Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 L.B. Foster Earnings Conference Call. [Operator Instructions]. And now I'd like to introduce your host for today's program, Mr. Jim Kempton, Controller and Principal Accounting Officer. You may begin.

Thank you, Jonathan. Good evening, everyone, and welcome to L.B. Foster's third quarter earnings call. I'm Jim Kempton, the company's Corporate Controller and Principal Accounting Officer. Also with me today is our President and CEO, Bob Bauer. This evening, I will review the company's third quarter financial results. Afterwards, Bob will provide his perspective on the company's third quarter performance and update you on significant business matters and market developments. We'll then open up the session for questions. Today's slide presentation, along with our earnings release and financial disclosures, were posted on our website earlier today and can be accessed on our Investor Relations page at lbfoster.com. Some statements we are making are forward-looking and represent our current view of our markets and business today, including comments related to COVID-19. These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. For more detailed risks, uncertainties and assumptions related to our forward-looking statements, please see the disclosures in our earnings release and 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. Before I start the review of the third quarter results, I would like to briefly discuss one other item. We previously announced the equity sale of our IOS Test and Inspection Services business in early September. The sale was part of our strategic exit of the volatile and challenging upstream energy market. As a result of this divestiture, we received $4 million in gross proceeds as well as significant tax benefits,…

Thank you, Jim, and hello, everyone. These last several months may have created a new goalpost for defining challenging conditions and makes it even more important that we have great business processes to keep us focused on actions that maximize our performance and provide strength to weather particularly difficult periods. As you've heard, we continue to operate across all of our locations and have done so with very few health issues and no business interruptions so far. As a company that has exposure to transportation and, to a lesser extent, energy infrastructure, we're currently keeping our playbook in hand that calls for a sharp focus on cost control and actions to maximize cash flow, all while striving to preserve the key growth opportunities we have so as not to lose focus on the long term picture. The results for both the quarter and year-to-date periods continue to reflect the widely varying impact the virus has had. On one hand, we have an energy business that has been hit hard, hard enough that we finally decided to exit the upstream oil field services market. And on the other hand, we have divisions that are close to their original plans for 2020 as demand for long-term infrastructure improvements has not gone away. Some of this can be seen in the results that Jim covered. I'm going to comment further on this and some other notable achievements and challenges. I'll provide additional context on results, especially comparing the Tubular and Energy segment to the Rail and Construction segments. This is the first distinct cut at the business I continue to point out due to the very unique way the pandemic has affected energy markets versus transportation markets. In case you weren't able to join us about a month ago, we held an investor…

[Operator Instructions]. Our first question comes from the line of Alex Rygiel from B. Riley & Securities.

This is actually Min Cho for Alex this evening. Congratulations on the good new orders and the good backlog in this challenging time. It's nice to see those kind of positives here. But just wondering with the delays that you're seeing in some projects, if you seeing any change in the duration of your backlog.

Yes. By change in duration, you're talking about the aging of it in terms of when it would be scheduled to ship.

Yes. So when we actually see it turning into revenues. I think historically, it's been about kind of 6 months or so.

Yes. So I think the answer to that is on a limited basis, yes. So what we saw during the quarter was we did see some of that backlog that we thought would go out in the third quarter shift outward. So we originally expected our sales to be a bit higher than they were. So there is some of it that is pushing out into future quarters, but it's not moving a significant amount. But there's enough of it moving where it's affecting sales in the quarter.

Got it. Also, in terms of your construction gross margins, obviously, they were up nicely on a year-over-year basis due to kind of easier comps. They were also up nicely sequentially. And I was wondering, was there anything outside of just cost controls? Is there a mix component of that? And also, are these margins kind of maintainable into the fourth quarter?

Well, in terms of mix, I probably wouldn't point to much in mix because our....

Hello? Hello?

Yes. You're still on the line. [Operator Instructions]. Yes, you may resume.

Okay. Min Cho, if you're there, sorry, we lost our connection. But we're back in. I was in the...

I'm here.

