FOSTER L B CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except share data) Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). Forward-looking statements provide management’s current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Sentences containing words such as “believe,” “intend,” “plan,” “may,” “expect,” “should,” “could,” “anticipate,” “estimate,” “predict,” “project,” or their negatives, or other similar expressions of a future or forward-looking nature generally should be considered forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are based on management’s current expectations and assumptions about future events that involve inherent risks and uncertainties and may concern, among other things, the Company’s expectations relating to our strategy, goals, projections, and plans regarding our financial position, liquidity, capital resources, and results of operations and decisions regarding our strategic growth initiatives, market position, and product development. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The Company cautions readers that various factors could cause the actual results of the Company to differ materially from those indicated by forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: any future global health crises, and the related social, regulatory, and economic impacts and the response thereto by the Company, our employees, our customers, and national, state, or local governments; a continuation or worsening of the adverse economic conditions in the markets we serve, including recession, the continued volatility in the prices for oil and gas, governmental travel restrictions, project delays, and budget shortfalls, or otherwise; volatility in the global capital markets, including interest rate fluctuations, which could adversely affect our ability to access the capital markets on terms that are favorable to us; restrictions on our ability to draw on our credit agreement, including as a result of any future inability to comply with restrictive covenants contained therein; a decrease in freight or transit rail traffic; environmental matters, including any costs associated with any remediation and monitoring of such matters; 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 dispositions of the Track Components, Chemtec, and Ties 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; the timeliness and availability of materials from our major suppliers, as well as the impact on our access to supplies of customer preferences as to the origin of such supplies, such as customers’ concerns about conflict minerals; labor disputes; cyber-security risks such as data security breaches, malware, ransomware, “hacking,” and identity theft, which could disrupt our business and may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses, or an adverse effect to our reputation; the continuing effectiveness of our ongoing implementation of an enterprise resource planning system; 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 SOFR as a benchmark for establishing applicable interest rates; the Company’s ability to manage its working capital requirements and indebtedness; domestic and international taxes, including estimates that may impact taxes; domestic and foreign government regulations, including tariffs; economic conditions and regulatory changes caused by the United Kingdom’s exit from the European Union; geopolitical conditions, including the conflict in Ukraine; a lack of state or federal funding for new infrastructure projects; an increase in manufacturing or material costs; the loss of future revenues from current customers; and risks inherent in litigation and the outcome of litigation and product warranty claims. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, actual outcomes could vary materially from those indicated. Significant risks and uncertainties that may affect the operations, performance, and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022, or as updated and/or amended by our other current or periodic filings with the Securities and Exchange Commission. The forward-looking statements in this report are made as of the date of this report and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by the federal securities laws. 20 Table of Contents General Overview and Business Update Results of the Quarter Three Months Ended June 30, Percent Change Percent of Total Net Sales Three Months Ended June 30, 2023 2022 2023 vs. 2022 2023 2022 Net sales $ 148,034 $ 131,515 12.6 % 100.0 % 100.0 % Gross profit 32,252 23,293 38.5 21.8 17.7 Expenses: Selling and administrative expenses 24,528 19,394 26.5 16.6 14.7 Amortization expense 1,375 1,419 (3.1) 0.9 1.1 Operating profit 6,349 2,480 156.0 4.3 1.9 Interest expense - net 1,574 384 ** 1.1 0.3 Other expense (income) - net 719 (701) 202.6 0.5 (0.5) Income before income taxes 4,056 2,797 45.0 2.7 2.1 Income tax expense 563 821 (31.4) 0.4 0.6 Net income 3,493 1,976 76.8 2.4 1.5 Net loss attributable to noncontrolling interest (38) (34) 11.8 (0.0) (0.0) Net income attributable to L.B. Foster Company $ 3,531 $ 2,010 75.7 % 2.4 % 1.5 % Diluted earnings per common share $ 0.32 $ 0.18 ** Results of the calculation are not considered meaningful for presentation purposes. L.B. 