Greenbrier Companies Inc (GBX) 2021 Q1 法說會逐字稿

Good morning.

Hello, and welcome to the Greenbrier Companies First Quarter of Fiscal 2021 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. Justin Roberts, Vice President and Treasurer.

Mr. Roberts, you may begin.

Thank you, Jill.

Good morning, everyone, and Happy New Year.

Welcome to our first quarter of fiscal 2021 conference call.

On today's call, I am joined by Greenbrier's Chairman and CEO, Bill Furman; Lorie Tekorius, President and Chief Operating Officer; and Adrian Downes, Senior Vice President and Chief Financial Officer.

They will provide an update on Greenbrier's performance and our near-term priorities.

Following our introductory remarks, we will open up the call for questions.

In addition to the press release issued this morning, additional financial information and key metrics are found in a slide presentation posted today 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 2021 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

And with that, I will hand it over to Bill.

Thank you, Justin, and good morning, everyone.

Before I begin, I'd like to wish everyone on the call a Happy New Year.

2020 won't be soon forgotten.

Despite the real and lingering challenges of last year, the hope that ushers in each new year is especially strong now.

I want to thank our employees and all our stakeholders for your support.

Together, we're weathering some of the more challenging days of the pandemic.

I have a strong expectation that Greenbrier will emerge better and even more capable when normalcy returns later this year, as we all hope it will.

But as we can see in the newspaper and in the media, good times are not here yet.

In fact, we remain in the throes of the pandemic, and we're buffeted by its disruptive forces in the economy and in our markets.

This requires the company and its management team and Board to remain disciplined.

As we maintain the strategic priorities I have discussed over the past several quarters, we believe good outcomes will follow.

Regular operations continue in all of our facilities as a result of extensive health and safety protocols.

Protecting the health and well-being of our global workforce is our very first priority.

Keeping our businesses open, as part of an essential industry, is also highly important as is maintaining our backlog.

Our ongoing practices identify and act promptly upon any potential COVID-19 exposure.

Our protocols are enforced by management with a high degree of rigor at the highest levels including our Board of Directors.

The Board receives a weekly report on COVID incident rate and severity.

And in some of the markets and communities where we operate, community spread continues to be at pandemic levels.

In December, we lost [Ramon de Vasco] to COVID-19.

Juan was a -- Ramon, I'm sorry, was a materials coordinator at our GIMSA operation.

He was in his early 40s with no pre-existing risk factors.

Subsequently, during the same week, both his mother and his father died of COVID-19.

We're remembering him and his family during this difficult time.

Juan (sic) [Ramon] is the fifth member of the Greenbrier family to die from COVID-19.

Earlier this year, we lost 3 colleagues in Mexico and one in Romania.

With an average workforce of 13,500 employees since the period when the pandemic began in earnest in March, Greenbrier's experience rate with COVID-19 deaths and infections is significantly lower than the communities in which we operate as a whole.

In fact, our factories are safer, it seems, than the communities in which they operate.

When will we ever learn about the means to prevent spread of this terrible disease?

So our memories of our colleagues reminds us to stay vigilant with our own health and safety practices everywhere we go.

Related to our practices and observed in response to COVID-19 is our industry-leading safety performance.

In fact, we had the lowest number of monthly injuries in November since we started tracking safety metrics with 0 injuries in North America and in South America.

Turning to financial performance.

Our fiscal first quarter results were weak with a reported loss from operations for the first time in nearly 10 years.

That occurred last during the depths of the Great Recession.

Despite this loss, we continue to generate solid operating cash flow, an important measure of Greenbrier's health and vitality.

This results from earlier actions we executed as our industry entered a downturn in mid-2019, including adjusting capacity and reducing costs prior to and during the onset of the pandemic.

The pandemic compelled us to take a series of additional tough steps to protect the enterprise and to ensure Greenbrier maintained the strongest possible financial position.

We serve markets with cyclical demand that are also uniquely exposed to broader economic forces.

This makes flexibility and adaptability an integral to Greenbrier's survival.

Not only it's survival, but it's long-term growth, recovery and well-being.

Our industry faces serious short-term challenges.

Maintaining and growing liquidity for Greenbrier has been a core priority.

