Earnings Call Transcript - FIP Q1 FY2026

Operator

Good morning, and welcome to the FTAI Infrastructure First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Alan Andrini of Investor Relations. Please go ahead.

Alan Andreini, Head of Investor Relations

Thank you, Jason. I would like to welcome you all to the FTI Infrastructure Earnings Call for the first 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 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.

Ken Nicholson, CEO

Thank you, Alan, and good morning, everyone. Welcome to the call. As we typically do, we'll be referring to the earnings supplement, which you can find posted on our website. Before we get into the quarterly financial results, we're going to kick things off with a discussion of Long Ridge and provide some details on the sale transaction that we announced last week. I'm going to briefly walk through the transaction terms, and then I'll talk a little bit about why we believe it to be an important and highly accretive event for our company. Just over a week ago, we signed an agreement to sell Long Ridge to Mara Holdings for an aggregate transaction value of $1.52 billion. We expect to close the transaction in the third quarter of this year after receiving required regulatory approvals, and there are no other material conditions to closing. Existing Longridge debt will either be repaid or assumed by the purchaser, bringing expected net proceeds to fit in excess of $300 million. We're pleased with the outcome of the sale process and believe Mara is a great fit as the next owner of Longridge. I want to recognize and thank Bo Woolley and the Longridge team for doing a remarkable job throughout the entire life cycle of our investment, developing the business plan, building the power plant, acquiring gas reserves, and turning on and maintaining operations to ultimately create what today is one of the most efficient and profitable power assets in the country. The transaction value reflects the uniqueness of the Longridge asset and results in a meaningful economic return for FIF over the life of our investment. More importantly, the sale of Longridge will allow us to accomplish two key goals. First, de-leveraging. We plan to use the bulk of the net proceeds received at closing to repay higher cost debt at our parent level, resulting in lower interest expense and higher free cash flow going forward. Second, increasing our focus on our core freight rail business. We expect 2026 to be an active year for our railroad with growth driven internally by integration of TransStar in the wheeling and externally as we pursue a number of acquisition opportunities that leverage our existing platform. Having higher cash flow and additional debt capacity to fund acquisitions puts us in a good position to make accretive investments in the rail sector in the near future. I'm going to flip to page four, and we'll talk a little bit more about deleveraging. As you may recall, our existing corporate debt contains terms allowing for repayment with proceeds from the long-rids 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 reduce parent debt by at least $300 million and reduce our parent-level interest expense by about $30 million per year, meaningfully improving our leverage metrics. We expect our leverage metrics to continue to improve over the next several quarters as we realize more integration efficiencies at our rail business and bring online new business at our terminals, especially Rapano. Turning to slide five, with the deleverage balance sheet and higher free cash flow generation, we expect the bulk of our long-term growth going forward to be driven in the rail sector. We have an enormous opportunity set in front of us in the North American freight rail space and an exceptional platform from which to grow. We expect the remainder of 2026 to be a particularly active one for the rail sector M&A, and we're actively evaluating multiple opportunities and look forward to reporting back on our progress. While we expect our freight rail business to emerge as the dominant source of earnings for us going forward, we're also excited about the future of our two terminals and are focused on ensuring that both Jefferson and Rupano each reach their earnings potential with a view to monetizing both assets in the future. Jefferson is currently engaged in conversations with customers for new business, representing at least $50 million of additional annual EBITDA, and Rapano similarly is expected to complete its Phase 2 expansion at the end of this year and start revenue service shortly thereafter. Now we'll go into the results for the quarter. Adjusted EBITDA for Q1 came in at $70.6 million, up materially from $35.2 million for the first quarter of 2025. Given the investment activity during last year, year-over-year comparisons are less meaningful, but I can say that the quarter was a strong one that reflected great progress across our portfolio. At Longridge, we took an outage for 25 days that impacted revenues in EBITDA for the quarter. The outage was planned, but longer than typical as it related to inspection of the hot gas section of the power turbine, which requires more time but is only required to take place every four to five years. The inspection resulted in a clean bill of health, but did result in lost revenues for the quarter. Excluding the impact of the outage or consolidated Q1, EBITDA would have exceeded $80 million for FIP and represented a new record. It's important to note that our Q1 results do not reflect a tremendous amount of activity across our business that we expect to contribute to EBITDA in the future. We provide some detail around some of those specific items in the math on the right side of slide seven. Each of the lighter blue shaded bars represent specific items that require no incremental capital and are either already contracted or otherwise represent cash flow streams that we have confidence in. Importantly, the bar chart does not include any organic growth or new business wins that we believe could be material and also contribute to incremental EBITDA going forward. Let's slide eight and talk through the highlights at each of our segments. In a rail segment, adjusted EBITDA was $40.2 million in Q1, up 31% on an apples-to-apples basis versus the same quarter last year. Q1 was the first full quarter during which we had active control of the wheeling, and We've already begun to realize a portion of our targeted integration savings. At Longridge, EBITDA for the quarter was $26.4 million. As I mentioned, without the 