UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 8, 2023
| (Exact name of registrant as specified in its charter) | ||||||||||||||
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
| (Zip Code) | ||||||||||||||
| (Address of principal executive offices) | ||||||||||||||
(412 ) 928-3400
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): | ||||||||||||||
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||||||||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||||||||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||||||||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On August 8, 2023, L.B. Foster Company (“Company”) issued a press release announcing the Company’s results of operations for the second quarter ended June 30, 2023. A copy of that press release is furnished with this report as Exhibit 99.1.
The information contained in this Current Report shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
See Exhibit Index below.
Exhibit Index
| Exhibit Number | Description | ||||
| *99.1 | |||||
| *104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | ||||
*Exhibits marked with an asterisk are filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| L.B. FOSTER COMPANY | |||||||||||
| (Registrant) | |||||||||||
| Date: | August 8, 2023 | /s/ William M. Thalman | |||||||||
| William M. Thalman | |||||||||||
| Executive Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
| (Duly Authorized Officer of Registrant) | |||||||||||
Exhibit 99.1
 | News Release | |||||||
Increasing Momentum Evident in L.B. Foster's Second Quarter Operating Results; Company Increases 2023 Profitability Guidance
•Second quarter net sales of $148.0 million up 12.6% year over year (13.3% organic); gross profit of $32.3 million up 38.5% year over year, with gross margins improving 410 bps to 21.8%. •Completed sale of prestressed concrete railroad tie business ("Ties") operating assets within the Rail, Technologies, and Services segment, in line with its strategic playbook. •Second quarter net income of $3.5 million up $1.5 million year over year, despite $1.0 million loss on Ties sale; second quarter adjusted EBITDA1 of $10.6 million (7.2% of sales) up $4.5 million, or 72.9%, year over year. •Seasonal working capital needs increased net debt1 $8.2 million during the quarter to $85.6 million at quarter end; Gross Leverage Ratio1 of 2.5x was up slightly from 2.4x at the start of the quarter. •New orders1 in the second quarter were $183.7 million, up 29.9% over last year, with a book-to-bill ratio1 of 1.24:1.00; backlog1 finished the quarter at a record $290.1 million, up 15.6% year over year. •2023 Adjusted EBITDA guidance range increased to $28 million to $32 million (previously $27 million to $31 million); net sales guidance range unchanged at $520 million to $550 million despite Ties sale. | ||
PITTSBURGH, PA, August 8, 2023 – L.B. Foster Company (Nasdaq: FSTR), a global technology solutions provider of products and services for the rail and infrastructure markets (the "Company"), today reported its 2023 second quarter operating results.
CEO Comments
John Kasel, President and Chief Executive Officer, commented, “Our second quarter results reflect the continuing favorable impact of our strategic transformation. Net sales growth was a robust 12.6% and we saw strong gains in Precast Concrete (up 43.4%) and Rail, Technologies, and Services (up 12.0%). All segments generated organic sales growth in the quarter. Momentum in our segments generated by our business portfolio actions and profitability initiatives drove gross margins up 410 bps year over year to 21.8%, which translated into a 72.9% increase in adjusted EBITDA, with the adjusted EBITDA margin of 7.2% representing the highest quarterly result achieved since the second quarter of 2020. We’re pleased to see the expected benefits of our strategy execution coming through in the results.”
Mr. Kasel continued, “As previously announced, we completed the sale of our Ties business at the end of the second quarter. Cash proceeds received at closing were $2.4 million and were used to pay down our revolving credit facility. Net debt at quarter end was $85.6 million, in line with our expectations as we funded working capital to support strong sales and order book growth. We also initiated our first actions under the Board-approved share buyback program, repurchasing approximately 0.5% of the outstanding shares during the quarter. We're focused on our objective of executing a balanced approach to capital allocation while managing our leverage.”
