L.B. Foster Company

Good day, and thank you for standing by. Welcome to the LB Foster second quarter 2025 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised, today's conference is being recorded. I would now like to turn the call over to your speaker today. Lisa Durante, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to L.B. Foster's second quarter of 2025 earnings call. My name is Lisa Durante, the company's director of financial reporting and investor relations. Our president and CEO, John Castle, and our chief financial officer, Bill Tallman, will be presenting our second quarter operating results, market outlook, and business developments this morning. We'll start the call with John providing his perspective on the company's second quarter performance. Bill will then review the company's second quarter financial results. John will provide perspective on market development and company outlook in his closing comments. We will then open up the session 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 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 carefully read our disclosures and reconciliation tables provided within today's earnings release and presentation as you consider these metrics. So with that, let me turn the call over to John.

Thanks, Lisa, and hello, everyone. Thanks for joining us today for our second quarter review. I'll begin with slide five, covering the key drivers of our results for the quarter. We're very pleased with our performance in the quarter, with improvements delivered broadly across the business. First of all, we returned to sales growth in the second quarter, with revenues up 2% over last year. The growth was achieved in the infrastructure segment, with sales up 22.4%, led by a 36% increase in our precast concrete business. Rail revenues, on the other hand, remained soft in the quarter, declining 11.2% from last year. However, the rail sales included a 17.2% increase in friction management sales over last year. In addition, demand rates for our rail offering increased significantly in the quarter as evidenced by a 42.5% increase in our backlog from the start of the quarter. This sets a solid foundation for our growth outlook in the back half of the year. Highlighting the benefits of our strategic execution, we delivered a 51.4% increase in just the year over last year, despite the modest sales growth in the quarter. The improvement was driven by favorable margins in the infrastructure segment, enterprise. Our net debt decreased to $77.4 million at quarter end, with gross leverage improving to 2.2 times compared to 2.7 times last year. And finally, the order rates for the quarter drove a solid increase in our backlog for both segments, with an improved business mix versus last year. I'll turn it over to Bill now to cover the financials for the quarter, and I'll come back at the end with some color on our market outlook and financial guidance for the year. Over to you, Bill.

