Welcome to the FreightCar America Second Quarter 2021 Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Mode. I will now turn the conference over to your host, Lisa Fortuna.
Thank you. You may begin.
Mode. Thank you, and welcome. Joining me today are Jim Meyer, President and Chief Executive Officer Terry Rogers, Chief Financial Officer and Matt Tan, mode. 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 mode. Participants are directed to FreightCar America's 2020 mode.
We expressly disclaim any duty to provide updates to our forward looking statements, whether as a result of new information, During today's call, there will also be a discussion of some items that do not conform to U. S. Generally Accepted Accounting Principles mode. Reconciliations of these non GAAP measures to their most directly comparable GAAP measures are included in the press release issued this morning. Mode.
Our earnings release for the Q2 2021 is posted on the company's website at freightcaramerica.com and our 10 Q will be posted later today With that, let me now turn the call over to Jim for his opening remarks.
Thank you, Lisa. Good morning and thank you all for joining us today. Over the last year, we have talked extensively about the mode. Journey that we are on and that our investors should measure us by the progress we make each quarter. Mode.
I'm proud to say that the Q2 was a very strong example of making progress and also in continuing to build momentum. Mode. To execute such a sizable transformation, which has included the radical overhaul of our manufacturing footprint mode. In creating our Castanos, Mexico facility, there will always be successes and challenges along the way. Mode.
However, in order to claim victory, the successes will need to significantly outweigh the challenges. Mode. And our second quarter was a great example of this. Let's go through the quarter and talk about what it means for the future. Mode.
First, our revenue was up 114% year over year and 15% sequentially. Mode. We delivered 313 railcars versus 100 in the same period last year. What does this mean to us? Mode.
It means that our brand new footprint is up and running and capable. It also means that our customers are embracing the new footprint. Mode. We delivered our 3rd consecutive quarter of positive gross margin at $3,600,000 mode. This is significant and that our cost structure is now right side up instead of upside down.
Mode. Our factory size and fixed costs are much more closely aligned to our needs. Also significant mode. And for the first time in 3 years, we were profitable at the manufacturing operating income level. Mode.
That's right. And that is also significant and that it is the next step in our return to company level profitability. Mode. The significance of this is that we are now approaching a phase where a little more of the right volume can push us across the line. Mode.
And a final thought on the progress of our financials. For the first half of fiscal twenty twenty one, mode. Our adjusted EBITDA loss decreased to $2,000,000 compared to a loss of $23,200,000 mode in the same period of 2020. This improvement in the face of multiple supply chain constraints mode. And significant raw material inflation truly highlights just how far we have traveled in a year.
Mode. Shifting topics, the demand environment across almost all of our end markets continues to gain strength. Mode. Our customers are very excited about what we have built in Castanos and truly want us to succeed. Mode.
They have worked with us in countless ways in order for us to get to where we are and it is very appropriate to say thank you We are increasing our guidance for railcar deliveries for the Q2 in a row mode. And now expect to deliver between 1750-eighteen 50 railcars in fiscal 2021. Mode. This is up 20% at the midpoint compared to our original outlook of 1400 to 1600 railcars at the start of the year. Mode.
During the quarter, we continued to make progress in the construction of our own fabrication shop mode, as well as our new wheel and axle shop at Tostanos, which we have spoken about in previous calls. Mode. When these work streams are completed in early 2022, they will allow us to take a large majority of our fabrications in house mode. And do additional finishing operations on our wheel and axle assemblies. Each of these new additions mode.
And in another indication of progress and where we are ultimately headed, I'm very happy to announce that our Board of Directors has approved our plans to enter the next phase of expansion at Gastanos, mode, namely 2 additional manufacturing lines, numbers 34. When completed, this will expand our production capabilities from mode. Sumitly 2,000 cars per year to 4,000 cars per year. What the new lines will do is dramatically mode. Prove the earnings profile of the company.
What the new lines will not do is cause us to stray off the target of being a much leaner And we would expect to be operational in late 2022. As a reminder, the Gills family continues to be a strong partner to Freight mode. CORE America and are invested in our success as one of our largest shareholders. They will be providing a large portion mode. Of the capital required to build out the facility and we will lease the new addition just as we are now leasing the current footprint.
Mode. FreightCar America's portion of the CapEx will be fairly modest and is expected to be in the $5,000,000 range. Mode. This next step is fully consistent with the vision we outlined for you late last year, namely building the Castanos mode. With the ability to flex as the market demand dictates.