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 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 sold substantially all the operating 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 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 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 $2,065 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. On June 30, 2023, the Company sold substantially all the operating assets of the prestressed concrete railroad tie business operated by its wholly-owned subsidiary, CXT Incorporated (“Ties”), located in Spokane, WA, for $2,368 in proceeds, subject to final working capital adjustments, generating a $1,009 loss on the sale, which was recorded in “Other expense (income) - net”. The Ties business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment. 21 Table of Contents Results Summary Net sales of $148,034 for the three months ended June 30, 2023 increased by $16,519, or 12.6%, 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 and Chemtec businesses. Organic growth and acquisitions drove a 13.3% and 6.0% increase in sales over the prior year quarter, respectively, with an offsetting 6.8% decline from divestitures. Gross profit for the three months ended June 30, 2023, was $32,252, an increase of $8,959 over the prior year quarter, or 38.5%, and gross profit margins expanded by 410 basis points to 21.8%. The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation plan along with increased sales volumes, product mix, and pricing. Selling and administrative expenses for the three months ended June 30, 2023 increased by $5,134, or 26.5%, from the prior year quarter, due primarily to increased personnel costs as well as the net impact from business portfolio actions. Selling and administrative expenses as a percent of net sales were 16.6% versus 14.7% in the prior year quarter. Other expense - net for the three months ended June 30, 2023 was $719 while other income - net was $701 in the prior year quarter. Other expense - net for the three months ended June 30, 2023 was due to the $1,041 loss on the divestitures of Ties and Chemtec, and other income - net for the three months ended June 30, 2022 was due to a $489 divestiture gain and $318 in insurance proceeds. The Company’s effective income tax rate for the three months ended June 30, 2023 was 13.9%, compared to 29.4% in the prior year quarter. The Company’s effective income tax rate for the three months ended June 30, 2023 differed from the federal statutory of 21% primarily due to the realization of a portion of its U.S. deferred tax assets previously offset by a valuation allowance. The Company continues to maintain a full valuation allowance against its U.S. deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Net income for the three months ended June 30, 2023 attributable to the Company was $3,531, or $0.32 per diluted share, favorable by $1,521, or $0.14 per diluted share, from the prior year quarter. Net income for the three months ended June 30, 2023 was primarily driven by stronger comparable operating profit stemming from margin expansion despite the $1,041 loss on divestitures. 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 Ties, which further reduces the Company’s commoditized offering to allow for increased focus on its core growth platforms, Rail Technologies and Precast Concrete, as well as organic growth initiatives, debt reduction, and improving shareholder value. Results of Operations - Segment Analysis Second Quarter 2023 Compared to Second Quarter 2022 Rail, Technologies, and Services Three Months Ended June 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 91,616 $ 81,797 $ 9,819 12.0 % Gross profit $ 19,847 $ 15,661 $ 4,186 26.7 % Gross profit percentage 21.7 % 19.1 % 2.6 % 13.1 % Segment operating profit $ 6,627 $ 3,998 $ 2,629 65.8 % Segment operating profit percentage 7.2 % 4.9 % 2.3 % 46.9 % The Rail, Technologies, and Services segment sales for the three months ended June 30, 2023 increased by $9,819, or 12.0%, compared to the prior year quarter. Net sales increased by 17.0% organically and by 0.8% from the acquisition of Skratch, offset by a 5.8% decrease from the divestiture of Track Components. The Rail Products and Global Friction Management business units increase in sales was offset by sales decreases in the Technology Services and Solutions business unit. The Rail Products and Global 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 weak economic conditions in the Company’s U.K. based businesses. The Rail, Technologies, and Services segment gross profit increased by $4,186, or 26.7% over the prior year quarter, and gross profit margins expanded 260 basis points to 21.7%. Gross profit increases in Rail Products and Global Friction Management were commensurate with higher sales levels, while weaker sales in Technology Services and Solutions partially offset the increased gross 22 Table of Contents profit. 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 $6,627, a $2,629 increase over the prior year quarter, due primarily to higher gross profit levels. During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of $23,048, or 24.8%, compared to the prior year period. The increase is due to tailwinds from government infrastructure investment programs, despite a $3,114 decrease due to the divested Track Components business. Backlog as of June 30, 2023 was $132,451, an increase of $434, or 0.3%, versus the prior year quarter, despite a $6,960 and $832 reduction due to the Ties and Track Components divestitures, respectively. Precast Concrete Products Three Months Ended June 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 33,865 $ 23,611 $ 10,254 43.4 % Gross profit $ 7,676 $ 3,347 $ 4,329 129.3 % Gross profit percentage 22.7 % 14.2 % 8.5 % 59.9 % Segment operating profit (loss) $ 1,296 $ (125) $ 1,421 ** Segment operating profit (loss) percentage 