Thanks, John, and good morning, everyone. I'll begin my comments on slide seven, covering the consolidated results for the second quarter. As always, the schedules in the appendix provide details on the financial results covered in today's call, including reconciliations for non-GAAP information. As John mentioned in his opening remarks, we returned to organic sales growth in the quarter for the first time since Q1 of 2024. Net sales grew 2% year-over-year, driven by strong growth in precast concrete within infrastructure. Reported gross profit was up $0.4 million, with the gross margin down 20 basis points to 21.5%. The reported Q2 gross profit includes a $1.1 million charge related to the exit of an automation and material handling product line in the UK. Also, last year's gross profit included a $0.8 million property sale gain. Adjusting for these two items, gross margins were up 120 basis points versus last year on improved business mix, primarily within the infrastructure segment. SG&A costs decreased $2.4 million due to lower personnel, insurance, and professional services costs in the quarter. The current quarter includes a $0.3 million charge for the AMH exit. With the higher revenues and lower spending levels, the SG&A percentage of sales improved 200 basis points to 15.6%. Adjusted EBITDA was $12.2 million, up 51.4% versus last year, driven by improved margins in infrastructure and lower SG&A spending across the business. Cash provided by operating activities was $10.4 million, favorable $15.4 million versus last year due to improved profitability and lower working capital needs. I'll cover the favorable developments in orders and backlog later in the presentation. Slide eight provides a reminder of our typical business seasonality and the related financial profile. Sales in EBITDA levels are normally higher in the second and third quarters as they represent the primary construction season for our customers. As a result, our free cash flow normally follows a pattern of consumption in the first half of the year with a reversal in the back half of the year as the construction season winds down. Since the first half of 2025 was weaker for our rail business, The working capital needs this year are somewhat deferred to the back half. This is supported by the higher order book exiting Q2, as well as the sales growth implied by our guidance in the back half of 2025. I'll highlight that the assumed free cash flow at the midpoint of our guidance is approximately $41 million for the second half of 2025. Over the next couple of slides, I'll cover our segment performance in the quarter, starting with rail on slide nine. Second quarter rail revenues were $76 million, down 11.2% due to delayed order development, primarily in rail distribution, coupled with reduced activities in the UK. Rail product sales were down 15.5% due to the softer rail distribution demand in the quarter. And technology services and solutions sales were also down 32.6%, including the decline in the UK business. I'll mention here that the UK automation and material handling product line we're exiting had $3.1 million in sales and $0.6 million of an operating loss for the trailing 12-month period. As John mentioned, global friction management sales were up 17.2% versus last year, as this growth platform continues to perform well. Rail margins of 19.9% were down 100 basis points, driven primarily by the $1.1 million AMH exit charge. Excluding this impact, rail margins were up 40 basis points. Rail orders decreased 2.3% versus last year, but increased 37.3% sequentially, reflecting the strong order book development we expected for rail distribution. Backlog levels increased 42.5% during the quarter and 13.9% versus last year. The backlog improvement was realized in both rail products and global friction management while TS&S backlog declined, driven primarily by the UK. Turning to infrastructure solutions on slide 10, net sales increased $12.4 million, or 22.4%, due to strength in our precast concrete business, which increased 36% over last year. steel product sales were up $0.2 million with improved protective coatings and threaded volumes offsetting lower bridge volumes. Gross profit margins improved 40 basis points to 23.3% due to higher sales volumes in precast and improved margins in steel products due to our portfolio work. Excluding the $0.8 million favorable impact from the Bedford property sale last year, infrastructure margins were up 190 basis points year-over-year. Infrastructure orders remained robust at $61.4 million, up 13.7% over the prior year, with solid gains in pre-cast concrete. Backlog totaling $139.2 million is up $4.2 million over last year, including $7.9 million, or 36.8%, from improved protective coating demand. I'll next cover some of the key takeaways from our year-to-date results on slide 11. Net sales in the first half of the year were down 9% due to weaker demand in the rail segment, primarily in rail distribution, coupled with reductions in the UK. Partially offsetting were sales gains in our growth platforms of precast concrete, up 35.1%, and friction management of 14.4%. Year-to-date gross profit reflects the lower rail sales volumes with margins of 21.2% down 20 basis points. SG&A cost decreased $4.4 million from the prior year with lower personnel and professional service costs as the primary drivers. Adjusted EBITDA was $14.1 million essentially flat with the prior year despite the 9% decline in sales. I'll mention here that the higher effective tax rate for both the quarter and year-to-date period was due to our not recognizing a tax benefit on UK pre-tax losses. I'll emphasize that the higher rate is not reflective of our cash tax requirements, which remain extremely low at approximately $2 million per annum. We expect a lesser impact on our effective tax rate in future quarters, given our improvement efforts in the UK, as well as our overall improving profitability outlook. Operating cash flow was a $15.7 million use, favorable $10.7 million compared to last year on lower working capital needs. And orders were up 7.1% due to strong infrastructure demand.

I'll now cover liquidity and leverage on slide 12.

Net debt levels of 77.4 million decreased 6.6 million compared to last year, with the gross leverage ratio improving to 2.2 times at quarter end. As mentioned earlier, we expect approximately 41 million in free cash flow in the back half of 2025. We expect to deploy these funds to lower debt levels, while also improving leverage both sequentially and year over year. We also plan to continue our stock buyback program with $36.7 million remaining authorized and approximately 6.5% of outstanding shares repurchased over the last two and a half years. A highlight of the quarter was the successful negotiation of an amendment to our revolving credit facility. We increased the borrowing capacity and extended the facility tenure to June of 2030, while also reducing borrowing costs and relaxing restrictions. This achievement highlights the confidence our banking partners have in our strategic execution and prospects for the future, and we thank them for their continuing support. I'll briefly touch on our capital allocation priorities outlined on slide 13. Maintaining our financial flexibility with reasonable debt and leverage levels remains a top priority. We also continue to invest CapEx in our growth platforms and return capital to our shareholders through our share repurchase program. In summary, we have multiple levers available to drive shareholder value, and we remain prudent in our approach. My closing comments will refer to slides 14 and 15, covering orders, revenues, and backlog by segment. The book-to-bill ratio for the trailing 12 months was a favorable 1.04 to 1, with positive developments realized in both segments. The rail segment ratio improved to 1.06 to 1, with increasing order rates realized for three straight quarters. The infrastructure ratio also remained positive at 1.02 to 1, with solid year-over-year growth in both orders and revenue in the second quarter. And finally, on slide 15, it's clear that the greatest improvement in our backlog was achieved in our rail segment, with a 13.9% increase year-over-year. I'll again highlight that the gains were realized in rail products, up 28.4%, and friction management up 22.1%. Partially offsetting was the lower backlog for TSNS due primarily to the UK. This should improve our overall profitability mix for rail in the coming quarters. And the infrastructure backlog remains healthy at $139.2 million with increased protective coatings demand driving the improved business mix. Thanks for your time this morning. I'll now hand it back to John for his closing remarks. Back to you, John.

