Ftai Infrastructure Inc (FIP) 2025 Q3 法說會逐字稿

Good day and thank you for standing by. Welcome to the Q3 2025 Ftai Infrastructure earning conference call. (Operator Instructions)

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Alan Andreini, Investor relations. Please go ahead, sir.

Thank you, Michelle. I would like to welcome you all to the FTI Infrastructure Earnings Call for the 3rd quarter of 2025. Joining me here today are Ken Nicholson, the CEO of FTI Infrastructure, and Buck Fletcher, the company's CFO.

We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so.

Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including adjusted.

The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you. Review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and the forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Ken.

Thank you, Alan, and good morning everyone. Welcome to our earnings call for the 3rd quarter of 2025. As we typically do, we'll be referring to the earnings supplement which you can all find posted on our website, and I will get right into it by kicking things off on page 3.

The quarter was an extremely active one. In our rail segment, we closed on the acquisition of the Wheeling and Lake Erie Railway, a transformative transaction in many ways and expected to be one that sets the stage for significant growth in our rail segment in the quarters to come.

Also during the quarter at Longridge, we commenced gas production in West Virginia and we're now producing in excess of 100,000 MMBTU per day, well above our power plants' consumption.

And most importantly, the company delivered strong financial performance. Adjusted EBITDA for the quarter was 70.9 million, up 55% from $45.9 million last quarter and nearly double adjusted EBITDA year over year. Importantly, the reported figures reflected only five weeks of contribution from the wheeling, which we closed into a voting trust on August 20th, and just under five weeks of contribution from West Virginia gas production. Our results for Q4 and going forward will reflect these activities entirely, so we expect the reported results to continue to grow in the periods ahead.

The events of the 3rd quarter together with agreements in place at our Jefferson and Rappano segments, put us in a position to generate an excess of 450 million of adjusted EBITDA on an annual basis, excluding any organic growth or new business wins. On the right side of slide 3, we break down the components of that target, and I'm going to walk through it briefly.

First, for purposes of the bar chart, we have adjusted our reported results to reflect the wheeling acquisition and West Virginia gas production as if they had both occurred at the beginning of the quarter.

Next, once approval is received to release the wheeling from the voting trust, we have confidence in approximately $20 million of annual savings through realizing economies of scale. And finally we had the financial impact of agreements in place at Jefferson Rpano, which will commence revenue service at variance points between now and the end of next year. I will note that our $460 million annual target excludes several important opportunities, including a number of meaningful new revenue opportunities on the combined Transtar wheeling platform behind the meter developments at Longridge or any further activities at Jefferson and Repano.

Flipping to slide 4, I'll briefly touch on the highlights at each segment. At our rail segment, adjusted IBADA was 29.1 million, which included 8.4 million at attributable to the wheeling for the five weeks we owned the company. On a standalone basis, the wheeling generated approximately 20 million of adjusted EBITDA for the full quarter. We hope to obtain active control of the wheeling soon and are excited about the opportunities that lay ahead.

At Longridge reported EBITDA for the quarter was 35.7 million, up materially from Q2, driven by the full period impact of higher capacity revenue and partially by sales of excess gas in West Virginia.

With current production exceeding 100,000 MNBTs per day across our gas production operations, we anticipate Longridge to achieve its $160 million annual EBITDA run rate in this fourth quarter.

At Jefferson, EBITDA was 11 million in line with last quarter's results as we prepare to commence revenue service under two contracts, each with minimum volume commitments that represent approximately 20 million of annual adjusted EBITDA.

And the Rappano construction of our phase 2 transloading project is fully funded and progressing on plan. We have 2 contracts and one LOI in place of Rano for Phase 2 that together represent 80 million of annual EBITDA once operational. And earlier this month, Ripoo received a long awaited permit for the construction of our phase 3 cavern system.

It's been a productive year-to-date, but we have a handful of important priorities we're focused on over the next.

Few months and we briefly list those on slide 5.

First, we'll take active control of the wheeling immediately upon approval by the Surface Transportation Board. The timing is a bit uncertain, but given the current federal government shutdown, but we do believe our application is a priority for the STB.

Second, at Longridge, with the business reaching our base financial targets, we intend to pursue strategic alternatives, including a potential monetization of the business. It is a great asset and a great market environment to be exploring a sale, and I'll touch base some more on our plans for Longridge in just a bit.

And finally, we plan to refinance our existing parent level debt with a new bond issuance in the coming weeks. That financing should put us in a in a position with a strong long-term balance sheet that allows us for deleveraging over time.

Moving to slide 6, I'll talk a little more about the capital structure.

