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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-02 · 161 added, 207 removed, 168 unchanged (69% of the section changed)

1 unchanged sentence

(Dollars in thousands, except share data unless otherwise noted)

Executive Level Overview

2021 Developments and 2022 Outlook

2022 Developments

During 2022, the Company:

• Produced net sales of $513,620, an increase of $16,209, or 3.3%, over 2020;

• Generated net income from continuing operations of $3,471, or $0.33 per diluted share;

• Divested the Piling Products division from the Steel Products and Measurement segment, resulting in cash proceeds of $22,707 and a pretax gain on sale of $2,741;

• Reported adjusted EBITDA (a) (earnings before interest, taxes, depreciation, amortization, and certain income) of $18,692;

• Reduced the outstanding balance on its credit facility by $13,735, or 30.5%, to $31,251, resulting in net debt (a) of $20,879;

• Amended its credit agreement, resulting in an increase in the maximum capacity of its revolver from $115,000 to $130,000, improved pricing, and a more accommodating covenant package;

• Continued operations during the COVID-19 pandemic while working to minimize business interruptions and address safety concerns by monitoring through health, travel, and quarantine recommendations issued by the U.S.

Centers for Disease Control and various national, state, provincial, and local departments of health where our facilities are located;

• Appointed John F.

Kasel President and Chief Executive Officer, William M.

Thalman Senior Vice President and Chief Financial Officer, William F.

Treacy Senior Vice President and Chief Growth Officer, and realigned the Company’s operating segments under four senior business leaders in connection with a refreshed enterprise strategy designed to leverage its growth and returns business platforms.

• Produced net sales of $497,497, a decrease of $16,123, or 3.1%, over 2021, reflective of organic growth of 5.6% and growth due to acquisitions of 4.0%, which was offset by a 12.8% reduction due to divestitures;

• Reported gross profit margin of 18.0% for the year, a 120-basis point improvement over prior year;

• Continued its business transformation with the acquisitions of Skratch Enterprises Ltd.

and VanHooseCo Precast LLC, for consideration of $7,402 and $52,146, respectively, which contributed to the $68,118 increase in its net debt;

• Divested the Track Components business, resulting in cash proceeds of $7,795;

• Incurred a net loss of $45,677 due to a $37,895 deferred tax asset valuation allowance, pre-tax asset impairment charges of $8,016, and an unfavorable impact from the settlement of long-term commercial contracts for $3,956;

• Reported adjusted EBITDA (a) (earnings before interest, taxes, depreciation, amortization, and certain adjustments), of $24,179;

an increase of 29.4% compared to the prior year;

• Amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction.

(a) The following tables display reconciliations of non-GAAP financial measures for the years ended December 31, 2022 and 2021.

EBITDA is a financial metric utilized by management to evaluate the Company’s performance on a comparable basis.

The Company believes that EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company’s business as EBITDA enhances investors’ ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization.

The Company believes that EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company’s business as many investors utilize EBITDA to enhance their ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization.

In addition, EBITDA is a financial measurement that management and the Company’s Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs.

Adjusted EBITDA includes certain adjustments to EBITDA.

In 2021, the Company made adjustments to exclude the gain on the sale of the Piling Products division.

In 2020, the Company made adjustments to exclude the impact of relocation and restructuring costs and the proceeds from an unconsolidated partnership..

In 2022, the Company made adjustments to exclude acquisition and divestiture related costs, VanHooseCo acquisition-related inventory step-up amortization and contingent consideration expense, the gain from insurance proceeds, the Crossrail project settlement amount, impairment charges, and the loss (gain) on the sale of the Track Components and Piling Products businesses, respectively.

In 2021, the Company made adjustments to exclude the gain associated with the sale of the Piling Products business.

The Company views net debt, which is total debt less cash and cash equivalents, as an important metric of the operational and financial health of the organization and useful to investors as an indicator of our ability to incur additional debt and to service our existing debt.

Non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with the Company’s financial information that is presented in accordance with GAAP.

Quantitative reconciliations of EBITDA and debt to the non-GAAP financial measures are presented below.

Quantitative reconciliations of EBITDA, adjusted EBITDA, and debt to the non-GAAP financial measures are presented below.

Year Ended December 31,

Adjusted EBITDA Reconciliation

Net income from continuing operations $ 3,471 $ 25,823

Net (loss) income, as reported $ (45,677) $ 3,471

Interest expense - net 3,340 2,956

Income tax expense (benefit) 1,119 (11,841)

Depreciation 8,051 7,850

Amortization 5,836 5,729

Income tax expense 36,681 1,119

Depreciation expense 8,635 8,051

Amortization expense 6,144 5,836

Total EBITDA from continuing operations $ 9,123 $ 21,433

Acquisition and divestiture costs 2,235 —

Commercial contract settlement 3,956 —

Insurance proceeds (790) —

Loss on divestiture of Track Components 467 —

Gain on divestiture of Piling Products (489) (2,741)

Relocation and restructuring costs — 2,545

Proceeds from unconsolidated partnership — (1,874)

Adjusted EBITDA from continuing operations $ 18,692 $ 31,993

December 31, December 31,

VanHooseCo inventory adjustment to fair value amortization 1,135 —

VanHooseCo contingent consideration 526 —

Impairment expense 8,016 —

Adjusted EBITDA $ 24,179 $ 18,692

Net Debt Reconciliation

2 unchanged sentences

Net debt $ 88,997 $ 20,879

On September 24, 2021, the Company completed the sale of its Piling Products division for $23,902 in total expected proceeds, $1,195 of which is expected to be collected in 2022.

