Hello and welcome to The Greenbrier Companies First Quarter of 2022 Earnings Conference Call. Following today's presentation, we will conduct a question-and-answer session. Each analyst should limit themselves to only two questions. Until that time, all lines will be in a listen-only mode. At the request of the Greenbrier Companies, this conference call is being recorded for 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, Eiley. Good morning, everyone, and welcome to our first quarter of fiscal 2022 conference call. Today I'm joined by Bill Furman, Greenbrier's Chairman and CEO; Lorie Tekorius, President and COO; Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer; and Adrian Downes, Senior Vice President and CFO. Following our update on Greenbrier’s performance and our outlook for fiscal 2022, we will open up the call for questions. In addition to the press release issued this morning, additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website. Matters discussed on today's conference calls 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 factors that could cause Greenbrier’s actual results in 2022 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. And with that, I'll turn the call over to Bill.

Thank you, Justin, and good morning, everyone. Fiscal ‘22 is off to a good start, driven by strong commercial performance, disciplined management of our production capacity, and continued growth of our railcar and lease fleet. Momentum in our business is being sustained. The first quarter of fiscal 2022 continued our strong ordered trajectory. As a result, Greenbrier posted its fourth consecutive quarter with a book-to-bill ratio over one time. New railcar orders were at 1.5 for this quarter. New railcar orders of 6,300 units were worth 685 million, spread across a broad range of railcars. We ended the quarter with a backlog of approximately 3 billion, the highest level in about three years. Our order intake for the first quarter alone represents 35% of new orders received during all of fiscal 2021. Our recent partnership with U.S. Steel Corporation and Norfolk Southern Railway to design and launch new high-strength steel gondolas having multiple environmental benefits demonstrates this momentum. In addition, in a moment, our Chief Commercial and Leasing Officer, Brian Comstock, will share more about this and some other exciting customer-focused initiatives. I should mention that, in terms of backlog, we have booked another 200 million of re-body work, which is sizable but not counted in our backlog. Our production lines are now ramping up 21 active lines in North America and approximately eight internationally. Importantly, we are harnessing our flexible manufacturing footprint to extract more production from each line. We expect deliveries to increase over the course of the year. In terms of our production requirements, we recently expanded our global workforce by about 10%. Intensive management of safety, hiring, and supply chain issues continue. Continued success in these areas is key to maintaining our strong start to the year, specifically regarding the supply chain; our global sourcing team continues to do an exceptional job of mitigating disruptions to support increased production. Our wheels repair parts business is now known as Maintenance Services. The new name doesn't change the backlog of this business unit, which endured a challenging quarter. Labor markets and supply chain disruptions have both impacted its profitability. Naturally, this lowered our consolidated margins, which were below our expectations to begin with. As we discuss the changes we're making to improve the performance of our Maintenance Services business unit, Greenbrier leasing continues to perform very well. Our investment activity has considerably outpaced initial targets. Asset utilization, a key performance metric for the leasing business, is high at 97.1% for the portfolio, which is well-diversified across car types and strong lessee credits as well as maturity ladders. Additionally, we exceeded the initial investment target for GBX leasing by 200 million, bringing the portfolio to 400 million in only nine months of operations. This reflects strong momentum in the business and our core manufacturing markets in North America. I'm sure there may be questions on this or other comments by management, but be sure to read the footnote in our press release, as the leasing supplemental information is very informative. The Omicron variant of COVID-19 emerged following the end of the quarter. As a result of well-established safety protocols, our operations have not been significantly impacted at present by the rising cases globally and in North America, but we are closely tracking the rapid community spread of this variant, taking all appropriate precautions. We continue with safeguard protocols and will enhance these as dictated by best practices, adhering to local health authority requirements in the locations where we operate. In the U.S. and Europe, it appears this wave might peak in the coming months. There are indications that the current variant carries milder symptoms than previous versions of the virus, particularly for those who are double vaccinated and those with boosters. Nonetheless, we must remain vigilant. After two years, the full contours of the pandemic remain dynamic and unpredictable. Our resolve is to effectively manage Greenbrier through evolving COVID challenges, and that resolve remains steadfast. Our outlook remains unchanged, except that we believe it is growing to be much more positive. We maintain a positive outlook for the fiscal year for various reasons. These are supported by industry metrics as well as operating momentum driven by a strong order book, demand backlog, and manufacturing ramping. For example, the portion of idle railcars in North America decreased from 32% in July to just below 20% by December. Industry forecasts for 2022 and 2023 are very encouraging, as Brian Comstock will share with you. All this suggests that industry fleet utilization is nearing 80%. Again, Brian Comstock will add more on these points in a minute, and we can talk during the question-and-answer session. Lorie Tekorius, who will be Greenbrier's CEO in March, takes the helm at a very important and exciting time in the long history of Greenbrier. Before I turn the call over to Lorie, I'd like to provide some closing remarks on where Greenbrier stands today. I became the CEO when we were founded, when my partner and I co-founded a small asset leasing business in 1981. We entered manufacturing with the acquisition of Gunderson in 1985 and have continued to build on those two foundations. Today's manufacturing is our largest unit, comprising about 80% of our total annual revenues. However, manufacturing is driven and complemented by a robust commercial and leasing business, as well as asset management services. Today, our asset management and Maintenance Services touch about one-third of the North American fleet. It has been a remarkable journey for me and the Company. Greenbrier has steadily grown its industry footprint and is now the leading railcar manufacturer in North America, allowing us to operate and scale. We also now operate on four continents, serving global railcar markets worldwide with similar market shares. All of this has been accomplished through the hard work of remarkable people guided by their capacity for innovation, disciplined management, and an unyielding focus on the needs of our customers, our workforce, and other stakeholders. We've purposely built the Company to grow at scale across business cycles. Under Lorie's administration, she plans to do more of that along with some new initiatives as global railcar markets emerge from a cyclical trough, which was really exacerbated by the pandemic. I'm proud of what the Greenbrier team has accomplished and the market-leading positions we've achieved. I'm also proud of the significant value we've created for our shareholders. I expect that this will continue for many decades to come as Greenbrier continues to drive innovation in the industry, broaden its footprint globally, expand by product line, and grow its leasing and services business. I would like to take just a brief moment to welcome our two newer directors, subject to the vote of our shareholders today, James Huffines and Ambassador Antonio Garza. Both are highly qualified, and we welcome this step for broad refreshment. I also want to congratulate two directors who have served for almost the last 18 to 20 years on our Board, Duane McDougall and Donald Washburn. Next week, we'll put out a brief congratulatory note marking this milestone. I want to assure them that we remember them, they're always welcome to visit, and we thank them for their strong contributions over the years. I'll now turn the call over to Lorie Tekorius, Greenbrier's Incoming CEO. I have no doubt Greenbrier will flourish under her administration. Lorie, next time you're going to be running this call. So, thank you and congratulations.

