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 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; cybersecurity 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 and Israel; 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. 21 Table of Contents General Overview and Business Update Results of the Quarter Three Months Ended September 30, Change 2023 2022 2023 vs. 2022 Net sales $ 145,345 $ 130,015 $ 15,330 Gross profit 28,224 23,097 5,127 Gross profit margin 19.4 % 17.8 % 160 bps Expenses: Selling and administrative expenses $ 24,160 $ 22,618 $ 1,542 Selling and administrative expenses as a percent of sales 16.6 % 17.4 % (80) bps Amortization expense 1,379 1,599 (220) Operating profit (loss) $ 2,685 $ (1,120) $ 3,805 Operating profit (loss) margin 1.8 % (0.9) % 270 bps Interest expense - net $ 1,442 $ 993 $ 449 Other expense - net 917 168 749 Income (loss) before income taxes $ 326 $ (2,281) $ 2,607 Income tax benefit (121) (176) 55 Net income (loss) $ 447 $ (2,105) $ 2,552 Net loss attributable to noncontrolling interest (68) (28) (40) Net income (loss) attributable to L.B. Foster Company $ 515 $ (2,077) $ 2,592 Diluted earnings (loss) per common share $ 0.05 $ (0.20) $ 0.25 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. On August 30, 2023, the Company announced the discontinuation of its Bridge Products grid deck product line which was reported in the Fabricated Steel Products business unit within the Steel Products and Measurement segment. The Bedford, PA based operations supporting the product line are expected to cease in the fourth quarter of 2023. For the three months ended September 30, 2023 and 2022, the product line had $283 and $2,967 in sales, respectively, and for the nine months ended September 30, 2023 and 2022, the product line had $3,749 and $12,975 in sales, respectively. The decision to exit the bridge grid deck product line is a result of a weak bridge grid deck market condition and outlook due to customer adoption of newer technologies replacing the grid deck solution. During the three months ended September 30, 2023, the Company incurred $1,069 of exit costs recorded in “Other expense (income) - net,” which included $345 in inventory write-downs, $462 in personnel expenses, and $262 in other exit costs. The Company expects to incur an additional $520 of personnel expenses associated with the exit through 2024. During the three months ended September 30, 2023 the Company also recorded a $1,977 reduction in net sales and a $3,051 reduction in gross profit stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line. 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 five years following the transaction 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 United Kingdom. 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. 22 Table of Contents 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 is 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” for the nine months ended September 30, 2023. 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 $2,362 in proceeds, subject to final working capital adjustments, generating a $1,009 loss on the sale, which was recorded in “Other expense (income) - net” for the nine months ended September 30, 2023. The Ties business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment. Results Summary Net sales of $145,345 for the three months ended September 30, 2023, increased by $15,330, or 11.8%, over the prior year quarter. The change in sales is due in part to the acquisition of VanHooseCo, offset by the divestiture of the Ties, Chemtec, and Track Components businesses. Net sales for the three months ended September 30, 2023 included a $1,977 reduction stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line within the Steel Products and Measurement segment. Net sales for the three months ended September 30, 2022 included a $3,956 reduction from 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. Organic growth and acquisitions drove a 14.5% and 2.2% increase in sales over the prior year quarter, respectively, with an offsetting 4.8% decline from divestitures. Gross profit for the three months ended September 30, 2023 was $28,224, an increase of $5,127 over the prior year quarter, or 22.2%, and gross profit margins expanded by 160 basis points to 19.4%. The improvement in gross profit was due to the portfolio changes that are a part of the Company’s strategic transformation, along with an uplift from increased sales volumes, product mix, and pricing. Gross profit for the three months ended September 30, 2023 included a reduction in profitability of $3,051 related to changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line in the Steel Products and Measurement segment. Gross profit for the three months ended September 30, 2022 included a non-routine adverse impact of $3,956 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, and expense of $851 associated with a purchase accounting adjustment related to acquired inventory from the acquisition of VanHooseCo within the Precast Concrete Products segment. Selling and administrative expenses for the three months ended September 30, 2023 increased