After achieving our ambitious liquidity target of $1 billion, we used some of our cash balances to reduce $82 million in debt in the first quarter.

Now with our liquidity goals firmly achieved, our focus shifts to balance sheet management, which provides Greenbrier competitive advantage as our markets stabilize.

Through this, we have maintained a dividend for 27 consecutive quarters with a current yield of 3%.

The Board just authorized a $100 million stock repurchase authority.

Over the past 8 years, Greenbrier has returned $315 million to its shareholders through stock buybacks and dividends.

With rightsizing our capacity nearly complete, Greenbrier's operating footprint is well suited for the market recovery expected in the second half of calendar 2021.

Steps we have taken in the past several years have resulted in a strong industry leadership on 3 continents, and the data we study suggest that when a return to normalcy does arrive that the rail business will react very quickly, and there should be a snapback effect.

Overall, we are cautiously optimistic about the U.S. economy and the world during the next 12 months.

The recently enacted federal stimulus package, mass vaccine distribution, steady consumer spending and the promise of robust infrastructure package emerging from a new Congress and administration in Washington are all favorable developments.

However, if the pandemic does not abate and business shutdowns continue or increase, momentum could stall and delay the recovery.

In any case, the economic repercussions of the pandemic will linger well into the first 6 months of 2021.

After this period, I expect emerging strength, as I've said earlier, in our sector.

All economies worldwide rely on rail transportation as an important, vitally strategic and environmentally friendly industry.

We expect an industry recovery in rail to be a bellwether for the economy's broader recovery.

In the meantime, our diversified backlog valued at $2.35 billion provides us baseload orders as we gain greater response -- greater visibility into customer requirements over the coming months.

Greenbrier occupies a fortunate position where we can rapidly expand capacity as outlook improves.

In fact, however, as others are doing, we are reducing capacity and rightsizing organizations with a lower cost footprint.

Rapidly achieving economies of factory utilization at scale, along with greater direct investment and railcar leasing will be the heart of our ability to regain profitability quickly when normalcy returns.

We have done this through previous industry down cycles, and our past experience, we believe, will guide us now.

Back in 2020 for -- 2010, for example, as we emerged from the Great Recession, we had a backlog of just 5,300 railcars valued at $400 million at our year-end.

Greenbrier's scale and capabilities have substantially broadened since then.

Recent highlights from a remarkable decade of expansion since 2010 include a much larger share of 2020 North American railcar orders.

The diversity of the railcar types we now build is much greater than before -- than ever before.

Our current backlog exceeds our 2010 mark by more than 5x.

Leveraging off this growth and scale, our stronger franchise, Greenbrier enters the emerging recovery extremely well positioned.

The benefits of our expense reduction initiatives will continue as our markets return to higher levels.

Despite current market and economic forces, Greenbrier's long-term outlook is very positive.

Our business generates strong positive cash flow, we made a strong liquidity position and balance sheet.

We are addressing today's challenges with resolve, resilience and determination, and we are confident that the new year brings better days ahead.

Now over to Lorie Tekorius, our President and Chief Operating Officer.

Thank you, Bill, and good morning, everyone.

Happy New Year.

In fiscal Q1, Greenbrier operated well in spite of the weak economy.

And while the financial results in the quarter were challenging with our -- as Bill has noted, our first operational loss in nearly 10 years, I am proud of our performance against the backdrop of the pandemic and the earlier industry downturn.

While financial results are important, now more than ever before, companies have a responsibility to all their stakeholders.

And we at Greenbrier take this responsibility seriously and have outlined in our second ESG report, which was published back in October, our focus on employees' safety; diversity, equity and inclusion, or DEI; the environment and governance as well as the ways we're engaging with our communities around the world.

Our report, which aligns with the Sustainable Accounting Standards Board, or SASB, can be found on our website.

Greenbrier remains focused on executing our COVID-19 response plan, as Bill mentioned several times.

We aren't complacent and we will continue to work hard to ensure our employees stay safe, our facilities remain essential and Greenbrier's strong liquidity and market-leading positions remain intact.

We remain poised to flex our manufacturing footprint as conditions evolve.

