Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements including, in particular, statements about our plans, strategies and prospects. We have used the words "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "likely," "unlikely," "intend" and similar expressions in this report to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. However, forward-looking statements inherently involve potential risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These potential risks and uncertainties relate to, among other things, the cyclical nature of our business; adverse economic and market conditions, including inflation; material disruption in the movement of rail traffic for deliveries; fluctuating costs of raw materials, including steel and aluminum; delays in the delivery of raw materials; our ability to maintain relationships with our suppliers of railcar components; our reliance upon a small number of customers that represent a large percentage of our sales; the variable purchase patterns of our customers and the timing of completion; delivery and customer acceptance of orders; the highly competitive nature of our industry; the risk of lack of acceptance of our new railcar offerings; potential unexpected changes in laws, rules, and regulatory requirements, including tariffs and trade barriers (including recent United States tariffs imposed or threatened to be imposed on China, Canada, Mexico and other countries and any retaliatory actions taken by such countries); and other competitive factors. The factors listed above are not exhaustive. Other sections of this Quarterly Report on Form 10-Q include additional factors that could materially and adversely affect our business, financial condition and results of operations. New factors emerge from time to time and it is not possible for management to predict the impact of all of these factors on our business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws.

OVERVIEW

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements."

We are a diversified manufacturer of railcars and railcar components. We design and manufacture a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America. We also provide railcar rebody and repair services, railcar conversion services that repurpose idled rail assets back into revenue service, and supply railcar parts. We have been manufacturing railcars since 1901.

The Company's operations consist of two operating and reportable segments, Manufacturing and Aftermarket. The Company identifies reportable segments based on differences in products and services. The Company's Manufacturing segment includes new railcar manufacturing, used railcar sales, and major conversions and rebodies. The Company's Aftermarket segment includes the selling of forged, cast and fabricated railcar parts and supplies for all railcar types, and provides aftermarket services including safety training, railcar inspections, and preventative maintenance.

Our Manufacturing segment revenues are generated primarily from sales of the railcars that we manufacture. Our Manufacturing segment sales depend on industry demand for new railcars, which is driven by overall economic conditions and the demand for railcar transportation of various products such as steel products, minerals, cement, motor vehicles, forest products, agricultural commodities and coal. Our Manufacturing segment sales are also affected by competitive market pressures that impact our market share, the prices for our railcars and by the types of railcars sold. Our Manufacturing segment revenues also include revenues from railcar conversions and rebodies. Our Aftermarket segment revenues are generated primarily from sales of forged, cast and fabricated railcar parts and supplies for all railcar types.

The variable purchase patterns of our customers and the timing of completion, delivery and customer acceptance may cause our revenues and income from operations to vary substantially each quarter, which will result in significant fluctuations in our quarterly results. Further, recent changes to United States and foreign trade policies, including the imposition of new tariffs, have created increased geopolitical and macroeconomic uncertainty. Future changes in governmental and economic policies could impact our cost structure, demand for our products and results of operation. We continue to actively monitor new global trade policies and remain focused on strategic initiatives to drive operational efficiencies.

Total net railcar orders received for the six months ended June 30, 2025 were 2,476 units, consisting of 1,776 new railcars and 700 converted and rebodied railcars, compared to orders for 3,301 units, consisting of 1,906 new railcars and 1,395 converted and rebodied railcars for the six months ended June 30, 2024. Total backlog of unfilled orders was 3,624 units as of June 30, 2025, compared to 2,797 railcars as of December 31, 2024. The estimated sales value of the backlog was $317 million and $267 million as of June 30, 2025 and December 31, 2024, respectively. The decrease in the number of net railcar orders received for the six months ended June 30, 2025 compared to the prior year period is primarily a reflection of broader market uncertainty and global trade volatility.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2025 compared to Three Months Ended June 30, 2024

Revenues

Our consolidated revenues for the three months ended June 30, 2025 were $118.6 million, compared to $147.4 million for the three months ended June 30, 2024. Manufacturing segment revenues for the three months ended June 30, 2025 were $110.7 million, compared to $142.5 million for the corresponding prior year period. The $31.8 million decrease in Manufacturing segment revenues was primarily driven by a decrease in the volume of railcar units delivered from 1,159 railcars during the three months ended June 30, 2024 to 939 railcars during the three months ended June 30, 2025. This decline was mainly driven by a strategic shift in the product mix toward higher-margin railcars during the three months ended June 30, 2025. Aftermarket segment revenues for the three months ended June 30, 2025 were $7.9 million, compared to $4.9 million for the three months ended June 30, 2024, reflecting higher parts sales driven by favorable volume during the three months ended June 30, 2025.