by $1,542, or 6.8%, from the prior year quarter, due primarily to increased personnel costs as well as a bad debt provision charge of $866 in the Rail, Technologies, and Services segment due to a customer in the United Kingdom that filed for administrative protection. The Company will continue to evaluate the collectibility of this account and will adjust the provision as required. Selling and administrative expenses as a percent of net sales were 16.6% versus 17.4% in the prior year quarter. Other expense - net for the three months ended September 30, 2023 and 2022 was $917 and $168, respectively. Other expense - net for the three months ended September 30, 2023 was due to $1,069 in costs incurred from the exit of the bridge grid deck product line, which included $345 in inventory write-downs, $462 in personnel expenses, and $262 in other exit costs. The Company expects to incur an additional $520 of personnel expenses associated with the exit through 2024. Other expense - net for the three months ended September 30, 2022 was due to the $447 loss on the sale of Track Components, partially offset by foreign currency revaluation gains. The Company’s effective income tax rate for the three months ended September 30, 2023 was (37.1)%, compared to 7.7% in the prior year quarter. The Company’s effective income tax rate for the three months ended September 30, 2023 differed from the federal statutory of 21% primarily due to changes in the valuation allowance established against U.S. and United Kingdom deferred tax assets. The Company maintains a valuation allowance against its U.S. and United Kingdom 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 September 30, 2023 attributable to the Company was $515, or $0.05 per diluted share, favorable by $2,592, or $0.25 per diluted share, from the prior year quarter. Net income for the three months ended September 30, 2023 was primarily driven by increased sales volumes and gross profit expansion partially offset by an increase in selling and administrative expenses and $4,120 in exit costs impacting both gross profit and other expense - net incurred from the exit of the bridge grid deck product line. 23 Table of Contents 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 which further reduces the Company’s commoditized offerings 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 Third Quarter 2023 Compared to Third Quarter 2022 Rail, Technologies, and Services Three Months Ended September 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 86,866 $ 77,350 $ 9,516 12.3 % Gross profit $ 17,229 $ 13,376 $ 3,853 28.8 % Gross profit margin 19.8 % 17.3 % 2.5 % 14.7 % Segment operating profit $ 3,865 $ 539 $ 3,326 ** Segment operating profit margin 4.4 % 0.7 % 3.7 % ** ** Results of the calculation are not considered meaningful for presentation purposes. The Rail, Technologies, and Services segment sales for the three months ended September 30, 2023 increased by $9,516, or 12.3%, compared to the prior year quarter. Net sales increased by 14.9% organically, partially offset by a 2.6% decrease from the divestitures of Track Components and Ties. Each of the three business units, Rail Products, Global Friction Management, and Technology Services and Solutions, had an increase in sales from the prior year quarter. The Rail Products and Global Friction Management sales increase was driven by strength in domestic markets served. The sales increase for Technology Services and Solutions was driven by an unfavorable settlement adjustment of $3,956 included in the prior year quarter for certain long-term commercial contracts related to the multi-year Crossrail project, partially offset by a decline in volumes, specifically in our United Kingdom business, in the current quarter. The Rail, Technologies, and Services segment gross profit increased by $3,853, or 28.8% over the prior year quarter, and gross profit margins expanded 250 basis points to 19.8%. Gross profit improvement in Rail Products is due to the portfolio changes implemented as part of the Company’s strategic transformation, higher volumes, and improved pricing. The gross profit improvement in Global Friction Management was commensurate with higher sales levels. Gross profit improvement in Technology Services and Solutions is due to the adverse impact of $3,956 for certain long-term commercial contracts related to the multi-year Crossrail project incurred in the prior year quarter, offset by lower current quarter gross profit in the in the United Kingdom businesses, driven by unfavorable business mix and ongoing commercial weakness in the United Kingdom market. Operating profit was $3,865, a $3,326 increase over the prior year quarter, due to the commercial contract settlement in the prior year quarter, partially offset by a bad debt provision charge of $866 resulting from a customer in the United Kingdom that filed for administrative protection in the third quarter of 2023. During the current quarter, the Rail, Technologies, and Services segment had a decrease in new orders of $6,711, or 11.9%, compared to the prior year quarter. The decrease is due to a $1,799 impact associated with the divestitures of