FTAI Infrastructure (FIP) Q3 2026 Earnings Call Transcript

Our core business is the freight railroad, and it Q3, we again posted record financial results. We are seeing a strong environment both in terms of volumes and pricing and are optimistic about continued organic growth. Nippon Steel recently announced some additional investments at the Mon Valley facilities in Pittsburgh, and we will see meaningful incremental volumes of propane shipments commencing next year. All in, we are forecasting continued double digit growth in revenue and EBITDA in the year ahead. In addition, we are experiencing a high level of M&A activity in the market, and we are actively evaluating several potential acquisition opportunities.

I firmly believe that our business is 1 of the best positioned buyers in the market especially as it relates to larger more strategic rail assets, and I am excited about a number of near term opportunities. At our Long Ridge Power and Gas business, I am thrilled to report that just this week, we finally received the regulatory approvals for the sale of the company. With approval in hand, we expect to close the sale by the end of this month. Gross proceeds of just over $1.5 billion will be used almost entirely to repay debt. Resulting in a material reduction in leverage and more importantly, lower interest expense at our parent level.

With a lighter balance sheet, we plan to continue our focus on growing our core rail business. And finally, we continue to position our terminals for monetizations next year. Last month, we announced the acquisition of logistics assets from USD Group, which we plan to combine with Jefferson to transform the value proposition of that combined business. And over upon our Phase 2 build out is approaching completion, and setting us up for an exciting 2027. As we look ahead, our strategy is straightforward. Continue to reduce leverage, grow the value of our rail platform, materially increase EBITDA at Jefferson and Repauno, and ultimately monetize those terminal assets as we are doing with Long Ridge.

I am going to move to slide 4, and we will dig into the consolidated financial results for the quarter. Adjusted EBITDA for Q3 came in at $95.3 million up materially from $70.9 million in the third quarter of 25. On the right side of the slide, we illustrate our historical quarterly adjusted EBITDA, excluding the results of Long Ridge given the pending sale. Excluding Long Ridge, adjusted EBITDA was $54.4 million in Q3, another quarterly record. And in the quarters ahead, we expect EBITDA to continue to grow, driven by a handful of high confidence events.

First, organic growth at our railroad, second, the USD acquisition and the inclusion of USD financial results with Jefferson going forward and third, the commencement of Phase II operations at Repauno next year. Flipping to Page 5, I will talk briefly about our balance sheet and our deleveraging trajectory. With the Long Ridge sale, we expect to eliminate approximately $1.4 billion of total debt from our balance sheet of which a little over $1.1 billion is at the Long Ridge level. And a little under $300 million is at other parent entities. Debt service at our parent level will decline by approximately $25 million per year. Meaningfully improving our leverage metrics.

And we expect our leverage profile to continue to improve over the next several quarters as we integrate the USD assets and bring online Phase 2 at Repauno. I am now going to walk through the more detailed financial performance at each of our segments. And we will also talk about some recent developments and our priorities in the quarters ahead. We are going to start with our railroad on slide 7. Posted new quarterly records across the board. Carload, average rates per car, revenue and EBITDA all came in at all time highs. Revenue was $104 million and adjusted EBITDA was $47.4 million for the quarter.

Compared with Q3 25 revenue of 61.7 million and adjusted EBITDA of 29.1 million We closed the acquisition of the Wheeling and Lake Erie Railroad in August of last year, so year over year comparisons are not entirely comparable. But even if we assumed we had owned the Wheeling for the entirety of Q3 last year, all key metrics would be higher year over year. Volumes for the quarter were strong in all categories with the exception of slightly lower volumes at our Gary Railway. As U. S. Steel continued to undertake a substantial overhaul and upgrade of the largest blast furnace at Gary Works. Which was completed in September and is once again operating at full capacity.

Average rate per car reflected a strong pricing environment as well as higher fuel surcharges, which we pass along to our customers. Integration of the Wheeling and Lake Erie is largely complete with final systems integration taking place here in November, so we should continue to see cost savings opportunities continuing into this fourth quarter. We expect strong growth in our Rail business continuing to 2027, and we highlight some of the drivers of that on slide 8. Organically, the outlook for both volumes and rates is favorable. Shipments of energy products, steel products and other raw materials all strong and pricing also trending higher again next year. Nippon continues to roll out committed investments at U. S.

