L.B. Foster Company

Good day, and thank you for standing by, and welcome to the Q1 2021 LB Foster earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to turn the call over to your host, Stephanie Liswock. You may begin.

thank you operator good morning everyone and welcome to the lb foster's first quarter of 2021 earnings call my name is stephanie listwalk the company's investor relations manager our president and ceo bob bauer and our chief financial officer bill tallman will will be presenting our first quarter operating results market outlook and business developments this morning also joining us on the call are john castle our chief operating officer and Jim Kempton, our company's corporate controller and principal accounting officer. Bob will be making some opening comments, and then Bill will review the company's first quarter financial results. Afterward, Bob will provide his perspective on the company's first quarter performance and will update you on significant business matters and market developments. We will then open the session up for questions. Today's slide presentation, along with our earnings release and financial disclosures, were posted on our website yesterday evening, and can be accessed on our investor relations page at lbfoster.com. In a change from past practice, our comments this morning will follow the slides in the earnings presentation. 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 relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. 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. For the purpose of helping you understand the underlying performance of the company, we will be referring to adjusted EBITDA, adjusted net income, adjusted diluted EPS, net debt, net leverage ratio, and free cash flow yield during the presentation today. While we did not have any adjustments to EBITDA, net income, or diluted EPS during the first quarter of 2021, Historic periods referred to in the presentation today have been adjusted, as reflected in the reconciliation tables included in the appendix to the earnings presentation. Additionally, in September of 2020, we announced the equity sale of our IOS test and inspection services division. As a result of this divestiture, we have presented the test and inspection services business as a discontinued operation in the first quarter financial statements, including within the earnings release and presentation, and have recast prior periods to reflect this change. The comments today will be focused on our results from continuing operations. So, with that, let me turn the call over to Bob for some opening remarks.

Thank you, Stephanie. I'm going to take a few minutes to walk through some highlights before turning it over to Bill to cover the financial summary. If you're following along with our presentation, I'll be starting on page four with the quarterly results. The first quarter was generally in line with our expectations with revenue of $116 million. There are three messages you'll hear the most about that had the greatest impact on our Q1 results. First, the quarter experienced typical seasonality with very low volume in January and February, and then finished strong with a considerable rise in sales in March. 47% of the Q1 sales came in March. which is also a confidence builder for the anticipated rise in sales expected in the second quarter, which I'll speak to later. Second, we had some deliveries that were interrupted by weather and ongoing pandemic-related disruption that kept more backlog from converting to sales. These are some of the same pandemic-related struggles we've had for the last few quarters, most notably in Europe and across our service-related businesses. We believe this environment is about to get a lot better, especially in North America and the United Kingdom. And third, the continuing weakness in our coatings and measurement business is primarily what led to the year over year decline in sales, in gross profit, and in earnings. Sales in these divisions declined $13 million from last year, which drove all of the year over year consolidated sales decline as the rest of the company was up 7.4% year-over-year in sales, which speaks to the resiliency and strength in the majority of our other businesses. The pressure on margins from the codings and measurement weakness is what drove the year-over-year decline in consolidated gross margins, while the rest of the businesses performed reasonably well with gross margins that were only 20 basis points below prior year. A similar story applies to our consolidated orders, which increased 3.7% over prior year, driven by the fact that non-energy market orders increased by 6% over last year. And this led to our third straight quarter of sequentially increasing backlog, which rose 24 million sequentially in the quarter, and that's a 15% increase over prior year. So we have a solid $272 million backlog to start the second quarter and an equally good outlook we'll describe throughout the call. We also had a really good quarter for cash flow. We managed to generate cash from working capital performance, and we kept inventory levels just about flat from the start of the year. Debt also declined in the quarter. Our balance sheet continues to look strong. And Bill will comment more on cash flow and our balance sheet and liquidity in his remarks. So we're looking forward to the second quarter, which will start with a strong backlog and a more optimistic outlook based on changing market conditions. So let me comment on these market conditions. In rail, there are encouraging signs of passenger traffic increasing in many world markets, and freight traffic is also strengthening. in both commodities and intermodal sectors, excluding some of the weather-related delays that were experienced in the U.S. in the first quarter. Protection management consumable sales increased in Q1, which is a traffic-sensitive product and a good indicator that customers are experiencing or anticipating volume increases. In addition, There's a lot of support for infrastructure projects in the U.S. from recently funded bills that include rail projects as well as general infrastructure projects, and we expect much less pandemic-related disruption on construction projects. The recent report card on America's infrastructure by the Association of Civil Engineers highlighted the need to spend significant money in general infrastructure in areas where LB Foster can benefit. So overall, our CERB markets look pretty good, other than the midstream energy pipeline market, which is expected to defer capital projects for the foreseeable future, given the current capacity outlook. However, I expect we may begin to see some improvement in the energy pipeline area as the year unfolds, given the very low volume levels for the last few quarters. So when we combine this outlook with our strong backlog, it has led us to describe a second quarter where we expect a significant increase in volume over the first quarter, which I'll expand on more after Bill makes his remarks. So at this point, we'll turn the call over to Bill.