Freightcar America, Inc.

second quarter 2025 earnings conference call. At this time all participants are in a listen-only mode. For those of you participating on the conference call there will be an opportunity for you to ask questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference 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 Ode with Riverton investor relations. Over to you Chris.

Thank you and welcome. Joining me today are Nick Randall, president and chief executive officer, Mike Creardon, chief financial officer and Matton, chief commercial officer. 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 may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to fray car America's form 10k for description of certain business risks some of which may be outside of the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements whether as a result of new information, future events or otherwise. During today's call there will also be a discussion of some items that do not conform to US generally accepted accounting principles or gap. Reconciliation of these non-gap measures to their most directly comparable gap measures are included in the earnings release issued yesterday afternoon. Our earnings released for the second quarter 2025 is posted on the company's website at fraycaramerica.com along with our 8k 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. I am proud to share another quarter of strong performance of freight car America marked by execution and resilience as we expanded our margins through operational efficiency and delivered solid profitability. This quarter also marks our fifth consecutive quarter of positive operating cash flow generation finishing Q2 with over 61 million cash on 61 million dollars of cash on hand. While we have maintained strong commercial momentum with orders adding 300 units to our healthy backlog for the year despite a challenging industry backdrop. Gross margins for the quarter expanded to 15% on 939 deliveries up from .5% on 1159 deliveries a year ago. Adjusted EBITDA margins increased 20 basis points compared to the prior year and we generated adjusted free cash flow of 7.9 million dollars. While revenues and deliveries were lower year over year we have continued to utilize our lanes blinds effectively and deliver increased profitability as these strong results demonstrate the effectiveness of our manufacturing strategy and the operational commitments of our team. On the commercial side our broad product portfolio and value-added solutions continue to prove themselves as competitive differentiators. We secured 1226 new orders in the quarter largely driven by rebuilds and conversions. These orders increased our backlog to 3624 units up approximately 300 units from the prior quarter. Though the dollar value of the backlog remained stable reflecting a higher proportion of rebuild and conversion work. Importantly rebuilds and conversions continue to deliver excellent value for our customers in these market conditions. This type of work exemplifies the strength of our flexible manufacturing model enabling us to adjust quickly to customer needs while maintaining healthy profitability. Operationally we continue to run all four production lines throughout the quarter improving productivity and supporting high throughput even at a lower volume of deliveries. This operational flexibility which has been a hallmark of our approach remains a key advantage allowing us to meet evolving demand and keep lead times competitive. Turning to the broader industry the replacement cycle has moderated and industry forecasts for new railcar deliveries have been revised downward for 2025. However we remain well positioned thanks to the diversity of our business model and our agile manufacturing presence. We continue to see strong order momentum and inquiries in our pipeline are reaffirming our outlook for the remainder of the year. Our nimble vertically integrated model enables us to take market share and respond faster than our peers. These dynamics will position us to benefit meaningfully when new build activity picks back up. We also continue to invest in the business to strengthen our foundation for future growth. This quarter we announced a capital investment in our tank car retrofit program as we accelerate our capability expansion and vertical integration of key components within the manufacturing process to provide our customers with the product quality and reliability they demand. We expect this initiative to continue to enhance our margin profile and create long-term value as the tank car program ramps up over the next several years. In short we are executing well delivering on our commitments and continuing to strengthen the foundation of our business. I am proud of what we have accomplished this quarter and I'm excited about the opportunities ahead. With that I'll turn it over to Matt to walk through our commercial operations in more detail. Thank you

Nick and good morning everyone. For the second consecutive quarter we continued to see consistent inquiry level activity and conversion to orders. During the second quarter we booked orders for 1,226 rail cars valued at 107 million dollars. This order take represents -to-back quarters with a book to bill ratio of 1.3 and further supports that our purpose-built commercial strategy of engineering, manufacturing, and delivering high quality rail cars resonate with our broad customer base. Our commercial strategy is focused on maintaining share while remaining responsive to changing market conditions. As new rail car demand softens and customers seek a real rebuild or conversion option we leverage our expertise in flexible plant operations providing value and optionality to our customers. Rail car conversions has been a foundational component of our heritage with over 15,000 conversions and rebodies completed in the last 20 years. Further our tank car retrofit program and plant readiness is advancing and on track for primary production beginning in 2026. This added capability coupled with our modern manufacturing infrastructure serves as a key competitive advantage providing value to our customers, a flexible mix of new car production, conversions and rebuilds, and solid gross margin returns. From an industry perspective we are beginning to see a softer new rail car demand environment due in large part to uncertainties around tariff policies. Although we view these economic realities as short-lived they are affecting customer order timing and we do expect that total 2025 industry deliveries will fall below the previously expected 40,000 units per year average. It is important to note with over 160,000 rail cars projected to reach their mandated retirement in the next four and a half years we fully expect overall industry annual demand to fall within the 35,000 to 40,000 range. Despite short-term extended decision cycles in certain freight segments our team continues to drive steady quote volume by emphasizing versatility, value and delivery certainty. Looking ahead we remain committed to driving high value opportunities that align with our customers dynamic needs. We continue to prioritize margin performance, manufacturing flexibility and a diversified order book. All factors that we believe will set us apart in moderating demand environment. With that I'll turn it over to Mike for comments on our financial performance. Mike?

