FreightCar America at 16th Annual Midwest Ideas Conference: Strategic Growth and Market Expansion

On Wednesday, 27 August 2025, FreightCar America Inc. (NASDAQ:RAIL) presented at the 16th Annual Midwest Ideas Conference, outlining its transformation into a leading railcar manufacturer. The company emphasized its modern facilities in Mexico, strong market position, and optimistic growth prospects, while acknowledging challenges such as tariff uncertainties.

Key Takeaways

• FreightCar America reported $466 million in revenue and an industry-leading gross margin of 13% for freight cars.
• The company plans to expand into the tank car market, targeting higher margins of 15% to 18%.
• Guidance for 2024 includes delivering 4,500 to 4,900 railcars and generating $530 million to $595 million in revenue.
• FreightCar America aims to optimize its capital structure and pursue growth through both organic investments and acquisitions.
• The company is leveraging its short order fulfillment times to gain market share in a tight industry backlog.

Financial Results

• Trailing Twelve Months (through June 30):

- Delivered 3,600 railcars.

- Achieved $11,000 adjusted EBITDA per railcar.

- Generated $21.5 million in adjusted free cash flow.

• Gross Margin:

- Maintained a 13% gross margin on freight cars.

- Tank cars expected to deliver gross margins between 15% and 18%.

• Guidance for 2024:

- Projected delivery of 4,500 to 4,900 railcars.

- Expected revenue of $530 million to $595 million.

- Estimated adjusted EBITDA of $43 million to $49 million.

• Capital Expenditure:

- Low maintenance CapEx at 0.5% to 0.75% of revenue.

• Debt and Cash:

- Approximately $110 million in debt with plans to refinance in 2026.

- Nearly $60 million in cash at the end of Q2.

Operational Updates

• Manufacturing Facility:

- Located in Coahuila, Mexico, with a capacity of about 5,000 units.

- Operates two shifts, with potential for a third shift.

- Fifth production line available, activatable within three months for $1 million in CapEx.

• Market Share:

- Leading in open top hoppers, with significant positions in gondolas and flat cars.

- Growing presence in covered hoppers and planning entry into tank cars.

• Order Fulfillment:

- Industry-leading order to fulfillment time of three to five months.

• Workforce:

- Employs 2,000 workers in Mexico, with a low turnover rate.

Future Outlook

• Growth Strategy:

- Expansion into tank cars to cover 100% of the addressable market.

- Pursuing both organic and inorganic growth through CapEx and M&A.

• Capital Structure Optimization:

- Plans to engage commercial banking in 2026 to lower capital costs.

• Industry Trends:

- Anticipates demand due to railcar retirements and infrastructure spending.

- Industry backlog tight at six months, with FreightCar America positioned to meet demands.

Q&A Highlights

• Railcar Retirements: Class one railroads to retire cars at 50 years, creating demand.
• Leased Railcar Market:

- Leasing companies own 57% of North America’s railcar fleet.

- FreightCar America aims to capture more leasing market share, including tank cars.

• Tariffs: The company is exempt from tariffs under USMCA.
• Budget Cycles: Annual customer budget cycles affect order timing.
• Prepayment Hesitancy: Customers reluctant to prepay before certification.

For further details, readers are encouraged to refer to the full transcript below.

Full transcript - 16th Annual Midwest Ideas Conference:

Operator: Hello everyone. Welcome. Your next presentation is Freight Car America Inc. Traded on NASDAQ ticker RAIL. Here we have Michael Riordan CFO.

Michael Riordan, CFO, FreightCar America Inc.: Good afternoon. So I’ll give a quick background. FreightCar America is a manufacturer of railcars for the North America industry. 100 twenty year old company. Has evolved massively over time.

Fastest growing OEM today right now, expanding modern capabilities, the newest built plant in Coahuila, Mexico. We have a unique ability across all of our lines to flex between building new cars, converting railcars from one type of railcar to another, rebodying railcars, and doing now retrofits of tank cars to upgrade them from one spec to a new spec. We have a completely vertically integrated campus. We do manufacturing or assembly of railcars. We have a fabrication center on premise with, six plasma tables, numerous punching, pressing machines so we can in house instead of outsourcing all the fabrications of components.

