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spk15: Good day, and thank you for standing by. Welcome to LB Foster's first quarter 2023 earnings conference 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 this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Stephanie Listwalk, Investor Relations Manager. Please go ahead.
spk00: Thank you, operator. Good morning, everyone, and welcome to LB Foster's first quarter of 2023 earnings call.
spk01: My name is Stephanie Listwalk, the company's Investor Relations Manager. Our president and CEO, John Castle, and our chief financial officer, Bill Tallman, We'll be presenting our first quarter operating results, market outlook, and business development this morning. We'll start the call with John providing his perspective on the company's first quarter performance. Bill will then review the company's first quarter financial results. John will provide perspective on market development and company outlook in 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. 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 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. So, with that, let me turn the call over to John.
spk08: Thanks, Stephanie, and hello, everyone. Thanks for joining us today for our first quarter earnings call. As you can see on slide five, we continue the positive momentum we established beginning of the second half of 2022, and we're off to a strong start to 2023. Sales growth was 16.9% in Q1, with organic growth at 11.5%, and adjusted EBITDA coming in at 4.5 million, or 3.9% of sales. Noting that EBITDA results were more than double last year's Q1. I'm pleased to say the benefits of our strategic transformation actions are clearly seen in operating results at Q1, with gross margins expanding 360 basis points to 20.2%. Speaking of transformation actions, we continued our portfolio modification with the divestiture of Chemtech at the end of the quarter. The sale of Chemtech provided 5.3 million proceeds, despite operating at near break-even levels on a standalone basis. These proceeds, coupled with $6.2 million in free cash flow, allowed us to further de-lever in the quarter, with $11.5 million reduction in net debt and the gross leverage ratio for our credit facility improving to 2.4 times. Order rates continue to grow year over year, and the strong book-to-bill ratio, 1.21 to 1, expanded our backlog by 6.2%, despite the sale of Chemtech at the quarter end. In consideration of our Q1 results and the sale of Chemtech, We did reduce our 2023 revenue guidance by $20 million at both ends of the range, but more importantly, maintained our adjusted EBITDA range of $27 to $31 million. And finally, in February, our Board authorized a $15 million share repurchase program, adding a valuable capital allocation tool. In summary, we're pleased with our continuing progress executing our strategic playbook, and we expect the favorable operating trends to continue moving through 2023. Next, Bill will cover the detailed financials for Q1, and I'll come back at the end with some closing remarks.
spk16: Over to you, Bill. Thanks, John, and good morning, everyone. I'll begin my comments covering the consolidated highlights of our first quarter on slide seven. Note that the schedules in the appendix provide more detailed information on our financial results, including the non-GAAP measures Stephanie referenced. The ChemTech sale was completed at the end of Q1. So their operating results are included in our Q1 results. Q1 results also include 2022 additions to the portfolio, Van Hoosko and Scratch, but exclude the track components business that was divested in the third quarter last year. First quarter sales were $115.5 million, up $16.7 million, or 16.9% over last year. Higher sales volumes coupled with improvements in business mix and price realization increased gross profit 41.6%. As a result of these achievements, together with the accretive benefits of our portfolio actions, gross profit margins expanded 360 basis points to 20.2%. We're very pleased with the margin improvements achieved year over year, and expect these favorable trends to continue as volumes improve in our seasonally strong second and third quarters. The $2 million transaction loss on the Chemtech divestiture resulted in a $2.2 million net loss in Q1. However, adjusted EBITDA improved $2.8 million year-over-year to $4.5 million. with the EBITDA margin more than doubling to 3.9%. John covered consolidated orders, backlog, and cash performance in his opening remarks, and I'll provide some more additional color on these items later in the presentation. Slide eight provides a bridge of our Q1 sales and EBITDA year over year, highlighting the impacts within our legacy business and the benefits of our portfolio transformation. The chart on the left highlights the strong organic growth realized in Q1, with the $11.4 million sales increase contributing 11.5% organic sales growth. The net impact of M&A increased revenue 5.3 million, or 5.4%. As John highlighted in his opening remarks, Commercial activity remains robust, and we expect organic and inorganic revenue growth rates to remain favorable moving through 2023. The chart on the right highlights the progress achieved in improving profitability in our legacy business, with EBITDA improving $2.8 million year over year, representing leverage of 24.1% in the quarter. M&A activities also contributed favorably to EBITDA growth year over year, but was somewhat tempered due to the seasonally low volumes in the quarter. We expect this impact to be more pronounced in the coming quarters, similar to what we realized in Q3 and Q4 of last year. Slide 9 provides an important perspective on the progress we've made in our profitability, specifically in our gross margins. Gross margins in Q1 are typically softer due to a normal seasonality in the business. However, the result achieved in this year's first quarter, 20.2%, is the highest Q1 result we've seen since 2019 when the energy market was much more robust. This favorable trend highlights the benefits of the portfolio actions and margin recovery efforts in our legacy business. We expect strong revenue growth and improved gross margins to continue moving through 2023 as the structural improvements in our business continue to take hold. Over the next three slides, I'll cover our segment performance starting with the rail segment on slide 10. First quarter rail segment revenues were up slightly year over year at $64.4 million. with 5.8% organic growth partially offset by the impact of M&A. Strong sales growth in global friction management and rail products were partially offset by softness in technology services and solutions business in the UK and the impact of the track component's divestiture. Rail margins expanded 250 basis points to 22.2% on higher volumes in friction management and improved price realization across the majority of the portfolio. New orders and backlog were down 19.3% and 7.6%, respectively, due primarily to the tract component divestiture and order timing in rail distribution. As reflected on slide 11, precast concrete segment revenue increased $9.3 million, or 61.8% year-over-year. Revenues were up 6.5% organically, and