Our capitalization at the end of September reflected the new credit facility and preferred stock that we have issued in August simultaneously with the acquisition of the wheeling. Total debt was $3.7 billion of which $1.2 billion was at our parent level and $2.5 billion was at our subsidiaries and is non-recourse to the parent. As I mentioned, prior to year end, we plan to refinance our existing parent level credit facility with a new long-term bond issuance. We expect the new bonds to be the only debt at our parent level and benefit from cash flows that we receive from our business segments. All of the operating cash flow generated by our rail segment is permitted to be distributed to the parent level, and with the new business coming online at Rappoo and Jefferson, we expect to generate additional cash flow available for parent debt service from those entities.

The result is more than ample cash flow beyond debt service for reinvestment or deleveraging. In addition, any proceeds in the event of a sale of Longridge will be available for further deleveraging.

Moving to slide 8, we'll dig a little deeper into the quarterly results and activity at each of our segments, starting with the rail segment.

We posted revenue of $61.7 million and adjusted IBEDO 29.1 million in Q3 compared with revenue of 42.1 million and adjusted EBITDA 20.7 million in Q2. At Transtar, overall car loads, average rates and revenues for the quarter were stable. Coke volumes came in lower for the quarter, resulting from the incident at US Steel's Claritin production unit. We've seen Coke volumes rebound and expect them to be back to historical levels in the coming months.

Away from Coke, volumes were up for the quarter, offsetting the bulk of the lower coke volumes.

Transtar operating expenses also continue to be stable as fuel costs and other material cost items have been largely unchanged. We're bullish about the quarters to come at Transtar and expect the investments committed by Nippon Steel to drive expansion of revenue and profits next year and beyond.

More importantly, the wheeling. I'm pleased to say even in the short period of time that we have now owned the company, the business is exceeding our expectations. Volumes and revenues at the wheeling were up approximately 10% versus the company's second quarter, and EBITA was up 20% versus the company's 2Q.

The strong results reflected practically none of the 20 million of annual efficiencies that we're targeting, and our outlook for the new business opportunities for the combined business continues to grow. While the third quarter is typically a seasonally stronger quarter for the wheeling, we're off to a good start in October, and we hope to maintain the strong momentum in Q4.

Flipping to slide 9. I'll talk a little bit more about our integration plans for the wheeling. We went through a similar slide on our second quarter call, but given the recent strong performance from the wheeling, we have slightly increased our financial targets from last quarter and now expect EBITDA for the combined Transtar and wheeling of at least $220 million run rate by the end of 2026, up from our $200 million dollar original estimate.

The building blocks to that target are provided in the bar chart for the most recent 3rd quarter, the two companies generated combined annual EBITDA, as is of $164 million with 83 million attributable to Transtar and $81 million through the wheeling.

Our $20 million dollar target for annual cost savings is comprised of a detailed line item-based work plan that we plan to implement together with Wheeling senior management. We expect the entire of these savings to be implemented within the next 12 months.

The two next components relate to high confidence revenue opportunities. The first is a specific opportunity connected to our Repano terminal.

For that project, Reano customers plan to source natural gas liquids from fractionators located directly on the wheeling rail system. Total quantities represent about 30,000 car loads annually. At current market rates per car load, that's approximately $20 million of incremental annual EBITA at the wheeling.

The second revenue opportunity is a Transtar where additional freight volumes into and out of US Steel's facilities will be substantial as a result of the commitments made by Nippon Steel. Nippon has committed to invest a total of $5 billion to expand production specifically at US Steel's Pittsburgh and Gary, Indiana facilities. We expect these investments to result in 10% to 20% increases in shipments, or approximately $15 million of annual EBITA.

The bar chart excludes a number of additional items, including organic growth and pricing gains and a pipeline of new business opportunities that we are pursuing at the wheeling as well.

Next on to Longridge. Longridge generated 35.7 million of IBA Q3 versus 23 million in Q2.

The Power plant capacity factor was again at the top of the industry at 96%.

We did take a brief scheduled maintenance outage here in the month of October, so our capacity factor for Q4 will reflect that, but we expect West Virginia gas production revenues to more than offset the outage.

With West Virginia now online, we're producing over 100,000 MMBQU per day versus the 70,000 MMB2U per day required at the plant. So we expect to see higher revenues from ex excess gas in Q4, and higher than we experienced in Q3, of course.

And we continue to push forward on a number of initiatives to drive growth at Longridge. The 20 megawatt uprate in our power generation continues to advance, while precise timing of receiving approval and implementing the uprate is not a prescribed event. We are highly confident in the outcome. Adding 20 megawatts of generating capacity at today's power price adds 5 to 10 million of annual IBADA to the P&L.

