Q3 2025 FreightCar America Inc Earnings Call

Welcome to the freight car America's third quarter 2025 earnings conference call.

At this time, all participants lines are not. 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 on the company's website within a few hours after this call.

I would now like to turn the call over to Chris odeh with riveron investor relations, please go ahead, sir.

Thank you and welcome. Joining me today are Nick Randall, President and Chief Executive Officer; Mike Riordan, Chief Financial Officer; and Matt Tan, Chief Commercial Officer.

I'd like to remind everyone that statements made during the conference. Call relating to the company's expected future performance future business prospects for future events are plans may include forward-looking statements as defined under the private Securities. Litigation Reform, Act of 1995. Participants are directed to freight car. America's formed 10K for description of serum 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 during today's call. There will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles (GAAP). Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon or this morning. Excuse me, our results for the third quarter of 2025 are posted.

On the company's website, FreightCar America, Inc. came along with our 8-K, which was filed pre-market this morning. With that, let me now turn the call over to Nick for a few opening remarks.

Thank you, Chris. Good morning, everyone. And thank you all for joining us today.

Freight car, America delivered, an exceptional third quarter, highlighted by strong deliveries, Revenue growth of over 42% and a recent record for the third quarter, adjusted, even our our new facility of 17 million growing 56% versus the prior year.

We achieved gross margin of 15.1% and adjusted to deeper down margin of 10.6 up approximately 80 basis points and 100 basis points respectively versus the prior year.

Representing our most profitable quarter since relocating production to Mexico.

Others industry, May rely more heavily on commoditized orders or adaptability and ability to deliver custom high value Solutions continues to drive sustainable profitability across Market conditions.

Operationally, our team in Castanos continues to execute at a high level.

Improvements in safety quality. Throughput and cost structure remain consistent quarter after quarter.

These efficiency gains and a reliability of our processes Have Been instrumental in supporting our record, even upper performance at our facility.

As we scale, we are reinforcing that culture of execution—one that emphasizes continuous improvement, customer responsiveness, and long-term value creation.

Strategically remain focused on initiatives that position us for durable growth. We are excited about the progress and developments we have made. This is displayed with our true track process, integrating digital tracking and monitoring capability across each production step, ensuring on-time deliveries and increased efficiency across all of our manufacturing ads. Most importantly, we are delivering high quality and reliability in every rail car we produce.

In addition, we are also moving forward with enhancements to our plant layout. This initiative is all about improving flow, increasing productivity, and driving higher throughput. It will enable stronger margins per car, expand our ability to meet growing customer demand, and establish a strong market position. It's another great example of how we are executing on the opportunities within our footprint to build a more efficient and...

People operation for Future growth.

At the same time, we continue to explore ways to vertically integrate. Our capabilities continue to invest in automation and process control, and we strengthen our readiness for future tank car conversions, which are already well ahead of schedule.

Together, these actions reflect the continuous progress we are making since transforming our production footprint, and it's laying the groundwork for more consistent profitability through future cycles.

From a market standpoint, as we noted last quote, the broader rail car in Railcar industry continues to operate below long term replacement levels with total. Deliveries expected to remain under 30,000 rail cars this year versus a normalized rate closer to 40,000 units.

While this softness is limited overall, new car volumes in the industry are impacted. Our ability to serve more complex customer orders beyond standard new car builds has helped offset that trend. We continue to capture opportunities through conversions, retrofits, and other specialized railcar solutions—all areas where we bring value and deepen our customer partnerships.

While industry demand is temporarily muted, the replacement cycle gap is widening, creating pent-up demand that we are well positioned to capture early once the market begins to normalize.

As we enter the final quarter of 2025, our priorities remain clear: delivering enhanced quality of earnings, generating positive free cash flow, and maintaining our disciplined approach to growth.

Our backlog remains healthy and diversified at 2,750 units, buying at approximately 22 million and our commercial pipeline continues to build across both conversion opportunities. New rail cars, which reinforces our view of the recovery towards normalized replacement levels.

