Increasing Momentum Evident in L.B. Foster's Second Quarter Operating Results; Company Increases 2023 Profitability Guidance

• Second quarter net sales of $148.0 million up 12.6% year over year (13.3% organic); gross profit of $32.3 million up 38.5% year over year, with gross margins improving 410 bps to 21.8%.
• Completed sale of prestressed concrete railroad tie business (“Ties”) operating assets within the Rail, Technologies, and Services segment, in line with its strategic playbook.
• Second quarter net income of $3.5 million up $1.5 million year over year, despite $1.0 million loss on Ties sale; second quarter adjusted EBITDA¹ of $10.6 million (7.2% of sales) up $4.5 million, or 72.9%, year over year.
• Seasonal working capital needs increased net debt¹ $8.2 million during the quarter to $85.6 million at quarter end; Gross Leverage Ratio¹ of 2.5x was up slightly from 2.4x at the start of the quarter.
• New orders¹ in the second quarter were $183.7 million, up 29.9% over last year, with a book-to-bill ratio¹ of 1.24:1.00; backlog¹ finished the quarter at a record $290.1 million, up 15.6% year over year.
• 2023 Adjusted EBITDA guidance range increased to $28 million to $32 million (previously $27 million to $31 million); net sales guidance range unchanged at $520 million to $550 million despite Ties sale.

PITTSBURGH, Aug. 08, 2023 (GLOBE NEWSWIRE) -- L.B. Foster Company ( FSTR), a global technology solutions provider of products and services for the rail and infrastructure markets (the “Company”), today reported its 2023 second quarter operating results.

CEO Comments

John Kasel, President and Chief Executive Officer, commented, “Our second quarter results reflect the continuing favorable impact of our strategic transformation. Net sales growth was a robust 12.6% and we saw strong gains in Precast Concrete (up 43.4%) and Rail, Technologies, and Services (up 12.0%). All segments generated organic sales growth in the quarter. Momentum in our segments generated by our business portfolio actions and profitability initiatives drove gross margins up 410 bps year over year to 21.8%, which translated into a 72.9% increase in adjusted EBITDA, with the adjusted EBITDA margin of 7.2% representing the highest quarterly result achieved since the second quarter of 2020. We’re pleased to see the expected benefits of our strategy execution coming through in the results.”

Mr. Kasel continued, “As previously announced, we completed the sale of our Ties business at the end of the second quarter. Cash proceeds received at closing were $2.4 million and were used to pay down our revolving credit facility. Net debt at quarter end was $85.6 million, in line with our expectations as we funded working capital to support strong sales and order book growth. We also initiated our first actions under the Board-approved share buyback program, repurchasing approximately 0.5% of the outstanding shares during the quarter. We’re focused on our objective of executing a balanced approach to capital allocation while managing our leverage.”

Mr. Kasel concluded, “We can confidently report that the expected tailwinds from the numerous government infrastructure investment programs have begun to translate into increasing orders and backlog in the majority of our businesses. Despite some isolated weakness in the U.K. market, the consolidated book-to-bill ratio for the quarter was 1.24:1.00, with all segments expanding their order books in the quarter. With our record $290.1 million backlog and the prospects for a multi-year infrastructure super cycle in front of us, we remain optimistic in our outlook for 2023 and beyond. Against this backdrop, we’re raising our profitability outlook for 2023 and maintaining our sales guidance despite the sale of the Ties business. We look forward to reporting our continuing progress in the coming quarters.”

_{¹ See “Non-GAAP Financial Measures” and “Non-GAAP Disclosures” at the end of this press release for a description of and information regarding adjusted EBITDA, Gross Leverage Ratio per the Company’s credit agreement, net debt, new orders, backlog, book-to-bill ratio, adjusted EBITDA leverage, and related reconciliations to their most comparable GAAP financial measure. June 30, 2023 backlog levels reflect a decline of $5.5 million from the Ties divestiture.}

2023 Financial Guidance

As a result of the improved profitability achieved in its year-to-date results, the Company is updating its 2023 financial guidance, with adjusted EBITDA now expected to range between $28 million to $32 million (up from $27 million to $31 million previously). With the strong order rates realized year to date and record backlog, net sales guidance for 2023 remains unchanged at between $520 million to $550 million despite the impact of divestitures.

Second Quarter Consolidated Highlights

The Company’s second quarter performance highlights are reflected below:

• On June 30, 2023, the Company sold substantially all the operating assets of its prestressed concrete railroad tie business for $2.4 million, subject to working capital adjustments, generating a $1.0 million loss on the sale. The Ties business contributed sales of $1.4 million and $8.8 million in the quarter and trailing-twelve months ended June 30, 2023, respectively, which is included in the Rail, Technologies, and Services segment.
  
• Net sales for the 2023 second quarter were $148.0 million, up $16.5 million, or 12.6%, over the second quarter of 2022. Net sales increased 13.3% organically and 6.0% from acquisitions, offset by a 6.8% reduction for divestitures.
  
• Gross profit for the 2023 second quarter was $32.3 million, a $9.0 million increase year over year, or 38.5%, and gross profit margins expanded by 410 basis points to 21.8%. The strong improvement in gross profit was due to the business portfolio changes in line with the Company’s strategic transformation along with an uplift from sales volume, product mix, and pricing.
  