3.8 % (0.5 %) 4.3 % ** ** Results of the calculation are not considered meaningful for presentation purposes. The Precast Concrete Products segment sales for the three months ended June 30, 2023 increased by $10,254, or 43.4%, compared to the prior year quarter. The VanHooseCo acquisition contributed $7,230, or 30.6%, of the increase in sales over the prior year quarter. Organic sales increased by $3,024, or 12.8%, 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 June 30, 2023 increased by $4,329, and gross profit margins expanded by 850 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 profit for the second quarter of 2023 was $1,296, a $1,421 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 65.0% and 28.2%, respectively, compared to the prior year quarter. The increase in new orders and backlog is due primarily to the VanHooseCo acquisition. Steel Products and Measurement Three Months Ended June 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 22,553 $ 26,107 $ (3,554) (13.6) % Gross profit $ 4,729 $ 4,285 $ 444 10.4 % Gross profit percentage 21.0 % 16.4 % 4.6 % 27.8 % Segment operating profit $ 1,456 $ 762 $ 694 91.1 % Segment operating profit percentage 6.5 % 2.9 % 3.6 % 124.1 % The Steel Products and Measurement segment sales for the three months ended June 30, 2023 decreased by $3,554, or 13.6%, compared to the prior year quarter. The decrease in sales for the second quarter of 2023 was attributable to the $4,176 decrease due to the divestiture of the Chemtec business during the first quarter of 2023 and a decline in the Fabricated Steel Products business, driven by soft demand for bridge grid decking. This decline was offset by increased activity in both traditional and adjacent market applications in the Protective Coatings business unit within Coatings and Measurement. Steel Products and Measurement gross profit for the three months ended June 30, 2023 increased by $444, and gross profit margins increased 460 basis points to 21.0%. The increase in gross profit is primarily due to stronger margins in the Protective Coatings division attributable to higher volumes. The segment operating profit increased by $694 from the prior year quarter, due to higher gross profit levels. 23 Table of Contents During the quarter, the Steel Products and Measurement segment had an increase in new orders and backlog of $4,360, or 17.0%, and $18,635, or 39.4%, respectively, compared to the prior year quarter. The increase is a result of improved order levels in the Protective Coatings division due to strong demand in both traditional and adjacent market applications which was offset by a $6,023 decline from the Chemtec divestiture. The backlog increase was partially offset by a $7,503 decrease due to the Chemtec divestiture. Six Month Results Six Months Ended June 30, Percent Change Percent of Total Net Sales Six Months Ended June 30, 2023 2022 2023 vs. 2022 2023 2022 Net sales $ 263,522 $ 230,309 14.4 % 100.0 % 100.0 % Gross profit 55,543 39,740 39.8 21.1 17.3 Expenses: Selling and administrative expenses 45,951 36,692 25.2 17.4 15.9 Amortization expense 2,740 2,855 (4.0) 1.0 1.2 Operating profit 6,852 193 ** 2.6 0.1 Interest expense - net 2,962 754 ** 1.1 0.3 Other expense (income) - net 2,546 (1,264) ** 1.0 (0.5) Income before income taxes $ 1,344 $ 703 91.2 % 0.5 % 0.3 % Income tax expense 22 313 (93.0) — 0.1 Net income 1,322 390 239.0 0.5 0.2 Net loss attributable to noncontrolling interest (57) (54) 5.6 — — Net income attributable to L.B. Foster Company 1,379 444 210.6 0.5 0.2 Diluted earnings per common share $ 0.12 $ 0.04 ** Results of the calculation are not considered meaningful for presentation purposes. Results Summary Net sales of $263,522 for the six months ended June 30, 2023 increased by $33,213, or 14.4%, over the prior year quarter. The change in sales is due in part to the acquisitions of Skratch and VanHooseCo offset by the divestitures of the Track Components and Chemtec businesses. Organic growth and acquisitions drove a 10.8% and 7.4% increase in sales over the prior year quarter, respectively, with an offsetting 3.7% decline from divestitures. Gross profit for the six months ended June 30, 2023 was $55,543, an increase of $15,803 over the prior year quarter, or 39.8%, and gross profit margins expanded by 380 basis points to 21.1%. The improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation plan along with higher sales volume, improved product mix, input costs, and pricing. Selling and administrative expenses for the six months ended June 30, 2023 increased by $9,259, or 25.2%, from the prior year quarter, due in part to the acquisitions of VanHooseCo and Skratch, as well as higher personnel expenses. Selling and administrative expenses as a percent of net sales were 17.4 % versus 15.9 % in the prior year quarter, a 150 basis point increase. Other expense - net for the six months ended June 30, 2023 was $2,546 while other income - net was $1,264 in the prior year quarter. Other expense - net for the six months ended June 30, 2023 was due primarily to the $3,074 loss on the divestitures of Ties and Chemtec, and other income - net for the six months ended June 30, 2022 was due to a $489 divestiture gain and $790 in insurance proceeds. The Company’s effective income tax rate for the six months ended June 30, 2023 was 1.6%, compared to 44.5% in the prior year quarter. The Company’s effective tax rate for the six months ended June 30, 2023 differed from the federal statutory rate of 21% primarily due to the realization of a portion of its U.S. deferred tax assets previously offset by a valuation allowance. The Company continues to maintain a full valuation allowance against its U.S. deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Net income for the six months ended June 30, 2023 attributable to the Company was $1,379, or $0.12 per diluted share, favorable by $935, or $0.08 per diluted share, from the prior year quarter. Net income was primarily driven stronger operating profit stemming 24 Table of Contents from margin expansion during the six months ended June 30, 2023, which was offset by a $3,074 loss on the divestitures of the Chemtec and Ties. 