Hello, and welcome to The Greenbrier Companies Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. 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. Travis Williams, Head of Investor Relations. Mr. Williams, you may begin.

Thank you, operator. Good afternoon, everyone, and welcome to our second quarter fiscal 2026 earnings 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 outlook for fiscal 2026, we'll open 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 call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion, we will describe some of the important factors that could cause Greenbrier's actual results in 2026 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 management services revenue, excluding the impact of syndication transactions. And with that, I'll turn the call over to Lorie.

Thank you, Travis, and good afternoon, everyone. We appreciate you joining us today. Greenbrier delivered resilient second quarter results. Steady execution across our integrated business model and disciplined pricing supported our performance as our customers' needs continue to evolve and the expected production ramp-up shifts beyond the current fiscal year. Consistent with our expectations and production schedules as we exited Q1, deliveries and revenues were lower sequentially. Notably, though, aggregate gross margin and earnings exceeded prior periods with similar delivery levels. The structural improvements we've executed over the last several years drives our ability to deliver better financial performance on lower volumes and achieve what we like to call higher lows. Current FTR forecasts indicate approximately 24,000 new railcar deliveries for the North American market in calendar 2026. The last time the freight railcar industry generated annual deliveries at these levels, Greenbrier was a much different company. Our cost structure was higher, our capital planning was less targeted, our market position was narrower and our earnings profile was materially less dependable. That context matters because Greenbrier is fundamentally stronger today. We have structurally and systematically improved our operations and grown our market presence, resulting in a more balanced and durable business model. As a result, even in a more moderate railcar investment climate, we're generating solid profitability and positive cash flow while maintaining a high level of liquidity. Market conditions can be dynamic. Customers are deliberate with capital investments amid evolving freight conditions, changing trade policies, geopolitical developments and a mixed macroeconomic backdrop. However, as we entered March, customer commitments increased, reinforcing our view that underlying demand remains intact over the long term. In North America and Europe, we're experiencing longer customer decision-making times, which has shifted the timing of production. However, we remain confident in market fundamentals. We expect…

Thanks, Lorie, and good afternoon, everyone. I'll cover our second quarter operational performance, including commercial activity, manufacturing, Leasing & Fleet Management. Starting with commercial activity, we received broad-based orders for approximately 2,900 new railcars globally, with demand concentrated in North America and supported by leasing activity. As you know, our programmatic railcar restoration activity is not reported as part of our new railcar orders, deliveries or backlog. Turning to backlog. We ended the quarter with approximately 15,200 railcars valued at $2.1 billion, providing solid visibility into production as we move through the year. Our backlog continues to provide a meaningful base of production support, and our commercial team is focused on continuing to convert market opportunities into orders. Importantly, more than half of our orders in the quarter were driven by lease originations, underscoring our strong lease origination capabilities, key for our lease fleet growth and manufacturing stability. Leasing & Fleet Management delivered another strong quarter. Fleet utilization remained above 98% retention was strong and renewal rates continue to be robust. These dynamics reflect both the quality of our fleet and the value of our customer relationships. The strength of our leasing platform was demonstrated by our recent $300 million ABS financing in February that saw incredibly strong demand from investors, resulting in favorable terms. We continue to optimize the portfolio through disciplined asset sales. The strong secondary market for railcar equipment has enabled us to refine the composition of our owned portfolio and allows us to recycle capital where we are seeing the strongest returns. While our lease fleet was modestly lower compared to the first quarter, this reflects timing related to asset sales and new additions. As we move through the second half of the fiscal year, fleet growth will benefit from our recurring revenue profile and continue…

Thanks, Brian. Revenue for the quarter came in at $588 million, reflecting the timing of deliveries in North America and Europe. Aggregate gross margin for the quarter was 11.8%. This performance demonstrates the resilience of our integrated business model as leasing and fleet management and syndication activity partially offset lower fixed overhead absorption and less favorable product mix in manufacturing. Earnings from operations were $25 million or 4.3% of revenue. Results reflect the revenue timing dynamics I just mentioned, partially offset by resilient margin performance and disciplined execution across the business. Our effective tax rate for the quarter was 14.9%, driven primarily by discrete items related to foreign exchange impacts, particularly the strengthening of the Mexican peso. Diluted earnings per share were $0.47 and EBITDA for the quarter was $61 million or 10.3% of revenue. Turning to the balance sheet. Greenbrier ended Q2 with total liquidity of over $1 billion, the highest level in Greenbrier history, consisting of approximately $520 million in cash and $560 million in available borrowing capacity. We generated approximately $159 million of operating cash flow during the quarter. supported by earnings and disciplined working capital management. Liquidity remains robust and reflects both the strength of our capital base and our disciplined approach to capital recycling in a healthy secondary market. In addition to investing in our lease fleet, we remain committed to returning capital to our shareholders through a combination of dividends and share repurchases. Greenbrier's Board of Directors declared a dividend of $0.34 per share. This represents our 48th consecutive quarterly dividend. The 6% increase reflects confidence in our business model, cash generation capability and ability to deliver through-cycle performance. Through the first half of fiscal 2026, we repurchased $13 million of common stock under existing authorization. As of quarter end, approximately $65 million remain…

