Hello, and thank you for standing by. Welcome to L.B. Foster's Second Quarter 2024 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. [Operator Instructions]. I would now like to turn the call over to Stephanie Schmidt of Investor Relations. You may begin.

Thank you, operator. Good morning, everyone and welcome to L.B. Foster's second quarter of 2024 earnings call. My name is Stephanie Schmidt, the company's Investor Relations Manager. Our President and CEO, John Kasel, and our Chief Financial Officer, Bill Thalman, 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 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 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 accompanying earnings presentation carefully as you consider these metrics. So with that, let me turn the call over to John.

Thanks, Stephanie and hello, everyone. Thank you for joining us today for our second quarter earnings call. July 21, 2024 marked the three-year anniversary of my appointment as President and CEO of L.B. Foster Company. I thought I'll begin today's call by providing a recap of what we accomplished over the last three years. I took over as President and CEO in 2021, which was a year of significant change for the company. Our current Chairman, Ray Betler, had joined the Board in 2020 and helped us through a strategic reassessment of the business in 2021. With Ray's guidance, leadership, and support, the Board and Senior Management Team established a strategic vision and operating playbook to transform the company into a technology-oriented global infrastructure solutions provider. The cornerstone of the strategy was a portfolio assessment that established our growth platforms, namely Rail Technologies and Precast Concrete. These businesses would receive the investment funding needed to drive profitable growth in the business. The balance of the business became a returns platform. These businesses would be optimized for cash generation, and, where appropriate, divested to generate additional proceeds to fund growth initiatives, both organic and inorganic. Over the three-year period, we completed nine strategic transactions. We sold off four non-core businesses and exited a commoditized bridge grid decking product line. These transactions generated cash, improved leverage, and eliminated distractions to our core groups. Proceeds from these divestitures were used to complete four acquisitions over the same time period, two in Rail Technologies in the United Kingdom and two in Precast Concrete in the United States. In late 2023, we completed a restructuring of our UK business in response to very challenging business conditions in the local market. More impactful, we just announced an enterprise-wide restructuring, that along with headcount attrition already achieved,…

Thanks, John and good morning, everyone. I'll begin my comments covering the consolidated highlights of the second quarter on Slide 7. As always, the schedules in the appendix provide more detailed information on the financial results for the quarter, including certain non-GAAP measures discussed on today's call. As we've done in the past, we'll call out the impact of portfolio actions where applicable. For the second quarter, these impacts included last year's Ties divestiture and the Bridge Grid Deck product line exit, with a combined impact of 1.5% lower net sales this year. Net sales for the quarter were down 4.9% in total, 3.4% on an organic basis, driven primarily by weakness in the Rail segment. I'll unpack the drivers on the segment slides in a moment. Gross profit was down $1.7 million, with margins nearly flat with last year at 21.7%. Lower margins in Rail were largely offset by improved margins in Infrastructure. The improved margins within Infrastructure were due primarily to the favorable impact of our portfolio actions coupled with an $800,000 gain on the sale of an ancillary property in the quarter. Selling, general and administrative costs increased $0.4 million over the prior year due primarily to corporate legal provisions as well as professional service costs incurred as associated with the announced restructuring. Net income for the quarter totaled $2.8 million, unfavorable 19.4% versus the prior year quarter. The net gain realized on the property sale as well as certain corporate legal costs were excluded from adjusted EBITDA. Each of them were approximately $800,000 in the quarter. Adjusted EBITDA for the quarter was $8.1 million, down 23.8% versus last year due primarily to lower gross profit coupled with higher professional service costs associated with the restructuring. In line with our seasonal working capital needs, cash used for…

Thanks, Bill. Please refer to Slide 18 for an overview of our key business and market drivers underpinning our outlook. We continue to be optimistic in the longer-term prospects for growth in our end markets, both overall segments, particularly given the continued emphasis on infrastructure investment. In 2023, we began to realize some project-related business from U.S. federal programs approved over the last several years, and we expect that trend to continue moving through the balance of 2024 and beyond. Transit ridership levels in the U.S. are back to pre-pandemic levels, and repair work on transit lines is relatively strong at this time. On the other hand, freight car loads within the domestic rail market are somewhat softer versus a year ago, which we believe is resulting in deferrals on project work for Class 1, short line, and regional railroads. The developing macroeconomic uncertainty may also be impacting demand in our served market somewhat. The recent findings regarding the East Palestine train derailment highlights the opportunity for our total track monitoring solutions, and we're seeing a nice increase in demand for those solutions year-over-year. As noted earlier, our UK business has shown some signs of recovery versus last year and we believe market conditions have stabilized and we're improving modestly -- and are improving modestly in the in-country economic developments there. Turning to our infrastructure markets, the CXT buildings product line continues to benefit from record spending on recreational parks and campgrounds. This is funded by the Great American Outdoors Act. We expect this demand to remain robust through the balance of this year and into 2025. Notwithstanding the short-term weather-related headwinds we saw in H1, the government's funding for road and bridge rehab projects as well as robust regional, commercial, and residential real estate development should bode well for…

