L.B. Foster Company

Ladies and gentlemen, thank you for standing by. Welcome to the LB Foster fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during a session, you need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, Bob Bauer. Please go ahead, sir.

Well, welcome, everyone. I wanted to start off today's call with an introduction before we get into some of the commentary that we're going to make for the day. I wanted to welcome Bill Tallman, who's with us today. Bill's our new Chief Financial Officer. You may have seen in the press release that we released in the last couple of weeks a pointing bill to that position. We're really glad he's here. He just started with us, and he's anxious to get up to speed and meet investors and others in the investment community. He brings a wealth of experience from a publicly traded industrial company that's specialized in materials and products for metal cutting applications, abrasives, and a number of other industrial products. He's had a number of assignments in finance and operations, and that background is really going to be helpful to us, and we're really excited about the fact that we finally have got him on board here. So he's joining us for the call for the first time. I also want to welcome John Castle. He's joining us this quarter as well. John's our chief operating officer. Of course, he's been with the company for over 17 years. And we're going to have John join us on more occasions in the future. So I wanted to make that introduction. Both gentlemen will be available during our question session when we get started later on in the call. So with that, what I'm going to do is turn it over to Jim Kempton to get the call started with his prepared comments. And then I'll come back and talk about some of the items that I have prepared to speak to. So Jim, you want to go ahead?