Thanks Matt and good morning everyone. I'd like to begin by sharing a few second quarter highlights. Consolidated revenues for the second quarter of 2025 totaled 118.6 million with deliveries of 939 rail cars compared to 147.4 million on deliveries of 1,159 rail cars in the second quarter of 2024. Lower deliveries and revenue in the second quarter of 2025 were primarily driven by producing rail cars during the quarter that would deliver throughout the second half of 2025. Gross profit in the second quarter of 2025 was 17.8 million dollars with the gross margin of 15% compared to gross profit of 18.4 million dollars and gross margin of 12 and a half percent in the second quarter of last year. Higher gross margin performance was driven primarily by a favorable product mix and increased production efficiency. SG&A for the second quarter of 2025 totaled 10.1 million up from 8.5 million in the second quarter of 2024. Excluding stock-based compensation SG&A is a percentage of revenue increased approximately 260 basis points primarily due to the timing of spend on various professional services. We expect SG&A excluding stock-based compensation to decrease in the second half of the year and normalize for the full year. In the second quarter of 2025 we achieved adjusted EBITDA of 10 million dollars compared to 12.1 million in the second quarter of 2024 driven primarily by lower deliveries. Despite the lower volume of deliveries adjusted EBITDA margin expanded by 20 basis points in the second quarter of 2025 compared to the second quarter of 2024. Adjusted net income for the second quarter of 2025 was 3.8 million or 11 cents per share compared to adjusted net income of 3.5 million or 10 cents per share in the second quarter of last year. During the second quarter of 2025 we recorded a non-cash tax benefit of approximately 52 million dollars primarily due to the release of evaluation allowance on US deferred tax assets related to our historical net operating losses. This decision reflects our profitability over the past two years in the US as well as our confidence in future profitability and taxable income generation in the US. This non-cash benefit was partially offset by a 47.6 million dollar non-cash adjustment to our warrant liability. 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 as our share price appreciated during the quarter. This quarter we generated 8.5 million dollars in operating cash flow marking our fifth consecutive quarter with positive cash flow from operations. Our best in nearly 20 years. This is a testament to the collective Freight Car America team's efforts over the past several years to transform our business. Additionally our adjusted free cash flow for the first half of 2025 was approximately 20.4 million dollars reflecting the continued execution of our commercial strategy, operational discipline, and more efficient capital structure. We closed the quarter with 61.4 million dollars cash on hand and no borrowings under a revolving credit facility. Capital expenditures for the second quarter totaled 0.6 million. For the full year 2025 we now expect capital expenditures to be in the range of 9 to 10 million. Approximately 4 million is allocated to routine capital for ongoing operations. The remaining balance is growth capital for both our tank car retrofit program that begins next year as well as future production of new tank cars. This quarter's increase in growth capital will vertically integrate aspects of our future tank car operations and strengthen our position in the market. We anticipate that this additional investment will contribute an additional 6 million dollars of EBITDA over the next two years and be a meaningful contributor to gross margin expansion in future periods. Our strong cash flow generation and discipline approach continues to support these growth investments while keeping our financial position healthy with trailing 12-month net leverage remaining around 1.2 times. 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 questions and answers.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question please press star on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star and 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. One moment please while we poll for

questions. Our first question comes from Mark

Richmond with Noble Capital Markets. Please go ahead.

Thank you. Compared to the prior year period you know rail car sales fell about 26 percent while aftermarket sales increased almost 61 percent. I was just wondering how much of that is due to productive capacity being dedicated to custom fabrications versus the timing of rail orders within the year and what are your expectations for the third and fourth quarters?