Acquisitions and Divestitures

On June 21, 2022 and August 12, 2022, the Company acquired the stock of Skratch for $7,402, and acquired the operating assets of VanHooseCo for $52,146, net of cash acquired at closing, respectively.

Skratch has been included in the Company’s Technology Services and Solutions business unit within the Rail, Technologies, and Services segment and VanHooseCo has been included within the Precast Concrete Products segment.

Skratch and VanHooseCo’s net sales were $2,975 and $17,788, respectively, for the year ended December 31, 2022.

On August 1, 2022, the Company divested the assets of its Track Components division for $7,795, subject to indemnification obligations and working capital adjustments.

The Track Components division was included in the Rail Products business unit within the Rail, Technologies, and Services segment.

The Track Components division's net sales were $9,244 and $14,139 for the year ended December 31, 2022 and 2021, respectively.

On September 24, 2021, the Company completed the sale of its Piling Products division for $23,902 in total proceeds.

The Company retained all pre-closing receivables and liabilities associated with the division.

The sale included substantially all inventory held by the Company associated with the division, as well as the related fixed assets.

The sale included substantially all inventory associated with the division, as well as the related fixed assets.

The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement segment.

The Piling Products division revenues were $60,819 and $59,139 for the years ended December 31, 2021 and 2020, respectively.

Net sales for 2021 were $513,620, a $16,209 increase, or 3.3%, compared to the prior year.

The sales increase was attributable to the Company’s Rail and Precast segments, which increased by 8.4% and 12.1%, respectively, over the prior year.

The $23,302 increase in Rail was attributable to increases in Rail Products, Global Friction Management, and Technology Services and Solutions.

The $7,676 increase in the Precast segment was attributable to increases in precast building revenue in its Boise, ID facility.

Partially offsetting these increases, was a $14,769 decline in Steel Products and Measurement sales, which continues to face a challenging environment in the midstream energy market due to excess infrastructure pipeline capacity.

Gross profit for 2021 was $86,302, an $8,704 decrease, or 9.2%, from the prior year.

The 16.8% consolidated gross profit margin decreased by 230 basis points when compared to the prior year.

All three segments experienced declining gross profit margin versus last year.

Gross profit increased in the Rail segment by $1,986, driven by the $23,302 increase in revenues.

However, Rail gross profit margins declined 90 basis points due primarily attributable to raw material, labor, and production cost inflation, coupled with labor and supply chain disruptions impacting manufacturing and fulfillment of orders.

This impact was most pronounced in the Rail Products business unit.

Slightly lower margins in Global Friction Management were offset by slightly higher margins in Technology Services and Solutions.

The Precast segment gross profit increased $1,096, or 9.6%, driven by the increased sales volume.

Precast segment gross profit margin was reduced by 40 basis points due to raw material and labor inflation and disruption, coupled with a shortage of engineering services to support production design certifications.

In the Steel Products and Measurement segment, gross profit declined from the prior year by $11,786, primarily driven by the decrease in revenues in the Coatings and Measurement business unit, which resulted from lower pipeline and measurement demand in the midstream energy market.

Steel Products and Measurement gross profit margin was down 640 basis points compared to the prior year.

Selling and administrative expenses in 2021 increased by $2,351, or 3.2%, from the prior year, primarily driven by increases in personnel related costs, including stock-based compensation expense, as well as costs associated with the Company’s strategic initiatives.

Selling and administrative expenses as a percent of net sales were flat compared to the prior year at 14.8%.

Net income from continuing operations for 2021 was $3,471, or $0.33 per diluted share, a reduction of $22,352, or $2.09 per diluted share, from the prior year.

The current year was favorably impacted by a gain of $2,046, net of tax, on the sale of the Piling Products division.

The prior year was favorably impacted by a non-recurring income tax benefit of $15,840 resulting from the sale of the IOS Test and Inspection Services business in September 2020.

The Company’s consolidated backlog (b) was $210,189 as of December 31, 2021, a decrease of $38,043, or 15.3%, from the prior year.

The divestiture of the Piling Products business unit during 2021 resulted in a $32,042 decline in backlog versus last year.

This backlog decline was partially offset by a $22,846 increase in the Precast segment, which continues to benefit from infrastructure investment and government-funded programs to rebuild national parks.

The current inflationary cost environment, including labor rates, is expected to continue to put pressure on margins across our businesses.

Actions to mitigate these impacts as much as possible are ongoing.

In addition, the Company continues to take proactive steps to manage disruptions in raw materials, labor, supply chain, service partner, and other lingering COVID-19 related effects in an attempt to mitigate their adverse impact as much as possible.

The Coatings and Measurement business unit continues to be affected by the ongoing depressed level of infrastructure investment in the midstream pipeline markets despite rising energy prices.

Certain areas of this business have experienced some modest improvement.

However, demand levels remain depressed compared to historical levels as pipeline projects continue to be deferred, and the outlook for this business unit remains weak for the foreseeable future.

The Company will continue to adjust the cost structure of this business as appropriate to mitigate these negative market conditions as much as possible.

While the Rail segment’s backlog declined year-over-year by $24,658 driven by the Rail Products business unit, freight rail activity and global transit ridership levels have improved, albeit well below pre-pandemic levels.

With the federal infrastructure support programs announced in 2020 and 2021, the Company is maintaining its optimistic outlook regarding longer-term trends in the North American freight and transit markets given supply chain and transportation needs coupled with government-subsidized investment expected.

While the challenging operating environment is expected to improve in 2022, it could persist throughout 2022 and possibly longer.

Despite these potential short-term challenges, the Company expects that many of its businesses will continue to directly benefit from infrastructure investment activity, including funding benefits from U.S.

Infrastructure Investment and Jobs Act passed in November 2021.

