Adrian Downes: I think part of it is that the, what we used to provide were explicitly a very narrow definition conversions, and what we’ve seen is that our production space is actually being utilized by more than just that narrow definition, and so we’re not necessarily disclosing that because it’s a little fungible because not all work is the same. And part of it is, I think we’re seeing north of 2,000 cars are included in our manufacturing facilities for this refurbishment and conversion work in fiscal ’24.
Brian Comstock: Yes, this is Brian, Ryan, and maybe back to Ken’s question a little bit, too. I think if you take the number that I had kind of given, which is 12% to 15% of our production is a sustainable conversions and or some form of modification, and you look at our delivery guidance, I think you’d come up with a pretty good idea of what we’re anticipating to build or put into that grouping.
Ryan Deveikis: Thank you. And then, I guess one last one, CN mentioned last night they’re starting to boot Lithium for EVs. First, was kind of wondering what kind of car height that perhaps goes in, or if you guys have seen any inquiries or level orders that are servicing this market at this point?
Adrian Downes: Yes, it’s a good question, Ryan. I can’t speak too much for under several NDAs, but I can tell you that there is opportunity in the marketplace for moving Lithium batteries as the EV market ramps up.
Ryan Deveikis: Okay, appreciate it. Thank you.
Operator: Our next question comes from Steve Barger with KeyBanc Capital Markets. Please go ahead.
Steve Barger: Thanks. Sorry, I missed some of the opening comments, but, Lori, early last year you talked about evaluating where you had value tied up on the balance sheet and a goal of driving better returns or exiting those assets. Did you talk about that already, or can you update us on the evaluation process and what the action plan is?
Lorie Tekorius: Sure, Steve. So, yes, and this is not a process that is not over yet, but the places that we have executed on in fiscal 2023 is we sold the Gunderson Marine operation that’s here in Portland, Oregon, so that concluded in May, I believe, and then we also sold a small foundry that was part of the ARI acquisition foundries located in Texas. We sold that in August. We also exited a joint venture that we had in Turkey where we were manufacturing some components to go into our Polish and Romanian operations. We exited that joint venture in August, and then all the way back to, I think it was January, which at some points in time, I feel like this has been the never-ending year, but all the way back to January, we acquired the minority interest in our GBX leasing lease fleet so that now that’s wholly owned.
And in my prepared remarks, we spoke to the fact that exiting some of those businesses should give us annual savings of about $20 million on a go-forward basis.
Steve Barger: That’s great. Thank you for that recap. And do you feel like there’s more on the balance sheet that can go through that fix or exit process, and can you frame that or size it?
Lorie Tekorius: I would say that we’re constantly looking at it, which is where this conversation was going on with Ryan around how we’re utilizing our manufacturing footprint here in North America and saying, we’ve got this excise footprint that has been dedicated to primarily new railcar production. What are the needs of our customers in North America? And to the extent that they have large refurbishment program needs or re-qualifications, if we can utilize those investments in a manufacturing facility to be able to serve our customer and do it in a way that drops through accretively to the bottom line, that’s what we’ll do. We’ve got that opportunity in Europe to also look at how we’re utilizing our footprint there. We probably have, I think we have five facilities in Europe.
And if we can get the right workforce in the right area, I think that we could increase our production throughput in those facilities. So that’s, again what we’re looking at is how do we optimize the investments that we’ve made.
Steve Barger: Yes, that’s great. And of course, the reason I ask is last year was a record revenue year, but free cash flow after net investment was a negative number for the third year in a row. First, path through the assumptions this year looks like it could be another low or negative free cash flow year. So just trying, can you talk about that specifically and how you prioritize or how you view cash generation in FY24?
Lorie Tekorius: So and I’m not looking at all of those specific numbers, so Justin will realign if I step off in the wrong direction, but you’re absolutely right when it comes to our operating facilities looking at, looking long and hard at where we’re making investments to make certain that where those investments are generating the kind of return. And sometimes it might take more than just a particular 12 months to get that sort of return or benefit. The other side of this is we are growing our lease fleet. So that means that there are cars that we have originated the transaction on the leasing transaction and we’re choosing because of the quality of that transaction to hold that on our balance sheet. And that is allowing us to grow a very diverse portfolio of railcars that we’re holding.
It’s about $13,600 at the end of August and different take, $200. But it’s, it’s a diverse car type. It’s diverse commodities that are being carried. It’s diverse terms. It’s diverse lessees, but that is consuming cash that is not being converted into, it’s not being monetized as we would have historically done it.
Adrian Downes: And Steve, one thing I would add onto that is as you look at our leasing investment activity, bear in mind that that’s levered around 75%. So it’s not just $335 million out the door. It’s a much smaller piece of that is kind of our investment on that. What I would say from a capital deployment perspective is investing in leasing, investing in our make versus buy strategy and North American manufacturing, continuing to pay the dividend and then opportunistic share repurchases, and also delevering on our short term floating rate debt. So it’s, it’s nothing that’s rocket science, but it’s a matter of kind of continuing to check those different boxes and seeing what makes sense in any given time. We do see increased earnings in fiscal 2024. And that will allow us to have some increased cash flow as well versus ’23.
Lorie Tekorius: And the one last thing that I would pitch in there is on growing the lease fleet, there’s a lot of tax advantage cash flow. So if you look at the balance sheet, you’ll see that our tax deferral has increased. So that is another benefit to growing this lease fleet is the tax benefit from those investments.
Steve Barger: Very comprehensive answer. Thank you. And I’ll just sneak one last in. Sorry if I missed it. Do you expect a similar earnings cadence first half to second half, or did you talk about how some of the sustainable refurbishments, does that level that out as that works into the capacity?
Adrian Downes: Yes, we didn’t talk about that yet, but we would expect something like 45% first half, 55% second half.
Steve Barger: Perfect. Thanks.
Adrian Downes: Thanks, Steve.
Operator: Our final question comes from Matt Elkott with TD Cowen. Please go ahead.
Matt Elkott: Good morning. Thank you. Just one last one quick follow up. The 45/55 cadence ADN, does that apply to everything, deliveries, margins, earnings?
Brian Comstock: Pretty much, yes. I mean, there’s going to be some puts and takes in certain lines, but overall, yes, I think that’s a reasonable assumption.
Matt Elkott: Okay.
