FreightCar America, Inc. Stock

Thank you. Welcome to FreightCar America's second quarter and fiscal year 2026 earnings conference call. At this time, all participants are in our 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 O'Day with JBG Advisory.

Thank you and welcome. You're going to meet today are Nick Randall, President and Chief Executive Officer, Mike Reardon, Chief Financial Officer, and Matt Pong, 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. are directed to Freight 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 U.S. Generally Accepted Accounting Principles, or GAAP. Reconciliations 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 second quarter of 2026 is posted on the company's website. at FreightCarAmerica.com along with our 8K which was filed at MarketPose yesterday.

With that, let me now turn the call over to Nick for a few opening remarks. Thank you, Chris, and good morning to everyone.

Thank you for joining us today. The second quarter demonstrated important progress across three areas of our business. First, we delivered one of the strongest commercial quarters in Freight Car America's recent history, with an exceptional order intake, significant sequential backlog growth, and continued expansion of our customer base. Second, we continue to build a broader and more durable business through organic aftermarket growth and a second acquisition in the aftermarket space. Third, we completed an important structural optimization of our Castanheos manufacturing operation, locking in the productivity gains achieved over the past two years and positioning the business to operate at a meaningfully lower cost base going forward. Against those positive developments, the production ramp we anticipated for the second quarter began later than originally planned. Customer demand was deferred rather than canceled, but the timing shift means that a portion of the units previously expected to be delivered in 2026 will now move early into 2027.

As a result, we are updating our full-year delivery and revenue outlook. We believe the second quarter represents the low point of the year for adjusted EBITDA and margin. Production is scheduled to increase meaningfully during the second half, with the significant majority of our planned second-half deliveries supported by our firm backlog. And we will begin realizing the benefits of the structural operation actions completed completed during the quarter. The key point is that the lower 2026 delivery outlook does not reflect a weakening of our commercial position. In fact, the opposite is true. We booked approximately 3,000 units during the quarter, including approximately 2,600 new rail cars.

These new car orders represented roughly 45% of the total industry new rail car orders during the period. largest quarterly share of industry orders in recent history. That activity was anchored by a milestone multi-year award for 1,900 rail cars, with deliveries extending through 2028. The orders came from both repeat customers and first-time buyers and covered each of our principal market segments. That breadth is important. It demonstrates that our customer reach is expanding while our established relationships continue to deepen. Customers do not make multi-year commitments of this scale unless they have confidence in the supplier's products, responsiveness, and the ability to execute. We have consistently said that we must earn the right to win every order, and this quarter, our team did exactly that. We ended the period with a backlog of 3,972 units valued at approximately $344 million, compared with 2,058 units valued at $156 million at the end of the first quarter.

Backlog units increased approximately 93% sequentially, while backlog value increased 121%. The backlog is diversified across new railcar builds, conversions, and retrofit programs, with deliveries extending through 2028. It provides meaningful visibility through the balance of 2026 and increasingly into 2027 and 2028. This performance is particularly significant given the broader market environment. Industry demand remains well below long-term replacement requirements, with annual deliveries expected to remain below 25,000 units compared with normalized replacement demand of approximately 35,000 to 40,000 units per year. Despite that environment, we continue to gain ground by offering customers what they value. We have not built our strategy around being the lowest price producer.

We are focused on being the most valuable and responsive producer, combining quality, engineering capability, flexible manufacturing, and reliable execution. For certain products and available production slots, our manufacturing model allows us to move from order placement to delivery in as little as 9 to 12 weeks. That responsiveness matters to customers whose requirements can change quickly and who increasingly value certainty of execution. Alongside the strength of our new car auto intake, we continue to expand our aftermarket platform. Aftermarket revenue grew 13% year over year, reflecting both continued organic growth in parts and components, and the contribution from our first acquisition in this space. Following the end of the quarter, we completed our second aftermarket transaction in less than a year, these businesses broaden our parts and components offering expand our customer relationships and deepen our involvement across the rail car lifecycle This is a deliberate element of our strategy. Aftermarket demand is more repeatable and less cyclical than new rail car manufacturing and generally carries a stronger margin profile. allows us to serve customers beyond the initial manufacture of a rail car and creates additional opportunities across parts, repairs, conversions, and ongoing fleet support.

We are building this platform through a combination of organic growth and disciplined acquisitions. We believe it will become an increasingly meaningful contributor to revenue, earnings and cash flow over time. Turning to operations, we completed an important structural optimization during the quarter. Over the past two years, our true track operating system, continuous improvement culture, and targeted investments in automation and virtual integration have increased manufacturing productivity by approximately 50%. Those gains have fundamentally changed how we build rail cars and how many resources are required to support a given level of production. During the second quarter, we used a period of lower production activity to complete a concentrated realignment of our Castaneos footprint, staffing model, and operating resources around that new productivity baseline. These actions were not a reaction to a single quarter or simply a response to a lower near-term volumes.

They were the next step in capturing and institutionalizing the benefits of the operational improvements delivered over the past 24 months. Completing the work during the slower production period allowed us to make the changes efficiently and less disruptive to our customer deliveries than would have been possible during a peak period of output. The realignments resulted in a $2.2 million of costs during quarter and is expected to generate approximately $12 million of annualized structural savings. Importantly, we preserved our installed production capacity, principal manufacturing lines, and the critical skills and capabilities required to increase output as demand recovers. The result is a more efficient operating structure that improves the economics of each railcar we produce while maintaining the ability to scale. As volumes increase, we expect the combination of a lower structural cost base and improved fixed cost absorption to create stronger margins and generate greater operating leverage across the cycle. The benefit begins in the third quarter and extends well beyond the current year.

Cash generation also remained a strength during quarter. We generated 12.1 million of operating cash and 11.3 million of free cash flow, an increase of 43% year-over-year. Stepping back, the freight car industry remains in a cyclical trough, but the underlying fundamentals continue to build. Rail cars are being scrapped faster than they are being ordered, the average fleet continues to age, and traffic growth is broadening across many of the commodity segments we serve. Prolonged periods under investment have historically been followed by stronger replacement demand. We continue to believe that the normalization towards annual demand of approximately 35,000 to 40,000 rail cars is a question of timing rather than fundamental need. When that recovery develops, Freight Car America will enter with available capacity, a more efficient operating footprint, a broader product portfolio, a growing aftermarket platform, and a substantially stronger customer and market position.

In the meantime, we are not building our plan around waiting for the cycle to improve. Our priorities for the second half are clear. We will convert our backlog into profitable deliveries, increase production and restore margin performance, realize the benefits of our lower structural cost base, continue scaling our aftermarket platform and execute the initial phase of our tanker car retrofit program. The opportunity ahead of us is significant, but the focus is now execution. We have the orders, the capacity, the operating improvements, and the commercial momentum. Our responsibility is to convert those advantages into stronger earnings and cash flow through the balance of 2026 and into 2027. With that, I'll turn it over to Matt to discuss the market environment and our commercial performance in greater deal.

Thanks, Nick, and good morning, everyone. I'll offer some perspective on the market environment and our commercial activity during the quarter. Industry order activity remained muted in the second quarter, with new rail car orders across the industry totaling approximately 5,800 units compared to approximately 6,200 units in the prior year period, as customers continued to evaluate timing of new rail car acquisitions. Despite the challenging market environment, our commercial performance stood out. Our team captured approximately 45% of all industry new rail car orders in the quarter, and excluding tank cars, our share of the addressable market was approximately 56%, significantly above our historical market share levels for order intake in the quarter. Our disciplined commercial strategy is centered on earning long-term customer trust through transparent engagement, collaborative product development, operational expertise, and reliable execution. These capabilities continue to support repeat business, strengthen customer relationships, and enhance the quality of our order book.

Our success in the covered hopper market is a strong example of how our new product strategy is creating value. Covered hoppers represent the largest railcar segment in North American fleet, making this an important strategic market for freight car America. Over the past four years, our focused commercial strategy, combined with innovative engineering and close collaboration with customers, has resulted in new and enhanced railcar designs that improve operational efficiency, reduce lifecycle operating costs, and address evolving customer requirements. As a result, we have increased our market share, demonstrating the strength of our differentiated approach and continued market acceptance. However, this is only part of the story. Conversions, retrofits, and other specialized programs supplement our new car activity and give us second avenue for growth. This kind of customized work takes engineering expertise and manufacturing flexibility, and those capabilities continue to differentiate us in the market and help support our strong order momentum while the new car market recovers.

The underlying demand picture continued to improve through the second quarter. 16 of the 20 carload segments tracked by the Association of American Railroads showed year-over-year growth, up from 13 segments in the first quarter and the broadest gains in five years. Carload traffic excluding coal through the first half the highest since 2008 and June set an all-time record for intermodal volume. grain and grain mill shipments posted some of the strongest gains consistent with the activity we see in our covered hopper pipeline. These trends support the replacement demand that continues to build as fleets age. Looking at the broader picture, Freight Car America continues to execute well in challenging market. We are gaining share in new rail car orders while our conversion retrofit and specialized manufacturing business provides a stable source of earnings and customer engagement. Although industry order activity remained below historic levels during the quarter, we are in We are encouraged by customers increasingly moving from inquiry to order, supported by healthy diversified pipeline across multiple railcar segments. As industry demand returns toward long-term replacement levels, we believe our differentiated product portfolio, disciplined commercial execution, and deep customer relationships in Freight Car America for success while delivering sustainable, profitable growth.

With that, I'll turn the call over to Mike to walk through the financials in more detail.

Thanks, Matt. Good morning, everyone. I'd like to begin with a few second quarter highlights. Revenue for the quarter was $113.1 million compared to $118.6 million in the second quarter of 2025, and we delivered 927 rail cars compared with 939 units in the prior year period. Year-over-year comparison primarily reflects production timing ahead of the planned second half grab that Nick described. Aftermarket revenue increased 13% year-over-year, driven by organic growth in parts and components, together with the contribution from our recent acquisition. We expect the aftermarket to remain an increasingly meaningful contributor to our profitability, cash flow, and long-term growth. Gross profit was $6.2 million, representing a gross margin of 5.5 percent, compared with gross profit of $17.8 million and a margin of 15 percent in the prior year period. The decline primarily reflects lower delivery volumes and the resulting reduction in fixed cost absorption, as well as $2.2 million of costs associated with the workforce realignment completed during the quarter.

Turning to that realignment, the actions we took align our cost structure with the productivity improvements achieved across our manufacturing operations over the past two years. We expect the program to produce approximately $12 million of annualized cost savings with benefits beginning in the third quarter and building toward the full run rate thereafter. Importantly, these savings are structural at current production levels and do not limit our ability to increase output as demand recovers towards long-term replacement levels. Selling general and administrative expenses were $10.5 million compared with $10.1 million in the prior year period. We expect SG&A to remain relatively consistent during the second half of 2026, creating favorable operating leverage as our backlog converts into meaningfully higher deliveries compared with the first half of the year. we reported a net loss of $30.1 million, or $0.94 per diluted share. This result included a $24.9 million non-cash loss associated with the remeasurement of our warrant liability, reflecting the appreciation in our share price during the quarter. Excluding non-cash and other adjusting items, adjusted net loss was $0.8 million or $0.02 per diluted share compared with adjusted net income of $3.8 million or $0.11 per diluted share in the prior year period.