Additionally, with the proceeds from the Piling business divestiture coupled with the additional flexibility and capacity resulting from the amendment and extension of our credit agreement in August 2021, the Company believes that it has significant capacity to pursue organic and acquisitive growth opportunities in 2022 and beyond.

(b) The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement.

The Company defines backlog as contractual commitments to customers for which the Company’s performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance.

Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company’s current and future results of operations and financial prospects, and strategies for business development.

The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company’s current performance and prospective results of operations and financial performance.

Company defines its book-to-bill ratio as new orders divided by revenue.

Management uses the book-to-bill key performance indicator as a monitoring metric for the levels of backlog a business unit is building (greater than 1.0) or consuming (less than 1.0), which may provide management and investors an indication of current market activity.

The Piling Products division net sales were $60,819 for the year ended December 31, 2021.

Year-to-date Results Comparison

5 unchanged sentences

2021 2022 2021

Rail, Technologies, and Services $ 299,749 $ 276,447 8.4 % 58.4 % 55.6 %

Precast Concrete Products 70,990 63,314 12.1 13.8 12.7

Steel Products and Measurement 142,881 157,650 (9.4) 27.8 31.7

Total net sales $ 513,620 $ 497,411 3.3 % 100.0 % 100.0 %

Year Ended December 31, Percent

Increase/(Decrease) Gross Profit Percentage

Year Ended December 31,

2021 2020 2021 vs.

2020 2021 2020

Net sales $ 497,497 $ 513,620 (3.1) % 100.0 % 100.0 %

Gross profit 89,611 86,302 3.8 18.0 16.8

Rail, Technologies, and Services $ 57,249 $ 55,263 3.6 % 19.1 % 20.0 %

Precast Concrete Products 12,491 11,395 9.6 17.6 18.0

Steel Products and Measurement 16,562 28,348 (41.6) 11.6 18.0

Total gross profit $ 86,302 $ 95,006 (9.2) % 16.8 % 19.1 %

Year Ended December 31, Percent

Increase/(Decrease) Percent of Total Net Sales

Year Ended December 31,

2021 2020 2021 vs.

2020 2021 2020

Selling and administrative expenses 82,657 75,995 8.8 16.6 14.8

Amortization expense 6,144 5,836 5.3 1.2 1.1

Operating profit 4,471 15,633 (71.4) 0.9 3.1

Goodwill and long-lived assets impairment charges (Note 5) 8,016 — 100.0 1.6 —

Operating (loss) profit (7,206) 4,471 ** (1.4) 0.9

Interest expense - net 3,340 2,956 13.0 0.7 0.6

Other income - net (1,550) (3,075) 49.6 (0.3) (0.6)

Income from continuing operations before income taxes $ 4,590 $ 13,982 (67.2) % 0.9 % 2.8 %

Income tax expense (benefit) 1,119 (11,841) 109.5 0.2 (2.4)

Income from continuing operations $ 3,471 $ 25,823 (86.6) % 0.7 % 5.2 %

(Loss) income from continuing operations before income taxes (8,996) 4,590 ** (1.8) 0.9

Income tax expense 36,681 1,119 ** 7.4 0.2

(Loss) income from continuing operations $ (45,677) $ 3,471 ** (9.2) % 0.7 %

Diluted (loss) earnings per common share $ (4.25) $ 0.34

** Data excluded as management believes it is not meaningful.

Fiscal 2022 Compared to Fiscal 2021 — Company Analysis

Net sales of $513,620 for the year ended December 31, 2021 increased by $16,209, or 3.3%, compared to the prior year.

Both the Rail and Precast segments contributed to the increase, with increases over the prior year of 8.4% and 12.1%, respectively.

The sales increase was partially offset by a decline in the Steel Products and Measurement segment of 9.4%, which was primarily attributable to the circumstances around the COVID-19 pandemic, resulting in reduced demand most severely impacting the Coatings and Measurement business unit, which principally serves the midstream energy market, within the Steel Products and Measurement segment.

Gross profit decreased by $8,704 from the prior year to $86,302 for 2021.

This decrease was attributable to the Steel Products and Measurement segment, which decreased by $11,786 from the prior year.

Along with the decrease in gross profit, gross profit margin for 2021 was 16.8%, or 230 basis points lower than the prior year.

The decrease in the current year margin was experienced in each of the three segments, which was primarily impacted by decreased sales volume within the Coatings and Measurement business unit, as well as raw material and labor inflation coupled with supply chain and manufacturing disruptions which impacted production and order fulfillment.

Net sales of $497,497 for the year ended December 31, 2022 decreased by $16,123, or 3.1%, compared to the prior year.

The change in sales is due in part to the divestitures of the Track Components and Piling Products businesses.

Declines from divestitures were partially offset by organic growth in all three segments and the acquisitions of Skratch and VanHooseCo in 2022.

Divestitures drove a 12.8% decline in sales, while organic growth and acquisitions drove a 5.6% and 4.0% increase in sales, respectively.

Included in the organic sales growth of 5.6% is a $3,956 reduction in sales related to the multi-year Crossrail project in the Company’s Technology Services and Solutions group in the United Kingdom (“Crossrail Settlement”).

This settlement reduced both sales and gross profit in 2022.

Gross profit increased by $3,309, or 3.8%, and gross profit margin expanded by 120 basis points to 18.0% despite the impact of the $3,956 Crossrail Settlement.

The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation.

In 2021, the Company sold the Piling Products business and in 2022 it sold the Track Components business, both of which have a lower gross profit margin than the Skratch and VanHooseCo businesses that were acquired in 2022.

Gross profit was also negatively impacted in 2022 by a $1,135 purchase accounting adjustment related to the VanHooseCo acquired inventory.