Gross Profit

Our consolidated gross profit was $17.8 million for the three months ended June 30, 2025, compared to $18.4 million for the three months ended June 30, 2024. Consolidated gross margin for the three months ended June 30, 2025 and 2024 was 15.0% and 12.5%, respectively. Manufacturing segment gross profit was $14.9 million for the three months ended June 30, 2025, compared to $16.0 million for the three months ended June 30, 2024. Manufacturing segment gross margin for the three months ended June 30, 2025 and 2024, was 13.5% and 11.2%, respectively. The $0.6 million decrease and 2.5% increase in consolidated gross profit and gross margin, respectively, driven by the $1.1 million decrease and 2.3% increase in Manufacturing segment gross profit and gross margin, respectively, reflect a decrease in volume of units delivered offset by a favorable product mix. Aftermarket segment gross profit for the three months ended June 30, 2025 was $2.9 million, compared to $2.4 million for the three months ended June 30, 2024. The $0.5 million increase in Aftermarket gross profit is primarily due to favorable volume.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were $10.1 million for the three months ended June 30, 2025, compared to $8.5 million for the three months ended June 30, 2024. The $1.6 million increase in consolidated selling, general and administrative expenses was primarily due to an increase in professional services expenses of $1.4 million during the three months ended June 30, 2025. Manufacturing segment selling, general and administrative expenses were $0.4 million for the three months ended June 30, 2025, compared to $0.5 million for the three months ended June 30, 2024. Manufacturing segment selling, general and administrative expenses for each of the three months ended June 30, 2025 and 2024, were 0.4% of revenue. Aftermarket segment selling, general and administrative expenses were $0.5 million for the three months ended June 30, 2025, compared to $0.3 million during the three months ended June 30, 2024. Corporate selling, general and administrative expenses were $9.2 million for the three months ended June 30, 2025, compared to $7.6 million for the three months ended June 30, 2024, primarily driven by the aforementioned increases in professional services expenses during the three months ended June 30, 2025.

Litigation Settlement

During the three months ended June 30, 2025, we did not record any litigation settlements. During the three months ended June 30, 2024, we recorded a pre-tax litigation settlement of $3.2 million related to a dispute with a former lessee of our railcars.

(Loss) Gain on Change in Fair Market Value of Warrant Liability

Our loss on change in fair market value of Warrant liability was $47.6 million for the three months ended June 30, 2025, compared to our gain on change in fair market value of Warrant liability of $0.1 million for the three months ended June 30, 2024. The change in

fair market value of Warrant liability is driven by the fluctuation of stock price used to remeasure the liability at the end of each period as well as fluctuations in the number of implied warrant shares.

Other Income (Expense)

Other income was $3.3 million for the three months ended June 30, 2025, compared to other expense of $0.7 million for the three months ended June 30, 2024. The increase in other income is primarily driven by the $3.1 million Employee Retention Credit received during the three months ended June 30, 2025.

Income Taxes

Our income tax benefit was $52.7 million for the three months ended June 30, 2025, compared to our income tax provision of $2.5 million for the three months ended June 30, 2024. The increase in income tax benefit is primarily explained by the release of the majority of the valuation allowance in the United States on federal and state deferred tax assets.

Six Months Ended June 30, 2025 compared to Six Months Ended June 30, 2024

Revenues

Our consolidated revenues for the six months ended June 30, 2025 were $214.9 million, compared to $308.5 million for the six months ended June 30, 2024. Manufacturing segment revenues for the six months ended June 30, 2025 were $200.9 million, compared to $298.3 million for the six months ended June 30, 2024. The $97.4 million decrease in Manufacturing segment revenues was primarily driven by a decrease in the volume of railcar units delivered from 2,382 railcars during the six months ended June 30, 2024 to 1,649 railcars during the six months ended June 30, 2025. This decline was mainly driven by a strategic shift in the product mix toward higher-margin railcars during the six months ended June 30, 2025. Aftermarket segment revenues for the six months ended June 30, 2025 were $14.0 million, compared to $10.2 million for the six months ended June 30, 2024, reflecting higher parts sales driven by favorable volume during the six months ended June 30, 2025.

