FreightCar America, Inc. (NASDAQ:RAIL) Q2 2022 Earnings Conference Call August 9, 2022 11:00 AM ET
Company Participants
Stephen Poe – Investor Relations
Jim Meyer – President and CEO
Mike Riordan – CFO
Matt Tonn – Chief Commercial Officer
Conference Call Participants
Justin Long – Stephens Inc
Matt Elkott – Cowen and Company
Operator
Greetings, and welcome to the FreightCar America Second Quarter Fiscal 2022 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Stephen Poe, Investor Relations for FreightCar America. Please go ahead.
Stephen Poe
Thank you, and welcome. Joining me today are Jim Meyer, President and Chief Executive Officer; Mike Riordan, Chief Financial Officer; and Matt Tonn, 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 Form 10-K for a description of certain business risks, some of which may be outside of 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.
During today’s call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon.
Our earnings release for the second quarter of 2022 is posted on the company’s website at freightcaramerica.com along with our 10-Q, which was filed yesterday after market close.
With that, let me now turn the call over to Jim for a few opening remarks. Jim?
Jim Meyer
Thank you, Stephen. Good morning, and thank you all for joining us today. As you saw in yesterday’s earnings release, FreightCar America continued to build momentum in the second quarter by delivering another quarter of top line growth, double-digit gross margins and positive adjusted EBITDA. For the first 6 months of the year, our revenues are up 115% year-over-year and with the completion of the second quarter, we are now adjusted EBITDA positive for the trailing 12 months.
We produced and delivered 468 railcars in the second quarter, the exact number that was planned. As you know, we are still operating on just 2 production lines and as we informed you last quarter, both lines went through major product changeovers during the period.
Even with the extended downtime associated with the changeovers and the resulting curtailment and deliveries in the quarter, the team delivered an adjusted EBITDA of $2.3 million.
Our revenue for the second quarter was up 52% year-over-year. And along with the strong top line growth, we achieved a gross margin of 11.6% and gross profit of $6.6 million. And again, this was on less than 500 railcars.
We are very proud of the team’s work and the results, which continue to demonstrate that our manufacturing footprint in Northern Mexico is built for efficiency and profitability. On the commercial front, our sales team remain focused on business that is good for the company and ensure that the business we accepted offer a fair and appropriate opportunity to earn a profit.
During the quarter, and as Matt will discuss in more detail, we were awarded 1,045 new orders, and we did this while turning down a comparable number of orders. As we run our company with a high degree of discipline, we are simultaneously focused on scaling the business, driving profitable growth, and achieving our commitment to become a world-class manufacturing company.
Along these lines, our expansion projects continue to progress. The larger scale wheel and axle shop and 162,000 square foot fabrication shop are beginning to come online at this time. Additionally, we still expect to complete the new assembly building with additional production lines within the next 6 months. When complete and as currently envisioned, we will have approximately 1 million square feet under roof on our 125-acre campus located just 160 miles from the cities of Laredo and Eagle Pass, Texas.
While our financial results are improving significantly, we continue to navigate substantive supply chain and inflationary headwinds that persist and put downward pressure on both us and the industry. To date, the team has done an excellent job in mitigating the associated effects, but these headwinds are felt and expected to challenge us through at least the end of this year.
Even so, we believe we are better positioned than at any point in our recent history to address headwinds of all types. We also continue to be impressed by the production volume that our new footprint is able to produce, which is close to double what we originally anticipated. For this reason, we can provide further improvement to our outlook.
For the full year 2022, we are now forecasting revenue to be between $340 million and $360 million up approximately 72% year-over-year at the midpoint of the range and up from our previously stated range of $320 million to $340 million. We are also now projecting deliveries to be between 3,000 and 3,200 railcars, an increase of approximately 79% year-over-year at the midpoint of the range and up from our previously stated delivery guidance of between 2,800 and 3,000 railcars.
In summary, the second quarter of 2022 serves as an additional proof point of the strength and efficiency of our manufacturing footprint in Castaños. We expect to deliver upwards of 2,000 railcars in the second half of the year, while we continue to build out the new footprint with a focus on meeting our future anticipated demand levels and achieving world-class manufacturing excellence.
With that, I would like to now turn the call over to Matt for a few commercial comments related to the second quarter and moving forward. Matt?