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 Ties, which further reduces the Company’s commoditized offering to allow for increased focus on its core growth platforms, Rail Technologies and Precast Concrete, as well as organic growth initiatives, debt reduction, and improving shareholder value. Results of Operations - Segment Analysis First Six Months 2023 Compared to First Six Months 2022 Rail, Technologies, and Services Six Months Ended June 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 156,000 $ 145,507 $ 10,493 7.2 % Gross profit $ 34,131 $ 28,188 $ 5,943 21.1 % Gross profit percentage 21.9 % 19.4 % 2.5 % 12.9 % Segment operating profit $ 9,015 $ 5,037 $ 3,978 79.0 % Segment operating profit percentage 5.8 % 3.5 % 2.3 % 66.9 % The Rail, Technologies, and Services segment sales for the six months ended June 30, 2023 increased by $10,493, or 7.2%, compared to the prior year quarter. Net sales increased by 12.1% organically and by 1.0% from the acquisition of Skratch, offset by a 5.9% decrease from the divestiture of Track Components. The Rail Products and Global Friction Management business unit increase in sales were offset by sales decreases in the Technology Services and Solutions business unit. The Rail Products and Global Friction Management sales increases were 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 and weak economic conditions in the United Kingdom. The Rail, Technologies, and Services segment gross profit increased by $5,943, or 21.1% over the prior year quarter, and gross profit margins expanded 250 basis points to 21.9%. Gross profit increases in Rail Products and Global Friction Management were commensurate with higher sales levels, while weaker sales in Technology Services and Solutions partially offset the gross profit. 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 $9,015, a $3,978 increase over the prior year quarter, due primarily to higher gross profit levels. During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of $5,385, or 2.9%, compared to the prior year period. The increase is due primarily to increases in the Global Friction Management business unit, which was offset by an unfavorable impact of $7,918 due to the Track Components divestiture. Backlog as of June 30, 2023 was $132,451, an increase of $434, or 0.3%, versus the prior year quarter, despite a $6,960 and $832 reduction due to the Ties and Track Components sales, respectively. Precast Concrete Products Six Months Ended June 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 58,153 $ 38,621 $ 19,532 50.6 % Gross profit $ 13,197 $ 5,792 $ 7,405 127.8 % Gross profit percentage 22.7 % 15.0 % 7.7 % 51.3 % Segment operating profit (loss) $ 948 $ (916) $ 1,864 203.5 % Segment operating profit (loss) percentage 1.6 % (2.4) % 4.0 % 168.7 % The Precast Concrete Products segment sales for the six months ended June 30, 2023 increased by $19,532, or 50.6%, compared to the prior year quarter. The VanHooseCo acquisition contributed $15,530, or 40.2% of the increase in sales over the prior year quarter. 25 Table of Contents Organic sales increased by $4,002, or 10.4%, 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 six months ended June 30, 2023 increased by $7,405, and gross profit margins expanded by 770 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 profit for the six months ended June 30, 2023 was $948, a $1,864 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 76.0% and 28.2%, 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 Six Months Ended June 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net Sales $ 49,369 $ 46,181 $ 3,188 6.9 % Gross profit $ 8,215 $ 5,760 $ 2,455 42.6 % Gross profit percentage 16.6 % 12.5 % 4.1 % 33.4 % Segment operating profit (loss) $ 1,448 $ (1,386) $ 2,834 204.5 % Segment operating profit (loss) percentage 2.9 % (3.0) % 5.9 % 197.7 % The Steel Products and Measurement segment sales for the six months ended June 30, 2023 increased by $3,188, or 6.9%, compared to the prior year quarter. The increase in sales for the second quarter of 2023 was attributable to the 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, driven by soft demand for bridge grid decking. Steel Products and Measurement gross profit for the six months ended June 30, 2023 increased by $2,455, and gross profit margins increased 410 basis points to 16.6%. The increase in gross profit is primarily due to stronger margins in the Protective Coatings division attributable to higher volumes. The segment operating profit increased by $2,834 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 $9,057, or 17.9%, and $18,635, or 39.4%, 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 which was offset by a decrease of $6,982 due to the divestiture of Chemtec. The backlog increase was partially offset by a $7,503 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, of which $39,547 was available for borrowing as of June 30, 2023, 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, and acquisitions. The Company’s total debt, including finance leases, was $89,505 and $91,879 as of June 30, 2023 and December 31, 2022, respectively, and was primarily comprised of borrowings under its revolving credit facility. 