During the quarter, a shareholder exercised a substantial portion of its outstanding warrants. As a result, the warrant liability declined from $119.4 million at March 31 to $14 million at quarter end and stockholders' equity became positive at $36.2 million. The warrant exercise did not result in incremental dilution to our reported earnings per share because the underlying shares had already been included in the weighted average share count used to calculate basic and diluted EPS since the warrants were issued. Following the exercise, our actual common shares outstanding are now much more closely aligned with the share count reflected in our EPS calculation. Additionally, the significant reclassification from liability to equity accounting should substantially reduce the future quarterly earnings and balance sheet volatility associated with remeasurement of the remaining warrant liability. Justed EBITDA was 1.2M, representing a margin of 1%, compared with 9.3M and a margin of 7.8% in the prior year period. The decline was primarily driven by the lower deliveries and fixed cost absorption, consistent with the production timing discussed earlier.

We expect profitability to improve sequentially as deliveries increase through the balance of the year and the benefits of our cost savings program begin to take effect. Cash generation was a notable strength during the quarter. Cash flow from operating activities was 12.1 million, compared with 8.5 million in the prior year period. Free cash flow was 11.3M, an increase of 43% year over year, and capital expenditures were 0.7M. We ended June with $63 million of cash and cash equivalents and have reduced total debt by approximately 7.3 million since year end. For the full year, we continue to expect capital expenditures of $7 to $10 million, including approximately $4 to $5 million in maintenance capital and the completion of our previously announced tank car manufacturing investments. Turning to capital allocation, we completed the acquisition of Southern Parts and Equipment in July, representing our second aftermarket transaction in less than a year.

The acquisition fits squarely within our discipline investment framework by adding capabilities adjacent to our core rail markets, and we expect it to be immediately accretive. With the production capacity required to support future railcar growth already in place across our existing manufacturing footprint, we are positioned to direct capital towards opportunities that increase the durability of our revenue, earnings, and cash flow. Moving to our full year outlook, we have revised our 2026 guidance to reflect the later start to the second half ramp, with some deliveries now expected to shift into early 2027. We now expect railcar deliveries of $3,500 to $3,900, revenue of $410 to $460 million, and adjusted EBITDA in the range of $36 to $45 million. Importantly, this change is isolated to the timing and mix of new railcar deliveries. Our aftermarket business continues to grow and remains on plan, and the second half of the year is underpinned by orders already in our backlog. Looking ahead, our cost saving initiatives will partially offset the impact of lower full year deliveries and improve the profitability of each railcar we produce.

At the same time, the growing contribution from aftermarket continues to improve the quality and diversity of our revenue mix. These initiatives are complementary. One lowers our structural cost base, while the other expands our higher value and less cyclical revenue streams. Together, they improve the underlying margin and cash flow profile of the business at current production levels, with benefits extending into 2027 and beyond. Overall, Freight Car America exits the first half of 2026 structurally stronger than it entered the year. We have a lower cost base, increased revenue visibility, a growing aftermarket platform, strong liquidity, and a cleaner balance sheet. When we move through the second half, we expect higher deliveries, improving profitability, and continued cash generation. We will remain disciplined in deploying capital across our operating segments to strengthen the business and create long-term value for our shareholders.

With that, we will 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. One moment please while we poll for questions.

The first question is for Mark Reichman for Noble Capital Markets. Please go ahead.

Thank you. Well, I was very encouraged with the strong order activity, so congratulations on that. What I was wondering is, if you look at your midpoint of your guidance, so that would be 3,700 rail cars, which would imply at the midpoint roughly 2,196 in the second half. you've got 972. So I was just kind of wondering, not that the guidance is overly wide, but what gets you to the high end versus the low end? What are the variables there?.

Hey Mark, good morning, it's Nick. I'll start with this one and then Matt can help us if we need to cover any further details. So really it's a question of, we talked about in how Q2, the ramp up was somewhat delayed from our original assumptions and some orders moved back, pushed into 2027. And it's more to do with being able to have customers who are willing to take on the same kind of support. orders in 2026 so that we can really fill out that upper end. You know, it's the order backlog we've had, as you just mentioned, is pretty significant now. We've got a lot of orders. It's a question of we don't want to be in a position where we're building things too far ahead of when our customers want them.

It's not good for us or the customers in that position. within an acceptable range. So the real sort of big mover on there is the orders that we get from this point to the end of the year. If customers are still willing or wanting to take them before December 31st, then that will push it up towards that upper half of that guidance, if that makes sense.

It does. And then just a question for Michael on the aftermarket business. So the revenue growth was impressive at 13%. year-over-year gross margin, you know, it was pretty much flat. So the gross margin as a percentage of revenue I think went from about 36 percent in the second quarter of 2025 to about 32 percent, 32 percent plus thereabouts. So So we're with 32.6%, I guess. So do you think that 32.6%, is that kind of a normalized level, going forward or would you continue would you expect that as you continue to make acquisitions and grow volumes and revenue that you might see that gross margin as a percentage of revenue go down a little bit.

Hi, Mark. That's a good question. I think we'll see. So historically, our aftermarket was primarily focused on the rail cars and coal replacement parts, and that's now expanded pretty significantly. In terms of a long-term rate, I think that 32-33 percent is a good overall rate. Some of the differences quarter to quarter in the aftermarket is the difference between the new segments we're getting into with distribution and replacement parts for the coal fleet out there. So you will see quarter to quarter, the margin might change a little bit, one quarter higher than the other, depending on mix. But a good long-term rate would be that 32%, 33%.

for the next 27, 28. And then the last question is just a question for... Nick, on the tank plan, you know, entry into the tank car business, you know, now that you have those 232 tariffs on tank cars for Mexico, I think Greenbrier has mentioned that on their conference calls. And it may not be as onerous, you know, depending on what policy. parts are actually the tariff applies to. But how does that influence your thinking in terms of moving into the tank car business?.

Well, it's certainly something we look at that, Mark. It's a good question. You know, we've got a list of two sections, two ways to answer this. One is we have the retrofits, which are imminent. Q3, Q4 onwards into 2027. So they are not wrapped up in that same 232. So that's one thing to avoid. And then our entry into the new tank car market, we've always said sort of late 2027 into 2028 and beyond would when we would work through that to release it to the market to make shipments. So we've got some time. time to fully review what happens with those 232s and how they're calculated. it's still something of significantly importance.

So just a general overview. So generally in a normal year tank cardiomander is about 10,000 to 11,000 units across North America. and there certainly isn't that capacity installed in the United States to fulfill 10 to 11,000. So the question is going to be, you know, the demand stays there, likely, yes, and you know the question of where can they be manufactured and what tariffs rates would they apply and who would pay those tariffs. So we will continue to work through that. When it comes to the things we're planning to do in the near term, None of the processes that we've done for the retrofit program are in jeopardy, so they'll continue as we've always said. And then we don't have to make any key commitments on capital for a while yet to still support those original dates. So we'll keep reviewing that. There's a couple of things that may or may not shake out. But certainly we'll work with customers as always.

Our job is to fulfill the demand of the customers. whether they get tariffed or not will be a discussion we'll have with those individual customers at the time. But it certainly doesn't change our thinking, Mark. We're still planning to confirm the tariff figure out manufacturing operations with the engineering required and the approvals required because they're kind of low cost. We'd obviously make that review and decision before any serious commitment to capital but that will be quite some time yet before we do that so we will keep getting ourselves smarter up until that point and then we'll have to make a call at that point. but that won't be for another 12 months 13 months of the year list before that commitment needs to be made.

Meanwhile, you're experiencing strong order activity. You're becoming leaner with the productivity improvements, and so margins should benefit from that. Okay, and like you said, you kind of push any capital commitments. Maybe that's kind of the flip side is you kind of avoid that.

if you choose to delay. Is that the right way to think about it? Yes, I mean, there's a number of unknowns. what happens with the appendix on the 232 as to whether tank cars remain there, yes or no, and is that going to continue over multiple years, and let's assume it does stay in place. And then there's the whole point of, you know, where you source all the materials from. So there's quite a number of complex nuances to look at. Either way, we'll be fully prepared to go through them, but from a outlook and a multi-year outlook and sort of what we said about entering the tank car market, it's just another thing to consider. It certainly doesn't change our thinking that it's an attractive market. We think we've got great products, we've got a great support of a great engineering and manufacturing process, a great commercial process. So, you know, we want to be will meet what customers need and we'll figure out how to be compliant and still fulfill customers need at the same time so That's how we typically thought about it.

You know, we've navigated through a lot of tariff questions and concerns over the last two years or three years, two years now. So I don't see it as a reason to stop that thought, if that's the question. It's another thing to think about as we think through. But right now, we'll continue to make the same progress we were planning to make. And then when we get to those large commitments at some point in the future, we'll have better prepared thoughts at that time. But nothing's slowing down at the moment, Bob. Nothing's slowing down at the moment for it.

Right. Well, that's very helpful. Thank you very much. No problem. Thank you.

The next question is from Brendan McCarthy from Sidoti. Please go ahead.

Thank you, and thanks for taking my questions here. I wanted to start off on the delivery shift underpinning the new guidance. Is this simply customer preference here? And ultimately, why do you think customers are preferring to delay deliveries at this point? Yes.

Hey Brendan, it's Nick. Yes, it's making sure we meet our customers expectations, if you call it customer preferences, being able to you know we don't want to be in a position where we're pre building too many cars with with an order behind it but before a customer needs it because it ends up with congestion and costs out store things so We looked at making sure that we could build, as we would normally, to the demand schedules of our customers. And that's typically how we run our supply chain processes. you know it takes it it can um take up a lot of cash in inventory if we start building too far ahead of when customers truly need cars so uh that's really what was the driver for um been able to take orders from our order book and make it through the shipping in Q3, as opposed to building and shipping in Q2 with a slight delay.

That makes sense. I appreciate the detail there, Nick. And when you look out to these deliveries shifting into early 2027, I guess what really gives you confidence that those deliveries will occur in early 2027, or do you think there's a chance they get further kind of kicked down the road to 2028? Yes.

I doubt that we kicked 2028. So these are the ones where, you know, when we talk about 2027, it's the difference of someone wanted to take something in December versus January. It's not a huge shift, but 30 days or 60 days can make a difference at the end of the year. And that's what you see in Q2, that the delivery dates are measured in a deviation of days, not quarters. But when that happens and it rolls over past December 31st, we just have to be conscious that if a customer doesn't want something in 2026 and they want it in 2027 because of their own needs – We just have to be respectful of that within a reasonable limit. So it's not something that I think there's a risk that we've got booked orders and all of a sudden they shift by quarters. That's not the risk we were managing through.

It's really about making sure that we don't have things built in month one that are not going to be available. ship them month two and we just tie up a lot of capital for 30 60 days that we don't want to do.