Hey Mark. Good morning. It's Nick. I'll answer that one and then Mike may do some follow up on some of the timing issues of it. So I think you have a couple of things to unpack in that question. So in Q2 we did produce a higher volume than we shipped in Q2. We produced some products that were shipped in a subsequent quarter. So from a production perspective we are siding up our planning process, leveled out so that we don't have large swings in labor up or down. So we really utilize our capacity in an effective manner to drive our business. So that kind of really explains why there's a difference year on year Q2 to Q2 in the volume ship. So yes you'd expect to see those ship in a later quarter in the year and see that sort of smooth off. I would just clarify though our production capacity wouldn't be a constraint on sales. The customer demand dictates our sales rather than any capacity concerns. But the aftermarket piece, I'll let Mike add onto that.

Yeah. So on a quarter over quarter we continue to expand our presence in the aftermarket. We're just seeing sales growth there that we continue to like and see in the future. But to Nick's point production was higher in the second quarter than you'll see in the delivery numbers with a balance of cars produced and will deliver throughout the second half. And you'll see that maintaining the full year delivery guidance you'll see Q3 and Q4 we expect to be much higher deliveries than what you've seen in Q1 and Q2. And all that is simply timing to customer schedules on when they want to take cars.

And you know the second question is just manufacturing segment gross margins. You know if you look at them kind of historically, but in the first and second quarters 13.4 percent and 13.5 percent while the aftermarket margins were 37.4 and 36.8. So do you think the first and second quarters are indicative of forward gross margin expectations and how are the tank car retrofits expected to impact revenue and margin in 2026 and 2027?

So I'll split that into two

separate pieces. Mark one is current year of 2025. And then the other one is future years. Typically we don't make too many comments on future years but we've mentioned tank car retrofit so we can talk a bit about the timing of that at least. So this year the margins we've seen in Q1 and Q2 have been a mix between product mix and really excellent productivity. Our operational productivity at least on the whole good sides which being favorable for us. I would expect to see those carry through in Q2 and Q3 for the sorry Q3 and Q4 for the for the balance of the year. So I don't expect to see too many changes from what we've demonstrated in Q1 and Q2. Certainly with the volume going up you'll see the shipments go up but the margins should stay pretty consistent. As mentioned before we haven't been communicating large layoffs or changes in our organization. We've been able to be consistent in retaining that well-trained workforce so that we can build on the margins we get each quarter. So I would just use that as a indicator of what Q3 and Q4 would look like and what the whole year would look like. As it comes to future years we don't generally communicate on those. We do have the tank car retrofit program which we've communicated and as Matt and Mike both commented in their prepared notes that sort of starts part way through 2026. We've got a you know we've I think last quarter you asked about a fifth line. You know we would look at our latest incoming order quantity is about 1200 units a year each quarter sorry 1200 years per quarter coming through. If we sustain quarters like that then we'd obviously look to add that fifth line to produce those retrofits and that would obviously alter the performance accordingly. But we'd know more about that as we enter into 2026 rather than sort of the summer of 2025 if that helps.

No it's very helpful. Thank you very much. Thanks a lot. Thank you.

We have a next question from Aaron Reed with North Coast Research. Please go ahead.

Hi Nick. Hi Mike. Thanks for taking the question. So what we want to find a little bit more about and I know you mentioned it was you said the tank line is expected to add around six million and EBITDA here in 26 and 27. I just want to make sure I heard that right as well as if you get a little more color around the timing of what that might look like would be helpful.

Yes just just just the clarification of you know that it's six million over two years right. So it's over two years. Okay. So that's I you know we've been talking about our plant will be ready to do the sort of months and we will the contract we have start sort of mid to end Q2 of 2026 and then leads over into 2027 as well. So but we've got inquiries and other orders we may add to that but the specific one that you referenced is really scheduled to start the back off Q2 of 2026.

Perfect. Okay that's helpful and the other question I have is I know there's been a lot of talk especially with in terms of mergers between some of the you know class one rail carriers. How is that expecting to impact you or is that you know kind of a not really going to impact you one way or another. I'm getting a lot of questions on that.