Matt Tonn
Thank you, Jim, and good morning, everyone. During the quarter, our inquiry levels remained robust and in line with the strong activity that we experienced last quarter with industry demand largely tied to railcar replacement. In terms of customer type, we are seeing a slight bump in diversity with an increase in shipper inquiries in addition to the more traditional leasing and Class I railroad customers. Order activity also remains robust with orders of 1,045 railcars in the quarter, which is up 38% quarter-over-quarter.
Additionally, our order book is currently filled for the remainder of fiscal 2022, and we are now building our backlog for 2023 and beyond. On the sales front, we remain very disciplined in our pricing approach and selective on the business we pursue. Again, our cost structure and the size of the footprint in Mexico provides us some flexibility so we can focus on business that is well suited for FreightCar America. More broadly, customer sentiment remains positive and in our view, can be characterized as cautiously optimistic.
The recent rise in interest rates has some market participants hitting the pause button and has largely placed speculative buying on hold. With that said, continued congestion of the rail network and scrapping of older railcar assets have resulted in many car types being in tight supply.
On the macroeconomic front, we have seen some easing in raw material pricing, although this has been somewhat offset by increases in other specialty materials and freight costs as the overall supply chain remains challenged.
With that, I’ll now turn the call over to Mike for a review of our financial results. Mike?
Mike Riordan
Thanks, Matt, and good morning, everyone. As Jim alluded to in his opening remarks, our financial results in the second quarter largely exceeded our internal expectations with significant top line and margin improvement year-over-year. Despite deliveries being curtailed by the planned production line changeovers, our team’s prudent cost discipline and continued focus on high-quality business proves that the company can achieve profitability even while producing far fewer units than what we are capable of at full capacity.
As Jim indicated, consolidated revenues for the second quarter 2022 totaled $56.8 million compared to $37.4 million in the second quarter of 2021, an increase of 52% year-over-year. The company’s deliveries increased 50% to 468 railcars, up from 313 railcars a year ago. Our gross profit in the second quarter of 2022 was $6.6 million, a significant increase compared to $2 million in the same period the prior year.
Gross margin increased 630 basis points to 11.6% compared to 5.3% last year, which included some amount of benefit from a favorable product mix. While we expect to continue to perform well on a gross margin basis versus the manufacturing segments of our peers, given our highly competitive and lean manufacturing facilities, we also expect some normalization of our margin profile in the second half of this year due to an anticipated mix shift. However, we will realize a significant sequential increase in deliveries during the second half of the year as major changeover activity is now behind us for 2022.
SG&A for the second quarter of 2022 totaled $4.1 million, down from $6.3 million in the second quarter of 2021. The decrease in SG&A during the second quarter of 2022 was primarily due to marketing stock-based compensation awards to fair value, which decreased in tandem with the company’s share price during the quarter.
As a reminder, we’re committed to maintaining our current SG&A structure even while we scale our production and add manufacturing capacity. Under this structure, we expect our adjusted EBITDA profile to directly benefit from the operational leverage of the expanded footprint and going forward, we expect SG&A to remain relatively fixed at a run rate of $7 million to $8 million per quarter in the second half of the year, excluding fair value adjustments related to certain stock-based compensation awards, while we continue to grow revenue.
Manufacturing operating income for the second quarter of 2022 was $4.9 million compared to manufacturing operating income of $237,000 in the second quarter of 2021.
Consolidated operating income for the second quarter of 2022 was $2.5 million compared to an operating loss of $4.2 million in the second quarter of 2021. Consolidated operating income in the second quarter of 2022 was primarily driven by solid top line performance and a favorable decrease in SG&A due to gains on the fair value measurement of certain stock-based compensation awards.
In the second quarter of 2022, we achieved a positive adjusted EBITDA of $2.3 million compared to an adjusted EBITDA loss of $3.1 million in the same period last year. Again, we are very proud of this performance as it shows the profitability potential in Castaños, even while producing less than 500 cars.
Additionally, following our strong performance, this quarter marks the first period where FreightCar America was adjusted EBITDA positive on a trailing 12-month basis since the second quarter of 2017. Further signaling that we have turned an important corner and that our operating structure supports our sustainable growth plans.
Interest expense in the second quarter of 2022 was $5.8 million, compared to $3.2 million in the second quarter of 2021. This increase was driven by noncash amortization of deferred financing costs associated with refinancing activities that took place after the first quarter of 2021. As it relates to the warrants issued with our financing transactions that directly impact our financial statements, we recognized a noncash gain due to the change in fair market value of the warrant liability of $18.7 million. Again, this is a noncash item that fluctuates each quarter primarily as a result of the change in our stock price during the quarter.
Capital expenditures for the second quarter of 2022 were approximately $1.8 million compared to $0.9 million for the second quarter of 2021. As stated in previous earnings calls, we expect our capital spend to increase in 2022 as we complete investments in our internal fabrication and wheel and axle shops, along with production lines 3 and 4. Due to the timing of these projects, we expect the bulk of capital spending to occur in the second half of this year. We still believe CapEx will range between $7 million and $8 million for 2022.
Before providing our outlook for the full fiscal year, I’d like to highlight the significant improvement we have made as a company with regard to our cash spend, especially at the operating level. Our cash used in operating activities has decreased from $44.1 million in the second quarter of 2021 to only $2.4 million in the second quarter of 2022. Not only does this signal significant improvement in production efficiency at the Interest expense in the second quarter of 2022 was $5.8 million, compared to $3.2 million in the second quarter of 2021. This increase was driven by noncash amortization of deferred financing costs associated with refinancing activities that took place after the first quarter of 2021. As it relates to the warrants issued with our financing transactions that directly impact our financial statements, we recognized a noncash gain due to the change in fair market value of the warrant liability of $18.7 million. Again, this is a noncash item that fluctuates each quarter primarily as a result of the change in our stock price during the quarter.
Capital expenditures for the second quarter of 2022 were approximately $1.8 million compared to $0.9 million for the second quarter of 2021. As stated in previous earnings calls, we expect our capital spend to increase in 2022 as we complete investments in our internal fabrication and wheel and axle shops, along with production lines 3 and 4. Due to the timing of these projects, we expect the bulk of capital spending to occur in the second half of this year. We still believe CapEx will range between $7 million and $8 million for 2022.
Before providing our outlook for the full fiscal year, I’d like to highlight the significant improvement we have made as a company with regard to our cash spend, especially at the operating level. Our cash used in operating activities has decreased from $44.1 million in the second quarter of 2021 to only $2.4 million in the second quarter of 2022. Not only does this signal significant improvement in production efficiency at the Castaños footprint, but this improvement is also expected to further enhance our ability to explore future lower cost financing options.
Turning to our outlook for the full year. As Jim already mentioned, we are raising both our revenue and delivery guidance to between $340 million and $360 million and 3,000 and 3,200 railcars, respectively.
With that financial overview, I’d like to now turn the call back over to Jim for a few closing remarks.
Jim Meyer
Thanks, Mike. Let me conclude by stating our expectations and priorities for the second half of fiscal 2022. First, profitability is the new standard for FreightCar America. Second, we remain committed and largely on track with the expansion of our Castaños facility. By year-end, we expect to have completed and be operating the wheel and axle shop edition and our new fabrication shop. These expansions bring significant efficiencies that will directly impact our bottom line results. We are also on pace to start a third production line during the fourth quarter and expect to have a fourth line ready in 2023.
The addition of these production lines will double our production capacity to roughly 4,000 to 6,000 units per year. With our expansion projects are progressing well and raising and the raising of our railcar delivery and revenue outlook, it is clear that we are increasingly optimistic about the trajectory of the company. As we continue our transition to growth and as our financial performance improves, we expect to have more flexibility when we eventually look to refinance our debt and improve our overall financial structure.
Additionally, we recently welcomed 3 new members to our Board of Directors, Rodger Boehm was elected as a new director at the company’s 2022 Annual Meeting of Stockholders in May; and José De Nigris and Travis Kelly were appointed in June. These individuals bring extensive financial, capital markets and strategic leadership experience, which will benefit for FreightCar America in its next era of growth.
Before turning the call over to the operator, I would like to emphasize just how optimistic we are about the future. At the same time, I would like to emphasize that we are also realistic about the potential temporary impacts of a slowdown in the economy and continuing supply chain disruptions.
