FTAI Infrastructure Inc. (FIP) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the FTI Infrastructure second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To address your question, please press star 11 again. Please revise that today's conference will be recorded. I'd like to hand the conference over to your first speaker today, Alan Andrini, Investor Relations. Please go ahead.

Thank you, Marvin. I would like to welcome you all to the FTI Infrastructure Earnings Call for the second quarter of 2026. 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 EBITDA. The reconciliations 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 to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and 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.

Okay, thank you very much, Alan, and good morning, everyone. Welcome to this morning's call. The second quarter was a very active one for us, and today we will walk through our various accomplishments for the quarter, our financial results, and we'll talk a little bit about our goals and expectations for the remainder of this year. Suffice to say, we're pleased with our overall results and excited about the momentum we're carrying into the months ahead. We'll kick things off on slide three of the supplement. As we stated before, our goals for this year have three primary components. Sell Longridge and deleverage our balance sheet, continue to grow our railroad portfolio, and position our terminals for monetization next year at attractive values. And I'm pleased to report that we made good progress on each of these goals during Q2. First, we announced the sale of Longridge at the end of April, and while timing is not necessarily an exact science, we currently expect to be in a position to close the transaction by the end of Q3. The sale will result in substantial deleveraging and a material reduction in our interest expense at our parent level. Second, our rail business posted another record quarter in both revenues and adjusted EBITDA. We made a small acquisition at the end of Q2 and are expecting several additional acquisition opportunities in the months ahead as the M&A market in the rail sector continues to heat up. We have an exceptional platform to continue to integrate acquisitions in the rail space and I'm confident we'll be successful adding to our portfolio. And finally, our terminals make good progress on important projects that will create value and position each of Jefferson and Rippano for monetization next year. All in, we have good momentum carrying us into what we expect to be a very productive second half of 2020. Going to slide four, we'll review the financial results for the quarter. Ajelt Sadeep Adha for Q2 came in at $76.1 million, up materially from $45.9 million for the first quarter for the second quarter of 2025 on the right side of the slide we illustrate adjusted evita for each of our last four quarters including the results of longridge which we now account for uh excluding the results of longridge which we now account for as an asset held for sale excluding longridge adjusted evita was 48.7 million for q2 which represents a new quarterly record and equates to just under $200 million. In the quarters ahead, we expect revenues and adjusted EBITDA from our rail and terminal segments to continue to grow, driven by the contribution from our recently acquired Tidewater Logistics acquisition and developments at our terminals, including most notably page We'll talk about our balance sheet and deleveraging. As you may recall, our existing corporate debt contains terms allowing for repayment with proceeds from the Longridge sale to be made at a lower premium than would otherwise be due if funded with other sources of cash. So with less premium required, we're able to repay more principal. In total, 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 Longridge level, and approximately $300 million is other debt in addition to the one. Debt service at our parent level was declined by about $25 million annually, meaningfully improving our leverage metrics, and we expect our leverage metrics to continue to improve over the next several quarters as we bring online new business at our terminals, especially. Altogether, with a deleveraged balance sheet and higher free cash flow generation, we expect to be well-positioned to act on new investment opportunities, especially in the freight rail Moving to slide seven, we'll get into the details at each of our segments, starting with our railroad. We posted new quarterly records for both revenue and EBITDA in Q2. Revenue came in at $92.2 million and adjusted EBITDA was $42.4 million for the quarter compared with pro forma Q225 revenue of $81.2 million and adjusted EBITDA of $37.6 million. Remember, our reported results for last year exclude the results of the wheelings. We're showing pro forma figures to demonstrate what revenues in EBITDA would have been if Overall volumes for the quarter continue to be steady with higher car loads as wheeling offsetting slightly lower volumes at Transtar as USTL continues to undertake a substantial overhaul and upgrade of the largest blast furnace at Gary Works, which, while dormant now for the upgrade, will ultimately be a meaningful plus for us. Since carloads and the wheeling are generally at a higher average rate than at Transtar, on a blended basis, we report a higher average pricing. Integration of the wheeling and Lake Erie railways going smoothly with anticipated synergies accumulating as expected, and critical IT consolidation wrapping up here in Q3. On the revenue side, we continue to grow the list of opportunities as two railroads are operating as one. Additional propane car roads are planned to start early next year when Rappano's Phase 2 commences, and the pipeline of additional opportunities is substantial. In total, we continue to estimate in excess of $50 