FreightCar America Inc (RAIL) 2018 Q2 法說會逐字稿

Ladies and gentlemen, welcome to FreightCar America's Second Quarter 2018 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this conference is being recorded.

An audio replay of the conference call will be available from 1 p.m. Eastern today until 11:59 p.m. Eastern on September 2, 2018. To access the replay, please dial 1(800) 475-6701. And the replay access code is 452079. An audio replay of the call will also be available on the company's website within 2 days following this earnings call.

I will now turn the conference over to Matt Kohnke, Chief Financial Officer of FreightCar America.

Thank you, and welcome. Joining me today are Jim Meyer, President and Chief Executive Officer; and Ted Baun, Chief Commercial Officer.

I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Participants are directed to FreightCar America's 2017 Form 10-K for a description of certain business risks, some of which may be outside the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events or otherwise.

Our 2017 Form 10-K and earnings release for the second quarter of 2018 are posted on the company's website at www.freightcaramerica.com.

With that, let me now turn the call over to Jim for a few opening remarks. Jim?

Good morning, everyone, and thank you for joining us today. This call marks my 1-year anniversary with the company, and I would like to take the opportunity to speak briefly about what we have learned, what we have accomplished and what we plan to do next. After these brief statements, I will turn the call over to Ted and Matt to speak specifically about FreightCar America's commercial and financial performance over the second quarter.

When I first came aboard, I knew that it was imperative that we undergo a thorough, but fast examination of our business. And through this, it became clear that we had urgent needs in some area of the business and significant opportunities in much of the rest. With respect to the urgent needs, we immediately put priority on all aspects of operational excellence, reducing product cost and reinvigorating our culture. In addition to these, which we are addressing through our Back to Basics program, we also have meaningful opportunity to strengthen our product portfolio, streamline fixed cost and explore how we go to market.

While we are still a long way away from declaring victory on our legacy operational and cost issues, progress is well underway and it's clear to us that Back to Basics is working.

On our fourth quarter earnings call back in February, you'll remember that we made 2 significant announcements. First, we announced that we acquired Navistar's rail operations, which would allow us to take complete control of our Shoals manufacturing operations. Second, we announced the aforementioned Back to Basics program. While the announcement of the program came only this past February, the real groundwork in designing the key components of the plan and recruiting the talent needed to execute it began last fall.

The team here is already seeing real tangible signs of operational improvement. Our safety, quality, labor productivity and overall operations are improving as expected. As we've discussed, safety, quality and productivity closely correlate in any properly functioning plant. After just 2 quarters since starting the program, we are ahead of schedule on delivering our previously announced plan to reduce cost of goods sold by $3,000 to $4,000 per railcar by year-end. As such, we're raising our goal to now deliver a total of $4,000 to $5,000 savings per railcar by year-end on a run rate basis. This is a combination of both labor efficiency gains and material cost savings.

Please keep in mind that whereas the majority of material savings applies to all new built car types, the labor tends to be more specific to the car models and production at that time and we must continue to generate similar gains as we switch car types in production.

With that said, here are a few specific examples of where we have made tangible impacts through our Back to Basics program. The first pillar of this program centers on simplifying our business structure. We finished the integration of the former Navistar rail operations in June when we completed the IT work. This integration went as smoothly as one could hope. The transaction is achieving everything we initially sought and is responsible for some of the cost reductions just discussed. Additionally, the integration of the Navistar employees is further enabling the larger cultural transformation currently taking place at the company.

Next, we very recently entered into an agreement to sell our Danville facility, which will further rightsize our manufacturing footprint. We expect this transaction to close later this month. And when closed, our footprint will include the state-of-the-art Shoals facility, which remains one of the newest manufacturing platforms in our industry; and our Roanoke facility. And as a reminder, we also operate a much smaller facility in Johnstown, Pennsylvania, where we produce service and aftermarket parts.

The second pillar of Back to Basics focuses on developing, training and retaining the right talent across our organization. So this time, we have added numerous talented team members, all of whom are now on the ground, up to speed and making a meaningful impact on our operations and culture. We will continue to identify opportunities to add talented personnel at all levels of the organization. But as of now, we feel confident that we have the right team in place to execute the strategy and fully deliver our Back to Basics objectives.