Track Components and Ties as well as lower overall order rates in the Rail Products business, partially offset by order growth in the Technology Services and Solutions business. Backlog as of September 30, 2023 was $93,632, a decrease of $15,232, or 14.0%, versus the prior year quarter, driven by a decline in the Rail Products business unit, including a reduction of $7,091 related to the divestiture of Ties, partially offset by a 42.7% and 8.7% increase in Technology Services and Solutions and Global Friction Management backlog, respectively. Precast Concrete Products Three Months Ended September 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 38,642 $ 28,856 $ 9,786 33.9 % Gross profit $ 9,266 $ 5,647 $ 3,619 64.1 % Gross profit margin 24.0 % 19.6 % 4.4 % 22.5 % Segment operating profit $ 3,389 $ 1,245 $ 2,144 172.2 % Segment operating profit margin 8.8 % 4.3 % 4.5 % 104.3 % The Precast Concrete Products segment sales for the three months ended September 30, 2023 increased by $9,786, or 33.9%, compared to the prior year quarter. The VanHooseCo acquisition contributed $2,800, or 9.7%, of the increase in sales over the prior 24 Table of Contents year quarter. Organic sales increased by $6,986, or 24.2%, which is a continued reflection of the strong demand environment in the southern and northeastern United States markets. The Precast Concrete Products segment gross profit for the three months ended September 30, 2023 increased by $3,619, and gross profit margins expanded by 440 basis points to 24.0%. The improvement in gross profit is due to the VanHooseCo acquisition as well as overall sales volumes and the impact of improved pricing in the legacy precast business. The prior year quarter includes an expense of $851 associated with a purchase accounting adjustment related to the acquired VanHooseCo inventory. Operating profit for the third quarter of 2023 was $3,389, a $2,144 improvement over the prior year quarter, due to higher gross profit levels, which was partially offset by an increase in selling and administrative expenses. During the quarter, the Precast Concrete Products segment had a decrease in new orders and backlog of 10.8% and 7.2%, respectively, compared to the prior year quarter. The decrease in new orders and backlog is due primarily to declines in the legacy businesses. Steel Products and Measurement Three Months Ended September 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 19,837 $ 23,809 $ (3,972) (16.7) % Gross profit $ 1,729 $ 4,074 $ (2,345) (57.6) % Gross profit margin 8.7 % 17.1 % (8.4) % (49.1) % Segment operating (loss) profit $ (1,521) $ 303 $ (1,824) ** Segment operating (loss) profit margin (7.7) % 1.3 % (9.0) % ** ** Results of the calculation are not considered meaningful for presentation purposes. The Steel Products and Measurement segment sales for the three months ended September 30, 2023, decreased by $3,972, or 16.7%, compared to the prior year quarter. The decrease in sales for the third quarter of 2023 was attributable to the divestiture of Chemtec, which reduced sales by $4,275, and $1,977 stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line, partially offset by organic growth of $2,280 during the quarter. Steel Products and Measurement gross profit for the three months ended September 30, 2023 decreased by $2,345, and gross profit margins decreased 840 basis points to 8.7%. This decline was driven by the reduction in profitability of $3,051 related to changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line. The segment operating loss was $1,521, unfavorable by $1,824 from the prior year quarter, due to the decline in gross profit, partially offset by lower selling and administrative expenses. During the quarter, the Steel Products and Measurement segment had a decrease in new orders and backlog of $26,999, or 53.9%, and $8,105, or 10.5%, respectively, compared to the prior year quarter. The decrease in order levels was due to the divestiture of Chemtec, driving a decrease of $15,991, and the discontinued bridge grid deck product line, which had an order decline of $4,518, and a decline in the Company’s Protective Coatings business unit. The backlog decrease was due to the divestiture of the Chemtec business driving a decrease of $20,251, and the discontinued bridge grid deck product line, which had a backlog decrease of $5,405, partially offset by growth in the Protective Coatings business unit. 25 Table of Contents Nine Month Results Nine Months Ended September 30, Change 2023 2022 2023 vs. 2022 Net sales $ 408,867 $ 360,324 $ 48,543 Gross profit 83,767 62,837 20,930 Gross profit margin 20.5 % 17.4 % 310 bps Expenses: Selling and administrative expenses $ 70,111 $ 59,310 $ 10,801 Selling and administrative expenses as a percent of sales 17.1 % 16.5 % 60 bps Amortization expense 4,119 4,454 (335) Operating profit (loss) $ 9,537 $ (927) $ 10,464 Operating profit (loss) margin 2.3 % (0.3) % 260 bps Interest expense - net $ 4,404 $ 1,747 $ 2,657 Other expense (income) - net 3,463 (1,096) 4,559 Income (loss) before income taxes $ 1,670 $ (1,578) $ 3,248 Income tax (benefit) expense (99) 137 (236) Net income (loss) $ 1,769 $ (1,715) $ 