I understand. That's very helpful to understand. And then, you obviously have really strong order intake in the quarter. I think that's great to see. But did you have to make any pricing concessions there to win these orders? Or do you anticipate the same kind of mid-teens gross margin profile on the orders that are in the quarter?.

the backlog at this point so I'll enter in the same way as I mean we our strategy is not to be the the cheapest one out there I know we build we build a engineered, tailored car to the needs of our customers. Some of these multi-year orders, because we've carefully configured our product to really maximize the value for our customers, so we really don't have to take massive pressure on pricing discounts or various things that you alluded to. So our key strategy is to meet the value proposition of our customers and to truly understand what they need. We've talked many times about the benefit of being a purpose builder is that we can have a level of intimacy with our customers that we can truly expose what the pain points are and design and configure our product around those pain points, those creates in value for the end user and the customer. that's we can we continue to do that and we will continue to do that so that that just you know puts us in a position where we're not in the position where we're going to try and be, you know, price discounts or any of those sort of related activities. So in a second to your question, yep, as the higher volumes go through the second half and then as we look out to the future years of that volume returns, then yes, I would fully expect with the improvements we've made on operations and the productivity lock-in, plus the volume of returns to sort of a normal build rate for us, then yes, you'd expect those margins to quickly get back to those,.

those lower teens and above across our product mix. That makes sense. Thanks, Nick. And last question for me, just on the aftermarket segment. I know I think it's only been roughly 10% of total revenue at this point through the first half of 2026. But it's a highly fragmented industry. Just curious as to how large you think that you're.

to grow this business long term? Hi Brendan. Yes, so I don't think we're going to comment on the long term target yet, but I will say we do view this as a meaningful growth platform for us, as I mentioned, and with Castaño's pretty well situated when we look at capital allocation, this is an area that's very attractive to us to continue to grow. and generate meaningfully higher revenue and earnings and cash flow as a percentage of the consolidated entity.

Understood. Thanks, Mike. Thanks, Nick. That's all from me. Thank you. You're welcome.

As a reminder, to ask a question, please press star 1. The next question is from Erin Reed from North Coast Research. Please go ahead.

Great, thank you. Yes, I was hoping to get a little more color in terms of, you know, obviously we're looking at more of the trough and the overall, you know, rail car demand. I was wondering if you had any better idea in terms of cadence of what that recovery might look like in terms of, is it something to be expected a little bit more gradual, a little bit more sharp, you know, as things progress, what's it looking like to you right now?.

Aaron, Matt's on. I think when you look at the current environment, we still see an environment, demand environment that's tied very closely to a retirement, real car retirement. We don't see that changing in the near term. This year looks to be total order activity and deliveries in the 20 to 23,000 range. But as we look ahead at when rail cars are going to expire, due to the 50 year age limit and then overall demand approaching 30,027 and then upwards of 40,028. So all of the all the markers are there for a return to the replacement demand of that 35 to 40,000 rail cars just based on two successive years or two past years of sub replacement demand deliveries along with cars scrapping at a higher rate than new cars being delivered.

not sustainable to maintain operations for the shipping community. Great. That's helpful. And then one other question on the tank car retrofit. Right now, looks like you have a pretty good visibility into the orders right now. Do you expect any additional tank car demand to come from more retrofits or new builds? Do you have any idea which way that might fall when demand continues to come in?.

On the retrofit side, we think we're at the tail end of the demand of taking the .111s to the .117Rs. of those cards have already been converted and we think we're at the tail end of that. Moving forward, as Nick had mentioned, we will be evaluating our entry into the marketplace, which is really a late 27, early 28 discussion.

Great, thank you. The next question is from Mark. Mark Reichman from Noble Capital Markets. Please go ahead.

Mark Reckman, your line is open. Yes, I just wanted to follow up on your market share gain. You know, you captured 45% of the industry new rail car orders during the quarter, which is pretty impressive. You know, according to the Railway Supply Institute, orders were 58.26 in the second quarter and deliveries were 55.27. So I was just wondering, you know, you've had kind of this history of gaining market share, but the second quarter, I guess, clearly was influenced by you had that 1900 multi-year order from a key customer, and then you had 3,000 orders in the second quarter. 2,600 of those were for rail cars, I guess. I mean, what do you see, I mean, as your competitive advantage here? I mean, is it, you just have, was it just a low order quarter for the industry, and you just happened to snag a really big order? Or do you see, you know, is this kind of a good signal, you know, that the market share gains could actually accelerate? Just.

some color there if, if, if you can. Hey Mark. So I'll, I'll start with, I think, thank you for highlighting that, you know, uh, you know, Q2 auto intake was, uh, A good signal for us. It's not the first time we've seen a reasonable increase in market share. So I would characterize it as that we've been growing market share on order intake consistently quarter over quarter for a number of quarters now. it's more of a buildup and more of a testament to the credibility of that buildup. I'll turn over to Matt, to talk about some of the things we do commercially, but just to reinforce the same question that Brandon asked about pricing, we truly take our commitments to creating value for our customers seriously, as in from the first contact of our commercial and engineering leads, right through to the production, manufacturing, and shipments of the products to the customer's needs on time, in full, high quality products. So I think it's being able to repeatably deliver what the customers want and when they want it and they recognize that as they get that service, that, you know, looking at future orders and repeat orders, why would you sacrifice that, given that you've had that experience from freight car making, but Matt will talk a bit more in detail because obviously the commercial lead or the tip of that spear leading that charge for us, Matt. Yes, obviously Q2 was a very strong quarter for us, but I would point out that our.

CUSTOMER ENGAGEMENT AND HOW WE WIN HAS BEEN TIED TO THE VALUE THAT WE CREATE FOR OUR CUSTOMERS AND TRULY UNDERSTANDING SPECIFIC OPERATIONAL NEEDS. THAT'S SORT OF HOW WE WIN, NOT SORT OF HOW WE WIN. IT IS HOW WE WIN. AND WHEN WE LOOK AT OUR ACTIVITY AND MARKET SHARE GROWTH OVER THE COURSE OF THE LAST COUPLE just looking at 2022, we were about 5% of the market. And every year since then, we have grown our market share. And looking at year to date, including Q1 and Q2, we are over 27% of order intake. So for the last four years, despite a declining overall market market of demand would continue to increase our market share year over year and is because of how we engage with customers the collaboration from an engineering perspective the ease of doing business and an overall commitment to excellence and on-time delivery those are the things that differentiate us.

and then mark just to just to hammer that as the as the market migrates back to its normal sort of 35,000 to 40,000 units a year we fully intend to continue to take the same approach and be able to defend market share by the value proposition that we have rather than price.

Well, that's a very good point because now you've got leverage to growth in the overall market when you've been growing in kind of a down market. So, well, that's really helpful, Keller. I very much appreciate it.

You're welcome. Thank you. Thanks, Mark. Thanks, Mark. This concludes the question and answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to the FreightCar America First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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. Over to you, Chris.

Thank you, and welcome. Joining me today are Nick Randall, President and Chief Executive Officer; Mike Riordan, Chief Financial Officer; and Matt Tonn, 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 or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside of the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events or otherwise.

During today's call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles or GAAP. 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 2026 is posted on the company's website at freightcaramerica.com, along with the 8-K, which was filed at market close yesterday.

With that, I will 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. Our first quarter results were in line with expectations and remain consistent with the operating cadence we expect for 2026. At the same time, our commercial differentiation and expanding aftermarket business, which grew 86% year-over-year, continues to distinguish FreightCar America and reinforces the resilience of our business model across market cycles.

Our ability to serve specialized customer needs through not only new car builds, but also retrofits, conversions and our expanding aftermarket platform, all play a key role in growing our addressable revenue opportunities and allowing us to fulfill a broader set of customer programs. In short, FreightCar America is a truly diversified railcar platform, and that remains central to our strategy.

Supported by our manufacturing expertise and strong productivity improvements, we realized one of the highest gross margin quarters in over a decade with 17% gross margin in the quarter. This represents an expansion of 190 basis points year-over-year. What is especially encouraging is that we achieved this performance on lower line utilization, highlighting the operational agility and the variable cost structure of the business.

Commercial activity was also encouraging in the quarter with significantly improved pipeline activity amongst key accounts and solid order intake, including demand for our conversion and retrofit work. We increased our backlog by $19 million sequentially. And together with the expected contribution from retrofit and aftermarket activity, we continue to expect performance to be weighted towards the back half of the year.

Internally, as we have scaled our manufacturing footprint, we have been on a continuous improvement journey focused on enhancing productivity and strengthening execution across our manufacturing operations. During that time, we have successfully established 4 fully operational production lines and have taken a relentless approach in driving efficient manufacturing practices.

We are extremely pleased with our progress to-date, noting that we have increased productivity by approximately 50% over the last 24 months. In addition, we remain agile and are able to remain flexible as needed, giving us additional operating capability as demand evolves. Together, these actions and capabilities provide additional support to drive consistent margin performance over the long-term.

At the same time, programs like TruTrack are helping reinforce accountability, real-time build visibility and quality throughout the production process, driving greater consistency, reducing rework and strengthening production discipline across our operations. We also remain focused on the continued expansion of our aftermarket platform, an important part of our strategy to build a broader and more balanced rail business over time.

We are excited with the progress we have seen so far with our recent acquisition, which represents an important step in expanding our aftermarket capabilities. We remain disciplined in how we invest behind our strategy with a focus on selective adjacent opportunities that strengthen our position in core rail markets, expand our capabilities and support attractive long-term returns.

Overall, we remain mindful of the current new build environment where industry order activity has remained relatively consistent with last year's levels. Importantly, that dynamic continues to point to underlying pent-up demand as fleets age and deferred replacement needs build over time.

As those fleets reach retirement age, customers are increasingly likely to place orders closer to the required delivery timing, which tends to favor more agile manufacturers by creating a shorter lead time environment.

FreightCar America is well-positioned in that regard. With our improved productivity, stronger operating discipline and a flexible manufacturing model with scalable capacity, we are well equipped to respond efficiently and capitalize on opportunities as replacement demand returns over time.

With that, I'll turn it over to Matt to discuss the market environment in more detail.

Thanks, Nick, and good morning, everyone. I'll start with a brief update on the market and our commercial activity during the quarter. Industry conditions for new railcar builds remain relatively consistent with the prior year with expected annual deliveries tied to replacement demand. This dynamic reflects underlying demand as fleets continue to age and replacement needs build over time.

Order activity during the quarter was also consistent with this environment with industry orders totaling 5,654 units compared to 5,085 units in the prior year period. Railroad service metrics continue to trend positively across the industry. Key indicators like reductions in dwell time and increased velocity speak to improved rail service, customer confidence in rail operations and support long-term rail demand.

Through the first quarter, U.S. carload traffic was up over 4% year-over-year with 13 of the 20 carload segments showing growth. Grain and chemical carloads posted the strongest growth, which has also been reflected in our pipeline for new covered hopper cars. Overall, first quarter carloadings, excluding coal, were the highest since 2015 and indicate that despite softness in some sectors, underlying rail demand remains resilient.

During the quarter, we saw strong commercial activity, including growth of our sales pipeline across our broad product portfolio of new build and conversion railcars. Further, we continue to see increasing interest in our aftermarket business as customers look to extend the useful lives of their aging railcar fleets through scheduled maintenance activity.

Backlog at the end of the quarter totaled 2,058 units valued at approximately $156 million with a diversified mix across new builds, conversions and retrofit programs that support a balanced revenue profile. Importantly, we are beginning to see customers who were evaluating new car orders moving forward with purchase decisions. In those instances, our flexible manufacturing footprint and ability to pivot quickly positions us well to meet customer-specific delivery timing requirements.

From a market share perspective, we estimate our addressable share of industry new railcars, including -- excluding tank cars, was approximately 17% for the quarter, which is in line with our typical market share. Importantly, this metric does not include our work outside of new railcars, including railcar conversions, retrofits and rebodies, which further diversifies our revenue base and expands our participation across the broader railcar market.