Mr. Kasel concluded, “We can confidently report that the expected tailwinds from the numerous government infrastructure investment programs have begun to translate into increasing orders and backlog in the majority of our businesses. Despite some isolated weakness in the U.K. market, the consolidated book-to-bill ratio for the quarter was 1.24:1.00, with all segments expanding their order books in the quarter. With our record $290.1 million backlog and the prospects for a multi-year infrastructure super cycle in front of us, we remain optimistic in our outlook for 2023 and beyond. Against this backdrop, we're raising our profitability outlook for 2023 and maintaining our sales guidance despite the sale of the Ties business. We look forward to reporting our continuing progress in the coming quarters.”
1 See "Non-GAAP Financial Measures" and "Non-GAAP Disclosures" at the end of this press release for a description of and information regarding adjusted EBITDA, Gross Leverage Ratio per the Company's credit agreement, net debt, new orders, backlog, book-to-bill ratio, adjusted EBITDA leverage, and related reconciliations to their most comparable GAAP financial measure. June 30, 2023 backlog levels reflect a decline of $5.5 million from the Ties divestiture.
2023 Financial Guidance
As a result of the improved profitability achieved in its year-to-date results, the Company is updating its 2023 financial guidance, with adjusted EBITDA now expected to range between $28 million to $32 million (up from $27 million to $31 million previously). With the strong order rates realized year to date and record backlog, net sales guidance for 2023 remains unchanged at between $520 million to $550 million despite the impact of divestitures.
Second Quarter Consolidated Highlights
The Company’s second quarter performance highlights are reflected below:
| Three Months Ended June 30, | Change | Percent Change | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 vs. 2022 | |||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Net sales | $ | 148,034 | $ | 131,515 | $ | 16,519 | 12.6 | % | ||||||||||||||||||
| Gross profit | 32,252 | 23,293 | 8,959 | 38.5 | ||||||||||||||||||||||
| Selling and administrative expenses | 24,528 | 19,394 | 5,134 | 26.5 | ||||||||||||||||||||||
| Operating profit | 6,349 | 2,480 | 3,869 | 156.0 | ||||||||||||||||||||||
| Net income | 3,493 | 1,976 | 1,517 | 76.8 | ||||||||||||||||||||||
| Adjusted EBITDA | 10,601 | 6,131 | 4,470 | 72.9 | ||||||||||||||||||||||
| New orders | 183,742 | 141,439 | 42,303 | 29.9 | ||||||||||||||||||||||
| Backlog | 290,076 | 250,845 | 39,231 | 15.6 | ||||||||||||||||||||||
•On June 30, 2023, the Company sold substantially all the operating assets of its prestressed concrete railroad tie business for $2.4 million, subject to working capital adjustments, generating a $1.0 million loss on the sale. The Ties business contributed sales of $1.4 million and $8.8 million in the quarter and trailing-twelve months ended June 30, 2023, respectively, which is included in the Rail, Technologies, and Services segment.
•Net sales for the 2023 second quarter were $148.0 million, up $16.5 million, or 12.6%, over the second quarter of 2022. Net sales increased 13.3% organically and 6.0% from acquisitions, offset by a 6.8% reduction for divestitures.
•Gross profit for the 2023 second quarter was $32.3 million, a $9.0 million increase year over year, or 38.5%, and gross profit margins expanded by 410 basis points to 21.8%. The strong improvement in gross profit was due to the business portfolio changes in line with the Company's strategic transformation along with an uplift from sales volume, product mix, and pricing.
•Selling and administrative expenses for the 2023 second quarter were $24.5 million, a $5.1 million increase, or 26.5%, from the prior year quarter. The increase was primarily attributed to increased personnel costs as well as the net impact from business portfolio actions. Selling and administrative expenses as a percentage of net sales increased to 16.6% in the current quarter, up from 14.7% last year.
•Operating profit for the 2023 second quarter was $6.3 million, a $3.9 million increase over the prior year quarter. The improvement in operating profit was due to increased sales volume and gross profit expansion, partially offset by increased selling and administrative expenses.
•Net income for the 2023 second quarter was $3.5 million, or $0.32 per diluted share, and includes the $1.0 million loss on the sale of Ties.
•Adjusted EBITDA for the 2023 second quarter, which adjusts for the loss on divestitures and acquisition-related contingent consideration adjustments, was $10.6 million, a $4.5 million increase, or 72.9%, versus the prior year quarter, with adjusted EBITDA leverage1 of 27.1%.