You know I'd say I it's a difficult one to say for sure. Will it impact the industry I would I would expect so I expect there's a couple of things. One is I'd expect to be some productivity and customer enhancements in the railroad industry. You know that will ultimately help railroads just the industry overall improve productivity improve customer service that will always help from that perspective. You know from a builder's perspective you know what's good for rail is good for a builder. That's the way I always look at it. I think it's too early to say on any timing or orders or content or product types that would still get to be seen but I think it's you know if there's a an enhancement or improvement for customers and end users in rail I think that rises the tide for the rail industry. That was the way I'd look at it but it is very early days Aaron so it's not a a lot of people about a lot of time to digest and look at the true details behind it.

Right that makes sense and then one more quick question is you know one of the things that we're seeing a lot of interest in obviously you know AI and the massive demand and uptick and energy needed so it looks like there's been a bit of a resurgence in coal and my understanding is a lot of those cars have been retired as the expectation was that coal is going to kind of fizzle out. Is there a potential for increased demand in either repairs or even maybe new open-top hoppers that might develop here in the next you know coming quarters or even year that wasn't necessarily expected you know a year or two ago or is there still would you think ample supply that means that wouldn't necessarily be required to get additional or repaired cars?

Sure I will make some comments and I'll ask Matt and Mike maybe to comment on it as well so just just to put into context I think for the entire railroad industry coal is probably still the largest single commodity moved across the railroad networks in its own right so coal is a very large proportioned and as you mentioned prior to probably two years ago it's been on a constant decline and a very predictable decline from a usage perspective so any change to that certainly would be a positive people who are involved in either the repair the restoration or the extended life of units that are used to move coal so I think Freight Car America has one of the largest fleet of coal units coal out there so yeah so we would expect to see or we do see a lot more inquiries about extending the life of existing coal related assets in the rail network which is very helpful I think it's too early to look at whether that would transpire into a new car build I think there's a lot of rail assets dedicated to coal out there but I don't know how close to that to the end of life they actually are and whether people would look to do a conversion into coal or a conversion from coal so I think the conversion piece is probably more where we would see activity on that obviously we do a lot of conversion so it's very beneficial for us but the near term it's the extension of

from

Great very helpful thank you.

Thank you we have our next question from Brendan McAtee with Sudoti please go ahead.

Great morning guys thanks for taking my questions here I wanted to circle back to gross margins I think that you had mentioned we should see a similar gross margin level of right around 15% for the back half of this year I just wanted to look longer term I know there's the thousand car or a thousand tank car conversion order in the backlog obviously higher margin there do you see any reason why gross margins may step down from that 15% level long term

I'll take a stab at that to begin with Brendan and then Mike can add any any additional details so there's a couple of things so first of all mixtures play a large influence so when you ask you know when we look outside our lead time window it's hard to nail mix down all I know from a planning and from an agile manufacturing perspective we are confident and capable to adjust to whatever the customer demand is in the future but the margins will flex obviously predicated by mix so that that is difficult to sort of predict with any certainty I would I would say there's no you know we've got some nice pipelines and some nice inquiry levels I think 15% is at the at the high end which is nice but obviously we would wouldn't work maybe dilute that as well in the out period as you think about this year for a the next two quarters we finish for calendar year 2025 I think the biggest thing we look at is you know our shipments will probably go up in q3 and q4 compared to what they're being q1 and q2 we did build ahead in q2 for some items that will ship in the second half of the year I think that the the margins will be similar so they it's it's q3 and q4 but it's it's really mixed dependent with an underlying productivity enhancements which we keep on driving which is really influencing those gross margins most

that makes sense that's helpful Nick I appreciate the color there and just looking at gross margin gains maybe year to date I guess how much of that do you attribute to that manufacturing efficiency how much you attribute to just the product mix in general

it's it's it's difficult

to split that out in a in an easy way there are certain products that also have a manufacturing productivity mix that go with them enhancement that go with them simply because of the length of the order the size of the order and the volume rates we produce you know I would say there's a there's a generic trajectory that we're on productivity improvement which incrementally improves our underlying operational productivity quarter on quarter and that's predictable and reliable and then you have the peaks and troughs of the product margin ships at any given time which adds on to that so I would you know operational productivity will continue to increase quarter over quarter as we offset any incremental pay rise improvements or inflation pressures and then the product mix margins are really predicated by the product type you know if you think about out of this year if you talk about tank cars and tank car true fit which generally have a more lucrative margin with them so I'd expect there to go with that product to go up but I generally they're trying to get it pin it down to which quarter which will ship which product in the out periods is a is a bit more difficult than just looking

