What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-08 · 133 added, 297 removed, 110 unchanged (80% of the section changed)

19 unchanged sentences

the risk of doing business in international markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations and inflation, and trade restrictions or embargoes;

our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, such as the recent disposition of the Piling business and Track Components business, and acquisitions of the Skratch Enterprises Ltd., Intelligent Video Ltd., and VanHooseCo Precast LLC businesses and to realize anticipated benefits;

our ability to effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, such as the recent dispositions of the Piling, Track Components, and Chemtec businesses, and acquisitions of the Skratch Enterprises Ltd., Intelligent Video Ltd., and VanHooseCo Precast LLC businesses and to realize anticipated benefits;

costs of and impacts associated with shareholder activism;

5 unchanged sentences

changes in current accounting estimates and their ultimate outcomes;

the adequacy of internal and external sources of funds to meet financing needs, including our ability to negotiate any additional necessary amendments to our credit agreement or the terms of any new credit agreement, and reforms regarding the use of LIBOR as a benchmark for establishing applicable interest rates;

the adequacy of internal and external sources of funds to meet financing needs, including our ability to negotiate any additional necessary amendments to our credit agreement or the terms of any new credit agreement, and reforms regarding the use of SOFR as a benchmark for establishing applicable interest rates;

the Company’s ability to manage its working capital requirements and indebtedness;

11 unchanged sentences

General Overview and Business Update

Foster Company is a global solutions provider of engineered, manufactured products and services that builds and supports infrastructure.

The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers’ most challenging requirements.

The Company maintains locations in North America, South America, Europe, and Asia.

On August 12, 2022, the Company acquired the operating assets of VanHooseCo Precast LLC (“VanHooseCo”), a privately-held business headquartered in Loudon, Tennessee specializing in precast concrete walls, water management products, and traditional precast products for the industrial, commercial and residential infrastructure markets for $52,203 net of cash acquired, at closing, subject to the finalization of net working capital adjustments.

VanHooseCo has been included in the Company’s Precast Concrete Products segment.

On June 21, 2022, the Company acquired the stock of Skratch Enterprises Ltd.

(“Skratch”) for $7,402, which is inclusive of deferred payments withheld by the Company of $1,228, to be paid over the next five years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement.

Skratch is an industry leader in digital system integration with expertise in advanced digital display technologies and capabilities currently serving retail markets in the U.K.

Skratch is reported within the Technology Services and Solutions business unit in the Rail, Technologies, and Services segment.

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

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments and a loss on sale of $447 was recorded in “Other expense (income) - net.” 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 (“Piling”) division for $23,902 in total proceeds.

The sale included substantially all inventory held by the Company associated with the division.

The Piling Products division is included in the Fabricated Steel business unit within the legacy Infrastructure Solutions segment.

Net sales for the third quarter of 2022 were $130,015, essentially unchanged versus the prior year quarter.

However, net sales increased 8.7% organically and 5.5% from acquisitions, which was offset by a 14.3% decrease from divestitures.

Sales activity includes a 4.6% increase in the Rail, Technologies, and Services segment, a 60.6% increase in the Precast Concrete Product segment, and a 37.6% decrease in the Steel Products and Measurement segment.

Gross profit for the three months ended September 30, 2022 was $23,096, an $821 increase, or 3.7%, from the prior year quarter.

The increase in reported gross profit was driven primarily by the Precast Concrete Product segment, which increased by $2,929, or 107.8%, due in part to the VanHooseCo acquisition as well as improved margins in the legacy Precast Concrete Products business.

Partially offsetting the increase was a decline in gross profit in the Steel Products and Measurement segment of $1,556 due to the Piling divestiture, as well as a more modest decline of $552 in Rail, Technologies, and Services.

Gross profit in the quarter included a $3,956 million adverse impact associated with the settlement of certain long-term commercial contracts related to the multi-year Crossrail project in the Company’s Technology Services and Solutions business in the United Kingdom.

This settlement also reduced net sales for the Rail, Technologies, and Services segment by $3,956.

Consolidated gross profit margin increased by 70 basis points to 17.8% when compared to the prior year quarter, with the increase attributable to the Precast Concrete Product segment, which was up 450 bps compared to the prior year period due to the VanHooseCo acquisition as well as improved margins in the legacy Precast Concrete Products business, and the Steel Products and Measurement segment which had a margin increase of 230 bps over the prior year quarter due to the sale of the lower margin Piling business.

The Rail, Technologies, and Services segment margin decreased by 150 bps during the current quarter due to the impact of the Crossrail settlement as well as higher sales in the lower margin Rail Products line of business.

Selling and administrative expenses for the three months ended September 30, 2022 increased by $2,562, or 12.8%, from the prior year, primarily driven by a $1,443 increase in expenses associated with the Company's ongoing strategic transformation activities, including costs associated with the Company’s acquisition and divestiture activity, and an increase in salary and incentive costs.

Selling and administrative expenses as a percent of net sales were 17.4% versus 15.4% in the prior year quarter, a 200 basis point increase.

Other expense - net for the three months ended September 30, 2022 was $168 while other income - net was $2,880 in the prior year quarter, the change was due almost entirely to the loss of $447 on the sale of Track Components in the current year quarter compared to the gain on the sale of the Piling business of $2,741 in the prior year quarter.

The Company’s effective income tax rate for the three months ended September 30, 2022 was 7.7%, compared to 23.2% in the prior year quarter.

The Company’s provision for income taxes for the quarter ended September 30, 2022 included a discrete income tax expense of $330 for a change in our permanent reinvestment assertion with respect to the undistributed earnings in Canada, as a result

of the divestiture of our Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada.