We are now preparing for when we will flex. Mode. Shifting gears, I want to talk about another benefit and important reason for our commitment to Gastanos. Mode. You have undoubtedly heard other public companies talk extensively about labor shortages mode.
And wage inflation throughout this earnings season. I am pleased to report that we have been able to avoid such issues. Mode. We have built one of the best and most experienced teams in the region and within our industry. Mode.
Furthermore, I am extremely proud of the team's response to COVID-nineteen through ever changing health and safety protocols. Mode. Our workforce's vaccination rate is high, increasing each week with 1 age group now at 100% vaccinated. Mode. In short, our workforce is on board, well trained, committed and healthy.
Mode. In line with my opening comments, this is a strong list of successes for Q2 and I'm mode. Extremely proud of our entire team who have embraced and led all of the changes to help build a much stronger FreightCar America. Mode. Now let's talk about a few of the challenges we had to work through in the Q2.
First, mode. Our industry continues to face significant inflationary pressures and various supply chain constraints. Mode. Higher steel prices have persisted and acted as an operational headwind to our business along with significant increases in ocean mode. As global demand for ocean freight is far outpacing available capacity, mode.
We have seen prices at triple historical levels adding significantly to our COGS. Mode. This is obviously not unique to FreightCar America nor to our industry, but rather a broad reaching fact of life for the moment. Mode. As we navigate an extremely unfavorable inflationary environment, our team is taking the necessary steps to mode.
Price adjustments where possible and being more selective on the business we accept. Mode. Given our now smaller size and lower fixed cost structure, not every piece of business needs to be treated as must win business. Mode. During the Q2, we also had some extra expenses and inefficiencies related to the launch of a new car type.
Mode. Without this, we would have likely delivered a higher number of railcars this period. Lastly, mode. We also addressed our growing working capital needs as the business continues to expand. Much of the new needs mode.
Stem from the fact that we have a large outstanding Mexican VAT receivable that totaled $21,300,000 mode as of the end of Q2. We expect the associated refund payments to start flowing back to us soon. Mode. In the interim, we are fortunate to have a strong financial partner willing and able to step in. Mode.
Terry will outline the details in a few minutes. But as you saw in our SEC filings a week and a half ago, mode. Our financial partner has amended their agreement with us, which opened up a $25,000,000 line of credit. Mode. In summary, we are pleased by the progress and results in the Q2 and are confident in the prospects for the second half of twenty twenty one.
Mode. With that said, I'd now like to turn the call over to Terry for a review of our financials. Terry?
Mode. Thanks, Jim, and good morning to everyone. As Jim alluded to, our business is reaching a turning point and we are excited about our long term growth prospects. Turning to our financial results, consolidated revenues were $37,400,000 in the Q2 of 2021 compared to $32,400,000 in Q1 of 2021 $17,000,000 in the Q2 of 2020. The company delivered 313 railcars in the Q2 of 2021 mode.
Compared to 309 railcars in the Q1 of 2021 and 100 railcars in the Q2 of 2020. Mode. Our gross margin in the 2nd quarter was $3,600,000 the 3rd consecutive quarter of positive gross margin for the business as Jim previously noted. Mode. Gross margin was higher compared to $2,600,000 in the Q1 2021.
The Q1 included the final transition costs associated with the move to Castanos mode. In the Q2 included the effect of a challenging new product launch. SG and A for the Q2 totaled $6,300,000 mode, down from $9,200,000 in the
Q1 of
2021 $6,500,000 in the Q2 of 2020. Mode. The quarter over quarter decrease can be attributed to non cash compensation accruals and higher professional fees that were recognized last quarter. Mode. Consolidated operating loss for the Q2 of 2021 was $2,500,000 compared to an operating loss mode.
$13,200,000 in the Q1 of 2021 and operating loss of $12,900,000 in the Q2 of 2020. Mode. The operating loss in the Q2 included $100,000 of restructuring and impairment gains, while operating loss in the Q1 of 2021 included $700,000 of restructuring and impairment charges and operating loss for the Q2 of 2020 included $300,000 of restructuring and impairment charges. Mode. Manufacturing operating income for the Q2 was $1,900,000 compared to manufacturing operating loss mode.
$4,700,000 in the Q1 of 2021 and a manufacturing operating loss of $8,300,000 in the Q2 of 2020. Mode. As Jim indicated, this was the first positive result in over 3 years, providing further evidence that the shift to the new manufacturing footprint in Mexico was the right strategic direction. Mode. With that said, we still have plenty of opportunity to align our corporate and other expenses.