the Van Husco acquisition contributed $8.3 million, representing growth of 55.3%. Gross margins were up 640 basis points to 22.7% due to the accretive impact of the Van Husco acquisition and both improved price realization and strong operating performance in the legacy business. Orders and backlog remain robust in our precast segment, with Van Hoosko contributing $7.7 million and $11.7 million, respectively. The steel products and measurement segment results on slide 12 reflect a 33.6% increase in revenues, driven largely by coatings and measurement, and partially offset by lower sales in the fabricated bridge business. Improved gross margins, which were up 570 basis points to 13%, were driven by higher volumes in protective coatings, but partially offset by weaker volumes and higher raw material costs for fabricated bridge. Borders and backlog were up 18.9% and 18.7% respectively, despite the Chemtech divestiture at quarter end, due primarily to improved order intake in fabricated bridge and protective coatings. Turning to our liquidity and cash metrics on slide 13, we continue to make progress reducing our net debt and gross leverage during the quarter. We reduced net debt $11.5 million to $77.5 million at quarter end, with $6.2 million in free cash flow and $5.3 million in proceeds from the Chemtech divestiture. We also improved the gross leverage ratio for our revolving credit facility to 2.4 times at the end of the quarter, an improvement of four-tenths of a turn during the quarter. I should highlight that we received approximately $3 million in federal income tax refunds in and we have approximately $100 million in federal net operating loss carry forwards that are expected to reduce future cash taxes as our profitability continues to improve. Our capital allocation priorities remain unchanged and are well aligned with our strategy. Over the last two and a half years, we've raised nearly $37 million in capital by divesting three underperforming businesses no longer aligned with our strategy. Those proceeds were redeployed to acquire three businesses, Van Hoosko, Scratch, and Intelligent Video that fit well within our growth platforms. While we continue to be active evaluating inorganic investment opportunities, we do not anticipate any significant acquisitions for the foreseeable future. We continue to focus on deleveraging activities while cautiously investing in the organic growth opportunities we see in rail technologies and precast concrete. Capital spending is expected to run at about 2% of sales, slightly higher than our typical spending level due to the organic growth investments. Our Union Pacific warranty settlement obligation will be fully fulfilled after $16 million in payments, $8 million in each of 2023 and 2024. And lastly, we will cautiously evaluate opportunities to return cash to shareholders through the $15 million stock repurchase program authorized by our board earlier this year. In summary, we're pleased with the progress we've made reducing our net debt and leverage following the acquisitions completed last year. and further improvement remains a top priority. My closing comments will refer to slides 14 and 15 covering orders, revenues, and backlog by business. The book-to-bill ratios on slide 14 reflect the continuing strength we've seen across the business, particularly in the first quarter. The book-to-bill ratio over the trailing 12 months was 1.08 to one, with orders outpacing sales by approximately $40 million. However, the consolidated book-to-bill ratio in the first quarter was particularly strong at 1.2121, with all segments increasing their order books in the quarter. And lastly, our consolidated backlog on slide 15 reflects the robustness of the commercial activity across the majority of the business and net benefits of the M&A actions completed over the last 12 months. The precast backlog increase, up 21% over last year, is attributed to the Van Hoosko acquisition and continuing strength in the legacy business. Backlog in the steel products and measurement segment was up 19% versus last year, despite the impact of the Chemtech divestiture, highlighting the improved demand in our protective coatings business. And while rail segment backlog was down 8% versus last year, primarily due to order timing and the divestiture of the track components business, the rail backlog grew 8% from the start of the quarter. In summary, our first quarter results reinforce our confidence in our strategic playbook, and we look forward to reporting continuing progress through the balance of 2023 and beyond. Thank you for your time, and I'll now hand it back over to John for his closing remarks. John?
spk08: Thanks, Bill. Please turn to slide 17, where I'll start my closing remarks with a brief overview of how we see our key end markets developing in the coming quarters. As previously mentioned during update calls, our business has benefited from significant government funding infrastructure projects in the past, and the funding levels approved over the past several years are greater than we've ever seen before. We're also seeing an increase in courting activities for major projects. Any order rates in the coming quarter should reflect this uptick in demand. The heightened focus on rail safety in the United States represents an opportunity for improving demand for rail technologies offering. And with that, we are taking steps with our rail customers to capture this opportunity and support safety initiatives with advanced offerings of our technology-based products, solutions, and services. One area of softness we're monitoring is in the UK, with pronounced inflationary impacts currently dampening demand in our key markets. Our sales in the UK were down 28% year-over-year in the first quarter. However, order rates improved somewhat in the quarter, and we are recording a significant amount of work that should continue to benefit in the coming quarters. The Chemtech divestiture further reduced our exposure to the volatile energy market we have in the U.S. The move was in line with their strategic roadmap, and we're pleased to see the modest recovery of our protective coatings business, which is benefiting from renewed investment in pipeline infrastructure for traditional and adjacent market applications. And while recessionary conditions are prevalent in many industrial markets, we remain cautiously optimistic that our key end markets will remain resilient in part due to the support of the government-funded infrastructure programs. In closing on slide 18, quotation and order rates remain robust across the majority of our business. Our rail technologies and precast concrete growth platforms continue to benefit from previously announced multiple year infrastructure investment programs. As a result, we remain confident in our organic growth and margin expansion potential underpinning our aspirational goals of approximately 600 million in revenue and approximately 50 million EBITDA by 2025. And with that, on behalf of all the employees of L.B. Foster, we look forward to reporting on our continuing progress in the coming quarters. Thanks again for your interest, L.B. Foster, and I'll now turn it back to the moderator for the Q&A session.