million of incremental annual EBITDA potential from the various new revenue sources manifesting. On slide eight, we'll talk a little bit about our acquisition of Tidewater logistics. At the end of Q2, we acquired Tidewater for $45 million of cash consideration, funded with an add-on to our existing parent-level term loan. Tidewater operates a total of four rail-served terminals, the largest of which is directly served by the wheeling, making the acquisition a particularly accretive one. Handling and Translating over 20,000 carloads annually of a variety of commodities, Tidewater's terminals play an important role in customer supply chains, enabling the transition of freight between rail and truck efficiently and flexibly. We expect Tidewater to contribute approximately $9 million of annual EBITDA, buying an attractive purchase multiple. But more importantly, we plan to leverage Tidewater's management expertise and relationship to expand the rail terminal's business and drive addition. As I mentioned, we expect the remainder of the year to be an active one on the rail M&A front, and on slide nine, we describe the types of situations that we're currently evaluating. Opportunities fall into three primary buckets. The first is portfolios of short-line and regional railroads, which are larger, needle-moving investment opportunities that can convey substantial combination efficiency. Second set of opportunities involve sales by corporate and industrial parties that today directly own the railroad that connects their facilities to the National Freight Network. Our acquisition of Transstar from U.S. Steel a number of years ago is a good example of that type of opportunity. And the third is more regional in nature, involving tuck-ins of smaller single railroads or terminals, much like our recent acquisition of Tidewater. We are actively pursuing opportunities in each of these three categories, so I'm optimistic that we'll be able to continue to grow our existing platform here in the future. Now on to Jefferson. At Jefferson, we reported $24.3 million of revenue and $13 million of adjusted EBITDA in Q2 versus $21.6 million of revenue and $11.1 million of EBITDA in Q2 of last year. Refined products and ammonia came in at new quarterly records in terms of both volumes and revenues as our export business with customers for those products continues to grow. Crude volumes were impacted by volatility in the Middle East, and we experienced a temporary reduction in inbound ship volumes. We've been informed that we should expect ship volumes to return here in Q3 and to be further supplemented by inbound volumes of crude by rail, so we forecast the remainder of the year to be strong on the crude front. We continue to negotiate new contracts to expand our business at Jefferson, and we lay out those opportunities on slide 11. The largest opportunities we're pursuing are with existing customers and involve expansions of the services we currently provide. Our customers have been investing heavily in their nearby facilities to increase production and market reach, which would require more products to flow through Jefferson. Our goal is to execute on all three opportunities during this year and commence revenue shortly thereafter. In total, the three opportunities represent in excess of $50 million of annual incremental EBITDA and utilize existing assets requiring little to no incremental investment forecast. Now shifting to Rapano, our focus continues on phase two where construction proceeds as planned toward our goal of completion by the end of this year with 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. With the disruption in the Middle East, spreads for propane exports continue to be attractive, and based on the conversations we're having, we expect to commence revenue service in early 2027 near or at full capacity. In the aggregate, we can handle close to 100,000 barrels per day for the combined assets of Phase I and Phase II, representing approximately $80 million of annuals. Construction of Phase II is progressing well, and we're excited to start the commissioning process later this year. On slide 13, we show some images of the progress the team has been making with a large cryogenic tank now fully above ground and readying for completion, as well as the pipes and manifolds connecting the tank to our rail racks and ship docks. The majority of expenditures of phase two have been financed with long-term, low-cost tax-to-debt, which is an ideal match for a project of the Islamic Development Authority, which we hope to continue to expand. Finally, on slide 14, we'll briefly close out with Longridge, giving the pending nature of the sale I'll only hit the highlights for the quarter. Adjusted EBITDA came in at 27.4 million in Q2 versus 23 million in Q2 of last year. Power plant capacity factor of 85 percent was impacted by the planned outage we commenced in Q1 and continued for a total of 11 days into Q2. Away from that outage, the fundamentals continue to be strong with power prices and capacity to revenue. We averaged a little more than 73,000 MMVTU per day of gas production versus 70,000 MMVTU per day required at the plant, and we expect to maintain production well in excess of plant requirements and generate continued revenues from excess gas sales in the course. So far in Q3, Long Ridge is off to a great start with capacity factor at nearly 100% currently and gas production continuing in excess of our plant's needs. We're going to conclude our remarks there, and now I will turn it back over to Alan.

Thank you, Ken. Marvin, you may now open the call to Q&A.

Thank you. At this time, we'll conduct the question and answer session. As a reminder to address the question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by or compile the Q&A roster. And our first question comes from the line of Giuliano Bologna of Compass Point.