Specifically, we believe Greenbrier's North American manufacturing capacity is well positioned for the current market, while ensuring the capability to ramp up quickly and efficiently when demand improves.

Now moving on to a discussion of our results.

We delivered 3,100 railcars in the quarter, including 400 units in Brazil.

We received orders for 2,900 railcars valued at approximately $260 million.

And notably, orders originating from international sources accounted for about 30% of the activity in the quarter.

The average sales price for orders increased sequentially across all of our geographies, primarily driven by product mix.

And the net of orders and deliveries in the quarter or book-to-bill ratio was nearly one time, resulting in an ending backlog of 23,900 units valued at $2.35 billion.

Our global manufacturing group performed very well in spite of the weak environment, generating 9% gross margins despite a 44% sequential decline in both revenue and deliveries.

And this margin performance occurred despite higher expenses at each of our facilities associated with the protocols necessary to protect our employees while building RevPAR safely and efficiently.

And internationally, the order activity continues to recover with both our European and Brazilian operations largely booked into fiscal 2022.

Now turning to Wheels, Repair and Parts.

While the North American fleet utilization and rail traffic is recovering, the volumes are remaining weak in these operations in our Wheels, Repair and Parts operations.

Scrap pricing improved in the quarter, which helped offset some of the volume decline, and we continue our focus to have a well-positioned shop that serve our customer base in an efficient and safe manner.

Our network remains poised to respond quickly when activity levels improve later this calendar year.

Our leasing and services team continues to navigate the downturn well with fleet utilization increasing sequentially due to successful remarketing efforts during a time when nearly 1/4 of the North American fleet is in storage.

And our management services group added about 14,000 new railcars under management during the quarter, which brings total railcars under management to $407,000.

We continue to see the first half of fiscal 2021 as being challenging.

On top of the fact that historically, our Q2 tends to be one of our weaker quarters.

But we remain optimistic about a recovery beginning later in the year, which will more likely benefit our fiscal 2022.

We still expect gross margins to be in the low double to high single-digit range and are working hard to improve our financial performance.

Despite the current environment, Greenbrier remains healthy.

We've solidified our leadership position in our core markets in North America, Europe and Brazil and are well positioned for a recovery.

The aggressive measures we've taken over the last 10 months ensure that Greenbrier will exit the pandemic economy, a stronger and leaner organization.

And now Adrian, I'll turn it over to you for the financials.

Thank you, Lorie, and good morning, everyone.

As a reminder, quarterly financial information is available in the press release and supplemental slides on our website.

Greenbrier performed well despite low levels of business activity, reflecting the full impact of the weak demand environment, especially in North America.

A few highlights in the quarter include revenue of $403 million; deliveries of 3,100 units, including 400 units in Brazil; aggregate gross margin of 10.1%; and our manufacturing margins held up well at 9% despite the low delivery rates.

Selling and administrative expense of $43.7 million is down 5.5% sequentially from Q4, reflecting the continued spending controls enacted in March 2020.

More importantly, selling and administrative expense is down 20% from the first quarter of fiscal 2020.

Looking forward, we continue to expect annual selling and administrative expense will be approximately $170 million to $175 million last seen in 2017 before the formation of Greenbrier Astra Rail in Europe and the ARI acquisition.

The effective tax rate in the quarter was a benefit of 55%.

When pretax earnings or loss levels are low, discrete items can have a disproportionate impact on our quarterly tax rate.

More than half of the benefit was driven by favorable discrete items in the quarter, primarily driven by foreign currency fluctuations, so we would not expect the tax benefit to be this high in future quarters.

Net loss attributable to Greenbrier was $10 million or $0.30 per share.

Adjusted EBITDA for the quarter was $23.2 million or 5.8% of revenue.

In Q1, we recognized approximately $3.9 million of identifiable costs related to COVID-19.

We consider these costs vital to the safety of our employees and the ongoing operation of all our facilities and expect them to continue for the foreseeable future.

In the quarter, Greenbrier generated modestly positive operating cash flow of approximately $9 million.

Greenbrier's liquidity at November 30 was $810 million with cash of $725 million and available borrowing capacity of $85 million.