It's also worth mentioning that gains in cultural transformation are just as (inaudible) and perhaps even more closely scrutinized by our work colleagues as anything else that we undertake.

Earlier this summer, several of our hourly Shoals employees exercised their legal right to vote on union representation, which took place on June 13. I'm happy to report that the collective Shoals workforce overwhelmingly voted against unionization, a sign of support for the company, the management team and the direction that we are headed in together. Culturally, we are becoming a stronger team, and we are beginning to believe in ourselves in ways that we previously did not.

The third and final pillar of Back to Basics hinges on implementing best-in-class processes across the entire business. On this front, we are also making progress, but still have much to do. Creating better processes and running our operations around these will eventually be part of our cultural DNA and an ongoing source of cost reduction. Our focus to date has been on Shoals and using visual management to run production, all aspects of material handling and manufacturing quality.

These focuses will continue as well the acceleration of new bodies of work around the entirety of our quality systems and also what we call launch. Launch is the management and preparation work that precedes ramping up production for new models and model changeovers. As any operator in this business knows, model changeovers are a major source of cost and have a potential to cause defects and delays, resulting in inefficiencies and lost revenue and future opportunity. At the same time, becoming very good at this can be a competitive strength. And while on this point, we recently recruited an expert in this area to oversee this critical part of the business.

In addition to the traction we are gaining from Back to Basics, we are perhaps starting to see small signs of encouragement in the marketplace. We are encouraged by the level of industry orders received in the most recent quarter, the highest we've seen since the second quarter of last year. You may recall that on our last earnings call, we raised our full year railcar delivery outlook. Today, we are raising both ends of that revised range, with full year delivery totals expected to now fall in the range of 4,250 to 4,500 railcars.

Before I conclude my remarks, I would also like to note that in the upcoming few quarters, we will be building a number of smaller orders, which will be a significant test of the progress being made. While we are encouraged by the momentum of our programs, I think it is important to reiterate that the Back to Basics strategy is not intended to be a short-term measure put in place to weather a cyclical downturn. Instead, Back to Basics is an investment in the long haul. It will take time to fully implement and then additional time to realize in the form of greater volume on substantively improved margin.

In conclusion, our company is adopting a much-needed level of discipline across the entire organization. We continue to come together as a team, and Back to Basics is working. As our customers start to experience these improvements first hand, we believe that we will see new opportunities for car types that FreightCar is best known for as well as those in our recently expanded portfolio. This will take a little time, but we're confident in the incremental value that we are creating for our customers and for the company.

With that, I will turn the call over to Ted to discuss the commercial aspects of our second quarter results.

Thanks, Jim. Moving to our commercial figures for the second quarter. Deliveries totaled 1,185 railcars, of which 368 of these deliveries were new cars, 514 were rebuilds and 303 were leased railcars. This compares to 1,096 railcars delivered in the same quarter of last year, all of which were newly built railcars.

Sequentially, railcar deliveries were up compared to the 1,094 railcars delivered in the previous quarter, comprised of 891 new, 81 rebuilds and 122 leased railcars. We received 1,450 new orders for railcars during the second quarter of 2018, all of which were for new railcars. This is slightly down compared to the 1,520 new orders we received during the same quarter in 2017, but up sequentially compared to the 756 orders received in the first quarter of 2018.

Our order backlog as of June 30, 2018, consisted of 2,319 railcars, with an estimated total sales value of approximately $190 million, up sequentially compared to our backlog at the end of the first quarter, which consists of 2,054 railcars at an estimated total sales value of approximately $143 million. Our quarter-end backlog figure consists of 1,709 new railcars and 610 rebuilt railcars to be manufactured for direct sale.

Industry-wide, non-tank car orders increased to 13,626 cars for the quarter ending June 30. This compares to 8,119 non-tank car orders received last quarter and 13,207 orders in the second quarter of last year.

Market data around loadings, train velocities and utilization remain favorable, and it is reflected in this quarter's industry's book-to-bill ratio, which at 1.8 for the second quarter was the best ratio recorded since the fourth quarter of 2014.

