What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 119 added, 122 removed, 400 unchanged (38% of the section changed)

95 unchanged sentences

We are exposed to the impact of foreign currency fluctuations in our Mexico operations resulting from certain expenditures that are denominated in the Mexican peso.

The strengthening of the Mexican peso relative to the U.S.

dollar unfavorably impacted the operating results in our Rail Products Group in 2023.

We maintain a hedging program and have taken other actions to mitigate the foreign currency impact of a portion of our peso-denominated expenditures.

We regularly evaluate and update our strategies to mitigate the negative effects on margins and operating profits that may arise due to foreign currency fluctuations.

Input and Labor Costs

We periodically experience increases in the costs of steel, components, and certain other inputs that represent a substantial portion of our cost of revenues.

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Further, the cost and volume of lease fleet maintenance and compliance events have increased, and we expect elevated levels of these activities to continue in the near term.

Finally, increases in labor costs have negatively impacted our operations.

We continually assess the impact of input and labor costs on our operational efficiency, margins, and overall profitability.

We continually assess the impact of input costs on our operational efficiency, margins, and overall profitability.

Financial and Operational Highlights

• Our revenues for the six months ended June 30, 2024 were $1,651.0 million, representing an increase of 21.0%, compared to the six months ended June 30, 2023.

Our operating profit for the six months ended June 30, 2024 was $257.1 million compared to $168.1 million for the six months ended June 30, 2023.

• The Leasing Group's lease fleet of 109,365 company-owned railcars was 96.9% utilized as of June 30, 2024, compared to a lease fleet utilization of 97.9% on 109,060 company-owned railcars as of June 30, 2023.

• Our revenues for the nine months ended September 30, 2024 were $2,449.8 million, representing an increase of 12.1%, compared to the nine months ended September 30, 2023.

Our operating profit for the nine months ended September 30, 2024 was $379.5 million compared to $268.3 million for the nine months ended September 30, 2023.

• The Leasing Group's lease fleet of 109,555 company-owned railcars was 96.6% utilized as of September 30, 2024, compared to a lease fleet utilization of 98.1% on 109,055 company-owned railcars as of September 30, 2023.

Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

• For the six months ended June 30, 2024, we made a net fleet investment of approximately $46.0 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases;

• For the nine months ended September 30, 2024, we made a net fleet investment of approximately $86.5 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• The total value of the new railcar backlog at June 30, 2024 was $2.7 billion, compared to $3.6 billion at June 30, 2023.

The Rail Products Group received orders for 4,375 railcars and delivered 9,450 railcars in the six months ended June 30, 2024, in comparison to orders for 7,460 railcars and deliveries of 9,030 railcars in the six months ended June 30, 2023.

• The total value of the new railcar backlog at September 30, 2024 was $2.4 billion, compared to $3.6 billion at September 30, 2023.

The Rail Products Group received orders for 6,185 railcars and delivered 13,810 railcars in the nine months ended September 30, 2024, in comparison to orders for 10,660 railcars and deliveries of 13,355 railcars in the nine months ended September 30, 2023.

See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results.

(1) Dividend yield is calculated as dividends paid for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter.

(1) Dividend yield is calculated as dividends declared for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter.

(2) Non-GAAP financial measure.

See the Non-GAAP Financial Measures section within this Form 10-Q for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.

Dollar amounts are presented for the six months ended June 30, 2024 and 2023.

Dollar amounts are presented for the nine months ended September 30, 2024 and 2023.

Capital Structure Updates

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Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2024 and 2023:

The following table summarizes our consolidated results of operations for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Income from continuing operations $ 40.8 $ 26.3 $ 130.6 $ 66.6

The tables below present revenues by segment for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024

The tables below present revenues by segment for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, 2024

Revenues Percent

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Consolidated Total $ 798.8 $ — $ 798.8 (2.7) %

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

External Intersegment Total

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Consolidated Total $ 821.3 $ — $ 821.3

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Revenues Percent

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Consolidated Total $ 2,449.8 $ — $ 2,449.8 12.1 %

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

External Intersegment Total

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and restructuring activities.

