Welcome to the FreightCar America's Third Quarter 2019 Earnings Conference Call and webcast. At this time all participant lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference call will be available from roughly 1:00 P.M. Eastern Time today until 11.59 P.M. Eastern Time on December 1st, 2019. To access the replay, please dial 1 (800) 475-6701. The replay passcode is 473325. An audio replay of the call will be available on the company's website within two days following this earnings call. I would now like to turn the call over to Mike Cieslak, Head of the FP&A and Investor Relations at FreightCar America. Please go ahead.

Thank you and welcome. Joining me today are Jim Meyer, President and Chief Executive Officer; and Chris Eppel, Chief Financial 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 2018 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. Our 2018 Form 10-K and earnings release for the third quarter of 2019 are posted on the company's website at www.freightcaramerica.com. With that, let me now turn the call over to Jim for a few opening remarks. Jim?

Thank you, Mike. Good morning and thank you for joining us today. When we entered 2019, we discussed with you our goal of having a substantial amount of our Back to Basics work either by the end of this year. We have largely achieved this goal and this is where I will start our discussion today. Shoals is running well. And we are finally able to claim our ability to realize the potential of this world-class facility. Now in addition to the great physical facility, we have the talent, the processes, and the experience of building many thousands of cars under our belt. With respect to the three key operational drivers that distinguish any plan, safety, quality and productivity, our safety is world-class with only a single OSHA recordable incident year-to-date. Our quality is meeting or exceeding industry standards, and we continue to invest in our people, processes, and plant facilities such as additional welding and painting robotics, with the goal of becoming the highest quality producer in the industry. Productivity also continues to improve and as a direct result of those same investments, plus our new and redesigned products and tooling. We are now more than halfway through our first order of an important and newly re-engineered and retooled car type and our productivity or hours of direct labor to produce the unit is now on a run rate target of approximately 30% lower than when we were building this product in 2017 and 2018. But more important than the numbers is what our customers are saying about the consistency and overall quality of workmanship coming off the lines in Shoals. And it is both very positive and an affirmation of where we stand in the industry as a manufacturer. Moving to our cost reduction progress, the Roanoke wind…

Thanks Jim. Before we discuss the financial performance, I wanted to review an accounting related matter in the quarter. In line with normal GAAP practices the company completed its annual goodwill and impairment testing during the quarter. Due to our most recent financial results and the current condition of the new FreightCar market the company recorded a non-cash goodwill impairment charge of $21.5 million in the quarter. This represents the entire amount of goodwill on the company's balance sheet. This charge had no impact on liquidity or cash position. Furthermore, the charge will not impact our ability to generate cash flow or influence ongoing operations. Turning into financial results, consolidated revenues for the third quarter 2019 totaled $40.7 million compared to $79 million in the third quarter of last year due to factors already discussed by Jim. Based on the 47% decline in deliveries from the third quarter of last year, our gross margin fell to a negative $5.4 million compared to a negative $3.8 million in the third quarter of last year. Despite our volume decline, the corresponding loss and the corresponding loss of operating leverage, the company benefited from the progress of its material cost reduction efforts. As a reminder, the Roanoke facility will end production in the fourth quarter and we expect all costs associated with this facility to cease during Q1 of 2020. In terms of 2019 targeted cost savings approximately 1,200 of new cost reduction for railcar achieved during this year was recognized in the P&L for the quarter. SG&A for the quarter totaled $7.8 million, up from the $5.4 million in the third quarter of 2018. The increase in SG&A as compared to the prior-year was primarily related to the timing in certain compensation expenses year-over-year and project-based legal expense as compared to the…

[Operator Instructions]. And we will begin with the line of Matt Brooklier with Buckingham Research. Please go ahead.

Can we talk about the cost savings, the cadence that you talked a little bit about it early in the call, but there's kind of a fair amount of moving parts at this point in time. Maybe talk about the cadence of cost savings moving forward into fourth quarter and then maybe if you could just kind of summarize that -- the total potential cost savings in 2020. Where do you think that potentially shakes out?

Sure. I'm talk to a couple of things specifically that Jim mentioned in his section. This is Chris. First, the Roanoke cost savings that we've talked about of approximately $5 million, I guess has been fully embedded into the P&L within the first quarter of 2020. So if you look out next year, you should start seeing parts of that in Q1 and then going forward. The lease cash -- the cash impact of lease reduction is starts at the end of 2021 effectively at the beginning of 2022 that's the $7 million we discussed. The ongoing material costs reductions obviously get done sequentially overtime in line with how we've announced. So again, part of that was in the number you saw despite the significant decline in sales, you saw a smaller decline in gross margin. So you are seeing some of that now and you'll see more in the future. And in addition, you'll start seeing sequential SG&A improvement effectively in the next quarter becoming greater as we go off into next year. Jim, if you would like to add?

No, I think that covers.

Okay. What does the total potential annual SG&A savings this could be what in 2020?

We're not giving guidance on that right now, but we will talk more about our guidance in our next call.

And then when you look at the backlog, where it stands now take into consideration, your expected deliveries in fourth quarter. I'm left with I think something like 1,200, roughly, 1,200 units assuming there's kind of minimal order activity because obviously what's happening in the industry. But could you just talk to the backlog and how much of what you have in the backlog right now is anticipated to deliver in 2020.

Right now we're again not giving 2020 guidance about how much the backlog specifically for that amount. Obviously based on our guidance and we haven’t given for the rest of the year, you can anticipate Q4 to be from a unit perspective to be roughly in line with Q3 and again, we'll continue -- we'll give additional guidance on that in our next call as we give guidance on 2020.