Thank you, Bill. Good morning, everyone. Before I get into the details on the quarter, you may have noticed that we renamed two of our reporting segments. We now have maintenance services and leasing management services. The new names more closely reflect the customer solutions we provide and have no impact on the financial results. Greenbrier's fiscal Q1 reflected continued labor challenges in the United States, competitive pricing from orders taken during the depths of the pandemic trough, and production inefficiencies from line changeover and ramping of capacity. I'm proud of our employees around the world who continue to perform well, even with uncertainty. It is certainly an understatement to say that increasing headcount safely by several thousand employees and increasing production rates by 40% to 50% is challenging. So, with an experienced leadership team, we will meet this opportunity to scale our operations while keeping our workforce healthy and safe. Safety across our organization has been and will continue to be our number one priority. In the quarter just ended, we delivered 4,100 units, including 400 units in Brazil. Deliveries decreased by about 9% sequentially, which primarily reflects the timing of syndication activity and line changeovers in North America. Our global manufacturing continues to take a measured approach to increasing production rates and activities while we work through orders taken during this process. Our global sourcing team continues to perform minor miracles regularly, ensuring we avoid significant production delays. Our maintenance service business was significantly impacted by labor shortages exacerbated by the COVID pandemic. These shortages impacted throughput, billing efficiencies, and profitability. We've made a number of changes to our hiring and training practices, and we're seeing improved retention rates, though maintenance cycle times can be 75 to 90 days. So it takes some time for the benefits of these changes to flow through the operation. Furthermore, this business was impacted by lower railcar volume. I do believe the team has made the necessary changes that will lead to positive results over the course of fiscal 2022 in our maintenance services. Our leasing and management services group had a good quarter with strong fleet utilization and the integration of a previously disclosed portfolio purchased in September. Between the portfolio assets and origination from Greenbrier, GBX leasing grew by approximately 200 million in the quarter, and as of quarter-end, that fleet is valued at nearly 400 million, nearly doubling in value over the quarter. Importantly, this growth reflects a continued disciplined approach to portfolio construction and credit quality standards. We are not pursuing growth at all costs. Our strategy remains to create repeatable revenue and stable tax-advantage cash flows that will help soften the dips in new railcar demands that are well known by all on this call. In addition to managing our lease fleet, our Management Services group continues to provide creative railcar asset solutions for over 450,000 railcars in the North American freight industry. One of the positive developments subsequent to quarter-end is that our leasing team successfully increased the size of our 300 million nonrecourse railcar warehouse facilities by 50 million to 350 million. Our Capital Markets team executed well this quarter, and we expect syndication activities to grow throughout the year, similar to our overall cadence of delivery. Syndication remains an important source of liquidity and profitability for Greenbrier. Looking ahead, we see strong momentum for fiscal 2022 and beyond. We have talented employees and experienced management who are focused on driving results and shareholder value. I'm very excited about the long-term opportunities for Greenbrier. And now Brian Comstock will provide an update on the current railcar demand environment.

