Hello, and welcome to The Greenbrier Companies First Quarter of Fiscal 2023 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 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, MJ. Good morning, everyone, and welcome to our first quarter of fiscal 2023 conference call. Today, I'm joined by Lorie Tekorius, Greenbrier's CEO and President; 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 in Q1 and our outlook for the rest of the fiscal year, 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. I'd like to remind you that 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 2023 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. Good morning, Lorie.

Thank you, Justin, and good morning, everyone. I hope everyone had a good holiday season. Our first-quarter results showed areas of continued strength and identifiable opportunities to improve our operations. We produced 6,800 units in the quarter, a 10% sequential increase. Of these, 2,300 units are investments held on our balance sheet to be syndicated or capitalized into Greenbrier's long-term lease fleet in a future period. Remaining customer deliveries totaled 4,800 units. Revenue was in line with expectations. However, the efficiencies expected from higher production levels have not yet been fully realized. Aggregate gross margin was impacted by higher costs of outsourced components driven by inflation, transportation expenses, and other logistics challenges. Material shortages and delays and other lingering supply chain issues, including rail congestion in Mexico, created production disruptions primarily at our manufacturing operations in Mexico. We remain focused on managing our cost and supply chain. We're optimizing our internal fabrication capacity, which will improve profitability by having more control over vital supply chain and addressing supply chain inefficiencies. Additionally, as disclosed in our earnings release, we will cease new railcar production at our Portland, Oregon facility in May following the delivery of existing commitments. This is not a decision we've taken lightly, given our history of manufacturing railcars in Portland. However, it's an action that reflects our commitment to optimize the efficiency of our manufacturing footprint and deliver stronger margins. We're undertaking a strategic evaluation of our marine business, which operates at the same facility. We're currently engaged in a range of discussions to determine both the future of marine operations and the overall use of the Portland facility. I remain confident we'll attain a good outcome for all of our stakeholders, which include employees, customers, and shareholders. Our Maintenance Services Group continued their positive momentum and started 2023 with the strongest Q1 performance in five years as initiatives focused on increasing efficiency translated to results. Our Wheel business, unfortunately, was negatively impacted by increased labor and transportation costs. We're currently working with our customers to modify contracts to address the current cost environment. Turning to the U.S. economy, while it continues to show resilience, rising interest rates and inflation now weigh on growth. The labor market has remained strong, and we're cautiously optimistic about the industrial sector as consumer spending softens. The economy appears to be normalizing after years of unprecedented demand caused by lockdowns and subsequent government stimulus. As a result, economic activity will slow with an estimated annual U.S. GDP growth rate of only 0.2% in 2023. The lower outlook projects an economic soft landing that will be characterized by a strong labor market, but with elevated inflation and interest rates throughout the year. Consumer spending, which makes up two-thirds of economic activity, will likely determine the timing and depth of the slowdown. We continue to believe the North American rail freight segment will be resilient through a mild recession. Rail labor negotiations in the latter months of calendar 2022 drew broad public awareness to the integral role the rail industry plays in our economy. The near-term threat of a railroad workers' strike ended on December 2 with President Biden signing preventative legislation. However, challenging railroad service conditions now follow us into this new year. We're optimistic the railroads will make steady progress on their service models over the course of the year and increased hiring is an early positive step in this direction. Turning to our European business. Despite an energy crisis caused by the war in Ukraine, high inflation, and rising interest rates, the European economy appears to be holding up well. Energy prices are down from their peaks due to a mild winter and gas storage facilities being at full capacity. German industrial output grew in the last quarter, surprising most analysts. Rail traffic levels in Europe are high and fleet utilization is nearly 100% for most wagon types. The one exception is international container traffic where volumes are down due to the sluggish Chinese economy, which continues to struggle with COVID. Our European business performed well despite the war and the lingering effects of the pandemic. And now turning to some other milestones in Q1. On November 1, we released the fourth annual edition of our ESG report On Track Together. I'm pleased to report, the Group has been identified on the list of the most responsible companies in America, according to Newsweek and the global research and data firm, Statista. The third-party recognition validates Greenbrier's commitment to our values and our pursuit of responsible corporate citizenship. On a company level, we continue to review and optimize our portfolio to create a stronger, more sustainable Greenbrier. As announced earlier this week, we've acquired the minority interest in GBX leasing from the Longwood Group. This action bolsters Greenbrier's leasing platform, simplifies our business structure, and promises long-term value to our shareholders. Growing our leasing business provides us a broader, more holistic view of the railcar equipment market than just being an OEM builder. It also discourages the prospect of overbuilding since an asset can be on our books for over 30 years. Despite the short-term operating challenges, momentum is good entering calendar 2023. With strong railcar order activity and elevated lease rates, we're confident in Greenbrier's long-term strategy and our team's execution. On our last quarterly call, we mentioned we would discuss the strategy further at our upcoming Investor Day. We're currently planning to hold that event in April and look forward to sharing additional details soon. Now I'll turn it over to Brian to discuss the railcar demand environment and our leasing activity.