•New orders totaling $183.7 million for the 2023 second quarter increased 29.9% from the prior year quarter. Backlog totaling $290.1 million increased by $39.2 million, or 15.6%, compared to the prior year quarter.
•Cash used by operating activities totaled $10.3 million in the second quarter, an increased use of $4.5 million over the prior year quarter. Second quarter average working capital percent of sales1 of 20.7% was up 190 bps versus last year due in part to business mix, project completion delays and increased early payment discounts taken.
•Net debt of $85.6 million and Gross Leverage Ratio of 2.5x as of June 30, 2023 improved from $94.0 million and 3.3x, respectively, as of September 30, 2022, the period immediately after the completion of the Company's most recent acquisitions. Both net debt and Gross Leverage Ratio increased slightly during the quarter due to seasonal working capital requirements. All credit agreement covenants were met.
Second Quarter Business Results by Segment
Rail, Technologies, and Services Segment
| Three Months Ended June 30, | Change | Percent Change | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 vs. 2022 | |||||||||||||||||||||||
| Net sales | $ | 91,616 | $ | 81,797 | $ | 9,819 | 12.0 | % | ||||||||||||||||||
| Gross profit | $ | 19,847 | $ | 15,661 | $ | 4,186 | 26.7 | % | ||||||||||||||||||
| Gross profit percentage | 21.7 | % | 19.1 | % | 2.6 | % | 13.1 | % | ||||||||||||||||||
| Segment operating profit | $ | 6,627 | $ | 3,998 | $ | 2,629 | 65.8 | % | ||||||||||||||||||
| Segment operating profit percentage | 7.2 | % | 4.9 | % | 2.3 | % | 46.9 | % | ||||||||||||||||||
| New orders | $ | 115,985 | $ | 92,937 | $ | 23,048 | 24.8 | % | ||||||||||||||||||
| Backlog | $ | 132,451 | $ | 132,017 | $ | 434 | 0.3 | % | ||||||||||||||||||
•Net sales for the 2023 second quarter were $91.6 million, a $9.8 million increase, or 12.0%, over the prior year quarter. Net sales increased 17.0% organically and 0.8% from acquisitions, offset by a 5.8% decrease from divestitures. The increase in organic sales was driven by strength in both Rail Products and Global Friction Management, partially offset by declines in the Company's U.K.-based Technology Services and Solutions business.
•Gross profit for the 2023 second quarter was $19.8 million, a $4.2 million increase, and gross profit margins expanded by 260 basis points to 21.7%. The improvement in gross profit was due primarily to the portfolio changes in line with the Company’s strategic transformation, partially offset by softness in profitability in the Technology Services and Solutions business.
•Segment operating profit for the 2023 second quarter was $6.6 million, a $2.6 million increase over the prior year quarter.
•Orders increased by $23.0 million, driven primarily by Rail Products, as well as Global Friction Management and Technology Services and Solutions. Backlog increased $18.9 million during the quarter to $132.5 million, despite a $7.0 million decline from the Ties divestiture, remaining relatively flat versus the prior year quarter.
Precast Concrete Products Segment
| Three Months Ended June 30, | Change | Percent Change | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 vs. 2022 | |||||||||||||||||||||||
| Net sales | $ | 33,865 | $ | 23,611 | $ | 10,254 | 43.4 | % | ||||||||||||||||||
| Gross profit | $ | 7,676 | $ | 3,347 | $ | 4,329 | 129.3 | % | ||||||||||||||||||
| Gross profit percentage | 22.7 | % | 14.2 | % | 8.5 | % | 59.9 | % | ||||||||||||||||||
| Segment operating profit (loss) | $ | 1,296 | $ | (125) | $ | 1,421 | ** | |||||||||||||||||||
| Segment operating profit (loss) percentage | 3.8 | % | (0.5) | % | 4.3 | % | ** | |||||||||||||||||||
| New orders | $ | 37,799 | $ | 22,904 | $ | 14,895 | 65.0 | % | ||||||||||||||||||
| Backlog | $ | 91,669 | $ | 71,507 | $ | 20,162 | 28.2 | % | ||||||||||||||||||
** Results of calculation not considered meaningful.
•Net sales for the 2023 second quarter were $33.9 million, up $10.3 million, or 43.4% over the second quarter of 2022. Net sales increased 12.8% organically and 30.6% from the acquisition of VanHooseCo Precast, LLC ("VanHooseCo").