The Company’s effective income tax rate for the quarter ended September 30, 2022 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, research tax credits and withholding taxes on excess cash available for repatriation from foreign affiliates.

Net loss for the three months ended September 30, 2022 attributable to L.B.

Foster Company was $2,077, or $0.20 per diluted share, a decrease of $4,419, or $0.42 per diluted share, from the prior year quarter.

The decrease was primarily driven a $3,956 expense associated with the settlement of certain long-term commercial contracts related to the Crossrail project and by non-routine costs of $1,443 associated with the Company's acquisition and divestiture activity, as part of its overall portfolio transformation strategy.

The prior year net income also benefited from the gain on the sale of the Piling business, which was $2,741.

The Company’s consolidated backlog (a) was $272,777 as of September 30, 2022, an increase of $41,051, or 17.7%, from the prior year.

The Precast Concrete Product and Steel Products and Measurement segments reported a $17,048 and $24,954 backlog increase versus the prior year quarter, respectively, while the Rail, Technologies, and Services segment reported a decrease of $951 versus the prior year quarter.

New order levels (a) for three months ended September 30, 2022 decreased by $1,592, or 1.1%, from the prior year quarter.

New orders increased 5.0% organically and 5.6% from acquisitions, offset by a 11.7% decrease from divestitures.

While the present inflationary environment in labor and raw materials continues to pressure margins across the business, the Company has realized some benefit from cost and pricing mitigation actions taken, as evidenced in the Company's third quarter results.

These mitigation efforts, along with the Company's portfolio transformation activities, drove the 70 basis point increase in margins from the prior year period, despite the $3,956 million unfavorable impact on gross profit levels due to the Crossrail adjustment.

The Company continues to prioritize growth and margin improvement as well as its strategic transformation into a technology-focused, high growth infrastructure solutions provider, as evidenced from the acquisition of VanHooseCo and the divestiture of the Company’s Track Components business that were completed during the quarter.

The additional flexibility and capacity resulting from the amendments to the Company’s credit agreement completed in 2021 and 2022 also provides the resources needed to fund operations and execute on any additional organic or acquisitive growth opportunities through the balance of 2022 and beyond.

As recessionary market conditions persist and are in some ways expanding, these conditions may impact demand for the Company’s offerings.

However, 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.

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 expected government-subsidized investment.

(a) 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.

Results of the Quarter

Three Months Ended

September 30, Percent

(Decrease) Percent of Total Net Sales

Three Months Ended

September 30,

2022 2021 2022 vs.

2021 2022 2021

Rail, Technologies, and Services $ 77,350 $ 73,942 4.6 % 59.5 % 56.9 %

Precast Concrete Products 28,856 17,972 60.6 22.2 13.8

Steel Products and Measurement 23,809 38,139 (37.6) 18.3 29.3

Total net sales $ 130,015 $ 130,053 0.0 % 100.0 % 100.0 %

Three Months Ended

September 30, Percent

(Decrease) Gross Profit Percentage

March 31, Percent

Change Percent of Total Net Sales

Three Months Ended

September 30,

2023 2022 2023 vs.

2022 2023 2022

Net sales $ 115,488 $ 98,794 16.9 % 100.0 % 100.0 %

Gross profit 23,291 16,447 41.6 20.2 16.6

Rail, Technologies, and Services $ 13,376 $ 13,928 (4.0 %) 17.3 % 18.8 %

Precast Concrete Products 5,647 2,718 107.8 19.6 15.1

Steel Products and Measurement 4,074 5,630 (27.6) 17.1 14.8

Total gross profit $ 23,097 $ 22,276 3.7 % 17.8 % 17.1 %

Three Months Ended

September 30, Percent

(Decrease) Percent of Total Net Sales

Three Months Ended

September 30,

2022 2021 2022 vs.

2021 2022 2021

Selling and administrative expenses 21,423 17,298 23.8 18.5 17.5

Amortization expense 1,365 1,436 (4.9) 1.2 1.5

Operating (loss) profit (1,120) 758 (247.8) (0.9) 0.6

Operating profit (loss) 503 (2,287) 122.0 0.4 (2.3)

Interest expense - net 1,388 370 ** 1.2 0.4

Other expense (income) - net 1,827 (563) ** 1.6 (0.6)

(Loss) income before income taxes (2,281) 2,916 (178.2) (1.8) 2.2

Income tax (benefit) expense (176) 676 (126.0) (0.1) 0.5

Net (loss) income $ (2,105) $ 2,240 (194.0 %) (1.6 %) 1.7 %

Loss before income taxes (2,712) (2,094) (29.5) (2.3) (2.1)

Income tax benefit (541) (508) (6.5) (0.5) (0.5)

Net loss (2,171) (1,586) (36.9) (1.9) (1.6)

Net loss attributable to noncontrolling interest (19) (20) 5.0 (0.0) (0.0)

Net (loss) income attributable to L.B.

Net loss attributable to L.B.

Foster Company $ (2,152) $ (1,566) (37.4 %) (1.9 %) (1.6 %)

Diluted loss per common share $ (0.20) $ (0.15)

** Results of the calculation are not considered meaningful for presentation purposes.

Foster Company is a global technology solutions provider of engineered, manufactured products and services that builds and supports infrastructure.

The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers’ most challenging requirements.

The Company maintains locations in North America, South America, Europe, and Asia.

The Company is organized and operates in three reporting segments:

Rail, Technologies, and Services, Precast Concrete Products, and Steel Products and Measurement.