And we have a automated wheel and axle axle shop that will lathe, grind axles, wheel press and mount them. We have a strong margin profile. Right now, we are the leading gross margins in the industry for manufacturing freight cars. We are the third largest in the industry and have been consistently increasing market share quarter by quarter now that we’ve fully built out our plant, which was a greenfield site that was completed in 2024. Just some quick highlights on the trailing twelve months through June 30, three thousand six hundred railcars delivered, dollars 11,000 per railcar of adjusted EBITDA, which was significant increase year over year.

We have approximately 5,000 units of capacity that does vary based on the mix of the cars we build. Dollars 21,500,000.0 of adjusted free cash flow and $466,000,000 of revenue. We started this transition in 2020. We were the last of the builders to move to Mexico. We shut down our U.

S. Facilities at the 2020 and consolidated all the manufacturing down in Mexico starting with one line in ’21, expanding to two lines in ’21, then three lines in ’22. The fourth line was, up in December ’23, which is why I say it was really running in ’24. And now we’re running four lines with a fifth line at the ready to build on in the fabrication center on-site and the wheel and axle building. We’ve had a CAGR of 55% on deliveries and 51% on revenue from 2020 to ’24.

And you’ll see the adjusted EBITDA profile dramatically changed from consistently losing cash in The U. S. To now generating leading adjusted EBITDA per car in the industry. We’re well positioned within our addressable market, which right now is 70% of the of the total railcars in North America. We’re the market leader in open top hoppers.

We’re in a primary position on gondolas and flat cars. And currently, we’re a secondary player on covered hoppers as we have branched into that market, which is about 40% of the volume. We’ve made concerted efforts in ’23, ’24, and now ’25 to grow market share and have been very successful. And in boxcars, there’s three of us that make it. We all make it, but it is not a, it’s not one of our cores that we go after.

For future growth, tank cars is part of what we plan to get into in the next couple of years and that will round us out to a 100% market share, or addressable market. Tank cars are significantly meaningful in the industry as they are the highest average selling price. A normal freight car and our mix is about a 110,000. And our margin profile on freight cars is about 13% gross margin, which is the industry leading right now. Tank cars are about a $165,000 average selling price and tend to have gross margin profiles between 15% to 18%.

Just a quick look at the different car types if you’re not familiar with freight cars. We have gondolas which carry coil gondolas for steel coils, mill gondolas for scrap material, wood chip gondolas, aggregate gondolas for aggregate material. We have hoppers, covered hoppers which are generally used in the agricultural space, open top hoppers for aggregate material, boxcars, flatcars, and then we do conversions and modifications. And I had mentioned conversions are a big part. We kind of invented that years ago.

We were a coal only company. And when coal started going down, we had a lot of people come to us and say, we just bought a bunch of coal cars. What do we do? And we came up with the concept to convert a coal car into any one of the other car types. We are now getting into tank car modifications.

We have a significant contract we announced last year that we won with a customer to do about 1,300 retrofits to upgrade dot one eleven spec tank cars to dot one seventeen r. That will cover us from ’26 through ’27 for this customer. That is our launching pad into new tank cars as we’ll get AR certification for tank cars and have a showcase for all of our customers to show that we can build tank cars, which given the recent derailments, etcetera, have been a a concern of many customers as a new entrant making it into tank cars. We pride ourselves on going to market with the unique configurations and customizations we offer to private car owners. Those are the large companies that buy the railcars outright and manage their own fleet, and we spend the extra time with our engineering team meeting with their maintenance and mechanical teams to customize cars specifically to what they need and modify from our base design so they get the exact car they want for the next fifty years.

With the leasing community, we play on the fact that we do not offer leasing. The two larger competitors of ours that make up about 70% of the industry are leasing companies first. There’s many other leasing companies. 60% of railcars are leased. So we target the leasing community and help them understand that we are not their competition.

When you come to us to build your rail car and we sit down with you and your customer to work through the designs, you’re not introducing your competition to your customer. It’s a direct symbiotic relationship to come up with a solution that helps you win the lease and helps us win as well. And then lastly, railroads, class one railroads are obviously a customer of ours as well. Our pillars value creation, you know, we have the flexible vertically integrated manufacturing facility I mentioned. We have a 2,000 person workforce in Mexico.