Looking ahead. We see numerous opportunities on the horizon and are excited about strengthening our position in the market.

Operationally, we're excited to reap. The benefits of improvements to our manufacturing lines, and deliver, on our adjusted i-bidder, guidance for the fiscal year.

We expect to maintain strong margins and close a year with solid positive gas generation.

With that, I'll turn it over to Matt, to discuss the industry Dynamics.

Thank you, Nick, and good morning everyone.

As Nick mentioned, the third quarter represented, another resilient period for freight car America, as we continue to prioritize discipline order intake and profitable growth, despite challenging industry Dynamics.

Industry, order activity remains subdued as macroeconomic uncertainties, continue to impact. Customer order timing with total, new car orders for the North American Market expected to finish below 30,000 rail cars for the year. Well, below the normalized rate of approximately 40,000 rail cars.

Even with this temporarily temporary soft backdrop, our commercial team delivered solid results and maintained strong momentum in meeting our customers needs.

During the quarter, we received total orders for 430. Rail cars, bringing our backlog to 2750 cars at quarter, end valued at approximately 222 million. Importantly, we maintained our position in the market achieving over, 20% of addressable Market order share for new car orders or 15% of the total Market.

Our backlog reflects a healthy balance across our broad railcar portfolio, including conversions and retrofits, which remain a core component of our business. As Nick mentioned earlier,

Alternative to new builds and are a meaningful driver of margin expansion for freight car America.

In a market focused on extending asset life and lowering total cost of ownership. These offerings keep fleets productive while maintaining customer budgets in a challenging Market environment.

Backed by our deep engineering expertise and flexible and efficient plant footprint. We tailor solutions to each customer's specific needs and operating environments.

We continue to see strong engagement from long-standing customers and healthy momentum from new accounts.

Interest in 2026 deliveries is strong. We supported by broad participation across key and markets, including chemical, agricultural, industrial Aggregates and Mining.

While the pace of order placement is moderated, customer inquiries and bid activity remains steady reinforcing our view that replacement cycle. Fundamentals are intact.

Commercially our Focus remains on, maintaining pricing discipline and ensuring we continue to deliver the highest quality for our customers.

We are achieving several strategic initiatives and enhance, our competitiveness and customer responsiveness. As Nick mentioned earlier, including an expanded engineering capabilities, improve lead, time management quality initiatives, with our true track, quality process and deeper integration between our commercial and operational teams.

We are excited to see these initiatives come together.

And help strengthen our ability to capture the right business while enhancing the profitability improvements we've achieved over the year.

With that, I'll turn the call over to Mike to review our financial results in more detail. Mike

Thanks, Matt, and good morning, everyone. I'd like to begin by sharing a few third quarter highlights. Consolidated revenues for the third quarter of 2025 total $160.5 million, with deliveries of 1,344 rail cars, compared to 1,133 in the previous year.

The year-over-year increase, reflects higher production, and deliveries.

gross profit for the third quarter of 2025 was 24.2 million with a gross margin of 15.1%, compared to gross profit of 16.2 million in gross margin of 14.3%, in the third quarter of 2024,

The Improvement in margin was driven primarily by the product, mix including specialty, new cars and conversions as well as continued to operational efficiency at our castano facility.

Sgna for the third quarter total, 9.6 million compared to 7.5 million in the prior year period.

Actually, in stock-based compensation in certain professional services, costs in SG&A as a percentage of revenue are approximately 50 basis points lower year-over-year, reflecting our operational leverage on higher deliveries between the comparable periods.

Adjusted ibida. For the third quarter was 17 million representing a margin of 10.6% compared to 10.9 million and a 9.6% margin in the third quarter of 2024.

This represents our strongest quarterly adjusted Eva since relocating operations to Mexico and underscores, the benefits of discipline execution and favorable product mix.