Acquisition and Divestiture Summary

On August 12, 2022, the Company acquired the operating assets of VanHooseCo Precast, LLC (“VanHooseCo”), a business specializing in precast concrete walls, water management products, and forms for the commercial and residential infrastructure markets for $52,146 net of cash acquired.

VanHooseCo has been included in the Company’s Precast Concrete Products segment.

On June 21, 2022, the Company acquired the stock of Skratch Enterprises Ltd.

(“Skratch”) for $7,402, which is inclusive of deferred payments withheld by the Company of $1,228, to be paid over the next four years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement.

Skratch is an industry leader in digital system integration with expertise in advanced digital display technologies and capabilities currently serving retail markets in the U.K.

Skratch is reported within the Technology Services and Solutions business unit in the Rail, Technologies, and Services segment.

On August 1, 2022, the Company divested the assets of its Track Components business.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments and a loss on sale of $467 was recorded in “Other expense (income) - net.” The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment.

On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec Energy Services LLC (“Chemtec”) business for $5,344 in proceeds, subject to final working capital adjustments, generating a $2,033 loss on sale, recorded in “Other expense (income) - net.” The Chemtec business was reported in the Coatings and Measurement business unit within the Steel Products and Measurement segment.

Results Summary

Net sales of $115,488 for the three months ended March 31, 2023 increased by $16,694, or 16.9%, over the prior year quarter.

The change in sales is due in part to the acquisitions of Skratch and VanHooseCo offset by the divestiture of the Track Components business.

Organic growth and acquisitions drove a 11.5% and 9.3% increase in sales over the prior year quarter, respectively, with an offsetting 3.9% decline from divestitures.

Gross profit for the three months ended March 31, 2023 was $23,291, an increase of $6,844 over the prior year quarter, or 41.6%, and gross profit margins expanded by 360 basis points to 20.2%.

The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation plan along with improved product mix and pricing.

Selling and administrative expenses for the three months ended March 31, 2023 increased by $4,125, or 23.8%, from the prior year quarter, due in part to the acquisition of VanHooseCo and Skratch, as well as higher personnel expenses.

Selling and administrative expenses as a percent of net sales were 18.5% versus 17.5% in the prior year quarter, a 100 basis point increase.

The recent acquisitions have a higher margin portfolio and higher selling and administrative costs.

Other expense - net for the three months ended March 31, 2023 was $1,827 while other income - net was $563 in the prior year quarter.

Other expense - net for the three months ended March 31, 2023 was due to the $2,033 loss on the sale of Chemtec during the quarter.

The Company’s effective income tax rate for the three months ended March 31, 2023 was 19.9%, compared to 24.3% in the prior year quarter.

Due to the full valuation allowance on domestic deferred tax assets, the Company’s tax provision for the three months ended March 31, 2023 does not reflect any tax benefit for domestic pre-tax losses, and is primarily comprised of taxes related to our Canadian and United Kingdom operations.

Net loss for the three months ended March 31, 2023 attributable to the Company was $2,152, or $0.20 per diluted share, unfavorable by $586, or $0.05 per diluted share, from the prior year quarter.

The loss was primarily driven by the $2,033 loss on the sale of Chemtec during the three months ended March 31, 2023, which offset stronger comparable operating profit stemming from margin expansion.

The Company continues to execute its strategic transformation into a technology-focused, high growth infrastructure solutions provider, as evidenced by the number of recent portfolio actions taken, including the sale of Chemtec, which minimizes the Company's exposure to the energy market and allows for additional capacity to focus on its core growth platforms in Rail Technologies and Precast Concrete, and an increased focus on organic growth initiatives and debt reduction going into 2023.

Proceeds from the Chemtec sale have contributed to the pay down of debt during the quarter and increased capacity under the credit agreement to further support its strategic initiatives.

Results of Operations - Segment Analysis

First Quarter 2023 Compared to First Quarter 2022

Rail, Technologies, and Services

Three Months Ended

September 30, Increase/(Decrease) Percent

Increase/(Decrease)

March 31, Change Percent

2023 2022 2023 vs.

5 unchanged sentences

Segment operating profit percentage 3.7 % 1.6 % 2.1 % 131.3 %

Third Quarter 2022 Compared to Third Quarter 2021

On August 1, 2022, the Company divested the assets of its Track Components business.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments.

The Rail, Technologies, and Services segment sales for the three months ended September 30, 2022 increased by $3,408, or 4.6%, compared to the prior year quarter.

The Rail Products business unit increased by $7,140, or 14.8%, and the Global Friction Management business unit increased by $1,428, or 11.7%, offsetting a sales decrease in the Technology Services and Solutions business unit of $5,160, or 38.7%, compared to the prior year quarter.

The increase in the Rail Products business unit was driven by timing of customer order fulfillment versus the prior year quarter, which was partially offset by the impact of the Track Components divestiture.

The sales decrease in the Technology Services and Solutions business unit was driven by an unfavorable settlement adjustment of $3,956 for certain long-term commercial contracts related to the multi-year Crossrail project along with foreign currency-related headwinds.

The Rail, Technologies, and Services segment gross profit decreased by $552, or 4.0%, from the prior year quarter.

The decrease was driven by the $3,956 Crossrail settlement impact on Technology Services and Solutions gross profit, which was offset by increases in Rail Products and Global Friction Management commensurate with higher sales levels.

Segment gross profit margins decreased by 150 basis points as a result of stronger sales in the lower margin Rail Products business unit, as well as the Crossrail settlement impact.