We’ve had no issues. We have extremely low turnover, have very good benefits for our workforce and keep them going. We are one of the few that are not laying people off. We’re hiring instead of laying people off because we’ve been growing and growing our market share and growing our backlog. We have consistently achieved industry leading gross margins over the past two years.

At the end of last year, we optimized our capital structure. We had an expensive preferred share. We replaced that with a lower cost term loan facility. We then obtained a new working capital facility that allows us, if needed, to borrow against working capital. And, we’ve converted ourselves now where we are just consistently generating free cash flow quarter over quarter, which is positioning ourselves well to continue to pay down debt and then refinance with a target in ’26 to exit our term loan and move into commercial banking, will further lower our cost of capital and allow us more flexibility for both organic and inorganic opportunities in the future.

I’ve kind of touched on this a little bit, but the the one place I haven’t is the optimized backlog and order fulfillment, which is actually really telling for this year. All the uncertainty around tariffs across the whole economy definitely played out in the railcar space as well, not knowing will there be a tariff on railcars. Given that most of the railcars are covered hoppers used in agricultural and commodity movement, there is no ability for a Cargill or a Louis Dreyfus or a Bunyukhi to absorb a 25% cost increase on a rail car that should cost a 110,000 and become a 135. For them to absorb that, all the price of commodities will go up, and that will appear in the grocery stores, everywhere. There’ll be massive inflation.

So there was a lot of hesitancy. We’re exempt from it as are all of our competitors under USMCA. We’re compliant and rail cars are exempt from all tariffs, exempt from all customs paperwork. But where that’s created some positive for us is all that uncertainty in the first two quarters led people to delay orders. We believe based on our customers, we have the industry leading order to fulfillment time.

Whereas our competition is typically, you know, eight to nine months preferred, we typically operate in a three to five month order to fulfillment. So while our peers on the earnings calls talked about lower deliveries this year and they’re gonna push out to next year and that’s where the demand’s coming. We’ve maintained our guidance all year and looked at this as an opportunity to continue to take market share because customers do want their rail cars this year. They have capital budgets that they have to spend. And when they come to us in August and September and the other guys say, can deliver you in January and February, we’re able to say, I’ll take your order and deliver to you in November, December.

This is gonna be great for us because in a year where we’re down from an average of 40,000 cars delivered to 30,000 and our market share is going up each quarter, we’ll take those orders, keep the market share, keep the customers happy, provide for them when no one else could, and when the industry comes back because it’s a very stable industry. 1,700,000 rail cars mandated retirement at fifty years by the government. It’s a consistent demand over the long term of 40,000 cars a year. We’ll just have even higher volumes than we have this year. Guidance that we put out at the beginning of the year on our Q4 twenty twenty four earnings call, and we’ve maintained it each quarter, 4,500 to 4,900 cars delivered, $530,000,000 to $595,000,000 of revenue.

It’s a pretty big variation there because the mix of cars will have a big impact on the revenue as the ASPs differ greatly, and $43,000,000 to $49,000,000 of adjusted EBITDA. Investment highlights, you know, 5,000 units of capacity with an average mix, that can definitely change. Our plant will never constrain our capacities to deliver. We run two shifts now, not three. If demand is there, we will always increase for that.

We’ll add a third shift. We have a fifth line under roof that we’re not leasing right now that we can turn on in three months for only a million dollars of CapEx to to grow further. As mentioned, industry leading profile last year that was 12% gross margin, about $10,000 a railcar. We’ve been higher than that for the 2025. Generated consistent free cash flow.

Second consecutive year in 2025, we will have, we have a low maintenance level of CapEx at only about 0.5 to 0.75% of revenue. And all of this free cash, we are now positioned to spend organically to get into tank cars, which is a CapEx investment over the next two years, as well as inorganically targeting accretive M and A to the core business, which we have two business segments, manufacturing new railcars and servicing the aftermarket, spare parts, repair services, etcetera. And that’s it. That’s just a quick overview. Any questions anyone has, I’m more than happy to take, expand on the industry, how we position ourselves, etcetera.