And we continue to see more inbound interest from behind the meter projects. Potential structures we're considering include partnering with others to develop new data center facilities on our land, or just a direct lease of the land that we own to generate a valuable fixed income stream, or potentially providing backup power for a standby fee together with the land lease.

Either way, the market continues to be active, and we think this bodes well for Longridge's value proposition in the months ahead.

Now moving on to slide 11. With Longridge now running at its $160 million annual EBIT dotarget and continued strong momentum on behind the meter opportunities, we plan to explore strategic alternatives for the business.

Longridge is an incredibly high-quality asset. The plant ranks at or near the top of the list nationally in efficiency, reliability, and profitability on a per megawatt basis. With the macro environment as strong as ever in the current feeding frenzy for low cost power generation, we have high expectations for the potential sale of the asset.

On the Jefferson generated 21.1 million of revenue and 11 million of adjusted EA Q3 versus 21.6 million of revenue and 11.1 million of EBITDA Q2.

Volumes at the terminal were slightly lower, driven by softer crude oil imports, but were offset largely through higher average rates per barrel. As discussed previously, we have two contracts representing a total of 20 million of incremental annual EBITDA commencing in the coming months. In addition, we're in late stage negotiations for additional contracts with multiple parties to handle conventional crude and refined products, as well as renewable fuels. And some of these negotiations involve business that would commence in the coming months with little to no incremental investment or CapEx.

And finally, I'll close out with Repano. Phase two construction is proceeding as planned and toward our goal of completion by the end of 2026.

We have two customers signed up under long-term contracts and an additional customer with whom we executed a letter of intent and expect to finalize the long-term contract by the end of this year.

In the aggregate, these three pieces of business represent minimum volumes of 71,000 barrels per day and approximately $80 million of annual EBITDA for phase two.

The two contracts are each for 5-year terms, commencing upon completion of phase two construction, while the third letter of intent is for 5 years with a 2-year extension at the option of our customer.

And we're excited to have announced earlier this month that Rappano received the permit for the construction of our phase 3 underground handling system.

While it's been a long time coming, I want to reiterate how important a milestone this can be for Rappano. The cavern project, of course, can convey attractive economics and cash flows in the future, but in our view, receiving the permits also creates value in the near term, as our market can now appreciate the much larger potential for our business and our strategic position in the growing market for liquid exports.

In conclusion, we're happy with our team's progress during the quarter and we look forward to reporting to you all in the near term with updates on each of our key priorities in the months ahead. I will now turn the call back to Alan. Thank.

You, Ken. Michelle, you may now open the call to Q&A.

Thank you. As a reminder to ask a question, please press 11 on your telephone and wait for your name to be announced. To enjoy your question, please press 11 again. One moment for our first question.

Giuliano Bologna, Compass Point.

Good morning and congrats on, a pretty impressed quarter in the this quarter. As the first question, it's pretty clear that, the FY is evolving into, evolving from being a development company to being much more of an operating company.

And with that transition, are you expecting any new material increases in your SG&A and your cost structure?

A fundamentally, no.

Our G&A really is more of a fixed expense, and as the company grows, revenues EBITDA Do grow, G&A shouldn't be a variable item linked to that type of growth. It should stay relatively flat. I mean, I will say.

On a quarterly basis, if you just look back, Q4 has always come in slightly higher as we have some end of year adjustments on the G&A line and what have you, but that's just a quarterly thing. Across the year, the aggregate expense is something we we expect to stay relatively consistent, Giuliano.

That's helpful.

And now that you've completed the acquisition wheeling, can you give us some examples of the synergies that you'll be get between wheeling and transfer having those two businesses together?

Yeah, absolutely. There's just a tremendous amount that that we are identifying and eager to act upon, obviously we're not in a position to act on much of this until we're out of the voting trust, but immediately thereafter, we're getting going on a long list of opportunities. I mean, we talked about the 20 million of cost savings and efficiencies. That's a long list of discrete items, pretty frankly straightforward stuff. We have high confidence in those items, combined purchasing power, elimination of redundant expenses, etc. Etc. I think we feel very confident around that $20 million dollar target. Above and beyond that, there is a much longer list of potential combination.

I would just say enhancements, things like network optimization. I mean, an example would be where today Transtar may take volumes out of a US steel facility and quickly hand those volumes at an interchange off to another freight rail provider for shipment of that product, out to, let's just say the West Coast. Well, tomorrow when we jointly operate with the wheeling, we will keep those volumes on the wheeling system potentially for a longer period of time.