We will be producing railcars at approximately twice the rate in the second half of this year than we did in the first half, and we will continue with the build-out of the Castaños facility exactly as envisioned. We will also remain committed to scaling the business profitably and to not let our capacity and fixed costs become burdensome. We sold out our capacity in 2021, we scaled the footprint, and we sold out again in 2022. We will remain very mindful of the advantages this brings as we continue to scale for the future.
That concludes our prepared remarks, and I’ll now turn the call over to the operator so we can address questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Justin Long with Stephens Inc.
Justin Long
Maybe to start with a couple of questions on the updated guidance for deliveries. Is there any color you can provide on the quarterly cadence of deliveries you’re expecting in the third and fourth quarter? Just curious if you would expect those 2 quarters to look pretty similar? Or just given mix and the third line coming on in 4Q if we should expect more of a stair step?
Jim Meyer
Justin, this is Jim. I’ll start and then maybe Michael will add to it. I think fundamentally or approximately, I think Q3 and Q4 are going to look pretty comparable in terms of the units coming out. As indicated, we will be bringing the third line on in Q4 but we’re going to bring that on fairly slowly and in a very controlled way. And so the incremental volume coming off of that third line is going to be a relatively small factor. Mike, I don’t know if you want to add anything else to that.
Mike Riordan
Yes. Just the back half of the year, we’ll have the increased deliveries. As Jim mentioned, with the third line coming on in Q4, you won’t see a massive spike, but you will see — you would see an expected increase in Q4 compared to Q3.
Justin Long
Okay. That’s helpful. And I think there was a comment made to about a normalization of margins in the back half of the year due to mix. Can you help us think through that comment? Is that a gross margin comment? So just kind of looking back at the last few quarters, is there a chance we kind of slip back into the single digits from a gross margin percentage perspective? Or just any other color you can provide to help us understand what that means.
Mike Riordan
Sure. We would expect normalization. We’ve had a really good Q1 and Q2 in terms of gross margin based on product mix. based on the product mix we see in the back half, we will see normalization back to what we consider more of a steady run rate for where the industry is right now with margin. But we’re not going to give specific margin percentages for the back half guidance.
Justin Long
Okay. Got it. And Jim, you alluded to this, I think, a couple of times in your prepared remarks. But if you just look at the delivery run rate that is implied for the second half of this year. On an annual basis, it would be 3,700 units, and that’s almost double the capacity that you originally communicated from these first 2 production lines. So as we get into next year, I know you gave that 4,000 to 6,000 unit range for capacity, but is it reasonable to think that we’re going to be at the high end of that, maybe above? And I guess I just want to understand how much of this is mix and the benefits from that versus productivity and just a higher capacity number than you initially envisioned?
Jim Meyer
Yes. Well, you keep reminding me every call that if I go back to when we first started talking about Castaños, we laid out, think of it as approximately 1000 units of production per line per year. And that was pretty conservative with the help of the rearview mirror. And that’s for a bunch of reasons. One is the factory runs, frankly, better than we planned for. And that’s obviously a very good thing and that propelled us in the second half of last year, it’s propelling us as we speak.
You also have to keep in mind the railcar is not a railcar, and some cars process, frankly, twice the rate of other railcars. So there is a mix component in what you’re building. There’s obviously a component in terms of whether you’re running a shift, a shift and a half or multiple whole shifts. So I think the best way to think of it is we’ve got a lot of flexibility to scale up or put the pedal to the metal and put out more product. we need some help, of course, in terms of the products we’re actually building, but the facility just continues to run very, very well, especially when you consider the fact that it’s still a new facility and there’s construction going on all around it. So we couldn’t be more happy. But to your exact question, if the future book of business lined up just so, we’d probably be at the high range of that 4,000 to 6,000 units, possibly even higher.
Justin Long
Understood. And last quick 1 from me is just on inquiry and order activity quarter-to-date. Just curious if there’s any update or any change relative to the strength that you saw in the second quarter?
Matt Tonn
Yes, Justin, I’d say that we’re encouraged by the activity and by the conversations we’re having with customers, pipeline remains healthy. Overall, I would say that the activity has been in keeping with what we’ve seen in previous quarters. I think I mentioned in my comments that customers are watching what’s happening in the marketplace. But overall, remain optimistic. So we’re anticipating continuing to have solid performance from an inquiry and order perspective.
Operator
[Operator Instructions] Our next question comes from the line of Matt Elkott with Cowen and Company.