•Gross profit for the 2023 second quarter was $7.7 million, a $4.3 million increase, and gross profit margins expanded by 850 basis points to 22.7%. The increase in gross profit was driven by higher volumes from the VanHooseCo acquisition and margin gains in the legacy Precast business driven primarily by favorable mix, pricing, and input costs.
•Segment operating profit for the 2023 second quarter was $1.3 million, favorable $1.4 million over the prior year quarter on improved gross margins, partially offset by higher selling and administrative expenses from the VanHooseCo acquisition.
•Second quarter new orders were $37.8 million, up $14.9 million over the prior year quarter, with VanHooseCo accounting for $15.8 million of the increase, while orders in the legacy Precast declined slightly year over year. Backlog of $91.7 million reflects a $20.2 million increase over the prior year quarter, driven by VanHooseCo.
Steel Products and Measurement Segment
| Three Months Ended June 30, | Change | Percent Change | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 vs. 2022 | |||||||||||||||||||||||
| Net sales | $ | 22,553 | $ | 26,107 | $ | (3,554) | (13.6) | % | ||||||||||||||||||
| Gross profit | $ | 4,729 | $ | 4,285 | $ | 444 | 10.4 | % | ||||||||||||||||||
| Gross profit percentage | 21.0 | % | 16.4 | % | 4.6 | % | 27.8 | % | ||||||||||||||||||
| Segment operating profit | $ | 1,456 | $ | 762 | $ | 694 | 91.1 | % | ||||||||||||||||||
| Segment operating profit percentage | 6.5 | % | 2.9 | % | 3.6 | % | 124.1 | % | ||||||||||||||||||
| New orders | $ | 29,958 | $ | 25,598 | $ | 4,360 | 17.0 | % | ||||||||||||||||||
| Backlog | $ | 65,956 | $ | 47,321 | $ | 18,635 | 39.4 | % | ||||||||||||||||||
•Net sales for the 2023 second quarter were $22.6 million, a decrease of $3.6 million or 13.6% compared to the prior year quarter. Sales increased 2.4% organically, and declined 16.0% due to divestiture activity. Organic sales were driven by Protective Coatings, partially offset by Fabricated Steel Products.
•Steel Products and Measurement gross profit increased by $0.4 million, an improvement of 460 basis points, due primarily to the segment's favorable portfolio shift as well as margin increases in Protective Coatings driven by improved volume.
•Segment operating profit for the 2023 second quarter was $1.5 million, an improvement of $0.7 million over the prior year quarter primarily due to improved volume and margins in Protective Coatings.
•New orders and backlog in Steel Products and Measurement increased by $4.4 million and $18.6 million, respectively, during the quarter. Increases in both Protective Coatings and Fabricated Steel Products orders more than offset a $6.0 million decline due to the divestiture of the Company's precision measurement products and systems business.
First Six Months Consolidated Highlights
The Company's first six months performance highlights are presented below.
| Six Months Ended June 30, | Change | Percent Change | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 vs. 2022 | |||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Net sales | $ | 263,522 | $ | 230,309 | $ | 33,213 | 14.4 | % | ||||||||||||||||||
| Gross profit | 55,543 | 39,740 | 15,803 | 39.8 | ||||||||||||||||||||||
| Selling and administrative expenses | 45,951 | 36,692 | 9,259 | 25.2 | ||||||||||||||||||||||
| Operating profit | 6,852 | 193 | 6,659 | ** | ||||||||||||||||||||||
| Net income | 1,322 | 390 | 932 | 239.0 | ||||||||||||||||||||||
| Adjusted EBITDA | 15,083 | 7,386 | 7,697 | 104.2 | ||||||||||||||||||||||
| New orders | 323,258 | 276,844 | 46,414 | 16.8 | ||||||||||||||||||||||
| Backlog | 290,076 | 250,845 | 39,231 | 15.6 | ||||||||||||||||||||||
** Results of calculation not considered meaningful.
•Net sales for the first six months of 2023 were $263.5 million, up $33.2 million, or 14.4%, over the prior year period. Net sales increased 10.8% organically and 7.4% from acquisitions, offset by a 3.7% reduction from divestitures.