Thanks, Lorie, and hope everybody had a great holiday season. There's a lot to be excited about as we move forward. As mentioned in October, I remain excited about the momentum we are seeing in all of our markets globally. In Greenbrier's first quarter, we had a book-to-bill ratio of 1.5, reflecting deliveries of 4,100 units and orders of 6,300 units. This is the fourth consecutive quarter with a book-to-bill ratio exceeding one time and indicative of this strengthening environment. New railcar backlog is 28,000 units with a market value of 3 billion, which provides strong multiyear visibility. These are the type of demand environments where Greenbrier's flexible manufacturing is a vital differentiator. In addition to new railcar orders, we recently received orders to re-body 1,400 railcars as part of Greenbrier's railcar refurbishment program. This program is an important part of our growing partnership with our customers to sustainably repurpose North America's aging fleet to ensure that rail remains the most environmentally friendly mode of surface transport. As of November 30th, our modernization backlog included 3,500 units valued at $200 million. This is a valuable business that complements our new railcar backlog and absorbs production capacity. In addition to our railcar refurbishment program, we announced another sustainable initiative in early December, a collaboration between U.S. Steel, Norfolk Southern, and Greenbrier for a new gondola using an innovative formula for high-strength, lighter-weight steel developed by U.S. Steel. Each gondola's unloaded weight is reduced by up to 15,000 pounds. Norfolk Southern will initially acquire 800 of these Greenbrier-engineered gondolas. The work done by Greenbrier and our partner promises significant benefits to all three companies and the freight transportation industry as a whole as we lead the way to a net-zero carbon economy. One item we are clarifying is that the $800 gondolas will be part of the Q2 order activity. In December, we also announced Greenbrier's joining the RailPulse coalition. I'm personally excited about the prospects of this technology, which aims to aggregate North American fleet data onto a single platform. This has the potential to improve safety and operating efficiency while providing enhanced visibility to customers, reinforcing rail's competitive share of freight transportation. Greenbrier's leased fleet utilization ended the quarter at over 97%. We continue to see improved lease pricing in terms of all new lease originations and lease renewals, as well as continued strong demand for leased equipment. North American industry delivery projections saw an increase to nearly 49,000 units in 2022 and over 60,000 units in 2023, given the significant reduction in railcars and storage that continues to congest as the ports, which impacts traffic and overall economic growth. We believe these projections are very reasonable and see similar dynamics in Europe. As you can see from our recently announced initiatives, Greenbrier's global commercial and leasing team remains focused on providing innovative solutions to our customers. Now over to Adrian for more about our Q1 financial performance.

