Hello, and welcome to The Greenbrier Companies Second Quarter 2025 Earnings Conference Call. Following today's presentation, we will conduct a question-and-answer session. Until that time, all lines will be in a listen-only mode. At the request of The Greenbrier Companies, 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, Nick. Good afternoon, everyone, and welcome to our second quarter fiscal 2025 conference call. Today, I'm joined by Lorie Tekorius, Greenbrier's CEO and President; Brian Comstock, Executive Vice President and President of The Americas; and Michael Donfris, Senior Vice President and CFO. Following our update on Greenbrier's Q2 performance and our outlook for the remainder of fiscal '25, we will open up the call for questions. Our earnings release and supplemental slide presentation can be found 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 2025 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. We will refer to recurring revenue throughout our comments today. Recurring revenue is defined as leasing and fleet management revenue, excluding the impact of syndication activity. And before I hand the call over to Lorie, I wanted to provide some perspective. Last week marked my 19th anniversary with Greenbrier and it always causes me to reflect on the journey that Greenbrier has been on over my time here. It's remarkable to me that we are near record-setting EPS levels in what has been at best an okay railcar market the last few years versus the heady years of 70,000 to 80,000 car builds in 2014 and ‘15. To me, this underlines the strength, creativity, and experience of this team. What's even more impressive is that we aren't done yet. We remain relentlessly focused on controlling what we can control, which is improving operating efficiency, reducing costs, and ultimately creating shareholder value. And with that, I'll hand the call over to Lorie.

Thank you, Justin, and congratulations on your anniversary. Good afternoon, everyone. Thank you for joining us today. First, I want to emphasize Greenbrier strong performance in our second quarter ended February 28, 2025. Specifically, core net earnings of $56 million or $1.73 million per share excluding convertible debt dilution is higher on a sequential basis than Q1 on $100 million less of revenue. This reflects our continued focus on operating efficiency as further demonstrated by our impressive aggregate gross margin of 18.2%. This is our sixth consecutive quarter delivering aggregate gross margins at or above the mid-teens target we established two years ago. Second, it is important to mention that our North American operations are USMCA compliant. It's a bit of an understatement to say that the macroeconomic landscape has been noisy and dominated by fluctuating rhetoric and actions on trade policies and tariffs. But to be clear, our products have not been the target of proposed or enacted tariffs. However, tariffs are impacting the cost of our inputs, predominantly steel, and constructional changes in how our customers operate. Thanks to our excellent procurement team, we have confidence in our ability to protect margin from the most immediate impact on our supply chain. In fact, we've raised our full-year aggregate gross margin guidance, as well as our guidance for operating margin, despite lowering our delivery and revenue guidance. We're working collaboratively with our customers and business partners to strategize and provide solutions for their freight rail transport requirements. For now, railcar utilization remains steady. It's important to reiterate that Greenbrier has a very long history and has operated through a variety of macro backdrops. We have an experienced and agile team and will flex our manufacturing capacity as necessary to rapidly respond to changes in demand, while maximizing our operating…

Thanks, Lorie, and good afternoon. In Q2, we delivered 5,500 new railcars in a healthy manufacturing gross margin of 13.6%. While our mix had a similar profile, the Q1 margins were modestly lower due to production changes and the costs associated with closing a facility in Europe. I am pleased with the focus and performance of the manufacturing business over the last several quarters. The leasing team continues to perform well. The size of Greenbrier’s lease fleet was effectively unchanged from the prior quarter, reflecting the timing of additions to the fleet, as well as the disciplined nature of our approach. Our intention to invest up to $300 million annually on a net basis remains unchanged, provided that the railcar fleet additions meet our return criteria. Recurring revenue reached $157 million over the last four quarters, representing 39% growth from our starting point just two years ago. Customers are holding onto leased railcars and lease renewals and rate increases continue to be strong. We entered fiscal 2025 with about 10% of our leases up for renewals and successfully renewed more than half of those in the first two quarters. Given the ongoing strength in the leasing market, we are confident that we will successfully renew or remarket the balance of these units. We expect leasing fundamentals to remain strong this , because of limited equipment supply and builder production discipline. We syndicated 800 units in the quarter generating good liquidity and margins and we expect syndication activity to accelerate in the back half of the year. The timing of syndication activity is primarily tied to customer delivery requirements and production scheduling. Turning to the new railcar market, Greenbrier secured orders of 3,100 units worth nearly $400 million in the quarter. Our pipeline remains robust, but inquiries have been slow to…