Looking ahead, as Nick mentioned, we remain on track to begin shipments under our tank car retrofit program in the second half of the year with initial activity expected in the third quarter and more meaningful contribution in the fourth quarter. Overall, while near-term market conditions remain measured, we are encouraged by the level of commercial activity, the strength of our pipeline and the continued diversification of our backlog.

With that, I'll turn the call over to Mike to walk through the financials in more detail.

Thanks, Matt, and good morning, everyone. I'd like to begin with a few first quarter highlights. Revenue for the quarter was $64.3 million compared to $96.3 million in the first quarter of 2025. The year-over-year decline primarily reflects lower railcar deliveries with 577 units delivered in the quarter versus 710 units in the prior year period. As noted, this was largely driven by underlying demand and expected timing.

While production timing impacted first quarter deliveries, we are encouraged by the momentum in our aftermarket business, where sales grew 86% compared to the prior year period. This growth reflects the progress we are making in expanding our presence in the aftermarket, driving further diversification to our business over time. Gross profit for the quarter was $10.8 million compared to $14.4 million in the prior year period.

Gross margin was 16.8%, up 190 basis points from 14.9% last year. The improvement in margin was driven primarily by a more favorable product mix that expands beyond new railcars as well as the productivity gains and operational efficiencies across our manufacturing operations that Nick mentioned earlier. Importantly, we delivered this margin improvement despite lower production volumes, underscoring the benefits of our mix, productivity and cost discipline.

This improvement reflects the progress we have made in strengthening execution, improving throughput and driving a more disciplined operating model. Selling, general and administrative expenses as a percentage of revenue increased to 17.7% from 10.9% in the prior year period, primarily reflecting lower revenue in the quarter rather than a meaningful increase in absolute SG&A expense. On the bottom line, we reported net income of $41.6 million or $1.15 per share compared to $50.4 million or $1.52 per share in the prior year period.

Results for the quarter include a $49.1 million noncash gain related to the remeasurement of our warrant liability. Excluding noncash items, adjusted net loss was $0.5 million or $0.04 per share compared to adjusted net income of $1.6 million or $0.05 per share in the first quarter of 2025. This change primarily reflects lower volumes in the quarter.

Adjusted EBITDA for the quarter was $3.2 million, representing a margin of 4.9% compared to $6.4 million and a margin of 6.7% in the prior year period. The year-over-year decline in adjusted EBITDA was primarily driven by lower deliveries, consistent with the expected quarterly cadence, partially offset by the margin improvements mentioned earlier.

We continue to execute a disciplined and measured capital allocation strategy, balancing targeted investment in the business with a continued focus on liquidity and financial flexibility. From a balance sheet perspective, we further reduced debt in the quarter and ended with $52.8 million in cash and cash equivalents.

Capital expenditures for the first quarter totaled $147,000. Moving forward, we continue to expect 2026 capital spending of $7 million to $10 million, including approximately $4 million to $5 million of maintenance spending as well as targeted investments to complete our previously announced tank car manufacturing initiatives.

The productivity improvements we have made, together with our flexible manufacturing footprint and existing production lines, gives us the capacity to support higher production levels as demand improves without significant additional capital investment.

Because that capacity is already in place within our current footprint, we can scale production as needed while continuing to direct capital towards opportunities that strengthen the business over the long-term, including expanding our aftermarket platform and pursuing selective opportunities that enhance the stability and durability of our revenue and cash flow profile.

Overall, first quarter results were in line with our expectations and reflect the planned production cadence for the year. We're reaffirming our full year 2026 guidance and our expectations for a stronger second half remain intact, supported by backlog visibility, scheduled program activity, aftermarket momentum and continued productivity improvements.

We'll now open the line for questions and answers.

[Operator Instructions] Our first question comes from Mark Reichman with Noble Capital Markets.

So if I look at railcar sales revenue divided by railcars delivered, it was about a little under $92,000 for the first quarter. That number drifted down throughout 2025. And also the same was true really for the backlog value per railcar. So I was just wondering, could you talk a little bit about the product mix changes throughout the year? Would you expect that number to get above $100,000?

Mark, this is Mike. Yes, you're right. In the back half of '25, we talked about mix shifted more towards conversions and rebody opportunities we had. The same thing in Q1, it was a heavier conversion quarter. And I would expect, as we move into the back half to see that number go above $100,000 as the mix will shift back towards new car activity in the second half of the year.

Does that answer your question, Mark?

It does. The second quarter, would you expect an improvement from the first quarter in that regard as well?

From an average selling price, we should see that go up from where we were in Q1 as well and then build throughout the year, yes.

Okay. And then just my next question is the -- I think you kind of expectations were for a much stronger second half. But with rail deliveries at 577 in the first quarter, it seems like there might be a little catching up to do to get within guidance.

Could you maybe just talk a little bit about the cadence of railcar deliveries? And do you think your net railcar orders received, I mean, I think it was 709 in the first quarter, that that's going to fuel strength into the second half of the year.

Mark, I'll start answering that question, then it's really an order pipeline question that I'm going to phrase in and then that will drive the delivery cadence in the second half. So we've -- this time last year, we talked about how improving our agility in manufacturing, which is effectively shortening our lead time and improving our response time would favor people in a market where the number of orders being placed is lower than the replacement average.

So that's what we're seeing again. We're able to -- we drove a lot of productivity improvements, and we've shortened our -- or improved our velocity, shortened our dwell time in the manufacturing plant, which allows us to keep capacity open in the near-term for customers as they place it.

And then what we get is visibility into the full pipeline of our commercial opportunities. So we've got an increase in the pipeline activity, those customers talking to us about orders in the 2026 time frame and our ability to fulfill those orders still within the 2026 time frame.

So we're able to have more insights than we do talk about pure booked orders -- on the pipeline activity, the type of product, what the product is waiting for to become a live order, et cetera. So that's where, yes, it is going to be weighted towards the second half. We said that last year, and it was.

We're committing to that will be the same this year. With a lot of the work we did both in our scalable manufacturing and our ability to ramp up from what we did in Q1 to a significantly higher numbers without introducing risks is going to be -- is key to our success in that as well.

But the order activity, I'll pass it on to Matt. He can talk a bit more about that. But yes, it is heavy weighted to the second half. We knew that going in, and we've designed our plan around that and we're still confident we can deliver on that.

Yes. I'll just add that we've been adept at being able to convert orders with very short lead times. Customers have been on the sidelines now moving into the order stage and our ability with our efficient footprint has allowed us to convert those orders very quickly and deliver. So that's been executed multiple times within the quarter.

And just to comment on the pipeline. The pipeline is continuing to grow. It's been quite active in the latter part of the first quarter and into Q2. I won't speak to order activity in the quarter. We'll save that for the next earnings call. But overall, we have a high level of confidence in the strength of the pipeline for 2026 and even pipeline activity that is into '27 and beyond.

Our next question comes from Aaron Reed with Northcoast Research.

Yes. A little bit of a follow-on to that call or comment on the lower deliveries. I was wondering if you could shed a little light around, were deliveries impacted at all by preparing for the tank car deliveries in the back half of this year because you're not going to be operating on that fifth line, but that fourth line. So did that have any impact on that as well?

No, Aaron, quite the opposite. We've historically talked about we would -- we have a fifth line on the roof, so we can open that fifth line pretty quickly as 90 days. But with our productivity improvements, what we're finding is we're raising the capacity on those first 4 lines in our ability to convert more cars on those 4 in a more productive manner.

And what that means is our installed capacity on those first 4 is increasing quite significantly compared to what we originally intended with those productivities and velocity improvements. So yes, we will more than likely do the conversions, as you mentioned, some tank car conversions on the footprint we have, possibly not even needing the fifth line for that.

It's available to our use should we need it. But I would rather sweat the assets as much as possible before we commit to expanded capacity. So in short, no, the volume wasn't impacted negatively because of some preparation work.

The preparation work has gone to plan. We've got the certification as required, but that hasn't impeded our freight car business or our freight car capacity. We were simply responding to customer demand profiles during the quarter.

Okay, great. And then another follow-up question to that is, last year, I think overall deliveries across the industry around 30,000. Do you have any more insights about what you might expect for the total number of deliveries for the remainder of '26? And have you gotten any indication now that we're a little further along what '27 might look like?

I'm going to try -- I'm not going to try and do a year-to-date plus a bit more. We're doing full years because it's just easy to do the math that way. So yes, so typically, when we look at deliveries, deliveries are going to lag behind order activity.

So we look at the order activity for 2025, which would suggest that the deliveries in 2026 are going to be somewhere between 25,000 to 30,000. We give a wide range there [ that ] we still convert in 2026. So that would be kind of consistent. And then I'd expect the orders in 2026 to be about that range or slightly higher as they start receiving orders in the back end of '26 that go into 2027.

So there's a lag time. Traditionally, if you look at the rail industry, that lag time between order placement and delivery has been as far as 18 months or longer. Typically now, certainly with our agile manufacturing platform, that timing from order placement to delivery can be as short as 9 to 12 weeks in some cases.

So -- what we're seeing is a compression of that order cycle from order placement to delivery. And we've structurally aligned our sort of our operations and supply chain and support and engineering roles so that we are very agile in that process, which allows us to capitalize on that shortened lead time that the market and the customers are beginning to look for.

Super helpful. And then I guess I'm going to [ tag ] one last question on is when you look at the total overall number of deliveries throughout the year and your overall market share, even as the industry is kind of seeing deliveries fall a little bit, you're continuing to take market share. Have you seen any of your competitors take any competitive pricing action to combat the market share you're taking or is it pretty much the same as it was before?

I'm going to -- I'll answer it at a very high level, and then I'll try and get some more specific. I think in a free market economy, competitors always respond in some way, whether it be pricing or value proposition or some other way. So I would expect that to always be true with a general competitor in the rail space.

But really, what that means for us is we are very conscious that we have to earn the right to win our work and earn the right to win our market share. And we take that very serious and [ ability ] we've never said we're going to be the lowest cost producer, but we will be the most valuable producer.

And we'll look at making sure that we deliver exactly what our customers want and what they need and enhance our value proposition that way. And we truly believe in our product. We truly believe in our services, and we truly believe in our relationships that we build. And when we combine all that together, we win work in our own rights. Now competitors will -- can judge that and respond to that how they see fit.

We keep an eye on it, but we've grown both in actual unit count and in market share, as you said. And we fully expect to sustain those gains, in fact, build upon it. And as the market deliveries respond back to the normal sort of 38,000 to 40,000 units a year, we truly expect it to protect that market share gain through that growth cycle as well.

Our next question comes from Brendan McCarthy with Sidoti.

I just wanted to start off on the Q1 gross margin, see if we could dissect that a little bit more. How much of that was structural in nature or was that more so driven by higher retrofit deliveries in the quarter?

Brendan, this is Mike. I would call the majority of that structural. We didn't have any retrofits. But as alluded to, with the average selling price being down because we had more conversions, you'll naturally see the gross margin up.

As we've kind of mentioned, typically, the bottom line gross profit on a per unit basis is relatively similar between conversions and new cars, but you have a lower price tag on a conversion, so you see the margin a little higher.

Got it. That makes sense. That makes sense. Yes, I meant to say conversions actually because I think the retrofits are more back half weighted in the year. Is that correct?

Yes.