spk14: Thank you.
spk15: As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster.
spk12: One moment for our first question.
spk15: Question comes from the line of Alex Rigel with the Riley Securities. Your line is now open.
spk06: Thank you. Good morning, gentlemen. Very nice quarter. A couple of quick questions here. A couple of quick questions. First, gross margin in the precast segment was very strong. Is this a new sort of level that can kind of be maintained sort of in that low 20% range, at least through 2023?
spk08: Yeah, we think so. In fact, we're planning on it. I will tell you their pricing dollars right now are exceeding the inflationary dollars. So we've done a good job getting out in front of this, working with our customers. So we anticipate that as well as additional leverage coming to our facilities that we should be able to continue to grow on those margins. now and to next quarter and third quarter especially, Alex.
spk06: Super helpful. And then relative to your long-term 2025 vision, do you feel like you're ahead of this plan, kind of right on target with this plan? And what are some of the bigger catalysts or things that you need to do in order to achieve EBITDA margins of that 8%?
spk08: Well, I think the 20.2, you know, coming out with 20.2 in the first quarter is a pretty clear signal that we're on the right path here. These portfolio moves that we made and Bill highlighted in his remarks were very important to us. We're going to really focus on organic growth now and really focus on our core competencies in the next couple of years of leveraging what we have done well in the past. So I guess the short answer is, yeah, we feel very good. Considering everything that's been going on related to COVID, inflation, All the impact related to labor workforce, we feel very good. The aspirational goals that we put in place back a couple years ago, we are absolutely where we'd like to be.
spk10: Very nice. Nice quarter. Thank you.
spk08: Thanks, Alex.
spk13: Thank you. One moment for our next question, please.
spk15: Question comes from the line of Chris Sakai with Singular Research. Your line is now open.
spk18: Yes. Hi. Good morning, John and Bill. Just had a question, I guess, on the gross profit for steel products and measurement It looks like it's improved significantly this quarter. Wanted to see as well how should we be thinking about the gross profit in this segment in the next quarter or in the year?
spk08: Sure. Well, first of all, thanks for joining us today, Chris, and we appreciate your question because there's a couple of pieces that make up that segment, and we're very pleased with what's going on. As a respect to the coatings business, right, that we have the work in our Willows facility as well as Birmingham, which has been a nice uplift and somewhat of a return to modest levels related to that pipeline industry. We are seeing some headwinds, though, related to some of the bridge products. We mentioned that today, specifically on one of the products that we build, a grid decking product. But by and large, we are pleased with what's going on with that segment. And of course, Chemtech was part of that segment as well, Chris. So what you're going to see is continuing improvement in gross profit with the divestiture of Chemtech. So we feel very good about that segment on a year-over-year basis, more poorly where it's going to be heading over the next year and a half to two years.
spk18: Okay. Thanks for that. Now, as far as any more divestiture, divestitures are concerned, does, are there plans for more? Can you, can you shed some light there?
spk08: Yeah, I think you asked for that every year, every, uh, quarter and I, we appreciate that, but you know, uh, we're not going to mention or comment on that, but that is part of everything we do in the portfolio. It was a big part of our strategic transformation. We put our playbook together as we have expectations in the company of, uh, when we want to drive this aspirational goals, not just in 2025 and beyond, we have things that we'd like to get done. So if the bar is not met or we don't see the growth coming, both top line and returns, we always look at those businesses. But we've done a lot over, you know, going back to what Alex was just talking about. We've done a lot of work here in a very short period of time. So we're going to kind of sit back here a little bit, digest what we have, and really work on our organic opportunities that we have and really creating some leverage and scale in the markets that we serve.
spk18: Okay, great. And the last question for me, do you have a target gross leverage ratio? I know it's declined. How should we see this for the rest of the year?
spk08: Let me flip that over to Bill. I think he'll like to weigh in on that because we're also looking at, with that February report, this stock buyback program. So, you know, some of the things we're balancing between the $15 million stock buyback program. Bill, you got some comments on? Yeah.
spk16: Yeah. Good morning, Chris. Yeah, we were pleased with the activity that we achieved in the quarter. We had a really strong cash generation quarter. Both free operating cash flow was favorable and a we typically would see working capital investment because of the revenue ramp that occurs from Q1 to Q2, but we had a great collections quarter on AR. We obviously got the proceeds from the Chemtech sales, so that helped us to pay down the facility, got us to about 2.4 turns on the gross leverage ratio. The longer-term goal that we've stated is right around two, You know, we feel comfortable with a stable to growing EBITDA that we would be comfortable with that two times leverage level. In the second quarter, we would expect to see maybe just a little bit of a reversal of that 2.4 in the quarter because of working capital investment needed to support an expectation of strong revenue in Q2 and Q3. But then as the year progresses, we'll see that turn, and we should be able to see progress heading back down closer to two by the end of the year. So that was kind of the perspective that we have, our short-term goals. And then once we get there, we'll look at other capital deployment opportunities that we have in line with our strategy.
spk17: Okay, great. Thanks for the answers.
spk07: Thank you. Thank you. Appreciate it, Crystal.
spk15: Thank you. One moment for our next question. And as a reminder, to ask a question, that's star 1.
spk12: One moment for our next question.