Matt Elkott
Just a couple of maintenance questions. To start with, Jim, if we take even the high end of the delivery guidance for this year. You would have 1,949 cars to deliver in the second half, but I think Jim, you mentioned in your outlook commentary is upwards of 2,000 cars. Does this mean that there’s potential upside to the high end of the delivery guidance this year?
Jim Meyer
No, I would go with the guidance. The upwards of 2000, I think, is a qualitative statement meant to be very consistent with that guidance, Matt.
Matt Elkott
Got it. Okay. Thanks for the clarification on this. In your delivery guidance, are you guys assuming you will get some orders in the second half of the same — of the year for same-year delivery? I’m just trying to gauge what percentage of the current backlog is for deliveries in ’22 versus ’23? And what percentage, if any, is for beyond 2023?
Jim Meyer
Well, let me just start with that, and I’ll turn it over to Matt. Yes, our production schedule is locked and loaded at this point for the balance of the year. There’s, frankly, no assumptions in terms of incremental sales needed to support the delivery guidance we just gave. So the backlog beyond what we’ll produce this year is fundamentally a 2023 backlog at this point obviously, with a lot of pipeline sales discussions that take place normal course every day.
Matt, I’ll give the call over to you.
Matt Tonn
Yes. I think Matt, Jim answered those questions pretty thoroughly. As I mentioned earlier, we’re having the right kinds of conversations. The pipeline remains healthy and strong with the diverse — a diverse pipeline with both customers and car types. As we look to ’23, we are filling backlog, we are filling space, and we are having the right kinds of discussions about long-term line space commitments.
Matt Elkott
Got it. That’s helpful. And then just a quick balance sheet question. The decrease in cash quarter-over-quarter — is that primarily because of the increase in inventory, which is related to the delivery cadence and we can expect that to change in the second half?
Mike Riordan
That’s exactly right, Matt. It’s been — we had a heavy working capital infusion into inventory as we ramp up for what will be a very heavy second half of deliveries, so you’re spot on.
Matt Elkott
Okay. And then I don’t know if — I don’t remember if Mike, you said it or Matt said it, but or maybe I think it might have been Jim, too, that you’re exclusively to be — it’s definitely one of you, one of the 3 of you. I think you mentioned that you’re in optimistic, but also cautious about what the macro and recessionary concerns might mean for the industry. I was wondering if you think there’s incremental risk to the industry production guidance for 2023 today versus 3 months ago, I think the industry — the estimates are probably in the range of low 50s to mid-50s, I don’t know what your internal expectation is. But whatever it is, do you think there is now incremental risk to the production outlook for 2023?
Matt Tonn
I think that, Matt, overall, we’re seeing a couple of different adjustments made by different industry insiders on looking at what we think we’re going to produce this year as an industry. I think it’s a little early. We are — as I mentioned, we’re seeing some customers that are hitting the pause button, but I don’t believe we’re seeing customers that are overreacting to what we’re seeing in the marketplace right now.
There’s still some unknowns with what happens with rail network congestion relief. You’ve got a significant effort by the Class I is working on that. We still have — we had almost 3 years of scrapping and outpaced new car demand. So overall, demand for railcars remains, I think, healthy. And I think what’s important to take away is we have built a plant that’s efficient footprint that allows us to scale up or down depending on market conditions.
And we’re roughly half of the production capacity that we were previously at the Shoals facility and really have moved our manufacturing operations to be in line with market conditions. So from our perspective, it’s more about making sure that we’re meeting the needs, not only for our customers but for us as it relates to our production capacities and efficiencies.
Jim Meyer
Matt, I would just add to that, that we obviously, like everyone, pay a great deal of attention to the industry and the macroeconomic conditions but we do our business planning based on our sales activity. And we — our business does its best when it’s sold out. And we — it was helpful in 2021, that’s a helpful position in 2022, and as I said in my closing comments, we’re going to be very, very careful to keep scaling the business with — commensurate with what we see as our sales activity. So we’re paying attention to it all, but we’re planning based on sales discussions.
Matt Elkott
Okay. That’s helpful. And Jim, can you talk about the 1,000 or so orders that you turned down? Why did you turn them down? What kind of orders are they?