While we remain highly liquid, we have prudently used cash in the quarter, reflecting over $80 million of debt repayments since August 31, and we also have $150 million of additional initiatives in progress.

The other primary -- so we repaid $80 million of debt since August 31, and the other primary use of cash in the quarter was to invest in the lease fleet.

Leasing & Services capital expenditures are primarily discretionary.

Maintenance CapEx is around $5 million to $10 million annually, and other expenditures are opportunistic and driven by the underlying economics.

In the quarter, we invested in our lease fleet for a few different reasons.

First, leasing investments are tax advantaged; and second, railcars are long-lived assets and our balance sheet strength allows us to hold the assets while collecting a stable capital stream.

Looking ahead, we continue to expect capital expenditures in manufacturing and Wheels, Repair and Parts to be around $35 million in 2021, a level that supports safety and required maintenance.

We continue to have significant cushion in our debt covenants and no significant debt maturities until late calendar 2023.

Greenbrier's Board of Directors remains committed to a balanced deployment of capital including extending our share repurchase program through January 2023 and continuing a strong quarterly dividend.

Today, we are announcing a dividend of $0.27 per share, which is our 27th consecutive dividend.

Based on yesterday's closing share price, this represents a yield of 3%.

I'm excited about Greenbrier's future and appreciate all of the hard work of our employees to ensure that we emerge from the downturn a stronger company.

And now we will open it up for questions.

(Operator Instructions) Our first question will come from Justin Long with Stephens.

So maybe to kick things off.

I was curious if you could comment on order flow so far in the fiscal second quarter.

Curious if you've seen any pickup in either North America or internationally?

And maybe you could just share your view on orders going forward?

I know you're talking about a second half recovery, but is that based on the assumption that orders remain pretty stable in the first half and then go to something above replacement demand in the second half?

I'd love to just get a little bit more color around that to you.

Thank you, Justin.

I think starting with our backlog, one of our goals is to maintain our backlog to keep our factories operating at base rates, as we now have them, so we can scale upward in the -- when the recovery comes.

We don't want to cripple ourselves so much.

So we are seeing a positive order flow.

But as you know, in this industry, orders can be spotty.

Thus far, for the first 9 months of the pandemic, we have done very well maintaining and replenishing our backlog.

While the -- and there are some fundamentals that suggest that strength will come back very quickly.

We look at, as you probably know quite well better than we, the railroad traffic loadings, the stored cars, the velocity on rail, which has fallen over 2 miles per hour in the last year, and that's usually a strong indicator of order pipeline.

So we have a good pipeline.

It's tough out there and margins are short.

We're facing some competition essentially funded by the U.S. government, which is kind of a shocking thing given the position we've taken on China's entry in the United States.

But I guess, I think it's really just a matter of what will happen when stored cars reach what we believe will be a level around 400,000, which is a level that will -- should prompt renewed investment, and that's gone up quite a bit in terms of that breakeven point.

It used to be down around 300,000 and 250,000.

But because of many types of cars that are just not going to be moving out, is around 400,000 cars.

Today, the storage is roughly 426,000 cars.

So we're almost at that point where a lot of demand is there, and we should start seeing a strong order book.

Lorie, would you like to add something to that?

Yes.

Maybe just a little bit, I would say, from talking with our commercial team, they are still having a lot of conversations with a variety of customers.

We do see some activity out there, Justin.

But as you know, sometimes the end of the calendar year can be a boom or a little bit of a bust.

I think this year, in particular, there's probably a little bit more modest activity as people tended to use the holidays as a time to take a pause.

We expect more of that activity to pick up early in this calendar year.

And I'd leave you with the last thing that I heard from our commercial folks is they're seeing better quality in some of the inquiries that we're getting around opportunities as opposed to just checking in and things like that.

They are seeing better quality to the pipeline.

Okay.

Great.

That's helpful.

And maybe as a quick follow-up on manufacturing gross margins.

I think you've talked about the fiscal second quarter typically being the most challenging of the year.

So is the right expectation that sequentially, next quarter, we could see manufacturing margins get a little bit worse, and then in the back half of the year, get to that low double-digit range?

Well, I think it's fair to assume since manufacturing is the largest part of this organization that if the second quarter is a weaker quarter that you're going to see that reflected in manufacturing.