spk15: Our next question comes from the line of Brett Kearney with Gabelli and Funds. Your line is now open.
spk03: Hi, guys. Good morning. Thanks for taking my question.
spk08: Thanks, Brett. Good morning.
spk04: John, I want to pick up with one of the last comments you made in your prepared remarks on some of LB Foster's rail technology offerings that help with condition monitoring solutions. Just anything you can share at this point in terms of what you've heard from the industry, customers, coming out of some of these high-profile train derailments we've seen. I know it's early days in some of your latest product rollouts. but just how you're seeing or anticipate receptivity to some of the solutions you have in the marketplace to address this pretty critical need.
spk08: Yeah, so thanks. We really appreciate the question. It's top of mind for our company and, more importantly, top of mind for the industry right now. And we want to make sure that we're doing everything we can to get the – Our technology, and let's just maybe take a step back and understand what our technology is. So first of all, we got a Wild, which is a well-impact load detector, and we just released a new revision and new technology to the market from a Mark III to a Mark IV, which has significant capabilities of really understanding what's going over the rails, looking at impacts, looking at cars that are hunting or moving back and forth, or looking at imbalanced loads. So this device has been in place for over 20 years, and we have a large installed base across North America. And it's a significant device that's used for measuring what's going on over the track and whether the track has, and the train, the relationship between the two. The other piece that we have a significant play in as far as safety and managing the relationship between the wheel to rail, that's that contact patch between the steel on steel. So as you go into curve or as you go down tangent track, making sure that the train is operating and performing, one, from an environmental point of view or from a fuel efficiency point of view, but also making sure the life of the assets are going well and it's able to keep that wheel on the track. So that's a significant thing that we have offering and we've been using and selling across the world. With that, Congress is in the middle of obviously working with our customers. We're also at least answering questions wherever we can. And they're looking at these devices, where they're installed, how they're being used. And then, of course, we're working with our customers at the same time frame. So I think it is early on, as you mentioned. I do think there will be regulations coming out. I think the railroads, by and large, Freight as well as transit are really focusing on what to do to bring safety to the forefront of that industry as well. So I don't have a timeline in mind, but I will tell you the materials and the applications and solutions and services that I just mentioned. There's a lot of interest in our company and our business right now related to that. So I guess we'll probably talk more about that in the coming quarters and give you some updates on how that's going.
spk04: Excellent. That's very helpful. And then just, I noticed the legacy precast concrete products business, very strong sales and orders in the quarter. You know, even aside from the momentum you have with Van Hoosco, just curious what's driving that. Is it still kind of residual from the Great American Outdoors or the IIJA or just kind of what product lines you're seeing the most robust activity there?
spk08: Yeah, well, first of all, they didn't have a great year last year. So let's just call it the way it is. And That team got energized to get out and make things happen. We had a large backlog, and some of that backlog was constrained because of the work that we do primarily with the state, federal, and local governments. So we were able to get into some new arrangements, really get after what I mentioned earlier as far as pricing dollars, exceeding inflation dollars. Our supply chain group did a fantastic job of bringing in components that we were struggling to get in the past in our operations. really, really did a fantastic job on the legacy side. Honestly, I think the acquisition of Anhusco got everybody fired up in the organization of bringing down two new facilities, brought in new management, new skill sets, and that group is really hitting on all strides right now. So we feel very good about where they're at, more importantly, where they're going to be heading. And the reality is we said, listen, we have growth platforms of precast and rail technologies. And you guys need to do your part. So we really, you know, Bill, myself, the leadership team really made it clear to them it's your opportunity to step up. And I would say they're taking full advantage of it. Bill, you want to add any more color to that?
spk16: Yeah, no, just to highlight, you know, John had mentioned the backlog was a bit constrained last year, and we had some challenging operating environments without escalating raw material costs. If you recall, we talked about the fact that we had trouble getting engineering work to sign off on drawings to get production lined up to be able to get product through the manufacturing facility. And 12 months later, we're in much better shape, and we got a nice order book. And we did have a little bit of weather in Q1, but it wasn't a constraint to getting revenue growth in the business, and we're looking for stronger performance coming in in Q2 and Q3 as well.
spk02: And congratulations on the continued momentum.
spk08: Well, we appreciate it. Thanks for using that word, too, because that's how we look at it internally. We've got a ways to go, but we definitely built that. Terrific.
spk15: Thank you. As a reminder, ladies and gentlemen, that's star one to ask your question. I'm showing no further questions at this time. I'd like to hand the conference back to Mr. John Castle, Chief Executive Officer, for closing remarks.
spk08: Thanks Norm, I really appreciate it. Thanks for everybody joining us today. I'd like to end the meeting with just a comment on safety and internal delivery foster. We really are striving to be the best world class facility facilities that we have and our safety really represents what we are and how we do things. It's really core value of our company and I'm pleased to announce that we only had one injury in the entire first quarter of the year. Now, one injury is too many, but I'm very pleased with the focus, the energy, and excitement, and more importantly, attention to our employees and the safety of all employees in the company. So well done to our group. And it really kind of ties in line with the performance. When safety is there, the quality follows, the productivity comes, and the profitability and such. Our team is really stepping up. The strategy is in play. We feel very excited about, more importantly, where we're going than where we've been. We've learned from the past, and we really feel shored up that their aspirational goals are going to be something that we're going to be reaching here in 2025 and then continue to grow beyond. So thanks again for your interest, Albie Foster, and I'll turn it back to normal. We'll close the meeting. Thank you.