•Gross profit for the first six months of 2023 was $55.5 million, a $15.8 million increase year over year, or 39.8%, and gross profit margins expanded by 380 basis points to 21.1%. The improvement in gross profit was due to the business portfolio changes in line with the Company's strategic transformation along with an uplift from sales volume, product mix, and pricing.
•Selling and administrative expenses for the first six months of 2023 were $46.0 million, a $9.3 million increase, or 25.2%, from the prior year period. The increase was primarily attributed to increased personnel costs, as well as higher selling and administrative expenses from the net impact of business portfolio actions. Selling and administrative expenses as a percentage of net sales increased to 17.4% in the current year period, up from 15.9% last year.
•Operating profit for the first six months of 2023 was $6.9 million, a $6.7 million increase over the prior year period. The improvement in operating profit was due to increased sales volume and gross profit expansion, partially offset by increased selling and administrative expenses.
•Net income for the first six months of 2023 was $1.3 million, or $0.12 per diluted share, and includes $3.1 million in losses from divestitures.
•Adjusted EBITDA for the first six months of 2023, which adjusts for the loss on divestitures and acquisition-related contingent consideration adjustments, was $15.1 million, a $7.7 million increase, or 104.2%, versus the prior year period, with adjusted EBITDA leverage1 of 23.2%.
•New orders totaling $323.3 million for the first six months of 2023 increased 16.8% from the prior year period. Backlog totaling $290.1 million increased by $39.2 million, or 15.6%, compared to the prior year.
•Cash used by operating activities totaled $3.3 million in the six months ended June 30, 2023, favorable $10.0 million compared to the use in the prior year period.
Second Quarter Conference Call
L.B. Foster Company will conduct a conference call and webcast to discuss its second quarter 2023 operating results on Tuesday, August 8, 2023 at 11:00 AM ET. The call will be hosted by Mr. John Kasel, President and Chief Executive Officer. Listen via audio and access the slide presentation on the L.B. Foster web site: www.lbfoster.com, under the Investor Relations page. A conference call replay will be available through August 15, 2023 via webcast through L.B. Foster’s Investor Relations page of the company’s website.
Those interested in participating in the question-and-answer session may register for the call at https://register.vevent.com/register/BI7c68dd565b304553aa8d4acdc4b470b1 to receive the dial-in numbers and unique PIN to access the call. The registration link will also be available on the Company’s Investor Relations page of its website.
About L.B. Foster Company
Founded in 1902, L.B. Foster Company is a global technology solutions provider of engineered, manufactured products and services that builds and supports infrastructure. The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers' most challenging requirements. The Company maintains locations in North America, South America, Europe, and Asia. For more information, please visit www.lbfoster.com.
Non-GAAP Financial Measures
This press release contains financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures are provided as additional information for investors. The presentation of this additional information is not meant to be considered in isolation or as a substitute for GAAP measures. For definitions of the non-GAAP financial measures used in this press release and reconciliations to the most directly comparable respective GAAP measures, see the “Non-GAAP Disclosures” section below.
The Company has not reconciled the forward-looking adjusted EBITDA to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to certain costs, the most significant of which are acquisition and divestiture-related costs and impairment expense. These underlying expenses and others that may arise during the year are potential adjustments to future earnings. The Company expects the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.
The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement. The Company defines backlog as contractual commitments to customers for which the Company’s performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance. Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company’s current and future results of operations and financial prospects, and strategies for business development. The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company’s current performance and prospective results of operations and financial performance. The Company defines book-to-bill ratio as new orders divided by revenue. The Company believes this is a useful metric to assess supply and demand, including order strength versus order fulfillment.