25-day planned outage, we estimate that EBITDA for the quarter would have approached $40 million. Gas production for the quarter continued above amounts required to fuel the power plant, so we also generated revenues from excess gas sales during the quarter. At Jefferson, EBITDA for Q1 was $14.4 million and included a full quarter of results from our new ammonia trans-loading contract. And at Repano, construction of our Phase 2 trans-loading product continues to progress on plan. Once Phase 2 is operational, which is planned for early next year, we expect Repano to be capable of handling over 80,000 barrels per day of natural gas liquids, generating approximately $80 million of annual revenue, EBITDA. Moving to Slide 9, our detailed capital structure. During Q1, we closed our new term loan of approximately $1.35 billion. The net proceeds were used to repay in full the initial loan we issued in connection with the acquisition of the Wheeling last year. The new term loan represents the only debt at our parent level and carries a coupon of 9.75% per annum. As I mentioned, the loan is prepayable at a reduced premium with proceeds of long-ritch sale. So we expect the balance of the term loan to be approximately $300 million lower following closing of the sale. Also during the quarter, we received commitments for the refinancing of a little over $200 million of debt at Jefferson. The net result of everything is a stable balance sheet with no near-term maturities and a path for meaningful deleveraging in the coming months following the Long Ridge sale. Moving to slide 11, we'll dig a little deeper into the results at each of our segments, and we're going to start with our railroads. We posted revenue of $85 million and adjusted EBITDA of $40.2 million in Q1, compared with pro forma Q1 2025 revenue of $79.3 million and adjusted EBITDA of $30.6 million. Our actual reported results for last year exclude the results of the wheeling, so we're showing pro forma figures to demonstrate where revenues in EBITDA would have been if we include the wheeling standalone results. Growth versus last year was driven by a combination of revenue growth from both higher volumes and rates as well as reduced expenses as a result of the initial impact of a large set of cost savings initiatives which we started to implement in Q1. I will note that the first quarter is typically the softest quarter for our business especially at the wheeling where volumes of aggregates and other construction materials always slow down during the winter months so we're particularly pleased with our results for Q1. Flipping aside 12, we're off to a great start with the combination of Transtar and the Wheeling. We expect the combination to result in two sources of financial gains. The first is cost savings, which we expect to impact our results in the near term, and the second is new revenue opportunities, which we expect to occur over the longer term. Cost savings fall into two primary buckets, personnel reductions, purchasing power savings, and reduced overhead. In total, we're targeting about $23 million of annual cost savings, of which $10 million of annual savings was enacted in Q1, representing $2.5 million of EBITDA for the quarter. The additional $13 million of annual cost savings should be in effect in the relatively near term. On the revenue side, we continue to grow the list of opportunities now that the two railroads are operating as one. Additional propane carloads are planned to start early next year when Rippano's phase two commences operations. Additional carloads of propane should be substantial given the volumes originate on the wheeling and move to Rippano. And the pipeline of additional opportunities is substantial. In total, we're estimating in excess of $50 million of incremental annual EBITDA potential from the various new revenue sources manifesting in the future. I'm going to shift to slide 13, talk about Jefferson. At Jefferson, we reported $27.3 million of revenue and $14.4 million of adjusted EBITDA in Q1 versus $19.5 million of revenue and $8 million of EBITDA in Q1 of last year. Volumes at the terminal averaged 275,000 barrels per day, driven by the startup of the new ammonia export contract, which commenced in late November last year, as well as increased volumes of inbound crude oil during the quarter. To date, inbound crude volumes have been unaffected by the conflict in the Middle East and the blockage of the Strait of Hormuz, as crude destined to Jefferson has originated largely from Saudi West Coast terminals. We continue to see crude volumes steady so far in the second quarter. We're negotiating new contracts to expand our business at Jefferson. The largest opportunities we are pursuing are with existing customers and involve expansions of the services we currently provide to them. 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. We hope 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 capex. Now shifting to Rapano on slide 14, our primary focus at Rapano is on phase two, where construction continues to proceed as planned toward our goal of completion by the end of 2026, with revenue commencing shortly thereafter. We have long-term contracts in place for a substantial 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 are extremely attractive. And based on conversations we're having, we continue to expect to commence revenue service in early 2027 at full capacity. In the aggregate, we can handle a total of just over 80,000 barrels per day, representing $80 million of annual EBITDA for the combined assets of Phase I and Phase I. And finally, on Slide 15, we'll briefly close out with Longridge. Given the pending sale, I'm only going to hit the highlights for the quarter. Adjusted EBITDA came in at $26.4 million in Q1 versus $18.1 million in Q1 of last year. Power plant capacity factor of 73% was impacted by the 25-day planned outage that I described earlier. But away from the outage, the fundamentals continue to be strong with power prices and capacity revenue continuing at historically high levels. We averaged a little more than 86,000 MMBTU per day of gas production versus the little more than 70,000 required at the plant. We expect to maintain production significantly in excess of plant requirements and generate continued revenues from excess gas sales in the quarters ahead. So far in Q2, Longridge is off to a great start with a capacity factor at 100% currently and gas production continuing in excess of our plant's needs. We'll conclude our remarks there, and I will now turn it back to Alan.