spk15: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day. You music music
spk11: Thank you. Thank you. you
spk15: Good day, and thank you for standing by. Welcome to LB Foster's first quarter 2023 earnings conference 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'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Stephanie Listwalk, Investor Relations Manager. Please go ahead.
spk00: Thank you, operator. Good morning, everyone, and welcome to LB Foster's first quarter of 2023 earnings call.
spk01: My name is Stephanie Listwalk, the company's Investor Relations Manager. Our president and CEO, John Castle, and our chief financial officer, Bill Tallman, We'll be presenting our first quarter operating results, market outlook, and business developments this morning. We'll start the call with John providing his perspective on the company's first quarter performance. Bill will then review the company's first quarter financial results. John will provide perspective on market developments and company outlook in 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. 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 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. So, with that, let me turn the call over to John.
spk08: Thanks, Stephanie, and hello, everyone. Thanks for joining us today for our first quarter earnings call. As you can see on slide five, we continue the positive momentum we established beginning of the second half of 2022, and we're off to a strong start to 2023. Sales growth was 16.9% in Q1, with organic growth at 11.5%, and adjusted EBITDA coming in at 4.5 million, or 3.9% of sales. Noting that EBITDA results were more than double last year's Q1. I'm pleased to say the benefits of our strategic transformation actions are clearly seen in operating results at Q1, with gross margins expanding 360 basis points to 20.2%. Speaking of transformation actions, we continued our portfolio modification with the divestiture of Chemtech at the end of the quarter. The sale of Chemtech provided 5.3 million proceeds, despite operating at near break-even levels on a standalone basis. These proceeds, coupled with $6.2 million in free cash flow, allowed us to further de-lever in the quarter, with $11.5 million reduction in net debt and the gross leverage ratio for our credit facility improving to 2.4 times. Order rates continue to grow year over year, and the strong book-to-bill ratio, 1.21 to 1, expanded our backlog by 6.2%, despite the sale of Chemtech at the quarter end. In consideration of our Q1 results and the sale of Chemtech, We did reduce our 2023 revenue guidance by $20 million at both ends of the range, but more importantly, maintained our adjusted EBITDA range of $27 to $31 million. And finally, in February, our Board authorized a $15 million share repurchase program, adding a valuable capital allocation tool. In summary, we're pleased with our continuing progress executing our strategic playbook, and we expect the favorable operating trends to continue moving through 2023. Next, Bill will cover the detailed financials for Q1, and I'll come back at the end with some closing remarks. Over to you, Bill.
spk16: Thanks, John, and good morning, everyone. I'll begin my comments covering the consolidated highlights of our first quarter on slide seven. Note that the schedules in the appendix provide more detailed information on our financial results, including the non-GAAP measures Stephanie referenced. The ChemTech sale was completed at the end of Q1. so their operating results are included in our Q1 results. Q1 results also include 2022 additions to the portfolio, Van Hoosko and Scratch, but exclude the track components business that was divested in the third quarter last year. First quarter sales were 115.5 million, up 16.7 million, or 16.9% over last year. Higher sales volumes coupled with improvements in business mix and price realization increased gross profit 41.6%. As a result of these achievements, together with the accretive benefits of our portfolio actions, gross profit margins expanded 360 basis points to 20.2%. We're very pleased with the margin improvements achieved year over year, and expect these favorable trends to continue as volumes improve in our seasonally strong second and third quarters. The $2 million transaction loss on the Chemtech divestiture resulted in a $2.2 million net loss in Q1. However, adjusted EBITDA improved $2.8 million year-over-year to $4.5 million. with the EBITDA margin more than doubling to 3.9%. John covered consolidated orders, backlog, and cash performance in his opening remarks, and I'll provide some more additional color on these items later in the presentation. Slide eight provides a bridge of our Q1 sales and EBITDA year over year, highlighting the impacts within our legacy business and the benefits of our portfolio transformation. The chart on the left highlights the strong organic growth realized in Q1, with the $11.4 million sales increase contributing 11.5% organic sales growth. The net impact of M&A increased revenue 5.3 million, or 5.4%. As John highlighted in his opening remarks, Commercial activity remains robust, and we expect organic and inorganic revenue growth rates to remain favorable moving through 2023. The chart on the right highlights the progress achieved in improving profitability in our legacy business, with EBITDA improving $2.8 million year over year, representing leverage of 24.1% in the quarter. M&A activities also contributed favorably to EBITDA growth year over year, but was somewhat tempered due to the seasonally low volumes in the quarter. We expect this impact to be more pronounced in the coming quarters, similar to what we realized in Q3 and Q4 of last year. Slide 9 provides an important perspective on the progress we've made in our profitability, specifically in our gross margins. Gross margins in Q1 are typically softer due to a normal seasonality in the business. However, the result achieved in this year's first quarter, 20.2%, is the highest Q1 result we've seen since 2019 when the energy market was much more robust. This favorable trend highlights the benefits of the portfolio actions and margin recovery efforts in our legacy business. We expect strong revenue growth and improved gross margins to continue moving through 2023 as the structural improvements in our business continue to take hold. Over the next three slides, I'll cover our segment performance starting with the rail segment on slide 10. First quarter rail segment revenues were up slightly year over year at $64.4 million. with 5.8% organic growth partially offset by the impact of M&A. Strong sales growth in global friction management and rail products were partially offset by softness in technology services and solutions business in the UK and the impact of the track components divestiture. Rail margins expanded 250 basis points to 22.2% on higher volumes in friction management and improved price realization across the majority of the portfolio. New orders and backlog were down 19.3% and 7.6%, respectively, due primarily to the tract component divestiture and order timing in rail distribution. As reflected on slide 11, precast concrete segment revenue increased $9.3 million, or 61.8% year-over-year. Revenues were up 