[Operator Instructions] And the first question will come from Harrison Bauer with Susquehanna.

I just want to start off on maybe the large increase in your planned gross capital expenditures for the lease fleet. Can you provide a sense of how much you are building into the fleet from your own manufacturing capabilities versus your utilization of the active secondary market?

Yes. Harrison, this is Brian. So to give you an idea, I'd say it's a pretty even mix. We continue to have a strong lease origination profile in the back half of the year. So we'll see a number of new units go in. But we've also been very active in the secondary market in acquiring assets as well.

Great. And then maybe as a follow-up on the secondary market, your equipment gains were substantially lower this quarter from last. I know maybe last quarter, you're a little bit more opportunistic. Can you provide maybe -- and you did increase your equipment sales, your proceeds target for the year. Can you give us maybe a sense of where you expect gains to be up for the year? How is the secondary market holding up? And just further color on that part of the leasing business.

Sure, Harrison. This is Lorie. What I would say is while we don't give quarterly guidance, we do expect the second half to be more of an investment in our lease fleet as opposed to secondary market sales. So while we do expect to continue to have gains on sale because it's just a normal part of having a lease fleet, we do expect it to probably be less than in the first half.

The next question will come from Ken Hoexter with Bank of America Merrill Lynch.

So Lorie, we were both at the Rail Equipment Finance Conference and the industry was talking about manufacturing down 27% last year and 23% this year. So at the midpoint, it looks like your number is down about 26% in production year-over-year versus the market. Are you now underperforming or losing share? Or maybe in that, if you want to talk about what is getting pushed out to next year, what kind of -- maybe it's mix, maybe something else? I don't know how you want to phrase it, but all in on kind of what's going on with the numbers pushing out.

Sure. I'll start, and Brian may want to come back with a little bit more on what he is seeing in the market. But yes, it was lovely to see you in Palm Springs as always. I would say that what we've really seen is with more recent economic uncertainty, we're seeing our customers just take a little bit more of a pause. So while we're excited about the activity that we've seen in March and are continuing to work from a demand perspective, it required us to be a little bit more moderate in our ramp-up expectations that we had planned to do towards the back half of this fiscal year. So we're still seeing -- having the same conversations. We're not seeing any fall away in underlying demand for railcars. We're not seeing any substantial adjustments to our share. What we're just seeing is a timing shift out of the back half of our fiscal '26 and into 2027.

Yes. Maybe I'll add a little bit on. This is Brian, Ken. I think what Lorie said is absolutely accurate. At the end of the day, we're not seeing any share decline at all. What really happened is there was a conflict that kind of popped up in the middle here in the last few weeks, and that has put some of these projects behind by, I would say, about 4 to 6 weeks. So what we had anticipated ramping up on -- and these are projects that are imminent. They're not projects that might happen. These are projects that we have a high degree of confidence have just simply gotten pushed back by probably about 1.5 months to 2 months. So it's going to put it more into the late August time frame into kind of the early September.

Okay. I don't know how to phrase the next one, but I guess the last time we saw the backlog this low, I think, was back in the second quarter of 2014. I've got a model that I've been doing this too long, right? So the model goes back pretty far. So the last time we were at 15,200, it's over a decade ago. So how should we think about that and kind of a normal cycle, right? I guess if I look at timing of 40-year rail assets, it seems like we could have a few years of relatively weak carload orders, although Lorie, at the conference, I guess, somebody was thinking that we might see a rebound in '27 on some cars. Is this just a normal car low point in the cycle? Or I guess, how do you think about the backlog? And I guess just one other statement outside of the question would be just -- I'm surprised on Turkey. I didn't -- I don't even think you've ever talked about Turkey. And I know it's in the Q that you have assets in Turkey, Poland and Romania, but surprised you're seeing it closing. So I'd love some thoughts on the timing of the cost savings.