Okay. I was in the middle of explaining that mix. Normally, with the piling, the piling got a lot better year-over-year because we had this project, the Port Everglades, in last year, and we had some cost overruns on that. So I would say that from a mix standpoint, that didn't affect us too much. But what is going in a good direction is our bridge business. It has a pretty full order book at the moment, and that is a much more profitable business. And so we did have a good quarter with that and a good quarter with precast concrete as well. In terms of looking forward to the fourth quarter, yes, I wouldn't point to anything that I think is going to be significantly different in that particular reporting segment between Q3 and Q4. So while I wouldn't put an exact number out there, I would say that your comment about should we expect something that is similar, I think the answer to that is yes, it ought to be similar. I don't have any reason to think it would be materially different.

Okay. And I know that in London, your Crossrail project is a fairly large project, and it was impacted in the second quarter by COVID. And you were bringing some people back on at the end of 2Q. Can you talk about how that project is moving forward and if you've seen any recent impacts from the -- or any impact from the recent restrictions?

Yes. It is maybe one of the more troubling areas at the moment, and I say that because I think that we were really kind of back on demand meaning that our teams were ramping back up. We were getting back out on-site. Work was resuming, and it looks like we are probably going to run into a few obstacles. Just checking on it this week, we're not entirely sure what's going to happen with a few of the terminal sites that we're working on. It's possible we may not have access to some of them, or there may be some interruption in the schedules. So that is a hard thing to put our finger on right now. But I think based on what I'm hearing that is going on in London and with all of the people in the country, I'm expecting to see a little bit of disruption from this. It's just awful hard to quantify right now. We have been an essential business in England, just like we have been in the U.S. and Canada and places like that. So we've continued to operate during this period of time. But London has been a particularly difficult situation, and the contractors did pull their teams off of that Crossrail project for a while this year. So again, I think there'll be probably a bit of disruption here in the short term.

Okay. And then just last question, will you be providing some restated financials for your historical quarters? Or are you just going to show them as you're reporting the future quarters?

We'll show them as we go through the quarter. So you'll see when we issue the 10-Q tomorrow that it will reflect the 9-month ended periods for both '19 and 2020 as well as the quarters on that recast basis for discontinued operations.

Our next question comes from the line of Chris Sakai from Singular Research.

Yes. Just a question on, I guess, on your backlog visibility. Is it -- how much would you say is that backlog going into 2022?

Well, I don't know if we could put our exact number on it. We might try to quickly look at something here. There is some going into 2022, but the majority of the backlog that we have will be 2021. There are -- there's probably going to be some bridge shipments that will go into 2022. That is the one division that we have where the backlog probably stretches out the longest, where we have projects that actually go in excess of a year. I can't think of a piling one that's going out that far or any others. I'm looking at Jim...

I think the...

Do you have a better ballpark than I might be providing? Or if not, we can always get that to you, Chris, because it's not a big -- a part of that number. But we don't have it at our fingertips right now.

Okay. That's fine. One thing as well, just wanted to get some idea, I guess going forward, what sort of things would be driving the gross profit margin above the 18.6% that it's at now?

Well, the kind of things that we are looking forward to driving it above that would be some resumption in, for example, recovery of our friction management business. So let me first just say, I guess, a couple of things about business lines that we have which are accretive from a gross margin standpoint above that 18.9%. Friction management is one. These are the products that we've referred to as having consumables that are used on track for friction control and lubrication control between the wheel and the rails. That business has been soft due to traffic. The recovery of that with traffic, from both freight and a transit standpoint, would help improve margins. We believe continued growth in our precast concrete product business will help that. That is one of the businesses that continues to grow. We expect that it's going to benefit from the Great American Outdoor Act and some spending that's going to take place in that area, and that probably won't kick in until later in 2021. But businesses like that have good margins. I mentioned the bridge business a little while ago. We got a nice order book on that. That is accretive to our gross margins, and we continue to win in those areas. And then we're launching a number of new products in our rail technologies basket, along the lines of railway automation systems, disruption management, condition monitoring, passenger information systems, a lot of things like that, which are better margins as well. A lot of that is coming out of our European business, but it's also going into North American customers as well. So those are the ones that will be kind of the top of mind that we'd look to, to drive improving gross profit going forward.