Adjusted net income for the quarter was $7.8 million, or $0.24 per diluted share, compared to adjusted net income of $7.3 million, or $0.08 per diluted share, in the third quarter of 2024.

Reported net loss for the quarter was 7.4 million or 23 cents per share which includes the 17.6 million, non-cash adjustment related to the change in warrant liability due to share price appreciation. As a reminder, this is a non-cash item that does not impact our operating performance cash flow or share count.

Turning the cash flow. We generated 3.4 million in operating cash during the quarter adjusted free. Cash flow is approximately 2.2 million and Improvement of 1.2 million versus the prior year period.

Our continued cash, generation reflects discipline working Capital Management, and improved profitability.

We ended the quarter with $62.7 million in cash and no borrowings under our revolving credit facility, maintaining a healthy balance sheet and ample liquidity to support growth investments.

Given our capital strength, we are well positioned to build on our platform and look for strategic opportunities to amplify our market position and scale.

Capital expenditures for the third quarter. Total, 1.2 million bringing year-to-date Capital expenditures to approximately 2.1 million

for the full year 2025. We now expect Capital expenditures to be in the range of 4 to 5 million consistent with our original assumptions for the year.

Our updated forecasts on the timing of certain spend for projects is shifted into the first quarter of 2026.

And the third quarter underscores the success of our commercial strategy, demonstrating the profitability and cash generation capabilities of our business model.

We are reaffirming our full-year adjusted IBA and rail car delivery guidance ranges and adjusting our revenue range down to $500 million to $530 million to reflect the product mix change.

We remain on track to deliver. Positive free cash flow for the year with a solid foundation heading into 2026.

Looking ahead we're focused on ensuring that every dollar we invest supports scalable High return opportunities.

With a healthy balance sheet and steady cash flow, we are well positioned to support future growth and deliver improved profitability.

With that, we'll now open the line for Q&A.

Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press star 2. If you would like to remove your question from the queue, for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

1 moment, while we hold for questions.

our first question comes from Mark reichman with Noble Capital markets,

Good morning. Um, I just the question I have is the guidance on the cat-backs. Was I think it had been updated to 9 to 10 million and so you're kind of back to the 4 to 5 million which uh I understand and I think is reasonable. But could you just kind of walk us through your plans to prepare the for the tank car conversions and entrance in the new tank car markets, kind of how those Capital expenditures unfold into 2026 and and the uses of the of the expenditures.

Hey Mark. Good morning. It's Nick ala. I'll answer that 1 and if I missed something Mike, can follow up on that. So A couple of things. So on the, on the capex Investments, it's not a change in scope. It's just a move, a timing. We had a, um, some investment for a vertically, integrated components for the tank car, retrofit that were originally scheduled for late December. They're going to move into early January, uh, just so tips cross that new year period. So just, uh, just a change in timing at the end of the year, but not certainly, not a change in scope as it goes for the preparation and Readiness for the, uh, tank car conversion. We're well ahead of schedule, um, you know, there's a couple of processes to get a, our certifications at the plants and then a couple of processes on the, um, on Capitol.

Equipment. So, uh, what I had to schedule, we'll be, um, you know, talking more about that at the timing of shipments of that in 2026. Um, but yeah, they certainly start, uh, through our 2026 period. Um, but it the, the the, the changing capex allocation this year is just, um, a couple of weeks in timing, it just so happens. It's right at the end of December, which flips into 2026 rather than 2025

Mike, I don't think I missed anything there. Nope.

Just the next question is on is on the revenue. Uh guidance I mean if I if I look at the backlog from the uh second quarter

You Know, It, uh, averaged about 87,000 a unit. And so if you look at the backlog now,

Uh, it's about 81,000, but margins have actually improved. So I guess I'm kind of looking at the fourth quarter and I'm thinking, you know, probably somewhere in the 80s, uh, you know, would you kind of expect the margins for the fourth quarter to look pretty much like the third quarter?

