Q2 2024 Greenbrier Companies Inc Earnings Call

Participants

Justin Roberts; VP, Corporate Finance & Treasurer; The Greenbrier Companies, Inc.

Lorie Tekorius; CEO, President; The Greenbrier Companies, Inc.

Brian Comstock; EVP & President, The Americas; The Greenbrier Companies, Inc.

Adrian Downes Downes; SVP, CFO; The Greenbrier Companies, Inc.

Justin Long; Analyst; Stephens Inc.

Matt Elkott; Analyst; TD Cowen

Harrison Bauer; Analyst; Susquehanna Financial Group, LLLP

Ken Hoexter; Analyst; BofA Securities

Steven Barger; Analyst; KeyBanc Capital Markets Inc.

Presentation

Operator

Hello, and welcome to the Greenbrier Company's second quarter of fiscal 2024 earnings conference call. (Operator Instructions) At the request of The Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin.

Justin Roberts

Thank you. Gary. Good morning, everyone, and welcome to our second quarter of fiscal '24 conference call. Today I'm joined by Lorie Tekorius; Greenbrier's CEO and President; Brian Comstock, Executive Vice President and President of the Americas; and Adrian Downes, Senior Vice President and CFO. Following our update on Greenbrier's Q2 performance and an update on our outlook for the remainder of fiscal '24 we will open up the call for questions. In addition to the press release issued this morning, additional financial information and key metrics can be found in the slide presentation posted today on the IR section of our website.
Matters discussed on today's conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2024 and beyond to differ materially from those expressed in any forward-looking statement.
Made by or on behalf of Greenbrier. You will also notice that today we will refer to the words recurring revenue throughout our presentation and comments today. Recurring revenue is defined as leasing and management services revenue that excludes the impact of syndication activity.
And with that, I will turn it over to Lorie.

Lorie Tekorius

Thank you, Justin, and good morning, everyone. Creamer once again delivered strong performance as we move through our fiscal year. We're seeing operating efficiencies continue to improve, and we're progressing on our organization-wide initiatives. We have good momentum as we head into the second half of our year and beyond. We remain confident in Greenbrier's, multiyear Better Together strategy and the three fundamental priorities underlying it.
As a reminder, first, is maintaining our manufacturing leadership position across our geographies. Second is meeting our customers' needs while optimizing our industrial footprint for efficiency and margin enhancements. And third is the pursuit of sustained disciplined growth in leasing and services. Through better together, we're committed to enhancing our manufacturing performance while growing recurring revenue and cash flow by investing in the lease fleet.
Turning to our results, we generated over $860 million in revenue and earnings per share of $1.3. A consolidated gross margin of 14% represents our second consecutive quarter of mid-teens margin. It reflects solid operating performance in manufacturing and leasing and management services, partially offset by lower Wilson volumes in maintenance services due to a milder winter. Last quarter, we said that one quarter of mid-teens margin was a great start towards our long-term strategic goal.
It is still not a trend. We're continuing to work on facility rationalizations and manufacturing and maintenance services that commenced in fiscal 2023, advancing our make-versus-buy strategy and remaining focused on enhancing margins. We also continue our long track record of product innovation while incorporating sustainability into our designs as you might recall, in 2021, we introduced our high strength steel gondola.
In Q2, we successfully launched our ultra high strength gondola, and I know we use an innovative formula for high strength, lighter weight steel, reducing each gondolas unloaded weight by up to 15,000 pounds. We also successfully constructed and tested a new 89 foot slab chilled flat car build for heavy industrial applications as well as a new high strength box to box cardboard.
Our focus on innovation, manufacturing excellence and sustainability is earning green bar favorable notices. Recently, CN recognized us for our efforts and commitment to sustainability as part of its eco connections partnership program. This is the first year included supplier switch recognition program and Greenbrier was one of only seven supply chain partners to receive the award while accolades are always nice to receive. Most importantly, our emphasis on innovating and elevating our manufacturing expertise, support our leadership position across the markets we serve.
This performance continued in Q2 with Greenbrier receiving a nice balance of orders across our geographies. Market conditions for railcar leasing remain positive. Our expanded leasing strategy is gaining traction in both North America and Europe. This is a critical element of our multiyear plan and is expected to result in the doubling of recurring revenues within the next five years.
Importantly, our balance sheet remains very healthy, allowing us to invest in our business while continuing to return capital to shareholders. This has been our long-standing and preferred approach to capital allocation. I'm pleased to report our Board declared a quarterly dividend of $0.3 per share this week, representing our 40th consecutive quarterly dividend. In the meantime, the economy in North America has been resilient.
The probability of a soft landing is increasing and the Fed has signaled it will likely make three interest rate cuts by the end of 2024. Of course, this year is also a US presidential election year, not to mention national elections in the EU and Mexico. Our current disciplined approach in our core North American railcar market has attracted new capital to asset-based investing in railcars, which is encouraging in Europe.
While the economy is still lagging the US, the growth projections have been trimmed once again by the European Central Bank, but we're building momentum with stable demand across railcar types in both North America and Europe underpin new builds and lease renewals. Southern border remains a focus as we address developments that could impact deliveries from our suppliers or to our customers in real time.
Border crossing issues impacted us at various times during the quarter, but the work performed by our skilled manufacturing and logistics colleagues has successfully avoided severe impacts on Greenbrier. Sustained high performance across our business is in view our commercial team with its powerful lease origination capabilities continues to outperform, giving us excellent near term and longer-term visibility into manufacturing and steadily building our stream of lease revenues, our confidence in the long-term strategy and multiyear targets and look forward to sharing our progress on future calls.
Now before I conclude my remarks, I'd like to acknowledge the contributions of Adrian Downes. There's been a green versus 2013 as we announced earlier this year. Adrian will be stepping down from his role as CFO Adrian service to Greenbrier during challenging times, including the pandemic pandemic has been essential during his time here green bar, strengthened its balance sheet and expanded its global operations platform, integrating accounting and finance functions as we grew. We're incredibly grateful for his contributions to Greenbrier over the years and wish him all the best in his future endeavors. Thank you, Adrian.
And with that, let me turn the call over to Brian Comstock, who will discuss our activities for the quarter in greater detail and review market conditions.

Brian Comstock

Thanks, Lorie, and good morning, everyone. On during Q2, reimburse secured new railcar orders of 5,900 units for nearly $690 million. Demand continues to be broad-based and diverse across most railcar types. As of February 29, green bars, global new railcar backlog was 29,200 units valued at an estimated $3.6 billion. Backlog continues to be stable, providing significant revenue visibility well into 2025.
Our commercial performance reflects our leading market position, strong lease origination capabilities and direct sales experienced international orders accounted for about 40% of the activity in the quarter, reflecting the continuing momentum in Europe and Brazil. We have been performing well, despite a challenging backdrop in Europe and our backlog remains very healthy, thanks to our broad portfolio of mix in Europe, volumes through our leasing distribution channel continue to grow our ability to originate and syndicate leases is critical to the long-term performance of our European manufacturing business.
We remain excited about our opportunity in Europe where the rail industry enjoys compelling secular tailwinds. We delivered 5,600 railcars to customers in Q2, roughly the same as last quarter. We increased the midpoint of our delivery and revenue guidance indicating that deliveries will be weighted to the second half of the year. Second quarter gross margins of 10.8% declined slightly from Q1, but still improved by 380 basis points compared to the second quarter of last year.
While we are working on numerous activities to optimize manufacturing efficiency, several of the efficiency gains we have made over the last 12 months are being sustained expansion of in-house fabrication from basic primary parts and subassemblies as part of our make versus buy strategy remains on track with a full benefit from insourcing expected to be realized by the middle of fiscal 2025.
Leasing and Management Services also performed well in the quarter. We are steadily progressing to our stated goal of doubling recurring revenue from leasing and management services. Recurring revenue is growing from various sources, including new railcars added to our lease fleet and lease renewals at more favorable terms, we grew our lease fleet by about 500 units or 3.5% during the quarter.
As a reminder, we have committed to invest up to $300 million per year on a net basis over the next several years to expand our recurring revenue as long as we do so in a manner that meets our financial criteria. I want to reemphasize that we will only invest in the right assets with the right lease terms and counterparties. And we are focused on railcar types that keep our fleet portfolio balance. We regularly evaluate evaluating our financing strategies and are taking a prudent approach to financing growth of our lease fleet.
Our average interest rate of 4.5% on our non-recourse leasing debt is significantly lower than current market interest rates. At the end of Q2, our fleet leverage was 77%, in line with our targeted fleet leverage framework. We leverage railcar assets at an appraised fair market value, which results in borrowing ratios that are higher on a net book value basis, our lease renewal rates continue to grow at double digits, and we have successfully renewed lease terms while maintaining a consistently high fleet utilization of nearly 99% in Q2. The leasing market remains healthy, characterized by a scarcity of in-demand railcar types and high fleet utilization among lessors.
Moving and sequence with higher interest rates. Our lease rates remain compensatory, resulting in elevated rates for both new originations and renewals. We have strategically staggered lease durations to lessen the impact of cyclicality and create opportunities for favorable renewals. We have already renewed more than half of our expiring leases this year and more favorable rates. Our team is working on the remaining lease renewals, and we are confident we will finish the year successful.
Fundamentally, the backdrop in North American railcar market remains solid with demand approaching replacement levels. While overall traffic is projected to remain steady. There is potential for intermodal growth due to the current challenges at the Suez and Panama canals. These disruptions will likely redirect traffic to the West Coast ports, which benefits rail transport demand.
Additionally, near-shoring trends support long-term growth in traffic across the southern border. The supply of available railcars is still near trough levels, which has led to robust lease rate growth, renewals and term length. We are confident we have the right strategy in place to successfully execute our plan in this environment.
In Q2, we syndicated 1,400 railcars with multiple investors generating strong liquidity and margins. The syndication market remains liquid with a solid appetite for the asset class. The rail sector has proven to perform well over economic cycles. And we are continuing to see increased syndication interest from new investors, motivate it's diversified.
Finally, maintenance services performance was impacted by lower Wilsons and component volumes, resulting from an unusually mild winter. We have several initiatives underway to improve this unit's efficiency by improving car flow, material planning and cycle time and all facilities. The backdrop for maintenance services remains constructive for over interim to longer term, driven in part by the last two peak tanker build cycles. It will require repairs and requalification over the next several years.
Now I'll hand the call over to Adrian, who will speak to our financial highlights for the quarter.

Adrian Downes Downes

Thank you, Brian, and good morning, everyone. Before moving into the highlights of the quarter, I'd like to remind everyone that quarterly financial information is available in the press release and supplemental slides on our website.
Greenbrier's Q2 performance was robust in our manufacturing and leasing segments, as highlighted by Lori and Brian and their remarks. After covering some of the highlights from the quarter, I will provide an update to our fiscal 2024 guidance.
Notable highlights for the second quarter include diverse new railcar orders of 5,900 units valued at nearly $690 million, the second highest over the past two years. Deliveries of 5,600 units include 300 units from our unconsolidated joint venture in Brazil. Consolidated revenue of $863 million grew sequentially due to a change in product mix increasing manufacturing volumes and growth in our leasing and management services segment, aggregate gross margin percent was 40.2%, resulting primarily from product mix growth and the lease lease at higher lease rates.
Selling and administrative expense of approximately $64 million increased sequentially, primarily due to higher employee related costs, earnings from unconsolidated affiliates of $4 million more than doubled from the first quarter, primarily due to higher earnings from our Brazilian joint venture, which are expected to moderate net earnings attributable to Greenbrier of $33 million. We generated diluted EPS of $1.3 per share. And finally, EBITDA for the quarter was $million or 11% of revenue.
As we look to liquidity, Greenbrier generated positive operating cash flow of over $99 million in the quarter, resulting from strong earnings and a positive net change to working capital. Additionally, Greenbrier's Q2 liquidity remained solid at $581 million, consisting of $252 million of cash and available borrowings of $329 million. Other notable financing items in the quarter include the retirement of the remaining $48 million of our 2017 senior convertible notes with cash.
As mentioned in our first quarter remarks, we are providing a breakout between recourse and non-recourse debt in the footnotes section of our 10-Q under notes payable Andrew's revolving notes. Greenbrier's debt composition is now composed of more non-recourse test and recourse. This emphasizes our commitment towards reducing and retiring our re recourse tasks as cash flows improve and underscores our prudence with how we manage our about our capital structure and balance sheet.
As already mentioned, Greenbrier's Board of Directors declared a quarterly dividend of $0.3 per share based on yesterday's closing price, our annual dividend represents a yield of approximately 2.3%, including activity from the second quarter, Greenbrier has returned nearly $510 million of capital to shareholders through dividends and share repurchases since reinstating our dividend program back in 2014, and these are actions that our Board and management team remain committed to. We believe this is a great way to create long-term shareholder value, and we will periodically evaluate increases to our quarterly dividend and look to repurchase shares opportunistically.
Finally, shifting focus to our guidance and business outlook. Based on current trends and production schedules, we are raising the bottom end of our 2024 revenue and delivery guidance, updating our capital expenditure forecast and reaffirming our gross margin outlook. We are raising the bottom end of our deliveries to 23,500, which includes approximately 1,400 units from Green Murray Maxium in Brazil.
We are increasing the lower end of revenues to $3.5 billion selling and administrative expense is expected to be approximately $230 million to $235 million. Capital expenditures have also been updated. Forecasted expenditures in our manufacturing segment are expected to be around $140 million, which includes spend related to in-sourcing activities, followed by $15 million in our Maintenance Services segment.
Gross investment of approximately $350 million in leasing and management services is unchanged and includes current year capital expenditures as well as transfers of railcars into the lease lease door manufactured and subsequently held on the balance sheet. In 2023, proceeds of equipment sales have been adjusted to approximately $75 million and aggregate gross margin percent for the full year is expected to be in the low to mid-teens.
Overall, I'm pleased with the performance in the second quarter and throughout the first half of the year, which has put Greenbriar on solid footing for a strong finish to the year. As we head into the second half, we are supported by a robust backlog, ample liquidity and a strong balance sheet. We are confident our outlook for fiscal 2024 is positive, with earnings expected to grow.
And now as this will be my final earnings call at Greenbrier, I would like to take this opportunity to say thank you. I am privileged to have spent 11 years at Greenbriar both as the Chief Financial Officer and prior to that Chief Accounting Officer. As already mentioned, a lot has been accomplished over this time period, and Greenbrier has a great leadership team reinforced by a strong balance sheet and improving results.
I would like to thank our Board of Directors shareholders and Laurie for the opportunities and support during this time. This has been a great place to work. And although I will be leaving this role, I will still be involved as a strategic adviser to help with the transition process and other projects.
Thank you. And with that, we will open up for questions.

Question and Answer Session

Operator

(Operator Instructions) Justin Long with Stephens.

Justin Long

Thanks. Good morning and Adrian, congrats.

Adrian Downes Downes

Thank you very much.

Justin Long

So maybe to start with a question on the gross margin outlook. You reiterated that outlook for the full year, the low to mid-teens. But through the first couple of quarters, we're tracking at the high end of that range. And the guidance also implies that production levels in the second half will be higher than the first half, and I would think that would create some positive operating leverage.
So is there anything that you would kind of point to that could drive a sequential are moderation of margins? Or do you feel like the higher end of that gross margin outlook is most reasonable as well sit here today, so I'll give a couple of brief comments that we're excited about the progress we've made for the first half of this year.

Lorie Tekorius

We're excited about what we see in the second half of the year. And so I think that we're going to continue the steady progress of where we're mindful that we have to put one foot in front of the other every day to move forward. And that's what we're doing. And I think the last six months or two quarters are showing on others that that's what we're capable of. And I expect us to continue on a modest trajectory.

Justin Long

Okay, got it. And maybe for my second question, I wanted to ask about orders and see if you could provide any additional color on how orders progressed through the quarter month-to-month. I know there can be some seasonality around year end and then anything you can share on the third quarter thus far and what you've seen in order and inquiry levels relative to 2Q?

Brian Comstock

Yes. Thanks, Justin. It's Brian. Good question. Because as you know, coming out of the holidays, typically it's a little bit slower and the cadence is pretty much in line with your expectations. We came out of the holidays. People are now back doing their jobs.
And what we saw through the quarter is a progression of increased orders, particularly in North America as the quarter progressed. I would say that this quarter is off to a very strong start as well. So pipeline is still still solid. Visibility is still robust and the car types are quite diverse and.

Justin Long

Okay, great. That's good to hear. I appreciate it.

Operator

Matt Elkott, TD Cowen.

Matt Elkott

Thank you. Good morning. Staying on the order question, Brian, on, it's nice to see a solid number for the quarter and that the activity is strong in the third quarter on the ASP decline by decent amount, I think 16%, Q2 versus 1Q. Is that a function of the international portion being higher this quarter than last quarter or is there anything else in there.

Brian Comstock

It's a little bit a, Matt, it's a little bit of everything at the end of the day on its of its mix as usual, but also the mix of international orders has some has some headwinds to the average ASP as well. However, from a pricing perspective, on what I can give you is that nothing has really changed in the industry. It's still very disciplined, and we're seeing we're still seeing good pricing in the market.
Okay.

Matt Elkott

That's good to hear. And then staying on kind of the mix question. But going into production, the benefit of product mix in manufacturing for revenue on, is that going to turn into a headwind going forward and thus the lack of and what one would expect are you at a higher margin than you're guiding?

Justin Roberts

So I think, Matt, we don't expect to see a material shift in our mix at this point. What we would say is we are the reason we increased the bottom end of our range as we see more upside over the back half of this year. And some part of this is just probably being aware that we are living in a very fluid at time of fluid economy.
And while we do have very good visibility in manufacturing, I'm just trying to make sure that we have a little bit of caution in our remarks at times and in our outlook. One thing we continue to learn is that there is this is a very fluid world very fluid economy. And what we see is very, very great outlook, strong order, a strong backlog, great momentum in manufacturing and production.
But we I guess we're just trying to make sure that we are not going to get too far out over our skis and over-promise. But at this point, and I'm looking at Lori and Brian right now is we're almost or effectively a month into our Q. three. And we don't see any significant changes from our trajectory and magnitude of that.

Lorie Tekorius

As you know, while we love having a big backlog solid gives us ability to plan our production lines and be very efficient. At the same time, we are investing, particularly in Mexico with our insourcing project that will continue to add to efficiencies in our cost, which will enhance our margins.

Matt Elkott

Okay, got it. And Lori, and Justin as you guys put it and Brian alluded to intermodal possibly starting to recover late this calendar year on those are lower ASP cars, but can you talk about the margin effect or would they be margin dilutive or are they margin neutral even though they're lower ASP.

Lorie Tekorius

I would say they're either margin neutral or their margin benefit depends on -- but so you're right off the top line, but we would expect to maintain the margin and actually I think now that I'm quickly thinking through math in my head, a lower sales price with good margin should be a benefit to margin percentage growth.

Matt Elkott

Great. Thank you very much.

Operator

Harrison Bauer, Susquehanna Financial Group.

Harrison Bauer

Hi, this is Harrison on for Bascome Majors. Thanks for taking my questions today. Lori And Brian, both mentioned the milder winter affecting the maintenance business, but now that's been revenue dropping for three quarters sequentially and then profits have dropped the last two.
And could this be a broad cyclical adjustment or maybe customers specific customers pulling back the use of their network? And then when would you expect stabilization and maybe what's some of your trajectory for the maintenance business going forward at Harrison?

Justin Roberts

This is Justin. Good to Good to hear from you today. I would say that actually this business has always had some seasonality and cyclicality so that you see a run-up in our fiscal Q2 in the winter and then a further step up in our fiscal Q3 in the spring because of the winter, the winter does drive volumes in the wheel business and then there's a spring restocking.
And then Q4 in our fiscal Q1 definitely have some US, I would say, more normalization. So we see this as a broader. This isn't a change in the business. This is more of just a the normal seasonality we see in the wintertime doesn't didn't manifest this year. So it's not a big cyclical shift in the business.
It's more of just note, things did not manifest as they historically do, and we are moving into our Q3 and undertaking various remedial actions to kind of make sure that our volumes are going to manifest as expected and that we're at, I'd say, managing the cost structure and overhead as as proactively as possible. I don't know if there's anything else you'd like to add, Brian, on that.

Brian Comstock

No, I think you I think you hit it perfectly, Justin. The seasonality typically is over 2.5 quarters and we're already seeing that moderate as we move into this next quarter, and we're not projecting any major shortfalls moving forward in that business.

Harrison Bauer

Thank you for that. And for my second now that the North American manufacturing production rate and margin profile seem to be stabilizing with solid order recovery sequentially, can you share some updated thoughts on what your ultimate margin range you'd expect to generate in manufacturing with a mid-cycle backdrop? And then from where we sit today, if orders are stable, would you expect a higher or lower margin, maybe just directionally for fiscal 2025. Thank you.

Lorie Tekorius

Great question, Harrison. And I would say that if I look out into 2025 and we have stability and the kind of visibility that we have right now, I would expect to be at the upper end of the range that we provided. I know that the men and women that are working specifically within our manufacturing organization as well as our commercial organization. We're always finding ways to improve the throughput so that we can drop more of the revenue through some margin and turn the bottom line.

Operator

Ken Hoexter with Bank of America.

Ken Hoexter

Great. Good luck to Adrian and congrats on the team on building the backlog, but maybe if I can for you unpack that margin, your multiple margin outlooks a little bit better on, I guess, near term, I know you just gave a long-term '25, given your low to mid-teens outlook, are you still expecting manufacturing margins to stay at double digits year for for the second-half? And then what do you expect to see maintenance margins? Are I didn't quite get the answer there.

Lorie Tekorius

Are you expecting them to return to double digits or maybe you can give your thoughts on that and thank you, Kim, and I hope I didn't misspeak, but we are not expecting low to mid teen margins. We're expecting mid-teens margins with the expectation that we will continue marching through this fiscal year on a solid trajectory.

Justin Roberts

And on a consolidated basis.

Lorie Tekorius

And on a consolidated basis. Yes. Thank you, Justin. From the manufacture of be sorry, the maintenance services the business perspective, we do, Tom and Brian said, we're taking a number of actions to think about how we're running that business, how we're thinking about how we schedule the equipment into those shops to strain efficiencies as part of the reorganization of some of our activities and combining some of our operating resources around engineering quality and things like that.
So that we can take the strengths that we have in our manufacturing operations and share those more broadly with our rail services group and vice versa. Take some of the strengths of what we've been able to do in those repair shops and share those with our manufacturing facilities. So I would say we do expect in the third quarter, the yes, conservative margin and expect to continue on the overall path for consolidated margins to improve?

Justin Roberts

And if I could just draw a firm line under your manufacturing question, Ken, we do not anticipate manufacturing margins going backwards, much less dropping back into the single digits at this point on a on a gross margin basis, just to be very clear about that same digested.