We continue to be pleased with the recent positive developments that we are seeing in the marketplace and are hopeful these trends continue. That being said, pricing remains extremely competitive. In the meantime, the sales organization remains focused on both and energized by growing feedback from customers on the operational changes taking place in Shoals.

With that, I would like to turn the call over to Matt, as he will detail our second quarter financial results.

Thanks, Ted. Consolidated revenues for the second quarter 2018 totaled $66.7 million compared to $118.7 million in the second quarter of last year and $83 million in the first quarter. The decrease in revenue was largely attributable to the impact of 514 rebuilds and 303 railcars delivered to the lease fleet, which I'll talk about in a few minutes.

Gross margin for the second quarter improved substantially to 7.3%, marking our first positive gross margin since the second quarter of 2017. This improvement is due primarily to a more favorable pricing and product mix on railcars sold during the quarter. However, the improvement was also attributable to our cost savings initiatives under our Back to Basics program.

To provide a little more context, we have reduced the cost of railcars produced during the quarter by approximately $2,000 per railcar delivered when compared to the fourth quarter of 2017. Not all of this went through the income statement, as some of the railcars delivered went to our lease fleet. But the efforts are starting to pay off in the income statement. We expect this number to continue to improve as we make further progress against our strategy in the second half of this year.

Consolidated operating loss for the second quarter totaled $3.5 million compared to consolidated operating loss of $1 million in the year-ago period and $8.6 million operating loss in the first quarter of 2018.

SG&A for the quarter totaled $8.4 million compared to $5.9 million in the year-ago period and $8 million in the prior quarter. The increase on a sequential basis was due in part to the talent acquisition cost associated with some of our recent hires that are helping transform the business. On a year-over-year basis, SG&A increased by $2.5 million, primarily due to higher variable incentive compensation expense and an increase in noncash stock-based compensation. As a reminder, our accrual for variable incentive compensation expense was eliminated last year in Q2, which lowers the SG&A figure.

As we look forward to the second half of the year, we will be faced with continued headwinds around pricing and a less favorable product mix of railcars delivered in addition to the number of line changeovers that Jim mentioned earlier.

Capital expenditures for the quarter totaled $300,000. For the full year, we anticipate our Capex figures to total between $2.5 million and $3 million. Our financial position remains strong, with no outstanding debt and $86.9 million in the form of cash, cash equivalent, restricted cash, marketable securities and restricted certificates of deposit as of June 30. The decrease in our cash position was primarily driven by deliveries to our short-term lease fleet. We saw an opportunity in the market to put a few lease deals together. And looking forward, we'll continue to look for opportunities to sell these cars in the marketplace at acceptable prices. Upon the sale of these railcars, our cash balance will be restored to more normalized levels. In the meantime, these railcars are in service and out on lease.

With that, I would like to turn the call back to Jim for some brief closing remarks.

Thanks, Matt. As I mentioned at the top of the call, I've been in my role at FreightCar America for a year now. It has been a year of tough work, but our employees have come together, are committed to the changes, and more importantly, to winning, none of what we have achieved today or what we plan to achieve in the future would otherwise be possible.

So I'd like to conclude our prepared comments by both recognizing and thanking all of our FreightCar employees for their commitment and hard work. And speaking on behalf of the entire team, we are all looking forward to what's to come next.

With that, I would like to conclude our prepared remarks and turn the call over to the operator for some Q&A.

(Operator Instructions) And we do have a question from the line of Michael Gallo -- with Mike Gallo, CL King.

A couple of questions, Jim, $4,000 to $5,000 car reduction versus what you kind of thought earlier in the year. How much of that is just going to pulling forward some of the opportunities versus as you've kind of done this and integrated Navistar you're finding new opportunities? And I was wondering what areas relative to your original expectations are you finding the biggest opportunities. And then just kind of as a -- kind of follow-up to that. Obviously, you had a reasonably decent mix in the second quarter, which you still only had about $2,000 per car of cost reduction. As you go through the balance of the year, it would seem had you had the cost structure where you wanted to, you would've had a double-digit gross margin in the quarter. So help us with how we should think about balancing mix versus kind of further opportunity and whether you think getting to the $4,000 to $5,000 per car savings would be ratable or whether you think it'll be more weighted to the -- towards the end of the year.