Operating profit was $539, a $2,552 decrease over the prior year quarter, due primarily to lower overall gross profit levels and higher selling and administrative expenses stemming from increased salary, incentive, travel, and advertising costs.

The Rail, Technologies, and Services segment sales for the three months ended March 31, 2023 increased by $674, or 1.1%, compared to the prior year quarter.

Net sales increased by 5.8% organically and by 1.3% from the acquisition of Skratch, offset by a 6.1% decrease from the divestiture of Track Components.

T he Global Friction Management business unit increase in sales was offset by sales decreases in the Technology Services and Solutions business unit.

The Friction Management sales increase was driven by strength in domestic markets served.

The sales decrease in the Technology Services and Solutions business unit was driven by the completion of the multi-year Crossrail project in late 2022.

The Rail, Technologies, and Services segment gross profit increased by $1,756, or 14.0% over the prior year quarter, and gross profit margins expanded 250 basis points to 22.2%.

Gross profit increases in Rail Products and Global Friction Management were commensurate with higher sales levels, while weaker sale in Technology Services and Solutions drove a partially offsetting gross profit decline.

The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation along with increased sales in the higher margin Global Friction Management business along with improved pricing.

Operating profit was $2,388, a $1,349 increase over the prior year quarter, due primarily to higher gross profit levels.

During the current quarter, the Rail, Technologies, and Services segment had a decrease in new orders of $17,664, or 19.3%, compared to the prior year period.

The decrease is due primarily to differences in customer order timing in the Rail Distribution business, as well as an impact of $3,079 due to the Track Components divestiture.

Backlog as of September 30, 2022 was $108,864, a decrease of $951, or 0.9%, versus the prior quarter, $1,792 of which is related to the divested Track Components division.

The decrease is due primarily to differences in customer order timing in the Rail Distribution business, as well as an unfavorable impact of $4,805 due to the Track Components divestiture.

Backlog as of March 31, 2023 was $113,593, a decrease of $9,325, or 7.6%, versus the prior year quarter, $2,531 of which is related to the divested Track Components division.

Precast Concrete Products

Three Months Ended

September 30, Increase Percent

March 31, Change Percent

2023 2022 2023 vs.

3 unchanged sentences

Gross profit percentage 22.7 % 16.3 % 6.4 % 39.5 %

Segment operating profit $ 1,245 $ 144 $ 1,101 **

Segment operating profit percentage 4.3 % 0.8 % 3.5 % **

** Results of the calculation are not considered meaningful for presentation purposes.

Third Quarter 2022 Compared to Third Quarter 2021

On August 12, 2022, the Company acquired the operating assets of VanHooseCo for $52,540.

VanHooseCo reported sales of $6,353, gross profit of $1,309 and operating profit of $397, which are included in the Precast Concrete Products results for the three months ended September 30, 2022.

The Precast Concrete Products segment sales for the three months ended September 30, 2022 increased by $10,884, or 60.6%, compared to the prior year quarter, which is the result of the VanHooseCo acquisition and a continued reflection of the strong demand environment in the southern United States markets served.

Precast Concrete Products gross profit increased by $2,929, or 107.8%, from the prior year quarter.

The increase is partially attributable to the VanHooseCo acquisition as well as higher overall sales volumes and stronger margins from the legacy precast business.

During the quarter, VanHooseCo gross profit was subject to an expense of $851 from a purchase accounting adjustment related to the acquired inventory, partially diluting the uplift on gross profit from the acquisition.

Segment gross profit margin increased by 450 bps for the third quarter of 2022.

Operating profit for the third quarter of 2022 increased by $1,101 when compared to the operating profit in the prior year quarter, due to higher gross profit levels, which were partially offset by selling and administrative costs associated with the VanHooseCo transaction.

During the quarter, the Precast Concrete Products segment had an increase in new orders of 31.3% compared to the prior year quarter due to the VanHooseCo acquisition.

Backlog as of September 30, 2022 was $86,612, an increase of $17,048, or 24.5%, from September 30, 2021, remaining at historically high levels, due in part to a $14,366 increase from VanHooseCo.

Segment operating loss $ (348) $ (791) $ 443 56.0 %

Segment operating loss percentage (1.4) % (5.3 %) 3.9 % 73.6 %

The Precast Concrete Products segment sales for the three months ended March 31, 2023 increased by $9,278, or 61.8%, compared to the prior year quarter.

The VanHooseCo acquisition contributed $8,299, or 55.3%, of the increase in sales over the prior year quarter.

Organic sales increased by $979, or 6.5%, which is a continued reflection of the strong demand environment in the southern and northeastern United States markets.

The Precast Concrete Products segment's gross profit for the three months ended March 31, 2023 increased by $3,076, and gross profit margins expanded by 640 basis points to 22.7%.

The improvement in gross profit is due to the VanHooseCo acquisition as well as overall sales volumes and stronger margins from the legacy precast business, including the impact of improved pricing.

Operating loss for the first quarter of 2023 was $348, a $443 improvement over the prior year quarter, due to higher gross profit levels, which was partially offset by an increase in selling and administrative expenses from the VanHooseCo acquisition, as well as increased personnel expenses.

During the quarter, the Precast Concrete Products segment had an increase in new orders and backlog of 89.2% and 21.2%, respectively, compared to the prior year quarter.

The increase in new orders and backlog is due to the VanHooseCo acquisition and strong demand in the legacy business.

Steel Products and Measurement

Three Months Ended

September 30, (Decrease)/Increase Percent

(Decrease)/Increase

2022 2021 2022 vs.

2021 2022 vs.