Thanks, Lorie, and good morning, everyone. In Q1, Greenbrier secured new railcar orders of 5,600 units worth $700 million, a 17% increase from Q4. These orders extend production into calendar 2024. We delivered 4,800 units in the quarter, resulting in a book-to-bill ratio of 1.2 times. As of November 30, Greenbrier's global backlog was 28,300 units valued at $3.4 billion, an indication of the strength of our customer relationships and demand for Greenbrier's products and services. As a reminder, our new railcar backlog does not include 1,800 units valued at $150 million that are part of Greenbrier's railcar conversion programs. We continue to see healthy railcar inquiries and orders for a variety of railcar types despite a slowing economy. As we pursue commercial and leasing transactions, we are employing pricing discipline that considers current market dynamics and the state of the economy. Railcars for storage are at a cyclical low due to demand spikes, rail freight service challenges, and retirements outpacing new railcar deliveries. From January to November of 2022, there have been approximately 50,000 railcars scrapped, which is more than were delivered in all of calendar 2022. The type railcar supply provides tailwinds for new orders across a range of railcar types. Earlier this week, we announced the buyout of the minority stake in GBX Leasing, our railcar leasing joint venture. Full ownership of the fleet furthers our leasing strategy while simplifying our business structure. We are pleased with the performance of leasing and management services in the quarter. Our lease rates on renewal are increasing by double-digits, and we are extending lease terms while maintaining a high fleet utilization of 98%. Our lease fleet grew to 14,100 units at the end of the quarter. Keep in mind that a number of the units added to our lease fleet in the quarter could be syndicated over the course of the fiscal year. We intend to grow our long-term lease fleet by approximately 2,000 units this fiscal year. Fleet growth for the year is focused on railcar types that will further diversify the fleet, reducing concentration risk. We funded another $40 million of leasing term debt during the quarter and will fund the final $35 million in Q2. Additionally, we have not borrowed on the $350 million leased railcar warehouse facility, although we are evaluating financing strategies for the remainder of our lease fleet adds for fiscal '23. Our capital markets team syndicated 300 railcars in the quarter, a decrease from last quarter due to the timing of production activity. We continue to successfully navigate the compound challenges of higher debt costs and higher railcar pricing. However, we do see sufficient investor liquidity in the market for the duration of fiscal 2023. With one fiscal quarter in the books, we enter calendar 2023 energized and excited by the opportunities in front of us to grow our leasing business and successfully execute our market-leading syndication strategy. All of this supports our ultimate goal to provide our customers maximum flexibility to access Greenbrier's superior products and services. Adrian will now speak to the financial highlights in the quarter.