The Company views its Gross Leverage Ratio per its credit agreement, as defined in the Second Amendment to its Fourth Amended and Restated Credit Agreement dated August 12, 2022, as an important indication of the Company's financial health and believes it is useful to investors as an indicator of the Company's ability to service its existing indebtedness and borrow additional funds for its investing and operational needs.
The Company defines quarterly average working capital as a percent of sales as the average working capital for the trailing four months divided by four times net sales for the quarter.
Forward-Looking Statements
This release may contain “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Forward-looking statements provide management's current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Sentences containing words such as “believe,” “intend,” “plan,” “may,” “expect,” “should,” “could,” “anticipate,” “estimate,” “predict,” “project,” or their negatives, or other similar expressions of a future or forward-looking nature generally should be considered forward-looking statements. Forward-looking statements in this earnings release are based on management's current expectations and assumptions about future events that involve inherent risks and uncertainties and may concern, among other things, the Company’s expectations relating to our strategy, goals, projections, and plans regarding our financial position, liquidity, capital resources, and results of operations and decisions regarding our strategic growth initiatives, market position, and product development. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The Company cautions readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: any future global health crises, and the related social, regulatory, and economic impacts and the response thereto by the Company, our employees, our customers, and national, state, or local governments; a continuation or worsening of the adverse economic conditions in the markets we serve, including recession, the continued volatility in the prices for oil and gas, governmental travel restrictions, project delays, and budget shortfalls, or otherwise; volatility in the global capital markets, including interest rate fluctuations, which could adversely affect our ability to access the capital markets on terms that are favorable to us; restrictions on our ability to draw on our credit agreement, including as a result of any future inability to comply with restrictive covenants contained therein; a decrease in freight or transit rail traffic; environmental matters, including any costs associated with any remediation and monitoring of such matters; the risk of doing business in international markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations and inflation, and trade restrictions or embargoes; our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, such as the recent dispositions of the Track Components, Chemtec, and Ties businesses, and acquisitions of the Skratch Enterprises Ltd., Intelligent Video Ltd., and VanHooseCo Precast LLC businesses and to realize anticipated benefits; costs of and impacts associated with shareholder activism; the timeliness and availability of materials from our major suppliers, as well as the impact on our access to supplies of customer preferences as to the origin of such supplies, such as customers’ concerns about conflict minerals; labor disputes; cyber-security risks such as data security breaches, malware, ransomware, “hacking,” and identity theft, which could disrupt our business and may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses, or an adverse effect to our reputation; the continuing effectiveness of our ongoing implementation of an enterprise resource planning system; changes in current accounting estimates and their ultimate outcomes; the adequacy of internal and external sources of funds to meet financing needs, including our ability to negotiate any additional necessary amendments to our credit agreement or the terms of any new credit agreement, and reforms regarding the use of SOFR as a benchmark for establishing applicable interest rates; the Company’s ability to manage its working capital requirements and indebtedness; domestic and international taxes, including estimates that may impact taxes; domestic and foreign government regulations, including tariffs; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; geopolitical conditions, including the conflict in Ukraine; a lack of state or federal funding for new infrastructure projects; an increase in manufacturing or material costs; the loss of future revenues from current customers; and risks inherent in litigation and the outcome of litigation and product warranty claims. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. Significant risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022, or as updated and/or amended by our other current or periodic filings with the Securities and Exchange Commission.
The forward-looking statements in this release are made as of the date of this release and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by the federal securities laws.