Alan Andreini, Head of Investor Relations

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

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Our first question comes from Brian McKenna from Citizens. Please go ahead.

Brian McKenna, Analyst — Citizens

Okay, great. Good morning, everyone. So on the regulatory approvals for the Long Ridge South, can you walk through exactly what these are? And then do you have any sense when the transaction will close in the third quarter? Are we talking the first half of the quarter or the second half of the quarter, et cetera?

Ken Nicholson, CEO

Yeah, good morning, Brian. Really just one approval FERC. There's a requirement to file with FERC. FERC needs to approve the change of control. That filing kicks off the process. I think that filing is imminent. It's possible the filing's made today, otherwise early next week. So that'll get things started. The FERC regulatory process is not an exact science. It's not a, there isn't a set number of days per se, but we don't see any reasons why it should be a prolonged process. You know, I would guide folks toward the middle of the third quarter for regulatory approval. Obviously, we're going to be using these proceeds to repay debt, so the sooner we close, the more interest we save on the debt we repay. So we're very focused on a speedy closing, and I know our friends at Merrill Holdings share that view. So hopefully, if we can do anything to accelerate closing, we will, but otherwise, yeah, we feel pretty comfortable with the mid-third quarter target.

Brian McKenna, Analyst — Citizens

Okay, that's helpful. Thanks, Ken. And then in terms of the HoldCo debt pay down, the plan is to pay down $300 million of debt there. And then it looks like there should be another $50 million or so of remaining cash from the transaction. So I guess is my math correct there? And then if you have, you know, call it $40 million to $50 million of incremental cash, you know, what's the plan for that? And then I guess, you know, related with the stock trading where it is, I mean, do you think about authorizing some kind of a buyback just to support the stock a little bit?

Ken Nicholson, CEO

Yeah, your math is correct. You know, final net proceeds will depend upon the timing of close, cash generated by Longridge between now and then, et cetera. So don't have precision, you know, science. But you're right. There should be some excess cash. We can either use that to repay debt. We are permitted to just keep it on our balance sheet to fund acquisitions. And we've got a couple smaller situations that, you know, we think could be highly accretive in the rail space. And so we may choose to retain some of the cash to make those small investments. We have a handful of transaction fees as well that will crystallize at the moment of closing. In terms of, you know, other uses for cash flow, I would just say we're, of course, always evaluating the, you know, the various things we can do. We want to continue to grow the business. I still think the more likely use of proceeds is either to de-leverage or otherwise invest accretively. But obviously, everything's on the table, and we and our board are always considering different options.