Yes.

Thus far, Justin, the whole story here and the whole takeaway is volume, volume, volume.

We've been able to maintain our margins admirably despite dramatic reductions in our revenue base and that is quite an accomplishment.

And you followed this industry for a long time and you can appreciate that, that's not an easy thing to do.

But we continue to have decent margins in our backlog.

We're not pricing below costs or doing anything like that.

We're showing pricing discipline and I think others are as well.

So we are hopeful that we can do well.

We just have a few more months as everything sorts up that we think will pass -- we hope will pass quite quickly.

Our next question comes from Bascome Majors from Susquehanna.

Following up on some of Justin's questioning there.

You guys have really done a tremendous amount of work to lower the breakeven of the company and protect your investors and your cash flows on the downside.

As recently as last summer, you were suggesting some optimism that even in a very tough marketing operating environment that you could potentially deliver a breakeven result at least on earnings for the full year.

Is that a question?

Actually, it looks like Bascome dropped off the line.

So we'll take the next caller.

And...

We hope the Bascome is okay.

We'll come back and answer that question.

I think we can remember the question.

Our next question then will come from Matt Elkott with Cowen.

I wanted to follow up on the order outlook question.

When you think about the initial phases of the demand recovery, where do you think the most significant impact will come from?

Is it going to be larger lessors trying to lock into the current favorable pricing to sign multiyear supply agreements?

Or do you see some pent-up demand from shippers who had been discouraged by the political and virus uncertainty and will now jump in and place those orders?

I don't think we'll see multi-level or multiyear orders at this stage and the cycles typically come as capacity gets constrained and lessors are concerned about having access to capital -- not to capital but to equipment.

The big drivers are stored railcars, velocity, shippers will be a primary source.

And then among the car types, we see strength in boxcars, probably including insulated boxcars.

We see a softer market for tanks, and we see some surprising strength in automotive and a number of other specific car types.

As you know, our industry is very specific with respect to car types, and the storage statistics are really important to watch.

Because sand cars, for example, are maybe 75,000 or 70,000 of those cars stored.

They're not likely to come out, but that's a big chunk of 400,000.

Intermodal cars are actually very at capacity now.

So there's a lot of stuff going on, and it's very specific to car types.

The customers -- but we do expect to improve our loan leasing model and do more ourselves, but we will continue to work with operating lessor partners as we have before and continue our syndication activities.

That makes sense.

I was just curious as to whether the attractive -- I would imagine the pricing -- new railcar pricing is very competitive now.

So what's the harm, if you're a large lessor and signing a supply agreement, and you don't necessarily have to exercise it right away, signing at the current prices and instead of waiting until the capacity actually -- the capacity shortage kind of sneaks up on you?

But what you gave, Bill, does make sense.

And then did you guys say what percentage of your backlog is international?

I think last quarter, it was 25% to 30%, if I remember correctly.

And it's holding about there, Matt, it's about 30%.

Also, Matt, the outlook in both Brazil and in Europe, our backlog there were practically booked through 2022 in Europe.

And similarly, we've had a very good resurgence in demand in South America.

So really, it's the North American market that we've been principally talking about here, which is our largest market, right?

They should buy when railcars are cheaper, but they don't.

For some reason, they buy when they're more expensive.

It's always been a bafflement to me.

Yes.

Interesting.

And you mentioned Europe, maybe my final question about Europe.

If you ask the operating lessors in Europe, that market is always -- almost always at full utilization.

The lease terms are shorter but the utilization is usually very high.

And there's an effort to move more freight into rail from the highway in Europe.

When can we expect to see a pretty material improvement in demand for railcar manufacturing as the continent begins to move freight off the highway?

And can you give us an update on your market share as a manufacturer in Europe?

And I guess -- if I could start, Bill, and then you could come in.

I do think that we're seeing a pickup in demand in Europe right now for exactly the reasons you were talking about.

They've certainly been hit by this pandemic like we have here in the United States, which has created a pause in their economy.

They're going through a second or third round of that pause right now, but we have seen an uptick in demand in Europe.

We have certainly seen some interesting behavior by some of our competitors.

So it's one of the things that we're watching very closely, just like here in North America, we're maintaining our discipline.

We don't want to lock up all of our production capacity with low to no margin work.

We value our work a lot more than that.

And we do think that there will be steady increases in the need for railcar as we move into the second half of 2021 in Europe as well.

So we're looking forward to that.

And Bill?

Yes.

On the issue of multiyear orders earlier asked, that's one area in Europe where 2 large multiyear orders were placed.

And in both cases, we declined to meet the competitive price.

There are roughly -- where there are 3 or 4 car builders in Europe, we shared the lion's share of that market with (inaudible) and we have refused to do multiyear pricing with fixed pricing on materials and components.

Because we believe in the middle of the summer that those components costs are going to go up and they're beginning to move already.

We still have a very strong demand in those 2 marketplaces, as I mentioned.

So would you guys consider consolidating the market further in Europe?

Or would you run into any regulatory issues if you try to do that?

No and yes.

We are not going to -- we probably are going to round off our business model by adding more sophistication to our leasing side of the business.

We will have adequate capital to invest.

We tend to pay down debt and when time is right and to invest further in our leasing platform.

We already manage over 400,000 railcars in the industry, we have a good management platform, and we probably see growth in that area, not necessarily in Europe, although we're evaluating that.

Next question will come from Ken Hoexter with Bank of America.

Really a great job on manufacturing margins, given what's going on, so congrats on that.

But looking, Lorie, a bit maybe at the ASPs there and pricing.

Maybe we could just delve into that a little bit and talk through.

Bill just mentioned, the different types of cars.

Can you talk about what types we're seeing in terms of the order book?

And understanding that you don't give exact numbers, how do we kind of [volley], what's going on in terms of filling up the order book with lowest ASPs versus the future margin impact on it?

Sure.

And Ken, you've certainly been following the market for a long time.

And know that ASP can also be driven by car type and how much material goes into a car can certainly create a higher price.

I would say here in North America, we've had a nice mix of order types, car types order in the first quarter.

I'd say there was probably a fairly more sizable chunk of boxcars and some tank cars, which tend to have a higher ASP.

And then in Europe and Brazil, again, when I said our ASPs have improved sequentially, it is across all 3 geographies: Brazil, North America and Europe.

And again, that's primarily car type driven.

But also going back to what we've talked about is our discipline of not being willing to meet some competitors' pricing, but to look at what is the right price that we need to have to operate our facilities.

And Ken, this is Justin, real quick.

When we do have a stronger international mix, especially with a strong mix down in Brazil for orders in the quarter, those units are typically smaller, and the ASPs are just lower in general.

So it definitely does come down to not just mix of car types but mix of geography as well.

Okay.

Helpful.

And then just on the -- your parts and leasing margin were also kind of down significantly.

Can you maybe just walk through, is that a factor of just lower business on the parts side, and so therefore, you have more fixed cost and so we should see the margins fluctuate as volumes come back?

And then maybe similarly on leasing, is that just a factor of rates driving that?

Maybe just walk through kind of how we should see the rest of the year flow through on the other segment?

Sure.

On Wheels, Repair and Parts, they're certainly being impacted like manufacturing with lower volume of repair activity.

Asset owners tend to put cars into storage as opposed to repairing them and then putting them into stores, so that's not necessarily an unusual phenomenon.

We have made adjustments to our cost basis in that segment, and we continue to find ways to integrate it more better and reduce management costs, but we also want to maintain a platform that can be responsive as demand comes back.

We've got that group working very closely with our management services group, which I said is now managing over 400,000 cars in North America.

So we see there being tremendous synergies between the cars that we manage and having a network of repair shops.

So on the Wheel, Repair and Parts side, we do expect margins to be challenged in the near term until volume comes back.

We got some benefit on the revenue side because of scrap pricing.

On the Leasing & Services side, this was a quarter where we had a slug of railcars that we had acquired on the secondary market that were sold.

And when we have those kinds of transactions, as you'll recall, that runs through revenue and cost of goods sold.

So margin percentage is diminished, even though margin dollars are maintained.

And then just one quick number from Adrian, if I can sneak one in, just barge revenues.

Do you give -- do you provide that?

About $20 million.

Our next question will come from Bascome Majors with Susquehanna.

Thank you for giving me a second shot here.

I don't know how much of the first question came through.

So I'll just...

We remember what you asked.

Yes.

I get to the point.

I'm just curious, given the whole you're starting out in with the first quarter and some seasonal and cyclical challenges in the second, is there enough opportunity to make it up in the back half and get you to that breakeven point in a cycle trough year that you've been striving to?

And if you could maybe address that in terms of earnings as well as cash flows?

I think that would be helpful.

Bascome, let me just say, we're not giving earnings guidance.

We've said what we said.

We haven't given up on achieving a breakeven in the year.

That's our goal, but we're going to have to have a really, really strong fourth quarter because I expect -- we expect -- economists expect hard times ahead for the next 4 months with COVID-19.

The death rate hit 3,750 yesterday, above the trend line that was projected just a month or 2 ago by leading economists and health experts.

We're going to have some impact that will have an unknown lag.

But if we have a very strong fourth quarter, we get stronger snapback in orders, which could occur.

If you watch the dynamics, I think it's possible to do so.

But it's going to really depend on the last quarter of the year for fiscal year.

But I think beyond that, in 2022, the company will have very strong momentum.

And I appreciate you addressing that within the uncertainty around us.

So it sounds to me like the biggest variables would be some order recovery and whether that happens during the fiscal year or maybe later in the calendar year into the next fiscal year, and it's more of a timing issue than anything.

Could you also just maybe address any visibility you have into the cadence of your syndication channel?

And when that could potentially go from an earnings headwind to a tailwind when you have some of those larger chunkier sales like you typically do later in your year?

Yes, that was principally for cash management and liquidity.

We're managing cash (inaudible) continue to do so.

Two other big factors that can contribute to demand very rapidly is the RAILCAR Act, which will be reintroduced in the new Congress.

We came very close to getting a coalition that was very effective at that -- on that one that will have a stimulus effect for low cost, efficient -- energy-efficient railcars and the scrapping of cars that are less efficient.

An infrastructure bill is also something that could bring good benefits for our industry, and it appears that, that is very, very likely to occur in the new Congress.

Some of that depends on what's going to occur today in their race in Georgia, but it looks like the situation is going to be very positive for those things.

So there are 2 things to watch in our industry.

And I think we're reasonably optimistic about both of those.

Other than that -- those are 2 things, I think you just should focus on.

And Bascome you mentioned cash as well, and you saw we did a positive cash flow in the quarter and even in hard times, we're a business that can generate cash as we manage our working capital levels, so we still have some more opportunity there.

Our next question is from Allison Poliniak with Wells Fargo.

I want to go to -- back to, I guess, somewhat a Q2 cadence.

You talked about, obviously, a baseline of capacity, which makes sense in terms of protecting the downside but more specifically positioning upside.

But when we think about Q2, should we assume the production level that you had in Q1 is something we should see in Q2?

Or is -- should -- could that be lower as we're thinking about our models here?

So working days, right?

We can say there's fewer working days, and we do have a few kind of major line changeovers.

So Q2 could have lower production, and this -- and then we actually are, as Bill mentioned, building cars onto our balance sheet as part of our syndication model, which will be syndicated into Q3 and Q4.

So from a production and delivery perspective, Q2 could be modestly lower.

Understood.

And then just turning to Europe, you talked about a pretty solid backlog in Europe.

Are you guys running at full capacity there?

I know you've had challenges from an operations standpoint, a while back.

Have those kind of, I guess, correct -- self-corrected at this point where profitability could improve in that region for you?

Yes.

We are not running at full capacity, and we've addressed the unfortunate operating issues that plagued us last year and into the second half of our year.

So we're expecting a lift up in -- but we're not at full capacity.

We have more that we can do there.

Our last question will come from Steve Barger with KeyBanc Capital Markets.

Bill, your primary competitor here in North America is part of a coalition that wants to drive modal share by using telematics and data analytics to -- I think, to improve service levels.

So just being a big OEM and railcar manager, what's your position on the need for a telematics platform?

That's a great question, and we think it's a very intriguing initiative.