Steel's Pittsburgh and Gary facilities. That should drive incremental volumes in the years to come. And propane shipments originating in Ohio destined for our Repauno terminal will commence next year. While the outlook for organic growth is favorable, we are equally excited about the M&A market and opportunities that we are evaluating. Our objective is not simply to add EBITDA. it is to build scale in a highly strategic portfolio of assets, where we believe our operating capabilities and existing network should make those assets more valuable under our ownership. Now on to our Jefferson terminal.

At Jefferson, we reported $24.9 million of revenue and $14.2 million of adjusted EBITDA in Q3 versus $21.1 million of revenue and $11 million of EBITDA in Q3 of last year. Refined products came in at a new quarterly record in terms of both volumes and revenues. As our export business continues to grow. Crude volumes continue to be impacted by volatility in The Middle East, and the temporary reduction in inbound ship volumes. But we are encouraged to see inbound crude volumes recovering materially so far in Q4, with October crude volumes averaging 85 thousand barrels per day more than double the 41 thousand barrels per day we averaged during Q3.

Based on our most current interactions with the refineries we serve, we forecast the remainder of Q4 to be strong on the crude front. We continue to negotiate new contracts to expand our business at it and have recently finalized commercial terms with 2 new customers for crude oil exports. The new business will commence on January 1st next year, and should represent approximately $8 million of incremental annual EBITDA. We also continue to discuss larger opportunities with existing customers that involve expansions of the services we currently provide. With little to no CapEx. Our goal is to execute on all of these larger opportunities in the coming months.

But as I mentioned, the majority of growth at Jefferson will be driven by the acquisition of the USD assets which we expect to be reflected in our Jefferson Financials upon closing of that transaction in the middle of this month of November. On Slide 10, we walk through the USD acquisition in more detail. The assets we are acquiring include a rail connected crude terminal in the Beaumont-Port Arthur Energy Complex. and a 50% joint venture interest in a diluent recovery unit in Alberta, Canada.

The 2 assets form the bookends of a supply chain that handles approximately 50 thousand barrels per day of Canadian crude oil under a take or pay long term contract with an investment grade customer. Crude oil originates in Canada, where low value diluent, which is used in the initial recovery process, is removed from the product to concentrate the oil into higher value pure crude. Which is then shipped by rail to Beaumont and piped to the P66 crude oil hub. Altogether, at the contracted minimum volumes, the USD assets generate approximately $50 million of annual EBITDA. What is particularly attractive to us is both the quality and visibility of that EBITDA.

More importantly, the addition of the USD assets transforms our Jefferson business. And we talked through some of the highlights on slide 11. Jefferson's growth trajectory takes another leap forward with the addition of USD volumes and ultimately has potential to drive meaningful value creation in advance of our plans to monetize Jefferson next year. The combined business will provide critical energy logistics services to a total of 7 high quality customers under long term contracts. The resulting combined EBITDA is expected to exceed $100 million annually before including the impact of increased capacity utilization at the Jefferson Main Terminal.

We expect to execute these additional contracts in the near term, and we see opportunities also to realize cost savings from integrating the USD assets with Jefferson. Together, those initiatives provide meaningful upside to EBITDA in 2027 and importantly should enhance the value of Jefferson. As we position the business for sale next year. And finally, turning to Repauno. Our focus continues on Phase II, where construction proceeds as planned toward our goal of completing in the coming months and revenue commencing shortly thereafter. We have long-term contracts in place for a portion of our capacity and are seeing high demand for the remaining available space. Spreads for propane exports continue to be attractive.

And based on the conversations we are having, we expect to commence revenue service in 2027 near or at full capacity. Construction of phase 2 is progressing well with the new cryogenic tank readying for completion as well as pipes and manifolds connecting the tank to our rail racks and ship dock. Here in Q4, we are converting our existing cavern previously utilized for butane handling to propane in order to start handling propane in advance of the completion and commissioning of Phase II. Repauno was approaching an important inflection point. We have invested the capital. Construction is nearing completion. And the focus is now shifting from development to cash flow generation.

As that cash flow becomes visible in 2027, we believe the value of Repauno should be increasingly apparent and position us well for potential monetization. I will conclude our remarks there. And now let me turn the call back over to Alan.

Alan John Andreini:Thank you, Kenneth. Michelle, you may now open the call to Q&A.

Operator:To withdraw your question, please press *11 again. The first question will come from Giuliano Bologna with Compass Point. Your line is open.

