What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 167 added, 273 removed, 97 unchanged (82% of the section changed)

16 unchanged sentences

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;

the risk of doing business in international markets, including compliance with anti-corruption and bribery laws, foreign currency fluctuations and inflation, global shipping disruptions, 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., VanHooseCo Precast LLC, and Cougar Mountain Precast, LLC businesses and to realize anticipated benefits;

costs of and impacts associated with shareholder activism;

1 unchanged sentence

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;

5 unchanged sentences

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;

geopolitical conditions, including the ongoing conflicts between Russia and Ukraine and Israel and Hamas;

a lack of state or federal funding for new infrastructure projects;

6 unchanged sentences

General Overview and Business Update

Results of the Quarter

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 two reporting segments:

Rail, Technologies, and Services (“Rail”), and Infrastructure Solutions (“Infrastructure”).

Effective for the quarter and year ended December 31, 2023, the Company made certain organizational changes that led to the conclusion that it will operate under two reporting segments as opposed to the three reporting segments it has operated under historically.

As such, the Company has restated segment information for the historical periods presented herein to conform to the current presentation.

The Infrastructure Solutions business comprises both the historic Precast Concrete Products and Steel Products and Measurement (since renamed “Steel Products”) reporting segments.

Acquisitions, Divestitures, and Product Line Exit

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 generating a $2,065 loss on sale, recorded in “Other (income) expense - net” for the three months ended March 31, 2023.

The Chemtec business was reported in the Steel Products business unit in the Infrastructure 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, generating a $1,009 loss on the sale, which was recorded in “Other expense (income) - net” for the three months ended June 30, 2023.

The Ties business was reported in the Rail Products business unit within the Rail segment.

On August 30, 2023, the Company announced the discontinuation of its Bridge Products grid deck product line (“Bridge Exit”) which was reported in the Steel Products business unit within the Infrastructure segment.

The decision to exit the bridge grid deck product line was a result of a weak bridge grid deck market condition and outlook due to customer adoption of newer technologies replacing the grid deck solution.The Bedford, PA based operations supporting the product line expects to complete any remaining customer obligations during 2024.

For the three months ended March 31, 2024 and 2023, the product line had $810 and $1,491 in sales, respectively.

On November 17, 2023, the Company acquired the operating assets of Cougar Mountain Precast, LLC (“Cougar”), located in Caldwell, Idaho, which is a licensed manufacturer of Redi-Rock and natural concrete products for $1,644, subject to hold back payments, to be paid over the next twelve months or utilized to satisfy post-close working capital adjustments or indemnity claims.

Cougar has been included in the Precast Concrete Products business unit within the Infrastructure segment.

Results of Operations

First Quarter 2024 Compared to First Quarter 2023

Three Months Ended

September 30, Change

March 31, Change

2024 2023 2024 vs.

6 unchanged sentences

Amortization expense 1,217 1,365 (148)

Operating profit (loss) $ 2,685 $ (1,120) $ 3,805

Operating profit (loss) margin

1.8 % (0.9) % 270 bps

Operating profit $ 2,283 $ 503 $ 1,780

Operating profit margin 1.8 % 0.4 % 140 bps

Interest expense - net $ 1,125 $ 1,388 $ (263)

Other expense - net 917 168 749

Other (income) expense - net (3,536) 1,827 (5,363)

Income (loss) before income taxes $ 4,694 $ (2,712) $ 7,406

Income tax benefit (121) (176) 55

Income tax expense (benefit) 289 (541) 830

Net income (loss) $ 4,405 $ (2,171) $ 6,576

3 unchanged sentences

Diluted earnings (loss) per common share $ 0.40 $ (0.20) $ 0.60

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.

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.

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.

Net sales of $124,320 for the three months ended March 31, 2024, increased by $8,832, or 7.6%, over the prior year quarter.

The increase in sales is due to organic sales growth of $19,474 or 16.9%, partially offset by the divestiture of the Ties and Chemtec businesses as well as the Bridge Exit which reduced sales by $10,642 or 9.2%.

Gross profit for the three months ended March 31, 2024 increased $2,958 or 12.7%, over the prior year quarter and gross profit margins expanded by 90 basis points to 21.1%.

The improvement in gross profit is due primarily to the portfolio changes that are a part of the Company’s strategic transformation, as well as uplift from increased sales volumes and product mix.

Selling and administrative expenses for the three months ended March 31, 2024 increased by $1,326, or 6.2%, over the prior year quarter, due primarily to increased personnel costs and professional services expenditures.