Thank you. [Operator Instructions]. Our first question comes from the line of Chris Sakai with Singular Research. Your line is open.

Hi, good morning John and Bill. I guess just kind of a top-level question. We've seen some softness in demand from -- in rail and coatings and steel. How are we supposed to think about this going into the third and fourth quarters, do you see a rebound there?

Yes, thanks Chris for joining us today. Absolutely, we do. We also got impacted by weather in H1, H2. So some of these delays and some of these things, we're starting to get the volumes through our factories. But as Bill and I talked about today and you look at the year-over-year as well as sequential growth, we're looking at 29% H2 delivery versus last year in our EBITDA. So we're expecting quite a bit of volume moving through our facilities in the second half of the year.

Okay, thanks and then I'm looking at the 2024 guidance for free cash flow. What were the main drivers now for breakeven guidance as previously $12 million to $18 million?

So I'll turn that over to Bill. But we got some -- again, we got some movements going on a little bit. As we expected, a stronger Q2, and we were deferring some of that work into Q3. So we got some working capital and some other things that are moving around. But in general, we still feel very, very good about our position and where we're going to end up in the year as far as leverage and really in our balance sheet in general. Bill, you want to add a little more context to that?

Yes. The range previously was $12 million to $18 million, with a $15 million midpoint. We obviously announced our restructuring. That will consume some cash. We'll get some savings from that as well as outlined in the release. But the primary thing we're looking at is the timing of business. In the Rail business, that is likely to push volume off to the latter part of the year. And as a result of that, we'll end up having a higher working capital requirement in the second half of the year that is likely to end up with a more tempered cash flow overall. Now, that's a full year cash flow. So we had $31 million of negative cash -- free cash flow consumption in the first half of the year. We expect the second half to be $25 million to $30 million positive free cash flow in the second half of the year. So it's right around break even for the full year, but really strong expectations for the second half of the year.

And of course, Chris, we close out the year with our last installment of $4 million with Union Pacific payments. So we feel very good how we're ending the year, more importantly, how we're going into 2025.

And Chris, just one last item. I just want to highlight that, obviously, the leverage metric was a little elevated here at the end of the quarter, 2.7 times. The cash generation in the second half of the year, plus the expected improvement in profitability year-over-year in the second half of the year will see our leverage drop from 2.7 times back closer to that 2 times target that we talk about.

Okay, sounds good. And then with this restructuring program, how much will it take from a reduced SG&A or what are the -- do you have any sort of quantifiable numbers there?

Well, let me kind of walk through the process, first of all. So how we got here is -- I wanted to walk through the three years for a reason, because transformation takes time and we needed to change our portfolio, right, which we've done in the last three years. But in doing so, those four divestitures that we spoke to today we had stranded costs in the business that we continued just to absorb in the business. And so we knew over a period of time that we needed to make a change. More importantly, not just to get cost out, which by the way, is $4.5 million on an annual run rate. It was about taking monies and bringing back to the company to make sure we're focusing on our growth. See, as we're transforming this company into a technology innovation type company from a distribution type steel company, we weren't really strong at the front of the house. So much of the work we've been doing is taking from the back office administration and putting out in front of the customer, putting in front of technology innovation. And this is where we're really shoring up what we're doing. And we're -- we get excited about how we're going to finish the second half of the year, more importantly, what we're going do in 2025 and beyond. So what Bill and I were talking about today is really, yes, we had a little bit of headwinds here in the quarter, but that just makes you stronger and makes you more focused. So the last couple of months, we've been talking about this, working on this, and we did it last week, which was a very tough time in our company with a reduction of force. But this is something we did with a knee-jerk reaction related to what was going on in the quarter. This is something that was planned. So it happened last year. So we start seeing the benefits through the balance of this year, more importantly, into 2025 and beyond.