Thank you, Brian. I will cover our second quarter financial highlights and key drivers as well as update the fiscal year 2025 guidance. As Justin mentioned, you can find our earnings release and supplemental slides on our website. I'm pleased with our financial results in the second quarter as we delivered strong performance and continue to focus on our operating efficiency. We've made meaningful improvements across the business and have been building on our operating momentum. On a year-over-year basis, second quarter core operating earnings and net income have grown 42% and 68%, respectively, reflecting the strength and successful execution of our strategic plan. Greenbrier remains in a strong financial position. Revenue in the quarter of $762 million was in line with our expectations. Deliveries of 5,500 new railcars reflect sequential decreases in North America and Europe, resulting from the timing of syndication activities and production changes. We expect deliveries to remain at this level with the midpoint of our guidance, averaging around 5,500 units per quarter during the second half of the year. With a favorable product mix, our continued focus on maximizing operating efficiency while growing our leasing business, aggregate gross margin remained strong at 18.2%. And -- these improvements were partially offset by a $2 million impact related to our European footprint rationalization. Operating income reached nearly $84 million or 11% of revenue, although it was reduced by over $6 million in European footprint rationalization costs. Our tax rate of 32% was higher than anticipated due to discrete items related to the Mexican peso. Excluding the impact of European facility rationalization costs, core diluted EPS was $1.69. It's worth noting that diluted EPS this quarter also includes approximately 900,000 shares related to our 2028 convertible debt. Our average share price exceeded the $55 strike price, causing additional…

I’ll now begin the question-and-answer session. [Operator Instructions] And your first question today will come from Ken Hoexter with Bank of America. Please go ahead.

Brian, Michael, Lorie. And Justin congrats on 19-years. Can you talk a little bit about the downshift in the production? Is that solely -- it sounded like, Lorie, you were saying it's not due to the closure in Europe, you can maintain that. Is that is that shift down to 5,000 units in the back half of the year quarterly? Is that just due to decreased demand? I just want to understand what the message on the lower the units increased the margin opportunity is?

Sure, Ken. And sorry, I thought was a little bit confusing. So there will be a short-term impact on our deliveries out of Europe, which is reducing our expectation for the second-half of 2025. We are also adjusting some of our production rates or lines here in North America based on as we manage our backlog and collaborate with our customers on when they need deliveries. And so that's another adjustment to the second-half delivery expectations.

Okay.

That said, as you mentioned, we are increasing our aggregate gross margin and our operating margin expectations. So this is part of what our focus has been is to drive more through to the bottom line in a variety of markets.

Wonderful. I mean great job. I mean you’ve definitely talked about the insourcing and executing on that. So I guess, just maybe switching over to the leasing for a second. Can you talk about the -- well, on the production, any -- is there -- I think you opened up with comments about the tariffs? Is there something we should expect in terms of costs? I know it's a full pass-through in terms of if you're shifting from Europe to Mexico. I guess, is there any impact on tariffs? And then any impact on the falling rates on the returns for leasing?

So I'll let Brian speak to kind of what he's seeing from a pricing perspective on our leasing. We are not shifting anything. So our European facilities produce equipment primarily for the Western European market. We are not transferring anything from Europe over to North America. When I think about North America and I think about the tariffs, just to reinforce, we are not subject to tariffs because we're U.S. MCA compliant. But certainly, the uncertainty in the market is being a headwind to demand around -- for some of our customers, particularly as they think through how this might impact traffic patterns. As you mentioned, we've navigated escalations and tariffs in the past, and our contracts do include pass-through language. That said, we'll continue to work with our customers to navigate and mitigate any impacts from tariffs.

Yes. Ken, I'll jump in and address the leasing second, but I just want to hit off what Lorie just said is at the end of the day, we don't expect really any negative tariff implication on any of the pricing in the backlog. Obviously, we're going to work with our customers to the extent it makes sense, but we have plenty of tools in the toolkit that protect us from the downside. On the leasing, there's an interesting opportunity as interest rates fall. And as we watch spreads, we will react accordingly. But keep in mind that all of our debt on our leasing fleet is fixed at this point. So that provides kind of a floor, but we do have some options, some call options where we could take advantage of the market should it present itself. As far as rates themselves go, we have seen kind of a leveling at very high levels. We don't see any retraction at this point. I think you see that from a lot of the other leasing companies as well, that lease rates and discipline around lease rates holding are holding quite well, in fact.