Investor Relations:
Stephanie Schmidt
(412) 928-3417
investors@lbfoster.com
L.B. Foster Company
415 Holiday Drive
Suite 100
Pittsburgh, PA 15220
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Sales of goods | $ | 132,167 | $ | 116,584 | $ | 230,705 | $ | 201,005 | ||||||||||||||||||
| Sales of services | 15,867 | 14,931 | 32,817 | 29,304 | ||||||||||||||||||||||
| Total net sales | 148,034 | 131,515 | 263,522 | 230,309 | ||||||||||||||||||||||
| Cost of goods sold | 101,069 | 95,331 | 179,134 | 165,176 | ||||||||||||||||||||||
| Cost of services sold | 14,713 | 12,891 | 28,845 | 25,393 | ||||||||||||||||||||||
| Total cost of sales | 115,782 | 108,222 | 207,979 | 190,569 | ||||||||||||||||||||||
| Gross profit | 32,252 | 23,293 | 55,543 | 39,740 | ||||||||||||||||||||||
| Selling and administrative expenses | 24,528 | 19,394 | 45,951 | 36,692 | ||||||||||||||||||||||
| Amortization expense | 1,375 | 1,419 | 2,740 | 2,855 | ||||||||||||||||||||||
| Operating profit | 6,349 | 2,480 | 6,852 | 193 | ||||||||||||||||||||||
| Interest expense - net | 1,574 | 384 | 2,962 | 754 | ||||||||||||||||||||||
| Other expense (income) - net | 719 | (701) | 2,546 | (1,264) | ||||||||||||||||||||||
| Income before income taxes | 4,056 | 2,797 | 1,344 | 703 | ||||||||||||||||||||||
| Income tax expense | 563 | 821 | 22 | 313 | ||||||||||||||||||||||
| Net income | 3,493 | 1,976 | 1,322 | 390 | ||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | (38) | (34) | (57) | (54) | ||||||||||||||||||||||
| Net income attributable to L.B. Foster Company | $ | 3,531 | $ | 2,010 | $ | 1,379 | $ | 444 | ||||||||||||||||||
| Basic earnings per common share | $ | 0.32 | $ | 0.18 | $ | 0.12 | $ | 0.04 | ||||||||||||||||||
| Diluted earnings per common share | $ | 0.32 | $ | 0.18 | $ | 0.12 | $ | 0.04 | ||||||||||||||||||
| Average number of common shares outstanding - Basic | 10,807 | 10,715 | 10,800 | 10,700 | ||||||||||||||||||||||
| Average number of common shares outstanding - Diluted | 10,878 | 10,814 | 10,866 | 10,809 | ||||||||||||||||||||||
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| June 30, 2023 | December 31, 2022 | |||||||||||||
| (Unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 3,880 | $ | 2,882 | ||||||||||
| Accounts receivable - net | 74,249 | 82,455 | ||||||||||||
| Contract assets - net | 34,011 | 33,613 | ||||||||||||
| Inventories - net | 79,451 | 75,721 | ||||||||||||
| Other current assets | 12,182 | 11,061 | ||||||||||||
| Total current assets | 203,773 | 205,732 | ||||||||||||
| Property, plant, and equipment - net | 76,948 | 85,344 | ||||||||||||
| Operating lease right-of-use assets - net | 15,770 | 17,291 | ||||||||||||
| Other assets: | ||||||||||||||
| Goodwill | 31,404 | 30,733 | ||||||||||||
| Other intangibles - net | 21,256 | 23,831 | ||||||||||||
| Deferred tax assets | — | 24 | ||||||||||||
| Other assets | 2,417 | 2,355 | ||||||||||||
| TOTAL ASSETS | $ | 351,568 | $ | 365,310 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 43,933 | $ | 48,782 | ||||||||||
| Deferred revenue | 15,969 | 19,452 | ||||||||||||
| Accrued payroll and employee benefits | 8,709 | 10,558 | ||||||||||||
| Current portion of accrued settlement | 8,000 | 8,000 | ||||||||||||
| Current maturities of long-term debt | 102 | 127 | ||||||||||||
| Other accrued liabilities | 14,928 | 16,192 | ||||||||||||
| Total current liabilities | 91,641 | 103,111 | ||||||||||||
| Long-term debt | 89,403 | 91,752 | ||||||||||||
| Deferred tax liabilities | 1,718 | 3,109 | ||||||||||||
| Long-term portion of accrued settlement | 6,000 | 8,000 | ||||||||||||
| Long-term operating lease liabilities | 12,669 | 14,163 | ||||||||||||
| Other long-term liabilities | 7,545 | 7,577 | ||||||||||||
| Stockholders' equity: | ||||||||||||||
| Common stock | 111 | 111 | ||||||||||||
| Paid-in capital | 40,919 | 41,303 | ||||||||||||
| Retained earnings | 124,548 | 123,169 | ||||||||||||
| Treasury stock | (4,846) | (6,240) | ||||||||||||
| Accumulated other comprehensive loss | (18,536) | (21,165) | ||||||||||||
| Total L.B. Foster Company stockholders’ equity | 142,196 | 137,178 | ||||||||||||
| Noncontrolling interest | 396 | 420 | ||||||||||||
| Total stockholders’ equity | 142,592 | 137,598 | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 351,568 | $ | 365,310 | ||||||||||
Non-GAAP Disclosures
(Unaudited)
This earnings release discloses earnings before interest, taxes, depreciation, and amortization (“EBITDA”), adjusted EBITDA, net debt, and adjusted EBITDA leverage, which are non-GAAP financial measures. The Company believes that EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company’s business since EBITDA may enhance investors’ ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization. In addition, EBITDA is a financial measure that management and the Company’s Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs. Adjusted EBITDA adjusts for certain charges to EBITDA from continuing operations that the Company believes are unusual, non-recurring, unpredictable, or non-cash. The Company believes adjusted EBITDA leverage is a useful metric for investors as it enhances investors' ability to understand the change adjusted EBITDA respective to the change in sales.