Okay, great. Thanks for the input.

Yeah, thanks Chris.

Please standby for our next question. Our next question comes from the line of Justin Bergner with Gabelli Funds. Your line is open.

Good morning John and good morning Bill.

Hi Justin.

Hey, a few questions here. So to start, just on the revised free cash flow guide, the timing of Rail deliveries so does that mean that you expect to end the year with a higher accounts receivable?

Yes, yes.

Now, we would expect -- are there other parts within that Rail timing dynamics?

Definitely, account receivables. We're going to have a strong Q4, which is going to pump up that AR.

Strong revenue for Q4, which will drive AR up. Exactly.

Okay. Got it. So maybe a second question would relate to the mix of business in Rail. I mean, could you comment on whether the Rail Technologies business continues to mix up margin, because it wasn't as evident in the decrementals this quarter?

You know what -- we said in the -- you put together all this work and all this paperwork, what we feel really good about is our strategy. This is how we're pivoting the company into TTM and condition monitoring. We had a fantastic H1 related to those businesses. And then what we're doing in the UK as well. So the headwinds we're seeing right now are really specific to our former -- the returns business related to rail distribution and our ERP type work. This is where the company continues to be pivoting. But we saw quite a few headwinds, and that carries a lot of volume and a lot of leverage. But we have a very strong backlog. We have very strong activity. And we feel very good the second half year that will continue to grow, really demonstrating our ability to drive profitability in Rail and doing it through technology innovation.

Okay. So just to maybe clarify that statement. So I guess the rail products business, even though it may not carry a high average margin, there's still fairly meaningful incrementals and decrementals there?

That's correct.

Yes. And it's a very large percentage of our overall Rail business so to the extent that it's having a short-term challenge here given the commodity prices and some of the weakness in the freight volumes that John had mentioned, it has an impact on the year-over-year decrementals. But as we also mentioned in the call script, the year-over-year profitability improvements in TTM, our technologies-oriented monitoring business, as well as a recovery in our UK business, both were favorable components to the year-over-year improvement in Rail -- or those pieces were favorable within Rail. It's just the rail products portion overcame that from a consolidated point of view.

Got it, okay. And then just the restructuring program, is this mainly to remove stranded costs, is it to get ready for potentially a lower level of demand, is it something else, just how should I think about what's really happening from a business point of view on the restructuring side?

Obviously, a part of it is stranded costs. But it's about getting better. It's about taking all the work we've did, all the investment we've done in SAP, all the back office type of work we've done with our technology innovation, and really putting our best foot forward to streamline the organization. As we move from three segments to two segments we did at the beginning of this year, it's about simplifying the company, simplifying it to you, the investor. It's really what this is all about. But in doing so, we had to put our money where our mouth is. And these aspirational goals is all about continuing to drive this innovation technology, specifically through our precast business and what we're doing in rail. So taking money out wasn't the end game. That was a result. It was also about taking those monies and redeploying them -- and redeploying it to the front of the house or in front of the customer. And really, really redefining ourselves to the market what we're doing and how we're changing our portfolio over time.

Okay. That's very helpful. And then with the 2025 aspirational goals, I mean, is it safe to say that maybe there were some restructuring program envisioned as you approached those goals or would you say this is incremental?

No, there was always a vision. If you look at our SG&A as we kind of laid that out or we at least implied, you could see we were running high to the percentages. So we've been talking about this working internally. We wanted to wait for the right time, not when we had a little bit of headwinds. We wanted to stabilize the company, get through these portfolio moves, which we did through 2023, and in 2024 we wanted to take these incremental changes, if you will. We weren't ready, honestly. In the last couple years, we didn't have the people in the position as well as the skills in the company and the technology in place to make some of these things happen. We're ready now. So we kind of ripped the Band-Aid off last week and said, "Here we go. Let's get after this."

Okay. Got it. So it doesn't seem like there's any change that will affect your ability to serve higher demand or meet growth?

Let me tell you -- let me put it this way. If we didn't do what we did, I would not be as bullish on the aspirational goals. We needed to do this, invest in the future and continue to bring the profitability to the company.

Okay, thanks for all the questions.

Thanks Justin, have a great day.

[Operator Instructions]. Our next question comes from the line of John Bair with Ascend Wealth Advisors. Your line is open.

Thank you. Good morning John and Bill. First quick question. It looks like, let's see, you had a legal expense in this quarter that didn't see anything in the first quarter. Is that a one-time issue, or can you expand on what that relates to?

Yes, sure. Bill, you want to maybe get a little with the…

Yes, we're not going to expand what it relates to. We've got an ongoing matter that we're working through. I think as we mentioned, it was about an $800,000 expense within the quarter. There could be some additional amount in the future. We can't predict what that'll be. We don't think it'll be to the same level that we've had in the past, but it's ongoing and it's something that we're just going to manage here to a conclusion as fast as we can.

Do you have any sense of when this issue will be resolved?

Unfortunately, not. It's an active matter, and we hope to resolve it as soon as possible.

Okay. So, not on the edge of being finalized. It could drag out six months or longer?

It's hard to say. We'd love to settle it as soon as we possibly can, but it takes a counterparty to achieve that, of course.

Okay. Alright. I've got a question with regards to, you indicated some encouragement with regards to the UK. Do you think from what you're seeing, is that something that's perhaps sustainable or…?

Yes. So I think they've had four Prime Ministers in five years. I mean, they've had quite a turmoil in that organization. The charges and the actions we did in the fourth quarter were very important, to get aligned to what we thought the activity would be. And then, we did take some additional actions, some fine tuning if you will, part of the enterprise reduction of force that we did last week. The new team over there under the leadership of Neil Sheffield is doing just a tremendous job, really reinventing themselves and really focused on, what we can do and more importantly, how we do it to make sure we're driving shareholder value. So we're very pleased with what's going on there. They've had a very tough stretch into COVID, through COVID. And we're looking for it -- may not be the area of huge growth for us in the future, but that's okay. We'd like what they're doing. It's a large technology innovation center for us. We're taking much of what they do across the globe as it relates to rail. So, we're very happy where they're at today.

Okay. And then with regards to domestic rail, you touched on this a little bit in previous questions, but it sounds as if you highlighted that there was some softness in the prepared remarks, and so forth. So is this more of a timing issue from your customers, because you do reference expected timing of larger orders, that lumpiness in commitments, is that a fair way to look at it?

This is a fair way. So first of all, the good news, when you look at rail, you have to look at both aspects of rail, right. Transit, first of all, ridership is back to pre-pandemic levels. We felt very good about that. We have a nice play or half of what we do in rail is in transit space. So this is very good news for us. So we'll see more and more of that activity in the second half. Again, while we feel very good about the second half. On the freight side, you got to look at Canada, first of all, they're doing okay. Canadian Pacific and Canadian National was going on respectively to intermodal and moving commodities. Here in the U.S. though, it's a little softer. And so, they have delayed and deferred some of their spending. And this is back to the rail products conversation that we've had. So the work is coming. We're going to be very busy in the second half of the year, related, so they just deferred some of the work that we typically saw on H2 --or, excuse me, in the second quarter. We're now seeing it in H2. So just look for a stronger year and probably a stronger fourth quarter than we've seen in the past. We had a great first quarter, as you know, John. We fell off a little bit related demand. But we're going to see that pick up again. Railroads need to continue to invest in the type of stuff that we provide they need. So we feel very good about it, they'll keep showing up, the rail is doing the maintenance work. And more excitingly, they're really, they're bullish on our condition monitoring, our TTM, our devices that help them run a safe and secure network. That's where we're seeing a lot of activity, and a lot of excitement that gives us really, really excitement going into the second half of the year, more fully in 2025 and beyond.

Okay. Last question. Indicated weather impacted your domestic sales on infrastructure. So basically, you're just pushing this stuff out from the second quarter into the third quarter. Is that kind of way to look at it aside from your comments about protective coatings were down, is there any indication that that's going to turn around or what will it take for that to pick up, and become more meaningful?

Let's talk about infrastructure related to what's going on in precast specifically and those product lines. We got hit hard with weather. Our locations that are located in Tennessee, they had the wettest record, first half year, the wettest year on record, year-to-date, as well as what's happening through Texas and the other regions. Very, very wet. Not only just affecting our employees to get to work, some of our facilities were shut down for days, or in one case over a week related to weather and power outages. And the third case, it's more importantly what's going on in the construction areas. If it's wet, they can't use their products, they can't put product underground, and they can't build the infrastructure as needed. That's pent up demand. That does not go away and we are obviously short of the hurricane this week. We're seeing things that are drying out and the need is there. So the spick is just going to be open much wider in the second half of the year. They need to get these products in ground, they need to get these products in these areas built. So, we feel very good. We're ready. We have products sitting in our yards, products sitting in our plants. We're ready to deliver. So again, why we feel very good about what we're looking at for H2. Coming back to, we have two types of coating business. We got an inline coater and then we have a specialized coater. Specialized coater business that we have is doing very well. And they're going to have a strong second half of the year. The inline coater working directly with the SIFCO, those projects are as expected. You know, we're not doing too many pipelines, moving between states right now. And we don't see much of that activity going on in the second half of the year. That may change with the different election or a different cycle. But right now we're not counting on that business providing much. And it's not really, it's not part of our guidance at all. So if that comes back in a big way, that'll be on top of what we're looking at today.

And what about steel products, what will it take to turn that around?

So, when you say turn around, our threading business is actually doing very well. They got hit with the weather like everybody else. We do our threading in Houston. And of course, when it's wet, this is for irrigation pipe. So the demand for irrigation pipe is not as needed, but we're starting to see that change around as it dries out in the West. And we have a nice new market entry taking our pipe, our threaded pipe in the West Coast right now. So we feel good about what we're doing there. On the steel side, we made a nice pivot from our grid decking business, right. And we closed the book on that last month and moved that business to another party, which left us a bridge forms business. In fact, we just had the board out there and we've toured the facility. It's a world-class facility. They're operating at a very high level. We're finishing up the largest job we ever did, which is down in Tampa, Florida on the I-4 bridge. We feel very good about that and we got quite a few bidding activities and opportunities in front of us to continue to use that. We talked about an investment super cycle. So, we're looking for quite a bit of work coming through that plant and that business in the second half of the year.

Great, thank you very much for taking the questions.

Thanks John, take care.

Thank you. Please standby to allow our next question. 1We'll have a follow-up question from the line of Justin Bergner with Gabelli. Your line is open.

Thanks for the follow-up. I'm just looking at, the sales guide. I mean, you didn't really take the high end down much, but you're talking to some headwinds in rail and maybe that all gets caught up in the fourth quarter. I'm not sure. I am talking about protective coatings being weak. So is there some positive offset that's only allowing the sales guide to be taken down by $10 million at the high end, I'm just trying to put together the pieces?

Yes, we don't get into the color of all this, but our precast business, especially on the legacy side, is having a tremendous year, best year ever. This Great American Outdoors Act that we referenced in our comments today, we're basically sold off for the balance of the year. So that's where upside is going to come. And then the new acquisition of VanHooseCo, which is bringing these products. Of course, we got hit with the weather and other things going on in Tennessee and other markets we serve there. But that's an area for upside in the second half of the year as well.

Okay.

Justin, I might just add to that as well. That's something that helps the overall business mix in the second half of the year. So we're really, while we have an overall top line somewhat flat down slightly overall in the second half of the year, per the guidance, the profitability is up nicely on a year-over-year basis. So we'll see an improved business mix in the second half that will drive profit expansion despite the top line softness overall.

Great, that was it for me.

Thanks Justin.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to John for closing remarks.

Thanks, Wanda and thanks everybody for joining us today. And thanks for the questions. We really appreciate it. I want to close with a couple of remarks related to first sort of core value of our company safety. Back in last quarter, I mentioned that we're real focused on safety as it each and every year. And when you look at our company, you look at their safety results really speaks to how you treat your employees, and really the culture of the company and really how profitable you could be, because safety is a result of a lot of good things coming together. In the last three years, we have struggled in our rail specifically. We've gone the wrong way, still way better the industry but of course, our goals here at Foster are much, we want to be much better industry standards. But year-over-year in the last three years from 2021, 2022, and 2023, our safety performance in the rail business just continued to get worse year-over-year. So last year we sat down, we said, we need to change this. So compliments to the Rail group. Leadership, real focus on making safety a part of our fabric each and every day and getting better. We made a number of changes to staff, including adding an operations guy named Dennis Scully, done -- has done a fantastic job. And congratulations to Ray Betler and his team making safety a core value of our company. They have completed in fact, the first half of the year with zero recordable injuries. That's just tremendous results. In fact, perfect results if you want to look at it from that point. When you look back what that means at 715,699 hours, work hours, man hours that we did with no recordable injury across…

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.