Net sales $ 23,809 $ 38,139 $ (14,330) (37.6) %

Gross profit $ 4,074 $ 5,630 $ (1,556) (27.6) %

Gross profit percentage 17.1 % 14.8 % 2.3 % 15.9 %

Segment operating profit (loss) $ 303 $ (27) $ 330 **

Segment operating profit (loss) percentage 1.3 % (0.1) % 1.4 % **

** Results of the calculation are not considered meaningful for presentation purposes.

Third Quarter 2022 Compared to Third Quarter 2021

The Steel Products and Measurement segment sales for the three months ended September 30, 2022 decreased by $14,330, or 37.6%, compared to the prior year quarter.

The decrease in sales for the third quarter of 2022 was attributable to the $16,313 decline in year over year sales from the Piling Products division, which was divested in September of 2021.

The decline was partially offset by an increase in Fabricated Steel Products, excluding the divested Piling Products division, of $1,102 and an increase of $881 in the Coatings and Measurement business unit.

Steel Products and Measurement gross profit decreased by $1,556, or 27.6%, from the prior year quarter, due to lower sales volume associated with the sale of the Piling Products business.

The gross profit margin increased 230 basis points to 17.1%, as a result of a more favorable mix in 2022 due to the sale of the lower margin Piling Products business.

The segment operating profit was $303, a $330 increase from the prior year quarter.

Selling and administrative expenses incurred by the segment decreased by $1,936 compared to the prior year quarter, primarily attributable to expenses associated with the Piling Products divestiture in 2021.

During the quarter, the Steel Products and Measurement segment new orders increased by $18,542, or 58.8% compared to the prior year quarter, due to a $32,763 increase in Coatings and Measurement, driven primarily by a large order in the Company’s line pipe coating facility in Birmingham, AL, to support a carbon capture and sequestration pipeline project.

This increase was offset by a $13,237 decrease in orders due to the sale of the Piling division in the prior year period.

Backlog as of September 30, 2022 was $77,301, an increase of $24,954, or 47.7%, from September 30, 2021, driven by the order increase in Coatings and Measurement business unit, which was partially offset by a decrease in Fabricated Steel Products business unit, including reductions due to the Piling divestiture.

Nine Month Results

Nine Months Ended

September 30, Percent

(Decrease) Percent of Total Net Sales

Nine Months Ended

September 30,

2022 2021 2022 vs.

2021 2022 2021

Rail, Technologies, and Services $ 222,857 $ 228,956 (2.7) % 61.9 % 57.1 %

Precast Concrete Products 67,477 50,723 33.0 18.7 12.7

Steel Products and Measurement 69,990 120,976 (42.1) 19.4 30.2

Total net sales $ 360,324 $ 400,655 (10.1) % 100.0 % 100.0 %

Nine Months Ended

September 30, Percent

(Decrease) Gross Profit Percentage

Nine Months Ended

September 30,

2022 2021 2022 vs.

2021 2022 2021

Gross Profit:

Rail, Technologies, and Services $ 41,564 $ 43,393 (4.2) % 18.7 % 19.0 %

Precast Concrete Products 11,439 9,127 25.3 17.0 18.0

Steel Products and Measurement 9,834 14,747 (33.3) 14.1 12.2

Total gross profit $ 62,837 $ 67,267 (6.6) % 17.4 % 16.8 %

Nine Months Ended

September 30, Percent

(Decrease) Percent of Total Net Sales

Nine Months Ended

September 30,

2022 2021 2022 vs.

2021 2022 2021

Selling and administrative expenses $ 59,310 $ 57,849 2.5 % 16.5 % 14.4 %

Amortization expense 4,454 4,397 1.3 1.2 1.1

Operating profit (loss) (927) 5,021 (118.5) (0.3) 1.3

Interest expense - net 1,747 2,454 (28.8) 0.5 0.6

Other (income) expense - net (1,096) (2,751) 60.2 (0.3) (0.7)

Income tax expense 137 1,494 (90.8) 0.0 0.4

Net (loss) income $ (1,715) $ 3,824 (144.8) % (0.5) % 1.0 %

Net loss attributable to noncontrolling interest (82) (64) 28.1 (0.0) (0.0)

Net (loss) income attributable to L.B.

Foster Company $ (1,633) $ 3,888 (142.0) % (0.5) % 1.0 %

Results of Operations - Segment Analysis

Rail, Technologies, and Services

Nine Months Ended

September 30, (Decrease)/Increase Percent

(Decrease)/Increase

2022 2021 2022 vs.

2021 2022 vs.

Net sales $ 222,857 $ 228,956 $ (6,099) (2.7 %)

Gross profit $ 41,564 $ 43,393 $ (1,829) (4.2 %)

Gross profit percentage 18.7 % 19.0 % (0.3 %) (1.6 %)

Segment operating profit $ 5,576 $ 10,970 $ (5,394) (49.2 %)

Segment operating profit percentage 2.5 % 4.8 % (2.3 %) (47.8 %)

First Nine Months 2022 Compared to First Nine Months 2021

On June 21, 2022, the Company entered into an agreement to purchase the stock of Skratch Enterprises Ltd.

(“Skratch”) for $7,402.

Skratch reported $856 in sales and $430 in gross profit within the Rail, Technologies, and Services nine months ended September 30, 2022 results.

On August 1, 2022, the Company divested the assets of its Track Components business.

Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments.

The Rail, Technologies, and Services segment sales for the nine months ended September 30, 2022 decreased by $6,099, or 2.7%, compared to the prior year period.