So maybe I'll start with the end of yours first, and then we can go back around. So I think we've been talking about some of our footprint optimization that we've had going on in Europe. And I guess we've just been remiss in calling out Turkey, but specifically, that's one of the things. As we looked at what our capabilities are in our existing footprint, that was just an area that was not necessary and the logistics transportation distance just made it not be feasible anymore in support of our operations in Romania and Poland. So I think that's kind of the gist of it there. And I'll turn the other over to Brian because I can't remember the question...

The backlog.

Yes. I think you're really talking about the backlog and order cadence and kind of where we're at in the cycle. If you kind of look at the orders over the last few quarters, it's been fairly consistent in kind of that 3,000, somewhere between the high 2s to the mid-3s. And we continue to project that we'll be fairly consistent, almost a 1:1 kind of -- if you look at our current build rate, we're kind of at a 1:1 ratio at this point. We've already seen a significant uptick in March, for example. We're on a cadence to significantly improve backlog this next quarter with just even a little bit of help. So we're off to a pretty good start, and we're starting to see some of that come in that we thought was going to come in a little bit sooner. And again, I think some of the delay has really been around what's happening in the world today and a little bit more uncertainty that was thrown at us. And now as people kind of look at their supply chains and they rethink about where things are, we're in the planting season for crops, there's a lot of things that are starting to happen. Storage is down, by the way, 36,000 cars from January. The fleet is tight. People are starting to move forward. So I tend to subscribe to the that you talked about that you talked to one individual down at Palm Springs thought '27 was going to be a stronger year. I think for sure, it's going to be a stronger year. We're already seeing some of the big buyers come to the plate. The other thing that the 15,200 cars does not include any multiyear opportunities. So that's one of the things if you look backwards, can kind of skew what the actual buildable backlog is because some of that was going to be built over a period of years. So all in all, I feel like we're in a pretty strong position. Again, you kind of look at a 1:1 book-to-bill is kind of where we're at, and we see that building this quarter. so.

And just maybe a couple of things to say as well is we do have a really experienced team here at Greenbrier. And for better or for worse, we've been through a few cycles, and this is why we take the deliberate actions we take around production rates and making certain that we're moderating those rates because it benefits our workforce and our financial results to keep things on a steady pace as opposed to having pops and drops. The other thing that I'll comment on is part of what we've been doing over the last few years, which is to utilize our footprint in North America for more than just new railcars, right? So we're doing some of this large program work that Brian Comstock has a really fancy long term for. And -- but that's where our commercial team and our folks, men and women on the shop floor have made adjustments thinking about the environment that we're operating in and being responsive to our customers' needs, not just for new railcars, but how can we take care of their broader business. And that's part of what you're seeing in our financial results, and it's not part of deliveries. It's not part of orders. It's not part of backlog.

The next question will come from Andrzej Tomczyk with Goldman Sachs.

Just wanted to follow up quickly on the manufacturing. I wanted to dig in on the -- this quarter's margin performance, specifically, the gross profit margin was down 600 basis points year-over-year. But I'm curious if you could share what you think that margin drag would have been had you not taken the cost out actions that you did last year. So that's sort of the first part of that. And then separately, just the confidence, the degree of confidence on 2Q marking the bottom for the margins. I think you mentioned it would, but the confidence there into the back half as well.

So the first thing I'll start with, and I won't get into specific details, I'll let Michael decide if he wants to go there. But the big difference between this year and a whole year ago, it feels like there are so many things that are different from 12 months ago, but it's really mix. I think Michael might have mentioned in his remarks that we have -- we've had a shift in the mix of what we're currently manufacturing. So these are more general purpose car types as opposed to some more specialized cars that we were doing last year. That's not to say that those specialized car types aren't going to come back. And I would say that looking at Brian and knowing what our operating group is doing, we're very confident about where we see margins going in the near term and knocking on this wood conference table that, yes, this marks the low spot. But I think all of us know that you can't anticipate everything that might happen tomorrow or next week.

Yes. Maybe I'll jump in and then Michael, you can add as well. But from the operating perspective, I think one of the questions, Andrzej, you were asking is what kind of efficiencies have we been able to manage over the years that has improved the higher end of the low cycles. And when we look at -- we look at what we've done with our in-sourcing projects and with our efficiency projects, I figure we've added 2 or 3 basis points to the bottom line just through manufacturing efficiencies and focus. Yes, 200, 300, sorry.

Yes, I would agree with that. And also, if you look back to last year, Andrzej, it was at a higher volume number versus this quarter. And so we do have fixed cost absorption, as we mentioned in the prepared remarks that are impacting this quarter. Given where we are in the cycle, this is a -- we're pretty happy with kind of where we are. And we do think that it's potentially at an inflection point, and we'll see a better third quarter and a better fourth quarter as we move forward from a margin percent standpoint.