Unidentified speaker: So so let’s talk about the mandated retirements.

Michael Riordan, CFO, FreightCar America Inc.: Sure.

Unidentified speaker: What happens to a car in fifteen years? Does it truly become scrap metal or their countries south of us ultimately take those cars? And then secondarily, over time, over a decade, do we see the number of mandatory retirements increasing because the rail market forty years ago was bigger than it was fifty years ago?

Michael Riordan, CFO, FreightCar America Inc.: Sure. So general question was about railcar retirement. So the first one was around the fifty year fifty year retirement. So at fifty years, the class one railroads are required to remove that car when it hits fifty years from interchange. They can’t run anymore.

If it’s on a closed loop, like let’s say you’re a steel company that has their own rail track between two plants that’s not on an interchange, you can run those cars until they until they fall apart. That’s very rare circumstances. So at fifty years, yes. They are required to be removed. They’ll scrap those cars.

If there’s any components worth using, they might save those for somebody else and sell them in the aftermarket, but they are required to be completely removed. Can you take those cars and move them south? That’s a trickier one. In general, you can’t because the track is different in South America countries. In Mexico, it is the same track.

Feromex runs from picks up at our plant and runs all the way up, interchanges with Union Pacific and BNSF. But, you know, we did build, you know, almost every coal car in Colombia was a FreightCar America car. And I could tell you that the the wheels, the axles, the the the gauges and the the the narrow width of them are all different because their track is a different width. So you can’t just pick it up and move it. So they are kicked out.

And to the second one, when you look at the replacement, if you actually look back at the data, it should say that there’s 50,000 cars that are needed for the next three years each year based on retirements. We all get to 40,000 are needed because a lot of things have changed in the past fifty years. So the AER in the late nineties increased the weight load you can have and increased it to 286,000 pounds per car. So you could put more in a car now than you could before, and the cars built back in the day were much heavier. So there’s been massive lightweighting.

So you’re able to lightweight a car to allow yourself to put more material in so you need less cars. So the combination of those has us kinda narrow that back from 50,000 to 40,000 cars based on today’s designs and engineering of railcars. No problem.

Unidentified speaker: Alright. So I’ll post one more.

Michael Riordan, CFO, FreightCar America Inc.: Sure.

Unidentified speaker: Did we hear correctly that the leased rail car market is 70% of the of of the cars?

Michael Riordan, CFO, FreightCar America Inc.: I’m sorry. No. The our sorry. Let me go back to that. We currently, with our car designs, cover 70% of the marketplace between open top hoppers, gondolas, flat cars, covered hoppers, and box cars.

The leasing community owns about 57% of the railcar fleet in North America.

Unidentified speaker: Alright. Which I think is on the next on the next

Michael Riordan, CFO, FreightCar America Inc.: Yes. And and we tend to mirror that with our customer segmentation here.

Unidentified speaker: Okay. And so if they own 57, they’re buying at a lower a lower proportion of that pie than 57% looks like right here. Because that looks more like 40 or 5%.

Michael Riordan, CFO, FreightCar America Inc.: Yes. So we’re not exactly mirrored. This is our customer delivery search. So we’re not exactly mirrored to it. Our the leasing community has been picking up for us.

We still see a lot of private car owners come to us because of that customization we do. And because right now with the infrastructure, we’re seeing a lot of people need open top hoppers for aggregate materials to service the infrastructure spend that’s going on. And that will likely shift, especially as we get into covered hoppers. Most of the end users don’t like to own those outright and are lessors. So that’s where we’ve also seen if if this pie chart was shown two years ago, it would have looked a third, a third, a third, and it’s grown to about 47%.

That’s astute. It’s not 57 on here. And but we do see that continuing to expand towards the lessor side.

Unidentified speaker: Okay. So taking that one one step further, given that your two larger competitors, also lease cars. Mhmm. Why would a leasing, a railcar company that’s a that has a leasing model buy any cars from them?

Michael Riordan, CFO, FreightCar America Inc.: That is a very good question. No. Don’t see these

Unidentified speaker: guys pitch, but what’s what’s the real reason that

Michael Riordan, CFO, FreightCar America Inc.: Yeah. So one thing we’ve not done, we’ve reinvented ourselves over the past decade. We have not had that full portfolio offering. So when you looked at, I’m a leasing company and I’m servicing everything, I need to be able to offer everything. You’ll see, you know, GATX, it’s public, has done for the past fifteen, twenty years, these giant 500 to billion dollar deals that set for the next five years.

I’ll buy 3,000 cars from you. Don’t know what, but I need the optionality that I need to be able to buy any one of these cars. We’ve never been able to offer that yet. That deal comes up in ’27. So all of a sudden, it’s gonna be really interesting when you see a GATX and say, do you wanna keep doing that deal with your competitor or do you wanna go to the person who’s not a competitor?

So their breadth of portfolio offering, especially with the tank cars has been huge because covered hoppers and tank cars make up close to 60% of the market, 60, 70% of the market. Covered hoppers are 40%, tank cars are 30%. And a lot of times, the same buyer needs both. Because if you think about somebody who’s going to do vegetable oil, their raw material is gonna come in in a covered hopper and their finished products coming out in a tank cart. And so right now, we can only say, hey, we’ll give you covered hoppers and somebody like a union tank car who only makes tank cars can say, I can offer you tank cars, but you’re getting it from two different builders and you don’t have flexibility to say, yeah, my team got it wrong.

I actually I don’t need 200 hoppers and a 150 tank cars. I need a 150 hoppers and 200 tank cars. And now you have two different builders to go back to whereas with the Greenbrier Trinity right now what they’re able to offer is I’ll do the whole package and you can just flex within six months tell me exactly how many you need. So that is one area they’re still winning from us right now which is why lessors will still go to them because they might not know the end demand. But as soon as we crack into the tank cars, which that retrofit program is our commercial showcasing of that, we’ll be able to offer the complete picture.

Sure. So on hoppers, we we don’t break out specific margins, but I will say that, we don’t set the price. We are smaller in there. We’ll probably do, you know, 1,500 to 2,000 covered hoppers on a market that’s about 16,000. They are the large volumes, so they do have a lower margin profile.

But, we do well and overall, you’ll see as we’ve I’ll answer it this way. Covered hoppers, we’ve gotten into really big in ’25, and our margin profile hasn’t gone down. We find ways to win, and we always challenge ourselves for cost reduction, whether that’s value added or value engineered work in there to take cost out or to improve productivity. We always challenge the conventional thinking of how many cars can you make, and it’s a very manual process. So we’re finding ways to increase the margin even if we’re constrained on price by competitors.

For tank cars, that will be accretive, to the overall bottom line. You know, higher selling price, higher margin profile, even if the entry point needs to be, you know, underpriced the competition by a little bit to enter. Given that they’re mid teens to high teens in margin, you could cut a couple percentage points off to enter the market. And we’re right now at 13% on gross margin for the manufacturing segment. It’s still it’s still an uplift, especially when you take that on instead of a $110,000, a $165,000 a unit.

You. You’re welcome. Thank you. Yeah. So, you know, we we had that preferred share and the timing we went out to refinance coincided with the election.

So there was a a little bit of trepidation. So we did we did a secure term loan. We cleaned that up. Is that the end state that I want? No.

You know, we have almost $60,000,000 of cash at the end of q two and a $110,000,000 of debt that I can’t use to offset because you can’t prepay a term loan. So, you know, we will look in ’26. We’ll then have two years of consistent, you know, last year was 43,000,000. The guidance this year is 46,000,000 on adjusted EBITDA. We’ll have seven consecutive quarters of operating cash flow, two years of solid 20 plus million of adjusted free cash flow.

Commercial banking should be well within our site. You know, if I looked at what I think is ideal, it would be a revolving credit facility that I could borrow up and down on and have flexibility to pay down debt. And when the, the growth opportunities we talk about getting into tank cars with CapEx or targeted m and a come about, I can use the debt very quickly to to execute on deals. That is likely a early twenty six endeavor. You’re welcome.

Sure. So right now we’re sitting at the August. The normal industry, you know, eight to nine months would be a great backlog. But when you look at the industry, we’re all sitting at six months from an industry wide perspective. And that includes the fact that Trinity has two more years on a multi year agreement sitting in that backlog for the industry.

You only have four months. And when you think about the lead time to buy steel or to tell a steel mill you need steel, they gotta put it on a melting schedule, yada yada yada, It’s very narrow. So right now, you have to be able to execute very quickly or have great steel partners that can get you steel that you need for these car types quickly. And so I go back to the the past couple years when we were building out the facility and challenging ourselves to say, we just finished, you know, building line three in April. Can we go sell it out for the balance of the year?

Can we go take customer orders and start building as quick as And we always found ways to do it in three or four months. That’s not been the historical norm. Historically, in this industry, you had nine, twelve months ahead of time or longer that I’m gonna place an order. So we’ve had to we forced ourselves to have to be that nimble and agile. Whereas anyone who’s just been able who hasn’t done what we’ve done and reinvent ourselves has been able to operate under that longer lead time scenario.

So they haven’t potentially developed that quick responsiveness to get material in, get it on your floor, and get your production team ready. Not even if you can get the material, but get your whole line set up and your production team ready to completely flip and build a new car. And we’ve been happy to do that for two years, which allows us to be nimble. So in this time of August, September, we can say yes when others have to say no. Or they can say yes, but not within the calendar year, which is actually critical for some people given that they still work under the constraint of if I don’t use it, I lose it on my capital budget.

Unidentified speaker: So that may answer this next question. It’s probably a little bit unfair, particularly the way I’m gonna frame it

Michael Riordan, CFO, FreightCar America Inc.: up. Sure.

Unidentified speaker: Industry operates on a on a fifty year life cycle. Yeah. Why does five months matter versus a year in terms of of new car?

Michael Riordan, CFO, FreightCar America Inc.: Sure. Because people don’t like to make decisions timely. As simply as it can be. Yeah. And when you think about the people buying them, even if they’re leasing the cars, there’s an annual budget cycle.

And when you look at the companies that do budgeting, you’re gonna go to your CEO, CFO in December, get them to bless it. Many companies then have to go to their board to bless it. And now they have the budget on what they can spend the next year. Now they have that whole line. Now the negotiation, the intricacies start in January, February, March.

All of a sudden, Norris placed in April for a car to be delivered that year. Sometimes it takes a little longer, but everything’s based on a one year cycle. No one’s no one needs to buy out anymore. You know, co one thing COVID did was it made everyone become massively more resilient in supply chain and shrink things. That in the past we just said, deal with it, it’s twelve months.

Now everyone knows you can respond quickly and so the the one year budget cycle for all these buys and how significant they are that they almost always involve a board of directors approving it puts that pinch point. They get the budget approved in December, January, and then they start negotiating, fine tuning, going through all the details that go into this $20.30, $40,000,000 purchase, which then forces it. Now I gotta still use it within this year, so you’re you’re constrained within that twelve months. It would be ideal if somebody placed an order and said I’ll take it in twelve months. That would allow a lot more sourcing opportunities as well, but we’re in a constrained.

Unidentified speaker: Let let me put one more question. Sure. Is there any precedent within the industry that buyers will wait till even December, they’ll write you a check, and then the deliveries will come when they come. So they’ve spent their budget and didn’t have to be prepaid in your account. Is that is that even a phenomenon?

Michael Riordan, CFO, FreightCar America Inc.: It’s a good question. I would say the fact that everyone’s in Mexico producing cars, there’s a lot of hesitancy to give you somebody $20,000,000 ahead of time before they’ve seen the car be built and before it’s been certified. So what’s more likely to happen is you’re gonna build the cars, you’ll get a certificate of acceptance because every car is is reviewed independently, not by us, but by the customer or representative signed off on. They might pay you the cash in that period, but they I’ve rarely seen anyone pay for a car before it’s been built when it’s not just a down payment. But that’s a small down payments aren’t normal either in this industry.

But it’s a small piece, and then those cars end up shipping in January. That’s more likely to happen, but because of the scrutiny and the risk of loss doesn’t transfer till it crosses into The US, many people don’t like to pay ahead. It’s a good question. Welcome. And I know I’m the last one of the day.

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