The decrease in sales was driven by the Rail Products business unit, which declined by $5,225, or 3.3%, and the Technology Services and Solutions business unit, which declined by $4,666 or 12.9%, offsetting sales increases in the Global Friction Management business unit of $3,792.

The decrease in the Rail Products business unit was driven by the Track Components divestiture, accounting for $2,439 of the decline, as well as differences in customer order fulfillment timing between the periods.

The decrease in the Technology Services and Solutions business unit is primarily attributable to the $3,956 adjustment from the customer settlement related to the Crossrail project, along with foreign currently-related headwinds.

The sales increase in the Global Friction Management business unit is due to strength primarily in North American markets served.

The Rail, Technologies, and Services segment gross profit decreased by $1,829, or 4.2%, from the prior year quarter.

Rail Products gross profit decreased by $750, commensurate with the sales volume decline, while Global Friction Management gross profit increased by $1,224, commensurate with the sales volume increase.

Technology Services and Solutions gross profit decreased by $2,784, with the adverse impact of the Crossrail adjustment accounting for $3,956 of the decline, offsetting modest increases across the balance of the business unit.

Segment gross profit margins decreased by 30 basis points, driven by the Crossrail adjustment impact on segment margins.

Operating profit was $5,576, a $5,394 decrease over the prior year period, due in part to the decrease in gross profit and a $1,386 increase in selling and administrative expense.

During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of 7.8% compared to the prior year period, driven by improvements in all business units, despite the $4,434 decline in new orders due to the Track Components divestiture.

Precast Concrete Products

Nine Months Ended

September 30, Increase/(Decrease) Percent

Increase/(Decrease)

2022 2021 2022 vs.

2021 2022 vs.

Net sales $ 67,477 $ 50,723 $ 16,754 33.0 %

Gross profit $ 11,439 $ 9,127 $ 2,312 25.3 %

Gross profit percentage 17.0 % 18.0 % (1.0) % (5.8) %

Segment operating profit $ 329 $ 1,175 $ (846) (72.0) %

Segment operating profit percentage 0.5 % 2.3 % (1.8) % (79.0) %

First Nine Months 2022 Compared to First Nine Months 2021

The Precast Concrete Products segment sales for the nine months ended September 30, 2022 increased by $16,754, or 33.0%, compared to the prior year period, which is primarily a result of the VanHooseCo acquisition and a continued reflection of the strong demand environment both in the southern and northeastern United States markets served.

Precast Concrete Products gross profit increased by $2,312, or 25.3%, from the prior year quarter, which is attributable to overall higher sales volumes, due in part to the VanHooseCo acquisition.

However, VanHooseCo gross profit was subject to an expense of $851 from a temporary purchase accounting adjustment related to the acquired inventory, partially diluting the uplift on gross profit from the acquisition.

Segment gross profit margin declined by 100 bps for the nine months ended September 30, 2022 versus the prior year period due to continued inflationary pressures and unfavorable building sales mix and, to a lesser extent, manufacturing inefficiencies due to supply chain disruption.

Operating profit for the nine months ended September 30, 2022 of $329 reflects a $846 decline from the prior year period, due to increased salary, incentive, and travel costs.

During the quarter, the Precast Concrete Products segment had an increase in new orders of 3.1% compared to the prior year period, and an increase in backlog of 24.5% as of September 30, 2022 versus the prior year.

New orders and backlog continue to remain strong given the robust demand environment in markets served.

Steel Products and Measurement

Nine Months Ended

September 30, (Decrease)/Increase Percent

(Decrease)/Increase

March 31, Change Percent

2023 2022 2023 vs.

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Segment operating loss percentage 0.0 % (10.7) % 10.7 % 100.0 %

** Results of the calculation are not considered meaningful for presentation purposes.

First Nine Months 2022 Compared to First Nine Months 2021

The Steel Products and Measurement segment sales for the nine months ended September 30, 2022 decreased by $50,986, or 42.1%, compared to the prior year period, due entirely to the impact of the divested Piling Products business, which drove a sales decline of $59,208 versus the prior year period.

The decline in sales was partially offset by sales increases in the balance of the business, in both Fabricated Steel Products, excluding Piling, and Coatings and Measurement.

Steel Products and Measurement gross profit decreased by $4,913, or 33.3%, from the prior year period, due to lower sales volumes associated with the Piling Products business and inflationary pressures.

However, the gross profit margin for the segment increased 190 basis points to 14.1%, a result of a more favorable mix in 2022 given the divestiture of the lower margin Piling Products business.

The segment loss was $1,083, an increased loss of $943 from the prior year period.

The increase in segment loss was due to lower gross profit levels, partially offset by a $4,128 decline in selling and administrative expenses.

The decline in selling and administrative expenses in 2022 is due to a reduction of expenses associated with the sale of the Piling business.

During the first nine months of 2022, the Steel Products and Measurement segment new orders decreased by $18,407, or 15.5% compared to the prior year period, driven by a $58,898 decline from the divested Piling Products division.

This decrease was partially offset by an increase in both Fabricated Steel Products, excluding the divested Piling Products division, of $7,367, and an increase of $33,124 in Coatings and Measurement.

Coatings and Measurement orders were favorably impacted by a large order in the Company’s line pipe coating facility in Birmingham, AL, to support a carbon capture and sequestration pipeline project.

Segment Backlog

Total Company backlog is summarized by business segment in the following table for the periods indicated:

September 30,

2022 December 31,

2021 September 30,

Rail, Technologies, and Services $ 108,864 $ 96,573 $ 109,815

Precast Concrete Products 86,612 68,636 69,564

Steel Products and Measurement 77,301 44,980 52,347

Total backlog $ 272,777 $ 210,189 $ 231,726

Backlog levels as of September 30, 2021 in the above table includes $1,792 in the Rail, Technologies, and Services segment related to the divested Track Components division, and $1,961 in the Steel Products and Measurement segment related to the divested Piling Products division.