Thanks, Bob. Today's slide presentation, along with our earnings release and financial disclosures, were posted on our website earlier today and can be accessed on our investor relations page at lbfoster.com. Some statements we are making are forward-looking and represent our current view of our markets and business today, including comments related to COVID-19. These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. For more detailed risks, uncertainties, and assumptions related to our forward-looking statements, please see the disclosures in our earnings release and presentations. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within today's earnings release and within our accompanying earnings presentation carefully as you consider these metrics. Before I start the review of the results, we'd like to briefly touch on a few items related to this evening's presentation. First, similar to the third quarter earnings call, we have presented the IOS test and inspection services business, which we sold in early September, as a discontinued operation in the financial statements, including within the earnings release and presentation, and have recast prior periods to reflect this change. My comments today will be focused on our results from continuing operations. Also, as you may have seen in our press release in 8K on February 16th, in the fourth quarter of 2020, We realigned our operating segments to more effectively and efficiently provide solutions to the infrastructure markets that the company serves. The rail technologies and services segment, consisting of businesses previously reported in the former rail products and services segment, reflects our current focus on serving transit and freight railway operators and related infrastructure. The former construction products segment and former tubular and energy segment were realigned into the infrastructure solution segment, as these businesses collectively provide a variety of products and services for infrastructure markets to support the efficient transportation of people, goods, and commodities for general civil works, primarily in the United States. Bob will be discussing this reorganization in more detail in his comments, and will be presenting the results based on this revised operating structure in this evening's presentation. So with that, I will start my financial review. For the purposes of helping you understand the underlying business performance, many of our comments today will be based on fourth quarter and four-year results, excluding certain non-recurring charges and benefits. As a result, I will refer to adjusted EBITDA, adjusted net income, and adjusted diluted EPS during the presentation. And we'll be discussing the results from continuing operations unless otherwise noted. During the fourth quarter, our sales were 115.6 million compared to 141.3 million in Q4 2019, a 25.8 million or 18.2% decrease. Consolidated gross profit decreased 6.5 million over the prior year quarter. Gross profit margin of 18.8% was a decrease of 120 basis points from Q4 of 2019. The decreases in sales and gross profit in the quarter were due to several reasons. Even though the company was generally considered an essential business and allowed to operate during the pandemic, COVID-19's resulting effect on the already weakened demand for crude oil continued to impact the infrastructure solution segment during the quarter. The pandemic also impacted the rail segment. causing reduced demand for our friction management consumables and delays in new rail and transit projects and services, all of which continue to influence our results during the fourth quarter. More specifically, our rail technologies and services segment was impacted in both our rail products and our rail technology businesses across the North America and Europe. The rail products business sales declined by approximately 2.7 million, impacted primarily by project delays. The rail technologies business had a decline of approximately 7 million in revenues. These results were primarily driven by a weak demand for solid consumable friction management offerings due to lower rail traffic volumes caused by the pandemic. The declines in revenues drove the decline in gross profit quarter over quarter, however, Margins in the rail segment were up versus Q4 of 2019 by 120 basis points, driven primarily by period-over-period margin improvements in our Canadian and UK operations. From an infrastructure solution segment perspective, the challenging dynamics in the oil and gas markets caused by the pandemic have continued to impact our businesses serving the midstream energy market. These events have driven the 25% decrease in revenue volumes quarter over quarter. The decreases in sales, coupled with margin erosion in the coatings and measurement business unit, resulted in the decline in gross profit of $5.3 million versus Q4 of 2019 in the infrastructure solutions segment. Now moving on to expenses. Our consolidated selling and administrative expenses decreased by over $2.3 million, or 11.6%, to approximately $17.4 million in the fourth quarter. The fourth quarter of 2020 also benefited from a quarter-over-quarter decrease of $1 million in stock-based compensation expense. Net interest expense was essentially flat quarter-over-quarter at approximately $920,000. Our income tax benefit from continuing operations was $140,000 in Q4 2020. In the fourth quarter of 2019, the income tax benefit was approximately $27.7 million, which was driven by the $29.6 million reversal of evaluation allowance on our deferred tax assets. Our fourth quarter net income from continuing operations was $2.3 million, or 21 cents per diluted share, compared to net income from continuing operations of $30.2 million, or $2.83 per diluted share, last year. Excluding the impact of restructuring costs incurred during the quarter of approximately $260,000 net of tax, adjusted net income from continuing operations for the quarter was $2.5 million, or $0.24 of adjusted net income per diluted share. compared to 3.5 million or 33 cents of adjusted net income per diluted share in Q4 of 2019. Adjusted EBITDA totaled 6.9 million in the fourth quarter, a decrease of 3.9 million compared to Q4 of 2019. Adjusted EBITDA excludes approximately 350,000 of restructuring costs incurred during the fourth quarter of 2020. For the year ended December 31st, 2020, our revenues were $497.4 million as compared to $616.4 million in 2019. This led to a gross profit of $95 million as compared to $120.9 million in 2019, with a 2020 gross profit margin of 19.1% versus 19.6% in 2019. SG&A declined by $8.9 million in 2020 to $73.6 million from $82.5 million in 2019 as a result of a cost containment program to navigate through the pandemic environment. Net interest expense was $3.8 million compared to $4.9 million in 2019. For 2020, net income from continuing operations was $25.8 million or $2.42 per diluted share compared to net income from continuing operations of $48 million, or $4.51 per diluted share last year. Excluding the impact of restructuring costs incurred of approximately $1.9 million net of tax, and the distribution from our unconsolidated partnership of $1.4 million net of tax, and the tax benefits resulting from the IOS divestiture of $15.8 million, adjusted net income from continuing operations for the year was $10.5 million, or $0.98 of adjusted net income per diluted share, compared to $21.3 million, or $2 of adjusted net income per diluted share in 2019. Adjusted EBITDA for 2020 was $32 million, excluding the impact of relocation and restructuring costs of $2.5 million and the distribution from our unconsolidated partnership of $1.9 million. Adjusted EBITDA for 2019 was $47.4 million, which excludes relocation and restructuring costs of $1.8 million and pension settlement costs of $2.2 million. Now turning to the balance sheet, our trade working capital decreased by $7.8 million compared to December 31, 2019, mainly due to a decrease in receivables of $15.3 million. This decrease was primarily attributable to the decline in sales during 2020 due to the pandemic. Our net debt was $37.5 million at December 31, 2020, compared to $44 million at December 31, 2019. Our adjusted net leverage ratio for the trailing 12-month period is 1.2 times as of December 31, 2020. Over the last several years, we have strengthened our balance sheet which should continue to help us manage through these challenging times in positions as well to execute on our strategic initiatives. Our current ratio as of December 31st, 2020 is a very healthy 2.05. Our total available funding capacity, that is the available capacity under a revolving credit facility plus our cash, was approximately 76.6 million as of the end of the year. In addition, As we discussed on the third quarter earnings call, we are anticipating a tax refund of approximately $9 million later this year as a result of the IOS Test and Inspection Services divestiture. We are also expecting that the approximately $19 million in tax benefits generated as part of the sale of the Test and Inspection Services business will reduce our cash outlays for taxes for the foreseeable future. To further expand our cash flows, our cash provided by continuing operating activities in the fourth quarter was $4.3 million compared to $16 million in 2019. However, on a year-to-date basis, cash flows from continuing operations is $20.5 million versus $26.2 million for the year ended December 31, 2019, a $5.7 million year-over-year decrease. Our capital expenditures during that time period were approximately $9.2 million, which derives free cash flow of approximately $11.4 million. Based on our closing stock price of $15.05 as of December 31st, that would imply a free cash flow yield of approximately 7.2%. During the fourth quarter, our capital expenditures were $1.5 million, The fourth quarter expenditures included the final installment on our continuous weld rail car and unloader within our rail segment of approximately $400,000. As I've previously noted, this is a very infrequent capital requirement for the company, as these assets have a very long useful life. In total, we spent $5.6 million on this rail car, of which $3.8 million was expended in 2020. The railcar has been placed into service during the fourth quarter. Now on to new orders and backlog. In Q4, overall orders were 134.4 million compared to 175.4 million last year. However, we did see a 3% sequential improvement in order activity compared to the third quarter. Order volume decreased in both the rail and infrastructure segments compared to the fourth quarter of 2019, by 13.7 million and 27.3 million, respectively. With regard to the decline in the infrastructure solutions segment, the coatings and measurement business unit, which primarily serves the midstream energy market, contributed 27.5 million of the quarter-over-quarter decrease. Backlog stood at 248.2 million as of the end of the fourth quarter, an increase of 19.2 million, or 8.4%, compared to December 31, 2019's backlog. Most notably, backlog increased in both segments versus December 31, 2019, which is a positive sign as these businesses move into 2021, despite the continuing challenges presented by the midstream energy market. That concludes my comments on these results. So with that, I will now turn it over to Bob. Thanks, Jim.