Mode. Similar to previous quarters, the warrant issued with our November 2020 financing will continue to have an impact on our financial statements. Mode. Award liability is marked to fair market value each quarter with the change in value impacting our net income and earnings per share calculations. Mode.
For the Q2 of 2021, the gain on change in the fair market value of the warrant liability was $3,500,000 compared to a loss of $22,100,000 in the Q1 of 2021. As a reminder, this is a non cash item reflecting the change in our stock price during the quarter. Mode. Interest expense in the Q2 was $3,200,000 compared to $2,500,000 in the Q1 of 2021 mode and $200,000 in the Q2 2020. As stated in the previous calls, we expect interest expense to remain elevated compared to historical levels mode based on the changes to our capital structure and recent financing arrangements.
However, as Jim mentioned earlier, our business continues to pick up positive momentum, mode, which we expect will allow us to establish a conventional revolving credit agreement with lower cost terms in the future. For the Q2 of 2021, mode. Adjusted EBITDA loss was $1,500,000 compared to adjusted EBITDA loss of $500,000 for the Q1 of 2021. Mode. In the Q2 of 2020, adjusted EBITDA loss was $10,300,000 when adjusting for the items previously discussed mode when reporting on the operating loss and other non cash or non recurring items.
When comparing the year to date adjusted EBITDA results to the same period of 2020, mode. There's further evidence that our plan is working. Adjusted EBITDA results for the first half of twenty twenty one were a loss of 2,000,000 mode compared to a loss of $23,200,000 in the same period of 2020, signaling a much healthier long term earnings profile mode, aided by the transformation of our manufacturing footprint. Now moving to the balance sheet. We finished the quarter with cash and cash equivalents including cash and certificates of deposit of $20,700,000 compared to $31,700,000 at the end of the Q1 2021.
The main drivers of the decrease included approximately $8,000,000 in value added tax paid to Mexico paid in Mexico, excuse me, and approximately $3,000,000 in working Capital investment to support higher production levels in the second half of the year. As Jim noted, the total VAT receivable was $21,300,000 at the end of the second quarter, mode and we are in regular communication with the Mexican regulatory officials who will process the refund. Capital expenditures through the Q2 of 2021 were $1,400,000 compared to $7,000,000 through the Q2 of 2020. Mode. We maintain our view that fiscal year 2021 CapEx will be significantly lower in 2021 compared to 2020 and believe it mode.
We have entered into an amended financing arrangement with our financial partners, opening up a $25,000,000 line of credit. Mode. This is in addition to the $16,000,000 of financing that was provided in May. Some of this funding may not have been required had we better mode. We've also completed the VAT refund process earlier on.
That said, our primary financial lenders' commitment to FreightCar America has allowed us to remain on offense mode and stay focused on our strategic initiatives. Further, as the 8 ks filed outlines, our financial partner is charging us a fee for this new support, mode, which they will be partially taking in stock. We do intend to repay the $60,000,000 borrowed in May 2021 before March 31, 2022, which which will avoid additional equity consideration on that borrowing. Finally, after quarter end, we received formal notification in early July that the Small Business Administration mode. PPP loan, which further strengthens our balance sheet.
With that financial overview, I'd like to now turn the call over to Matt for a few commercial
mode. Thanks, Terry, and good morning. As Jim mentioned, we continue to see
mode. Encouraging signs in the overall economy as well
as the railcar industry. Railcars and storage declined for the 12th consecutive month, mode. Fleet utilization trends remain positive and car scrapping is on the rise, signaling an improving rail environment. Again, mode. These are all key indicators that we track and it's evidence that the industry is on a recovery trajectory.
Order inquiry levels during the quarter were up sequentially versus the Q1 of 2021 and double that of any quarter since 2018. In the Q2 of 2021, we booked 11 33 car orders compared to 300 in the Q1 and 0 in the Q2 of 2020. Mode. Clearly, this was a significant jump sequentially as we successfully converted a good number of inquiries to orders mode during the quarter. The ongoing strength of inquiries and order activity are positive indications that we are starting to enter a market upturn.