Operating costs by segment for the three and six months ended June 30, 2024 and 2023 were as follows:

Operating costs by segment for the three and nine months ended September 30, 2024 and 2023 were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Consolidated Total $ 676.4 $ 721.1 $ 2,070.3 $ 1,917.1

(1) Includes gains on lease portfolio sales of $22.7 million and $29.8 million for the three months ended June 30, 2024 and 2023, respectively.

Includes gains on lease portfolio sales of $24.8 million and $43.3 million for the six months ended June 30, 2024 and 2023, respectively.

(1) Includes gains on lease portfolio sales of $11.4 million and $3.1 million for the three months ended September 30, 2024 and 2023, respectively.

Includes gains on lease portfolio sales of $36.2 million and $46.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Operating Profit

Operating profit by segment for the three and six months ended June 30, 2024 and 2023 was as follows:

Operating profit by segment for the three and nine months ended September 30, 2024 and 2023 was as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Discussion of Consolidated Results

Revenues – Our revenues for the three months ended June 30, 2024 were $841.4 million, representing an increase of $119.0 million, or 16.5%, over the prior year period.

Our revenues for the six months ended June 30, 2024 were $1,651.0 million, representing an increase of $286.9 million, or 21.0%, over the prior year period.

These increases in revenues were primarily due to higher external deliveries in the Rail Products Group and improved lease rates and net additions to the lease fleet in the Leasing Group.

For the six months ended June 30, 2024, revenues were favorably impacted by a higher volume of external repairs in the Leasing Group.

Cost of revenues – Our cost of revenues for the three months ended June 30, 2024 was $662.4 million, representing an increase of $61.2 million, or 10.2%, over the prior year period primarily due to higher external deliveries in the Rail Products Group.

Our cost of revenues for the six months ended June 30, 2024 was $1,307.3 million, representing an increase of $167.6 million, or 14.7%, over the prior year period primarily due to higher external deliveries and the impact of foreign currency fluctuations in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the three months ended June 30, 2024 were $61.3 million, representing an increase of $7.0 million, or 12.9%, when compared to the prior year period.

Selling, engineering, and administrative expenses for the six months ended June 30, 2024 were $113.6 million, representing an increase of $9.4 million, or 9.0%, when compared to the prior year period.

Revenues – Our revenues for the three months ended September 30, 2024 were $798.8 million, representing a decrease of $22.5 million, or 2.7%, over the prior year period primarily due to lower external deliveries in the Rail Products Group, partially offset by favorable pricing and a higher volume of external repairs, as well as improved lease rates and net additions to the lease fleet in the Leasing Group.

Our revenues for the nine months ended September 30, 2024 were $2,449.8 million, representing an increase of $264.4 million, or 12.1%, over the prior year period primarily due to higher external deliveries in the Rail Products Group, as well as favorable pricing and a higher volume of external repairs and improved lease rates in the Leasing Group.

Cost of revenues – Our cost of revenues for the three months ended September 30, 2024 was $629.3 million, representing a decrease of $50.2 million, or 7.4%, over the prior year period primarily due to lower external deliveries and improved efficiencies in the Rail Products Group.

Our cost of revenues for the nine months ended September 30, 2024 was $1,936.6 million, representing an increase of $117.4 million, or 6.5%, over the prior year period primarily due to higher external deliveries, partially offset by improved efficiencies in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the three months ended September 30, 2024 were $60.5 million, representing an increase of $11.4 million, or 23.2%, when compared to the prior year period.

Selling, engineering, and administrative expenses for the nine months ended September 30, 2024 were $174.1 million, representing an increase of $20.8 million, or 13.6%, when compared to the prior year period.

These increases were primarily due to higher employee-related costs, including increased incentive-based compensation, and continued investments in technology.

Selling, engineering, and administrative expenses in the prior year periods include additional contingent consideration associated with an acquisition.

Gains on dispositions of property – Gains on dispositions of property decreased by $6.2 million and $18.7 million for the three and six months ended June 30, 2024, respectively, when compared to the prior year periods.

These decreases were primarily due to lower lease portfolio sales in the current year periods.

Additionally, we recorded gains of $1.2 million during the six months ended June 30, 2023 related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia.

Operating profit – Operating profit for the three months ended June 30, 2024 totaled $141.9 million, representing an increase of $42.8 million, or 43.2%, from the prior year period.

Operating profit for the six months ended June 30, 2024 totaled $257.1 million, representing an increase of $89.0 million, or 52.9%, from the prior year period.

These increases were primarily due to higher external deliveries and improved efficiencies in the Rail Products Group and improved lease rates in the Leasing Group, partially offset by lower lease portfolio sales in the current year periods.

Operating profit for the six months ended June 30, 2024 was favorably impacted by a higher volume of external repairs in our maintenance services business.

Gains on dispositions of property – Gains on dispositions of property increased by $5.9 million for the three months ended September 30, 2024, when compared to the prior year period primarily due to higher gains on lease portfolio sales in the current year period.

Gains on dispositions of property decreased by $12.8 million for the nine months ended September 30, 2024, when compared to the prior year period primarily due to lower gains on lease portfolio sales in the current year period.

Additionally, we recorded gains of $3.7 million and $4.9 million during the three and nine months ended September 30, 2023, respectively, related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia.

Operating profit – Operating profit for the three months ended September 30, 2024 totaled $122.4 million, representing an increase of $22.2 million, or 22.2%, from the prior year period primarily due to improved lease rates and higher gains on lease portfolio sales in the Leasing Group, and improved efficiencies in the Rail Products Group, partially offset by lower external deliveries in the Rail Products Group.

Operating profit for the nine months ended September 30, 2024 totaled $379.5 million, representing an increase of $111.2 million, or 41.4%, from the prior year period primarily due to higher external deliveries and improved efficiencies in the Rail Products Group and improved lease rates and a higher volume of external repairs in the Leasing Group, partially offset by lower gains on lease portfolio sales in the current year period.

For further information regarding the operating results of individual segments, see "Segment Discussion" below.

Interest expense, net – Interest expense, net for the three months ended June 30, 2024 totaled $70.1 million, compared to $66.9 million for the three months ended June 30, 2023.

Interest expense, net for the six months ended June 30, 2024 totaled $139.2 million, compared to $129.0 million for the six months ended June 30, 2023.

These increases were primarily driven by higher interest rates and higher average debt in 2024, as well as a $1.5 million loss on extinguishment of debt for the three and six months ended June 30, 2024.

Other, net – Other, net for the three months ended June 30, 2024 resulted in income of $3.4 million, compared to expense of $1.3 million for the three months ended June 30, 2023.

There was no other, net (income) expense for the six months ended June 30, 2024, compared to expense of $2.9 million for the six months ended June 30, 2023.

The changes in other, net (income) expense are primarily due the remeasurement impact of foreign currency fluctuations related to the Mexican peso.

Additionally, other, net for the six months ended June 30, 2024 includes a fee of $3.1 million related to the execution of back-to-back interest rate caps associated with the new TILC warehouse loan facility.

Income taxes – The effective tax rates from continuing operations for the three and six months ended June 30, 2024 were expenses of 22.7% and 23.8%, respectively, which differ from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, and non-deductible executive compensation, partially offset by the benefit of noncontrolling interest, for which we do not provide income taxes, excess tax benefits associated with equity-based compensation, and changes in state tax laws enacted in the second quarter.

The effective tax rate from continuing operations for the three months ended June 30, 2023 was an expense of 23.9%, which differs from the U.S.

The effective tax rate from continuing operations for the six months ended June 30, 2023 was a benefit of 11.3%, which differs from the U.S.

Interest expense, net – Interest expense, net for the three months ended September 30, 2024 totaled $67.4 million, compared to $68.8 million for the three months ended September 30, 2023.

Interest expense, net for the nine months ended September 30, 2024 totaled $206.6 million, compared to $197.8 million for the nine months ended September 30, 2023, primarily driven by higher interest rates and higher average debt in 2024, as well as a $1.5 million loss on extinguishment of debt.

Other, net – Other, net for the three months ended September 30, 2024 resulted in income of $1.4 million, compared to income of $0.9 million for the three months ended September 30, 2023.

Other, net for the nine months ended September 30, 2024 resulted in income of $1.4 million, compared to expense of $2.0 million for the nine months ended September 30, 2023.

The changes in other, net (income) expense are primarily due to the remeasurement impact of foreign currency fluctuations related to the Mexican peso.

Additionally, other, net for the nine months ended September 30, 2024 includes a fee of $3.1 million related to the execution of back-to-back interest rate caps associated with the new TILC warehouse loan facility.

Income taxes – The effective tax rates from continuing operations for the three and nine months ended September 30, 2024 were expenses of 27.7% and 25.1%, respectively, which differ from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, non-deductible executive compensation, and return to provision adjustments, partially offset by the benefit of noncontrolling interest for which we do not provide income taxes, excess tax benefits associated with equity-based compensation, and changes in state tax laws.

The effective tax rate from continuing operations for the three months ended September 30, 2023 was an expense of 18.6%, which differs from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, non-deductible executive compensation, excess tax benefits associated with equity-based compensation, taxes not recorded on our non-controlling interests in partially-owned subsidiaries, and the remeasurement of deferred tax liabilities due to state tax law changes and rate reductions enacted during the third quarter of 2023.

The effective tax rate from continuing operations for the nine months ended September 30, 2023 was an expense of 2.8%, which differs from the U.S.

statutory rate of 21.0% primarily due to the release of residual taxes out of accumulated other comprehensive income;

the re-measurement of our net deferred tax liabilities due to the acquisition of a subsidiary;

the re-measurement of our net deferred tax liabilities due to the acquisition of a subsidiary and state tax law changes and rate reductions during the year;

changes in our valuation allowances;

state income taxes, and foreign income taxes.

state income taxes;

and foreign income taxes.

See Note 9 of the Consolidated Financial Statements for additional information.

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Railcar Leasing and Services Group

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 Percent 2024 2023 Percent

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* Not meaningful

(1) Revenues related to services performed by the maintenance services business to support the railcars in our lease fleet are eliminated within the Railcar Leasing & Services Group and are excluded from the totals reported on this line.

(1) Revenues related to services performed by the maintenance services business to support our lease fleet of Company-owned railcars are eliminated within the Railcar Leasing & Services Group and are excluded from the totals reported on this line.

(2) Includes depreciation and amortization expense, maintenance and compliance expense, and other fleet operating costs related to our lease fleet, as well as operating costs for our maintenance services and digital and logistics services businesses.

(3) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

(4) Depreciation and amortization expense includes $0.8 million and $5.5 million for the three and six months ended June 30, 2023, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

(4) Depreciation and amortization expense includes $0.1 million and $5.6 million for the three and nine months ended September 30, 2023, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

Additionally, amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in depreciation and amortization expense, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

3 unchanged sentences

Operating profit margin on lease portfolio sales 17.0 % 5.2 % 14.3 % 18.9 %

Total revenues for the Railcar Leasing and Services Group increased by 4.9% and 13.0% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods.

Leasing and management revenues for the three and six months ended June 30, 2024 were favorably impacted primarily by improved lease rates and net additions to the lease fleet, which resulted in higher revenues when compared to the three and six months ended June 30, 2023.

Digital and logistics services revenues for the three and six months ended June 30, 2024 decreased when compared to the prior year periods primarily due to a change in revenue recognition from gross basis to net basis based on our conclusion that we are acting as an agent for certain services provided to a small number of customers.

Our maintenance services business is primarily dedicated to servicing our lease fleet pursuant to the provisions of our lease contracts.

Total revenues for the Railcar Leasing and Services Group increased by 10.6% and 12.2% for the three and nine months ended September 30, 2024, respectively, compared to the prior year periods.

Leasing and management revenues for the three and nine months ended September 30, 2024 were favorably impacted primarily by improved lease rates and net additions to the lease fleet, partially offset by lower utilization, when compared to the three and nine months ended September 30, 2023.

Digital and logistics services revenues for the three and nine months ended September 30, 2024 decreased when compared to the prior year periods primarily due to a change in revenue recognition from gross basis to net basis based on our conclusion that we are acting as an agent for certain services provided to a small number of customers.

Our maintenance services business is primarily dedicated to servicing our lease fleet of Company-owned railcars pursuant to the provisions of our lease contracts.

This may include services that are not included in the full-service lease agreement, such as repairs of railcar damage or other customer-specific requirements.

We also perform maintenance and repair activities on railcars owned by third parties, including our investor-owned fleet.

Revenues in our maintenance services business increased for the three months ended June 30, 2024 as a result of the mix of external repairs.

Revenues in our maintenance services business increased for the six months ended June 30, 2024 as a result of a higher volume of repairs completed for third parties, including our investor-owned fleet, as well as favorable pricing.

Cost of revenues for the Railcar Leasing and Services Group decreased by 6.1% and increased by 4.0% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods.

In our maintenance services business, cost of revenues decreased for the three months ended June 30, 2024 as a result of the mix of external repairs, as well as a government incentive related to our investment at a rail maintenance facility.

In our maintenance services business, cost of revenues increased for the six months ended June 30, 2024 as a result of the volume of external repairs.

Cost of revenues for the three and six months ended June 30, 2024 was also impacted by the gross basis to net basis change described above.

Leasing Group operating profit increased by 10.2% and 13.8% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods primarily due to improved lease rates and net additions to the lease fleet, partially offset by lower lease portfolio sales in the current year periods.

For the six months ended June 30, 2024, operating profit was further increased by a higher volume of external repairs in the maintenance services business.

Additionally, operating profit was favorably impacted by gains of $1.2 million during the six months ended June 30, 2023 related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Revenues in our maintenance services business increased for the three and nine months ended September 30, 2024 as a result of favorable pricing, as well as a higher volume of repairs completed for third parties, including our investor-owned fleet.

Cost of revenues for the Railcar Leasing and Services Group increased by 7.6% and 5.2% for the three and nine months ended September 30, 2024, respectively, compared to the prior year periods.

In our maintenance services business, cost of revenues increased for the three and nine months ended September 30, 2024 as a result of the volume of external repairs.

The increase to cost of revenues for the nine months ended September 30, 2024 was partially offset by a government incentive related to our investment at a rail maintenance facility.

Cost of revenues for the three and nine months ended September 30, 2024 was also impacted by the gross basis to net basis change in our digital and logistics services business described above.

Leasing Group operating profit increased by 20.3% for the three months ended September 30, 2024 when compared to the prior year period primarily due to improved lease rates and net additions to the lease fleet, higher gains on lease portfolio sales in the current year period, as well as favorable pricing and a higher volume of external repairs in the maintenance services business, partially offset by lower utilization.

Leasing Group operating profit for the nine months ended September 30, 2024 increased by 15.9% primarily due to improved lease rates and net additions to the lease fleet, and favorable pricing and a higher volume of external repairs in the maintenance services business, partially offset by lower gains on lease portfolio sales in the current year period.

Additionally, operating profit was favorably impacted by gains of $3.7 million and $4.9 million during the three and nine months ended September 30, 2023, respectively, related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

The Leasing Group generally uses its non-recourse warehouse loan facility or cash to provide initial funding for a portion of the purchase price of the railcars.

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Information regarding the Leasing Group’s lease fleet is as follows:

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Number of railcars:

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Fleet utilization 96.6 % 98.1 %

(1) Includes 2,490 railcars under leased-in arrangements as of both June 30, 2024 and 2023.

(1) Includes 2,490 railcars and 2,495 railcars under leased-in arrangements as of September 30, 2024 and 2023, respectively.

(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

Rail Products Group

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 Percent 2024 2023 Percent

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8.7 7.3 19.2 % 24.2 21.8 11.0 %

Losses on dispositions of property — (0.2) * — (0.3) *

Gains (losses) on dispositions of property 0.1 — * 0.1 (0.3) *

Operating profit $ 48.9 $ 29.4 66.3 % $ 143.1 $ 77.8 83.9 %

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* Not meaningful

(1) Includes sustainable railcar conversion revenues of $14.4 million, representing 195 railcars, for the three months ended June 30, 2024 and sustainable railcar conversion revenues of $64.6 million, representing 870 railcars, for the six months ended June 30, 2024.

Includes sustainable railcar conversion revenues of $6.4 million, representing 45 railcars, for the three months ended June 30, 2023 and sustainable railcar conversion revenues of $60.3 million, representing 635 railcars, for the six months ended June 30, 2023.

Revenues for the Rail Products Group decreased for the three months ended June 30, 2024 by 3.2% when compared to the prior year period primarily as a result of lower deliveries and the mix of railcars sold.

Revenues for the Rail Products Group increased for the six months ended June 30, 2024 by 4.7% when compared to the prior year period primarily as a result of higher deliveries.

Cost of revenues for the Rail Products Group decreased for the three months ended June 30, 2024 by 7.6% when compared to the prior year period primarily due to improved labor efficiencies, operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions, as well as lower deliveries when compared to the prior year period.

Cost of revenues for the Rail Products Group for the six months ended June 30, 2024 was relatively flat when compared to the prior year period primarily driven by higher deliveries and the impact of foreign currency fluctuations, partially offset by improved labor efficiencies and operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions when compared to the prior year period.

Operating profit for the Rail Products Group increased for the three months ended June 30, 2024 by 107.4% when compared to the prior year period primarily due to improved labor and operational efficiencies, partially offset by lower deliveries.

Operating profit for the Rail Products Group increased for the six months ended June 30, 2024 by 94.6% when compared to the prior year period primarily due to improved labor and operational efficiencies and higher deliveries.

(1) Includes sustainable railcar conversion revenues of $12.8 million, representing 170 railcars, for the three months ended September 30, 2024 and sustainable railcar conversion revenues of $77.4 million, representing 1,040 railcars, for the nine months ended September 30, 2024.

Includes sustainable railcar conversion revenues of $63.0 million, representing 620 railcars, for the three months ended September 30, 2023 and sustainable railcar conversion revenues of $123.3 million, representing 1,255 railcars, for the nine months ended September 30, 2023.

Revenues for the Rail Products Group decreased for the three months ended September 30, 2024 by 3.3% when compared to the prior year period primarily as a result of a lower volume of sustainable railcar conversions, partially offset by the mix of railcars sold.

Revenues for the Rail Products Group increased for the nine months ended September 30, 2024 by 2.0% when compared to the prior year period primarily as a result of higher new railcar deliveries and the mix of railcars sold, partially offset by a lower volume of sustainable railcar conversions.

Cost of revenues for the Rail Products Group decreased for the three and nine months ended September 30, 2024 by 7.1% and 1.7%, respectively, when compared to the prior year periods primarily due to improved labor efficiencies, operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions, and a lower volume of sustainable railcar conversions.

These decreases were partially offset by higher new railcar deliveries and costs associated with workforce reductions when compared to the prior year periods.

Operating profit for the Rail Products Group increased for the three and nine months ended September 30, 2024 by 66.3% and 83.9%, respectively, when compared to the prior year periods primarily due to improved labor and operational efficiencies, the mix of railcars sold, and higher new railcar deliveries.

Information related to our Rail Products Group backlog of new railcars is set forth below.

In addition to the amounts below, as of June 30, 2024, our backlog related to sustainable railcar conversions totaled $19.6 million, representing 250 railcars.

In addition to the amounts below, as of September 30, 2024, our backlog related to sustainable railcar conversions totaled $6.5 million, representing 75 railcars.

September 30,

2024 2023 Percent

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Total $ 2,364.5 $ 3,598.4 (34.3) %

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2024 2023 2024 2023 Percent

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Other adjustments (1)

— (160) — (160)

Ending balance 18,265 29,415 18,265 29,415 (37.9) %

Average selling price in ending backlog $ 129,455 $ 122,332 5.8 %

(1) The adjustment for the three and six months ended June 30, 2023 includes 160 railcars valued at $19.2 million that were placed with a different customer and are also included in orders received in the table above, resulting in no net effect on ending backlog.

(1) The adjustment for the nine months ended September 30, 2023 includes 160 railcars valued at $19.2 million that were placed with a different customer and are also included in orders received in the table above, resulting in no net effect on ending backlog.

Total backlog dollars decreased by 34.3% when compared to the prior year period.

We expect to deliver approximately 36.0% of our railcar backlog value during the remaining six months of 2024 and 27.9% during 2025, with the remainder to be delivered through 2028.

We expect to deliver approximately 19.9% of our railcar backlog value during the remaining three months of 2024 and 39.8% during 2025, with the remainder to be delivered through 2028.

The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers.

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Transactions between the Rail Products Group and the Leasing Group are as follows:

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Parts & components $ 7.6 $ 7.7 $ 22.9 $ 19.3

Deferred profit $ 3.5 $ 11.2 $ 5.6 $ 25.9

Deferred profit (loss) $ 8.6 $ (0.1) $ 14.2 $ 25.8

Number of new railcars (in units) 620 365 2,220 2,860

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Corporate and other

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 Percent 2024 2023 Percent

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*Not meaningful

Selling, engineering, and administrative expenses for the three and six months ended June 30, 2024 were relatively flat when compared to the prior year periods.

Total operating costs during the three and six months ended June 30, 2024 were favorably impacted by gains associated with the disposition of non-operating facilities.

Selling, engineering, and administrative expenses for the three and nine months ended September 30, 2024 increased by 31.3% and 12.4%, respectively, when compared to the prior year periods primarily from higher employee-related costs, including increased incentive-based compensation.

Total operating costs during the nine months ended September 30, 2024 were favorably impacted by gains associated with the disposition of non-operating facilities.

As we continue to streamline our operational footprint, we may have additional gains or losses on the disposition of other non-operating facilities.

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Debt instruments that we have utilized include the TILC warehouse loan facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, and our revolving credit facility.

As of June 30, 2024, we have total committed liquidity of $985.2 million.

As of September 30, 2024, we have total committed liquidity of $924.2 million.

Our total available liquidity includes:

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See Note 8 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Dividend Payments – We paid $47.2 million in dividends to our common stockholders during the six months ended June 30, 2024.

Dividend Payments – We paid $70.1 million in dividends to our common stockholders during the nine months ended September 30, 2024.

Share Repurchase Authorization – In December 2022, our Board of Directors authorized a share repurchase program effective December 9, 2022 with no expiration.

The share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock.

During the three and six months ended June 30, 2024, share repurchases totaled 33,900 shares, at a cost of approximately $0.9 million, resulting in a remaining authorization to repurchase up to $249.1 million of its common stock under the share repurchase program as of June 30, 2024.

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:

Six Months Ended

During the three and nine months ended September 30, 2024, share repurchases totaled 192,250 shares and 226,150 shares, respectively, at a cost of approximately $6.2 million and $7.1 million, respectively, resulting in a remaining authorization to repurchase up to $242.9 million of our common stock under the share repurchase program as of September 30, 2024.

The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023:

Nine Months Ended

September 30,

(in millions)

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Net cash flows from discontinued operations (11.3) (8.1)

Net increase in cash, cash equivalents, and restricted cash $ 129.1 $ 2.3

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 97.3 $ (27.6)

Operating Activities .

Net cash provided by operating activities from continuing operations for the six months ended June 30, 2024 was $299.7 million compared to net cash provided by operating activities from continuing operations of $140.3 million for the six months ended June 30, 2023.

Net cash provided by operating activities from continuing operations for the nine months ended September 30, 2024 was $383.5 million compared to net cash provided by operating activities from continuing operations of $215.8 million for the nine months ended September 30, 2023.

The changes in our operating assets and liabilities are as follows:

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Changes in operating assets and liabilities $ 49.9 $ (15.2)

The changes in our operating assets and liabilities resulted in a net source of $69.5 million for the six months ended June 30, 2024, as compared to a net use of $6.2 million for the six months ended June 30, 2023.

The change in operating assets for the current year period was impacted primarily by lower inventory balances associated with railcar deliveries.

The changes in our operating assets and liabilities resulted in a net source of $49.9 million for the nine months ended September 30, 2024, as compared to a net use of $15.2 million for the nine months ended September 30, 2023.

The changes in operating assets and liabilities for the current year period were impacted primarily by lower inventory and accounts payable balances associated with railcar deliveries.

Investing Activities.

Net cash used in investing activities from continuing operations for the six months ended June 30, 2024 was $55.9 million compared to $292.1 million of net cash used in investing activities from continuing operations for the six months ended June 30, 2023.

Net cash used in investing activities from continuing operations for the nine months ended September 30, 2024 was $105.2 million compared to $316.3 million of net cash used in investing activities from continuing operations for the nine months ended September 30, 2023.

Significant investing activities are as follows:

• We made a net fleet investment of $46.0 million during the six months ended June 30, 2024, compared to $214.0 million in the prior year period primarily due to the timing of lease portfolio sales relative to fleet additions.

• We made a net fleet investment of $86.5 million during the nine months ended September 30, 2024, compared to $237.5 million in the prior year period primarily due to the timing of fleet additions.

Our investment in the lease fleet primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• During the six months ended June 30, 2023, we acquired a company that is a provider of proprietary software and logistics and terminal management solutions for net cash of $66.2 million.

We had no acquisitions during the six months ended June 30, 2024.

• During the nine months ended September 30, 2023, we acquired a company that is a provider of proprietary software and logistics and terminal management solutions for net cash of $66.6 million.

We had no acquisitions during the nine months ended September 30, 2024.

Financing Activities.

Net cash used in financing activities during the six months ended June 30, 2024 was $108.7 million compared to $159.5 million of net cash provided by financing activities for the six months ended June 30, 2023.

Net cash used in financing activities during the nine months ended September 30, 2024 was $169.7 million compared to $81.0 million of net cash provided by financing activities for the nine months ended September 30, 2023.

Significant financing activities are as follows:

• During the six months ended June 30, 2024, we had total repayments of $1,759.9 million and total borrowings of $1,722.2 million, for net repayments of $37.7 million, primarily from the redemption of the Senior Notes due 2024 and the TRL VII Notes, partially offset by debt proceeds to support our investment in the lease fleet and for general corporate purposes.

During the six months ended June 30, 2023, we had total borrowings of $1,253.9 million and total repayments of $1,035.3 million, for net proceeds of $218.6 million, primarily from debt proceeds for general corporate purposes and to support our investment in the lease fleet.

• We paid $47.2 million and $43.3 million in dividends to our common stockholders during the six months ended June 30, 2024 and 2023, respectively.

• During the nine months ended September 30, 2024, we had total repayments of $1,831.0 million and total borrowings of $1,762.4 million, for net repayments of $68.6 million, primarily from the redemption of the Senior Notes due 2024 and the TRL VII Notes, partially offset by debt proceeds to support our investment in the lease fleet and for general corporate purposes.

During the nine months ended September 30, 2023, we had total borrowings of $1,444.3 million and total repayments of $1,279.0 million, for net proceeds of $165.3 million, primarily from debt proceeds for general corporate purposes and to support our investment in the lease fleet.

• We paid $70.1 million and $64.7 million in dividends to our common stockholders during the nine months ended September 30, 2024 and 2023, respectively.

Current Debt Obligations

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Ratio Covenant Actual at

June 30, 2024

September 30, 2024

Maximum leverage (1)

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No less than 2.25 to 1.00 8.53

(1) Defined as the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Borrower and its restricted subsidiaries for the period of four consecutive quarters ending with June 30, 2024.

(2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – operating and administrative to consolidated interest expense to the extent paid in cash, in each case for the Borrower and its restricted subsidiaries for the period of four consecutive quarters ending with June 30, 2024.

As of June 30, 2024, we were in compliance with all such financial covenants.

As of September 30, 2024, we were in compliance with all such financial covenants.

Please refer to Note 8 of the Consolidated Financial Statements for a description of our current debt obligations.

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Capital expenditures related to operating and administrative activities, including supporting automation, technology, and modernization of our facilities and processes, are projected to range between $50 million and $60 million for the full year 2024.

Equity Investment

Equity Investments

See Note 5 of the Consolidated Financial Statements for information about our investments in partially-owned subsidiaries.

Off Balance Sheet Arrangements

As of June 30, 2024, we had outstanding letters of credit issued under our revolving credit facility in an aggregate amount of $5.2 million, the majority of which are expected to expire in November 2024.

Our letters of credit obligations support performance bonds related to certain railcar orders.

As of September 30, 2024, we had outstanding letters of credit issued under our revolving credit facility in an aggregate amount of $4.4 million, which support performance bonds related to certain railcar orders.

See Note 8 of the Consolidated Financial Statements for further information about our corporate revolving credit facility.

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Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Contractual Obligations and Commercial Commitments

Except as described below, as of June 30, 2024, there have been no material changes to our contractual obligations from December 31, 2023:

Except as described below, as of September 30, 2024, there have been no material changes to our contractual obligations from December 31, 2023:

• In March 2024, we entered into a new TILC warehouse loan facility with a total commitment amount of $800.0 million, a revolving termination date of March 15, 2027, and a maturity date of March 15, 2028.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis