L.B. Foster Company

Hey, and thank you for standing by. Welcome to L.B. Foster's third quarter of 2022 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 will need to press star 1-1 on your telephone. You will then hear a message that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the investor relations manager, Stephanie Listwack. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to LB Foster's third quarter of 2022 earnings call. My name is Stephanie Listwack, the company's investor relations manager. Our president and CEO, John Castle, and our chief financial officer, Bill Paulman, will be presenting our third quarter operating results market outlook, and business developments this morning. We'll start the call with John providing his perspective on the company's two recent acquisitions and one divestiture, and also the third quarter performance, including market development. Bill will then review the company's third quarter financial results. John will provide perspective on company outlook and his closing comments. 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 this morning and can be accessed on our investor relations page at lbfoster.com. 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 law. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release 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, net debt, and adjusted net leverage ratio during the presentation today. The company also had a limited number of unusual adjustments during the quarter for which certain metrics have been adjusted in today's presentation for purposes of more accurately communicating the company's operating performance. These non-GAAP metrics are reflected in the reconciliation tables included in the appendix to the earnings presentation. Additionally, in September of 2021, we announced the asset sale of our Piling Products Division, and on August 1st, 2022, we completed the sale of our track and performance business. Due to the nature of these sales, we have presented these businesses within continuing operations in our financial statements. So, with that, let me turn the call over to John.

Thanks, Stephanie, and hello, everyone. Thanks for joining us today for a third quarter earnings call. Before I turn it over to Bill for a financial review, I'd like to begin by covering the more significant takeaways from the quarter and recent activities, starting with our strategic portfolio transformation accomplishments. As previously reported, we continued our portfolio transformation with acquisitions of the Van Hooskill Company business August the 12th and the acquisition of Intelligent Video on July the 6th. Additionally, we completed the sale of Track Employment's business on August the 1st. These transactions were well aligned with our strategic roadmap, and I'll cover these moves in a bit more detail in a moment. In our legacy business, we faced significant inflationary headwinds across most of the businesses that adversely impacted our margins the first half of the year, particularly in the precast business. In the Q3 results, we're beginning to see benefits of our mitigation efforts with adjusted margins up year over year in all segments. We are particularly pleased with what we have seen in approved margins in legacy precast business, which were up 410 basis points over last year. I should also highlight that we recorded a $4 million adjustment to sales in the quarter for the settlement of certain long-term contracts related to the Crossroads project in the United Kingdom. The adjustment reduced both sales and gross margin of the quarter. Ultimately, this came down to a business decision. But I'd like to add our performance on the Crossroad project has delivered significant value since 2015, and the settlement should allow us to benefit from increasing project opportunities we are seeing in the UK, starting with HS2, a 10-year project connecting the cities of London and Birmingham by high-speed transit system. Our adjusted EBITDA increased 111% from 4.4 million to 9.3 million on a 3% adjusted sales growth year-over-year. This is reflective of the portfolio moves we completed along with the improved performance in the legacy business. At quarter end, our backlog stood at approximately $273 million, a five-year high and up 17.7% year-over-year. Order intake levels for the quarter were slightly down from the prior year due to the timing of some project orders in the rail segment. Finally, the order levels in the Corps do not include any significant business from the Infrastructure Investment and Jobs Act passed in Congress just over one year ago today. As a note, Bill and I will cover our outlook for orders and demand at the end of our prepared remarks. As a reminder, slide six reflects our strategic playbook for streams with five of the initiatives highlighted representing our recent accomplishments. We have made significant progress on our strategic transformation that was outlined in December 21. Over the past year, we have completed five transactions comprising of three acquisitions and two divestitures, positioning us for profitable growth in the future. We previously communicated our goal to transform certain elements of our portfolio from slower growth, commodity-like offerings, to higher growth, technology-focused solutions. The transactions on slide seven represent our progress towards this transformation. On June 21st, we completed the acquisition of Scratch for a purchase price of $7.4 million. With annual revenues just under $8 million, Scratch is a UK industry leader in digital system integration, serving mainly retail markets with expertise in advanced digital display technologies and capabilities. We also completed the acquisition of Intelligent Video, or IV, This purchase was completed at a total purchase price of approximately $1 million. IV is a UK developer of high-quality surveillance, security, and safety solutions that align with our growth initiatives focused on remote condition monitoring and visual communication. Both Scratch and IV highlight our strategic core growth initiatives to transform LV Foster into a technology-focused, high-growth infrastructure solutions company thus enabling us access to a wider target market in the United Kingdom and Western Europe. On the divestiture side, we completed the sale of our tractable business in Canada for $7.8 million. This sale provides funding for investment in our growth platforms. Finally, on August 12th, we completed the acquisition of Van Hoosko, which is aligned with our strategic playbook initiative to double down on precast concrete. Van Hoosko had over $28 million in sales in 2021, and meaningful profitability, which made the acquisition price of approximately $52 million very attractive. We are already seeing the value of potential of the Van Hooska Company coming together with our legacy precast business and encouraged by the outlook of the combined business. In summary, these transactions and our legacy results demonstrate that we are transforming LV Foster with an eye towards achieving our aspirational goals and increasing shareholder value. Bill will cover the financials for Q3, and I'll come back at the end with some closing remarks on our overall market and business outlook.