Thank you, Brian, and good morning, everyone. As a reminder, quarterly financial information is available in the press release and supplemental slides on our website. I'll discuss a few highlights and provide an update on our fiscal 2022 guidance. Highlights for the first quarter include revenue of $550.7 million, deliveries of 4,100 units, which include 400 units from our unconsolidated joint venture in Brazil. Aggregate gross margins of 8.6%, reflecting competitive new railcar pricing from orders taken earlier in the pandemic and labor shortages. Selling and administrative expenses of $44.3 million are down 20% from Q4, primarily as a result of lower employee-related costs. The net gain on the disposition of equipment was $8.5 million; like many leasing companies, we periodically sell assets from our lease fleet as opportunities arise. We had an income tax benefit of 1.4 million in the quarter, primarily reflecting the net benefits from amending prior year tax returns. Non-controlling interest provides a benefit of 5.2 million, mainly resulting from the impacts of line changeovers and production ramping at our Mexico joint venture. The net earnings attributable to Greenbrier were 10.8 million, or $0.32 per diluted share, and EBITDA was 42.2 million, or 7.7% of revenue. Moving to liquidity, Greenbrier has a strong balance sheet. Liquidity of 610 million comprises cash and cash equivalents of 10 million and available borrowings of nearly 200 million. We are well positioned to navigate any market disruptions we expect to persist into calendar 2022. As mentioned last quarter, our cash receivable stands at 106 million as of November 30, and we expect to receive most of these refunds in the second quarter of fiscal 2022. This refund is in addition to Greenbrier's available cash and borrowing capacity. Liquidity is important to support the working capital needs of the business as we significantly increase new railcar production beginning in 2021 and into 2022. Liquidity also enables Greenbrier to invest in growth, as demonstrated by the railcar portfolio purchase in Q1 and the expansion of GBX leasing at a pace exceeding our initial announcement. It has also allowed us to continue to pay dividends throughout the pandemic during a time of economic uncertainty. Greenbrier's Board of Directors remains committed to balancing the flow of capital. I believe that our dividends program enhances shareholder value and attracts investors. Today, we announced a dividend of $0.27 per share, which marks our 31st consecutive dividend. As of yesterday's closing price, our annual dividend represents a yield of approximately 2.3%. Since 2014, Greenbrier has returned nearly 370 million to shareholders through dividends and share repurchases. Additionally, you may have noticed an increase of approximately 70 million in Greenbrier's notes payable balance compared to the prior quarter. This non-cash increase is a result of Greenbrier adopting a new accounting standard, which simplified accounting for convertible notes and no longer requires the calculation of debt discount and associated equity components. We believe the standard provides better transparency regarding how the convertible notes appear on our balance sheet. To be clear, Greenbrier did not incur any impact on liquidity or cash flows as a result of this adoption. Based on current business trends and production schedules, we are adjusting Greenbrier's fiscal 2022 outlook to reflect the following: increased deliveries by 1,500 units, now to a range of 17,500 to 19,500 units, which includes approximately 1,500 units from Greenbrier-Maxion in Brazil. Selling and administrative expenses are unchanged and expected to be approximately 200 million to 210 million for the year. Gross capital expenditures of approximately 275 million in leasing and management services, 55 million in manufacturing, and 10 million in maintenance services. Gross margin percentage is expected to steadily increase over the course of the year from high single digits in the first half to between low double digits and low teens by the fourth fiscal quarter, as railcar orders from during the pandemic trough are delivered and conditions in the maintenance services business improve. We expect deliveries to continue to be back half-weighted with a 45% to 55% split. As a reminder, in fiscal 2022, approximately 1,400 units are expected to be built and capitalized into our lease fleet. These units are not reflected in the delivery guidance provided. We consider a railcar delivered on a lease Greenbrier's balance sheet and is owned by an external third party. As mentioned in the commentary earlier on the call, momentum continues to build in our business, and I'm excited about what the future holds for Greenbrier. And now we will open it up for questions.

We will now begin the question-and-answer session. Our first question today comes from Justin Long with Stephens.

Thanks, and good morning. I wanted to start with a question on manufacturing gross margins. I know on the last call, you were very clear about the timing of Q1 being the low point of the year. But I also know you were hoping for double-digit manufacturing gross margins, and we were a bit below that. So can you help us bridge what happened on that front relative to expectations? And any way you can help us think about the sequential progression of manufacturing gross margins moving beyond in the next few quarters?

Do you want to go, Bill?

No, you should add.