Your line is now open. oh good morning congrats on you know you continue to uh solid results and execution maybe you know as a first question it's been about you know a year since you made the acquisition of the wheeling you know can you stand on how you feel now about about that acquisition and how you know progress has uh you know evolved since the acquisition uh yeah definitely good morning juliano um yes we actually announced the acquisition on august 6th of last year so it's been exactly one year since we announced the Wheeling acquisition, so it's a timely question.

I would say we are thrilled. The acquisition has been a game changer for our rail platform, of course. The Wheeling itself is exceeding our original expectations. We're excited about propane volumes continuing to grow. So we've seen particular activity and strength in propane volumes on the wheeling. Everything's working out super. The integration has worked out great. Very few issues. I would say, you know, TransStar, as I mentioned in some of my remarks, was a little bit softer in Q2 for a good reason. U.S. Steel is investing in their Gary, Indiana facility, upgrading. But what that's meant is in Q2, things were a little softer in volumes and by virtue of owning the wheeling, you know, we posted in the aggregate. So the impact on diversity, incremental growth opportunities, everything's checking out great. Accomplished that acquisition and the management team has been doing a...

Yeah, that's very helpful. And next question, you know, with respect to the third category of central rail app positions, What is it about corporate systems and, you know, what is it about that category specifically?

Yeah, it's interesting. The industrial carve-outs, you see those slightly less frequently. Obviously, Transstar was a great example of an industrial carve-out, but there are a number of corporate entities, very large corporate entities in the agricultural space, in the Mendelton mining space and in other sectors that today own, most of them are shorter switching lines. Those great unique opportunities for those corporate parents to generate liquidity and, frankly, focus on their core. The beauty of those opportunities in particular is, just like TransStar, most of those businesses have historically been operated solely for their parents. Just like with TransStar, they have not pursued third-party growth opportunities. And that's really fundamentally what makes them particularly, you know, we're seeing a pickup in activity. There are a few industrial parents that are beginning the process to divest, and so we're going to be pretty aggressive on those situations. I think those are among the best.

That's very helpful. I appreciate it, and I'll jump back in the queue.

Thank you. One moment for our next question. Our next question comes from the line of Jeff Kaufman of Citizen Bank. Your line is now open.

Thank you very much, and congratulations on the quarterly results. I want to follow up on the wheeling question. You'd identified a synergy target on the integration of wheeling. I was just kind of curious, did you achieve all of the synergies you were looking for? How far along that process are you? And have you discovered any other opportunities as you've kind of worked through that process?

I would say we're about 80% through the integration process. There's still a little bit more to do, particularly in the IT front, which we'll be wrapping up here in the third quarter. And it's going almost exactly as planned. I mean, you know, we identified $20 million of cost efficiencies. We are right on that target. We're not demonstrating all of that necessarily in the second quarter results because some of those initiatives were enacted during Q2. But on the cost deficiencies, I can't say we've necessarily identified additional opportunities to reduce costs. I feel like we did a pretty – I think done additional revenue opportunities. There's a lot to do. So on the revenue side, we're – Okay, and just one follow-up.

As you're looking for additional properties to put in the portfolio, given that there's going to be a series of choices out there, Could you identify kind of what the two or three things you're looking for at that top of that list as opposed to just whatever property is available? Are you looking to diversify the revenue mix at all? Is there a particular type of situation that you feel is a better fit with the franchise?

Great question. Because every short line or regional railroad or rail terminal tends to be snowflakey. nature and there are a lot of differentiating you know factors when we look at situations yes things like diversity of commodities diversity of customers are important particularly where it helps us diversify our existing our existing commodity base things like agricultural exposure intermodal exposure those are things we have less of today so it'd be nice to diversify into those commodity bases. Most importantly, there are a handful of technical things, you know, railroads that are leased versus owned. Obviously, you want to own property, if at all possible, railroads that are pricing freedom versus, you know, freight and increased prices over time. So there are a whole bunch of smaller, you know, ways, fundamentally, though, it's growth. When we look at a new railroad, we try to identify the opportunities for growth, not just organically, but with addition. Many railroads don't be owned, railroads fundamentally it's most...

All right, those are my questions.

Thank you. One moment for our next question. Our next question comes from the line of Sharif Almagrabi of PTIG. Your line is now open.