And that just means more revenue for us and then we'll still hand it off to the same railroad or maybe a different railroad at the end, but when you think about the math of that, that's good for the customer and obviously that's good for our business.

Other dynamics are existing customers who now can benefit from the expanded reach of the connected rail systems. Customers today who may not have access into the Pittsburgh market or into various markets in Ohio. If you're a customer who originates on Transtar and want access to the Ohio market in a more simple and direct way, or vice versa, a customer in Ohio who wants access to the Pittsburgh market, we now can provide that access holistically.

So that's a new opportunity for the customer who may otherwise be using another railroad to access the markets we now serve on a combined basis. There's a long list of those sorts of things, and, we're eager to, set out and make those things happen. None of that is included in our Outlook or the $220 million target for the railroads. So I do think there's some, hopefully upside in those targets we've laid out.

It's very helpful and as a maybe a quick follow-up on the, very similar topic. Now that you have the scale platform with the, with wheeling and transfer together, if you do more acquisitions going forward, what do you, what kind of synergies do you think you can realize, by having a diverse side platform and continue to, talking acquisitions, even if the acquisitions are not, physically, next to the current system.

Yeah, I mean, I think, bigger is better, and.

This was something, we've done with our historical rail investments and each incremental investment is that much more creative.

So, we're excited about it and we're excited to keep up the effort to go, execute on more M&A in the rail space. The types of synergies would be roughly the same. Obviously if they're not a connecting railroad that we would be investing in some of the revenue enhancements, wouldn't be there, but the same types of cost eliminations would be there. And so, and I am, I'm excited about it. I think we've now got a bigger, better platform and we're even better position to go out and buy more railroads.

That's very. I appreciate it and congrats on a great quarter.

Thank you, and one moment for our next question.

Brian McKenna, Citizens.

Thanks. Good morning, everyone. It's great to see all the momentum in the real segments, specifically with wheeling. I appreciate all the detail on the quarterly trends and then the near term and the longer-term outlook, but do you have an updated timeline around STD approval and then is it still a reasonable expectation that gets done by year end, or is that maybe gotten pushed a little bit just with the government shutdown?

No, my guess is that is still a reasonable expectation. I mean, what I can say is, look, yeah, the federal government shutdown does affect the surface Transportation Board. So prior to the shutdown, the STB had communicated a target for end of November for reaching a decision.

I have a decent sense that at the STB, this is a priority, for them. I'm not aware of any detractors regarding this combination. And so, our assumption is when the government reopens, this will be, continue to be a high, item on their list of priorities. Yeah, I think it's, hopefully sooner versus later. It's anyone's guess as to when the government reopens, but hopefully, shortly thereafter we should get the green light.

Okay, that's helpful. And then just to follow-up on the rail segment, so, how much cash did did the segment generate, in the quarter and then is there a way to think about kind of the the full quarter run rate of cash generation within the row segment, and then again, can you just remind us, what is the top priority? I think I know the answer to it, but what's the top priority for for uses of this excess cash?

Yeah, The, EBITDA on a combined basis, assuming the full, the way to think about it is just the actual 3rd quarter before anything, before 20 million of efficiencies, before all these revenue opportunities and what have you. EBITDA was about $40 million.

CapEx at Transtar was near zero.

CapEx at at the wheeling was, oh, I want to say 6 or $7 million. It's a little higher in Q3 for them, with a number of big projects that they took care of during the warmer weather, it will not be that high.

A in the fourth quarter, so it's not necessarily a great indication of, CapEx to come, but call that cash flow, let's just say on a normalized basis of about, $35 million rounding up $32 to $35 million. All of that cash will be available to, shoot up to our parent, and it'll be used initially for death service. We expect that cash flow to grow materially $20 million a year of cost savings, revenue enhancement. What have you and so, but so we do expect there to be excess cash available at the parent level. What will we use the excess cash for after debt service, that will depend in part upon the investment opportunities we see at the time. Look, deleveraging, I think we we view would be a good thing for us, and the debt we're putting in place will certainly, be one we could deleverage with. Obviously we talked about Longridge as well and with that transaction, should it occur, there'll be meaningful deleveraging as well. So I think that excess cash right here, absent, a highly creative, investment opportunity we would probably use to deleverage over time.

Yeah, okay, that's great. And then just one, final question for me real quick just in terms of the bridge refi, what's the base case expectation in terms of getting that done? I'm assuming you maybe want to get that done by year end, and so that's the first part of the question. And then just in terms of the specifics like does an asset sale need to take place in order for that to get done and then how are you thinking about the duration and cost of this debt capital?