Mike, I think that was 8 questions, by the way. I'll do my best. First of all, the -- when we talk about the cost reduction, the $3,000 to $4,000, the $4,000 to $5,000, we're talking specifically about material cost and we're talking about labor. As you would expect, just by looking at the P&L, you would expect more opportunity on material than you would on labor. Both are playing key parts to our delivery so far this year and what we expect to achieve for the balance of the year. But the bigger slice of that is, in fact, material cost. As it relates to -- it was $3,000 to $4,000. Now it's $4,000 to $5,000. Is it a pull ahead or is it new opportunity? We're not on a -- here's a list of things we think we can go do. How quickly can we go get undone? We're putting well-proven, well-defined processes in place, led by very talented people, to make this an ongoing activity for us for hopefully, presumably time to come. The fact that we're raising our target for this year is really a reflection of 2 things. In part, yes, as we've gotten started, as you would expect, we do find new opportunities. And it's not just new opportunities, it's new opportunities that are realizable this calendar year. The raising of the target for the year, though, is also a result of the team has been established and deployed a little bit faster than we anticipated. So we've gotten off the ground and out of the gates pretty smoothly, and we're very, very pleased by that. So let me make one other comment. I think it was about question number five there, which was the $2,000 that Matt commented on. Keep in mind that when we talk about now $4,000 to $5,000, that's the run rate improvement that we expect to be on by the end of this year. It takes time, of course, until the stuff starts flowing into the cars that we're currently building and then on to the P&L So there will always be a lag on what we're doing to when you actually see it in our financial performance. I actually think the fact that we've captured $2,000 per car in our financials -- and again, it's a combination of what's in the P&L and what's on the balance sheet with the leased cars is actually, again, pretty impressive. And I would attribute that to both the speed at which the team operationalized as well as just kind of the fertile ground or the richness of the opportunities. Hopefully, I covered most of your questions there.

And we do have a question from the line of Matt Elkott with Cowen.

Jim, it's good to see that you guys are tracking ahead with the cost reduction on a per car basis. My question is kind of more of a strategic long term in nature. We all know that this industry, the railcar manufacturing industry specifically, is extremely cyclical. And some of the other builders have put in strategies to kind of soften the blow of the cyclicality of the industry in down cycle, some by building up lease fleet, some by diversifying internationally, some by having management operations. I was wondering, once we make it out of this down cycle, what is the very long-term vision that you have for the company in order to deal with the cyclicality of the manufacturing industry?

Yes, thanks for the question. And I'm going to be a little bit broad and general in how I answer this right now. Our first goal, bar none, is to get our manufacturing foundation such that we're not losing money when we head into a cyclical downturn. That's why the intense focus for now on getting our operations where they need to be, getting our product cost structure where it needs to be. That's mission one. That's the one we're on. As we continue to move forward and we -- and I mentioned in my opening comments, we felt there were things -- going back a year, there were things we had to do right now and then there were a lot of opportunities. And just the opportunity specific to railcar manufacturing in our current business, we see opportunities for growth across our product portfolio, we see opportunities for -- in how we go to market. We're taking a very hard look at leasing and whether we remain kind of a short-term-focused technical leasing entity or whether we get a bit more traditional like competitors. And we see, frankly, a lot of opportunity in our aftermarket parts business. So we've got lots of things that we're working on outside of Back to Basics. But our primary job right now is to keep the team focused on Back to Basics, and that as we continue to go forward, broaden our current rail business in ways in which I just mentioned. And then what we do potentially beyond that is truly the subject of future discussion, I think.

Got it. That's good insight. It sounds like nothing is off the table and including taking a more traditional approach to railcar leasing in the long term once you make it out of this down cycle. Maybe my next question is for Ted. The backlog ASP increased 18% sequentially. I was trying to gauge whether this is more a function of lower ASP cars that you guys delivered in the quarter or higher ASP orders you got in the quarter or a combination of both? And while on the order front, you can just give us a bit more color on what types of orders you got. Sorry if I missed those remarks in the opening remarks?

No problem, Matt. So the ASP increase, it was the combination of both of what you mentioned, both rebuild deliveries and then higher ASP in terms of the orders we took in the second quarter. And then on your market question, as we look forward, we're still seeing a lot of positive fundamentals out there. The railroads are reporting positive traffic growth. Cars are being put back into service. And railroad velocities are down, which helps car builders like us. So we definitely see a -- the level and quality of inquiry is improving, which I think if you look at the Q2 order intake, it was reflected in that. And then specifically, the strength would be in the intermodal, covered hopper, and to some extent, the gondola categories.

Got it, perfect. And just one last one for -- maybe for Matt. Matt, given the progress that you guys are making on the cost reduction front, are you ready to kind of give us any type of visibility as to when we could expect operating income breakeven or profitability?

Typical -- so what we've done in the past, not given a lot of guidance going forward and answering that question directly. But certainly, the progress that we're making is helping and will continue to help on a go-forward basis. Just recognize, as I mentioned, for the rest of this year, the headwinds around pricing some of the changeovers that we have coming up in the second half and the mix of product being delivered will create some headwind for us going forward.

And we do have a question from the line of Justin Long with Stephens.

So maybe to follow up on that last question, I know you don't give specific guidance. But just directionally, I wanted to get some sense for how you're thinking about the sequential progression of gross margins in the back half of the year. You've talked a few times about mix and pricing and line changeovers being headwinds. But you're also making progress on cost improvement. So when you put it all together, do you think gross margins directionally are down in the back half relative to the second quarter? Or do you think there's an opportunity to hold things pretty steady?

So -- again, when we look at the second half, as you mentioned, the headwind is there. But we will continue to recognize more benefits as part of our cost reduction initiatives going forward. But the mix of cars and the pricing was strong in the second quarter and the impact that -- of that will not be nearly as significant in the second half of the year. So if I were to estimate, I would say that -- or I guess, I would say that the margin in the second half of the year should be lower than that the second quarter.

Okay. That's helpful. And looking at the new delivery guidance, I wanted to ask about the cadence in the back half. Do you expect deliveries to be split pretty evenly between the third and fourth quarter? Or is there anything with line changeovers that would cause deliveries to be more weighted towards one quarter versus the other?

Our production schedule right now has us delivering pretty evenly, quarter -- between the 2 quarters, although the impact on the line changeovers will be a little bit more significant in the fourth quarter.

Okay, that's helpful. And I guess, lastly, I wanted to ask about the balance sheet. So you gave the commentary about the lease fleet and the investment that you made there. How should we think about kind of the normalized cash balance as we get through the back half of the year? It's the idea that cash balance should return closer to what you saw at the beginning of this year?

Yes, without giving in too many specifics on cash, because there's a lot of variables, right? Whether or not we are able to sell the lease railcars will have an impact. Right now, our inventories levels are a little bit higher than they had been coming into the year, due in part to some startups of lines that we've done recently in -- early in the quarter, having brought inventory in, in order to get that line up and running. But again, depending upon the backlog and the timing of deliveries, it will have an impact, which makes it a little bit difficult to answer that question directly.

And we do have a question from the line of Mike Baudendistel with Stifel.

Just wanted to ask on the railcars that you have on short-term lease, I mean, how does the pricing compare when you sell those into the marketplace? And do you have any thoughts on timing of converting those assets into cash?

In terms of timing, we will continue to look for opportunities to market those. So I won't really give you any specifics in terms of timing. And obviously, the timing depends on the pricing that we'd be able to sell them for. So it is difficult to answer that question at this time.

Okay. And I also just wanted to ask you on the orders just to sort of contextualize it with the rest of the industry. I mean, the industry orders in the quarter were 23,000 and change, and you sort of back out the, call it, 11,000 orders for tank cars that you don't do. And then the CN and CP orders, you back those out again. And I guess like you got 13% of what I would say or theoretical addressable orders. Again, do you -- would you agree with that? Or are there other sort of areas that you're really zeroing in on? Or just anything you can sort of give us that way -- help us to sort of think through what orders would look like in the next few quarters?

Hey, Mike, it's Ted. When we look at the market share, I think your calculation is correct. And we also recognize that, that's going to vary from quarter-to-quarter. We're happy with where the quarter came in versus the past several. And obviously, going forward, we want as large a share as possible. So it's going to be -- it just depends on how the overall market shapes up. And as I mentioned before, it's looking positive.