Let me, let me break that down a little bit bit, bit more because a couple of questions wrapped up in that 1 question. So it's on the uh because you thought about average selling price. So yeah, when the average selling price does change when we switch to conversion. So we are holding our guidance on unit count, but you'll see that our Revenue dollars guidance, uh, drop down a bit just to reflect that higher proportion of conversion.

Visions in there. And then when you look at conversions, when you look at the percentage wise because it's a lower average selling price, the percentage wise, do go, um, a positive up in up Direction because it's a smaller hyper portion of a smaller Revenue price. So I just want to make sure that the, the, the, the guidance we've got for the rest of the year is to hold i-bidder just i-bidder. And to hold the unit count,

To manage our profitability and and cash generation. Um, but, uh, revenue is not a great metric, uh, given the nature of conversions in new cars and the change in average selling price between the 2 of them.

That's great. I really appreciate the color. Thank you.

And our next question comes from IA.

Hi, good morning guys. Um, I am asking questions on behalf of Aaron Reed this morning and my first question is, I was just wondering, do you expect your product mix to shift following the changing guidance? Or can you share any additional color? How the mix between rebuilds and new builds is going to be trending?

Yeah, good morning. I think it's similar questions to what Mark just asked on the, you know, the guidance. So the um,

When you see our Revenue, uh, move like that with the adjusted e, but our stay the same that that does imply, that the average selling price, but the ud account stays the same, which would imply. There's a compared to our original forecast. There's a higher proportion of conversions in the, it's it's not, um, it it a massive swing, but it does swing and get a little bit, um, from a, from a margin and a sort of percentage guidance, uh, you know, we we've, we've got a couple of weeks left to finish off 2025. So been able to back end that from the adjusted i-bidder, and the revenue kind of pretty gets it, um, pretty calculable where that's going to end for the

Balance the year.

Okay, thank you.

Um, and then could you share more detail, maybe on how the demand for coal car repair is, um, is that still providing a meaningful lift as you look into 2026 at all?

So coal car repairs sits in our aftermarket business. Um it's that that we we break those 2 out now between new cars. So and the aftermarket business and we have as a freight car in America, have the largest fleet of cars out there and use on tracks across North America. So obviously as uh, there's talk in the news about extension of power stations, extension of Life of coal, powered, uh, facilities. We would naturally expect that there's a sustained and continued Demand on coal Co coal car, components and coal car repair support items. Uh, which we have a, um, a a a very nice product portfolio that matches that. So, um, so yeah, we'd expect that to see that, uh, continued demand for components, but that that's separate to new cars. Uh, but on the aftermarket business, we'll continue to see, um, those coal car components and the, on a, on a cars, we originally built over the last 30, 40, 50 years.

All right. Perfect. Thank you so much. And then my last question is that, um, I guess, have you guys experienced any disruptions or order delays tied to the government shutdown or related policy?

I think, you know, the, the, the nature of how we run our business and the nature of the rail industry. Um, it's it's less susceptible to short-term items like, uh, government, um, shutdowns and the cases that, you know, the sort of things that are being hauled and being moved. So we haven't seen anything. Um, and now directly affects, uh, us from that perspective, the the the most sensitive area if there was going to be an area, would be in Border Crossing, but a lot of that is now automated. Um, not fully automated, but highly automated. So we haven't seen any disruption in that uh, in cars transferring to and from uh, Mexico into the USA but that's probably where if there was to be some disruption. That's where we would see it, but we haven't seen it. Um in in in any recent term time frame.

Okay, thank you guys so much.

Thank you. Thank you.

And we'll go next to Brendan McCarthy with Sidoti.

Great. Good morning guys, thanks for taking my questions here. Uh, just wanted to Circle back to the 2025 guidance and sorry if I missed this, but just looking at the the midpoint of Revenue and adjusted ebitda for a 2025. Um it looks like just based on my rough map that Q

4 is implied to come in at around $11.7 million for adjusted EBITDA on about $140 million in revenue, which would be a margin of about 8%. I'm just curious if you can expand on the step-down there from the third quarter and what might be driving that.

