FreightCar America, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. The company designs and manufactures freight railcars and provides railcar repair, rebody, conversion, parts and servicing. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $161.1 | $81.0 |
| Gross profit / margin | $11.4 / 7.1% | $7.5 / 9.2% |
| Operating income / margin | $3.9 / 2.4% | $1.1 / 1.4% |
| Net loss | $(11.6) | $(5.0) |
| Net loss per common share | $(0.54) | $(0.19) |
| Cash used in operating activities | $(25.3) | $(7.7) |
| Capital expenditures | $1.0 | $2.0 |
Revenue increased 99%, primarily from higher railcar deliveries: 1,223 units, all new, versus 738 units (639 new and 99 rebuilt) a year earlier. Gross profit rose, but gross margin fell, reflecting unfavorable product mix partly offset by higher volume. SG&A increased to $7.5 million from $6.4 million, mainly due to higher stock-based compensation.
Net loss included a $15.7 million noncash loss from remeasuring warrant liability, compared with a $0.6 million gain in Q1 2023. Interest expense declined to $2.4 million from $6.6 million. A $2.6 million income tax benefit was recorded, versus a $0.1 million provision.
Financial position and liquidity
- Cash, cash equivalents and restricted cash were $14.0 million at March 31, 2024, down from $40.6 million at year-end. Operating cash outflow was driven in part by a $28.6 million increase in receivables, partly offset by a $17.0 million inventory reduction.
- Current assets were $170.8 million and current liabilities $122.1 million, a current ratio of approximately 1.40. Total assets were $248.7 million; stockholders’ deficit was $57.0 million.
- Revolver borrowings were $30.0 million, compared with $29.4 million at year-end. The facility has a maximum principal amount of $45.0 million and matures October 31, 2024. It is secured by accounts receivable and a $25.0 million standby letter of credit. Stated rates at quarter-end were 10.0% on the standby letter of credit and 10.5% on receivables-backed advances.
- Finance lease liabilities were approximately $41.9 million in total, including current and long-term portions; operating lease liabilities were approximately $4.1 million.
Orders, outlook and risks
- New orders were 384 railcars (275 new, 109 rebuilt), down from 1,960 (1,770 new, 190 rebuilt) in Q1 2023. Backlog fell to 2,075 units, with estimated sales value of $238 million, from 2,914 units and $348 million at December 31, 2023. Management attributed lower new orders to mixed confidence in the economic outlook.
- Management expects 2024 capital expenditures of $5 million to $7 million, primarily for maintenance of current production lines at the Castaños Facility. It believes cash balances and expected operations will meet liquidity needs for at least 12 months, while noting long-term liquidity depends on operating performance, covenant compliance and access to financing. No revenue or earnings guidance is provided.
- Risks highlighted include the cyclical business and economic conditions, raw-material costs and availability, rail-traffic disruptions, customer concentration and variable order timing, competition, acceptance of new offerings, and successful onboarding of the new CEO.
- Series C preferred stock has a $85.4 million initial stated value, cumulative dividends at 17.5% annually, and senior rights to common stock. Warrants are liability-classified and their fair value rose to $52.5 million from $36.8 million, contributing to earnings volatility. Preferred dividends and financing-fee accretion also reduced loss available to common stockholders.
- The company disclosed related-party purchases and payments, including $7.6 million paid to the Gil Family in Q1 2024 for services, rent, supplies, trucking and royalties. Management said it knew of no legal proceedings expected to be material. Disclosure controls were deemed effective at quarter-end.
Important facts for investors to verify
- Whether receivables are collected on schedule and operating cash flow improves after the quarter’s working-capital outflow.
- Backlog conversion, order trends, product mix and delivery volumes, particularly given the sharp year-over-year decline in new orders.
- Revolver maturity and renewal or refinancing arrangements before October 31, 2024, including facility availability and covenant compliance.
- The cash burden and future escalation terms of the 17.5% cumulative preferred dividend, and the effect of warrant remeasurement and potential dilution.
- Related-party transaction terms and the impact of the disclosed January 2024 royalty agreements and termination agreement.