Ken Hoexter

Very helpful. And then, Lorie, if I can revisit, I think it was maybe Matt's first question on the ASP decline. I guess if I just look at the backlog, total revenue per ASP per car. Right. In terms of your total backlog, if it fell, as you mentioned, is that I just want to revisit, is that just a mix issue in terms of what you're selling versus anything going on the industry? Just want to clarify that, that won't answer there.

Justin Roberts

So it's sorry, you were asking, Lorie, but I am art. I'm not talking so much on Asia and the payer mix. And then there is there is some as you as you're well aware, we do have the ability to escalate and deescalate raw input costs on our backlog.
And so as there is some moderation on our input costs, primarily steel, steel surcharge and whatnot, that pricing comes down a little bit to the piece to really reiterate is that on a core pricing basis, the pricing that drives profitability and on lease rates, that is being disciplined, that is stable to up kind of across the various car types All right.

Ken Hoexter

That's helpful.

Lorie Tekorius

Well said, Justin.

Ken Hoexter

Great. I appreciate your time and thoughts. Thanks, guys.

Operator

Steven Barger, KeyBanc Capital Markets.

Steven Barger

Hey, guys, good morning. Just looking at slide 12, with the fleet levered to 77% of book value, do you expect incremental debt from here to primarily just fund additions to the lease fleet at that ratio plus or minus?

Lorie Tekorius

Yes.

Steven Barger

And it is lease fleet leverage, the primary metric that you're focused on going forward? Or is there a net debt to EBITDA target for the Company. I'm just trying to think how you're changing your mindset to think about the balance sheet?

Lorie Tekorius

Well, so I would say that as we think about our lease fleet and the leverage associated with that, as Brian has talked about, we're very disciplined about what we're putting on our balance sheet and then we want to leverage it appropriately on locking in interest rates.
Thinking about the term thinking about the conditions, I think the team and he's done a really being in the market at the right time and having the right sort of flexibility in the types of debt that we put on our balance sheet will take into consideration the market as to what's going on at that point in time as to what's the right debt. I think with the cash flow that we'll be generating from the leasing business as well as the margins in our other businesses, we would expect to be paying down some of our corporate recourse debt over time.

Steven Barger

Couple more leasing questions, asset, the flood can I think the average term is 4.2 years. What is that for recent renewals sections?

Brian Comstock

I'm glad to know say so most of the renewals are coming in. It's substantially longer. We're seeing five to seven years on average. That's what's bringing up. As you look quarter over quarter, you'll notice that it brings it up by the time. It takes a lot of renewals to move it incrementally know beyond the 4.2 years. So but most of the rails are kind of coming in at the five to seven year range.

Steven Barger

Got it. Thanks. And I know the lease fleet is still relatively small but growing. It is obviously a focus initiative for you. Do you anticipate putting out a lease renewal index similar to the LPI. or the FLRD.

Lorie Tekorius

We were just talking about that the other day and trying to figure out what acronym we would come up with. But that's up yes, stating that, but we don't have anything to unveil today.

Steven Barger

Okay, great. Thank you.

Justin Roberts

Please do This is Justin real quick to answer the question. I know you usually ask is we do expect the back half of the year to be stronger from a operating cash flow perspective. And then that will also generate some free cash flow that we can deploy into delevering and other aspects of our business.

Steven Barger

I appreciate you anticipating that for me as well, and that's good to hear. I look forward to seeing positive free cash flow. Thanks.

Lorie Tekorius

Definitely.

Operator

This concludes our question and answer session, I would like to turn the conference back over to Lorie Tekorius for any closing remarks.

Lorie Tekorius

I appreciate everyone's time and attention I know Justin will be speaking with some of you later today. Thank you, and we look forward to sharing our progress in the future.

Adrian Downes Downes

Thanks, everyone.

Operator

The conference has now concluded Thank you for attending today's presentation. You may now disconnect.