3,484 Net loss attributable to noncontrolling interest (125) (82) (43) Net income (loss) attributable to L.B. Foster Company $ 1,894 $ (1,633) $ 3,527 Diluted earnings (loss) per common share $ 0.17 $ (0.16) $ 0.33 Results Summary Net sales of $408,867 for the nine months ended September 30, 2023, increased by $48,543, or 13.5%, over the prior year period. Organic growth and acquisitions drove a 13.3% and 5.5% increase in sales over the prior year period, respectively, with an offsetting 5.3% decline from divestitures. The organic growth rate includes the adverse impact stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line within the Steel Products and Measurement segment by $1,977 and the $3,956 non-routine adverse impact on sales in the prior year from 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. Gross profit for the nine months ended September 30, 2023 was $83,767, an increase of $20,930 over the prior year period, or 33.3%, and gross profit margins expanded by 310 basis points to 20.5%. 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 and improved product mix, input costs, and pricing. The current year gross profit includes the reduction in profitability of $3,051 related to changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line in the Steel Products and Measurement segment. The prior year gross profit includes the adverse impact of $3,956 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 and an expense of $851 associated with a purchase accounting adjustment related to acquired inventory stemming from the acquisition of VanHooseCo within the Precast Concrete Products segment. Selling and administrative expenses for the nine months ended September 30, 2023 increased by $10,801, or 18.2%, from the prior year quarter, due in part to the acquisitions of VanHooseCo and Skratch, higher personnel expenses, and a bad debt provision charge of $866 due to a customer in the United Kingdom who filed for administrative protection in the Rail, Technologies, and Services segment. The Company will continue to evaluate the collectibility of this account and will adjust the provision as required. Selling and administrative expenses as a percent of net sales were 17.1% versus 16.5% in the prior year period, a 60 basis point increase. Other expense - net for the nine months ended September 30, 2023 was $3,463 while other income - net was $1,096 in the prior year quarter. Other expense - net for the nine months ended September 30, 2023 was due primarily to the $3,074 loss on the divestitures of Ties and Chemtec and $1,069 of exit costs incurred related to the exit of the bridge grid deck product line, and other income - net for the nine months ended September 30, 2022 was due to a $489 divestiture gain and $790 in insurance proceeds. 26 Table of Contents The Company’s effective income tax rate for the nine months ended September 30, 2023 was (5.9)%, compared to (8.7)% in the prior year period. The Company’s effective tax rate for the nine months ended September 30, 2023 differed from the federal statutory rate of 21% primarily due to changes in the valuation allowance established against U.S. and United Kingdom deferred tax assets. The Company maintains a valuation allowance against its U.S. and United Kingdom deferred tax assets, which is likely to result in significant variability of the effective tax rate in the current year. Net income for the nine months ended September 30, 2023 attributable to the Company was $1,894, or $0.17 per diluted share, favorable by $3,527, or $0.33 per diluted share, from the prior year period. Net income was primarily driven by stronger operating profit stemming from margin expansion during the nine months ended September 30, 2023, which was partially offset by a $3,074 loss on the divestitures of the Chemtec and Ties and $4,120 in exit costs impacting both gross profit and other expense (income) - net incurred from the exit of the bridge grid deck product line. 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 divestiture of Chemtec and Ties and the exit of the bridge grid deck product line, which further reduces the Company’s commoditized offerings 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 Nine Months 2023 Compared to First Nine Months 2022 Rail, Technologies, and Services Nine Months Ended September 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 242,866 $ 222,857 $ 20,009 9.0 % Gross profit $ 51,360 $ 41,564 $ 9,796 23.6 % Gross profit margin 21.1 % 18.7 % 2.4 % 13.4 % Segment operating profit $ 12,880 $ 5,576 $ 7,304 131.0 % Segment operating profit margin 5.3 % 2.5 % 2.8 % 112.0 % The Rail, Technologies, and Services segment sales for the nine months ended September 30, 2023 increased by $20,009, or 9.0%, compared to the prior year period. Net sales increased by 13.1% organically and by 0.7% from the acquisition of Skratch, offset by a 4.8% decrease from the divestitures of Track Components and Ties. The sales increase was driven by Rail Products and Global Friction Management due to strength in domestic markets served, partially offset by a sales decline in Technology Services and Solutions due to the completion of the