Thank you, Brian, and good morning, everyone. Before moving into the highlights of the quarter, I would like to remind everyone that quarterly financial information is available in the press release and supplemental slides, which can be found on our website. Our performance in Q1 was mixed with strong commercial, leasing, and maintenance services performance offset by headwinds in the manufacturing business, particularly in North America. A few items I want to speak to for the first quarter included revenue of $767 million, which decreased sequentially primarily from the production of 2,300 leased railcars onto the balance sheet. As a reminder, we do not recognize manufacturing revenue or margin until the railcar leaves our balance sheet. However, we do recognize lease income for railcars on our balance sheet. This activity is more of a timing variance since these railcars will either be syndicated or capitalized into our long-term lease fleet later in the year. Deliveries of 4,800 units include 300 units from our unconsolidated joint venture in Brazil. Aggregate gross margins of 9.1% reflect higher costs for outsourced components, material shortages, and lingering supply chain issues, including rail congestion in Mexico. We are investing in internal fabrication capacity to improve our control over this aspect of our supply chain while the rail congestion continues to slowly improve. Selling and administrative expense of $53 million is 22% lower from Q4, primarily as a result of lower employee-related costs, including incentive compensation and consulting expenses. The pretax impairment charge of $24.2 million was related to long-lived assets at our Portland and Oregon manufacturing facility. This was triggered by the decision to end new railcar production at the facility after an evaluation of our production capacity requirements. Excluding the impact of this impairment, adjusted net earnings attributable to Greenbrier were $1.6 million, generating adjusted EPS of $0.05 per share. Adjusted EBITDA was $48.7 million or 6.4% of revenue. Greenbrier's liquidity was $477 million at the end of Q1, consisting of cash of $263 million and available borrowings of $214 million. Our liquidity remains ample, the primary use of our cash during the recent quarter included a continuing investment into our lease fleets and the expenditure of working capital related to the manufacturing supply chain issues we have already mentioned. As a result of the strength and flexibility of our balance sheet, we continue to be well positioned to navigate these market dynamics. During fiscal 2023, we expect liquidity levels to increase from improvements in operating results and working capital efficiencies as well as increased borrowing capacity resulting from more railcars placed on our balance sheet. As a reminder, the remaining tax refund associated with the CARES Act of roughly $30 million is anticipated to be collected this fiscal year and will be additive to Greenbrier's available cash and borrowing capacity. Greenbrier has $100 million authorized under our share repurchase program, which was just extended by our Board of Directors through January 2025. Our Board and management team remain committed to a balanced deployment of capital designed to create long-term shareholder value. We will continue to use this capacity opportunistically based on fluctuations in the price of Greenbrier shares and within the framework of our broader capital allocation plan. Subsequent to the end of the quarter, we have repurchased nearly 100,000 shares. Finally, on January 5, Greenbrier's Board of Directors declared a dividend of $0.27 per share, our 35th consecutive dividend. Since reinstating the dividend in 2014, Greenbrier has returned over $400 million of capital to shareholders through dividends and share repurchases. Based on yesterday's closing price, our annual dividend represents a dividend yield of approximately 3.1%. Turning to our guidance and business outlook. Based on current trends and production schedules, we are maintaining Greenbrier's fiscal 2023 guidance, which includes deliveries of 22,000 to 24,000 units, including approximately 1,000 units from Greenbrier-Maxion in Brazil. Revenue between $3.2 billion and $3.6 billion. Selling and administrative expenses of approximately $220 million to $230 million. Gross capital expenditures of approximately $240 million in leasing and management services, $80 million in manufacturing, and $10 million in maintenance services. Proceeds from equipment sales are expected to be approximately $110 million. Our now wholly-owned lease fleet will increase by at least 2,000 units in fiscal 2023. We will see how the leasing market evolves throughout the year, and we'll be flexible and opportunistic in our growth strategy for the fleet. Gross margins: we expect full-year consolidated margins will be in the low double-digits. Our bottom line results in Q1 do not fully characterize the improvements and positive momentum occurring in our business. We expect our performance to improve in the coming quarters as we hit our stride and see the benefits of tough decisions taken in Q1. Our management team is experienced with a demonstrated track record of success. Our robust backlog provides strong visibility and stability over the coming years, and we look forward to improved results as we progress through the year. Now, we will open it up for questions.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Justin Long with Stephens. Please go ahead.

Thanks, and good morning.

Good morning, Justin.