[Operator Instructions]. Our next question comes from the line of Brett Kearney from Gabelli Funds.

Great to hear -- it sounds like you have the Boise facility up and running to the levels you wanted at. And you've been able to bring some new offerings and customer relationships in-house. Can you talk about, I guess, the opportunities you see from here, you outlined a little bit, I guess, whether they weigh more towards organic investments on your side, building out the offerings you have or weighing that relative to the consolidation opportunities you see out there in the marketplace?

Yes. And you're specifically talking about the Precast Concrete?

Yes. That's right.

Yes. Yes. Well, I'll tell you, there are some good organic opportunities. In fact, I think near term, they're really going to outweigh probably the actions that we take from a consolidation basis where we acquire someone and roll it up. That's really going to be -- the latter is really going to be focused on what we call some spokes that can operate off of our hub locations that can get us into some markets that we can't touch from our hub locations. And so a small satellite operation, if you will, that's what I mean by kind of a spoke of that, that may bring to us additional customers we can serve. But we have organic growth opportunities in the way of some product lines. So what we're doing in Boise is expanding our product lines in that area. We've been doing, I think, a remarkable job on this out of our Texas operations. We have moved into sound barrier walls. That's one of the parts of the DART, the Dallas transit project that we won. Somewhere in the order of $10 million of that is just for the sound wall barriers on it. We have stepped into a septic tank business that we didn't have any of that in the past, and we're in a market where residential and other light commercial construction needs septic tanks. We put that together organically. And we're now going to move into a new geography in that business and open up, for example, a new site that's sitting on the premises of one of our existing other facilities in Texas and start to serve that new market. And these are taking, I'd say, just kind of a small to modest amount of capital to do that. We're not building new plants or anything like that. We need some delivery trucks and installation equipment and a little bit of work for storage facilities, but those are some examples of some of the things that we're doing organically. So we got a lot of opportunities organically in that business as well.

That's great. And then on the transit work, I guess that was already kind of planned and funded and is still going forward with some of your customers. Is some of that in North America systems adopting -- I know the technologies you have with the London Crossrail project are pretty advanced in some of your automation and condition monitoring. Is that gaining traction in North America, your product lines and kind of advanced technology offerings with transit rail systems, I guess, in the U.S. as well?

I'm going to have to describe that as really being kind of slow. So one of the -- we've got a couple of things where it's working out a little bit better in the U.K. We do some service work there where we put together integration of some of the more sophisticated systems in the passenger and transit systems like that Crossrail system. That's integration of access control, surveillance and video equipment, passenger, voice information systems, those kinds of things where we do integration work. We really haven't brought that into the U.S. or North American market. Works a little bit different, and we're trying to address that. But that one's really slow going. Where we are having the success is in the area of crossing detection systems, for example, as well as rockfall and avalanche detection and flood monitoring. So if you think about those, these are applications where, on one hand, we're using LIDAR technology. On the other hand, we're using a variety of other technologies. Those are being used to some extent in transit in England, but we now have those in North America in trial. We've got trial orders. We've got customers that are already starting to deploy it, but we're actually seeing a little more of it in freight rail than we are in transit. So it's a combination of both, depending on what you're looking for. So for example, flood monitoring and rockfall detection, that's where some freight customers are interested because of the environment they operate in. Crossing detection systems and some of the other automation products, some of that is what we're starting to win at in transit. But we're just beginning to get some traction in those areas now. But we do have examples of sites that we can point to that are mostly in the U.S.

[Operator Instructions]. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bob Bauer for any further remarks.

Well, all right, I want to wrap it up there. We appreciate everybody's time and attention today, appreciate the questions and the interest as well. And we look forward to catching up with you here after next quarter. So thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.