26 Table of Contents The following table reflects available funding capacity, subject to covenant restrictions, as of June 30, 2023: June 30, 2023 Cash and cash equivalents $ 3,880 Credit agreement: Total availability under the credit agreement 130,000 Outstanding borrowings on revolving credit facility (89,280) Letters of credit outstanding (1,173) Net availability under the revolving credit facility 39,547 Total available funding capacity $ 43,427 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 June 30, 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 six months ended June 30, 2023 and 2022 were as follows: Six Months Ended June 30, 2023 2022 Net cash used in operating activities $ (3,333) $ (13,382) Net cash provided by (used in) investing activities 7,716 (7,328) Net cash (used in) provided by financing activities (3,563) 18,476 Effect of exchange rate changes on cash and cash equivalents 178 (477) Net increase (decrease) in cash and cash equivalents $ 998 $ (2,711) Cash Flow from Operating Activities During the six months ended June 30, 2023, net cash used by operating activities was $3,333, compared to cash used by operating activities of $13,382 during the prior year period. For the six months ended June 30, 2023, net income and adjustments to reconcile net income from operating activities provided $11,862, compared to $7,277 in the prior year period. Working capital and other assets and liabilities used $15,195 in the current period, compared to using $20,659 in the prior year period. The Company received $2,973 during the six months ended June 30, 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 six months ended June 30, 2023 and 2022 were $1,495 and $3,048, respectively. The current period expenditures primarily relate to general plant and operational improvements throughout the Company, including corporate system and facility improvements and organic growth initiatives. Expenditures for the six months ended June 30, 2022 primarily related to general plant and operational improvements throughout the Company, as well as organic growth initiatives. During the six months ended June 30, 2023, the Company divested the assets of its Chemtec and Ties businesses, generating a cash inflow of $7,706. During the six months ended June 30, 2023 the Company received proceeds of $966 from final working capital adjustments related to prior year acquisitions. During the six months ended June 30, 2022 the Company had $5,712 in cash outflows for the acquisition of Skratch. Cash Flow from Financing Activities During the six months ended June 30, 2023 and 2022, the Company had a decrease in outstanding debt of $2,920 and an increase of $18,877, respectively. The decrease in debt for the six months ended June 30, 2023 was primarily due to the proceeds received from the Ties and Chemtec divestiture during the period, which were used to pay down debt, partially offset by increased working capital needs. The increase in debt for the 2022 period was the result of funding working capital and other assets and liabilities. Treasury stock acquisitions of $977 and $401 for the six months ended June 30, 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 27 Table of Contents to the Company’s liquidity, including availability of borrowings and covenant compliance under its revolving credit facility, and other capital needs of the business. In connection with the stock repurchase program, 51,241 shares valued at $662 were repurchased during the six months ended June 30, 2023. 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 June 30, 2023, the Company had $3,880 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 June 30, 2023, approximately $2,418 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. The Company’s principal uses of cash have been to fund its operations, including capital expenditures, acquisitions, and to service its indebtedness. The Company views its liquidity as being dependent on its results of operations, changes in working capital needs, and its borrowing capacity. As of June 30, 2023, the Company's revolving credit facility had $39,547 of net availability, while the Company had $89,505 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, 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 to 3.50 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 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: Backlog June 30, 2023 December 31, 2022 June 30, 2022 Rail, Technologies, and Services $ 132,451 $ 105,241 $ 132,017 Precast Concrete Products 91,669 80,501 71,507 Steel Products and Measurement 65,956 86,509 47,321 Total backlog $ 290,076 $ 272,251 $ 250,845 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 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. 28 Table of Contents Critical Accounting Estimates The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that, in its opinion, is appropriate in the Company’s specific circumstances. Application of these accounting principles requires management to reach opinions regarding estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has reached its opinions regarding the best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. A summary of the Company’s critical accounting policies and estimates is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to a smaller reporting company.