Got it. And on that point, with the retrofits in the back half of the year, but I think you mentioned you're still expecting to see the average sales price kind of step up throughout the year. Can you kind of differentiate that between the 2 just in terms of the delivery cadence?

Sure. So I think we've mentioned that the retrofit program we have is a 2-year program. It kicks off in Q3 for us and really starts going in Q4. Probably about 1/4 of that total order will take place in calendar year '26 with the balance going through 2027. So the retrofits will have a lower impact on ASP this year compared to next year where the bulk of them are taking place.

Okay. That makes sense. That's helpful. And then last question for me is just on the guidance affirmation. Are you -- I guess, how confident are you that you can really hit the midpoint there?

And how much of that is really backed by -- I guess, are you banking on a recovery in industry order flow in the back half of the year and really capitalizing on those short lead times? I guess what's really underpinning the confidence there?

I'll walk through that first, and then Matt can probably put some color around some of the order activity. So the first question is -- so yes, the year is back half loaded. We know that. We planned around that. That back half isn't really requiring the industry to get back to normal.

We've always planned on that if the industry order quantity is somewhere around 25,000 to 30,000 similar to what it was last year, and that's what our guidance is based on. So if there's a sooner-than-expected return to, I guess, normal replacement levels, then that would probably support a stronger result.

But the assumptions we've got in that is based on less about industry dynamics, which are good to look at. But obviously, we really base ours on our relationships and our insights with our actual customers and the orders they're actually working through and the projects that those orders are going to go be delivered for.

So we really be able to base it on the facts of the -- I guess, the order pipeline and gestation process and be able to risk adjust from that. So whilst the industry level is a background that helps us just sort of set the main scene, when we look at our guidance and our forecast, we're really looking at our own pipeline with a lot more detail and be able to risk assess against the orders and the projects we're working on and what may or may not influence accelerating or deferring any of those projects.

So it's not always fully reflective. Last year, we grew market share and we grew unit count even though the order industry counts went down significantly quite a lot. So it's going to be a repeat for us this year, similar dynamics. Still a lot to do, clearly. But I -- our confidence that we're not just mapping it simply to a here's what the industry does. So therefore, here's what we do. We truly believe we have to earn the right for every order, and we work on it on an order-by-order basis with our customers and our projects. Matt, anything I missed on that?

Just a couple of comments, Brendan. So the back-to-back years of order activity has averaged 23,000 units. We're scrapping more cars than are being ordered. When you talk -- when we have conversations with customers about their needs, we're getting to an inflection point where we can't keep this low level of order activity and high level of car scrapping and not start replacing railcars.

And I think you heard us speak in the past about an impending demand push as we approach the end of the decade. And customers are starting to get -- I won't say more serious, but certainly focused on their demand for railcar needs now. This is what we refer to as a high-quality pipeline.

So we're seeing much more activity in terms of permitting funding for railcar build. So when we talk about how the outlook is for the remainder of the year, it's based upon good order activity that we've seen so far in the quarter, but I think there's also solid high-quality pipeline activity that gives us high confidence in meeting our guidance.

Our next question comes from Mark Reichman with Noble Capital Markets.

Just a follow-up. So you can imagine, I mean, 577 deliveries in the first quarter, the guidance is between 4,000 and 4,500. So that does certainly -- people are going to be a little skeptical about meeting that guidance. But on the other hand, you had that ABL facility, and that gave you a lot more production flexibility.

And so we can't really see what's going on behind the scenes. But do you have some deliveries kind of already in the bag that you know are going to get delivered in the third and fourth quarters? I guess what I'm asking is your -- kind of your recent flexibility in terms of being able to produce and deliver, is that part of the -- what's kind of behind the lumpiness in the delivery schedule this year?

So I'll try and -- there's a couple of questions wrapped up in that one. So I'll try and break them down and then Matt and Mike can add some color. So first of all, on the -- if you just look at our guidance, just the entry level, as you said, it's just over 3,450 or so still to do at the end of Q1 to ship in the year. That would say on a level loaded basis, call it, 1,200 units a year -- sorry, a quarter or about 90-something units a week.

That is well within our capacity. We've demonstrated much higher shipment profiles than that before. So I don't think there's a capacity concern or ability to flex. We drove the productivity improvements so that we can handle a lot of those delivery commitments in a -- sometimes in a single shift as opposed to a double shift. So we've got a lot of improvements that are baked into that.

So I don't think we have a risk from a capacity perspective. We can flex our volume and throughput very high. The second bit we talked about is timing where we may build cars ahead of schedule. So we may do a build sequence in the prior quarter, but then you have them in finished goods on the ABL or some of the mechanical -- financial mechanics that then get the revenue recognition in the later quarter. We do sometimes do that.

There's not a lot of that in Q1, but you'll see some of those in Q2 builds that will ship in Q3 and Q4. That's normal for us as we smooth out that process. So those things do happen and will happen, but they are -- allow us to buffer supply chain variability and maintain consistent output. So that usually works better for us.

And then from a pipeline perspective, there is a higher customer demand in the second half than there was in the first half or certainly in the first quarter. And there's only so much of prebuild ahead of time you can do because then you're going to pay for storage fees and movement fees and a whole bunch of things.

So with our flexible manufacturing, we're able to deliver when our customers need them rather than having the customer make compromises on shipment timing and storage, et cetera.

So that's where when you roll all these things together, between our scalable manufacturing, our operational excellence, our TruTrack and our deep relationships with our customers, we're able to flex our delivery times so that our customers don't have to make compromises, and that allows us to have another edge as to why we are a supplier of choice for most of our customers.

That was the last question for today, and it concludes the teleconference call. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.

Welcome to FreightCar America's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] 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 the call.

I would now like to turn the call over to Chris O'Dea with River on Investor Relations. .

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

I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside of the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events or otherwise.

During today's call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP measures to the most commonly directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. Our earnings release for the fourth quarter and full year 2025 is posted on the company's website at freightcaramerica.com along with our 8-K, which was filed at market close yesterday.

With that, I will now turn it over to Nick for opening remarks.

Thank you, Chris. Good morning, everyone, and thank you all for joining us today. I'll start with a brief review of our full year performance and then share how we're thinking about the business moving into 2026. 2025 was a challenging year for the North American rail market with industry new build rates at some of the lowest levels we've seen in more than a decade. While we continue to view this as a temporarily muted with underlying fundamentals remaining strong.

We have positioned ourselves well to maintain resiliency in any market cycle. Against that backdrop, our focus for the year was on disciplined execution, profitability and positioning the company for long-term success. We did just that, and I'm proud of how the team executed. We delivered significant margin expansion, generated $31.4 million in free cash flow, gain delivering market share across the markets we serve, advanced our tank car readiness and lastly, expanded our aftermarket platform through the acquisition of Cardium railcar components, accomplishments that effectively strengthened our financial position and expanded our industry presence.

For the year, both revenue and deliveries within our expected range, while our profitability improved meaningfully. Gross margin expanded over 260 basis points. And on a per car basis, adjusted EBITDA rose approximately approaching 10% growth year-over-year, reflecting our diversified mix, improved operating leverage and cost discipline across the platform. We also generated over $31 million of adjusted free cash flow, up approximately 45% year-over-year reflecting our ability to translate earnings expansions into cash.

I want to pause on that put because it's important in what was a down year for the industry we not only maintained, but enhanced profitability and cash generation. That speaks to the progress we've made over the past several years, building a leaner, more flexible manufacturing footprint. In particular, our continued growth in conversion and retrofit programs reflects our focus on controlling the factors within our influence to drive profitable growth. These programs require meaningful engineering expertise, manufacturing flexibility and disciplined operational execution, capabilities we've intentionally strengthened across our platform.

By structuring our operations to support this level of complexity, we are able to deliver consistent margin performance and attractive returns even when new build volumes remain below long-term replacement levels. Throughout 2025, in addition to our customized solution in conversions, retrofits and other specialized railcar programs, we gained share in new car deliveries across the markets we serve, further demonstrating how our commercial strategy continues to resonate with customers as our flexible manufacturing presence enables us to gain ground on multiple fronts.

In addition, from an operational standpoint, our ability to drive performance improvements through programs like TruTrack which focuses on driving consistency and quality, throughput and cost execution along with our broader operational initiatives is working effectively to improve margins and production discipline. We continue to refine plant flow and production sequencing within our Castanos facility driving improved throughput, better cost absorption and greater margin consistency across our manufacturing lines. Importantly, these are structural improvements that make us fundamentally a more efficient and dynamic company that can flex our manufacturing capabilities to support our customers in any market condition.

Next, we continue to execute on our strategic road map, advancing our vision FreightCar America as a scaled, integrated rail platform. During the fourth quarter, we completed the acquisition of Carly Railcar Components, a leading distributor of railcar components. This transaction expands our aftermarket capabilities further diversifies our revenue mix and broadens our reach across key regional footprints. Importantly, Carly represents our first acquisition in the aftermarket space and serves a foundational step in building a more robust recurring revenue platform. The acquisition reflects our disciplined approach to capital allocation, prioritizing opportunities that are adjacent to our core manufacturing business enhance our value proposition with our customers and generate attractive returns relative to internal growth investments. With a strong balance sheet and cash generation, we are increasingly well positioned to build on this momentum.

We will continue to evaluate strategic, value-accretive opportunities, particularly within the aftermarket and that are aligned with our core rail markets, deepen customer relationships and enhance long-term returns on invested capital. Additionally, we remain focused on progressing tank car redness for this year's retrofit programs and as we have discussed previously, that earliness remains on schedule, and we are prepared to start shipments for our retrofit order in the back half of this year. While the larger opportunity lies in new builds, we view our fulfillment of this retrofit contract as a key step in achieving our longer-term goals.

Looking ahead, we ended the year with a backlog of 1,926 railcars by the $137.5 million. reflecting a diversified mix of conversion programs and new car rail builds, providing meaningful visibility into our 2026 production. Our near-term focus is on converting that backlog into profitable deliveries while maintaining the same discipline that define our performance in 2025. As we move into 2026, our priorities remain clear: deliver consistent margin performance, generate strong free cash flow, continue expanding our aftermarket and tank capabilities and deploy capital in a disciplined manner that enhances long-term returns. The operational progress we have made positions us well to execute against those priorities while maintaining flexibility in a dynamic market environment.

We remain mindful of ongoing uncertainty in the railcar newbuild market as industry deliveries continue to run below long-term replacement levels. However, history has shown that prolonged underinvestment ultimately leads to a normalization of demand as fleets age and replacement needs reascertain shelves. As I stated earlier, fleet fundamentals and end markets remain strong. And it's a matter of time before this course corrects. As that normalization occurs, FreightCar America is well positioned with a flexible operating model ample capacity and a broader portfolio of offerings and the financial strength to capitalize on emerging opportunities.

In summary, 2025 was a year of progress despite a difficult market environment. We improved margins, generated strong cash flow, strengthen the balance sheet and advance our diversification strategy. positioning the company to grow both organically and inorganically as industry conditions evolve. With a disciplined commercial strategy, a lean and flexible operating model and an efficient manufacturing footprint we are well positioned to adapt to changing conditions and deliver sustainable, profitable growth over the long term.