Selling and administrative expenses as a percent of net sales decreased to 18.3% from 18.5% in the prior year quarter.

Net interest expense decreased $263 due to lower outstanding debt, on average, for the three months ended March 31, 2024 compared to the prior year quarter.

The Company's outstanding debt balance was $78,085 as of March 31, 2024, compared to $80,096 as of March 31, 2023.

Other income for the three months ended March 31, 2024 was $3,536 and was primarily attributable to a gain of $3,477 on the sale of the Company’s former joint venture facility and land in Magnolia, Texas.

Other expense - net for the three months ended March 31, 2023 was $1,827 and was primarily due to the $2,033 loss on the sale of Chemtec during the prior year quarter.

The Company’s effective income tax rate for the three months ended March 31, 2024 was 6.2%, compared to 19.9% in the prior year quarter.

The Company’s effective income tax rate for the three months ended March 31, 2024 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 attributable to the Company for the three months ended March 31, 2024 was $4,436, or $0.40 per diluted share, compared to a net loss in the prior year quarter of $2,152, or $0.20 per diluted share.

Net income for the three months ended March 31, 2024 was

primarily driven by increased sales volumes, gross profit expansion and the gain on the sale of the Company’s former joint venture facility and land in Magnolia, Texas, partially offset by an increase in selling and administrative expenses.

Results of Operations - Segment Analysis

Third Quarter 2023 Compared to Third Quarter 2022

Rail, Technologies, and Services

Three Months Ended

September 30, Change Percent

2023 2022 2023 vs.

2022 2023 vs.

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

March 31, Change Percent

2024 2023 2024 vs.

2 unchanged sentences

Gross profit $ 18,571 $ 14,284 $ 4,287 30.0

Gross profit margin 24.0 % 19.6 % 4.4 % 22.5 %

Gross profit margin 22.5 % 22.2 % 30 bps 1.3

Segment operating profit $ 6,778 $ 2,388 $ 4,390 183.8

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

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

Segment operating profit margin 8.2 % 3.7 % 450 bps 121.2

The Rail segment sales for the three months ended March 31, 2024 increased by $18,239, or 28.3%, compared to the prior year quarter.

The increase was due to higher organic sales of $18,940 or 29.4%, partially offset by a $701 or 1.1% decrease from the divestiture of Ties.

Rail Products sales increased $12,810 driven by strength in domestic markets served.

Technology Services and Solutions sales increased by $7,227 due to strength in domestic rail safety markets served, as well as improvement in United Kingdom markets.

Global Friction management sales declined $1,798 driven by the timing of orders which have increased from the 2023 fourth quarter by 29.6% .

The Rail segment gross profit increased by $4,287, or 30.0% compared to the prior year quarter, and gross profit margins expanded 30 basis points to 22.5%.

Technology Services and Solutions business unit gross profit improved by $4,086 due to higher volume and improved mix.

Higher volumes in Rail Products resulted in gross profit increasing by $1,369.

Lower volumes and unfavorable product mix in the Global Friction Management business result in a decline in gross profit of $1,168.

Segment operating profit increased $4,390 compared to the prior year, and operating profit margins expanded 450 basis points to 8.2%.

The increase was driven by improvement in gross profit levels as a result of increased sales volume and favorable business mix, particularly in the Technology Services and Solutions business unit.

During the current quarter, new orders within the Rail segment increased by $10,019, or 13.6%, compared to the prior year quarter.

The increase in new orders was attributable to the Rail Products and Global Friction Management businesses, which was offset in part by the Ties divestiture which reduced orders by $2,729 as well as lower overall order rates in the Technology Services and Solutions business unit.

Segment backlog as of March 31, 2024 was $86,038, a decrease of $27,555, or 24.3%, versus the prior year quarter.

The decrease is attributed to the Rail Products business, including a reduction of $3,549 related to the divestiture of Ties, partially offset by a 27.7% increase in Global Friction Management backlog.

Infrastructure Solutions

Three Months Ended

September 30, Change Percent

2023 2022 2023 vs.

March 31, Change Percent

2024 2023 2024 vs.

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.

Nine Month Results

Nine Months Ended

September 30, Change

2023 2024 vs.

2 unchanged sentences

Gross profit margin 18.4 % 17.6 % 80 bps 4.5

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.

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

2023 2022 2023 vs.

2022 2023 vs.

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.