at the market per se

that

makes

sense I appreciate that and one more question for me I know you about an increase in growth capex as it relates to the tank car capabilities in your manufacturing just wanted you to provide any color on on the tank car conversion pipeline maybe maybe conversations that you're having with potential customers there just curious that's what that pipeline might look

like sure I'll talk a bit about that so obviously we secured large order we've previously communicated that there is a you know there is a federally mandated date which I think is back end of 2029 by the time that all these cars must be converted for use on across North America so there is a I think there's some industry estimates that put somewhere between and a match somewhere between 10 to 17 000 units likely would need to be converted in order to stay operational the owners of those units have some decisions to make do they want to replace them with new or do they want to convert them and that would depend on how much usable life and what type of usable life is left on them so there's certainly a a significant chunk of customer appetite out there for conversions we continually have conversations with people but that excuse me the decision is certainly not a capacity issue for us we would accommodate orders that any customer would like to get converted in that time frame the question really is would they like to switch would they prefer to switch it to a new car as opposed to a conversion and obviously we are preparing and readying ourselves to enter into the new car market as well so so we are staying close to those conversations whether it be a conversion or a new car in that late 26 or 27 count year 20s late 26 year 27 period but yet it's the same customers that we talk about about the same product we just provide different routes to solutions depend on what their need is at that time

great i appreciate the detail nick thanks everybody that's all for me thanks friends

thank you we have a follow-up question from mark rachman with noble capital markets please go ahead

thank you this question is for for matthew you know according to the rsi industry wide orders and deliveries were 11,322 and 15,726 respectively for the first six months of 2025 i'm just kind of curious where matt where do you think those numbers will fall out for the year

yeah mark good morning i think we're we're looking at another year -to-back years of total industry order volume that will be sub 30,000 rail cars with a with an upturn in demand when we get into the years 26 i'll just add that we do see based on pipeline activity we do have an expected order increase in the second half of the year

okay so like the first quarter you were 25 of them of the orders and the second quarter about 19.7 so you'll kind of you expect to kind of maintain those levels or you think you can continue to capture market share and then of course you've got the backlog as well

yeah we mark we expect to continue to have market share gains and i would point out that our flexibility and the capabilities to work with customers on specific demands beyond just new cars is something that's not measured in terms of total market share when you compare it to arci numbers however keep in mind that conversions rebodies and rebuilds are a very valuable component of our offering and we do expect to see continued growth in market share based on our our overall offering

okay and then the last one the question is just for nick in the recent presentation there's mentioned that the fifth line is expected to increase capacity by 20 percent or a thousand units so you've got the four production lines and the four production lines are expected to increase capacity and i was just kind of curious why it would be 1250 versus a thousand

uh you know

it's much a good question you know we we um when you look at our capacity we've typically used 1250 uh because of the four lines and then the fifth line would be in some way used for preparation for entry into the tank car market and we would look at um that may be a bit slower ramp up so that's where that sort of slight delta is between a fifth line whichever whichever line we convert to tank cars um you know as a new entrant we would want to just ease ourselves in a little bit uh rather go full volume straight away so that really sort of explains that delta i would just

caveat

that um you know capacity constraint would never well i wouldn't say never but in the foreseeable period wouldn't be a constraint for us we are currently running four lines at about 1250 a line um running about uh 70 percent of the work week so there's obviously shift modifications and changes we could do to increase that capacity if we ever needed to from that perspective but in answer directly to your question why is the fifth one coming in a thousand not 1250 it's more to do with us being a little bit cautious on a new product type a new segment um we would just have to take that into account when we look at how our capacity looks

okay now that makes sense well thank you all very much thank you martin thank you

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 remark

yeah so thank you i would just like to summarize a couple of bullet points uh for where we finish so we meet at the end of q2 we maintain strong commercial momentum with our orders driven by rebuilt and conversions adding 300 units to our healthy backlog for this year despite as people mentioned a challenging industry backdrop we expanded our gross margins to 15 that's 250 basis points through operational efficiency and driven solid profitability we generated 8.5 million in operating cash flow this quarter marking our fifth consecutive quarter positive cash flow operations and adjusted free cash of 7.9 million our strong cash position provides flexibility to invest strategically while maintaining our financial discipline we announced a capital investment in our tank car retrofit program accelerating capability expansion and advancing vertical integration of key components within our manufacturing process and we are well positioned to capitalize on market opportunities ahead and continue to deliver sustainable shareholder value and with that i thank you all for your time thank you

thank you this concludes today's teleconference you may now disconnect your lines at this time thank you for your participation and have a great day