Thanks, Bill. I'll begin my closing remarks covering the recent market developments, and I'll look on slide 17. Starting with rail, the federal project funding that was previously curtailed at the start of the year began to release in the second quarter, which helped drive the backlog increase. We're cautiously optimistic that rail customer demand will remain steady through the balance of 2025. with expectations that federal funding will continue as is. We built a solid backlog in our friction management solutions, and we're also making further advances in our total track monitoring product lines. Our customers see the value in these solutions, supporting the most challenging and operating safety requirements. And lastly, the UK market demand remains challenged as we are taking the steps necessary to right-size this business to a smaller technology-based offering, with improved demand economic return profiles. Turning to the infrastructure segment, our precast path log remains solid at nearly $95 million. Precast has also benefited from the government funding programs, particularly the Great American Outdoors Act, and highway and civil construction projects are also driving our demand levels. We previously mentioned the commissioning of our purpose-built precast facility in Central Florida. We're pleased to report that we have successfully manufactured and installed our first Navarrocast insulated wall system during the second quarter. And as expected, interest in our solution is growing with labor shortages prevalent in the local market. Overall, we remain bullish for a robust demand to continue for our precast concrete growth platform. Turning steel products, second quarter results were flat overall, and the business mix improved substantially with the recovery of our pipeline coatings business. which was up 47% year-over-year. With a renewed interest in energy investment in the U.S., as evidenced in the second quarter sales growth, a 37% higher backlog for coatings, we believe that we are in a favorable recovery trend for this product line. In summary, we believe that demand drivers supporting steady growth through the year-end and beyond remain intact, with increasing demand expected for our growth platforms of rail technologies and precast concrete. Switching topics, I'll provide a brief comment on Taros. As previously mentioned, our supply chains are permanently sourced from within the U.S., with some minor exceptions for certain electronics and other clothes sourced outside the U.S. Thus far, Taros have not had a significant impact on our product costs or ability to secure the materials needed to serve our customers. I'll wrap up today's call covering our updated 2025 financial guidance on slide 18. Second quarter results were largely in line with our expectations, delivering strong improvement both sequentially and year-over-year. We're entering the back half of the year with a solid order book, favorable business mix, and lower operating cost structure, which supports our expectations for a strong second half of 2025. Our revised full-year guidance is slightly lower due primarily to the rail segment H1 performance. While strong orders were secured in Q2, The rail sales uplift was deferred to the back half of the year, reducing our full-year outlook for the rail segment. Having said that, our revised guidance midpoints still assume a 25.1% increase in adjusted EBITDA on relatively modest sales growth of 2.7% for 2025. And the midpoints assume a 42.8% increase in adjusted EBITDA year-over-year on a 14.3% sales growth for the second half of 2025. And finally, the free cash flow outlook for the full year was also reduced slightly due primarily to the timing of working capital needs for rail at the end of 2025. I'll note that a revised free cash flow midpoint outlook is still an attractive yield at approximately 8%. So as you can see, we're well-positioned to deliver solid sales growth, strong profitability expansion, and robust cash generation as we strive to maintain momentum through the balance of 2025 and beyond. In summary, we're very pleased with our team's performance and a favorable track we are on. So with that, thank you for your time and continuing interest in the LB Foster. I'll turn it back to the operator for the Q&A session.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. One moment for our first question. Our first question comes from Liam Burke with B. Reilly Securities. Your line is open.

Thank you. Good morning, John. Good morning, Bill.

Hi, Liam.

On the capital allocation front, are you seeing high return opportunities in acquisitions? Yes. or possibly reinvesting in growth projects, or would you be leaning more towards repurchases and debt reduction?

Thanks, Liam, for the question. First of all, we have first organic growth we've seen now in five quarters, so we're very pleased about that. So we've been plowing our available capital into our organic programs, and we're starting to see the benefit of that. As I mentioned, the Florida... new operations up and running. We feel very good about that, and we're continuing to put more money in our precast operations because that growth has really, really taken off, as I mentioned, through the Great American Outdoors Act, but we're also seeing a lot of highway and civil-type work with that. As you know, we are buying, and we have approval to buy shares in the company, a $40 million repurchase program over a three-year period, so we've been very active in that one. We were very bullish about where we're at today, and we're continuing to make that capital towards that. As far as acquisitions, we've got quite a bit going on organically right now. We're very happy with what's going on with the most recent acquisition of Anjusco. We're really making strides in that area as well. But we're also being mindful of trying to find some tuck-in and other type of acquisitions support our strategy for years to come. Our pipeline is active. We've been actively looking at opportunities out there, but we're also making sure that we're executing on what's in front of us right now. And that's where we're feeling very strong about the second half of the year, supported by that significant backlog growth that we've seen sequentially in solid year-over-year

Great. And my next question is, if I look at the backlog composition, both infrastructure and rail products and services, are you seeing follow-through in the infrastructure side on precast concrete and on rail on the friction management side in the backlog for the rest of the year?