multi-year Crossrail project in late 2022 and weak economic conditions in the United Kingdom in 2023. Technology Services and Solutions sales in the nine months ended September 30, 2022 include a $3,956 reduction in sales from the settlement of certain long-term commercial contracts related to the multi-year Crossrail project. The Rail, Technologies, and Services segment gross profit increased by $9,796, or 23.6%, over the prior year period, and gross profit margins expanded 240 basis points to 21.1%. Gross profit increases in Rail Products and Global Friction Management were commensurate with higher sales levels. Technology Services and Solutions gross profit declined year over year due to lower sales volumes, unfavorable business mix and ongoing commercial weakness in the United Kingdom market, partially offset by the $3,956 reduction in gross profit recorded in the prior year related to the settlement of certain long-term commercial contracts related to the multi-year Crossrail project. The overall improvement in gross profit is due to the portfolio changes that are a part of the Company’s strategic transformation, increased sales in the higher margin Global Friction Management business, and improved pricing. Operating profit was $12,880, a $7,304 increase over the prior year quarter, due primarily to higher gross profit levels. During the nine months ended September 30, 2023, the Rail, Technologies, and Services segment had a slight decrease in new orders of $1,326, or 0.6%, compared to the prior year period. New orders declined $8,224 and $1,493 related to the divestitures of Track Components and Ties, respectively, which was almost entirely offset by strong order levels in the Global Friction Management and Technology Services and Solutions businesses. Backlog as of September 30, 2023 was $93,632, a decrease of $15,232, or 14.0%, versus the prior year period, driven by a decline in the Rail Products business, including a reduction of $7,091 related to the divestiture of Ties, partially offset by a 42.7% and 8.7% increase in Technology Services and Solutions and Global Friction Management backlog, respectively. 27 Table of Contents Precast Concrete Products Nine Months Ended September 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net sales $ 96,795 $ 67,477 $ 29,318 43.4 % Gross profit $ 22,463 $ 11,439 $ 11,024 96.4 % Gross profit margin 23.2 % 17.0 % 6.2 % 36.9 % Segment operating profit $ 4,337 $ 329 $ 4,008 ** Segment operating profit margin 4.5 % 0.5 % 4.0 % ** ** Results of the calculation are not considered meaningful for presentation purposes. The Precast Concrete Products segment sales for the nine months ended September 30, 2023 increased by $29,318, or 43.4%, compared to the prior year period. The VanHooseCo acquisition contributed 27.2% of the increase in sales over the prior year period. Organic sales increased by 16.3%, 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 nine months ended September 30, 2023 increased by $11,024, and gross profit margins expanded by 620 basis points to 23.2%. 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 nine months ended September 30, 2023 was $4,337, a $4,008 improvement over the prior year period, 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 of 39.4% due to both the VanHooseCo acquisition and strong demand in the legacy business. As of September 30, 2023, backlog decreased by 7.2%, driven by the legacy businesses, which was partially offset by uplift from the VanHooseCo acquisition. Steel Products and Measurement Nine Months Ended September 30, Change Percent Change 2023 2022 2023 vs. 2022 2023 vs. 2022 Net Sales $ 69,206 $ 69,990 $ (784) (1.1) % Gross profit $ 9,944 $ 9,834 $ 110 1.1 % Gross profit margin 14.4 % 14.1 % 0.3 % 2.3 % Segment operating loss $ (73) $ (1,083) $ 1,010 93.3 % Segment operating loss margin (0.1) % (1.5) % 1.4 % 93.2 % The Steel Products and Measurement segment sales for the nine months ended September 30, 2023 decreased by $784, or 1.1%, compared to the prior year quarter. The decrease in sales for the nine months ended September 30, 2023 was due to a reduction of $8,451 from the Chemtec divestiture and $1,977 stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line, which was almost entirely offset by an increase in Protective Coatings. Steel Products and Measurement gross profit for the nine months ended September 30, 2023 increased by $110, and gross profit margins increased 30 basis points to 14.4%. Gross profit for the nine months ended September 30, 2023 included growth in Protective Coatings due to stronger margins and higher sales volume, partially offset by an adverse impact of $3,051 related to changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line and a reduction of $560 due to the Chemtec divestiture. The segment operating loss was favorable $1,010 from the prior year period, due to higher gross profit levels and a decrease in selling and administrative expenses. During the quarter, the Steel Products and Measurement segment had a decrease in new orders and backlog of $17,942, or 17.8%, and $8,105, or 10.5%, respectively, compared to the prior year period. The divestiture of Chemtec during the first quarter of 2023 resulted in a reduction in new orders and backlog of $22,014 and $20,251, respectively, from the prior year period. Strong demand in the Protective Coatings division, in both traditional and expanded market applications, partially offset the decrease in new orders and backlog from the Chemtec divestiture. 