Precast Concrete Products

Nine Months Ended

September 30, Change Percent

2023 2022 2023 vs.

2022 2023 vs.

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

Segment operating loss $ (1,393) $ (356) $ (1,037) (291.3)

Segment operating loss margin (3.3) % (0.7) % (260) bps (373.2)

The Infrastructure segment sales for the three months ended March 31, 2024 decreased by $9,407, or 18.4%, compared to the prior year quarter.

The decrease in sales for the first quarter of 2024 was attributable to the divestiture of Chemtec and the Bridge Exit, which decreased sales by $9,260 and $681, respectively.

O rganic sales increased by $534, or 1.0%, while being adversely affected by weather conditions that impacted customer project execution in our Precast Concrete Products business.

The Infrastructure segment gross profit for the three months ended March 31, 2024, decreased by $1,329, or 14.8%, due primarily to the divestiture of Chemtec which reduced gross profit by $888 and softness in margins in our Precast Concrete Products business.

Gross profit margins of 18.4% increased by 80 basis points over the prior year, driven by the favorable impact of portfolio changes.

Segment operating loss for the first quarter of 2024 was $1,393 compared to an operating loss in the prior year of $356.

The segment operating loss was due to lower gross profit levels, which was partially offset by a decrease in amortization expense and selling and administrative expenses.

During the quarter, the Infrastructure segment had a decrease in new orders of $17,149, or 26.1%, compared to the prior year quarter.

The decrease is due to an $8,538 impact associated with the divestiture of Chemtec and the Bridge Exit as well as decreases in orders in the Precast Concrete Products and Protective Coatings businesses.

Backlog as of March 31, 2024 was $136,223, a decrease of $10,065, or 6.9%, versus the prior year quarter, driven primarily by a reduction of $8,509 related to the Bridge Exit.

Three Months Ended March 31, Change Percent

2024 2023 2024 vs.

2023 2024 vs.

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.

Corporate expense and other unallocated charges $ 3,102 $ 1,529 $ 1,573 102.9 %

Unallocated corporate expenses increased in 2024 compared with 2023 primarily due to personnel costs and professional services expenditures.

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

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 $50,071 was available for borrowing as of March 31, 2024, subject to covenant restrictions.

The Company’s total debt, including finance leases, was $78,085 and $55,273 as of March 31, 2024 and December 31, 2023, respectively, and was primarily comprised of borrowings under its revolving credit facility.

The following table reflects available funding capacity as of March 31, 2024:

March 31, 2024

Cash and cash equivalents $ 3,148

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Total available funding capacity $ 53,219

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

As of March 31, 2024 we were in compliance with all covenants of the Credit Agreement and have $53,219 available funding capacity.

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

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

The Company believes that its reserves for credit losses are appropriate as of March 31, 2024, 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, 2024 and 2023 were as follows:

Three Months Ended March 31,

Net cash (used in) provided by operating activities $ (21,864) $ 6,932

Net cash provided by investing activities 1,209 4,661

Net cash provided by (used in) financing activities 21,298 (12,022)

Effect of exchange rate changes on cash and cash equivalents (55) 186

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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.

During the three months ended March 31, 2024, net cash used in operating activities was $21,864, compared to cash provided operating activities of $6,932 during the prior year quarter.

For the three months ended March 31, 2024, net income and adjustments to reconcile net income from operating activities provided $5,414, compared to $3,352 in the prior year quarter.

Working capital and other assets and liabilities were a use of $27,278 in the current period, compared to a source of $3,580 in the prior year quarter.

The change in operating cash flow for the three months ended March 31, 2024 versus the three months ended March 31, 2023 was largely driven by accounts receivable, which was a use of $4,042 during the current quarter compared to the $26,239 provided in the prior year quarter.

Order execution and collection timing can impact accounts receivables in any given quarter.

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.

Capital expenditures for the three months ended March 31, 2024 and 2023 were $2,292 and $699, respectively.

Capital expenditures in both periods primarily relate to general plant and operational improvements throughout the Company, as well as organic growth initiatives.

During the three months ended March 31, 2024, the Company divested the facility and land of its former joint venture in Magnolia, Texas generating a cash inflow of $3,501.

During the three months ended March 31, 2023 the Company received cash proceeds from the Chemtec divestiture totaling $5,344.

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 three months ended March 31, 2024 the Company had an increase in outstanding debt of $22,911 compared to March 31, 2023 in which the Company has a decrease in debt of $12,047.