I wanted to start with a question on the supply chain. Just given the trends there seem to be a little bit disappointing relative to expectations. Any updated thoughts on the supply chain recovery going forward? And for the ceasing of railcar manufacturing operations at Portland and the increased capacity internally as it relates to fabrication. Is there any way to put a number around the cost impact that could have going forward?

So I would just say on taking and parsing through some of that.

It was like three questions in one, Justin.

Starting with the supply chain, I think as we have ramped up our activities as well as other industrial manufacturers, that has put more pressure on the supply chain that we rely on, particularly in Mexico, which we recognized and have taken the action to start in-sourcing initially the vital components that we need for building railcars and making certain that we are achieving the kind of cost that we need to. So we're not happy with what happened in the first quarter, but we are taking action and we expect that new fabrication facility to be online early in our fourth fiscal quarter. So things are changing and moving. I think as we talked about it, we would expect this to be probably a couple of hundred basis points of margin impact as we move through the fiscal year associated with supply chain. With the Portland, Oregon facility, not sure that we would quantify a facility-by-facility financial result. You do see the asset impairment that we took that’s associated with the railcar piece of our business, evaluating the assets that are dedicated to railcar production and adjusting those to an appraised value and we are still in the process of evaluating our Marine business to determine what comes of that. And then the last question, no, I don't remember. We're not going to be using the Gunderson facility for any of the sub-components. This is in-sourcing that will happen near our facilities in Mexico.

Got it. I think you tackled everything. And just to clarify one point, when you mentioned a couple of hundred basis points of improvement in gross margins from the supply chain. Is that manufacturing gross margins? And is that just solely related to the supply chain getting better or is that incorporating what you're doing on the fabrication side?

So Justin, that is on manufacturing, and that is solely related to what we're doing on the internal fabrication piece. The improvement or, I guess, I would say, lack of disruption on the supply chain going forward is a little harder to quantify, but I would say that, that's a similar, if not maybe even larger number ultimately.

Okay. That's helpful. And then the last thing I wanted to ask about was just the railcar order environment. Could you break down orders in the quarter between North America and international? And maybe, Brian, you could chime in on the sustainability of this kind of 5,000 to 6,000 orders per quarter flow going forward?

About 95% of the orders in the quarter were for North America. December was stronger than usual due to the holidays, so we're off to a good start. The order flow continues to be consistent with what we've observed over the past three to four quarters in North America, and we haven't noticed any decline at this point.

Great. Very helpful. I appreciate the time.

The next question comes from Ken Hoexter with Bank of America. Please go ahead.

Good morning. Could you discuss the manufacturing margins? We usually see a decline in the second quarter. I’m unsure if the closure of Portland, which seems to occur in May, along with other changes you're implementing, will lead to increased costs due to the fabrication changes and the supply chain ramping up until it’s fully operational in the fourth quarter. Should we anticipate a more prolonged decline in margins in the second quarter? Could you share your insights on seasonality and the effects of these changes?

I will begin, and then Adrian or Justin can add their thoughts. It's true, Ken, that our second fiscal quarter, which includes many holidays, can impact our margins. Considering this, the situation may vary as we progress through the year. We're not providing specific margin expectations for each quarter, but we anticipate an overall improvement throughout the quarters of this fiscal year. In terms of rail production at Gunderson, we had a complete quarter of production at our Portland facility in the first quarter, and this will continue until May. Therefore, we expect those three quarters to impact margins either neutrally or slightly negatively. Any additional costs related to halting production or transitioning our workforce will be tracked separately and communicated accordingly.

And Ken, also the investment in bringing the fabrication in-house is something that will be capitalized; that would be something that will provide long-term benefits. So you wouldn't see necessarily a higher operating expense from that, you would see overall market margin improvement.

And finally, Ken, one other piece on that is as we progress through the year, we will see the increased syndication activity, which is typically beneficial to overall company margins throughout the year.

