FreightCar America(RAIL) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - FreightCar America reported a 47% increase in consolidated revenues for Q3 2022, totaling $85.7 million compared to $58.3 million in Q3 2021 [29] - Deliveries increased by 55% year-over-year, with 783 railcars delivered in Q3 2022, up from 505 railcars in the same period last year [30] - Gross profit for Q3 2022 was $4.6 million, significantly up from $1.5 million in Q3 2021, resulting in a gross margin of 5.3% compared to 2.6% last year [30] - Adjusted EBITDA improved to $1.6 million in Q3 2022 from a loss of $3.5 million in Q3 2021, with a total of $7.2 million of adjusted EBITDA generated in the first nine months of 2022 [35] Business Line Data and Key Metrics Changes - Manufacturing operating income grew to $3.1 million in Q3 2022 from $163,000 in Q3 2021, indicating improved operational efficiency [30] - The company is on track to complete legacy lower-margin orders by year-end, which is expected to enhance the margin profile starting in Q4 2022 [11][28] Market Data and Key Metrics Changes - Inquiry activity and formal bids increased by double digits quarter-over-quarter, indicating strong demand for new railcars [22] - Total cars stored in long-term storage fell to just over 275,000, representing 17% of the North American fleet, a nearly 48% decrease since the peak in July 2020 [20] - Railcar scrapping has outpaced deliveries for nearly three years, supporting ongoing replacement demand [21] Company Strategy and Development Direction - The company is focused on scaling its manufacturing capabilities at its new facility in Castaños, Mexico, which is expected to yield significant efficiencies and production capacity increases [14][45] - FreightCar America aims to maintain a disciplined approach to pricing and order acceptance, aligning with profitability guidelines while navigating macroeconomic uncertainties [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the railcar market, citing positive industry fundamentals and sales inquiries, despite caution regarding macroeconomic uncertainties such as inflation and supply chain challenges [12][46] - The company anticipates revenue for the full year 2022 to be between $340 million and $360 million, representing a year-over-year increase of approximately 72% at the midpoint [16] Other Important Information - The company completed the construction of its new fabrication shop and expanded its wheel and axle shop, achieving AAR certification for in-house axle machining [14] - Capital expenditures for Q3 2022 were approximately $0.6 million, with expectations for total CapEx for the year to range between $7 million and $8 million [39] Q&A Session Summary Question: Inquiry and order activity for Q4 - Management indicated confidence in growing the backlog as inquiry and bid activity has increased, with a 33% year-over-year increase in backlog for the first nine months [55] Question: Cost structure and gross margins - Management expects sequential improvement in gross margins moving into Q4, aiming to return to the margin profile seen in the first two quarters of 2022 [62] Question: Lower-margin orders in Q4 - Management confirmed that lower-margin orders will represent a lower percentage of deliveries in Q4 compared to Q3 [67] Question: Freight costs and mitigation strategies - Management is focusing resources on cost reduction in freight, acknowledging that freight has become a significant component of the cost structure [72] Question: Industry demand and future deliveries - Management expects improved deliveries next year, with a long-term average replacement demand in the range of 40,000 to 45,000 railcars annually [76]