And just one more thing, just to say, I think the last time, if my numbers in my spreadsheet, and it's probably not as good as Hoexter's spreadsheet, but if I'm looking at my spreadsheet correctly, the last time we had deliveries in this neighborhood, our gross margin was around aggregate gross margin around 8.6% -- so we -- with the changes that we've made over the last few years, we have substantially improved how we're able to convert activity into gross margin and bottom line.

Understood. Very helpful color there. I did want to switch over just to the leasing and focus really on the back half. The gains on sale, you mentioned, I think, could come down a little bit. Is there any way to think on a full year basis, how you would look to manage gains into 2027 as an early look? And then separately, just as a clarification point, you had the leasing gross margins more recently close to the low to mid-60% range. I'm wondering if that should persist in the near term. I think last year it was closer to the 71% range. That might be a function of mix, et cetera. Just could you just talk about what's driving that gross margin within leasing and if we should use that as a sort of run rate into the back half?

And I'll take this one. I think the margins in leasing will continue in that low to low 60% range. So I think you can think about that as you kind of go forward. In terms of how we think about secondary market activity and gains on sale, that's just part of our business model. And so we did see, as Lorie mentioned, a little bit of it benefiting the first half of the year, and it's really more of a build in the back half of the year. We'll continue to look at our lease fleet and determine from a concentration perspective, what makes sense for us and how the market is reacting to secondary market activity to determine what 2027 looks like. It's a little bit early for us to look at that.

And I'll just say and maybe this can come up on your follow-up calls. But if I heard you correctly saying that maybe last year, Leasing & Fleet Management was in the 70% range, I think we should probably provide you some updated information because we adjusted where some of our syndication activity is now flowing through manufacturing. So when I look back at history with that adjustment, our Leasing & Fleet Management gross margins are in that low 60% range. So I think maybe we just have some cleanup we can help with.

Understood. And then last one for me on a more sort of a medium-term basis. Any updates to your thinking on the pending Class 1 rail merger or any comments you want to make regarding how your customers are thinking about the merger? Appreciate the time today.

Sure. Thank you. And I will just say, having been, I think, at Mars, and that's before the application was turned back for them to -- they're resubmitting that, I think, this month. I think the point is for shippers and the users of freight rail to think about will a merger benefit them, will the efficiencies that are being touted, will they come to pass? I will continue to say anything that benefits our customers, the customers of Greenbrier, the customers of any of the railroads should attract more shift of transportation onto the rails because it is a more fuel-efficient way to transport materials and anything that grows modal share should mean -- it's a bigger pie for all of us. So even if our market share stays absolutely the same, if we can grow modal share in the North American market, then we're all going to enjoy more pie.

Showing no further questions, this will conclude our question-and-answer session. Pardon me, it looks like Harrison Bauer with Susquehanna has a follow-up.

You guys had a comment earlier in the call regarding that a lot of your maybe more recent orders or demand activity was actually lessor driven. Can you just talk about a little bit of what's driving that? Is that more speculative? Is that underlying expectation for carload growth to resume? Just curious if you could dive a little bit more into that comment.

Sure. I'll set it up for Brian, who will probably understand better what's driving people choosing to purchase versus choosing to lease and just give a shout out to our commercial teams who are always right there next to our customers and willing to help them with whatever makes sense for their capital structure, right, if they need to commit spending dollars or they just want to lease depending on what activities are going on. But I will also emphasize that our team thinks about every single deal that we originate, whether it's a direct sale or a lease with the expectation that those cars will stay active and not doing something that is speculative or short term in nature to come back home or to go into storage.

Yes. And Harrison, I think the comment around if operating lessors are becoming more active in the market is true. I don't recall saying that, but it is true. We are seeing more operating lessor activity. And the reason is they're seeing the same things we are. They're hearing the same sounds from the same customers, the optimism, you've got through the planting season. There's been a falloff of covered hopper cars, the 4750 fleet. The fleets are tight. And so people are anticipating continued buildup in demand next year. So we are seeing many of the operating lessors who have been sitting on the sidelines starting to dip their toes in the water a bit on -- and I wouldn't say they're speculative buys, I would say they're strategic buys because they're very focused on specific opportunities.

This concludes our question-and-answer session. I would like to turn the conference back over to Lorie Tekorius for any closing remarks.

Thank you very much. I appreciate everyone's time and attention. Happy to take any follow-up calls. Travis is happy to take any follow-up calls later today if you'd like. Have a great day.

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