Mode. Inquiries and orders for conversions also continue to be robust given FreightCar America's variety of conversion options And engineering expertise in this segment. As the industry leader of railcar conversions, we will continue to invest in this space, including our infrastructure capabilities at Castanos and expansion of our offerings, leveraging both our engineering and manufacturing mode. As we have previously stated, our conversion capabilities provide our customers solutions to upgrade underutilized rail assets into the latest car designs mode. As we've discussed in previous calls, pricing pressures remain a headwind, And we expect this to continue for the balance of the year as the market ramps up and railcar builders look to fill line space.
Raw material price volatility, increased freight costs mode. And higher component pricing are additional headwinds anticipated for the remainder of 2021. With that said, mode. The Castanos footprint allows us to be flexible and focus on the orders that are best suited and most profitable for the company. The efficient footprint of Castanos not only lends itself to deliver our broad product portfolio, but is also designed with the flexibility to change car types more quickly and run efficiently at lower volumes mode.
As Jim had already mentioned, we have raised our 2020 outlook for the 2nd consecutive quarter to between mode. 1750 and 18 50 railcar deliveries, up from our most recent guidance of between 1600 mode and 1750 railcars. With that, I'll now turn the call back over to Jim for a few closing remarks. Jim? Mode.
Thanks, Matt. To conclude, this quarter included multiple steps forward along with some challenges still to overcome mode. As any transformation of this magnitude would, but our long term successes far outweigh The short term challenges that we see and our momentum is clearly up and to the right. Mode. Our industry appears to be in the early stages of a strong cyclical upturn and our timing and building and now expanding the newest mode.
Purpose built manufacturing facility in North America puts us in a strong position to drive long term growth mode. And profitability as we advance our journey. We have moved the company from struggling to transforming mode. So as Terry put it, starting to play offenses. On this note and in one final piece of news worth sharing, mode.
We received AAR approval for our first tank car design in May. Mode. We look forward to continuing to share our progress with you. That concludes our prepared remarks. And I'll now turn the call over to the operator for
mode. At this time, we will be conducting a question and answer session. Mode. Mode. Our first question is from Justin Long of Stephens Inc.
Please state your question.
Mode. Thanks and good morning. So I wanted to start with a question on the orders in the quarter. Is there any additional mode. Color you can provide on the car types that were ordered and maybe the size of the orders as well.
Just curious if There was a large order included in that total or if it was more kind of a group of smaller orders.
Mode. Good morning, Justin. This is Matt. Yes, we don't typically provide that type of granular detail on order activity. I can tell you that mode.
Orders were represented by card types that we are strong in, have historical history of building mode. That meet our financial objectives. I would say overall the inquiries have been, As I mentioned in my opening comments, they've been strong, and we had good success in converting those into orders for the quarter.
Mode. Okay. And I guess go ahead, Jim. Sorry.
Yes. I was just going to say, I think it's fair to say without mode. Elaborating too much that the types of orders and mode. Size of each individual order is very representative of the place in the market where we've been targeting and have
mode. Okay. And subsequent to quarter end, is there anything you can share on the level of mode. And maybe just looking at the guidance, anything you could share on the cadence of deliveries in the 3rd and the 4th quarter, if it Will be pretty even or if we are going to see a discrepancy between the two quarters?
Mode. I think what you'll see in the second half of the year, you'll see a ramp up of production and deliveries mode. As a result of order activity that we've had earlier in the year.
Okay. And then in terms of orders subsequent To quarter end, is there anything you can share now that we're halfway through the Q3? Have there been meaningful orders received? Mode.
Yes. This is Jim again, Justin. I don't think we're going to give a lot of information today on mode. What's happened beyond the quarter end, other than to say that our next several mode. Quarters are fully booked and we're now taking orders mode.
Out into next year at this point.
Okay. And I guess last question for me and then I'll pass it on. But mode. Could you just share where you're getting the most traction with customers right now in terms of just the mix of customers, whether it's mode. Rail, leasing companies, shippers, if it's all 3, would love to just get some more color around that.
Mode. Yes. Justin, I think you can say that we're seeing positive traction with all three. There's good order activity mode. By each of those customer segments as they look at their fleets and look at how cars are being scrapped and where they need to replace.
Mode. Okay. That's good to hear. I appreciate the time.
Thank you, Justin. Thanks, Justin.
Mode. Mode. One moment please while we poll for additional questions. Mode. There are no more questions at this time.
We have reached the end of the question and answer session. I will now turn the call back over to Jim Meyer for closing remarks.
Mode. Thank you all again for joining us today. Now more than ever, we're excited about the future of FreightCar America mode.