing needs Restricted Cash Balances (in millions) | Item | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Restricted cash balances | $1.1 | $0.7 | - Restricted cash balances increased, used for customer deposits, standby letters of credit, and collateralizing foreign currency derivatives[90] - Future liquidity may require additional equity or debt financing, which could be dilutive or involve restrictive covenants[92] Cash Flows Summarizes cash flows from operating, investing, and financing activities for the period Summary of Cash Flow Activities (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(25,322) | $(7,704) | | Net cash used in investing activities | $(966) | $(1,960) | | Net cash used in financing activities | $(295) | $(449) | - Net cash used in operating activities significantly increased in Q1 2024, primarily due to increases in accounts receivable, partially offset by decreases in inventory and accounts payable[94] - Net cash used in investing activities decreased due to lower capital expenditures related to the Castaños Facility expansion[95] Capital Expenditures Reports capital expenditures for the period and anticipated future capital spending plans Capital Expenditures (in millions) | Period | Capital Expenditures | | :-------------------------------- | :------------------- | | Three months ended March 31, 2024 | $1.0 | | Three months ended March 31, 2023 | $2.0 | - Capital expenditures decreased by 50% year-over-year in Q1 2024[97] - Anticipated capital expenditures for 2024 are in the range of $5.0 million to $7.0 million, primarily for maintenance of current production lines at the Castaños Facility[97] Item 4. Controls and Procedures Details management's assessment of the effectiveness of disclosure controls and internal control over financial reporting Management's Report on Internal Control over Financial Reporting Presents management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024[99] Changes in Internal Control Over Financial Reporting Reports any material changes in the company's internal control over financial reporting during the quarter - There have been no material changes in the Company's internal control over financial reporting during the quarter ended March 31, 2024[100] PART II – OTHER INFORMATION Contains additional information not covered in the financial statements, including legal, equity, and exhibit details Item 1. Legal Proceedings Addresses the company's legal proceedings, noting no material impact on financial condition or operations - The Company is involved in certain pending and threatened legal proceedings in the normal course of business[103] - Management is not aware of any such proceedings that are expected to be material to the Company's consolidated financial condition, results of operations, or cash flows[103] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds were reported[104] Item 3. Defaults Upon Senior Securities Confirms no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities were reported[105] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the Company[106] Item 5. Other Information Indicates no other information requiring disclosure was reported - No other information was reported[107] Item 6. Exhibits Lists all exhibits filed as part of the Form 10-Q, including agreements, certifications, and XBRL documents - Exhibits include amendments to the Term Loan Credit Agreement, Royalty Agreements, a Termination Agreement, certifications under the Sarbanes-Oxley Act, and Inline XBRL documents[109] SIGNATURES Contains the official attestations and signatures for the Form 10-Q filing Official Attestations Contains official signatures of key officers attesting to the accuracy and filing of the report - The report is duly signed by Nicholas J. Randall (President and CEO), Michael A. Riordan (VP, Finance, CFO and Treasurer), and Juan Carlos Fuentes Sierra (Corporate Controller and Chief Accounting Officer) on May 8, 2024[113]