Just, I don't want to dominate, but just a quick follow-up there. You mentioned the pricing on the new build is holding steady. I just want to understand because the -- I guess the average sell price just looking at the $400 million and the $3.1 billion in backlog, it seems to be -- I'm sorry, 3,100 new cars added, would be about 129,000 ASP per car, which would be down 6% sequentially. So you're saying that, that is just solely mix and not anything on price?

Yes. It truly is, Ken. You saw a big buildup of auto as auto was coming out of COVID, that is kind of retracted with some of this tariff discussion. But what's happened is we've seen a shift really to a lot of the domestic tech products. So we've seen a lot of orders and inquiries around coiled steel cars, gondolas for scrap, pipe cars for hauling pipe for the drill initiative that's going on in the U.S., petrochemical tanks, really tanks of all description. So you're kind of moving from that big auto car kind of into more of your tank car guns, and hoppers.

Very helpful, appreciate the clarity, thanks guys.

Thanks, Ken.

And your next question today will come from Harrison Bauer with Susquehanna. Please go ahead.

Great. Thanks for taking my questions today. Your working capital investment in leased railcars held for syndication rose each of the last two quarters. How are your customers in the syndication channel reacting to this uncertain environment? And how much visibility do you have into syndication sales over the next few quarters?

Yes. So I'll take the first part, and I don't Michael or Lorie if you guys want to jump in. It's Brian, Harrison. So the syndication market continues to be very robust and liquid. We've got a number of transactions that are teed up, one of which was delayed by about two weeks is only because of some of their funding on the back end, but we have plenty of partners in place that are still wanting these good long-lived good return assets.

You said exactly what I was going to say, Brian. I mean the -- our investors, our syndication partners, they look at these assets. These are 40 to 50-year lived assets, and they're coming with a lease that is long term in nature as well. So they look past anything that might be happening in the current environment.

And the only thing I would add, Harrison. Hey Harrison, this is Justin real quick, it also comes down to timing of when we actually build the cars. So you have kind of churn intra-quarter and then you build the cars, but we also are not going to be selling cars like partway through a schedule or partly through a job. So it really is just timing. There is no change there, and we continue to see a very liquid market with strong appetite for good leases.

Great. Thank you for the color there. And maybe on the secondary market, more broadly and how that's behaving. Anything specific on the price of lease attached cars, market depth and liquidity that would be helpful.

Yes. The secondary market continues to be very strong. We -- I think I addressed in my opening remarks that we had about 10% of our fleet. We've got 55% of that renewed already. And everything that we're looking at right now in the queue, we've got good, strong renewal interest rates are holding well. We're not seeing much degradation at all. So I feel very confident. And again, you think about it, the fleet is really compressed over the last few years since COVID. I think we're down a couple of hundred thousand cars from the national total. We're under 1 million, and we used to be over 1.1 million to 1.2 million cars. I think we're around 900,000. So the fleet is really tight, is my point, and it's getting older. So it's -- I think it bodes well for both new originations as well as renewals on the existing fleet.

Great. Thank you all for the time today.

Thank you, Harrison.

Your next question will come from Ken Hoexter with Bank of America with a follow-up. Please go ahead.

Hey, yes, just thanks. Just want to squeeze a follow-up in. In the release, you kind of lowered CapEx. Can you maybe talk a little bit about what's being pulled out?

Yes, I can. This is Michael. We've got better visibility to the back half of the year. It's really just having a good idea of what our production schedule looks like and what we're going to do from a syndication standpoint. So I wouldn't read anything into that. We're still very, very much investing in the lease fleet and continue to kind of move forward with that.

Okay. So the lease fleet stays at the $300 million and so it's just pulling out of manufacturing?

No. We are pulling back a little bit on what we're investing in the lease fleet this fiscal year. But again, that's timing associated with when cars are being produced and when they get capitalized onto the balance sheet. Our stated goal is up to $300 million. So it may vary depending on the environment and what the mix looks like in the portfolio that we have on our balance sheet. As Brian has said many times, we're taking a very disciplined approach, making certain that we're not getting overweight in any particular car type or with any particular customer or commodity that we're exposed to.

All right. Great. Thanks for the color.

You bet.

That concludes our question-and-answer session. I would like to turn the conference back over to Mr. Justin Roberts for any closing remarks.

Thank you very much for your time today. If you have any follow-up questions, please e-mail investorrelations@gbrx.com. Thanks, and have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.