Good day, ladies and gentlemen, and welcome to L.B. Foster's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. I would now like to hand the conference over to Stephanie Listwak. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to L.B. Foster's third quarter of 2021 earnings call. My name is Stephanie Listwak, the company's Investor Relations Manager. Our President and CEO, John Kasel; and our Chief Financial Officer, Bill Thalman, will be presenting our third quarter operating results, market outlook and business development this morning. Jim Kempton, the company's Corporate Controller is also joining us this morning. We'll start the call with John, providing his perspective on the company's third quarter performance and updating you on significant business matters and market developments. Bill will then review the company's third quarter financial results. John will then provide an overview of the company's recently completed comprehensive strategy reassessment. We will then open the session up for questions at the conclusion of John's remarks. 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 businesses today including comments related to COVID 19. These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information except as required by securities laws. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within today's earnings release and within our company's earnings presentation carefully as you consider these metrics. For the purpose of helping you understand the underlying performance of the company, we will be referring to adjusted EBITDA, adjusted net income, adjusted diluted EPS, net debt and adjusted net leverage ratio during the presentation today, as reflected in the reconciliation table included in the appendix to the earnings presentation. Additionally, in September of 2020, we announced the equity sale of our IOS Test and Inspection Services division. As a result of this divestiture, we have presented the test and inspection services business as a discontinued operation including within the earnings release and presentation and have recast prior periods to reflect this change. The comments still will be focused on our results from continuing operations. Further in September of 2021, we announced the asset sale of our Piling Products division. Due to the nature of the sale, we have presented the Piling Products division within continuing operations in our financial statements but we have adjusted certain metrics, as intricated in our presentation slides to request the sale for purposes of an even comparison. So with that let me turn the call over to John.

Thanks, Stephanie, and hello, everyone and thank you for joining us today. I will start the presentation with our company overview on Page 3 of the presentation materials and highlight that at our core. L.B. Foster is a company focused on building today's infrastructure. You'll hear more about this as we cover our aspects of our recently completed strategy in our virtual Investor Day, scheduled for mid-December. But the key takeaways from the company review perspective is that we are a global solutions provider of engineered and manufactured products and services that builds and supports infrastructure. Starting on Page 4, let me provide you with a few updates on the initiatives that we were able to accomplish in the third quarter, which I believe has helped to lay the groundwork for driving growth over the next several years. I will also discuss some of the market conditions we are currently experiencing. First, we were able to complete our comprehensive strategy reassessment. I led this process using an external consultant. In all, we spent six months leveraging the insights from the business leaders and industry experts inside and outside the company to establish a vision and strategy that we believe will increase shareholder returns over the long term. One of our strategic outcomes was to divest our Piling Products business, which we have completed just over a month ago. This transaction freed up significant amount of capital that we intend to redeploy to our businesses with stronger competitive position and more attractive and growing markets. This transaction results in approximately $24 million of proceeds with $23 million received during the quarter and the remainder anticipated to be received in Q1 of 2022. We recorded a gain of approximately $3 million on the transaction. While we retained all pre-closing liabilities associated with…

Thanks John, and good morning, everyone. I'll begin my review covering the third quarter results on slide number 7. As a reminder, our piling business was divested at the end of the quarter and is not being treated as a discontinued operation. Accordingly, the amounts presented include the piling business results unless otherwise noted. As John mentioned third quarter sales were $130.1 million, up $11.7 million or 9.9% over Q3 of last year. We realized a modest increase in gross profit on the improved sales, while the 17.1% gross profit margin was 150 basis points down from last year, which I'll cover in more detail shortly. Third quarter selling and administrative expenses increased by $3 million or 17.5% to $20.1 million, primarily driven by increased personnel costs as well as costs associated with our strategic transformation initiatives. Selling and administrative expenses as a percentage of sales increased to 15.4%, up 100 basis points from the prior year quarter. Third quarter net income from continuing operations was $2.2 million or $0.21 per diluted share, compared to $16.6 million or $1.56 per diluted share last year. Adjusted net income from continuing operations for the quarter was $200,000 or $0.02 per diluted share, compared to $1 million or $0.09 per diluted share last year. Adjusted EBITDA totaled $4.4 million in the third quarter, a decrease of $3 million compared to Q3 of last year, driven primarily by the increase in selling and administrative expenses. I'll now cover our segment performance for the quarter reflected on slide number 8. Third quarter rail segment revenues increased $10 million year-over-year with the increase primarily attributable to an increase in new rail deliveries and a modest uptick in our European operations during the quarter due in part to easing operating restrictions primarily in the UK. Infrastructure Solutions…