Thank you, everyone. In the past, you've discussed the balance of production and your expectations. Lorie, you mentioned at the end of your last response that there hasn't been a slowdown in orders. Could you elaborate on how back-end loaded production will be, especially with the shift from Portland to Mexico? We also had a significant surprise in costs this quarter based on what you've shared. Is this change due to the high costs in the U.S. and the move to Mexico? What does this mean for the U.S. assets that ARI acquired, or is this situation specific to Portland?

This situation is specific to Portland. We do not plan to shift all of our manufacturing operations to Mexico. Maintaining a manufacturing presence in the U.S. has its own advantages and value. The facilities we purchased were announced in 2019, and they are continuing to perform well. When considering deliveries and the effects of stopping production at the Portland facility, the current operations are running at a very low pace. Therefore, this is not likely to be noticeable when reviewing the quarterly delivery activity. In fact, during this first quarter, we recorded a higher number of units that we capitalized as investments on our balance sheet, which will be used in future periods and transformed into deliveries. This will help balance the conclusion of rail production at Gunderson.

Great. Thank you very much.

The next question comes from Allison Poliniak with Wells Fargo.

Hi, good morning. Lorie, regarding your last point about the cars on the balance sheet, I understand you mentioned that syndication will be beneficial. Is there a way to estimate or clarify what your plans are for what you'll retain in your own weeks? I assume that affects the margin or profitability as we consider the year ahead. Any insights on that would be appreciated.

Well, I'll get Brian to talk to that because he's working really closely as we evaluate kind of which pieces of equipment we hold on to and which we syndicate.

Our stated goal is to maintain approximately 2,000 cars on our balance sheet each year. In the first quarter, we originated around that number, maybe a bit more. Currently, we're in the process of determining which vehicles to keep based on concentration and return. After that, we'll start moving some of them into the syndication channel. The first quarter had a higher volume of lease products, which influenced this, but we will begin releasing more throughout the year. From a leasing standpoint, our plan remains to maintain about 2,000 cars throughout the year.

Got it. That’s helpful.

From a production standpoint, we will be adding cars to the balance sheet and subsequently transferring cars off the balance sheet through syndication over the course of the year. This is not a one-time event; it was simply more pronounced in this particular quarter.

I was just thinking about the impact of the cars being added to your own fleet, as you may not immediately recognize the profit from them. I wondered if there's an effect we should consider while you decide what to keep and what to syndicate out.

You are exactly correct, Allison. We do eliminate that revenue and margin from the manufacturing business when they are on the balance sheet, and when they go into the long-term fleet, then it’s just a matter of recognizing the lease income over the period of the lease. So again, we can clean up any details offline, but yeah, you are right about that.

And I would say, this is something that is unknown, right? As we are building equipment that we will capitalize on our balance sheet and hold long term. We absolutely acknowledge that we are foregoing the profit in the moment, but believe that having that repeatable revenue, cash flow, tax-advantaged cash flow is good as a balance to our strong manufacturing operation.

Certainly. And then I know, Lorie, you mentioned revenue was in line with your expectations, but it sounds like production did slip a little bit to the right because of the supply chain. Is there any way to quantify what that number was in terms of production level that you guys had that kind of maybe get pushed to the right and is probably more back half weighted here, just any thoughts?

Sorry, you asked Lorie, but I was going to say a few like kind of $300 million to $500 million is probably slipped from the quarter from that perspective. The piece that was a little more punitive, though, was the disruption and the inability to maintain consistency of production on certain lines throughout the quarter.

Right, which impacts overhead absorption. So you just have more of that overhead falling through not being used efficiently.

Got it. Thank you.

Thank you.

The next question comes from Bascome Majors with Susquehanna.

Thanks for taking my questions. A lot of questions on margin, given the surprise. But Lorie, you opened your comments with a look at the macro and I talk about some of the softening indicators from a top-down perspective. Is that a message that we think we're kind of getting to the top of the cycle or more of a plateau-type environment that you've talked about with maybe not as high highs and lower lows of the railcar cycle, as we've known for much of the last 20 years? Can you just unpack the message here from a macro perspective and kind of your strategic views as you look out beyond a quarter or two, maybe two to three years and how you're playing the business? Thank you.