Yeah, absolutely. Friction management, thanks for mentioning that. It's been absolutely tremendous a year that we've put together Q2 And we had the best month we've ever had in Q2 related to friction management. That growth just keeps coming. We feel very good about that. And our TTM work, which was a little soft at the beginning of the year, a lot of that is a flow through from the larger class ones. It also comes from the government types, funding and spending. And we've seen those appropriations change and the need for that activity in the second half of the year. So we feel very good about that. It's coming into backlog. As I mentioned, we were concerned in the first half of the year whether or not we're going to have the backlog support our guidance, and we do. It came through the rail side in a big way. And then precast has just been humming along very, very well. And, of course, we mentioned in the broadcast what's going on with coatings. That's been a good year-over-year improvement as well. So all in all, we feel very good where we're at right now related to the work we have in hand. We just need to perform the second half of the year.

Great. Thank you, John.

Yeah, thanks, William.

One moment for our next question. Our next question comes from Julio Romero with Sidodian Company. Your line is open.

Thanks. Hey, good morning, John and Bill. Thanks for taking questions. Hey, Julio.

Good morning, Julio.

Hey, I wanted to start off with a clarification question. With the AMH exit of the UK business, do you have any remaining UK exposure within rail and then what's remaining within TS&S would be purely the U.S. portion?

Yeah, so thanks for your question. The U.K.s we mentioned is, you know, the headwinds are there. We've been working on right-sizing that business for a period of time. We didn't just take action in Q2. We're just announcing that action. So AMH was a significant piece of that. And then related to our telecommunications work, we're just getting it in line with the activity and the type of work that we like to produce in the market. So there will be ongoing focus area for us for the balance of the year, but we've got the right team working on it right now in the U.K. and with the oversight here in the U.S. So we feel good we're going to be in a good, you know, pretty good position here by the year's end. As far as the greater TSS, is that your question related to back in North America?

I was asking if the remaining business within TSNS would be purely U.S., but it sounds like there's a little bit left of U.K. in there.

Yeah, a little bit of U.K., but the greater work in the U.S. has been very, very strong, very buoyant.

Okay, that's very helpful. And on the guidance, I think the updated – Sales range implies second half sales growth of 10% to 18% at the low and high ends of the guidance. Can you maybe discuss how you envision that growth across the two segments? And then also from a cadence perspective with regards to the third and the fourth quarter?

Yeah, well, third and fourth quarter, first of all, from a seasonality point of view, you know, it's very, very strong. Q3 is typically the best quarter that we see in the year. We expect that to continue this year. And in Q4, we just got so much work to do that Q4 should be in good order and good standing for that. What we really are happy about is our gross profit. We ended the quarter at 30.9% gross profit in dollars and 21.5% in profit margin. That's going to continue. We expect that to continue to grow through the balance of the year. And our work that we did a year ago on SG&A has really positioned ourselves well to lever up the cost side of the business in the second half of the year. Backlog is supportive of what we need to get done the second half of the year. So the numbers that we put out there, the 535 to 555 sales is an area that we feel strongly that we will finish. And then, of course, the adjusted EBITDA numbers will flow accordingly.

Yeah, very fair. And that's even, you know, the gross profit dollars you're hitting is without even the rail business really working on all cylinders. So

That's exactly right. We really performed very, very well in the first half of the year in Q2 with what we had to work on. We feel very good about now we have the work really performing.

Very good. The last one, if I may, is just on the Envirocast business. Congratulations on manufacturing and installing your first Envirocast precast wall system. Can you just talk about progress in that business and how much contribution? if any is expected in the second half?

This is about getting it right. So we're entering a new market, new space with a product line that we know and we've performed in other parts of the U.S. So we're starting slow, but it's meeting our expectations. We're working very closely with contractors and home builders and our first job, as well as bringing in the best workforce we can, focusing on our quality, focus on productivity, and most of all, focus on safety. So we're very pleased to date where we're at. I'll be down there next month to see it firsthand again as we start moving product out to sites and talking directly with customers. But as far as the balance of year, we're not expecting that much. This is really a growth, organic growth opportunity that we're putting in place for years to come. And we're focusing on just making sure we're doing it right this year.

Very helpful.

Thanks very much.

Thanks, William.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone.

One moment for our next question. Our next question comes from John Bear with Ascend Wealth Advisors.

Your line is open.

Hey, good morning, John and Bill.

Hi, John.

Hi, John.

A couple of questions. How much of the UK business has sort of been cleaned up? You took a pretty significant hit there with the tax situation. Can we expect that to be lesser impact going forward?

Yeah, definitely. We've taken a large hit that we were expecting to do, and we'll talk about the tax. And, of course, there's the cash part of the tax that, you know, is probably the most important. But maybe Bill can add a little color on some of those details that we can share.

Yeah, morning, John. Hi. Yeah, so in the quarter, you know, we reported a 55% effective rate, and it

basically a mathematical impact because we didn't have a tax benefit that we would record on the loss that we incurred in the UK on a pre-tax basis because of the cumulative losses that we had there as well as the restructuring charge that we took in the What we would expect going forward is the profitability will improve in the UK and our overall profitability will also improve. So the impact of that situation in the UK will become lesser as the year progresses. we're expecting an effective rate for the quarters between 30 to 35 percent um and then a blended effective rate for the full year between 35 and 40 percent uh but those are again just you know p l drivers for the effective tax rate and eps the important thing for us first of all was obviously turning the uk business around and we think we're getting to that pivot point there. But then also on a consolidated basis, we're paying somewhere around $2 million per year in global cash taxes. And that will be the case for the foreseeable future.

Okay. So then going forward in, say, 26, will those tax rates in the 30%, 35% range come down?

Yes. Okay.

So you'd be more normalized.

We would expect that to migrate closer to the upper 20s, which is what we've expected it to be from an overall jurisdictional mix of taxes point of view.

Okay. Okay. And then switching over to precast with the EnviroCast, what is the emphasis on – Residential versus commercial, what do you see as the more positive uptake of that? Or is it too early in the game yet?

Well, I don't think it's too early. The initial thinking was residential. We could do light commercial or light industrial type work as well. But the real market there we're serving and the area we went to is very heavy focused on. And so that's the contractors and the home builders that we're working directly with today.

Is there any legislation or anything like that that would drive potential sales and adoption of this technology?

Yes. The hurricanes and the effect of the weather have a dramatic impact on home builders, regulatory requirements. And so we are seeing, and of course the ability to pay, be able to afford to pay for insurance. So in the event that you cannot afford insurance or it's very expensive, there is a big significant draw towards building home out of concrete today. The thing that we really did not anticipate going into this, we knew that we had impact related labor But with everything else going on across the country now related to, you know, building, construction, and labor market, that's where we're really seeing an uptick in the need for our product. The availability of labor is just shrinking in that part of the country. And what our product is able to do is we build in the factory. So labor is in the factory environment, and the erection of a home is, you know, literally in days versus weeks. or potentially months. So that's been a real significant draw is being able to manage expectations with our customer because of the inability for them to bring labor, secure labor on the market down there.

Okay, well, that raises another interesting question, and how are you focused, or not focused, but how are you, what is your situation with your own labor force at, say, Van Cusco, and how

Yeah, very good. We've been working on that. First of all, you know, the beauty of L.B. Foster is our people. That's really what drives our company and the profits come from our people. So we spend a lot of time supporting and nurturing our culture. So we've become the place to work in the markets we serve. And we've been working on that talent pool in that workforce of Florida long before we made any product. bringing them on board, bringing them into the culture, understanding how we do things. And for them to really have that ownership related to building a factory and now building a product, that's a significant part of how we do things. So we have a very, very good workforce. We feel very fortunate, but also we work on it each and every day to make it the way it is today.

Yep. Very good. Thanks for taking my questions.

Thanks, John. You take care. Yep.

Yeah, we'll see you soon.

Yep. And I'm not showing any further questions this time. I'd like to turn the call back to John for any further remarks.

Thank you, everybody. Thanks for joining us today. Again, to wrap up, we feel very good about the quarter, where we're at, the bill, the backlog, supporting our margin, the SG&A that we're now dealing with. We're now able to really leverage that second half of the year. It's really the tariffs I mentioned in the call really have little to no impact, and the freeing up of government funding, specifically on the rail side, is really giving us an opportunity to feel very excited about what's in front of us for the second half of the year. So thanks for your ongoing support of the company, and we look forward to talking to you after we post the next quarter results. Take care.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a wonderful day.