Jim Meyer
No, I’m not going to get too specific into that. I will just simply highlight that we’re benefiting from not having unused too much extra capacity. There was a day for us, which has been endemic in this industry where everybody has felt the need to chase every order because everybody had open capacity they were trying to fill. That’s not our mindset today. And it’s not our mindset because of the way we’ve both scaled our footprint and the way we’ve adjusted, frankly, the mix between being a fixed cost business and a variable cost business. We’re much more variable now. And that’s helpful, it’s helpful to our gross margins and obviously then helpful to the bottom line.
Matt Elkott
Do you think that the industry as a whole can be more disciplined? Or are you still seeing some aggressive pricing from your competitors?
Jim Meyer
I would like to see the industry be more disciplined. I would — but pricing is very aggressive. And the whole industry, I don’t think anyone would disagree that if there was a step change in capacity and supply capacity or supply/demand dynamics, the manufacturers would be better served but that’s not the way it is right now. We can only do what’s right for our business. And obviously, over the last couple of years, we’ve taken that on in pretty dramatic fashion.
Matt Elkott
Got it. And just 1 final kind of big picture question. Steel had been the issue keeping people from pulling the trigger for a while. Steel has moderated, but then now we have interest rates being higher, and we have macro concerns and concerns about the slowdown of the economy. If we take all these factors together, do you think the net impact is a headwind to railcar demand and production or still a tailwind or basically a wash?
Jim Meyer
Well, I’ll start and then Matt will give you probably the more intelligent response. But I think this is the big thing we don’t really know. We don’t know the future. So there are signs in both directions. There’s the macro signs, the things we read in the papers every day, but then with specific to our industry, there’s congestion and other indicators that Matt mentioned. And then there’s the actual sales and ordering activity that we see as a business. So I think if we all could correctly answer your question, we’d all benefit from that.
But Matt, do you?
Matt Tonn
I think I’ll just add to that, that steel is not steel. When you think about manufacturing railcars, and there’s multiple grades, thicknesses with other aspects that go into the types of steel used in manufacturing plate versus HRC looking at just the pure cost of steel doesn’t really tell you the whole picture, I guess. But to your point, we are seeing some easing there. But there are some offsets and other costs. So overall, we remain — the supply chain remains challenged, whether it’s a headwind or a tailwind at that point, I think it was kind of a toss up.
Jim Meyer
Well, that’s a good point but I’ll just add to that. We consume both plate steel and coil steel, coil steel has come down pretty significantly from its recent peaks. For some reason, plate has not yet done so. And so you got kind of a bifurcated story on steel at the moment. And then, I guess, Matt, 1 other thing just to kind of keep in mind, and I don’t really know how to quantify it for you. There’s also a hidden cost with the overall supply chain dynamics or inefficiencies at the moment. Everybody knows all too well the challenges of the global supply chain. And every time that pinches you, you rush to do alternative sourcing and whenever you rush to do alternative sourcing, you do it to keep your factories running, which is in your best interest, but it also cost you more.
Matt Elkott
No, that makes sense. Maybe just 1 quick follow-up, also related to the industry. You think — I guess, rail service is expected to begin improving as the railroads the higher or more. And the suboptimal rail service and the lower velocity have been kind of a driver of railcar demand for the last year or so. As service starts to improve and that tailwind subsides, theoretically, you should offset that with volume growth. Is there any way to gauge, Jim, and Matt, when we get into 2023 and, let’s say, service — rail service improved significantly, do you think there is enough volume to make up for the headwind from improving service, the headwind to railcar demand?
Matt Tonn
I think the takeaway point here is that there’s far fewer, more efficient modes of transportation and shipping product than there is by rail, right? So rail continues to be a great value proposition. And once railroads are able to get back on track. And again, they’re all working towards that ultimate goal and customers see improved service levels, improve velocity, lower dwell. It absolutely sets itself up for an improvement in overall railcar demand.
Jim Meyer
We all know there’s been several consecutive years of cars exiting the fleet aging out at a faster rate than new cars coming online. So certainly, this is all going to catch up and reverse itself at some point here, Matt.
Operator
Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I’ll turn the floor back to management for any final comments.
Jim Meyer
Thank you all for joining today’s call. We are increasingly excited about the future of FreightCar America as we continue to grow our manufacturing capabilities and we look forward to sharing our successes with you in the second half of the year and beyond. Thank you.
Operator
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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