Gross Profit

Our consolidated gross profit was $32.2 million for the six months ended June 30, 2025, compared to $29.8 million for the six months ended June 30, 2024. Consolidated gross margin for the six months ended June 30, 2025 and 2024, was 15.0% and 9.7%, respectively. Manufacturing segment gross profit was $27.0 million for the six months ended June 30, 2025, compared to $24.7 million for the six months ended June 30, 2024. Manufacturing gross margin for the six months ended June 30, 2025 and 2024, was 13.5% and 8.3%, respectively. The $2.4 million and 5.3% increases in consolidated gross profit and gross margin, respectively, driven by the $2.3 million and 5.2% increases in Manufacturing segment gross profit and gross margin, respectively, reflect a decrease in the volume of units delivered offset by a favorable product mix. Aftermarket segment gross profit for the six months ended June 30, 2025 was $5.2 million, compared to $5.1 million for the six months ended June 30, 2024. The $0.1 million increase in Aftermarket gross profit is primarily due to favorable volume.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were $20.6 million for the six months ended June 30, 2025, compared to $16.0 million for the six months ended June 30, 2024. The $4.6 million increase in consolidated selling, general and administrative expenses was primarily due to increases in $1.1 million in stock-based compensation expenses and $3.0 million in professional services expenses during the six months ended June 30, 2025. Manufacturing segment selling, general and administrative expenses were $0.7 million for the six months ended June 30, 2025, compared to $0.9 million for the six months ended June 30, 2024. Manufacturing segment selling, general and administrative expenses for each of the six months ended June 30, 2025 and 2024, were 0.3% of revenue. Aftermarket segment selling, general and administrative expenses were $1.1 million for the six months ended June 30, 2025 compared to $0.8 million during the six months ended June 30, 2024. Corporate selling, general and administrative expenses were $18.8 million for the six months ended June 30, 2025, compared to $14.3 million for the six months ended June 30, 2024, primarily driven by the aforementioned increases in stock-based compensation and professional services expenses during the six months ended June 30, 2025.

Litigation Settlement

During the six months ended June 30, 2025, we did not record any litigation settlements. During the six months ended June 30, 2024, we recorded a pre-tax litigation settlement of $3.2 million related to a dispute with a former lessee of our railcars.

Gain (Loss) on Change in Fair Market Value of Warrant Liability

Our gain on change in fair market value of Warrant liability was $5.3 million for the six months ended June 30, 2025, compared to our loss on change in fair market value of Warrant liability of $15.5 million for the six months ended June 30, 2024. The change in fair market value of Warrant liability is driven by the fluctuation of stock price used to remeasure the liability at the end of each period as well as fluctuations in the number of implied warrant shares.

Other Income (Expense)

Other income was $3.2 million for the six months ended June 30, 2025, compared to other expense of $0.7 million for the six months ended June 30, 2024. The increase in other income is primarily driven by the $3.1 million Employee Retention Credit received during the six months ended June 30, 2025.

Income Taxes

Our income tax benefit was $50.9 million for the six months ended June 30, 2025, compared to our income tax benefit of $0.1 million for the six months ended June 30, 2024. The increase in income tax benefit is primarily explained by the release of the majority of the valuation allowance in the United States on federal and state deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

(In thousands, except for share and per share data and unless otherwise noted)

Our primary sources of liquidity are our cash and cash equivalent balances on hand and our credit and debt facilities outlined below.

On December 31, 2024, the Company entered into a term loan agreement by and among the Company, FreightCar North America, LLC and certain subsidiaries of FreightCar North America, LLC, the lenders from time to time party thereto, and Blue Torch Finance LLC, as collateral agent and administrative agent in the principal amount of $115,000 (the "Term Loan") with a maturity date of December 31, 2028. The Term Loan contains both affirmative and negative covenants, as well as financial covenants, including covenants related to liquidity levels, assessed at any time, and quarterly leverage ratios commencing with the three months ended March 31, 2025. The Company is in compliance with such covenants as of June 30, 2025. Proceeds from the Term Loan were used to redeem in full the Preferred Stock (as defined in Note 11 - Mezzanine Equity). The Company incurred $6,511 in deferred financing costs that are presented as a reduction of the long-term debt balance and amortized to interest expense over the term of the Term Loan.

The Term Loan bears interest at the Term Secured Overnight Refinancing Rate ("Term SOFR"), with a floor of 3.00% per annum, plus an applicable margin of 6.00% per annum or at a base rate, as selected by the Company as the borrower. Base rate loans, with respect to the Term Loan, bear interest at the highest of (a) 4.00% per annum, (b) the federal funds rate plus 0.50%, (c) the prime rate or (d) the Term SOFR rate plus 1.00% per annum plus an applicable margin of 5.00%. The Term Loan bears interest at 10.3% as of June 30, 2025.

On February 12, 2025 (the "ABL Effective Date"), the Company entered into a new revolving credit facility by and among the Company, FreightCar North America, LLC, certain subsidiaries of FreightCar North America, LLC, the lenders from time to time party thereto, and Bank of America, N.A., as agent for the lenders in the form of an asset backed credit facility exists in the maximum aggregate principal amount of $35,000 (the "ABL"), subject to borrowing base requirements and consisting of revolving loans and a sub-facility for letters of credit. The ABL has a term ending on February 12, 2030, provided that if the aggregate outstanding principal amount and related obligations under the Term Loan have not been repaid in full or prior to October 1, 2028, or refinanced with a new maturity date no earlier than May 13, 2030, the term will end on October 2, 2028.