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

Thank you, Nick, and good morning, everyone. I'll provide some perspective on the industry environment and how we position the business commercially throughout 2025. As Nick mentioned, 2025 was a challenging year for the North American railcar market with new build activity running well below historical replacement levels. Customers remain cautious prioritizing capital discipline and fleet optimization over a large-scale expansion. However, underlying fleet fundamentals remain intact with aging equipment and deferred replacement building across multiple car types. .

For the full year, we increased our delivery market share by nearly 300 basis points even as total industry deliveries declined to approximately 31,000 railcars from 42,000 in the prior year, reflecting the strength of our commercial strategy, disciplined operational execution and ability to align closely with customer needs. Industry orders also moderated with North American new railcar holders totaling approximately 20,000 units compared to roughly 25,000 in the prior year. Within this environment, we secured approximately 3,250 total orders, including roughly 2,500 new railcar orders, allowing us to maintain new car order share despite lower overall volumes.

At the same time, the balance of our orders came from conversions, retrofits and other specialized programs underscoring that our commercial approach extends beyond traditional new builds. These customized projects require engineering expertise, detailed planning and manufacturing flexibility, capabilities that meaningfully differentiate us in the market. By intentionally structuring our operations to support this complexity, we are able to both compete effectively in new car production and support demand with higher value specialized programs. This balanced strategy expands our addressable opportunities and supports profitable growth even when broader industry volumes remain below historical levels.

As we move into 2026, backlog visibility provides a stable foundation entering the year. As Nick stated, we exited 2025 with a backlog of 1,926 railcars valued at $137.5 million, representing a diversified mix of conversion work and new car builds. Although backlog levels reflect the broader moderation in industry new car order activity, the composition remains balanced with a meaningful portion tied to specialized and conversion programs.

In summary, our commercial strategy is working effectively to maintain order share despite industry headwinds, and we are maintaining the flexibility needed to support customers today appropriately while preparing for a normalization in demand. As a reminder, long-term replacement requirements across the North American fleet continue to suggest annual industry demand in the range of approximately 35,000 to 40,000 rail cars, supported by aging equipment and mandated retirement thresholds. While timing remains uncertain, these structural drivers remain intact.

With that, I'll turn the call over to Mike to walk through the financial results in more detail. Mike?

Thanks, Matt, and good morning, everyone. I'd like to begin with an overview of our full year 2025 financials and then share a few fourth quarter highlights. I'm pleased to say that 2025 marked another year of strong profitability despite the challenging demand environment, underscoring the strength of our operational execution, favorable manufacturing cost structure and an enhanced product mix. While our results were solid, industry-wide volume pressure continued to weigh on top line performance reinforcing the importance of our ability to pivot and provide conversion rebody and retrofit programs for customers as well as focus on margin discipline and cash generation. .

For the full year, we achieved revenues of $501 million on 4,125 units represented [Audio Gap] for the full year was $44.8 million, representing a $1.8 million increase or a 4.2% improvement from 2024 and effectively demonstrating our successful efforts to enhance profitability. Lease expenses previously classified with an interest expense will be recorded in cost of goods sold as a result of an accounting classification change for our Castanos lease. This change would have reduced our adjusted EBITDA by approximately $3.5 million in 2025 if it had occurred at the beginning of the year. The change has no impact on cash flow, operating income, net income or earnings per share.

Adjusted net income for the full year was $18.1 million or $0.50 per diluted share, accounting primarily for the impact of certain noncash items, including a noncash tax benefit of approximately $51.9 million we recorded in the second quarter due to the release of a valuation allowance on our deferred tax assets. This more than offset the $32.2 million noncash adjustment related to warrant liability, which fluctuates each quarter in line with changes in our share price, which as a reminder, solely reflects accounting for the warrant holders investment and does not impact our fully diluted share count.

As we have mentioned in prior calls, we remain focused on enhancing cash generation. In 2025, we delivered $34.8 million in operating cash flow and free cash flow of $31.4 million, a 44.8% increase over the prior year. This strong cash generation further supports our balance sheet as we ended the year with $64.3 million in cash and provides us with the optionality to capitalize on future opportunities as they emerge.

Turning to fourth quarter highlights. Consolidated revenues for the fourth quarter of 2025 totaled $125.6 million with deliveries 1,172 railcars and compared to $137.7 million on deliveries of 1,019 railcars in the fourth quarter of 2024. The year-over-year change was driven by delivering converted railcars in the fourth quarter of 2025 that carry a lower average selling price, while the comparable 2024 period contain only newly manufactured railcar deliveries.

Gross profit in the fourth quarter of 2025 was $16.8 million with a gross margin of 13.4% compared to gross profit of $21 million and gross margin of 15.3% in the fourth quarter of last year. This year-over-year change primarily reflects mix impacts, partially offset by continued productivity improvements and cost discipline.

SG&A for the fourth quarter of 2025 totaled $9 million compared to $9.4 million in the fourth quarter of 2024. Excluding stock-based compensation, SG&A as a percentage of revenue increased approximately 50 basis points, driven by the heavier mix of conversion programs versus new car builds in the fourth quarter of 2025 compared to the prior year.

In the fourth quarter of 2025, we achieved adjusted EBITDA of $10.4 million compared to $13.9 million in the fourth quarter of 2024, reflecting mix impacts across the comparable periods. For the fourth quarter of 2025, we reported a net loss of $16.6 million or $0.52 per share. This result includes $19.9 million of noncash adjustments related to share appreciation accounting, partially offset by a $2.1 million noncash acquisition-related gain. Excluding certain items, adjusted net income for the quarter was $4.9 million or $0.16 per diluted share compared to adjusted net income of $8 million or $0.21 per diluted share in the fourth quarter of last year.

In 2025, capital expenditures totaled $3.4 million reflecting disciplined investment that is consistent with our maintenance cycle. Supported by strong cash generation, we ended the year with $64.3 million of cash and cash equivalents and low net debt operating at the low end of our targeted leverage range of approximately 1 to 2.5x. Looking ahead, we expect capital spending to be $7 million to $10 million in 2026. This is comprised of maintenance level spending of approximately $4 million to $5 million as well as spending to complete our previously announced investment to vertically integrate aspects of tank car manufacturing, reinforcing our measured approach to capital allocation.

Importantly, with 4 production lines in place and the flexibility to activate a fifth line relatively quickly, we have embedded capacity within our existing footprint to flex as market conditions improve without requiring significant incremental capital investment. This allows us to focus on disciplined capital deployment towards initiatives that enhance long-term value. The acquisition of Carly railcar components is a strong example of our approach and represents an important step in scaling our aftermarket platform, which generates attractive returns for our shareholders.

We also continue to advance our tank car retrofit capabilities in a measured manner positioning the business to participate in adjacent opportunities as demand develops. As we look ahead, we'll evaluate additional complementary opportunities that expand our platform and strengthen our revenue profile to further enhance the stability of our cash flows support more consistent performance across market cycles and drive long-term value for our customers and shareholders.

With that, I'd like to turn the call back over to Nick to share our outlook for 2026.

Thanks, Mike. For the full year 2026, we are forecasting revenues between $500 million and $550 million, up 4.8% year-over-year at the midpoint of the range. This expectation is based on an expected deliveries between 4,000 to 4,500 railcars, an increase of approximately 3% to the midpoint range. We expect adjusted EBITDA guidance between $41 million and $50 million for the full year, representing a year-over-year increase of 10.4% at the midpoint versus our lease adjusted EBITDA for fiscal year 2025. We expect a stronger second half year cadence that will scale up to our guided numbers.

With that, I'd now like to open up the line for Q&A.

[Operator Instructions] Our first question comes from the line of Mark Reichman with Noble Capital Markets.

So the revenue guidance is $525 million at the midpoint. Now the aftermarket business did about $27.1 million for the full year 2025, you made the Carly acquisition, which I'm assuming will contribute $13 million to $15 million. So to kind of divide those 2 groups, is $40 million to $41 million an appropriate revenue estimate for the aftermarket business in your view?

Mark, this is Mike. Yes, I'd say that's a good view of what we would be expecting for 2026. .

And then secondly, the interest expense was about $17.6 million for the full year. And so with this change with the lease, that's about $3.5 million. So would you expect that interest expense to decline to kind of maybe $14 million to $15 million? And how are you thinking about maybe paying down debt or reviewing the balance sheet capitalization?

Mark, this is Mike again. Yes, I think you're thinking about that right. There will be the portion of interest expense that will now be in COGS, which would get you to about $13.5 million I would expect that interest expense to go down a bit as we do have debt repayments we'll be making here in Q1 as part of our term loan, and we'll see that keep getting a little lower and generating more free cash flow as we pay down debt and continue to work on our capital structure.

So it actually could be lower than, say, $14 million or $15 million for the full year 2026. It sounds like.

Correct.

Okay. And then just lastly, on the free cash flow, where you back out the purchase of property, plant and equipment, is that $4 million to $5 million of maintenance capital, is that equivalent to purchase of plant, property and equipment. .

Yes. Yes, that would be right there. .

Our next question comes from the line of Iva Prcela with North Coast Research. .

On the line to asking question for Aaron Reed. And then my first question is you talked about the margins extending during the quarter. What extent of that was driven by mix? So was it just a higher proportion of higher-margin cars? Or was it more operational improvements or pricing?

Iva, this is Nick. There was -- obviously, both those will influence it. Productivity is where we get the larger of the 2 enhancements in Q4. Obviously, mix can vary quarter-to-quarter. Productivity is the 1 we really sort of drive to focus because that repeats a word going as we drive and make those productivity improvements in. But what we observed in Q4 was more primarily driven by productivity and operational improvements. .

All right. Perfect. And then also in the guidance you provided, are can car retrofit volumes included within that? Or should we think about those as incremental to the delivery outlook for '26?

So they are in there. We're pretty committed before that, that's a multiyear program. So it's not the full program is in 2026. It was a portion of the program. is in 2026, and it rolls in through 2027 as well. But it's in line with what we've said in prior calls and the prior amounts, but it's -- yes, towards the back end of 2026, that program kicks in. .

Our next question comes from the line of Brendan McCarthy with Sidoti.

Great appreciate you taking my questions here. Just wanted to start off on your industry outlook. I think you mentioned 31,000 deliveries in 2025. I have you about a 13.3% market share. And then for 2026, what's your outlook on industry deliveries and your corresponding market share?

And, Matt, Tonn here. When we look at the overall industry, we do believe that we'll see deliveries in the $25,000 to $30,000 range. order activity will probably follow suit to what we saw in 2025. So we are expecting some moderation of order activity with increases in activity as we get into the second half of the year. .

Understood. I appreciate that. And that might -- I think according to my rough math that might put your market share closer to 15%, 16%. Is that accurate? And what would drive that uptick there from 2025?

Yes. So your numbers are accurate for how we track it. I would say this about the overall market. Our differentiation and our approach to the market is 1 of collaboration with customers where they find value in what we bring with engineering expertise capabilities not only on the new car front, but also on the conversion retrofit front. We see opportunities for growth in both of those areas in the marketplace. .

Understood. I appreciate that detail. And then breaking down the 2026 guidance a little bit, what assumptions would really cause deliveries to come in at the low end of 4,000 in 2026? And then on the other side, what would cause deliveries to come in at the high end, around 4,500.

So I'll start with that one, and then Matt can probably fill some additional details in this. So if I know you recall this time last year, -- we talked about uncertainty in the outlook for the year would favor us given our agility and our ability to convert orders reasonably quickly and be able to bring things as a pipeline and all the value proposition we have. And that's what transverue. So we gained market share last year despite a prevailing backdrop of sort of reduction across the industry. And I expect this to be similar this year is where customers are facing any level of uncertainty. We're able to offer some certainty on the timing and the agility and the response time to build.