Yeah, so, yes, definitely want to get done by year end. Don't need any monetization of another asset in order to get it done. We're ready to go. I think we've got a great structure that that is a great fit for the. Company I'm not going to talk about, duration, it'll be at least 5 years, or pricing if that's okay. I just, we're going to commence the marketing process here shortly so I, I'll just, I'm going to leave that to the side for now and maybe we can comment on that once we once we start the marketing. But look, it's going to be a bond, not terribly different than the bond we previously had outstanding. The previous bond was a 5 year term, no call to. I think you should expect something generally similar to that. I'd like a shorter, call protection period because with the ramp up in cash flow, particularly the cash that'll be coming from Jefferson Rapano, starting throughout the next 12 months, we're going to want to use cash to deleverage. And having a shorter window of, expensive premiums and call protection, I think would be advantageous for the company. But outside of that, it'll be a typical, senior notes offering.

Got it thanks so much.

Greg Lewis, BTIG.

Yeah, hi, thank you. Good morning, and, thanks for taking my questions. I would love for you to talk a little bit about, poo, we saw the news, about getting the permit for phase three, kind of curious what next steps are, maybe roughly how much CapEx might that might be involved and then probably more importantly when we think that could be ready and start generating some revenue.

The, yes, good morning, Greg. Thanks for the question. Yeah, it was a marathon getting here, needless to say, obtaining the phase 3 permit was a, was a lengthy occurrence, but we're thrilled to be, where we are and now is when the sprint, portion of the development, begins.

We are, look, I think it's a very big deal for Apano. This is really what it's been about for quite some time. It's a tremendous expansion of the asset. Phase three represents effectively a doubling of what phase two is. Phase two is one aboveground storage tank at just over 600,000 barrels. Phase 3, as permitted, is two underground caverns each at 640,000 barrels. So it is a big deal, a game changer for the economics of Rano. We have a great macro with continued demand for export and gateways out of the East Coast, we are effectively sold out on phase two and so we're eager to get going on phase 3. What we need to do is finalize some of the construction contracting. Our estimates today, estimates are that building one cavern would take about $200 million.

Whether there would be additional handling systems connected to the cavern or not will depend upon the ultimate throughputs and what have you, generating about 70 to 80 million of annual EBITDA, so the economics are pretty compelling. I mean, it's like a 3 year payback. Timing will depend upon, the competitive bidding with our contractors. It's realistically probably between 2 and 3 years to build a cavern. If we built two at the same time, it would be the same time frame. It's not like a sequential event, but look, the economics are wildly compelling. The macro is super and so we're eager to get going on commercial contracting, final cost, estimating and getting construction contracts ready, and then we can hit the financing, markets and, get the thing going.

Okay great appreciate the call thank you and then and then my other question is around Longridge you highlighted, the potential strategic alternatives I wanted maybe a little bit more detailed question how what is the what is how does it, how should we think about, Longridge as a power generation facility versus the natural gas wells which you know are outside of that and and and. I don't know who the buyer is, but I could see a situation where a lot of buyers might not be interested in having natural gas wells. Just kind of curious how you're thinking about that and could we see a scenario where maybe we maintain those natural gas wells for the production? Just kinda curious how we should be thinking about how this plays out.

Yeah. I think there is a broad spectrum of potentially interested parties from all types of backgrounds, and that's a good thing.

You're right about the integrated gas, and that is in our, opinion, a huge differentiator and driver of value. So I would expect that the ultimate transaction involve a sale of the entire business, the entire asset, the entire business, the gas, the power plant, the land.

It is of course possible. You're right that that the buyer, preferred to just take the plant and the land, we keep the gas, that anything is possible, we could do anything. Our focus, of course, is on maximizing value.

I will tell you, right now, with the feedback and the inbounds that we've been getting, we haven't had any, anyone indicate they'd be interested in just one asset, the interest has been in the whole site.

It's why it is such a wildly profitable, asset, and those profits are effectively locked in with power swap sales, and I think maintaining that balance and that that integrated aspect of the asset is actually an important thing and Buyer universe appreciates that. So I think it's possible it could end up being, cut in two, if you will, with one half sold and one half kept. My view right now is that's less likely.

Super helpful.

Thank you very much, gentlemen.

Thank you, and I would now like to hand the conference back over to Allan Andreni for closing remarks.

Thank you, Michelle, and thank you all for participating on today's call. We look forward to updating you after Q4.

This concludes today's conference call.

Thank you for participating and you may now disconnect everyone have a great day.