In the three and six months ended June 30, 2023, the Company made adjustments to exclude the loss on divestitures and VanHooseCo contingent consideration. In the three and six months ended June 30, 2022, the Company made adjustments to exclude acquisition costs, insurance proceeds, and the gain on the sale of its steel Piling Products business. The Company believes the results adjusted to exclude these items are useful to investors as these items are nonroutine in nature.
The Company views net debt, which is total debt less cash and cash equivalents, as an important metric of the operational and financial health of the organization and believes it is useful to investors as indicators of its ability to incur additional debt and to service its existing debt.
Non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with the Company’s financial information that is presented in accordance with GAAP. Quantitative reconciliations of EBITDA, adjusted EBITDA, and net debt (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||
| Adjusted EBITDA Reconciliation | ||||||||||||||||||||||||||
| Net income, as reported | $ | 3,493 | $ | 1,976 | $ | 1,322 | $ | 390 | ||||||||||||||||||
| Interest expense - net | 1,574 | 384 | 2,962 | 754 | ||||||||||||||||||||||
| Income tax expense | 563 | 821 | 22 | 313 | ||||||||||||||||||||||
| Depreciation expense | 2,484 | 1,876 | 4,989 | 3,814 | ||||||||||||||||||||||
| Amortization expense | 1,375 | 1,419 | 2,740 | 2,855 | ||||||||||||||||||||||
| Total EBITDA | $ | 9,489 | $ | 6,476 | $ | 12,035 | $ | 8,126 | ||||||||||||||||||
| Loss (gain) on divestitures | 1,041 | (489) | 3,074 | (489) | ||||||||||||||||||||||
| Acquisition costs | — | 462 | — | 539 | ||||||||||||||||||||||
| Insurance proceeds | — | (318) | — | (790) | ||||||||||||||||||||||
| VanHooseCo contingent consideration | 71 | — | (26) | — | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 10,601 | $ | 6,131 | $ | 15,083 | $ | 7,386 | ||||||||||||||||||
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | 2023 | 2022 | 2023 vs. 2022 | |||||||||||||||||||||||||||||||||
| Adjusted EBITDA Leverage Reconciliation | ||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 10,601 | $ | 6,131 | $ | 4,470 | $ | 15,083 | $ | 7,386 | $ | 7,697 | ||||||||||||||||||||||||||
| Total net sales | 148,034 | 131,515 | 16,519 | 263,522 | 230,309 | 33,213 | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA leverage | 27.1 | % | 23.2 | % | ||||||||||||||||||||||||||||||||||
| June 30, 2023 | March 31, 2023 | September 30, 2022 | ||||||||||||||||||
| Net Debt Reconciliation | ||||||||||||||||||||
| Total debt | $ | 89,505 | $ | 80,096 | $ | 98,919 | ||||||||||||||
| Less: cash and cash equivalents | (3,880) | (2,639) | (4,943) | |||||||||||||||||
| Net debt | $ | 85,625 | $ | 77,457 | $ | 93,976 | ||||||||||||||