• Selling and administrative expenses for the 2023 second quarter were $24.5 million, a $5.1 million increase, or 26.5%, from the prior year quarter. The increase was primarily attributed to increased personnel costs as well as the net impact from business portfolio actions. Selling and administrative expenses as a percentage of net sales increased to 16.6% in the current quarter, up from 14.7% last year.
  
• Operating profit for the 2023 second quarter was $6.3 million, a $3.9 million increase over the prior year quarter. The improvement in operating profit was due to increased sales volume and gross profit expansion, partially offset by increased selling and administrative expenses.
  
• Net income for the 2023 second quarter was $3.5 million, or $0.32 per diluted share, and includes the $1.0 million loss on the sale of Ties.
  
• Adjusted EBITDA for the 2023 second quarter, which adjusts for the loss on divestitures and acquisition-related contingent consideration adjustments, was $10.6 million, a $4.5 million increase, or 72.9%, versus the prior year quarter, with adjusted EBITDA leverage¹ of 27.1%.
  
• New orders totaling $183.7 million for the 2023 second quarter increased 29.9% from the prior year quarter. Backlog totaling $290.1 million increased by $39.2 million, or 15.6%, compared to the prior year quarter.
  
• Cash used by operating activities totaled $10.3 million in the second quarter, an increased use of $4.5 million over the prior year quarter. Second quarter average working capital percent of sales¹ of 20.7% was up 190 bps versus last year due in part to business mix, project completion delays and increased early payment discounts taken.
  
• Net debt of $85.6 million and Gross Leverage Ratio of 2.5x as of June 30, 2023 improved from $94.0 million and 3.3x, respectively, as of September 30, 2022, the period immediately after the completion of the Company’s most recent acquisitions. Both net debt and Gross Leverage Ratio increased slightly during the quarter due to seasonal working capital requirements. All credit agreement covenants were met.
  

Second Quarter Business Results by Segment

Rail, Technologies, and Services Segment

• Net sales for the 2023 second quarter were $91.6 million, a $9.8 million increase, or 12.0%, over the prior year quarter. Net sales increased 17.0% organically and 0.8% from acquisitions, offset by a 5.8% decrease from divestitures. The increase in organic sales was driven by strength in both Rail Products and Global Friction Management, partially offset by declines in the Company’s U.K.-based Technology Services and Solutions business.
  
• Gross profit for the 2023 second quarter was $19.8 million, a $4.2 million increase, and gross profit margins expanded by 260 basis points to 21.7%. The improvement in gross profit was due primarily to the portfolio changes in line with the Company’s strategic transformation, partially offset by softness in profitability in the Technology Services and Solutions business.
  
• Segment operating profit for the 2023 second quarter was $6.6 million, a $2.6 million increase over the prior year quarter.
  
• Orders increased by $23.0 million, driven primarily by Rail Products, as well as Global Friction Management and Technology Services and Solutions. Backlog increased $18.9 million during the quarter to $132.5 million, despite a $7.0 million decline from the Ties divestiture, remaining relatively flat versus the prior year quarter.
  

Precast Concrete Products Segment

^{** Results of calculation not considered meaningful.}

• Net sales for the 2023 second quarter were $33.9 million, up $10.3 million, or 43.4% over the second quarter of 2022. Net sales increased 12.8% organically and 30.6% from the acquisition of VanHooseCo Precast, LLC (“VanHooseCo”).
  
• Gross profit for the 2023 second quarter was $7.7 million, a $4.3 million increase, and gross profit margins expanded by 850 basis points to 22.7%. The increase in gross profit was driven by higher volumes from the VanHooseCo acquisition and margin gains in the legacy Precast business driven primarily by favorable mix, pricing, and input costs.
  
• Segment operating profit for the 2023 second quarter was $1.3 million, favorable $1.4 million over the prior year quarter on improved gross margins, partially offset by higher selling and administrative expenses from the VanHooseCo acquisition.
  
• Second quarter new orders were $37.8 million, up $14.9 million over the prior year quarter, with VanHooseCo accounting for $15.8 million of the increase, while orders in the legacy Precast declined slightly year over year. Backlog of $91.7 million reflects a $20.2 million increase over the prior year quarter, driven by VanHooseCo.
  

Steel Products and Measurement Segment

• Net sales for the 2023 second quarter were $22.6 million, a decrease of $3.6 million or 13.6% compared to the prior year quarter. Sales increased 2.4% organically, and declined 16.0% due to divestiture activity. Organic sales were driven by Protective Coatings, partially offset by Fabricated Steel Products.
  
• Steel Products and Measurement gross profit increased by $0.4 million, an improvement of 460 basis points, due primarily to the segment’s favorable portfolio shift as well as margin increases in Protective Coatings driven by improved volume.
  
• Segment operating profit for the 2023 second quarter was $1.5 million, an improvement of $0.7 million over the prior year quarter primarily due to improved volume and margins in Protective Coatings.
  
• New orders and backlog in Steel Products and Measurement increased by $4.4 million and $18.6 million, respectively, during the quarter. Increases in both Protective Coatings and Fabricated Steel Products orders more than offset a $6.0 million decline due to the divestiture of the Company’s precision measurement products and systems business.
  

First Six Months Consolidated Highlights

The Company’s first six months performance highlights are presented below.