Great. So, you're right, we always have very high expectations. I think our manufacturing folks did an excellent job in the first quarter, and it actually exceeded some of our expectations. However, we did run into some headwinds in certain areas as they worked through orders that were taken during the downturn. And some of the overhead absorption during the ramping just wasn't quite as robust as we would have expected. So those were the issues. We continue to face labor difficulties, particularly here in the United States amid our facilities here in Portland, Oregon, as well as our operations in Arkansas. It's not only the impact of COVID, but it's also attracting and retaining the labor to be able to be efficient in our shops.

I'll only add that we may have just a bit of delay here. The momentum in the second half should be strong. To the degree that our margins were to lag, we expect, as indicated in guidance, that our production rates will increase significantly than earlier guidance. So, I think it will certainly be offset.

Okay. And so, as we move into the second quarter, would your expectation be that manufacturing gross margins could get back to the double digits? When we think about the full year, would you say your expectation for margins is better than it was three months ago, given the production guidance increase, or are the labor issues offsetting some of that?

I think the labor issues are offsetting some of that. We are optimistic. I don't want to get into quarter-by-quarter specific guidance on margins. However, our expectation is that as we move across the quarter, particularly as we move across the year, margins will improve and approach that double-digit area. Sometimes the second quarter has a headwind of more holidays and other difficulties we could face. We've seen what's happened with COVID cases popping up, weather, and other challenges. So, I would say that we always have high expectations, but I don't want to get into that quarter-by-quarter guidance.

I think the second half should look stronger for a variety of reasons. The operating momentum should drive expectations, but the timing is really important. There has been a little bit more of a lag than what we might have thought before. However, again, we're going to have higher volumes than we expected before, and things are going well in manufacturing. So, there is a bundle of glitches really ramping up, and it's not going seamlessly, but it's going very well.

Understood, I appreciate the time.

Thank you.

Good morning, and thank you for taking my question. I want to ask you about the pricing side. Lorie and Brian, I think you mentioned that the cars that were taken during the 2020 trough were mostly those orders. Or if not, what percentage of the deliveries were orders taken during a very depressed pricing environment? And also, how many of those cars are still to be delivered in this fiscal year?

This is Brian. It's a great question. Your analysis is correct. At the end of the day, we had a bit of a tail on orders coming out of 2020 that moved into Q1. Looking beyond Q1, we don't have many of those orders left in the backlog. So, we start to get into what I would call the newer price backlogs in Q2, Q3, and Q4. Not much tail beyond Q4, but certainly there was quite a bit of tail going into Q1 from some of the legacy price deals in the trough of the market.

Okay. And Brian, the orders that are coming now, can you talk about how the pricing dynamic differs from the orders that you actually deliver today, adjusted for commodity costs?

Yes, I would say it's markedly improved.

Now, I mean, the industry landscape looks really different from a couple of years ago. It's a lot more consolidated. You guys and Trinity have maybe about 75% or 80% of the manufacturing landscape. So, should we expect if we do have a robust upcycle in the next couple of years, could we see materially better pricing? What do you guys think the kind of peak margin at the top of a cycle could look like in a couple of years? I know your gross margin peak in 2016 was 22%, but that was a highly anomalous time. Deliveries from crude by rail likely will not be repeated. But any color on what margins could look like at the top of the cycle?

Matt, it's a great question. I think that's one of the things that keep many of us in this industry for a long time because you never know what's going to happen. We certainly think that there are a lot of opportunities over the coming years. Our manufacturing team continues to impress us with what they can achieve, and you are spot on that as we get to higher production rates, you will see the benefit of that overhead being absorbed across a broader group of cars. A lot of it depends on mix. We have had a really disciplined approach to how we're taking orders and thinking about things. I could see margin getting into the upper teens and would be excited if they were in the mid-20s, but a lot of that comes down to mix. While our competitive landscape in North America has changed a bit, we also have some strong customers who pay attention to their investments, as these are long-lived assets. So, you need to balance that. I think the other factor is that we benefit from having our leasing platform, so we also consider how many cars we want to build and sell versus those we can put into a fleet where we can see that repeatable revenue and cash flow over the coming year. It's a nice layering effect and a good blend of activities that we have here at Greenbrier.

Lorie, just one last follow-up to this question based on all the dynamics that you are seeing now. When do you think this production peak might occur? Could it be mid-calendar 2023, late-calendar 2023, or earlier?