And as Matt says, not just new builds, but on conversions and rebodies as well, where that may be a better alternative for a customer rather than an outright new car. So I think that's what -- the main drivers are going to be. This time last year, there was a lot of uncertainty around tariffs. We answered those questions on were fully USMCA compliant, a lot of our end users have now got on questions that they didn't have last year regarding to tariffs and inputs and outputs across the freight network.

And then we've got some uncertainty more recently on oil prices, et cetera, generally oil prices, if they're sustained higher for a bit longer, typically favor rail. So there's a number of macro economics, which I think will definitely favor the back half of this year with railcar demand, and we expect to see that just on seasonal timing such as harvests and various product deliveries which need for rail. And then if oil prices stay high, you would expect to see more things move to rail due to pure economics of the freight efficiency. And the underlying process of the rail industry, the metrics are pretty decent for their industry. The velocity is pretty good. The utilization is pretty good.

So it's a reasonably healthy industry propping that up. which would imply that this is more pent-up demand as opposed to demand that's being deferred indefinitely. So a lot of those things really sort of go into our thought process of how we look at that forecast. And the forecast is, as you mentioned, the unit volume is it doesn't take into account whether it's a rebody or it's a new car, it's still a unit. So I think that's where we've got some confidence in the amount of units we can ship the deliberation will be, whether it's a new or retrofit car, and that can be obviously dictated by a number of different macroeconomics, but Matt anything I missed on that.

One other comment. Majority of what we talk about in the industry right now is replacement demand. It's certainly the cycle that we're in. However, we play in multiple market segments where there is new business demand that derives the needs for new railcars. And oftentimes, that new business is tied to infrastructure build-out. -- and permitting. And at times, those can be accelerated or delayed. So when we look at that gap of 4,000 to 4,500 a lot of -- a lot of that gap is tied to the timing in which those infrastructure improvements are completed and the demand for the cars are known and permitting. But we're in a really good position with those particular segments. It's just a matter of time when those fall into '26 and then the latter part of the year or maybe put it early '27. .

Understood. And I really appreciate the color there. And as it relates to your capabilities in rebuilds and retrofits, what are you seeing as far as demand goes? It seems like order flow picked up there in 2025 from 2024 -- are you seeing relatively higher demand there on that front, just maybe considering some of the economics around the new build market. .

Yes, we do because it does offer customers significant price savings and value of the rail asset. A lot of it is tied to the existing railcar underutilized assets that are what we call the donor cars that are used in the conversion process. But we do believe that the demand for conversions is long-standing, and we continue to operate in the marketplace to develop those opportunities as those ores come in. .

Got it. Got it. And last question for me, just on the backlog, just entering 2026, where the current backlog level is as well as considering your outlook for deliveries of 4,250 at the midpoint. It seems like the backlog covers a smaller portion of that compared to recent years. What can investors -- what can we take away from there as we look into 2026?

There's a couple of things. One is we've done a lot of work on leaning out our operations, and that translates into the productivity improvements you saw in Q4 as a financial productivity improvements in Q4. What that allows us to do is be a lot more agile in our manufacturing footprint and take opportunity to retool or rebuild lines to be more optimized in a quieter period and then have them be able to scale up capacity without significant infrastructure during busier periods. So we're able to respond to those market dynamics in a way that doesn't require major infrastructure changes, which I think is a benefit to us. That's what we referred to last year and our ability to sort of capture that.

We do believe that the back half of this year will be the busier half of shipments. A couple of reasons for that is similar to last year is we may build items in Q2, and then we ship prebuilt and built items in Q3 and Q4. So you just see those delivery dynamics going through that way. And then you often see period with our customers the way they preapprove their large capital expenditures, their order placement may be drift towards the end of Q4 into Q1 and sort of this time of year. late Q1 into Q2 as those CapEx approvals coming through. And we populate those into our pipeline.

So we've deliberately constructed and build our infrastructure to take that sort of uncertainty from the marketplace, then to turn it into a strength that we can respond with agility and to the customers' needs and be able to run multiple capacity levels concurrently on different lines. So when 1 product is in demand, we can ramp up that productivity on that line and then wind down on a different line if demand isn't there in that period of time. So a lot of that work that translates to productivity is being able to accommodate those sort of customer cycles that come through and been able to still offer that guidance on shortened lead times and shortened prep times from customers.

Just on the order gestation period can be a long period. What we talk about is booked orders. So obviously, we have visibility prior to it being booked -- and I think Matt mentioned before, there's some projects were maybe permitting or maybe something which is just a trigger point that's going to convert to an order. So we can have a sense of visibility and security around order placement, it's just prebook, but we only communicate actually booked orders, which is where we were able to give a confidence on our guidance, which may, may not have the fully booked commitment behind it, but we have the work and the process and the pipeline that supports it, both internally and with our customer discussions, if that makes sense. That makes sense.

Our next question is a follow-up from Mark Reichman with Noble Capital Markets.

First, I just wanted to ask about the industry. I mean -- it seems like the orders of kind of the deliveries -- orders and deliveries have kind of lagged by choice. I mean, you had the tariff uncertainty, there's economic uncertainty. But the opus that we get to past replacement cycle. And so I was just wondering, it's not like the industry is out there all using new equipment or don't need the equipment. Is there a metric that you look at? I mean, can you look at like retirements versus deliveries to try to get an indication of when you might expect orders to accelerate in terms of -- and is that 40,000, -- do we think that that's a good number? Or are there some structural dynamics that were there either because of different types of cars are doing more with less, that might suggest either a lower or higher number?

Yes, Mark, you look at the mandated age of a railcar for retirement is 50 years. So you can back that up with some certainty on the build in the late '70s and into the early '80s to understand what's going to fall out. Some of those cars have already fallen out, but many of them are still operational. And depending on which forecast you look at, somewhere between 150,000 and 200,000 railcars are going to fall out in retirement over the course of the next 4 years. So with some certainty, we can look at that metric to understand what cars, what car types are going to require replacements in that time frame.

And there are some differences when we look at capacities, you have higher-capacity cars today. both in cubic capacity and in gross railroad. But overall, it's a pretty good indicator of what we see that will fall out. And of course, we monitor the new car opportunities based on market segments and growth in various markets where the new rail demand is required.

And you're pretty well positioned across the cycle because you have a pretty healthy conversion business, and you can do rebodies and you've got the parts business. Now -- when I look at just margins, so in the manufacturing Segment, margins were about 12.2%, 13.5% for the year. So we're kind of assuming 13.5% in 2026. The aftermarket business was 33.6% in the fourth quarter, just under 35% for the full year. I mean, do you think those -- do you see any items kind of affecting your margins in 2026 relative to 2025?

Mark, this is Mike. I think for a manufacturing segment, I think that's a good basis to go on into 2026 based on the pipeline and mix we see. I think it will be pretty similar. On the aftermarket, I think as we integrate our acquisition and move down the line, we should see some accretive generation there and some enhanced margin, but that will probably be a little more towards the back half of '26 going into '27 as we continue to scale that business. .

Okay. And then just lastly, if you could just remind me, I think the orders for fourth quarter were like 348. Just how long does it take for these orders to convert into deliveries?

You're correct on the order volume. It can take anywhere from a year down to days. It sort of depends on the customer the need, the planning of that particular customer. I will tell you, though, that as Nick mentioned, our ability to pivot and meet customer needs based upon the flexibility, operational excellence of the plant allows us to be able to meet customers' needs very quickly and in short lead times. .

I am not showing any further questions at this time. I would like to turn the call back over to Nick Randall for any further remarks.

Thank you. 2025 was a year of disciplined execution and resilience despite one of the weakest North American new build markets in more than a decade. We expanded margins, gained share in markets we serve and delivered strong cash generation. Gross margin improved meaningfully, up 260 bps and adjusted EBITDA increased, reflecting mix improvements, operating leverage and cost discipline. We continue to generate strong free cash flow of $31 million, up 45% year-over-year and ending the year with over $64 million of cash and low net leverage.

We are making strategic progress to strengthen our platform through the completed acquisition to bolster our aftermarket business and remain on track in advancing our [indiscernible] retrofit readiness program. Looking ahead, we are positioned for continued success in 2026 with a strong year-end backlog, strong free cash flow generation and a balance sheet to drive durable growth.

With that, thank you.

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

Welcome to the FreightCar America's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 O'Dea 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 Tonn, 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 or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside of the control of the company that may cause actual results to materially differ from those expressed in the forward-looking statements.

We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events or otherwise. During today's call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or 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 2025 is posted on the company's website at freightcaramerica.com along with our 8-K, which was filed premarket 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. FreightCar America delivered an exceptional third quarter, highlighted by strong deliveries, revenue growth of over 42% and a recent record for the third quarter adjusted EBITDA at our new facility of $17 million, growing 56% versus the prior year.

We achieved gross margin of 15.1% and adjusted EBITDA 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.

This performance highlights the strength of our flexible manufacturing model and the disciplined execution of our commercial strategy. During the quarter, our team remained focused on building value and solving complex customer needs. While others industry may rely more heavily on commoditized orders, our 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 remained consistent quarter after quarter. These efficiency gains and the reliability of our processes have been instrumental in supporting our record EBITDA 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, we remain focused on initiatives that position us for durable growth. We are excited about the progress and developments we have deployed is displayed with our TruTrak process, integrating digital tracking and monitoring capabilities across each production step, ensuring on-time deliveries, increased efficiencies across all of our manufacturing lines and most importantly, delivering high quality and reliability in every railcar 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 established 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 capable 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 strengthen our readiness for future tank car conversions, which is 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 quarter, the broader railcar industry continues to operate below long-term replacement levels, with total deliveries expected to remain under 30,000 railcars this year versus a normalized rate closer to 40,000 units. While this softness has limited overall new car volumes in the industry, 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: deliver enhanced quality of earnings, generate positive free cash flow and maintain our disciplined approach to growth. Our backlog remains healthy and diversified to 2,750 units, valued at approximately $222 million; and our commercial pipeline continues to build across both conversion opportunities, new railcars, 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 EBITDA guidance for the fiscal year. We expect to maintain strong margins and close the year with solid positive cash generation.

With that, I'll turn it 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 FreightCar America, as we continue to prioritize disciplined order intake and profitable growth despite challenging industry dynamics. Industry order activity remains subdued as macroeconomic uncertainties continue to impact customer order timing.

The total new car orders for the North American market expected to finish below 30,000 railcars for the year, well below the normalized rate of approximately 40,000 railcars. Even with this 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 railcars, bringing our backlog to 2,750 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. Our conversion and retrofit capabilities give customers a cost-efficient alternative to new builds and are a meaningful driver of margin expansion for FreightCar 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, supported by broad participation across key end 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 expanded engineering capabilities, improved lead time management quality initiatives with our TruTrack 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 totaled $160.5 million, with deliveries of 1,304 railcars compared to $113.3 million on deliveries of 961 railcars in the third quarter of 2024. 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 and 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 operational efficiency at our Castanos facility.

SG&A for the third quarter totaled $9.6 million compared to $7.5 million in the prior year period. Excluding stock-based compensation and certain professional service costs, SG&A as a percentage of revenue was approximately 50 basis points lower year-over-year, reflecting our operational leverage on higher deliveries between the comparable periods.