Okay. And are there any car types within the sort of freight car segment that you're either more competitive on or less competitive on? Or just sort of any sort of theme to the order, the 1,450 orders that you did receive.

Yes, I don't think we're going to comment on where we sit on a car type by car type basis. But to reiterate what Jim said, we've made investments in new product development. And we're going to -- we like where we are in terms of those investments, and we're going to continue to refine those products.

It's Jim. Just to add to that, keep in mind that the heart of Back to Basics is both plant operational efficiency as well as product cost reduction. And the more progress we make, the more competitive the entire portfolio becomes.

And we do have a question from the line of Willard Milby with Seaport Global.

Obviously, a real nice quarter on the gross margin front. A lot of the levers that are getting pulled or can get pulled still for more improvement there. And I know the answer to -- is probably going to be, to my question, was all the above. But when we look at the Navistar portion, when we look at the number of rebuilds -- rebuilt cars delivered in the quarter and you mentioned the other savings, $2,000 per car on materials and labor, is it possible to put that into buckets on maybe what had the most effect, you think, to margin improvement in the quarter? Was it half mix a quarter, integration of Navistar? Anything to kind of help us out there would be appreciated.

It's Matt. As I mentioned, the impact of mix and -- of the railcars delivered certainly had a significant impact on it. And along with mix is pricing. The impact of the cost reduction initiatives certainly are in third place of those 3. The Navistar savings and the synergies driven by that is just a portion of the overall savings of 2,000 car -- $2,000 per car produced during the quarter. So hopefully, that gives you a little bit more flavor of the impact on the margin in the quarter.

Right. Okay. And obviously, a larger number of deliveries being rebuilt cars this quarter. From a deficiency point of view, is that all kind of one line that's cranking these out or maybe 1 or 2 lines that's cranking these out? And we should expect a heavier rebuild quarter in Q3, or maybe is that more evenly spaced as we look at, I guess, the remaining 610 cars I'm assuming there for 2018 delivery? How they should be looking for delivery in Q3 versus Q4?

I just gave you a little input on the -- this is Jim, on the operating pattern. So in our Roanoke factory, we've dedicated one line to rebuilds, and they've been running that way since we ramped up at the start of the year. We -- the volume in the first half of the year or the demand in the first half of the year for rebuilds was such that we then started a second rebuild line down -- one down in our Shoals facility, and that'll be a mixed use line. When we have the demand, we'll rebuild on it. When we don't, we'll use it for other things.

Okay. So there's a second line available now, but it wasn't running in Q2, the Shoals line that you spoke about?

Well, so we've got 4 lines down in Shoals, and we are -- we constantly cycle those 4 lines depending on what the order book looks like. And we used 1 of those 4 lines during the first half in part to manage, I won't call it overflow, but some of the demand for the coal car conversion work. And depending on just what's in the backlog, whether it's -- what the backlog dictates is what we'll set up to run. So the expectation, at least for the next couple of quarters, is we'll continue to hold the Roanoke line dedicated to conversion work, and we'll use the 4 lines in Shoals as efficiently as we see fit, the coal car conversions or new car build.

Okay, all right. And as we look at the backlog, obviously if you were to deliver all 2,300 cars, you'd exceed that 4,500 delivery guidance. There's some dedicated for '19. But are you still trying to fill some 2018 orders here? Is there a sense of how much of the backlog is dedicated for 2018 delivery that you can give us?

Yes. Hey, Willard, it's Ted. When we look at 2018, there's very little remaining opportunity there. So we do have some 2019 orders, and that's what we'll be focusing on.

Okay. And last question from me, and I'll turn it back. The SG&A, you mentioned some strategic hires there. I guess, a 2-parter. Can you talk about specifically the strategic hires, like what areas you're focusing on, who you're bringing on in there, I guess, directive? And two, was the SG&A lift in Q2 more onetime? Or what's a good run rate we should think about for the back half in 2019 for SG&A?