I think you're right. We're probably looking at mid-2023. Some of this is going to depend on the supply chain and labor dynamics, ensuring we can continue to operate across the North American market while getting some of the supply chain issues resolved. We have been fortunate to avoid any significant impacts. But it's definitely something that gets managed every day.

Maybe Brian or Justin could talk to the data that supports 2023 and even beyond, just in terms of the industry forecasts. I think it would be helpful to remind everybody what those industry forecasts look like.

Yes, I think that's a good point, Bill, just to remind everyone that as you look at the projections for 2023, they're projecting 60,000 railcars will be billed. The interesting dynamic to consider is that the North American fleet continues to contract. I think we're at the 21st month of contraction, which means that there's a heavy scrap rate going on even while new cars are being injected into the system. As we think about the future, as the chip situation resolves and supply chains become more fluid, you're going to see more pressure for railroads to ship more products. The projection of 60,000 is the industry's best guess, but it's plausible that this extends beyond 2023 as more demand comes on.

To take this up a notch and look at the bigger picture and longer term, rail freight is the most sustainable form of transportation. As the world continues to focus on carbon neutrality, zero emission goals, etc., we firmly believe that there will be medium to long-term growth in the fleet because there must be a shift in modal transportation. This is not based on anyone's numbers or forecasts at this time, but we believe that what we see for the next few years is excellent, and it's going to be a great market. Moreover, there are long-term tailwinds that will create dynamics we've not dealt with before.

This is especially true in our second-largest market, which is Europe, where we see significant industry momentum to move towards net carbon zero goals much earlier. Government mandates are really pushing this, so we see a much stronger demand environment there.

I kind of feel that next, so I want to make sure I understand your industry view. So you're saying that the 60,000 industry forecast for '23 would basically just be a catch-up to replacement with potential for real growth or net growth of the fleet in '24? Is that how to think about it?

Yes, I think this is Brian. That's a good way to consider it today. Again, think about the contraction you've seen in the fleet and how many cars are being added. There's a scrap rate of probably somewhere in the 40,000 car range per year. When we think about 60,000 cars, it's almost, depending on how many cars are scrapped in a year, it's really an equal replacement versus organic growth. Keep in mind, this is today, with a very light footprint in auto due to the chip shortages. There's tremendous demand in the auto sector. When that begins to free up, it will put more pressure on railroads in terms of velocity and moving equipment. I think we expect it to continue to increase as we put more assets into the GBX leasing warehouse out of the legacy fleet and our order book. So, you'll see it moving closer to that 75% rate. Yes, most of it is in 2022 but does tail into 2023, based on how our fiscal year lays out. A lot of it is calendar 2022.

Good morning. And Lorie, good luck as you transition to the CEO role. Just want to follow up on that question on pricing, where we talked about a great market. It looks like the order book went up about 9% to 10% year-over-year in terms of price per car. Can you talk about the mix, as you usually do? Is there any demonstrable change in that mix? For that, can we consider that a real impact on pricing on a year-over-year basis? Is that more a factor of looking at your labor costs going up?

I can handle the mix side of that equation. I've said this before, and it continues to ring true: the mix is the most diverse I've seen in my 41 or 42 years in the industry. There's a little bit of everything, which is fantastic for us growing our lease fleet from a diversity perspective, credit profile perspective, and just lease maturity perspective. It includes multiple types of covered hopper cars, auto, intermodal, gondolas, and boxcars. There's no single particular area creating the demand cycle this time, which is normally driven by an ethanol boom or by crude boom. That's not the case this year. It's very, very diverse.

The other thing to note is that it is obviously impacting ASP. We do have commodity prices and labor costs that have gone up; those are flowing through and being reflected in those higher ASP.

That's a good point to remember. We are doing a great job hedging things like interest rates in our leasing products and commodity prices. It's essential to protect ourselves in that regard.

Thanks for that. Can you just address the refurbishment business? As this begins to scale on a car basis, are you doing this at the existing facilities with this add-on business because of the ARI acquisition? Maybe talk about how that impacts the margin. Is that reflected in the managed services, or is that in manufacturing? Where should we expect to see the impact of that growth, and what should we expect in terms of marginal contributions from that business relative to the incumbency?