It's nice to meet you, Bascome. Based on what we're seeing internally and from external forecasts, it seems we'll experience more of a plateau in new railcar production. While this might disappoint those who prefer the ups and downs, we're actually glad we didn't see the significant surge that other sectors did. Therefore, I don't anticipate a dramatic decline. It will likely be more gradual. There's considerable pent-up demand for rail freight movements, as many shippers have had to find alternative ways to transport their products. The railroads are still imposing embargoes and are not meeting customer service needs. However, as they expand their workforce, those of us supporting the railroads and rail freight industry expect loadings to increase and performance to improve, which should enhance demand. The challenge lies in identifying specific movements or car type changes that could trigger spikes in demand, something that often drives rapid increases. Currently, I don't foresee that happening. I believe that the steady and diversified activity in manufacturing is beneficial for us. For manufacturers, it might be a bit tougher since it's simpler to produce one or two car types instead of eight, but the diversity we are working on in our lease fleet is advantageous. It ensures that we have high-quality customers and supports our operating lessor customers and syndication partners who also seek diversity in the equipment they acquire from us.

Thank you for that. Can you talk a little bit about cash flow? Maybe this is one for Adrian. I know it's a bit different now that you're investing more in how you account for your lease fleet. Do you have any thoughts on operating cash flow before that lease investment this year? And will there be a working capital release to address some of the supply chain disruptions that have occurred sporadically but significantly multiple times in the last few quarters? Thank you.

Yeah. We would expect cash flow to be positive for the balance of the year on an overall basis. So a few of the major drivers: syndication activity should generate cash. And you can see we invested in putting a lot on our balance sheet in Q1. That cadence would be different from the rest of the year. We would have improved operating results that will also help. And as you mentioned, we would expect to see some working capital efficiencies as we navigate these issues that we had in Q1, which are more short-term. We have invested a lot compared to historical periods in working capital as we ramped up, and we should start to see some efficiencies just from normal course as well as from resolving some of these sporadic issues that impacted Q1.

Thank you, both.

The next question comes from Matt Elkott with Cowen.

Good morning. Thank you, and sorry if my question has been asked as I had some connection issues on my end here. I want to go back to Gunderson. Lorie, Justin, and the team, how much of the decision to close the facility has to do with maybe chronic access to labor issues even before COVID? And if that was one of the considerations, can you talk about your access to labor in the Northwest versus in other parts of the country in the Midwest and the South?

Thank you, Matt. I appreciate the question. We're not alone in facing challenges related to workforce attraction and retention. The Northwest is somewhat unique because it's not a heavily industrialized region, making it hard to recruit and keep employees. However, we do have a strong and dedicated workforce, many of whom have been with us for a long time. This decision was not made lightly, given that Gunderson has been a part of our history. Our facilities in Arkansas, like others, face difficulties in attracting and retaining staff in a challenging work environment. We're exploring various adjustments in how we source labor, compensation, and working conditions, including accommodating the growing preference for part-time work. I may not fully understand the current shifts in work patterns, but we are actively considering all options to enhance our workforce, which offers good family wage jobs. I got a bit sidetracked with workforce issues and lost track of your original question.

I was hoping to get some comparison regarding access to labor in different regions. I believe you mentioned that the Northwest might be more challenging than other parts of the country. Additionally, I would like to ask about your capacity estimates. I understand it's difficult to provide precise annual capacity numbers due to varying cycles and equipment types. However, after the closure of Gunderson, how much annual capacity do you anticipate having in the U.S.?

I believe that when considering our capacity numbers, we haven't been operating at what I would call a theoretical capacity for the North American market over the last several years, especially regarding the Portland facility, as we've been running at a more modest rate. Regarding our decision to stop railcar production in Portland, one factor is the location of our customers and competition. To be competitive in the wider market, particularly cost-wise for our customers, we've noticed a shift toward the central and southern parts of the country. This change is beneficial from a logistics and transportation standpoint for delivering our equipment to interested customers. Additionally, a location in the Pacific Northwest poses challenges, particularly with the increasing freight movement to East Coast ports.