The increase in debt for the three months ended March 31, 2024 was primarily due to cash used in operating activities due to organic growth initiatives and higher seasonal working capital needs.

The decrease in debt for the 2023 period was due to lower working capital as well as proceeds received from the Chemtec divestiture during the quarter.

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.

For the three months ended March 31, 2024 the Company repurchased 16,555 shares of its stock for $385 under this 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.

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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.

As of March 31, 2024, the Company had $3,148 in cash and cash equivalents and $50,071 of availability under its revolving credit facility, subject to covenant restrictions.

As of March 31, 2024, approximately $2,729 of the Company’s cash and cash equivalents were held in non-domestic bank accounts.

The Company’s principal uses of cash in recent years have been to fund its operations, including capital expenditures, repurchase of shares, acquisitions, funding the UPRR Settlement Agreement, and service indebtedness.

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

On August 13, 2021, the Company, its domestic subsidiaries, and certain of its Canadian and United Kingdom subsidiaries (collectively, the “Borrowers”), entered into the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with PNC Bank, N.A., Citizens Bank, N.A., Wells Fargo Bank, National Association, Bank of America, N.A., and BMO Harris Bank, National Association.

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

The Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers up to $130,000 with a sublimit of the equivalent of $25,000 U.S.

dollars that is available to the Canadian and United Kingdom borrowers in the aggregate.

The Credit Agreement’s incremental loan feature permits the Company to increase the available commitments under the facility by up to an additional $50,000 subject to the

Company’s receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions.

On August 12, 2022, the Company entered into a second amendment to its Credit Agreement (the “Second Amendment”) which 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:

September 30,

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

2024 December 31,

2022 September 30,

2023 March 31,

Rail, Technologies, and Services $ 86,038 $ 84,418 $ 113,593

Precast Concrete Products 80,391 80,501 86,612

Steel Products and Measurement 69,196 86,509 77,301

Infrastructure Solutions 136,223 129,362 146,288

Total backlog $ 222,261 $ 213,780 $ 259,881

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.

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

Backlog decreased $37,620 compared to the prior year quarter due to $12,058 from businesses that were divested and a discontinued product line.

The remaining decline is associated with the timing of large orders for the Rail Products business.

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.

The Condensed Consolidated Financial Statements have been prepared in conformity with US GAAP.

The preparation of the Condensed Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities.

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.

The Company has concluded that there have been no significant changes to its critical accounting policies or estimates as described in its Annual Report on Form 10-K for the year ended December 31, 2023.

Non-GAAP Financial Measures

In accordance with SEC rules, the Company provides descriptions of the non-GAAP financial measures included in this filing and reconciliations to the most closely related GAAP financial measures.

The Company believes that these measures provide useful perspective on underlying business trends and results and a supplemental measure of year-over-year results.

The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes and may, therefore, also be useful to investors as they are a view of our business results through the eyes of management.

These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results.

These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “organic sales” refer to sales calculated in accordance with GAAP, adjusted to exclude divestiture, exit, and acquisition-related sales.

Management evaluates the Company’s sales performance based on organic sales growth.

Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure), adjusted to exclude the effects of divestiture, exit, and acquisition-related sales from year-over-year comparisons.

The Company believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis.

The Company reports organic sales growth at the consolidated and segment levels.

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.

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

A reconciliation of organic sales growth to its most directly comparable respective US GAAP financial measure is presented below.

Change in Consolidated Sales Three Months Ended

March 31, Percent

2023 net sales, as reported $ 115,488

Decrease due to divestitures and exit (10,642) (9.2) %

Change due to organic sales 19,474 16.9 %

2024 net sales, as reported $ 124,320

Total sales change, 2023 vs 2024 $ 8,832 7.6 %

Change in Rail, Technologies, and Services Sales Three Months Ended

March 31, Percent

2023 net sales, as reported $ 64,384

Decrease due to divestiture (701) (1.1) %

Change due to organic sales 18,940 29.4 %

2024 net sales, as reported $ 82,623

Total sales change, 2023 vs 2024 $ 18,239 28.3 %

Change in Infrastructure Solutions Sales Three Months Ended

March 31, Percent

2023 net sales, as reported $ 51,104

Decrease due to divestiture and exit (9,941) (19.5) %

Change due to organic sales 534 1.0 %

2024 net sales, as reported $ 41,697

Total sales change, 2023 vs 2024 $ (9,407) (18.4) %

Note percentages may not foot due to rounding.

Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis