Q1 2025 FreightCar America Inc Earnings Call
Unknown Attendee, Michael Riordan, Michael Riordan, Michael Riordan, Michael Riordan,
Speaker Change: Father varchy and or digestive pasa, father varchy and or chiasma, Cause, and effect to do to death, how we wet ourselves in the cupcakes, when last laughs and party outside once awake, pour our terrible guilt and grief, into the heart of hells every morning, Fuck the fat-digger smell, The doctor I think I remember, gets a little nervous in the coffee shop, Out of the things I've gotten wrong,
Speaker Change: Welcome to FreightCar America's first quarter 2025 earnings conference calls. At this time, all participants line 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.
Nick Randall: Thank you and welcome. Joining me today are Nick Randall, President Chief Executive Officer, Mike Riordan, Chief Financial Officer, and Matt Pawn, Chief Commercial Officer Thank you, sir.
Speaker Change: I'd like to remind everyone that statements made during this conference call related to the company's expected future performance, future business prospects or future events, or plans, mainly for looking statements as defined under the private security's litigation reformat of 1995. Thank you, bye.
Speaker Change: Participants are directed to FreightCar America's 1-10K for description of certain business risks
Unknown Attendee, Michael Riordan
Speaker Change: We expressly disclaim any duty to provide updates to our forward-looking statements, whether there is a result of new information future events are otherwise.
Speaker Change: During today's call, there will also be a discussion of some items that do not conform to US General except that iconic principles are dealt
Speaker Change: Reconciliation of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. Our earnings release for the first quarter of 2025 is posted on the company's website at FreightCarAmerica.com along with our 8K, which was South Pre-Mark of this morning. [inaudible]
Speaker Change: With that, I'll turn it over to Nick for his few opening remarks.
Nick Randall: Thank you, Chris. Good morning, everyone, and thank you all for joining us today.
Nick Randall: I'm very pleased to share another quarter of exceptional performance for FreightCar America. Dream by robust rail car orders continued market share gains as the fastest-growing rail car manufacturer in the industry and significantly improved profitability with strong margin
Nick Randall: As we anticipated, our first quarter results reflect planned lower railcar production as we dedicated a portion of our manufacturing capacity to deliver large custom fabrications.
Nick Randall: This effort further showcases our operational flexibility and ability to manufacture large-scale complex applications that are tailored to the unique needs of our customers.
Nick Randall: This margin of strength clearly demonstrates the disciplined execution of our manufacturing presence.
Nick Randall: The improved margins translated directly to the bottom line, with adjusted EBITDA is 7.3 million, exceeding last year despite lower revenue and deliveries.
Nick Randall: These results underscore our team's commitment to profitable growth and operational efficiency. We have consistently emphasized profitable execution and our Q1 results reflect this commitment.
Nick Randall: Our commercial pipeline remains robust. We booked 1,250 new rail car orders via the Approximately 141 million in the first quarter. Marking a strong start to the year.
Nick Randall: Importantly, FreightCar America was the fastest growing rail car manufacturing in North America according to published ARCI data, expanding our addressable market share from 8% to 27% over the last 12 months.
Nick Randall: Despite lower industry wide orders, more customers continue to choose us validating our product quality, reliability and value added solutions.
Nick Randall: Strategically positioned near the US border, our facility reduces supply chain delays and transit times, effectively minimizing industry bottlenecks.
Nick Randall: Additionally, our alignment with USMCA guidelines insulates our operations from current tariff uncertainties all while providing with a distinct competitive edge through enhanced responsiveness, shorter lead times and operational adaptability.
Nick Randall: This unique blend of a hundred and twenty year legacy as a pure plate rail car manufacturer with a start-up agility continues to drive our rapid growth and market share gains.
Nick Randall: Looking ahead, our commercial pipeline remains very active. Customer enquiries continue with a strong pace and our discussions for additional rail car orders are ongoing. We anticipate industry-wide deliveries will pick up the momentum throughout the remainder of the year and our robust backlog positions is expectedly well to meet this growing demand.
Nick Randall: We continue to expect full-year deliveries of between 4,500 to 4,900 rail cars.
generating revenue of $530 to $595 million $10 million.
Nick Randall: Our Adjusted EBITDA remains targeted between $43.49 million. Notably, production deliveries will ramp up significantly in the second half of this year, supported by sequential, quarterly growth as we convert backlog into sales.
Nick Randall: Our Mexico facility can produce over 5,000 rail cars annually and our proven team can process and process as position as well to deliver these results.
Matt: With that, I will now turn the call over to Matt to provide further insights on the market dynamics.
Matt: Thank you, Nick. I'm pleased to share that FreightCar America achieved its strongest quarterly market share performance in over 15 years, securing orders for 1,250 real cars valued at approximately $141 million.
Matt: This represents 25% of all new rail cars ordered in the quarter and 36% within our addressable market These exceptional results clearly demonstrate that our agile manufacturing capabilities and rapid responsiveness to shifting customer needs continue to resonate strongly in the marketplace
Matt: We concluded the first quarter with a robust backlog of 3,337 units valued at approximately 318 million, marking a near 20% sequential increase from year end.
Matt: Total industry orders over the trailing 12 months came in around 24,000 units, roughly 15,000 units below historical replacement levels . .
Matt: This shortfall in order activity has created a pent up demand which we anticipate will materialize beginning in the second half of the year providing a meaningful tailwind as the fundamentals of rail car demand remain strong and steady.
Matt: Despite the slower industry order environment, early in the year, our trailing 12 month market share is expanded to 27% within our addressable market and 16% of the overall market.
Matt: This clearly illustrates our ability to gain market share, even in the challenging conditions, positioning us favorably as order volumes normalize back toward historical replacement rates.
Matt: Our ability to win is driven by the strength of our broad and differentiated product portfolio and pure play manufacturing capabilities
Matt: The versatility of our products combined with our flexible manufacturing platform consistently enables us to meet diverse customer demands [inaudible]
Matt: Approving ability to convert customer inquiries into firm orders, highlights our strategic market position, customer relationships and growing reputation for responsiveness and reliability.
Matt: Strategic and our strategic capabilities position us well in the market.
Mike: I'll now turn the call over to Mike for comments on our finance of performance Mike Thank you.
Mike: Thanks, Matt. Good morning, everyone. I'd like to begin by sharing a few first quarter highlights.
Mike: Consolidated revenues for the first quarter of 2025, totaled $96.3 million with deliveries of 710 rail cars [inaudible]
Mike: Compared to $161.1 million on deliveries of 1,223 rail cars in the first quarter of 2024 in 2004.
Mike: This was a result of lower deliveries in the quarter that we anticipated due to dedicating a portion of manufacturing capacity to deliver large customs
Mike: Additionally, the prior year period presented a challenging comparison due to a timing benefit associated with rail car deliveries delayed by the U.S.-Mexico border closure in late December 2023, which subsequently shifted revenue recognition into early January 2024.
Mike: Gross Profit in the first quarter of 2025 was 14.4 million dollars with a gross margin of 14.9% compared to gross profit of 11.4 million dollars and gross margin of 7.1% in the first quarter of last year.
Mike: Higher gross margin performance was driven primarily by a favorable product mix and improved production efficiency.
Mike: SGNA for the first quarter of 2025 total $10.5 million, up from $7.5 million in the first quarter of 2024. Excluding stock based compensation, SGNA is a percentage of revenue increased approximately 47 basis points.
Mike: In the first quarter of 2025, we achieved adjusted EBITDA 7.3 million compared to 6.1 million in the first quarter of 2024 driven primarily by favorable product mix and operational efficiencies . . . . . . . . . .
Mike: Adjusted net income for the first quarter of 2025 was 1.6 million or 5 cents per diluted share, compared to adjusted net income of 1.4 million or a loss of 10 cents per share in the first quarter of last year.
Mike: During the quarter, we had a $52.9 million non-cash adjustment on our warrant liability.
Mike: As a reminder, the warrant liability adjustment accounted for an adjusted net income is a non-cash item, with no effect on shares outstanding or earnings per share calculations, reflecting only the valuation change of the warrant holders investment.