Giuliano Bologna:Good morning, and congrats on a successful and great quarter. Jumping over to the rail side, it looks like the growth in EBITDA in the rail segment is accelerating. Can you expand on that and what is driving that acceleration and how durable that is?

Kenneth J. Nicholson:Yeah. Good morning, Giuliano. Thanks for the, thanks for the question. Yeah. We. We are very happy with Q3 and, the results. We certainly are seeing a very good start to Q4. So everything I mentioned, you know, double digit year over year growth in revenue and a little more than that in EBITDA is what we continue to expect. It really is not 1 specific thing. it is which is great. it is a combination of many things, you know, carloads and the overall volume environment Just continues to be strong. We are seeing propane volumes as high as, I think, we have ever seen them or certainly the Wheeling has ever seen them.

And it is great to have the business at Gary now back online for the entirety of Q4, the largest blast furnace in Gary, Indiana was out of out of service for the bulk of Q3. So we are excited about that. Pricing in the rail industry continues to be attractive. You know, we continue to see at least mid single digit pricing growth, going forward. In some cases, pricing will be higher than that into the higher single digits, next year.

Giuliano Bologna:that is not in all cases, but in some cases. And so really, growth is driven by revenue gains. And we are really happy with what we are seeing. And, yes, it is very sustainable into, 2027. that is very helpful. Then, you know, you mentioned the rail environment. M&A environment is robust. Can you give us a little more color on what you are seeing and the types of opportunities you are looking at?

Kenneth J. Nicholson:Yeah. Definitely. I mean, I do have to say we. We have been invested in the rail sector here for quite some time, and we have seen the waves of M&A and consolidation This is certainly 1 of the most active, if not the most active environment we have seen in I mean, at least 10 years, maybe 20 years. There is a lot going on and it is driven by a number of various dynamics Big companies, smaller companies, you know, all looking to sell you know, you have-- the rail industry is a dynamic 1. You have lots of different types of companies with different ownership profiles.

There are over 500 short line and regional railroads in North America. So there is a big base and potential candidates for consolidation In a fragmented market. But you have got either individual owners who have owned their rail assets for significant periods of time and they are getting to a point where they are ready to sell. And move on to their next challenge.

There was a big wave of M&A over the past 5 or 10 years, and a lot of private equity firms came in to the sector and their funds, which typically have 10 year terms, are coming up on maturities, and so they need to sell And then, we continue to look at some corporate carve outs, kind of like our acquisition of Transstar from US Steel. I am particularly fond of those types of situations. Because I think we can be a very differentiated buyer given our experience with US Steel. So it is super active, looking at all different types of things. I do think our focus is going to be on the bigger opportunities.

There are a handful of smaller things out there that do not quite move the needle for us, and I think our time and energy is probably spent on some of the bigger, more strategic situations.

Giuliano Bologna:that is very helpful. I appreciate it and on the quarter. I will jump back in the queue. I will Thank you.

Operator:And the next question will come from Gregory Lewis with BTIG. Your line is open.

Greg Lewis:Yes. Thank you and good morning, and thanks for taking my questions. I was hoping to talk a little bit about Jefferson just following the acquisition. Could you talk about that impact on the acquisition? And what that does for Jefferson, not only in terms of how you are thinking about integrating that and organically growing EBITDA, But maybe does this lead to a potential I do not know, strategic alternatives opportunity where this could be sold you know, at some point in the future?

Kenneth J. Nicholson:Yeah. Good morning, Gregory. Thanks for the question. The answer is yes. I think the acquisition does a lot for Jefferson. First, outside of any strategic opportunities, it materially changes the cash flow profile at the business. You know, Jefferson is an asset that is been built over years and years. And the team down in Beaumont has done an exceptional job building out the infrastructure. I mean, that is a gold plated terminal and I really believe all of our customers are very happy with the performance down there. But it has taken time, of course. There have been some frustrations in the amount of time that it has taken to ramp up.

I really think we have done a phenomenal job again, led by the core team down in Beaumont. Finally getting to a point where cash flows exceed interest expense and the debt that was incurred. To build out all that infrastructure. That infrastructure will live for the next 50 to 100 years, but it took a lot of capital, and we were able to borrow a fair amount of that capital to build out those infrastructure. But it has left Jefferson relatively tight. On a cash flow basis. This acquisition of USD completely transforms and changes the cash flow profile of the business.