Adjusted EBITDA 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 EBITDA since relocating operations to Mexico and underscores the benefits of disciplined 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 $0.23 per share, which includes a $17.6 million noncash adjustment related to the change in warrant liability due to share price appreciation. As a reminder, this is a noncash item that does not impact our operating performance, cash flow or share count.

Turning to cash flow. We generated $3.4 million in operating cash during the quarter. Adjusted free cash flow was approximately $2.2 million, an improvement of $1.2 million versus the prior year period. Our continued cash generation reflects disciplined working capital management and improved profitability.

We ended the quarter with $62.7 million of 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 totaled $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 million to $5 million, consistent with our original assumptions for the year. Our updated forecast on the timing of certain spend for projects has shifted into the first quarter of 2026.

Overall, our financial performance in 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 EBITDA and railcar delivery guidance ranges and adjusting our revenue range down to $500 million to $530 million to reflect the product's 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.

[Operator Instructions] Our first question comes from Mark Reichman with NOBLE Capital Markets.

I just -- the question I have is the guidance on the CapEx was I think it had been updated to $9 million to $10 million, and so you're kind of back to the $4 million to $5 million, which I understand and I think is reasonable. But could you just kind of walk us through your plans to prepare for the tank car conversions and entrants in the new tank car markets, kind of how those capital expenditures unfold into 2026 and the uses of the expenditures?

Mark, it's Nick. I'll answer that one, and if I miss something, Mike can follow up on that. So a couple of things. So on the CapEx investments, it's not a change in scope, it's just a move of timing. We had 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, just so tips across that new year period.

So just a change in timing at the end of the year, but not certainly no change in scope. As it goes for the preparation and readiness for the tank car conversion, we're well ahead of schedule. There's a couple of processes to get AAR certifications at the plant and then a couple of processes on capital equipment. So what I had the schedule, we'll be talking more about the timing of shipments of that in 2026. But yes, they certainly start through our 2026 period.

But the change in CapEx allocation this year is just 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.

No.

And just the next question is on the revenue guidance. I mean, if I look at the backlog from the second quarter, it averaged about 87,000 a unit. And so if you look at the backlog now, it's about 81,000, but margins have actually improved. So I guess I'm kind of looking at fourth quarter, and I'm thinking probably somewhere in the 80s per unit would you kind of expect the margins for the fourth quarter to look pretty much like the third quarter?

Let me break that down a bit more just a couple of questions wrapped up in that 1 question, Mark. It's on the -- can you talk about average selling price. So yes, 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 dollar guidance dropped down a bit just to reflect that higher proportion of conversions in -- and then when you look at conversion, when you look at the percentage wise because it's a lower average selling price, the percentage-wise do go positive an up direction because it's a smaller -- high portion of a smaller revenue price.

So I just want to make sure that the the guidance we've got for the rest of the year is to hold EBITDA -- just EBITDA and to hold the unit count. The revenue dollar has come down, which just because there's a higher proportion of conversions than we originally forecasted way back at the beginning of the year when we sort of try to predict what will happen in Q4.

So I'm not sure if that answers your question. Mike can add some more color to it, but I'd say the important thing for us is to manage our profitability and cash generation, but revenue is not a great metric, given the nature of conversions and new cars and the change in average selling price between the 2 of them.

Our next question comes from [indiscernible] with Northcoast Research.

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 change in guidance? Or can you share any additional color how the mix between rebuilds and new builds is going to be trending?

Yes. Similar question to what Mark just asked on the guidance. So the -- when you see our revenue move like that, but the adjusted EBITDA stay the same, that does imply that the average selling price for the unit count 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 not a massive swing, but it does swing a little bit.

From a margin and a sort of percentage guidance, we've got a couple of weeks left to finish up 2025. So to back end that from the adjusted EBITDA and the revenue kind of pretty gets it pretty calculatable where that's going to end for the balance of the year.

Okay. And then could you share more detail maybe on how the demand for coal car repair is? Is that still providing a meaningful lift as you look into 2026 at all?

So coal car repurchase is in our aftermarket business. We break those 2 out now between new cars sold and the aftermarket business. And we have, as a FreightCar America, have the largest fleet of coal cars out there and use on tracks across North America. So obviously, as there's talk in the news about extension of power stations, extension of life of coal-powered facilities, we would naturally expect that there's a sustained and continued demand on coal car components and coal car per support items which we have a very nice product portfolio that matches that.

So yes, we'd expect to see that continued demand for components, but that's separate to new cars. On the aftermarket business, we'll continue to see those coal car components on the cars we originally built over the last 30, 40, 50 years.

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

I think the nature of how we run our business and the nature of the rail industry, it's less susceptible to short-term items like government shutdowns and the gases that the sort of things that are being hold and being moved. So we haven't seen anything that directly effects us from that perspective.

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, not fully automated, but highly automated. So we haven't seen any disruption in that in cars transferring to and from Mexico into the U.S.A., 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 in any recent time frame.

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

Just wanted to circle back to the 2025 guidance, and sorry if I missed this, but just looking at the midpoint of revenue and adjusted EBITDA for 2025, it looks like, just based on my rough math, that Q4 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%. Just curious if you can expand on the step down there from the third quarter and what might be driving that?

Sure. Yes. So as mentioned, we had some favorable product mix in Q3 and Q2, where we were doing a number of specialty new cars. We won't see that work really in Q4 and Q4 for us traditionally is a lower-margin quarter as we do always try to take off the last week of December to do annual planned maintenance for the facility, so you'll lose a little bit of margin there with the weak shutoff.

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

Yes, Brendan, I mentioned in my script that we've taken some work -- in addition to that annual shutdown takes some work to repurpose some of our operational lines to make that margin more sustainable going forward. So there's an annual normal maintenance shutdown that takes place towards that back end of December into the new year period and then we've got some lines that we are retooling and repositioning to enhance that flow, enhance future margins on those as well.

So I don't see anything that is a long-term negative trend, but Q4 often has that sort of additional cost that sits there for a couple of weeks. And then obviously, you get the revenue with its offset just for those one-off upgrades.

That makes sense. That's very helpful. I appreciate it. And then just more of a broad question on your tank car retrofit program as we start to see -- hopefully, see the deliveries flow through in 2026 and 2027 related to the 1,000 car order in your backlog. 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?

How many tank cars are up for possible retrofit as it relates to the 2029 deadline? I know some of those cars may be scrapped, but how do you estimate or ballpark what that addressable market might look like?

I'll Start that and then Matt may have some color to add into that, Brendan. So I think I would step it back a bit -- there's a bigger question to ask really for us at FreightCar America is our pathway into new tank car builds. So the retrofit program that we have is significant in its own right. It's a very nice program to -- that we're privileged to work for -- work through.

But there's a piece of that, that for us, what the -- what it also provides to us is the AAR approvals, the process to get the plant prepared and ready. 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 -- new tank car production. And that new tank car production, just on a normal run rate of 40,000 units a year, approximately 10,000 are tank cars, and that's an area in a market that we've historically not been able to address.

So I think what I look and I talk more about internally is the purpose and one of the benefits of doing this retrofit program is we get 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 main goal for us is to leave that program and position ourselves into the new tank car programs directly after that.

But answer to your specific question, how big is that market? There's a majority of tank cars are either owned by people who can produce tank cars or look out of the tank cars already. So it may be smaller for us, but I think there's probably -- there's a couple of -- maybe a couple of hundred more that we could look to add over that program.

But it really -- and the reason why it's -- I'm more interested in we would want to switch to new tank cars as soon as possible after that program. which is really the sort of the main objective for us, if that makes sense.

Got it. That makes sense. I appreciate the color there. I know it's a big catalyst for you guys looking ahead. One more question for me just on industry dynamics. I know you mentioned in the prepared comments, roughly 30,000 orders for the year continues to run below the industry replacement level, we've seen the industry fleet contract a bit. Are you still pretty confident that you might see an uptick, maybe a retracement towards that replacement level demand in 2026 or is that still pretty uncertain at this point?

There's a couple of ways of looking at that. First of all, my headline answer is, yes, I'm confident that we'll trend towards that in the calendar year 2026. I think will be more back half loaded in 2026, but it will certainly get us in a position where order placement would get -- you'll see order placement first, obviously, at 40,000 and then you'll see deliveries follow through, probably in -- the deliveries will probably be late 2026 into 2027.

I think when we look at the underlying fundamentals which is still very solid depot Class 1 railroads, look at the railroad communities, they're still posting good results and good throughput and good utilization rates and all those metrics, which is very good for us. You look at -- we see it more that there's pent-up demand coming through because as you think about the main commodities, the agricultural commodities, the aggregates, the oil and gas industry, the desire and the need for railcars isn't fundamentally changing down.

Scrap rates have continued to happen this year as anticipated or as expected. So what you see is that the underlying demand is still coming through, still pretty predictable. And it's more about, as Matt referenced, it's just a gestation period between inquiry through to order placement just gets extended slightly. 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.

And contrary to what the order placement will suggest, we're holding it. I know we've been able to get through and been able to push that through. So I do see there's an opportunity towards the sort of, as you go to Q2, Q3, Q4 next year, that order placement will certainly trend back to that normalized 40,000 units a year.

Matt, and if I missed?

No, I think your comments are accurate. The bottom line is you've got 2 back-to-back years of sub-25,000 year per year orders booked. And when we look at our history of 40,000 railcars delivered a roughly 38,000 ordered over a 10-year span, we can't continue on this pace for long. Add 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 bubble as in more orders.

More orders, yes.

That's great. That makes sense. And just as a follow-up, I know you mentioned 20% market share of the new railcar orders for this quarter, that's really solid to see, and I know it's really trended above your historical market share. What do you really attribute that to?

I'll start with that and then Matt can talk about some of the -- I think there's a couple of things -- we've got 3 things that really work for us. One is scale and experience. We've got a lot of good railcars out there. Customers know that because it's like our railcars. Whether it's new cars or conversions, customers really like the experience.

Our breadth of product and configuration we can provide on the markets we address. Our customers really like the ability to tailor some of their products and customize it in a way that meets their needs. And then on our execution, we talked about initiative called TruTrak where we have this digital method of traceability and trackability, but our execution of delivering on time, in full and good quality, reliable railcars is -- those 3 things fundamentally put us in a position where we're able to win, solve customers' problems in a way that adds value for them and us.

And I think underpinning all that is Matt and his team, they do a good job of being able to get in front of customers, build great relationships and solve customer problems as well.

That's all for me. And congrats on a strong quarter.

Thank you.

Thank you.

So in Q3, 2035 was another strong quarter for FreightCar America with revenue up over 42% gross margins expanding to 15.1% and record adjusted EBITDA of $17 million, our most profitable quarter since relocated to Mexico. Operationally, our team in Castanos considers the gains in safety, quality, throughput and cost. Plant footprint enhancements underway will further improve flow, productivity and margins, reinforcing our leadership in that key segment.

Strategically, we're advancing our TruTrack digital integration, vertical integration and automation, while advancing our operational readiness for tank car conversions, all position us for future growth and margin expansion with a healthy backlog of 2,750 units by approximately $222 million, strong inquiry momentum supporting a recovery and replacement cycle demand remain on track to achieve our EBITDA guidance closing the 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.