Why don't I take the first half, and I'll let Matt take the financial piece of your question. The strategic hires to date have been -- we've discussed some of these, I think, in prior calls, have been in support of our Back to Basics strategy. It's been client operations. It's been supply chain, engineering, remanufacturing, all the stuff that is starting to deliver productivity and cost reduction for us right now. And again, we've got a fantastic team of railcar builders and have for a long time. And now as part of a strategy, what we're doing is bringing the technical expertise, the subject matter experts to help drive these very specific programs. There'll be more of that potentially as we go forward. As I said, we've got the team we need in place now to deliver Back to Basics. But as we begin to look further out into other opportunities for the company, we'll undoubtedly continue to stay on the hunt for good talent. Matt, do you want to take the financial piece of it?

Yes. Thanks, Jim. From SG&A perspective, on a going-forward basis, I would expect SG&A in the second half quarterly to be -- look more like the first quarter as opposed to the higher level of the second quarter. There were a few onetime costs, yes, that drove that number up sequentially.

And we do have a follow-up question from the line of Michael Gallo -- with Mike Gallo CL King.

Just another follow-up. First, in terms of the sale of Danville, how much you expect that to provide in savings? And then I was wondering if there's anything you've learned, as you've kind of gone through the process? And I know you've been very focused on improving operations at Shoals that perhaps you can also apply to Roanoke.

Hey, Mike, it's Matt. So from a Danville perspective, that was a facility that was largely idle for most of 2017. So the operating costs there were fairly minimal and certainly a low-cost environment in terms of managing just that facility. So I won't expect it to be tremendously significant on a going-forward basis.

And then just potential things you've learned that you can apply to Roanoke?

Mike, ask your question a different way. I want to make sure I understand it. It's Jim.

Yes. So you've gone through this kind of exercise at Shoals and you've started to look at things like work in process, line changeovers, (inaudible), seeing, et cetera. While Roanoke clearly was running better, I would suspect that maybe it wasn't running up to kind of what your goals are in terms of, for example, are they doing line changeovers the same way? I mean, what opportunities can you kind of apply to Roanoke?

Well, I guess, as backdrop, first of all, Roanoke is running in, I'll call it, more or less, a steady state mode. We're running 1 or 2 lines there and with a very seasoned, very experienced workforce and leadership. It runs by industry standards, in my opinion, anyway, very, very well. And as you've already pointed out, our focus has been on primarily on Shoals to date. Are there things we're doing at Shoals that we will also do at Roanoke? The answer is absolutely yes. Some of that is already working its way into Roanoke, but it's not maybe with quite the same -- by intent, the same sense of urgency. And again, we're prioritizing our work. Our work is prioritized around Shoals. But at the end of the day, we're going to be one company defined by one culture, one set of processes, one set of best practices and one set of business objectives. So every day, we have people from Shoals and Roanoke and Roanoke and Shoals, so there's a lot of cross-learning, there's a lot of cross-teamwork taking place. So we'll get there. And yes, you're right, there's opportunity in Roanoke, there's opportunity across our entire company. Thank you for the question.

And then one more quick follow-up. As you get the cost per car down, historically there's been a number of kind of bread and butter car types for FreightCar America, but there's been a lot of other car types that you've had less success in, in competing and winning orders. I was wondering, as you get to the end of the year, with the reduction, if that is going to put you in a better position perhaps to win some new order types that historically the company hasn't been successful in the past?

This is Jim again. In a word, the answer is yes. Everything we're doing around the business is to make us more robust and more successful. We have been frankly too dependent on a narrow range of products and getting less traction in the marketplace on other aspects of the portfolio. And some of that is gestation and getting more product out into the market. Some of that, in fact, could be a little bit tied to the way we've historically gone to market, i.e., whole goods selling versus leasing. But there's also other things we can do and are working on. And some of it's specific to the product, but other is more specific to Back to Basics and how we facilitize and set up our lines so that we're building not just a few car types, but all of our car types much more optimally.

And with that, there are no further questions in queue. Please continue.

Thank you again for your time today and your continued support. We all look forward to updating you on progress as we continue. And we'll see you on the next call. Thanks, and have a great day.

And ladies and gentleman, that does conclude your conference for today. Thank you for your participation and for using the AT&T Executive TeleConference Service. You may now disconnect.