Mike: This quarter, we generated $12.8 million in operating cash flow marking our fourth consecutive quarter of positive cash flow from operations [inaudible]
Mike: Notably, this is a $38.1 million swing from the first quarter of 2024 and we use $25.3 million of cash for operations.
Mike: This quarter's robust cast generation was driven by our strong commercial and operational fillers as well as our improved capital structure
Mike: As a result, we ended the quarter with cash holding to $54.1 million and no outstanding any borrowings on a revolving credit facility.
Unknown Attendee, Michael Riordan Unknown Attendee, Michael Riordan
Mike: Capital expenditures for the first quarter total 0.3 million. For the full year 2025, we continue to expect capital expenditures in the range of 5 to 6 million dollars, including approximately 1 million dollars for our Tane Car Retrofit program.
Mike: As we consistently generate positive cash flow, we remain committed to our discipline capital allocation priorities which include reducing leverage to our normalized range of one to two and a half x and further strengthening our financial position.
Mike: Supported by strong momentum and positive cash flow generation, we are well positioned to invest in future growth opportunities and access lower cost financing while maintaining confidence in our full year outlook.
With that, we'll now open the line for Q and A.
Mike: Thank you. We will now be conducting a question in that session. If you would like to ask the question, please press star one on your telephone key bag. A confirmation tone will indicate your line is in the question queue.
Mike: You may first start if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing these start keys. One moment please while we pull for questions.
Unknown Attendee, Michael Riordan
Speaker Change: Our first question comes from the line of Mark Reichman with noble capital markets. Please receive with your question.
Speaker Change: Thank you. I just had two questions. The first is would you just elaborate on which segments of your products we are driving sales growth and in which products is the company picking up market share?
Speaker Change: Hey Mark, Nick, I'll answer that one and then Matt can fill in some additional details. So you know when you think about
Unknown Attendee The segments, you know, we
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Speaker Change: What a question, I'll balance that one. So, you know, we've always talked about intentions to have around up 5,000 unit capacity in our facility, and we've always talked about you know, of customity, manned.
Increased
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Speaker Change: Well, here's the basis for my question. In the past, you've always talked about, you know, that you probably would not do it unless the industry moved past replacement cycle.
Speaker Change: And that, you know, if you were to enter the tank car market, what you plan to do?
Speaker Change: that you might squeeze out lower margin products for that productive capacity. But here we are in the first quarter and we've seen that you use productive capacity.
Unknown Attendee, Michael Riordan
Speaker Change: that I might expect a fifth line to be added.
Sooner than later, you know, maybe even a head up [inaudible]
of the tank car, entering the tank car market, so you don't have to, you know, push out any other.
Unknown Attendee, Michael Riordan
Unknown Attendee I think it's, it's
Speaker Change: It's aligned with the right will ugly but it's incomplete. So let me just add some more color to it so
Speaker Change: When I answered the first question that was purely simply on, what would the trigger be on pure rail card demand? And if we just took that in isolation, then that's where the first answer comes to, it'd be a
Speaker Change: Sustained demand for us over let's say 5,200 units a year would allow us to turn that commission up this line for additional rail car capacity etc etc.
Speaker Change: As we go into tank cars in future years, then that tipping point is with additional product portfolio, additional products in our product portfolio, that tipping point becomes
Speaker Change: Arguably, the more ways of reaching that tipping point, which tank cars could trigger that sideline. But the last bit you talked about is...
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Speaker Change: Typically the nature of those is they are highly commissioned for a given product so predictability is a little bit off.
So, but any of those could trigger that fifth line and that fifth line maybe .
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
But if, of course, if customers would like [inaudible]
A large number of conversions, that's an option, a large number of, and silly products, that's an option.
Michael Riordan: and typically because that this building is already under roof.
and that it's a...
Speaker Change: Relatively low volume of CapEx to commission it and relatively low proportion of time as in less than 90 days, you know, that's always something that's available to us should the customer demand on any of that product or portfolio or adjacencies trigger it and we would do that accordingly. Thank you very much.
Oh, that's great. Thank you very much.
[inaudible]
Thank you.
Unknown Attendee, Michael Riordan
Speaker Change: Thank you. Our next question comes from the line of Brendan McCarthy with Sedotti. Please proceed with your question
Brendan Mccarthy: Great. Good morning, everyone. Thanks for taking my questions here. I wanted to start off on industry order flow. It looked like you had a very strong first quarter at about 25% share. We've seen commentary from other rail car manufacturers kind of highlighting the hesitancy from customers that's kind of flowing through to order conversions. Just kind of wondering if you can differentiate what you're seeing in your order flow, versus maybe the industry more broadly. [inaudible]
Speaker Change: Yeah, I'll take that Brendan, and then if Matt has anything to add, he can add anything. So I'll step back to begin with, you know, the drivers that drive the overall rail industries are still
Speaker Change: Consistent, you know, the railroads, utilizations, the railroads, consumptions, etc. So those had a macro driver, they're still pretty resilient.
Speaker Change: Which then gets down to the replacement cycle that we talk about typically 40,000 units a year I think we we've been experiencing that there's some
Speaker Change: Transitional timing of which quarter those orders get placed in as opposed to not really CNA.
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Speaker Change: are different products we're seeing some pretty resilient so on our open top hoppers, we believe were number one in that product portfolio category.
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Speaker Change: Our ability to grow our market share, regardless of whether the
Unknown Attendee, Michael Riordan
Speaker Change: and we've got a healthy, well I would consider a healthy pipeline so hopefully that answers your question, Brendan, if not just feel free to refine it.
Brendan Mccarthy: No, that's great. Thanks Nick. I appreciate the color. So just to clarify, have you have you seen order conversion rate slow or, or I guess you hire your conversations with with customers ultimately going throughout through the first five months of the year?
Brendan Mccarthy: You know, Q1 order intake was highest proportion of intake for 15 years, I think Matt was, so I think that answered that question It was a strong order intake quarter for us
Brendan Mccarthy: You know, we've always talked about the process of working with customers on orders.
Brendan Mccarthy: is anything from, you know, 18 months to three process from
First concept of there's there's some sort of need whether we are mining operation or agricultural operation or you name it and then they get from a need of replacement of product to a design. So that whole gestation period is
is usually a year or more, and then once you get into the final designs and the sort of...
Unknown Attendee, Michael Riordan
Order Placement, which is nervousness behind us, but I think we've crossed that bridge so much in Q1.
Brendan Mccarthy: But hopefully that gives you some insight. We report orders as in orders booked, but there's a lot of pre-work that goes behind that, that is that gestation of the project from concept through to winning an order and we're still seeing a healthy pipeline there.
Speaker Change: That makes sense. And at the industry level, is it fair to say you still still expect industry deliveries to total somewhere between 35,000 and 40,000 for four year 2025?
Yeah, I mean I
Speaker Change: I think last year the most forecast was sitting around 36th in the industry ended up 42, you know, that's what 2024 ordered at. I don't think 25 will be as high as 2024 at the 42,000 unit shift. I think but somewhere between that range you're probably 34 to 40 is probably accurate and then I would expect.
Unknown Attendee, Michael Riordan
Delivate.
Speaker Change: Got it, that's helpful. Can you provide any insight on what you're looking for for quarterly delivery cadence for the rest of this year?
Speaker Change: Hey Brendan, it's Mike. Yeah, so Q2 will see, you know, a step up from Q1, albeit it won't be, you know, I'd say a significant step up as we changed from the large custom fabrications and have a number of changeovers happening in Q2.
Speaker Change: Then when you get to Q3 and the back half, which we've kind of talked about before will be much more back half heavy
Speaker Change: Q3 and Q4, really step up to get you to the guidance, but Q1 and Q2, you will see an uptick in Q2, but not dramatic uptick, just given the number of changeovers we have for the orders on the books.
Hopefully that that helps a bit . . .
Yep, that's helpful. Thanks, Mike, and-
Speaker Change: Nick, I know you mentioned there was a nice mix across all product types, you know, driving revenue growth this quarter, but when you look at gross margins
Speaker Change: Was there a specific, you know, rail car type that that really I know you mentioned there was a favorable product mix that kind of drove the gross margin increase are able to provide color on on what specific rail car types you're referring to. Thank you.
Speaker Change: Oh, I lost Mike to break that down for as if he can.
Mike: Yeah, so, Brendan, when you look sequentially, our gross margins went down just slightly from Q4 to Q1. When you look year over year, it is a pretty dramatic difference, and that's largely driven by the product mix from last year, and I can say, from when we talked on the Q4 call last year and the Q1, you know, one product we were making back then were box cars, which is notoriously in the industry of pretty low margin car falling out of our backlog, so that's really what's driving that Q1.
Speaker Change: understood and one more question for me just on SGNA looks like a nice or large increase there and I think you mentioned there was a legal expense in that number. Can you provide additional color on that legal expense?
Speaker Change: Not recalling Matt Peace, SJNA was just a little high in Q1, as we...
ramped up some of our spending in Q1 and it's really just timing for the full year we expect as GNA to be.
Speaker Change: Great, thanks everybody, congrats on the quarter that's all for me.
Thanks for joining us
Unknown Attendee, Michael Riordan
Speaker Change: Thank you. Our next question comes in the line of Aaron Reed with North Coast Research. Please if you see with your question.
Speaker Change: Yeah, I'll do the product types that we're seeing, and then there's any questions on margin that we have not already answered, we'll try to square those based on the product types we've
Unknown Attendee, Michael Riordan
Speaker Change: So as I mentioned on our Q1 audit intake, we've seen products that falls on all of our lines, so that's different products
Unknown Attendee, Michael Riordan
Speaker Change: Product portfolio, everything in the rail car business which currently don't have
Unknown Attendee, Michael Riordan
Speaker Change: We don't expect to have any box cars in this year so far. We don't have any enough pipeline at the moment. So I think that answers really the
Unknown Attendee, Michael Riordan
Michael Riordan: Yeah, now that's perfect. Another question was around, you're going to be spending money to bring that additional line online here, so then you're going to be able to start working on a tank cart. Do you have an idea of when that first tank cart might roll off a line, just even a ballpark idea?
Michael Riordan: So let me just break that into some clarifying points. So we have a couple of things we've mentioned, we've mentioned that we have a fist.
Unknown Attendee, Michael Riordan
Speaker Change: The second one is we have a tank car conversion program which we booked
Unknown Attendee, Michael Riordan
Speaker Change: late first half, second half of 2026. So that's the tank car retrofit program we talked about. And then we've also talked historically about our intention to move into new tank cars.
Unknown Attendee, Michael Riordan
Speaker Change: London Order is probably for deliveries in the out years, future years after 2026. So those three
There's three separate themes, a fifth manufacturing line.
Speaker Change: is not necessarily related to tank cars, that could be any trigger on demand, would put that in place, that would take less than a million dollars or less than 90 days.
Unknown Attendee, Michael Riordan
We are going full steam ahead of that. That will start shipping in a few minutes.
Speaker Change: Call it this, roughly this time next year, 12 months from now, sometime in 2026, runs for 18 months.
Unknown Attendee, Michael Riordan
as a new car provider. Hopefully that clarifies those three things we own.
Speaker Change: Yeah, absolutely. And when I saw a question of that, and I think part of it is I phrased it wrong or misunderstood it. So that fifth line that you're gonna be bringing operational
Is that because...
Really what I meant to ask [inaudible]
Speaker Change: So currently we don't have a community or committed plan to turn that fifth line on Mark's question earlier was
Speaker Change: What would be the trigger points to turn it on or to commission it so with the with the guidance we've put for 2025 in that guidance the assumption is we will do all are [inaudible]
We'll deliver that guidance without utilizing that fifth line. I think Mark's question was, what would be the trigger point?
Or Trigger Poets [inaudible]
Unknown Attendee, Michael Riordan
Speaker Change: We don't have it. If customer demand rapidly changes and catches us in a positive surprise, we can revisit that and we dress up but it's not in our current guidance for 2025.
Unknown Attendee, Michael Riordan
Speaker Change: Thank you. Our next question comes again from the line of Mark Reichman with noble capital markets. Please proceed with your question.
Mark Reichman: Thank you. Just a couple of follow ups and you may have answered this and I may have just missed it but in terms of that fifth line, you know, you'd mentioned properly that, you know, that that can be used for more than just tank cars and that the cost would be about what would you say like a little over a million dollars. What would the cost be to make that line ready for the production of tank cars? [inaudible]
Mark Reichman: The fifth line to make it exactly the same as any of our existing four lines is less than $10 million and less than 90 days.
Mark Reichman: Okay. So that's one thing that that would that would replicate any one of the four lines we've got now.
then is a separate step.
Speaker Change: that if you wanted to add tank car manufacturing to our facility.
Speaker Change: You wouldn't have to do it on that new line. You could choose any line you want [inaudible]
Speaker Change: and there's a series of geats, fixtures, and additional capital equipment to...
Unknown Attendee, Michael Riordan
Unknown Attendee, Michael Riordan
Speaker Change: Separate to that for our tank car management by train program, there would be some additional investments to support that and it's not it doesn't happen in the final, it can be on any line, but they will be independent of each other.
Speaker Change: As I much would be in in in how much time does it take you
Speaker Change: Hi, Mark. This is Mike. At this point, we're not going to comment specifically on that CAFExpend in timeline as we move closer.
Speaker Change: To entering the tank car market, I will definitely provide the detail on the CAPX growth that would be needed for that as well as the timeline. But right now, we're not prepared to provide that guidance.
Speaker Change: Okay, okay, that is understandable. And then just the last question is, is you know what I'm just looking at our model, and I'm looking at gross margin as a percentage of revenue.
Speaker Change: you know, back in 2022, I think it was 7.1%, 2023, 11.7%.
Speaker Change: And here we are at 14.9% in the first quarter so I guess what I'm just kind of wondering if we kind of hit a new you know band or range for gross margin I mean would you continue Thank you
Unknown Attendee, Michael Riordan
What are your thoughts on that and how much does
Speaker Change: Kind of a long question, but I hope hopefully it makes sense.
Speaker Change: Hey, Mark, this is Mike. Yeah, I'll take that one. So you're right. You know, we've seen gross margin expansion annually each year the past several years.
Unknown Attendee, Michael Riordan
Speaker Change: in 2025. In 2024, we closed around 12% so we'd expect that to go up.
Speaker Change: in 2025. Product mix definitely plays in from a quarter to quarter perspective.
Speaker Change: But when you look over 12 months, it will tend to normalize itself You know,
Unknown Attendee, Michael Riordan
Speaker Change: You know, this is going to be the first full year of running all four lines at full capacity. So we're going to be continuing with regional efficiencies and ways to gain margin expansion.
Speaker Change: As we move forward, so you'll always have that focus on that product mix wise again, I will caution quarter to quarter. You can see fluctuations, but over a 12 month stretch, it tends to normalize and the 12 month stretch last year, absent Q1.
Speaker Change: is a pretty good indication of where we can be if product mix stays at that, you know, nine, ten month.
Average from 2024 and 2025 Thank you for your time.
Speaker Change: Okay, great. That's very helpful. Thank you. Thank you very much
You're welcome. Welcome.
Speaker Change: Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Nick Randall for any further remarks.
Nick Randall: Thank you. I'd like to finish in some comments. So Q1 2025 March another quarter of Disciplined Execution and Continuum Ementim reflected in robust rail car orders significant market share gains and substantial margin expansion
Nick Randall: Strong financial performance had it by gross margin expansion to 14.9%, adjusted EBITDA growth despite lower revenue, underscores our commitment to profitable growth
Enhanced Operational Advantages, including Agile Manufacturing and Commercial Execution
Unknown Attendee, Michael Riordan
And with that, my thanks to everyone.
Speaker Change: And this concludes today's teleconference. You may disconnect your line at this time. Thank you for your participation and have a great day.
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