Thanks Bill. At the beginning of today's presentation, we discuss L. B. Foster as a company focused on providing products and services to build and support infrastructure. As a result of our recent comprehensive strategic assessment, we defined the underlying businesses in our portfolio as either growth or low term platforms as you will see on Page 15. Today we have a number of stable business that generate cash. These businesses may have limited top line growth potential, but we'll continue to support other businesses with greater growth opportunities. We will refer to these businesses as our Returns business. We also have assumed we have a number of businesses that we believe have greater growth potential by using technology and scale to create a larger market presence primarily in the rail space. These businesses bring value to our customers by creating more productive assets enhancing operating efficiencies, making customer activities safer and more reliable and providing a more environmentally currently profiled by reducing the carbon footprint. We will refer to these businesses as our Growth businesses. Both our returns and growth businesses add value and together form a very solid stringboard for creating shareholder value. The growth platforms will receive a more significant allocation investment. And these are the businesses that we believe can maximize shareholder returns and have the market headroom for sustained growth. As part of this assessment, we're realigning our management structure and redirecting SG&A spending to enable the execution of the strategy. Our goal is to transform the company to a more innovation focused provider of products and services to build and support and construction. We believe these actions will translate into higher returns on invested capital and increase value for our shareholders. You will hear more about our strategy at our virtual Investor Day in…

Thank you. [Operator Instructions] Your first question comes from the line of Alex Rygiel from B. Riley. Your line is now open.

Thank you. Good morning, everyone and thanks for taking my question. I'd like the strategy a lot here and I look forward to a lot more additional information on the upcoming analyst meeting. But I wanted to see, if you at this point are ready to disclose any sort of organic growth targets that you may have and/or cash flow targets or anything of that nature?

Hi, Alex. Thanks for joining us today. And I'm glad that you appreciated and got a sense of what we're doing to really understand what our value is in our core competencies of the company and how we're going to drive shareholder return in this now and into the future. We are going to cover this in greater detail on the 14, so I hope you can join that session. But I will tell you, we're not going to be laying targets out today, as well as targets on those days. Other than, I think, we really have a good appreciation of where the value is going to be coming from and how we're going to underpin the businesses with the return side and cash generation.

Okay. And then, congratulations on that very attractive backlog growth year-over-year. I suspect that opportunities have continued to be pretty positive through the month of October. So if you can confirm that, that would be great. But also wanted to get a sense as to, how you're thinking about the margin profile in sort of the new work that was put into backlog and whether or not you've been able to adjust your pricing to sort of catch-up to some of those inflated costs?

Yes. So, again, a good question. And these are the areas that we're addressing each and every day. The divestiture of the piling business came right out of our strategy is, really one of the first things we need to do, because it was not accretive to the overall average margin of the company. So that's going to put us in a better shape moving forward. The growth of the backlog that you mentioned has also been significant. And if you take out the piling, we have shown a growth of $10 million from Q2 to Q3. So we’re going to -- I think somewhere around 20 basis points where the margin uplifted between quarters as well, between Q2 and Q3. So we are showing some significant improvements, at least in our go-forward basis. I'm not going to get into the details of that, but the mix of business coming our way is more attractive as it relates to growing our margins into the fourth quarter and into next year as well.

Very helpful. Thank you very much.

Thanks, Alex.

Your next question comes from the line of Chris Sakai from Singular Research. Your line is now open.

Hi. Good morning.

Hi, Chris.

Hi. I just had a -- I had a question on the decline in gross margin. Just wanted to get your sense on, if you could sort of quantify how much of the decline was due to disruption in the supply chain? How much was from COVID related measures and how much was some inflation? And then, if I missed something, how much was from the rest?