Backlog levels as of December 31, 2021 in the above table includes $1,531 in the Rail, Technologies, and Services segment related to the divested Track Components division.

The Company’s backlog represents the sales price of received customer purchase orders and any contracts for which the performance obligations have not been met, and therefore are precluded from revenue recognition.

Although the Company believes that the orders included in backlog are firm, customers may cancel or change their orders with limited advance notice;

however, these instances have been rare.

Backlog should not be considered a reliable indicator of the Company’s ability to achieve any particular level of revenue or financial performance.

While a considerable portion of the Company’s business is backlog-driven, certain product lines within the Company are not driven by backlog as the orders are fulfilled shortly after they are received.

The Steel Products and Measurement segment sales for the three months ended March 31, 2023 increased by $6,742, or 33.6%, compared to the prior year quarter.

The increase in sales for the first quarter of 2023 was attributable to the $8,819 increase in Coatings and Measurement sales over the prior year quarter, due to increased activity in both traditional and adjacent market applications.

This increase was partially offset by a decrease in Fabricated Steel Products business unit sales of $2,087.

Steel Products and Measurement gross profit for the three months ended March 31, 2023 increased by $2,012, and gross profit margins increased 570 basis points to 13.0%.

The increase in gross profit is primarily due to stronger margins in the Protective Coatings division attributable to higher volumes.

The segment operating loss was reduced $2,140 from the prior year quarter, due to higher gross profit levels.

During the quarter, the Steel Products and Measurement segment had an increase in new orders and backlog of $4,697, or 18.9%, and $9,220, or 18.7%, respectively, compared to the prior year quarter.

The increase is a result of improved order levels in the Fabricated Steel Products business unit and the Protective Coatings division due to strong demand in both traditional and adjacent market applications.

The backlog increase was partially offset by a $5,657 decrease due to the Chemtec divestiture.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under the revolving credit facility, which provides for a total commitment of up to $130,000.

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, and periodic acquisitions.

The Company’s total debt was $98,919 and

$31,251 as of September 30, 2022 and December 31, 2021, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity, subject to covenant restrictions, as of September 30, 2022:

September 30, 2022

The Company’s total debt, including finance leases, was $80,096 and $91,879 as of March 31, 2023 and December 31, 2022, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity, subject to covenant restrictions, as of March 31, 2023:

March 31, 2023

Cash and cash equivalents $ 2,639

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Total available funding capacity $ 51,730

The Company’s cash flows are impacted from period to period by fluctuations in working capital.

While the Company places an emphasis on working capital management in its operations, factors such as its contract mix, commercial terms, customer payment patterns, and market conditions as well as seasonality may impact its working capital.

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

The Company believes that its reserves for credit losses are appropriate as of September 30, 2022, but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, the COVID-19 pandemic, may impact certain of its customers’ ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services.

The changes in cash and cash equivalents for the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended September 30,

Net cash used in continuing operating activities $ (18,836) $ (6,810)

Net cash (used in) provided by continuing investing activities (54,061) 18,910

Net cash provided by (used in) continuing financing activities 68,568 (13,030)

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 March 31, 2023, but adverse changes in the economic environment and adverse financial conditions of its customers may impact certain of its customers’ ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services.

The changes in cash and cash equivalents for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31,

Net cash provided by (used in) operating activities $ 6,932 $ (7,636)

Net cash provided by (used in) investing activities 4,661 (539)

Net cash (used in) provided by financing activities (12,022) 4,012

Effect of exchange rate changes on cash and cash equivalents 186 30

Net cash used in discontinued operations — (253)

Net decrease in cash and cash equivalents $ (243) $ (4,133)

Cash Flow from Operating Activities

During the nine months ended September 30, 2022, cash flows used in operating activities were $18,836, compared to cash flows used in continuing operating activities of $6,810 during the prior year to date period.

For the nine months ended September 30, 2022, the net income and adjustments to net income from continuing operating activities provided $9,134, compared to $13,880 in the 2021 period.

Working capital and other assets and liabilities used $27,970 in the current period, compared to using $20,690 in the prior year period.

The Company received $5,638 during the nine months ended September 30, 2022 associated with its federal income tax refund.

The Company’s calculation for days sales outstanding at September 30, 2022 and December 31, 2021 was 47 and 46 days, respectively, and the Company believes it has a high quality receivables portfolio.

During the three months ended March 31, 2023, net cash provided by operating activities was $6,932, compared to cash used in operating activities of $7,636 during the prior year period.

For the three months ended March 31, 2023, net loss and adjustments to reconcile net loss from operating activities provided $3,352, compared to $1,408 in the prior year period.

Working capital and other assets and liabilities provided $3,580 in the current period, compared to using $9,044 in the prior year period.

The Company received $2,967 during the three months ended March 31, 2023 associated with its federal income tax refund claims, which have now been collected in full.

Cash Flow from Investing Activities

Capital expenditures for the nine months ended September 30, 2022 and 2021 were $4,559 and $3,568, respectively.

The current period expenditures primarily relate to the implementation of the enterprise resource planning system at additional Company divisions and general plant and operational improvements throughout the Company.

Expenditures for the nine months ended September 30, 2021 primarily relate to the expansion of the Precast Concrete Products business line in Texas.