This is Jim. I think we'll just also add as we -- I think we did in the last call the majority of the backlog is scheduled for 2020, but we'll leave it at that.

Fair enough. And then what as you look at your backlog, maybe talk about car types. We recently saw there was a pretty sizeable cancellation for Small Covered Hopper Car for Frac Sand markets. Do you have any in those cars in your backlog as of today? And then maybe just talk to the types of cars -- other types of cars you recently have in backlog currently.

Matt this is Jim. I'll answer both ways. We don't have any sand cars in our backlog. But other than that we don't give specific guidance or on the nature of the mix, or car types.

Okay. Next we will go to the line of Justin Long with Stephens. Please go ahead.

Thanks and good morning. So I wanted to circle back to the JV in Mexico. I think you mentioned the big capacity for about 2,000 units, but is there any color you can provide on the car types that you'll be able to build in Mexico and at what point will you start to be able to take orders for that Mexican facility if not already.

Hi, Justin, this is Jim. Let me just give a little clarification on the joint venture. We will bring online one production line next year with a plan to settle out it two production lines total. So that sort of gives you a visual on the, if you will, on the size of it. As this sort of fits with the overall business, our primary manufacturing platform is and remains, Shoals, Alabama. We've invested a lot in it; we're going to continue to invest in it. Our Roanoke facility, as you know, which isn't winding down now, all of that product in fact transfers to Shoals. What we will be doing specific with the footprint in Mexico when it's ready in 2020 is open up the ability for us to compete in car types, we're currently not active in today just because of the nature of the economics of those particular car types. But I'd rather not get into the specifics of what we will build where and when. Other than to perhaps reiterate what was stated on the prior call, which is, intermodal railcars, which are an important part of the industry and an important part of our future. That's product that is and will be built in Shoals. And we've also talked about making significant investments -- additional investments in our training facilities in support of plastic pellet production. And that's also dedicated product to our Shoals facility. But I won't go any further than that at this time.

Okay, that's helpful. And obviously, there have been a lot of strategic improvements and announcements that you've made here over the last couple of years or so. But do you have any thoughts around the timing of when the business can return to breakeven? And you mentioned the weaker railcar demand environment? Do we need to see an up cycle or a material improvement in the demand environment to get to breakeven? Or do you think with some of the footprint rationalization and cost improvements, we've seen you can get to breakeven even in today's demand environment?

This is Chris. So, it is a good question. So as you would expect, we continue to be focused on lowering effectively our breakeven point of the company and a lot of the footprint reductions and cost reductions and efficiencies that we've been putting in place allows us to get there now. When you look at the portfolio expansion that effectively allows us to get more cars in a down market. So it's hard to say if it's really the -- the way to try to highlight is we think about it is we're producing or creating a cost structure and infrastructure that will get us to profitable at a unit volume consistent to where we’ve seen in the prior few years. Obviously, for us it’s ahead of where we are today. But we do not view this lowering the breakeven point is a fixed time period thing. We will continue to make adjustments to the company in line with what we see from an overall basis but I mean long story short, I think the idea is that the company's breakeven point is much lower than it had been several years ago and we will continue to lower it.

Makes sense. And lastly just thinking about the railcar demand environment today, do you have an expectation on how just industry railcar orders progressed over the next several quarters, is your assumption that we kind of stay around the 3Q level or we get better or worse, how are you thinking about that?

Justin, this is Jim. We are students just like you of the rail industry data that's put out regularly. That's what we agree, that's what we forecast and that's what we plan our business going forward. So I know you're familiar with all of that data, and that's what we used also.

And our last question comes from the line of Matt Elkott with Cowen. Please go ahead.

Good morning, thank you. To stay on the order front, I think you got 1,050 orders in the quarter, which is basically a number you had mentioned on July 31 that you got at July. So in the last three months you got -- you didn't get any orders or did you get some orders but had some cancellations?

Matt, this is Jim, good morning. The order intake for the quarter was taken across a couple of different orders and it was in the first part of the quarter in time that let us make mention of it as you notice on the last call. We've not taken additional orders since the call. We remain active with our sales funnel. And it's obviously not as healthy as anybody would like it to be in the industry right now. But there is activity out there. And we're doing what we always do, which is, work the funnel and work deals.

Got it. And –

I guess the -- the only other thing I'd add to that is as we -- we’ve talked about with the retooling and bringing online the additional car types, we have a lot more -- we have a lot more types of discussions that we can have today than we did in past quarters.

Very helpful, thanks, Jim. And for Chris, I want to make sure I heard this correctly, the SG&A expense in the fourth quarter should be below 3Q and below 4Q last year?

Yes, it should be below 3Q. Obviously, there are other structural things they could have done and they could have an impact on that. But as far as I would call the structural SG&A, it should be, again come definitely coming down over this quarter and then looking favorable as compared to prior year.

Okay. And I missed the first five minutes of the call, so sorry if I missed this but did you say anything about when you would expect your gross margin to be positive again?

We've not given time guidance on that at this point.

Okay. And then on the backlog ASP went up significantly in the third quarter. Is that more a function of the orders you received or more of the deliveries you made in the third quarter?

Obviously, mathematically, this is Jim it’s a combination of both. But I'm going to say bias towards orders received.

And there are no further questions.

Thank you again for your time today and your continued support. I look forward to continuing to update you on our future calls. Have a good day.

Ladies and gentlemen that does conclude your call for today. Thank you for your participation. You may now disconnect.