Of December to do annual.

Planned maintenance for the facility. Um, so you lose a little bit of margin there with the weak shut-off. Um,

And the proportion of what I call more of the commoditized cars, as some of the other builders have noted and covered, is just larger in Q4 than it has been in the earlier quarters as well. Um, and that product is a lower margin car compared to the rest of our product portfolio.

Yeah, brother. I I I mentioned in my script that we, we would take some work. Um, in addition to that and we'll shut down taking some work to, um, repurpose some of our operational lines to make that, um, margin sustainable more sustainable going forward. So, there's an annual normal maintenance shutdown that takes place, was that back end of December into the new year, period. And then we've got some lines that we are retooling and review. Um um, retooling and repositioning to enhance that flow and enhance future margins on those as well. So I don't see anything that is a, um, you know, a long-term negative Trend. But the Q4 often has that sort of, uh, additional cost, uh, that sits there for a couple of weeks. Um, and then, obviously, you get the revenue dates of Revenue with this offset. Just for those, uh, 1-off upgrades.

That makes sense. That's very helpful. I appreciate it. Um and then just more of a broad question on your tank car retrofit program as we start to see, you know, hopefully see the deliveries, you know, flow through in 2026 and 2027 related to the Thousand car uh order in your backlog. Just just taking a step back and looking at that addressable Market.

I guess how do you are you able to really quantify what that addressable Market looks like, you know how many um you know tank cars are up for

Uh, you know, possible retrofit as it relates to the 2029 deadline. I know some of those cars may be scrapped. But how do you estimate or, or ballpark with that? Addressable Market might might look like, but but I'll, I'll start that, and then Matt may have some color to, uh, to add into that brand. So I think I I would step it back a bit. Uh, there's a bigger question to ask really for us as a freight car, America is our pathway into new tank car builds.

So the retrofit program that we have is significant in its in its own right. It's a very, it's a very nice program to, uh, that we're privileged to work for work through. Um, but this, there's a piece of that, that for us, uh, what the, what provides to us is the AAR approvals the process to get the plan prepared, prepared, and ready. Um, a whole bunch of things that puts us in a position that as soon as that retrofit program is coming towards completion, we switch modes into new car, uh, new tank car production.

And that new tank car production just, you know, on an on a normal run rate of 40,000 units, a year, approximately 10,000, our tank cars. And that's a, that's an area in the market that we've historically not been able to address. So I think what, what I look and I talked more about internally is the purpose and 1 of the benefits of doing this retrofit program is we get you know a short-term benefit which is great in 26 and 27, but really the exit of that is not to try. And clearly, we'll take more retrofits if there are there. But the the main goal for us is to leave that program and position ourselves into the new tank car programs, uh, directly after that. But an answer to your specific question. How big is that market? I, you know, there there's a um, majority of tank cars are either owned by people who can produce tank cars or, um, look at the tank cars already.

So maybe, um, it may be smaller for us, but I think there's probably, you know, there's a couple of maybe a couple of hundred more, um, that we could look to add over that program. But I really and the reason why it's, uh, I'm more interested in. We would want to switch to new tank cars as soon as possible after that program, um, which is really the sort of the main, the main objective for us, if that makes sense.

Got it, that makes sense. I appreciate the color there. I know that's a big Catalyst for for you guys. Looking ahead. Uh, 1 more question for me, just on industry Dynamics. You, I know you mentioned in the prepared comments.

You know, roughly 30,000 orders for the year continues to run below.

Um, you know, the industry replacement level, we've seen, you know, the industry fleet contract a bit.

Are you still, you know, pretty confident that, you know, you might see an uptick, you know, maybe a retracement towards that replacement level demand in 2026, or is that still, you know, pretty uncertain at this point?