It's very significant that it has Class I support, at least a very strong sponsor in the Eastern Railroad.

So we're studying this.

There are other options.

Our management platform gives us a great base if we decide to enter that.

The problem has been, nobody really wants to pay for that.

And there are other details that we don't have -- we could get out and do offline if you want to do it.

But we're interested in it.

We're tracking it.

And it's a great idea if people will pay for it, but have not been willing to up until now.

Yes.

And I would just say that we're always in favor of things that improve our industry, right?

Absolutely.

Anything that improves the overall industry, we believe that will improve Greenbrier.

So...

Well, just to follow up on that then.

With your liquidity position being really strong and you're having an expectation that things improve in the back half of this year, are there any specific technology investments you're making or thinking about that could improve the efficiency, whether it's internal or external?

I'd say, our engineering group is regularly reviewing ways that we can build cars differently.

And sometimes to those of us who sit at desk and look at computers all day, they may seem fairly minor.

But when it comes to the railcar that's built, they can have an extraordinary impact, whether it's on the carrying capacity or the heaviness of the railcar, allowing us to carry more product or the trains that have more cars in the train.

So I would say that's the area where we're focused mostly on technology and improvement for the industry is around how we're doing -- looking at the design of railcars and refining that.

Bill had mentioned our management services group, and we manage, again, over 400,000 cars.

That's an area where we're regularly updating the systems that we use within that group, where we manage maintenance and car hire and logistics and regulatory services.

So we're regularly doing things like that around technology.

The other 2 fronts on technology that are important is -- would be manufacturing technology to make our factories more efficient to use not 5G from China but 5G technology to have smart factories, lean factories, adaptable load changeovers.

We have a team working on that.

And the second would be cybersecurity.

This is a growing risk to all companies.

We operate where we have several vulnerabilities.

If we were penetrated.

We've all watched those headlines.

So our Board is concerned about that.

We're concerned about it.

We're investing to protect ourselves in that regard.

Got it.

And just one last one.

You've done a nice job of diversifying internationally over the last few years.

And hopefully, in the future, we won't have a negative catalyst on a global basis like we saw in 2020.

But just philosophically, is there a vision for further diversification to mitigate cyclicality?

And if so, what makes sense to add-on or expand into?

Lorie handles our strategic work, and I'm going to let her address that first.

I might have a comment or 2 on it.

Go ahead.

It's a great question, Steve.

It is very interesting.

I would say that right now, we're focused more on how we can generate more benefit out of our nonmanufacturing operations.

So again, it's the manufacturing of new railcars that tends to be the most cyclical.

If we can look at how we approach our leasing business, our management services business, our repair network and think about that as ways to offset, create some repeatable revenue and some steady cash flow out of those businesses to reduce the lows of manufacturing new railcar demand, I think that's very beneficial.

One of the things we can do, as we do that in here in North America, we'll also look to the other geographies to see if there's ways to not necessarily copy and paste, what we're doing in North America because every geography is different.

Every business environment is a little bit different.

We learned that early on when we went to Europe that we don't want to be the ugly American thinking that we know we have the answer to every question.

But we have improved how we're approaching things, and we'll look at those other geographies as well.

Well, I was just going to say it's hard to reinvent the wheel when you're talking about leasing or anything.

Is there anything that you have line of sight to?

Or is this kind of in the brainstorming?

No.

There's line of sight.

We intend to be more sophisticated about our leasing business to choose our partners wisely.

We have some very strong operating lessor partners.

We have some very strong syndication partners.

But with the current tax climate, we'd be foolish not to increase the amount of annuity stream producing leases on our own books, given the economics of railcar leasing.

There are, of course, risk factors in that.

But we are actually increasing our portfolio, and that has had some -- and will have some short-term effect.

But from a long-term perspective, it will create a stronger annuity stream and will be appropriately financed.

Thank you very much, everyone, for your time and attention today.

And if you have any follow-up questions, please reach out to myself or Lorie Tekorius.

Have a great day.

Thank you.

Happy New Year.

Happy New Year.

This does conclude today's conference call.

We thank you all for participating.

You may now disconnect, and have a great rest of your day.

Speakers, stand by.