All right, Chris, so that's a good question. And again, as I mentioned earlier with Alex, those are ongoing issues that we're facing each and every day related to COVID impacts. The supply chain disruptions, moving different components around that we need to do. And I will let Bill give you a little more color on what we are seeing. But I also -- before we get into that, our team here has done a fantastic job of everyday coming into a different situation, be it labor or be it inflation or be it effects of the COVID of keeping things really moving in a very positive light. And a 20 basis point improvement from quarter-over-quarter and our position has been really fantastic results. But I'll let Bill give you a little more color on some of the details and make you -- bring you up to speed on that. Go ahead, Bill.

Yes. Thanks John and morning, Chris. Maybe I refer you to slide number eight, our Q3 segment results. I'll just make a couple of comments there. If you look at the gross profit on a year-over-year basis, there was a $200,000 increase. The rail segment saw about $1 million increase in gross profit, 140 basis points sequential -- year-over-year deterioration. That was largely driven by product mix a little -- I'd say, more so product mix than inflationary costs impacting the business within rail for that year-over-year comparison. And as John indicated, the rail segment actually from a sequential basis point of view was pretty flat in terms of gross profit percent, from Q2 to Q3. So, I mean, that shows that we were able to manage the overall business and maintain gross profit percent, despite those supply chain headwinds that we've been facing. On the infrastructure side, a little more of a deterioration that you can see on a year-over-year basis, with the revenue up $1.7 million. Gross margin dollars were down $800,000. On a basis point of view, it was 180 basis points. You recall the issue that we have on our Coatings and Measurement business was about a 390 basis point year-over-year decline in gross profit in Coatings and Measurement specifically. And I think the Coatings and Measurement gross profit decline in the quarter was $1.3 million. So you can see the balance of the business was higher, on a year-over-year basis, along with the sales revenue, which we're pretty pleased with, but we continue to have that headwind in Coatings and Measurement. And then the last thing, I would say is, if you just think about the year-to-date results over on slide number 9, we have an $18.8 million increase in revenue, but a $6 million decline in gross profit. If you flip to the next page, you'll see that, the margins in the rail business are doing pretty well on a year-over-year basis down 40 basis points year-over-year, but nice revenue growth. But the key takeaway there is our Coatings and Measurement business, its revenue is down about $27 million, $28 million year-over-year with a margin decline of $12 million. So I mean, it's pretty clear to see that, the year-over-year impact on a year-to-date basis is driven by Coatings and Measurement. And we're continuing to monitor that business to make sure we maintain cash neutrality here in the short-term to see what the recovery looks like.

Okay. Great. Thanks. And then what are you guys doing to sort of protect against future supply chain disruptions?

Yeah. So first of all, we get our engineering team mobilized. So really looking at our supply chain, and looking for vulnerabilities related to how many suppliers we have and where they're located. So they've done a really nice job of like you would typically do with supply chain, looking at costs, they're looking at assuring that we have the components we need. And we are uplifting some of those a components, and making sure that we have those available in our inventories. So those are the most important things we're doing is make sure that, we have a number of suppliers, alternatives as well as building up some of the inventories to make that happen. I think Bill could give a little color on some of the details we've done there as well.

Yeah. Chris, if you neutralize for the piling divestiture that occurred for the quarter, you'll notice that there was a pretty substantial increase in inventory in the quarter more than what you would normally expect to see. Some of that was due to the disruptions that we've had in shipments just because of the ability to get product out the door to customers. But then there's also some element of that, which would be us buying material opportunistically to make sure that we have the availability of raw materials, to be able to support fulfilling out the backlog. So those are some of the actions that we're taking, working with our vendors on our sourcing arrangements, as well as buying a bit more than we otherwise would.

Okay. Great. Thanks.

[Operator Instructions] Speakers, there are no further questions at this time. I would now like to turn the conference back over to John Kasel.

Thank you, Blue, and thank you everybody for joining us today. And please join us on December 14th. We're going to roll out a more comprehensive view of the strategy, and really give everybody understanding of not just what the company is today, but more importantly, where we're going in the future. So thanks again everybody be safe and thanks for joining us today and have a great last few week. Bye-bye.

This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.