6.5% organically, and the Van Husco acquisition contributed $8.3 million, representing growth of 55.3%. Gross margins were up 640 basis points to 22.7% due to the accretive impact of the Van Husco acquisition and both improved price realization and strong operating performance in the legacy business. Orders and backlog remain robust in our precast segment, with Van Hoosko contributing $7.7 million and $11.7 million, respectively. The steel products and measurement segment results on slide 12 reflect a 33.6% increase in revenues, driven largely by coatings and measurement, and partially offset by lower sales in the fabricated bridge business. Improved gross margins, which were up 570 basis points to 13%, were driven by higher volumes in protective coatings, but partially offset by weaker volumes and higher raw material costs for fabricated bridge. Orders and backlog were up 18.9% and 18.7% respectively, despite the Chemtech divestiture at quarter end, due primarily to improved order intake in fabricated bridge and protective coatings. Turning to our liquidity and cash metrics on slide 13, we continue to make progress reducing our net debt and gross leverage during the quarter. We reduced net debt $11.5 million to $77.5 million at quarter end, with $6.2 million in free cash flow and $5.3 million in proceeds from the Chemtech divestiture. We also improved the gross leverage ratio for our revolving credit facility to 2.4 times at the end of the quarter, an improvement of four-tenths of a turn during the quarter. I should highlight that we received approximately $3 million in federal income tax refunds in and we have approximately $100 million in federal net operating loss carry forwards that are expected to reduce future cash taxes as our profitability continues to improve. Our capital allocation priorities remain unchanged and are well aligned with our strategy. Over the last two and a half years, we've raised nearly $37 million in capital by divesting three underperforming businesses no longer aligned with our strategy. Those proceeds were redeployed to acquire three businesses, Van Hoosko, Scratch, and Intelligent Video, that fit well within our growth platforms. While we continue to be active evaluating inorganic investment opportunities, we do not anticipate any significant acquisitions for the foreseeable future. We continue to focus on deleveraging activities while cautiously investing in the organic growth opportunities we see in rail technologies and precast concrete. Capital spending is expected to run at about 2% of sales, slightly higher than our typical spending level due to the organic growth investments. Our Union Pacific warranty settlement obligation will be fully fulfilled after $16 million in payments, $8 million in each of 2023 and 2024. And lastly, we will cautiously evaluate opportunities to return cash to shareholders through the $15 million stock repurchase program authorized by our board earlier this year. In summary, we're pleased with the progress we've made reducing our net debt and leverage following the acquisitions completed last year, and further improvement remains a top priority. My closing comments will refer to slides 14 and 15, covering orders, revenues, and backlog by business. The book-to-bill ratios on slide 14 reflect the continuing strength we've seen across the business, particularly in the first quarter. The book-to-bill ratio over the trailing 12 months was 1.08 to 1, with orders outpacing sales by approximately $40 million. However, the consolidated book-to-bill ratio in the first quarter was particularly strong at 1.2121, with all segments increasing their order books in the quarter. And lastly, our consolidated backlog on slide 15 reflects the robustness of the commercial activity across the majority of the business and net benefits of the M&A actions completed over the last 12 months. The precast backlog increase, up 21% over last year, is attributed to the Van Hoosko acquisition and continuing strength in the legacy business. Backlog in the steel products and measurements segment was up 19% versus last year, despite the impact of the Chemtech divestiture, highlighting the improved demand in our protective coatings business. And while rail segment backlog was down 8% versus last year, primarily due to order timing and the divestiture of the track components business, the rail backlog grew 8% from the start of the quarter. In summary, our first quarter results reinforce our confidence in our strategic playbook, and we look forward to reporting continuing progress through the balance of 2023 and beyond. Thank you for your time, and I'll now hand it back over to John for his closing remarks. John?
spk08: Thanks, Bill. Please turn to slide 17, where I'll start my closing remarks with a brief overview of how we see our key end markets developing in the coming quarters. As previously mentioned during update calls, our business has benefited from significant government funding infrastructure projects in the past, and the funding levels approved over the past several years are greater than we've ever seen before. We're also seeing an increase in courting activities for major projects. Any order rates in the coming quarter should reflect this uptick in demand. The heightened focus on rail safety in the United States represents an opportunity for improving demand for rail technologies offering. And with that, we are taking steps with our rail customers to capture this opportunity and support safety initiatives with advanced offerings of our technology-based products, solutions, and services. One area of softness we're monitoring is in the U.K., with pronounced inflationary impacts currently dampening demand in our key markets. Our sales in the U.K. were down 28 percent year-over-year in the first quarter. However, order rates improved somewhat in the quarter, and we are recording a significant amount of work that should continue to benefit in the coming quarters. The ChemTech divestiture further reduced our exposure to the volatile energy market we have in the U.S. The move was in line with their strategic roadmap, and we're pleased to see the modest recovery of our protective coatings business, which is benefiting from renewed investment in pipeline infrastructure for traditional and adjacent market applications. And while recessionary conditions are prevalent in many industrial markets, we remain cautiously optimistic that our key end markets will remain resilient in part due to the support of the government-funded infrastructure programs. In closing on slide 18, quotation and order rates remain robust across the majority of our business. Our rail technologies and precast concrete growth platforms continue to benefit from previously announced multiple year infrastructure investment programs. As a result, we remain confident in our organic growth and margin expansion potential underpinning our aspirational goals of approximately 600 million in revenue and approximately 50 million EBITDA by 2025. And with that, on behalf of all the employees of L.B. Foster, we look forward to reporting on our continuing progress in the coming quarters. Thanks again for your interest, L.B. Foster, and I'll now turn it back to the moderator for the Q&A session.
spk15: Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster.
spk12: One moment for our first question.
spk15: Question comes from the line of Alex Riegel with the Raleigh Securities. Your line is now open.
spk06: Thank you. Good morning, gentlemen. Very nice quarter. A couple of quick questions here. A couple of quick questions. First, gross margin in the precast segment was very strong. Is this a new sort of level that can kind of be maintained sort of in that low 20% range, at least through 2023?
spk08: Yeah, we think so. In fact, we're planning on it. I will tell you their pricing dollars right now are exceeding the inflationary dollars. So we've done a good job getting out in front of this, working with our customers. So we anticipate that as well as additional leverage coming to our facilities that we should be able to continue to grow on those margins. now and to next quarter and third quarter especially, Alex.
spk06: Super helpful. And then relative to your long-term 2025 vision, do you feel like you're ahead of this plan, kind of right on target with this plan? And what are some of the bigger catalysts or things that you need to do in order to achieve EBITDA margins of that 8%?
spk08: Well, I think the 20.2, you know, coming out with 20.2 in the first quarter is a pretty clear signal that we're on the right path here. These portfolio moves that we made and Bill highlighted in his remarks were very important to us. We're going to really focus on organic growth now and really focus on our core competencies in the next couple of years of leveraging what we have done well in the past. So I guess the short answer is, yeah, we feel very good. Considering everything that's been going on related to COVID, inflation, All the impact related to labor workforce, we feel very good. The aspirational goals that we put in place back a couple years ago, we are absolutely where we'd like to be.
spk10: Very nice. Nice quarter. Thank you.
spk08: Thanks, Alex.
spk13: Thank you. One moment for our next question, please.
spk15: Question comes from the line of Chris Sakai with Singular Research. Your line is now open.
spk18: Yes. Hi. Good morning, John and Bill. Just had a question, I guess, on the gross profit for steel products and measurement It looks like it's improved significantly this quarter. Wanted to see as well how should we be thinking about the gross profit in this segment in the next quarter or in the year?
spk08: Sure. Well, first of all, thanks for joining us today, Chris, and we appreciate your question because there's a couple of pieces that make up that segment, and we're very pleased with what's going on. As a respect to the coatings business, right, that we have the work in our Willows facility as well as Birmingham, which has been a nice uplift and somewhat of a return to modest levels related to that pipeline industry. We are seeing some headwinds, though, related to some of the bridge products. We mentioned that today, specifically on one of the products that we build, a grid decking product. By and large, we are pleased with what's going on with that segment. And, of course, Chemtech was part of that segment as well, Chris. So what you're going to see is continuing improvement in gross profit with the divestiture of Chemtech. So we feel very good about that segment on a year-over-year basis, more poorly where it's going to be heading over the next year and a half to two years.
spk18: Okay. Thanks for that. Now, as far as any more divestiture, divestitures are concerned. Does, are there plans for more? Can you, can you shed some light there?
spk08: Yeah, I think you asked for that every year, every, uh, quarter and I, we appreciate that, but you know, uh, we're not going to mention or comment on that, but that is part of everything we do in the portfolio is a big part of our strategic transformation. We put our playbook together is, you know, we have expectations in the company of, uh, and when we want to drive this aspirational goals, not just in 2025 and beyond, we have things that we'd like to get done. So if the borrower's not met or we don't see the growth coming, both top line and returns, we always look at those businesses. But we've done a lot over, you know, going back to what Alice was just talking about. We've done a lot of work here in a very short period of time. So we're going to kind of sit back here a little bit, digest what we have, and really work on our organic opportunities that we have and really creating some leverage and scale in the markets that we serve.
spk18: Okay, great, and last question from me. Do you have a target gross leverage ratio? I know it's declined. How should we see this for the rest of the year?
spk08: Let me flip that over to Bill. I think he'll like to weigh in on that because we're also looking at, with that February, this stock buyback program. So, you know, some of the things we're balancing between the $15 million stock buyback program, those are leveraged, so. Bill, you got some comments on? Yeah, yeah.
spk16: Good morning, Chris. Yeah, we were pleased with the activity that we achieved in the quarter. We had a really strong cash generation quarter. Both free operating cash flow was favorable in a quarter. We typically would see working capital investment because of the revenue ramp that occurs from Q1 to Q2, but We had a great collections quarter on AR. We obviously got the proceeds from the Chemtech sales, so that helped us to pay down the facility, got us to about 2.4 turns on the gross leverage ratio. The longer-term goal that we've stated is right around two. We feel comfortable with a a stable to growing EBITDA that we would be comfortable with that two times leverage level. In the second quarter, we would expect to see maybe just a little bit of a reversal of that 2.4 in the quarter because of working capital investment needed to support an expectation of strong revenue in Q2 and Q3. But then as the year progresses, we'll see that turn and we should be able to see progress heading back down closer to two by the end of the year. So that was kind of the perspective that we have, our short-term goals. And then once we get there, we'll look at other capital deployment opportunities that we have in line with our strategy.
spk17: Okay, great. Thanks for the answers.
spk07: Thank you. Thank you. Appreciate it, Chris.
spk15: Thank you. One moment for our next question. And as a reminder, to ask a question, that's star one.
spk12: One moment for our next question.
spk15: Our next question comes from the line of Brett Kearney with Gabelli and Funds. Your line is now open.
spk03: Hi, guys. Good morning. Thanks for taking my question.
spk08: Thanks, Brett. Good morning.
spk04: John, I want to pick up with one of the last comments you made in your prepared remarks on some of LB Foster's rail technology offerings that help with condition monitoring solutions. Just anything you can share at this point in terms of what you've heard from the industry, customers, coming out of some of these high-profile train derailments we've seen. I know it's early days in some of your latest product rollouts. but just how you're seeing or anticipate receptivity to some of the solutions you have in the marketplace to address this pretty critical need.
spk08: Yeah, so thanks. We really appreciate the question. It's top of mind for our company and, more importantly, top of mind for the industry right now. And we want to make sure that we're doing everything we can to get the – Our technology, and let's just maybe take a step back and understand what our technology is. So first of all, we got a Wild, which is a well-impact load detector, and we just released a new revision and new technology to the market from a Mark III to a Mark IV, which has significant capabilities of really understanding what's going over the rails, looking at impacts, looking at cars that are hunting or moving back and forth, or looking at imbalanced loads. So this device has been in place for over 20 years, and we have a large installed base across North America. And it's a significant device that's used for measuring what's going on over the track and whether the track has, and the train, the relationship between the two. The other piece that we have a significant play in as far as safety and managing the relationship between the wheel to rail, that's that contact patch between the steel on steel. So as you go into curve or you go down tangent track, making sure that the train is operating and performing, one from an environmental point of view or from a fuel efficiency point of view, but also making sure the life of the assets are going well and it's able to keep that wheel on the track. So that's a significant thing that we have offering and we've been using and selling across the world. With that, Congress is in the middle of this, obviously working with our customers. We're also at least answering questions wherever we can. And they're looking at these devices, where they're installed, how they're being used. And then, of course, we're working with our customers at the same time frame. So I think it is early on, as you mentioned. I do think there will be regulations coming out. I think the railroads, by and large, both Freight as well as transit are really focusing on what to do to bring safety to the forefront of that industry as well. So I don't have a timeline in mind, but I will tell you the materials and the applications and solutions and services that I just mentioned. There's a lot of interest in our company and our business right now related to that. So I guess we'll probably talk more about that in the coming quarters and give you some updates on how that's going.
spk04: Excellent. That's very helpful. And then just I noticed the legacy precast concrete products business, very strong sales and orders in the quarter. You know, even aside from the momentum you have with Van Hoosco, just curious what's driving that. Is it still kind of residual from the Great American Outdoors or the IIJA or just kind of what product lines you're seeing the most robust activity there?
spk08: Yeah, well, first of all, they didn't have a great year last year. So let's just call it the way it is. And That team got energized to get out and make things happen. We had a large backlog, and some of that backlog was constrained because of the work that we do primarily with the state, federal, and local governments. So we were able to get into some new arrangements, really get after what I mentioned earlier as far as pricing dollars, exceeding inflation dollars. Our supply chain group did a fantastic job of bringing in components that we were struggling to get in the past in our operations. really, really did a fantastic job on the legacy side. Honestly, I think the acquisition of Ann Husco got everybody fired up in the organization of bringing down two new facilities, brought in new management, new skill sets, and that group is really hitting on all strides right now. So we feel very good about where they're at, more importantly, where they're going to be heading. And the reality is we said, listen, we have growth platforms of precast and rail technologies. And you guys need to do your part. So we really, you know, Bill, myself, the leadership team really made it clear to them it's your opportunity to step up. And I would say they're taking full advantage of it. Bill, you want to add any more color to that?
spk16: Yeah, no, just to highlight, you know, John had mentioned the backlog was a bit constrained last year, and we had some challenging operating environments without escalating raw material costs. If you recall, we talked about the fact that we had trouble getting engineering work to sign off on drawings to get production lined up to be able to get product through the manufacturing facility. And 12 months later, we're in much better shape, and we got a nice order book. And we did have a little bit of weather in Q1, but it wasn't a constraint to getting revenue growth in the business, and we're looking for stronger performance coming in in Q2 and Q3 as well.
spk02: Well, congratulations on the continued momentum.
spk08: Well, we appreciate it. Thanks for using that word, too, because that's how we look at it internally. We've got a ways to go, but we definitely built that. Terrific.
spk15: Thank you. As a reminder, ladies and gentlemen, that's star one to ask your question. To make sure we know further questions at this time, I'd like to hand the conference back to Mr. John Castle, Chief Executive Officer, for closing remarks.
spk08: Thanks, Norm. I really appreciate it. Thanks for everybody joining us today. I'd like to end the meeting with just a comment on safety and internals at LV Foster. We really are striving to be the best world-class facility, facilities that we have. And our safety really represents what we are and how we do things. It's really a core value of our company. And I'm pleased to announce that we only had one injury in the entire first quarter of the year. Now, one injury is too many, but I'm very pleased with the focus, the energy, and excitement, and more importantly, attention to our employees and the safety of all employees in the company. So well done to our group. And it really kind of ties in line with the performance. When safety is there, the quality follows, the productivity comes, and the profitability and such. So our team is really stepping up. The strategy is in play. We feel very excited about, more importantly, where we're going than where we've been. We've learned from the past. and we really feel shored up that their aspirational goals are going to be something that we're going to be reaching here in 2025 and then continue to grow beyond. So thanks again for your interest, L.B. Foster, and I'll turn it back to normal. We'll close the meeting. Thank you.
spk15: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
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