Hey, thanks and good morning. Maybe to pivot away from rail for a second. I want to focus on the terminals businesses ahead of monetization. At Jefferson, one of the regional partners has had to deal with, call them supply chain constraints due to what's going on in the middle east um and you know you've talked about the ways that they're going to revive throughput in q3 can you just talk about a little bit of puts and takes there you know how much uh rail crude can supplement or kind of offset uncertainty going on with um the tanker trade and you know where is where is it through for growth coming from ahead monetization. I think that'd be very helpful.

Yeah, it's been changes every day out in the Middle East as it relates to supply chain dynamics. And we saw the impact of that in the second quarter. What I would say is, for our particular customer, we handle crude volumes through three modes, inbound ships, which originate in the Middle East, trains, which largely originate in Utah, and then inbound by pipe, from other pipe-connected sources. So two of the three are not subject to volatility and interruption. What our customer is doing is – well, a couple things. One, we've been informed ship volumes are expected to recover. I'm optimistic about Q3 crude volumes overall. Ships can hold, I mean, up to 500,000 barrels of crude. A train holds about 50,000 barrels. It gives you a sense of the scale and the importance of ship, you know, inbound volumes. We had a lot of ships come in in Q1 and a lot fewer in Q2. but we are transitioning actively to inbound rail the beauty of inbound rail is you actually get like a 2x uh multiplier because inbound rail volumes from utah require blending and so for every 50 000 barrel train we bring in we also have to bring in 50 000 barrels of pipeline that transition is actively happening we completed a very important infrastructure project with our Southern Star pipelines connecting, and that enables for the efficient handling of light crew, and now we are unloading trains. So I think at Jefferson, we'll see a return of inbound ship volumes and we'll see an inbound rail.

That's super helpful, and obviously refining margins are very supportive at the moment to more throughput. Pivoting to Rappano, I don't want to put the horse before the cart, but is the plan to get any phase three capacity under contract or could we see a sale of at least a portion of the business before then? And if you could just remind us on timing for phase three, that's helpful.

Yes, we'd love to do that. Phase three is permitted, designed, engineered, ready to go. We won't finance or start construction on phase three until we have a long-term contract in place. We are still contracting the remaining capacity of phase two, so we want to finish that up because I'm sort of focused right now. We'd love to have phase three contracted and under construction when we look to monetize Rapano. It's not something we're necessarily planning on. I think we've already created a lot of value and having it designed and all fully scoped out. So that's something a new owner can look forward to and hopefully underwrite. There is definitely a tremendous opportunity. Propane volumes coming out of the Marcellus and Utica continue to grow. A facility on the East Coast that actually has room to grow. So it's a great asset we own. I think it's valuable already in Phase 3, whether we've started.

Okay, super helpful, and thanks again.

Thank you. One moment for our next question. Our next question comes from the line of Matthew Erdner of Jones Trading. Your line is not open.

Hey, good morning, guys. Thanks for taking the question. Building off of the terminals there and the disruption in the Middle East, do you feel like now is a good environment for sales on these? And then as a follow-up to that, I'm curious if you guys have had any reverse inquiry just given where these are located and who else is around you in those spots.

Yeah, good morning. Yeah, I think it's a good time and it can continue to be a good time for energy terminal M&A, we've definitely received some inbounds, and I would say that activity has picked up somewhat with the shifting of supply chains, largely driven by the conflict in the Middle East. People are sniffing around, and so we're engaged in a hand. You know, it's interesting, the terminal market is a big one, and there are all different types of terminals, and they trade at very different valuations, generic inland terminals that from rail to truck or pipe to truck for regional distribution, those tend to trade at high single-digit multiples, typically to MLPs and structured vehicles. The strategic export terminals are much more valuable on a multiple basis and historically have traded at multiples between 12 and 15 times. That's what we own at Jefferson. And fingers crossed, we're hoping fundamentally Jefferson-Ripano survey, highly, really the only available gateway. Those differentiating characteristics, yeah, I'm pretty optimistic about it.

Awesome. That's very helpful. I appreciate the color there. And then, you know, going back to the rail, I've got just kind of one question there. You guys touched on the Nippon investment. Do you guys have any line of sight as to when, you know, those, I guess, I guess construction of that is going to be done and when rail will kind of start to increase from that facility?

Probably at some point over the next, feeling, you know, everything's on time, on budget, you know, probably about a six-month.

That's helpful. Thank you, guys.

Thank you. I'm showing no further questions at this time. And I turn it back to Alan Andrini for closing remarks.

Thank you, Marvin. And thank you all for participating on today's call. We look forward to updating you after Q3.

Thank you for your participation in today's conference. This does conclude the program. You may not disconnect.