Extensions of credit under the ABL are subject to availability under a borrowing base comprised of various percentages of the value of eligible inventory and accounts receivable, which also serves as collateral for borrowings under the ABL. The ABL contains both affirmative and negative covenants, as well as certain financial covenants that are triggered if the availability drops below a certain level. These financial covenants remain in effect as long as the availability stays below that level. The Company is in compliance with such covenants as of June 30, 2025. Revolving loans outstanding bear interest at the Term SOFR rate plus an applicable margin ranging from 1.50% to 2.00% per annum or at a base rate plus an applicable margin ranging from 0.50% to 1.00% per annum, as selected by the Company as the borrower. Base rate loans, with respect to the ABL, bear interest at the highest of (a) the prime rate, (b) the federal funds rate plus 0.50% or (c) Term SOFR rate plus 1.00%, provided that the base rate may not be less than 1.00%. As of June 30, 2025, the ABL bears interest at 6.3% and the Company had borrowing availability of $22,478, of which $452 was reserved for the movement in mark to market valuation of our foreign currency derivatives and $197 was reserved to collateralize standby letters of credit for an office lease security deposit. The Company incurred $874 in deferred financing costs that are presented as an asset and amortized to interest expense over the term of the ABL.

Warrant

The Company issued warrants to OC III LFE II LP ("OC III LFE") and various affiliates of OC III LFE (collectively, the "Warrantholder") in previous years which are exercisable on the terms described in Note 10 - Warrants.

Additional Liquidity Factors

Based on our current level of operations and known changes in planned volume based on our backlog, we believe that our cash balances will be sufficient to meet our expected liquidity needs for at least the next twelve months. Our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facilities, any other indebtedness and the availability of additional financing if needed. We may also require additional capital in the future to fund working capital for various reasons, such as future railcar demand; payments for contractual obligations; organic growth opportunities, including new plant and equipment and development of railcars; joint ventures; international expansion; and acquisitions, and these capital requirements could be substantial.

Based upon our operating performance and capital requirements, we may, from time to time, be required to raise additional funds through additional offerings of our equity or debt and through long-term borrowings. There can be no assurance that long-term debt, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition.

Cash Flows

The following table summarizes our cash flow activities for the six months ended June 30, 2025 and 2024:

Operating Activities. Our net cash provided by operating activities reflects net income (loss) adjusted for non-cash charges and changes in operating assets and liabilities. Cash flows from operating activities are affected by several factors, including fluctuations in business volume, contract terms for billings and collections, the timing of collections on our contract receivables, processing of payroll and associated taxes, payments to our suppliers and other operating activities. As some of our customers accept delivery of new railcars in train-set quantities, variations in our sales could lead to significant fluctuations in our operating profits and cash from operating activities.

Our net cash provided by operating activities for the six months ended June 30, 2025 was $21.3 million compared to net cash provided by operating activities of $31.9 million for the six months ended June 30, 2024. Our net cash provided by operating activities for the six months ended June 30, 2025 reflects changes in working capital, including increases in accounts payable of $41.2 million and customer deposits of $17.6 million, offset by increases in inventory of $32.8 million and accounts receivable of $3.7 million. The increases in inventory and accounts payable relate to purchases of raw materials on hand as of June 30, 2025 to be used in the production and delivery of railcars in 2025. The increase in customer deposits and accounts receivable relate to the timing of collections with current railcar builds based on contractual payment terms. Our net cash provided by operating activities for the six months ended June 30, 2024 reflects changes in working capital, including a decrease in inventory of $63.7 million, offset by an increase in accounts receivable of $6.4 million.

Investing Activities.Net cash used in investing activities for the six months ended June 30, 2025 was $0.4 million and consisted of capital expenditures of $0.9 million related to additional machinery and equipment on current production lines of the Manufacturing Facility, offset by proceeds of about $0.6 million from the sale of assets held for sale. Net cash used in investing activities for the six months ended June 30, 2024 was $2.3 million related to maintenance of current production lines of the Manufacturing Facility.

Financing Activities.Net cash used in financing activities for the six months ended June 30, 2025 was $4.1 million which included deferred financing costs of $1.3 million, repayments on term loan of $1.4 million, employee stock settlements of $0.5 million, and principal payments on the finance lease of $0.8 million. Net cash used in financing activities for the six months ended June 30, 2024 was $30.8 million which included net repayments on revolving line of credit of $29.4 million and principal payments on the finance lease of $1.3 million.

Capital Expenditures

Our capital expenditures were $0.9 million in the six months ended June 30, 2025, compared to $2.3 million in the six months ended June 30, 2024. We anticipate capital expenditures during 2025 to be in the range of $9.0 million to $10.0 million, related to the enhancement of machinery and equipment on current production lines at the Manufacturing Facility, as well as investment in new machinery and equipment that will vertically integrate the Company and benefit both our tank car retrofit program and future production of newly manufactured tank cars.