Great question. We are doing, because these are large programs based on our customer needs, running this work through our manufacturing facilities. This repetitive work can be executed very efficiently and effectively at those facilities, contributing positively to margin percentages. It's going to flow through in manufacturing as you'll see in your financial statements. It's beneficial because these are competitively-priced transactions, and the work going through the facilities will add to overhead absorption. Thus, we don't see it as a drag on manufacturing earnings. It won't explode to the other extreme either, but it's a nice blend with other new car work that is ongoing.

It's interesting to note that this is a fairly deep market given the modernization capabilities of the aging fleet. Both Trinity and Greenbrier are finding that this modernization is becoming aligned with ESG goals as well. I believe that this is a very attractive future market going through this cycle. Are you aligned with what you talked about, Brian?

No, that's absolutely correct. This isn't a short-term phenomenon. What we're seeing is a trend where, as scrap car rates increase and we repurpose components, we expect to see a long life process here that will extend for multiple years.

Great. I appreciate the thoughts. I guess just one last question there, Lorie. You kind of mentioned accretive; I want to understand if it's going to be accretive to existing margins at the upper teens you were talking about long-term potential. Are you putting a factor on that?

I think it will be accretive positively to our margins. Obviously, we don't aim to take on work in our shops that won't be beneficial overall for Greenbrier and our shareholders.

Just look at it this way, we have another 200 million of backlog. If you consider it that way, we're not calling it the industry's convention but including it in our manufacturing backlog, as it's being done in our manufacturing plants, not predominantly in our repair facility system. It's really new car-type work as major projects.

Brian, you talked a few times about the 60,000 delivery projections from some industry forecasters. When you step back, is that something you feel you can manage the business around with confidence based on your conversations with customers and railcar management, or is that merely something experts say?

We do our own analysis and indeed take guidance from external entities. However, we rely more on our internal consensus built up from multiple touchpoints with customers and outreach in the industry. We feel very confident those numbers look good into the future.

I think yes, that would be fantastic—to reach that level and maintain it for a while, will surely benefit margin increases.

We expect quite positive cash flows in the back half of the year. As you said, we are supporting a ramp-up in our business and working capital at the moment. We're being cautious there with the supply chain issues. Thus, it's not as efficient as it could be in normal times, as we protect ourselves by holding extra inventory. But I foresee normalization as our production stabilizes at these higher levels and our cash flows remain positive. Regarding cash flow in the back half of the year, just to clarify, I'm referring to operating cash flow.

Brian, you mentioned that not many lower-margin cars remain in the backlog, but I believe Adrian said gross margin would be single digits in the first half. Did I hear that margin comment correctly? If so, does that mean we should expect another tough quarter from maintenance and lower sequential margin from leasing in Q2?

I'll answer that one. This is Justin, Steve. I think what we would say is that Q2 was always a challenging quarter for our maintenance business, due to weather. Typically, in the past years, it has often been our most challenging quarter. We see that as normal seasonality; we would expect it to be better than the first quarter, which was much more difficult than we expected. However, with the manufacturing piece, we see opportunities for improvement and growth in Q2 margin. Despite the competitively priced cars being mostly out of it, we are still ramping up various production lines—hence some overhead under absorption we are being cautious about.

I hear you on seeing better momentum in some lines of business. But the tone of this call seems more conservative versus the last call. Are we looking at a lesser Q2 with some of the 1Q tailwinds being figured in and tax/equity earnings?

Are you getting me? I thought we were more conservative last call. Maybe we are not articulating ourselves very well. Can you explain your views on why you think we're becoming more conservative?

You mentioned double-digit margin in the first half last quarter.

Yes, we mentioned that. However, we experienced a disappointing start to the first half, dragged down by maintenance issues and some other things that were self-correcting. However, there's been a lot of positive improvement and growth across the company. We have also added lines more quickly than expected, but at a steady pace. I feel we might be talking out of both sides of our mouth. We see broad demand on various car sites and we are solving our customers' problems. This is all positive. Whether we achieve double-digit margins in the first half or if there is bleeding into the second half—once again, it's a matter of managing what's possible day-to-day.

We are experiencing a lot of momentum, and we're excited about the year’s financial results.

I want to say thank you very much for your time and attention. If you have follow-up questions, please reach out to Investor Relations. Have a good day.

Happy New Year.

Happy New Year.

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