Jefferson will now be generating ample excess cash flow, and that just in and of itself is very important. On the strategic front, I do think there is the 1+1=3 dynamic here. We add a new high quality pure investment grade, you know, customer We get access to new products. Kind of akin to, you know, renovating your house before you sell it. And I am looking forward to, you know, preparing the company for sale next year. Obviously, we still got to execute somewhat, but look, I think the combined capital we have into Jefferson and the purchase price of USD you know, will certainly be less than the total proceeds we will get from a sale.

I think it is a very accretive transaction as we look to a potential monetization next year.

Greg Lewis:Alright. Super helpful. Thank you very much. Thank you.

Operator:And our next question will come from Matthew Erdner with JonesTrading. Your line is open.

Matthew Erdner:Hey, good morning, guys. Thanks for taking the question and congrats on a solid quarter. What impact at Jefferson has the crisis in The Middle East presented to you guys, you know, in terms of customers or potential contracts?

Kenneth J. Nicholson:Hey, Matt. Good morning. Yeah. You know, as I mentioned in some of my comments, seems like that is recovering. But Q2 and Q3 at Jefferson were I would say, meaningfully impacted by the activity in The Middle East. A significant amount of volume historically, crude oil volume, that has come into Jefferson has originated in Saudi Arabia. And crude oil coming in by ship is particularly frankly, it is high margin. Obviously, high volume, and these are big ships. And there is a lot of volume and a lot of a lot of margin. And so that is historically has been good business for us at Jefferson and things really slowed down in the second quarter.

I think the month of July saw no barrels imported from Saudi Arabia into the U.S. at all anywhere. I think that is the first month since some period in the 1.98 thousands that the United States did not import 1 drop of crude oil from Saudi Arabia. So it is certainly been a tough fall. Luckily, refined products, our ammonia business, you know, is holding strong and frankly running at record levels as it relates to refined products. So we have been able to offset some of that softness. I would tell you we are definitely seeing recovery. it is a little choppy. We do not have incredible visibility into a flow of ships back into Jefferson.

What we are really focused on is helping, you know, customers access crudes from other production regions. I mentioned in my remarks we are going to be, commencing some new crude business here starting January 1st with actually 2 new customers, which is great. And that is. A good chunk of that crude is actually coming from the Uinta Basin. And so, you know, we are looking at sources outside of Saudi and starting to really grow that Uinta Basin crude import. This is actually gonna be crude barrels that will likely be exported, but you know, as long as we handle it, we are somewhat indifferent as to where it goes.

So look, I think the inbound ships are returning. We have certainly seen that in October. But the way to minimize any risk of uncertainty there is to really help our customers find barrels from other destination points so we can replace some of that volume.

Matthew Erdner:Got it. that is helpful. And then just to clarify on the USD assets, you expect that to close mid-November? Yes.

Kenneth J. Nicholson:We are, hoping the week of November 16th.

Matthew Erdner:Okay. Awesome. Thank you, guys. Appreciate it. Thank you.

Operator:And the next question will come from Jeffrey Kauffman with Citizens JMP. Your line is open.

Jeff Kauffman:Thank you very much, and congratulations. Just a terrific quarter all the way around. A question for Kenneth, and bear with me. This is going to be a little convoluted. But I want to hit 2 items you discussed for the wheeling. Number 1, you have got this very large investment by Nippon Steel and it is gonna affect both Gary and Pittsburgh. And I wanted to understand, you know, what that could mean over the 3 year period in terms of whether it is incremental carloads, incremental revenues, and how that plays out. And then the second is on the cost side. You still have these savings programs and integration plans with the Wheeling.

You know, how far along are you on the cost synergies? And may be an easier way to think about it is, the railroad did a 76.6% operating ratio. This quarter, and that is how rail people think about things, the operating ratio. You know, where can that OR go? When these synergies and cost savings are fully implemented? So I guess a question on revenue potential and a question on cost.

Kenneth J. Nicholson:Great. We will we will certainly comment on both of those. I am joined here by Jonathan Carnes, who runs our railroad. So I might I might lean on John for some commentary as it relates to the integration. But let's take the Nippon question first. Nippon committed to about $11 billion of total investment at Gary, Indiana and in the Mon Valley complex. And the first piece of that we saw was up at the blast furnace, the relining of the blast furnace in Gary, and that took the bulk of the summer. Think we are seeing more volumes going through Gary than, frankly, we have seen in a very long time. it is because that.

Right now, it is because that blast furnace is back online. So we are we are really encouraged by that. But the bigger news was just a couple weeks ago. I do not know if you saw it, but Nippon announced about $3 billion of investment in the Mon Valley complex, primarily focused on U. S. Steel's Edgar Thompson integrated mill. They expect the investment to grow production volume for about 2.2 million tons per year. To 3.5 million tons per year. What that means for us is a significant increase in carloads and ultimately revenue. Hard to say with precision, but, I mean, it is well into the tens of thousands of incremental car loads.

Could be 30 thousand 40 thousand 50 thousand incremental carloads for our Union Railway, which is what serves the Mon Valley complex. For US Steel. Now it is going to take a few years for those investments to be made. So we will start seeing that probably in 2 or 3 years. But it is the kind of activity and volume that will be, you know, with us for a very long time thereafter. And so I am super excited about, you know, what that means. Obviously, there is still more investment to come. And we do not have a crystal ball on precisely, you know, what that is going to mean.

But I am sure Nippon will continue to make announcements as they you know, as they as they commit their $11 billion investment. So you know, probably over the next few years, you know, a good, you know, tens of thousands of carloads of incremental volume and that is probably $20 million of incremental EBITDA. So that is that is the kind of thing we are looking at. As it relates to, cost savings and integration, I am gonna let John talk and then I will come back to talk about some of the margins.

Jonathan Carnes:Sure. Thanks, Kenneth. We are on track for about $19 million of annual cost savings excluding onetime costs. Most of that is personnel reduction. there is some procurement, purchase power. If you think about the consolidation of what we bought, it is just things we buy, which is just doubled. Lower overhead, things like insurance, The full benefit of that will really feel effective January 1st is when kind of the existing agreements come to an end. Of course, the cost savings also tie closely with our integration. Last Sunday, we cut over the Wheeling Lake Erie Railroad operating systems.

The financial systems were already cut over earlier in the year. it is gone about as smoothly as we could have hoped. Most of it is behind us. There were no meaningful disruptions or service to impact the service to customers. Really looking forward to the common platform. there is major benefits there. The operating team immediately was very excited about the visibility and the tools to better manage the railroad. Think about speeding up your asset utilization. You know, we just got a whole new toolbox, and we are looking forward to implementing that on the wheeling. So overall, the integration is like I said, going about as well as we could have expected.

Kenneth J. Nicholson:Yeah. And I would just say on the margins, you know, the SOR is the industry standard. And we are in the mid-70s. I think these cost savings take us, you know, down into the low 70s. Ultimately, we would love to ultimately get to a 6 handle, but that is gonna take some time. OR is something we look at. it is not you know, at the top of our list What is unique about our rail business is cash flow and cash flow conversion. These assets are particularly low capital expenditures.

The cash flow generation, about 15% of our EBITDA, goes into, you know, capital expenditures and 85%, you know, is available for reinvestment distribution up to fifth, you know, or parent, whatever it may be. Your typical railroad consumes 30%, 40%, sometimes 50% of EBITDA just upon CapEx every year. These railroads are shorter. They are more dense. And so we really, benefit from a very low CapEx profile. that is not captured in the OR statistic and so it is a big differentiator for our business.

And you know, when John and I talk about how a month went, how a quarter went, We look at margins, of course, and the various cost line items, but we are particularly focused on cash flow for those periods of time.

Jeff Kauffman:That was terrific. A lot of clarity. Thank you. Thank you.

Operator:And I am showing no further questions in the queue. I would now like to turn the call back over to Alan for closing remarks.

Alan John Andreini:Thank you, Michelle, and thank you all for participating in today's call. We look forward to updating you after Q4.

Operator:This concludes today's conference call. Thank you for participating. Goodbye.

Should you buy stock in Ftai Infrastructure right now?

Before you buy stock in Ftai Infrastructure, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Ftai Infrastructure wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $353,560!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,115,850!*

Now, it's worth noting Stock Advisor's total average return is 852% — a market-crushing outperformance compared to 203% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor , and join an investing community built by individual investors for individual investors.

See the 10 stocks »

*Stock Advisor returns as of November 6, 2026.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

FTAI Infrastructure (FIP) Q3 2026 Earnings Call Transcript was originally published by The Motley Fool