Brian McKenna, Analyst — Citizens

All right, that's helpful. I'll leave it there. Thanks so much.

Operator

The next question comes from Craig Shear from Tuohy Brothers. Please go ahead.

Craig Shear, Analyst — Tuohy Brothers

um so uh jefferson's doing well obviously with with the new contracts kicking in in november um the volumes are up but but it looks like the the the per barrel unit pricing is somewhat softening sequentially and even a tad year over year could you provide any color on that

Ken Nicholson, CEO

the uh hey craig yeah good morning um there's a lot a lot in the in the mix there um what i can tell you is when you think about Jefferson's different business lines for refined products, crude oil, and now ammonia, there are multiple contracts under which Jefferson provides those transloading services. I think a total of seven contracts that Jefferson has with various customers, in some cases with one customer with multiple contracts or different destinations or rail handling or shiploading or whatever it may be. What I can tell you is there's certainly been no realized downward pricing for any particular contract or any particular, I think what's going on to affect those numbers is just a mix, a little bit more of a lower priced movement and a little bit less of a higher price. For example, crude oil. We handle crude oil. It's usually a higher rate because it requires more handling. Sometimes it requires steam, unloading, and blending. And that can be at a much higher rate than the refined products, which flow more easily and we handle more volumes of. And so that's usually a lower price point. That doesn't mean one product conveys more or less margin. We may have a lower rate for refined products, but it's also a lot easier to handle. And so the margins in some cases may be better than crude oil, even though crude oil is a higher priced product. So there's a lot going on there. There has been no deterioration in price for any particular contract. It's just a matter of mix.

Craig Shear, Analyst — Tuohy Brothers

Gotcha. And maybe you could elaborate on the next steps for commercializing Rapano Phase 3 underground storage and potentially monetizing that business. Would it be reasonable to still think that could be accretively divested by mid-next year?

Ken Nicholson, CEO

Yeah, I think so. Yeah. You know, there's plenty going on with Rapano and the natural gas liquids, you know, global trade market. Spreads are as attractive as I think we've seen them for a number of years. There are supply issues and terminal loading issues in the Marcellus and Utica for liquids that would be destined to Rapano, but there is significant demand at very attractive pricing. So recently, just with the conflict in Iran, we've had increased dialogue with a number of large NGL producers. And so we like that, of course. That bodes very well for phase three. I didn't talk much about, I didn't talk at all about phase three, just in our prepared remarks, because at the end of the day, phase two is really our core focus, you know, completing, it's so important to Rapato, completing the construction and, you know, starting to demonstrate the 80 million of annual EBITDA. We in management are singularly focused on phase two. But phase three is continuing. That's not to say we've slowed down at all. I think in order for phase three to be fully financed, fully committed, fully contracted on the construction work, we want to have all the commercial contracts in place. So we're in a good market environment to do that. Frankly, in terms of the monetization of the asset, yeah, I think next year is certainly doable. It's been important to us, and we think any buyer would really want to see Phase 2 complete and operating, and hence, again, the reason why we're so focused on Phase 2. But yeah, I feel pretty comfortable with next year being a good year to think about monetization of Rapano and quite possibly Jefferson.

Operator

The next question comes from Greg Lewis from BTIG. Please go ahead.

Greg Lewis, Analyst — BTIG

Yeah, I thank you, and good morning. Thanks for taking my question. I did want to go back to Jefferson. You know, you kind of mentioned the incremental contract rewards. You know, how should we think about the scaling of them?

Ken Nicholson, CEO

There are a number of existing, you know, customers who basically want to expand the volumes that Jefferson, particularly in this market, folks are considering, you know, alternate sources for crude, additional markets for refined products. So the scale is, look, pretty significant. I mean, we're moving 275,000 barrels per day. You know, with the contracts that we are discussing with customers, the expansions of business, we're targeting total volumes of in excess of 500,000 barrels per day. We have capacity, operational capacity at Jefferson to probably do closer to 600,000 barrels per day. You know, we're pretty capped out with the existing infrastructure at that number. So, you know, at $500,000, we can handle all of that volume. It's getting to the point where there would likely be incremental capital beyond that. But, you know, we're running at just under a $60 million annual EBITDA run rate currently, you know, An additional $50 million between three primary new pieces of business takes us over the $100 million mark. That's been kind of an emotional level for Jefferson now for quite some time, and I'm really hopeful we can get all three of these expansions done this year and put Jefferson in a place where we can hit those numbers.

