FreightCar America(RAIL) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenues for Q4 2018 totaled $87.8 million, an increase from $79.2 million in Q4 2017 and $79 million in Q3 2018, attributed to a larger number of new railcars delivered [29] - The gross margin was negative 4.6%, slightly improved from negative 4.9% in the previous quarter [30] - The consolidated operating loss for Q4 totaled $11.3 million, compared to a loss of $13.4 million in the same period last year and $8.7 million in Q3 2018 [31] - SG&A expenses for the quarter were $7.2 million, higher sequentially due to the normalization of expenses after the elimination of incentive compensation accrual in Q3 2018 [32] - Cash position at year-end was $58 million, with no outstanding debt [33] Business Line Data and Key Metrics Changes - Railcar deliveries totaled 1,047 in Q4 2018, up from 977 in the same quarter last year, with 827 new cars and 220 rebuilds [22] - The company received 835 new orders for railcars in Q4 2018, a significant increase from 52 orders in Q4 2017 [23] - The order backlog as of December 31, 2018, consisted of 1,699 railcars valued at approximately $160 million, down from 1,911 railcars valued at $167 million at the end of Q3 2018 [24] Market Data and Key Metrics Changes - Industry-wide non-tank car orders increased to 13,942 cars for the quarter ending December 31, with the company receiving a reasonable share of orders in its strong product segments [25] - The company noted that 74% of the non-tank car order mix was concentrated in key car types where it is not fully competitive [26] - Rail traffic growth is expected to continue at modest levels, offset by Class I railroads' operating efficiency improvements [27] Company Strategy and Development Direction - The company is focused on a "Back to Basics" transformation strategy aimed at improving product offerings, cost structure, and manufacturing operations [7][10] - Plans for 2019 include completing the transformation work started in 2018, expanding the product portfolio, and achieving additional material cost savings of $2,000 to $3,000 per railcar [40] - The company aims to grow its leasing capability without becoming a competitor to its customers, focusing on incremental manufacturing business [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged disappointing financial performance but emphasized ongoing progress in business transformation [8] - The company expects delivery of 2,500 to 3,500 railcars in 2019, with capital spending anticipated between $4 million and $5 million [37] - Management expressed confidence in the company's direction and progress, despite acknowledging challenges in the turnaround process [48] Other Important Information - A valuation allowance against deferred tax assets of $18.2 million was recorded in Q4 2018 due to historical operating losses [36] - The company plans to reduce its operational footprint at the Shoals facility while maintaining full manufacturing capability [43][80] Q&A Session Summary Question: Can you help us understand what percentage of the market you can currently address with your product portfolio? - Management indicated that they will be able to address everything except tank cars and a few freight car design types, with significant improvements expected by year-end [52][55] Question: Are you seeing hesitancy from customers in placing orders in 2019? - Management confirmed that some customers are in a pause mode regarding decisions on railcars, but they expect inquiry levels to maintain an average pace [60] Question: How is the lease fleet positioned today and where do you see growth? - The current lease fleet consists of about 840 units, with plans to grow incrementally over the next several years [70] Question: What are your thoughts on the impact of precision railroading on the railcar equipment market? - Management noted that while precision railroading may have short-term uncertainties, it is likely beneficial for freight by rail in the long term [74] Question: Can you discuss the lumpiness in production and pricing environment for 2019? - Management acknowledged that there will be some lumpiness in deliveries based on car types, with a challenging pricing environment expected [86]