It makes sense. I know many industries are experiencing supply chain issues, but it appears to be more significant in the railcar industry. Is that accurate? If so, what are the reasons? We've heard that a limited number of suppliers for components may be a factor, but are there any other elements specific to the railcar industry that are causing the supply chain problems to resolve more slowly than in other industrial sectors?

It is somewhat puzzling. I believe it's likely because we and several others in the rail sector have been increasing production. This has created some pressure on the supply chain that wasn't present over the past two years. To be honest, in the rail freight OEM sector, we haven't experienced the significant disruptions that others have faced nationally. So, as we and others in the industrial sector have ramped up over the last four to six months, it is indeed putting pressure on the supply chain to adapt and be responsive.

Got it. And just one final question on margins. Taking a long-term view, do the changes you're making, including Gunderson and the leasing, affect your long-term outlook for the gross margin you expect?

I believe we need to take several steps on our journey to consistently achieve solid low double-digit margins in the teens. This involves examining our organization to find areas where we can improve efficiencies and reduce costs in order to generate that kind of return. From my viewpoint, the leadership team is actively identifying these areas and implementing changes. Some of these changes will require time, but we will strive to keep you and our shareholders informed about our progress. All of this is directed toward our long-term goal of achieving stable margins with the intention of experiencing both higher highs and higher lows. I believe having a lease fleet will assist in smoothing out the low points during downturns in railcar manufacturing. We might expect a period of stable demand in this sector, which will enable us to further optimize our operations.

Great. Thank you, Lorie. Appreciate it.

The last question today comes from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Steve.

Hi, Steve.

Appreciate the detail on some of the actions you're taking in the near term. On the last call, you suggested earnings would have maybe a 40% first half, 60% second half weighting. As you think about it now, should we be thinking that's more 25-75, or what do you expect for an earnings cadence for the year?

I think that's more realistic given the performance in Q1.

The 25-75?

Yes.

Okay, Lorie, you've been facing some difficult operational challenges for a while. It's clear that you're taking steps to address this. For 2023, could you share what your priority list looks like? Is your main focus on improving gross margin, increasing syndication efforts, or gaining market share? Additionally, what do you believe is essential for long-term shareholder value creation? What key message are you conveying to your team?

We are focused on maintaining our momentum from April. Right now, there are some secrets in play. My primary emphasis is on enhancing our gross margins to achieve a consistent level that I know we can reach. After that, we will concentrate on optimizing the services aspect of our business, particularly leasing, and determining how to do that gradually while meeting our customers' needs in both syndication and as an operating lessor. Greenbrier has successfully managed relationships with a diverse range of customers for many years, and we believe this approach can benefit both our shareholders and our customers. It won’t be a drastic change but rather a gradual evolution of our foundational strategies. We are also evaluating the investments we've made over time to see how we can either improve their returns on our balance sheet or offload them to concentrate on our top priorities.

Thanks. I'm sure you'll provide more details in April about that. Regarding the near-term gross margin, what is the main area for value creation or margin expansion? Is it related to optimizing manufacturing or internal fabrication capacity? Is it just about the footprint? How significant is mix in this? What initial strategies are you implementing to achieve results in the near term?

I think definitely, it is the supply chain and in-sourcing some of those vital components that we need to make certain that we are managing those costs. Bill Krueger, who is now running our manufacturing operation, has been working closely with the teams on the ground to really think through if we have certain capacity within our operations, are we utilizing our capacity to its highest potential and for the most vital components? And really thinking through that a lot more strategically, particularly as we're building a broader range of products that requires a broader ability to provide those subcomponents.

Do you think you have the manufacturing capacity, the process equipment that you need, or would this require investment in machinery to be able to in-source some of that?

It will take some modest investments, but that's part of what's in our guidance right now.

That's in the CapEx right now. Okay. All right. Thanks.

Thank you, Steve.

Thank you very much for your time and attention today. If you have any follow-up questions, please reach out to us at [email protected]. Have a great day. Thank you.

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