In the Company’s legacy business, gross profit was negatively impacted by raw material and labor inflation which was mitigated by pricing actions in the latter part of 2022.

Selling and administrative expenses increased by $6,662, or 8.8%, over the prior year.

The increase was primarily attributable to increases in personnel related expenses of $1,424 from the prior year, including an $809 increase in stock-based compensation

expense, and an increase in third-party supplies and services of $1,135 compared to the prior year, largely related to the Company’s strategic assessment.

As a result of the increased sales levels in 2021, selling and administrative expenses remained flat at 14.8% as a percentage of net sales as compared to the prior year.

For the year ended December 31, 2021, the Company recorded pretax income of $2,741 from the gain on sale of the Piling Products division.

In the prior year, the Company recorded $673 in expense related to relocation and closure activities and income of $1,874 from an unconsolidated partnership distribution, all of which were recorded in “Other income - net.” Interest expense, net of interest income, for the year ended December 31, 2021 was reduced by $805 as a result of the $13,773 reduction in outstanding debt and favorable terms under the August 2021 credit agreement.

The increase was primarily attributable to strategic transformation costs of $2,235 in 2022, an increase in personnel related costs of $2,676, including a $435 increase in stock-based compensation expense, and an increase in third-party supplies and services of $1,231 compared to the prior year.

Selling and administrative expenses as a percentage of net sales increased to 16.6% from 14.8% due to the increased spending.

The net impact of the acquisitions and divestitures was not significant to the change in selling and administrative expenses year over year;

however, the 2022 expense included $526 of retention costs associated with the VanHooseCo acquisition.

The Company’s annual goodwill test included a quantitative analysis to determine whether it was more likely than not that the fair value of each reporting unit is less than its carrying value.

During 2022, the Company recorded a non-cash impairment charge of $3,011 associated with the Fabricated Bridge reporting unit goodwill, which resides in the Steel Products and Measurement segment, as a result of its annual goodwill test.

No other reporting units were impaired as a result of goodwill testing procedures.

The Company also recorded an impairment charge of $4,883 for intangible assets as a result of procedures performed.

Such procedures determined that the carrying value of the long-lived asset group related to its Precision Measurement Products and Systems business would not be recoverable.

The now fully impaired assets were part of the Steel Products and Measurement segment.

For further discussion on the impairment charges, refer to Note 5 of the Notes to the Consolidated Financial Statements.

Interest expense increased by $384, or 13.0%, due to higher outstanding debt throughout the year.

The outstanding debt balance increased to $91,879 as of December 31, 2022, compared to $31,251 as of December 31, 2021.

The increase in debt was primarily to

fund the acquisition of VanHooseCo, which had a purchase price of $52,146, net of cash acquired and the Skratch acquisition, which had a purchase price of $7,402.

Other income for the year ended December 31, 2022 included pre-tax income of $489 from the 2021 sale of the Piling Products division, $790 in insurance proceeds, and $325 received to recover costs associated with environmental cleanup activities.

Other expense for the year ended December 31, 2022 included a $467 loss related to the sale of the Track Components business.

In the prior year, the Company recorded pre-tax income of $2,741 from the gain on sale of the Piling Products division, all of which was recorded in “Other income-net.”

The Company’s effective income tax rate for 2022 was (407.7)%, compared to 24.4% in the prior year period.

The Company’s income tax expense from continuing operations for 2021 included an income tax benefit of $2,130, net of valuation allowance, related to the disposition of the Test and Inspection Services business in addition to the income tax benefit of $15,840, net of valuation allowance, that was recorded in 2020.

During 2021, the Company increased its valuation allowance provided against state deferred tax assets by $1,807, net of federal benefit, primarily related to forecasted expiration of state operating loss carryforwards.

The positive evidence considered in evaluating U.S.

deferred tax assets included cumulative financial income over the three-year period ended December 31, 2021, as well as the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax.

Based on our evaluation, the Company believed it was appropriate to rely on forecasted future taxable income to support its U.S.

deferred tax assets.

The amount of deferred tax assets considered to be realizable, however, could be adjusted in the future if negative evidence outweighs additional subjective evidence such as our projections for growth.

Net income from continuing operations for the year ended December 31, 2021 was $3,471, or $0.33 per diluted share, compared to net income from continuing operations for the 2020 period of $25,823, or $2.42 per diluted share.

The Company’s current year income tax provision included $37,895 expense related to the increase in its valuation allowance against deferred tax assets.

For further discussion on the valuation allowance, refer to Note 14 of the Notes to the Consolidated Financial Statements.

As a result of the pre-tax $8,016 impairment charges, the $3,956 pre-tax Crossrail Settlement, and the valuation allowance, the net loss for the year ended December 31, 2022 was $45,677, or $4.25 per diluted share, compared to net income for the 2021 year of $3,471, or $0.34 per diluted share.

Results of Operations — Segment Analysis

10 unchanged sentences

Rail, Technologies, and Services segment sales increased by $843, or 0.3%, compared to the prior year.

The sales increase was driven primarily by our Rail Products business unit, with year-over-year growth of $12,256, or 6.6%.

The Global Friction Management and Technology Services and Solutions business units realized sales increases of $4,255, or 9.4%, and $6,791, or 15.2%, respectively.

The sales volume increase was primarily driven by rises in demand due to more favorable market conditions in 2021 versus 2020, as the pandemic’s impact on freight, transit, and rail infrastructure project activity began to modestly improve.

Segment gross profit increased by $1,986, or 3.6%, which was driven by sales volume and improving demand in Global Friction Management and Technology Services and Solutions.