On June 21, 2022, the Company entered into an agreement to purchase the stock of Skratch for $7,402, and on August 12, 2022, the Company entered into an agreement to purchase the operating assets of VanHooseCo for $52,203, which drove a cash outflow of $58,561 during the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company received cash proceeds from the 2022 Track Components divestiture and final proceeds from the 2021 Piling Products divestiture totaling $8,800.

During the nine months ended September 30, 2021, the Company received cash proceeds from the Piling divestiture of $22,707.

Capital expenditures for the three months ended March 31, 2023 and 2022 were $699 and $1,764, respectively.

The current period expenditures primarily relate to general plant and operational improvements throughout the Company, including corporate system and facility improvements.

Expenditures for the three months ended March 31, 2022 primarily related to the implementation of the enterprise resource planning system at additional Company divisions and general plant and operational improvements throughout the Company.

On March 30, 2023, the Company divested the assets of its Chemtec business, generating a cash inflow of $5,344 during the three months ended March 31, 2023.

Cash Flow from Financing Activities

During the nine months ended September 30, 2022 and 2021, the Company had an increase in outstanding debt of $69,155 and a decrease of $12,519, respectively.

The increase in debt for the nine months ended September 30, 2022 was due largely to the acquisition of VanHooseCo on August 12, 2022, as well as the acquisition of Skratch on June 21, 2022, and the funding working of capital and other assets and liabilities.

The decrease in net debt for the 2021 period was primarily attributable to the utilization of excess cash generated through operating activities.

Treasury stock acquisitions of $405 and $549 for the nine months ended September 30, 2022 and 2021, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.

During the three months ended March 31, 2023 and 2022, the Company had a decrease in outstanding debt of $12,047 and an increase of $4,409, respectively.

The decrease in debt for the three months ended March 31, 2023 was due to both stronger operating cash flows as well as proceeds received from the Chemtec divestiture during the quarter.

The increase in debt for the 2022 period was the result of funding working capital and other assets and liabilities.

Treasury stock acquisitions of $309 and $397 for the three months ended March 31, 2023 and 2022, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.

During the first quarter of 2023, the Company’s Board of Directors authorized the repurchase of up to $15,000 of the Company’s common stock in open market transactions through February 2026.

Repurchases are limited to up to $5,000 in any trailing 12-month period, with unused amounts carrying forward to future periods through the end of the authorization.

Any repurchases will be subject to the Company’s liquidity, including availability of borrowings and covenant compliance under its revolving credit facility, and other capital needs of the business.

No shares were repurchased in the first quarter of 2023 as part of the stock repurchase program.

Repurchases of shares of the Company’s common stock may be made from time to time in the open market or in such other manner as determined by the Company.

The timing of the repurchases and the actual amount repurchased will depend on a variety of factors, including the market price of the Company’s shares, general market and economic conditions, and other factors.

The stock repurchase program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time.

Financial Condition

As of September 30, 2022, the Company had $4,943 in cash and cash equivalents.

As of March 31, 2023, the Company had $2,639 in cash and cash equivalents.

The Company’s cash management priority continues to be short-term maturities and the preservation of its principal balances.

As of September 30, 2022, approximately $3,976 of the Company’s cash and cash equivalents were held in non-domestic bank accounts.

As of March 31, 2023, approximately $2,136 of the Company’s cash and cash equivalents were held in non-domestic bank accounts.

The Company principally maintains its cash and cash equivalents in accounts held by major banks and financial institutions.

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

As of September 30, 2022, its revolving credit facility had $30,673 of net availability, while the Company had $98,919 in total debt.

On August 13, 2021, the Company entered into the Credit Agreement, which increased the total commitments under the revolving credit facility to $130,000 from $115,000, extends the maturity from April 30, 2024 to August 13, 2026, and provides more favorable covenant terms.

Borrowings under the Credit Agreement bear interest rates based upon either the base rate or LIBOR rate plus applicable margins.

As of March 31, 2023, the Company's revolving credit facility had $49,091 of net availability, while the Company had $80,096 in total debt.

On August 13, 2021, the Company entered into the Credit Agreement, which increased the total commitments under the revolving credit facility to $130,000 from $115,000, extended the maturity date from April 30, 2024 to August 13, 2026, and provided more favorable covenant terms.

Borrowings under the Credit Agreement bear interest rates based upon either the base rate or SOFR rate plus applicable margins.

The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility should provide the Company with sufficient liquidity to provide the flexibility to operate the business in a prudent manner and enable the Company to continue to service its outstanding debt.

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 permitted the Company to acquire the operating assets of VanHooseCo and modified the maximum Gross Leverage Ratio covenant to 3.75 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 7 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

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.

During 2020, the Company designated its cash flow hedges and accounted 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 September 30, 2022 the swap asset was $1,960 and as of December 31, 2021 the swap asset and liability were $175 and $159, respectively.

Critical Accounting Policies

To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into 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 the agreements effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract.

Segment Backlog

Total Company backlog is summarized by business segment in the following table for the periods indicated:

2023 December 31,

2022 March 31,

Rail, Technologies, and Services $ 113,593 $ 105,241 $ 122,918

Precast Concrete Products 87,737 80,501 72,369

Steel Products and Measurement 58,551 86,509 49,331

Total backlog $ 259,881 $ 272,251 $ 244,618

Although the Company believes that the orders included in backlog are firm, customers may cancel or change their orders with limited advance notice;

however, these instances have been rare.

Backlog should not be considered a reliable indicator of the Company’s ability to achieve any particular level of revenue or financial performance.

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.

Critical Accounting Estimates

The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States.

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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-Q

Item 2. Management’s Discussion and Analysis