Delivery is follow through, probably in a deliveries will probably be, um, late 2026 into 2027. I think what we look at the underlying, uh, fundamentals, um, which is still very solid. If you look at the class 1, railroads, you look at the railroad communities. Uh, they're still posting, um, good results and good, throughput and good utilization rates and all those, uh, metrics, which is a very good for us. Um, you know, you look at we we see it more that there's pent-up demand coming through because, um, no way, you think about the main Commodities? The agricultural comedy Commodities the Aggregates, the oil and gas industry. The the desire and the need, uh, for rail cars. Uh, isn't isn't fundamentally changing down? Uh, scrap rates have continued to happen. Um, this year as anticipated or as expected. So, what you see is that, that uh, the rail, the underlying demand is uh, still coming through, still pretty predictable and it's more about as Matt reference. Is just a gestation period between inquiry through to order placement.

Just gets extended slightly. Um, you know, we put a forecast out at the beginning of this year for how many units we would get out this year and how much adjusted EBITDA are. And you know, contrary to um, what the um, order placement would suggest, we're holding it. And I know we've been able to get through and been able to push that through. So I do see there's a.

Opportunity towards the sort of um as you go to Q2 Q3 Q4 next year. That order and placement was certainly Trend back to that normalize 40,000 units, a year. Um, Matt, anything anything I missed. No, I I think, I think your comments are accurate. Um, the bottom line is You've Got 2 back-to-back years of sub 25,000

Uh, year per year orders booked. Um, and when we look at our history of 40,000 rail cars, delivered, a roughly, 38,000 ordered over a 10 year span. We can't continue on this pace for long.

Into that, the number of cars that are scrapped annually. We are headed towards some sort of a bubble, and we look at that happening sometime in the second half of the year.

Just to publish as in more orders, more orders.

That's great. That that makes sense and just as a follow-up, you know, I know you mentioned, 20% market share of the new rail car orders for this quarter. That's really solid to see and I know that's really trended above.

Your historical market share? What do you really attribute that to?

Uh, I I I'll start with that and then the, the Mac can talk about some of the, uh, you know, I think there's a couple of things is um, you know, we've got 3, things that really work for us. Uh, 1 is uh scale and experience know. We've got a lot of good rail. Cars out. Their customers know, that customers like rail cars, whether it's new cars or conversions. Uh customers uh really like the the

Experience a, a breadth of product and configuration we can provide on the, on the markets we address, um, you know, our customers really like the ability to tailor some of their products and customize it in a way that meets their their needs. And then our on our execution, you know, we talked about uh, initiative called true track, uh, where we have this digital me, um, digital method of traceability and trackability, but our execution of delivering on time in full, and good quality, reliable rail cars. Uh, is you know, those 3 things fundamentally princip position were, uh, were able to win, um, you know, solve customers problems in a way that adds value for them and us. Um, and, and I think, you know, for underpinning, all of that is Matt and his team. Uh, they do a good job of being able to get in front of customers, build great relationships, and solve customers problems as well.

That makes sense. Thanks, thanks Nick. Thanks, everybody. That's all from me and congrats on the strong quarter, all right?

Thank you. Thanks man.

I'm not much. Oh.

Oh, I was going to say before we close, sorry. So in Q3 2025 was another strong quarter for freight car, America with Revenue up over 42%, gross. Margins, expanding to 151.1%, and record just to leave, but our 17 million our most profitable quarter. Since we're in okay, to Mexico operationally our team in castanos considers it again, it's in safety quality, throughput and cost. Plant Footprints enhancements underway will further improve flow, productivity and margin.

Reinforcing our leadership in that key segments.

Strategically, we're advancing our true track digital integration, vertical integration, and automation while advancing our operational readiness for tank car conversions. All of this positions us for future growth and margin expansion, with a healthy backlog of 200,750 units by the end of 2022.

Strong inquiring momentum supporting a recovery and replacement cycle demand remain on track to achieve our Ibar. Guidance closed in a year with solid profitability and positive cash flow. And with that, thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.