28 Table of Contents 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 $55,980 was available for borrowing as of September 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 $71,689 and $91,879 as of September 30, 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 September 30, 2023: September 30, 2023 Cash and cash equivalents $ 2,969 Credit agreement: Total availability under the credit agreement 130,000 Outstanding borrowings on revolving credit facility (71,476) Letters of credit outstanding (2,544) Net availability under the revolving credit facility 55,980 Total available funding capacity $ 58,949 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 September 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 nine months ended September 30, 2023 and 2022 were as follows: Nine Months Ended September 30, 2023 2022 Net cash provided by (used in) operating activities $ 15,310 $ (18,836) Net cash provided by (used in) investing activities 5,798 (54,061) Net cash (used in) provided by financing activities (21,121) 68,568 Effect of exchange rate changes on cash and cash equivalents 100 (1,100) Net increase (decrease) in cash and cash equivalents $ 87 $ (5,429) Cash Flow from Operating Activities During the nine months ended September 30, 2023, net cash provided by operating activities was $15,310, compared to cash used by operating activities of $18,836 during the prior year period. For the nine months ended September 30, 2023, net income and adjustments to reconcile net income from operating activities provided $16,850, compared to $9,134 in the prior year period. Working capital and other assets and liabilities used $1,540 in the current period, compared to using $27,970 in the prior year period. The Company received $2,973 during the nine months ended September 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 nine months ended September 30, 2023 and 2022 were $2,784 and $4,559, respectively. The current period expenditures primarily relate to general plant and operational improvements throughout the Company, as well as organic growth initiatives. Expenditures for the nine months ended September 30, 2022 primarily related to general plant and operational improvements throughout the Company, including corporate system and facility improvements and organic growth initiatives. During the nine months ended September 30, 2023, the Company divested the assets of its Chemtec and Ties businesses, generating a cash inflow of $7,706. During the nine months ended September 30, 2023 the Company received proceeds of $337 from final working capital adjustments related to prior year acquisitions. During the nine months ended September 30, 2022 the Company received cash proceeds from the Track Components divestiture and final proceeds from the 2021 Piling Products divestiture totaling $8,800. During the nine months ended September 30, 2022, the Company had $58,561 in cash outflows for the acquisition of Skratch and VanHooseCo. 29 Table of Contents Cash Flow from Financing Activities During the nine months ended September 30, 2023 and 2022, the Company had a decrease in outstanding debt of $20,262 and an increase of $69,155, respectively. The decrease in debt for the nine months ended September 30, 2023 was primarily due to cash provided by operations, as well as proceeds received from the Ties and Chemtec divestitures during the period, which were used to pay down debt. The increase in debt for the 2022 period 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 of working capital and other assets and liabilities. Treasury stock acquisitions of $1,193 and $405 for the nine months ended September 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 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, 63,343 shares valued at $878 were repurchased during the nine months ended September 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 September 30, 2023, the Company had $2,969 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, 2023, approximately $2,243 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 September 30, 2023, the Company's revolving credit facility had $55,980 of net availability, while the Company had $71,689 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 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. 30 Table of Contents Segment Backlog Total Company backlog is summarized by business segment in the following table for the periods indicated: Backlog September 30, 2023 December 31, 2022 September 30, 2022 Rail, Technologies, and Services $ 93,632 $ 105,241 $ 108,864 Precast Concrete Products 80,391 80,501 86,612 Steel Products and Measurement 69,196 86,509 77,301 Total backlog $ 243,219 $ 272,251 $ 272,777 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. 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.