Greg Lewis, Analyst — BTIG

Okay, great. Yeah, thanks for that. And then I did have a question on the relationship with U.S. Steel Transstar, realizing that, I guess, a couple weeks ago, U.S. Steel announced a major CapEx initiative at their Arkansas facility. I'm just kind of curious how you're thinking about that, realizing that currently I don't believe we have exposure in that kind of little pocket, but just how you think about that incremental volume of U.S. Steel there, maybe creating more opportunities across the U.S. Steel rail network.

Ken Nicholson, CEO

Yeah. Good noting that. Unfortunately, Arkansas is not one of the Transtar properties. But at the end of the day, the folks at Nippon committed a total of $11 billion in new projects. The Arkansas Invest is about two of it, so there's another nine to go. We're pretty sure about five of that remaining nine is going to be focused on the Mon Valley and Pittsburgh and Gary Works. Nippon and US Steel have announced a handful of projects at both the Mon Valley and Gary Works. They're both a little bit smaller or involve refurbishing a blast furnace, not necessarily new construction. but um you know we feel pretty confident that there are you know some additional projects coming that uh will be very good news for transtar you know at some point during the course of this year so uh it's a big commitment from nippon and you know we're of course eager but um but uh no we won't be benefiting from the arkansas announcement but uh i do think there will be some announcements coming that should be good news for us no doubt super helpful thank you very

Operator

much. The next question comes from Giuliano Bologna from Compass Point. Please go ahead.

Giuliano Bologna, Analyst — Compass Point

Oh, good morning. Congrats on the performance and the announced sale of Longridge. Let me just switch topics a little bit. You're obviously deleveraging with the transaction, but until you have sold Jefferson or Urbano, how do you think you'd finance any incremental rail acquisitions?

Ken Nicholson, CEO

Probably with incremental debt. I think it would be the most efficient way to do it. You know, Brian asked earlier about maybe some incremental net proceeds and what we might use those for. So there will be some cash from the Long Ridge transaction that could be invested into, you know, a rail acquisition. Otherwise, look, we're repaying debt. That opens up new debt capacity. uh and uh you know i think it would be much more efficient for us particularly you know where we're trading right now to be an issuer of an issuer of debt to make a uh to make an accretive acquisition and so i i feel pretty comfortable we'll have access to the capital we need for whatever acquisition opportunities come up at the railroad that's under and uh are you seeing a good flow of

Giuliano Bologna, Analyst — Compass Point

rail deals in the market now i mean because in the past you kind of mentioned that rail deal flow you know tends to be episodic and going waves yeah yes yes very very definitely episodic you

Ken Nicholson, CEO

know there are um but but we are the stars are aligning i would say there are three things driving an increase in activity one is of course you know class one mergers both pending and you know under uh i would say you know speculation you know when when two class ones get together It's pretty likely there are going to be divestitures of various lines, and that opens up a set of opportunities, carve-outs of short lines and regional lines. And so, you know, I think that's going to stimulate some M&A activity. Two, there was a lot of activity where private equity firms, institutional investors, you know, bought into the rail sector five to ten years ago. And most of those funds have ten-year lives. And so many of them are approaching, you know, their mandated monetization timeframes. And so we expect a number of assets held by institutional investors to come to the market over the next, call it, 6 to 12 months. And then finally, when you really think back, there are a number of large properties that are owned by individuals, very entrepreneurial individuals who, you know, really their ownership all the way back in the Staggers Act in 1980. And, you know, 40 plus years ago. So they've owned these things for a very long time. They're starting to think about, you know, what they want to do going forward. Values have grown materially since they first, you know, entered the business. And so we're having dialogues with a number of just individual owners who, you know, are starting to think about it. And so I think those three dynamics are at play. And, you know, I think we're going to have a nice wave of M&A opportunities here in the next 12 months.

Giuliano Bologna, Analyst — Compass Point

It's very helpful. I appreciate it. And I will jump back into Q.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Alan Andrini for any closing remarks.

Alan Andreini, Head of Investor Relations

Thank you, Jason. And thank you all for participating in today's call. We look forward to updating you after Q2.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.