Partially offsetting the increase were lower margins realized in Rail Products due to higher manufacturing input costs and supply chain disruptions.

The Rail segment gross profit margin decreased by 90 basis points from the prior year due to the lower gross profit margins realized in Rail Products.

The Rail segment profit for 2021 was $14,165, a segment profit margin of 4.7%, compared to $13,185, and a margin of 4.8% for 2020.

During 2021, the new orders within the Rail, Technologies, and Services segment decreased by 5.6% compared to the prior year.

The decline in new orders was attributable to the Rail Products business unit, which was primarily related to declines in order activity for transit projects and concrete ties.

Segment backlog decreased by 20.3% compared to the prior year, ending 2021 at $96,573.

The acquisition of Skratch resulted in $2,975, or 1.0%, of the increase in sales and the divestiture of the Track Components business resulted in a reduction in sales of $4,895, or 1.6%.

Organic sales represented $2,763, or 0.9%, of the total increase in sales year over year and were driven by the Rail Products and Global Friction Management business units, which had increases in sales of $4,041 and $3,642, respectively.

The sales volume increase was primarily driven by the Company’s Rail Distribution business and increased demand for Friction Management in North American markets served.

The Technology Services and Solutions business unit decreased by $6,633, or 12.9%, driven by the $3,956 Crossrail Settlement as well as an unfavorable foreign currency impact.

Segment gross profit increased by $2,250, or 3.9%, compared to the prior year.

The improvement in gross profit dollars and margins is primarily due to the portfolio changes that were a part of our strategic transformation.

The Track Components business, which was sold in 2022, had lower gross profit margins than the Skratch business that was acquired in 2022.

Gross profit was also impacted in 2022 by the $3,956 Crossrail Settlement.

The Rail, Technologies, and Services segment gross profit margin increased by 70 basis points from the prior year due to the portfolio changes made and higher gross profit margins realized in Rail Products.

Segment operating profit declined by $2,711, or 19.1%, compared to the prior year.

The decline was driven by the $3,956 Crossrail Settlement and increased employment, travel and entertainment, and advertising costs from the prior year.

Additionally, the Skratch acquisition contributed $619 more in selling and administrative expenses in 2022 than the Track Components business that was sold.

During 2022, new orders within the Rail, Technologies, and Services segment increased by 11.5% compared to the prior year.

The increase in new orders was attributable to the Rail Products and Global Friction Management business units.

Segment backlog increased by 9.0% compared to the prior year, ending 2022 at $105,241.

Precast Concrete Products

8 unchanged sentences

Segment Operating Profit Percentage 1.6 % 2.2 % (0.6) % (25.4) %

The Precast Concrete Product segment sales increased by $7,676, or 12.1%, compared to the prior year, which was attributable to increased precast building sales in its Boise, ID facility, which experienced down time and a protracted operational startup in the prior year as a result of the facility relocation.

The Precast Concrete Product segment sales increased by $33,222, or 46.8%, compared to the prior year.

The acquisition of VanHooseCo contributed $17,788, or 25.1%, of the increase in sales year over year.

Sales in the legacy business increased $15,434, or 21.7% year over year, due to a strong demand environment both in the southern and northeastern United States markets.

The Precast Concrete Products segment gross profit increased by $5,843, or 46.8%, compared to the prior year.

The gross profit increase was primarily due to increased sales volume within the segment.

The gross profit margin declined 40 basis points to 17.6%, which resulted from inflationary raw material costs and, to a lesser extent, manufacturing inefficiencies.

The segment profit of $1,545 increased by $979 compared to the prior year to 2.2% of net sales.

The prior year was impacted by the manufacturing facility relocation to Boise, ID, which resulted in down time and then a protracted startup of operations.

For 2021, the Precast Concrete Products segment had a 26.4% increase in new orders compared to the prior year period.

This increase was primarily attributable to increased demand in both the south and northwest U.S.

sales regions.

The segment’s backlog as of December 31, 2021 was $68,636, a 49.9% increase compared to the prior year end.

The gross profit margin remained flat at 17.6%, driven by higher margins associated with the VanHooseCo business, offset by inflationary pressures, including raw material costs, and manufacturing inefficiencies in our legacy Precast business.

Although the VanHooseCo margins were accretive to the Precast Concrete Products segment, the gross profit included a $1,135 purchase accounting adjustment related to acquired inventory that negatively impacted margins.

The segment profit of $1,692, increased by $147, compared to the prior year, and was 1.6% of net sales.

Operating profit was driven by increased selling and administrative expenses associated with higher personnel costs of $2,647, and an increase in third-party supplies and services of $853, and an increase of $526 in retention costs associated with VanHooseCo from the prior year.

The increases to selling and administrative expenses were partially driven by the acquired VanHooseCo business.

For 2022, the Precast Concrete Products segment had a 16.9% increase in new orders and the backlog also increased by 17.3% compared to the prior year.

The increase in orders and backlog is attributed to the VanHooseCo acquisition.

Steel Products and Measurement

On September 24, 2021, the Company completed the sale of its Piling Products division for $23,902 in total expected proceeds.

The Company retained all pre-closing receivables and liabilities associated with the division.

The sale included substantially all inventory held by the Company associated with the division, as well as the related fixed assets.

The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement reporting segment.

The Piling Products division revenues were $60,819 and $59,139 for the years ended December 31, 2021 and 2020, respectively.

On September 4, 2020, the Company sold its Test and Inspection Service business to an unrelated third party buyer.

Proceeds from the sale were $4,000 and resulted in a loss of $10,034 net of tax.

The Coatings and Measurement business unit will continue to be focused on core competencies around corrosion protection and measurement systems in midstream pipeline applications.

We have reflected the results of operations of the Test and Inspection Services business as discontinued operations in our Consolidated Financial Statements and recast the segment results for all periods presented.

December 31, Decrease Percent

December 31, (Decrease)/Increase Percent

(Decrease)/Increase

2022 2021 2022 vs.

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Gross Profit Percentage 12.7 % 11.6 % 1.1 % 9.6 %

Segment Operating (Loss) Profit $ (2,402) $ 7,945 $ (10,347) (130.2) %

Segment Operating (Loss) Profit Percentage (1.7) % 5.0 % (6.7) % (133.4) %

Sales for the Steel Products and Measurement segment in 2021 decreased by $14,769, or 9.4%, compared to the prior year, which was attributable to the Coatings and Measurement business unit.

Coatings and Measurement experienced a sales decrease of $31,210, or 52.9%, primarily due to the pandemic-related deteriorated oil and gas market conditions in the markets we serve in addition to already weakened demand for crude oil.

Partially offsetting the decline was a sales increase of $16,435 in the Fabricated Steel Products business unit, which was primarily driven by the segments Fabricated Bridge division, and to a lesser extent, the Water Well Threading division.

The Steel Products and Measurement segment 2021 gross profit decreased by $11,786, or 41.6%, compared to the prior year.

The gross profit decrease was primarily due to depressed sales volume within the segment, principally within the Coatings and Measurement business unit, inflationary costs on raw materials and labor, and supply chain disruptions.

The aforementioned items also contributed to a 640 basis point reduction in gross profit margin for the segment.

The segment loss of $2,402 decreased by $10,347 compared to the prior year to (1.7)% of net sales.

Included in the 2021 segment loss is a gain of $2,741 resulting from the sale of the Piling Products division.

For 2021, the Steel Products and Measurement segment had a 15.3% decrease in new orders compared to the prior year period.

This decrease was primarily attributable to the Fabricated Steel Products business unit, and to a lesser extent, the Piling divestiture.

The segment’s backlog as of December 31, 2021 was $44,980, a 44.6% decrease compared to the prior year end.

Backlog as of December 31, 2020 included $32,042 related to the divested Piling Products division.

Segment Operating Loss $ (10,824) $ (2,402) $ (8,422) (350.6) %

Segment Operating Loss Percentage (11.7) % (1.7) % (10.0) % (594.6) %

Sales for the Steel Products and Measurement segment in 2022 decreased by $50,188, or 35.1%, compared to the prior year.

The decline is attributable to the divested Piling Products business, which drove a sales decrease of $60,819.

The decline in sales was partially offset by a $10,631, or 17.5%, increase in the balance of the segment.

The Coatings and Measurement business experienced a sales increase of $10,496, or 37.7%, primarily due to increased activity in both traditional markets served and adjacent market applications.

The Steel Products and Measurement segment 2022 gross profit decreased by $4,784, or 28.9%, compared to the prior year due to the sale of the Piling Products business.

Gross profit margin increased 110 basis points due to the sale of the less profitable Piling Products business.

The segment operating loss of $10,824, up $8,422 over last year, was driven by a goodwill impairment charge of $3,011 in the Fabricated Bridge business unit and the $5,005 impairment charge for intangible assets related to its Precision Measurement Products and Systems business based in Willis, TX.

For 2022, the Steel Products and Measurement segment had a $4,427, or 3.3%, decrease in new orders compared to the prior year period driven by a $59,288 decline in orders due to the sale of the Piling Products business, offset in part, by strong increases in orders in all of the other businesses.

The segment’s backlog as of December 31, 2022 was $86,509, a 92.3% increase compared to the prior year end driven by all business units but primarily the Coatings and Measurement business unit.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated by operations, and the available capacity under our revolving credit facility, which provides for a total commitment of up to $130,000, of which $98,356 was available for borrowing as of December 31, 2021.

Our primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, tax obligations, outstanding purchase obligations, and acquisitions.

Our total debt was $31,251 and $45,024 as of December 31, 2021 and December 31, 2020, respectively, and was primarily comprised of borrowings under our revolving credit facility.

The Company’s principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under its revolving credit facility, which provides for a total commitment of up to $130,000, of which $37,814 was available for borrowing as of December 31, 2022, subject to covenant restrictions.

The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, tax obligations, outstanding purchase obligations, and acquisitions.

The Company’s total debt, including finance leases, was $91,879 and $31,251 as of December 31, 2022 and December 31, 2021, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity as of December 31, 2022:

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Total available funding capacity $ 40,696

Our cash flows are impacted from period to period by fluctuations in working capital, as well as our overall profitability.

While we place an emphasis on working capital management in our operations, factors such as our contract mix, commercial terms, days sales outstanding (“DSO”), and market conditions as well as seasonality may impact our working capital.

We regularly assess our receivables and contract assets for collectability, and provide allowances for credit losses where appropriate.

We believe that our reserves for credit losses are appropriate as of December 31, 2021, but adverse changes in the economic environment, including further deterioration of demand for crude oil and natural gas in the energy markets, and adverse financial conditions of our customers resulting from, among other things, the COVID-19 pandemic, may impact certain of our customers’ ability to access capital and compensate us for our products and services, as well as impact demand for our products and services.

The Company’s cash flows are impacted from period to period by fluctuations in working capital, as well as its overall profitability.

While the Company places an emphasis on working capital management in its operations, factors such as its contract mix, commercial terms, days sales outstanding (“DSO”), and market conditions as well as seasonality may impact its working capital.

The Company regularly assesses its receivables and contract assets for collectability and realization, and provides allowances for credit losses where appropriate.

The Company believes that its reserves for credit losses are appropriate as of December 31, 2022, but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, pandemics including COVID-19, may impact certain of its customers’ ability to access capital and compensate the Company for its products and services, as well as impact demand for its products and services.

The change in cash and cash equivalents for the years ended December 31, 2022 and 2021 were as follows:

Year Ended December 31,

Net cash (used in) provided by continuing operating activities $ (810) $ 20,549

Net cash provided by (used in) continuing investing activities 17,822 (10,319)

Net cash used in continuing financing activities (13,904) (15,277)

Net cash used in continuing operating activities $ (10,576) $ (810)

Net cash (used in) provided by continuing investing activities (56,418) 17,822

Net cash provided by (used in) continuing financing activities 60,240 (13,904)

Effect of exchange rate changes on cash and cash equivalents (736) (47)

Net cash used in discontinued operations — (253)

Net increase (decrease) in cash and cash equivalents $ 2,808 $ (6,614)

Net (decrease) increase in cash and cash equivalents $ (7,490) $ 2,808

Cash Flows from Operating Activities

During the year ended December 31, 2021, net cash used in continuing operating activities was $810, compared to net cash provided by continuing operating activities of $20,549 during the prior year.

For the year ended December 31, 2021, income and adjustments to reconcile income from continuing operating activities provided $16,745, compared to $36,521 in 2020.

During the year ended December 31, 2022, net cash used in operating activities was $10,576, compared to $810 from continuing operations during the prior year.

For the year ended December 31, 2022, net loss and adjustments to reconcile net loss from operating activities provided $15,246, compared to $16,745 in 2021.

Working capital and other assets and liabilities used $25,822 in the current period compared to $17,555 during 2021, including payments of $8,000 in 2022 and 2021 related to the Union Pacific Railroad Concrete Tie Settlement.

The Company’s calculation of DSO was 48 days as of December 31, 2022 compared to 45 days as of December 31, 2021.

We believe our receivables portfolio is strong.

Cash Flows from Investing Activities

For the year ended December 31, 2021, the Company had capital expenditures of $4,620, a $4,559 decrease from 2020.

The current year expenditures were primarily related to plant expansions within our Precast Concrete Products segment, the continuing implementation of the Company’s ERP system, and general plant and operational improvements throughout the Company.

The capital expenditures during 2020 primarily related to plant expansions and a plant relocation within our Precast Concrete Products segment, the purchase of a continuous welded rail car and unloader within our Rail, Technologies, and Services segment, and general plant and operational improvements throughout the Company.

In 2021, the Company received cash proceeds of $22,707 from the sale of its

Piling Products division within the Steel Products and Measurement segment.

Cash used for investing activities for the year ended December 31, 2021 and 2020 included cash paid of $229 and $1,156, respectively, for the asset acquisition of the LarKen Precast business in Boise, ID to expand our precast concrete offerings in that region.

For the year ended December 31, 2022, the Company had capital expenditures of $7,633, a $3,013 increase from 2021.

The expenditures were primarily related to plant expansions within our Precast segment, including those related to the second VanHooseCo operating location, implementations of the Company’s ERP system, and general plant and operational improvements throughout the Company.

The capital expenditures during 2021 relate to plant expansions within our Precast segment, including expenditures related to the relocation of the Precast Boise facility in 2020, the implementations of the Company’s ERP system, and general plant and operational improvements throughout the Company.

In 2022, the Company received cash proceeds of $8,800 primarily from the sale of its Track Components business.

Cash used for investing activities for the year ended December 31, 2022 included cash paid of $57,852 for the acquisitions of VanHooseCo and Skratch in 2022.

In 2021 the Company received cash proceeds of $22,707 from the sale of the Piling Products business.

Cash Flows from Financing Activities

The Company reduced its outstanding debt by $13,735 during the year ended December 31, 2021, primarily from the net proceeds from the sale of the Piling Products division.

During the year ended December 31, 2020, the Company reduced outstanding debt by $13,114, primarily utilizing proceeds from operational cash flows and the sale of non-core assets.

During the years ended December 31, 2021 and 2020, the Company paid financing fees of $406 and $498, respectively, related to its amended credit facility agreements.

The Company increased its outstanding debt by $60,832 during the year ended December 31, 2022, primarily from the borrowings used to fund the acquisitions of Skratch and VanHooseCo.

During the year ended December 31, 2021, the Company reduced outstanding debt by $13,735, primarily from the net proceeds from the sale of the Piling Products division.

During the years ended December 31, 2022 and 2021, the Company paid financing fees of $182 and $406, respectively, related to its Credit Agreement (as defined below).

For the years ended December 31, 2022 and 2021, the Company repurchased 27,636 and 45,288 shares of its stock, respectively, for $410 and $732, respectively, all of which were withheld from employees to pay their withholding taxes in connection with the vesting of stock awards.

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The Company used $10,576 from cash flows from operations during 2022, which was primarily utilized to fund working capital needs.

As of December 31, 2021, we had $10,372 in cash and cash equivalents and $98,356 of availability under our revolving credit facility.

Our principal uses of cash in recent years have been to fund our operations, including capital expenditures, and to service our indebtedness.

We view our short and long-term liquidity as being dependent on our results of operations, changes in working capital and our borrowing capacity.

As of December 31, 2021, our current ratio, which we define as current assets divided by current liabilities, was 2.08.

As of December 31, 2022, the Company had $2,882 in cash and cash equivalents and $37,814 of availability under its revolving credit facility, subject to covenant restrictions.

Principal uses of cash in recent years have been to fund operations, including capital expenditures, and service indebtedness.

The Company views its short and long-term liquidity as being dependent on its results of operations, changes in working capital, and borrowing capacity.

Non-domestic cash balances of $2,012 are held in various locations throughout the world.

Management determined that should the cash balances of our Canadian and U.K.

subsidiaries exceed our projected working capital needs, excess funds will be repatriated.

On August 13, 2021, the Company entered into the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”).

The Credit Agreement modifies the prior revolving credit facility, as amended, on more favorable terms and extends the maturity date from April 30, 2024 to August 13, 2026.

Should management determine that the cash balances of its foreign subsidiaries exceed its projected working capital needs, excess funds may be repatriated and subject to additional income taxes.

On August 13, 2021, the Company entered into the Fourth Amended and Restated Credit Agreement (as amended, modified and supplemented, the “Credit Agreement”).

The Credit Agreement modifies the prior revolving credit facility, as amended, to provide more favorable terms to the Company and extends the maturity date from April 30, 2024 to August 13, 2026.

The Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers (as defined in the Credit Agreement) up to $130,000 (a $15,000 increase over the previous commitment) with a sublimit of the equivalent of $25,000 U.S.

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The Credit Agreement’s incremental loan feature permits the Company to increase the available commitments under the facility by up to an additional $50,000 subject to the Company’s receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions.

On August 12, 2022, the Company amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction.

The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the maximum gross leverage ratio covenant through June 30, 2023 to accommodate the transaction.

The Second Amendment also added an additional tier to the pricing grid and provided for the conversion from LIBOR-based to SOFR-based borrowings.

For a discussion of the terms and availability of the credit facilities, please refer to Note 10 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

As of December 31, 2022, the Company was in compliance with the covenants in the Credit Agreement.

For a discussion of the terms and availability of the Company’s credit facilities, please see Part II, Item 8, Financial Statements and Supplementary Data, Note 10 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company entered into forward starting LIBOR-based, or equivalent, interest rate swaps with notional values totaling $50,000 and $20,000 effective February 2017 and March 2022, respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.

During the year ended December 31, 2020, the Company dedesignated the cash flow hedges and now accounts for the $50,000 interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings.

As of December 31, 2021 the swap asset was $175 and as of December 31, 2021 and December 31, 2020, the swap liability was $159 and $1,097, respectively.

The Company continues to monitor the impact of the dissolution of LIBOR and its effect on our LIBOR-based interest rate swaps.

On September 24, 2021, the Company completed the sale of its Piling Products division for $23,902 in total expected proceeds.

The Company retained all pre-closing receivables and liabilities associated with the division.

The sale included substantially all inventory held by the Company associated with the division, as well as the related fixed assets.

The Piling Products division was included in the Fabricated Steel Products business unit within the Steel Products and Measurement reporting segment.

For the year ended December 31, 2021, the Company received proceeds of $22,707.

Additional proceeds of $1,195 are expected to be collected in 2022.

On September 4, 2020, the Company sold its Test and Inspection Services business for gross proceeds of $4,000.

As a result of this divestiture, the Company has reclassified the results of this business into discontinued operations.

Due to the sale of this business, the Company recognized approximately $18,978 in tax benefits, including tax benefits recognized in discontinued operations, for the year ended December 31, 2020.

For additional information regarding the Test and Inspection Services sale, please refer to Note 3 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

We believe that the combination of our cash and cash equivalents, cash generated from operations and the capacity under our revolving credit facility will provide us with sufficient liquidity to provide the flexibility to operate the business in a prudent manner, enable us to continue to service our outstanding debt and to selectively pursue accretive bolt-on acquisitions to augment our core service offerings.

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into forward starting SOFR-based interest rate swaps with notional values totaling $20,000 and $20,000 effective August 12, 2022 and August 31, 2022, respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.

The Company also accounted for $50,000 of interest rate swaps that became effective February 2017 as cash flow hedges.

During the year ended December 31, 2020, the Company dedesignated the cash flow hedges and now accounts for the $50,000 tranche of interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings.

During February 2022, the $50,000 tranche of interest rate swaps expired.

As of December 31, 2022 and December 31, 2021 the swap asset was $1,930 and $175, respectively.

The swap liability was $159 as of December 31, 2021.

On August 1, 2022, the Company divested the assets of its rail spikes and anchors Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments, resulting in a pre-tax loss of $467.

The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment.

On September 24, 2021, the Company executed the sale of its Piling Products division for $23,902 in total proceeds, resulting in a pre-tax gain of $489.

The Piling Products division was included in the Fabricated Steel business unit within the Steel Products and Measurement segment.

The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility will provide sufficient liquidity to provide the flexibility to operate the business in a prudent manner, continue to service outstanding debt, and to selectively pursue accretive acquisitions to further the Company’s strategic initiatives.

Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by business segment:

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Total backlog $ 272,251 $ 210,189

While a considerable portion of our business is backlog driven, certain businesses, including the Rail Technologies business unit, are not driven by backlog and therefore have insignificant levels of backlog throughout the year.

Backlog as of December 31, 2020 includes $32,042 in open orders from the Piling division that was divested September 24, 2021.

While a considerable portion of the Company’s business is backlog driven, certain businesses, including the Global Friction Management business unit, are not driven by backlog and therefore have insignificant levels of backlog throughout the year.

Critical Accounting Policies and Estimates

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The Company’s performance obligations under long-term agreements with its customers are generally satisfied as over time.

Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion

of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts the Company’s performance to date under the terms of the contract.

Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated

total labor costs, depending upon which measure the Company believes best depicts the Company’s performance to date under the terms of the contract.

A certain portion of the Company’s revenue recognized over time under these long-term agreements is recognized using an output method, specifically units delivered, based upon certain customer acceptance and delivery requirements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis