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: 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, tariffs or trade wars, inflation, 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 and the impact of environmental regulations, 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, global shipping disruptions, the imposition of increased or new tariffs, 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 acquisition of VanHooseCo Precast LLC, 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, business or financial condition; 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, 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; our ability to maintain effective internal controls over financial reporting (“ICFR”) and disclosure controls and procedures, as well as our ability to reestablish effective disclosure controls and procedures; any change in policy or other change due to the results of the UK’s 2024 parliamentary election and the U.S. 2024 Presidential election that could affect UK or U.S. business conditions; other geopolitical conditions, including the ongoing conflicts between Russia and Ukraine, conflicts in the Middle East, and increasing tensions between China and Taiwan; a lack of or delay in state or federal funding for new infrastructure projects; an increase in manufacturing or material costs, including volatility in steel prices; the loss of future revenues from current customers; 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, including any governmental travel restrictions; 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, 2024, 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 L.B. Foster Company is a global technology solutions provider of products and services for the rail and infrastructure markets. The Company’s innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers' most challenging requirements. The Company is organized and operates in two reporting segments: Rail, Technologies, and Services (“Rail”) and Infrastructure Solutions (“Infrastructure”). Product Line Exit 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 Infrastructure. The Bedford, PA based operations supporting the product line expects to complete any remaining customer obligations in 2025. For the three months ended March 31, 2025 and 2024, the product line had $501 and $810 in sales, respectively. Results of Operations First Quarter 2025 Compared to First Quarter 2024 Three Months Ended March 31, Change 2025 2024 2025 vs. 2024 Net sales $ 97,792 $ 124,320 $ (26,528) Gross profit 20,151 26,176 (6,025) Gross profit margin 20.6 % 21.1 % (50) bps Expenses: Selling and administrative expenses $ 20,952 $ 22,870 $ (1,918) Selling and administrative expenses as a percent of sales 21.4 % 18.4 % 300 bps (Gain) on sale of former joint venture facility — (3,477) 3,477 Amortization expense 1,122 1,217 (95) Operating (loss) income $ (1,923) $ 5,566 $ (7,489) Operating (loss) income margin (2.0) % 4.5 % (650) bps Interest expense - net $ 1,143 $ 1,125 $ 18 Other income - net (318) (253) (65) (Loss) income before income taxes $ (2,748) $ 4,694 $ (7,442) Income tax (benefit) expense (631) 289 (920) Net (loss) income $ (2,117) $ 4,405 $ (6,522) Net loss attributable to noncontrolling interest (7) (31) 24 Net (loss) income attributable to L.B. Foster Company $ (2,110) $ 4,436 $ (6,546) Diluted (loss) earnings per common share $ (0.20) $ 0.40 $ (0.60) Results Summary Net sales for the three months ended March 31, 2025 decreased $26,528, or 21.3%, from the prior year quarter. The decrease in sales was driven by $28,608, or 34.6%, in the Rail segment, partially offset by a $2,080, or 5.0% increase in the Infrastructure segment. Gross profit for the three months ended March 31, 2025 decreased $6,025, or 23.0%, from the prior year quarter and gross profit margins decreased 50 basis points to 20.6%. The decline in gross profit and gross profit margin is due to lower sales volumes associated with the Rail segment, which has historically been the more profitable segment . Selling and administrative expenses for the three months ended March 31, 2025 decreased by $1,918, or 8.4%, from the prior year quarter, due primarily to decreased personnel costs and professional services expenditures. Selling and administrative expenses as a percent of net sales increased to 21.4% from 18.4% in the prior year quarter due to lower sales volumes. Net interest expense increased $18 for the three months ended March 31, 2025 compared to the prior year quarter. The Company's outstanding debt balance was $82,498 as of March 31, 2025, compared to $78,085 as of March 31, 2024. 22 Table of Contents The Company’s effective income tax rate for the three months ended March 31, 2025 was 23.0%, compared to 6.2% in the prior year quarter. The Company's effective income tax rate for the three months ended March 31, 2025 differed from the statutory rate of 21% primarily due to state income taxes, nondeductible expenses and the discrete impact of excess tax benefits related to share-based compensation, offset by the impact of pre-tax losses in foreign jurisdictions with full valuation allowances for which no income tax benefit was recognized. Net loss attributable to the Company for the three months ended March 31, 2025 was $2,110, or $0.20 per diluted share, compared to net income in the prior year quarter of $4,436, or $0.40 per diluted share. Net loss for the three months ended March 31, 2025 was primarily driven by decreased sales volumes and lower gross profit, offset in part by a decrease in selling and administrative expenses. Net income for the three months ended March 31, 2024 included the $3,477 gain on the sale of the former joint venture facility in Magnolia, Texas. Results of Operations - Segment Analysis Rail, Technologies, and Services Three Months Ended March 31, Change Percent Change 2025 2024 2025 vs. 2024 2025 vs. 2024 Net sales $ 54,015 $ 82,623 $ (28,608) (34.6 %) Gross profit $ 12,029 $ 18,571 $ (6,542) (35.2) Gross profit margin 22.3 % 22.5 % (20) bps (0.9) Segment operating income $ 144 $ 6,778 $ (6,634) (97.9) Segment operating income margin 0.3 % 8.2 % (790) bps (96.8) Rail segment net sales for the three months ended March 31, 2025 decreased $28,608, or 34.6%, from the prior year quarter. The decrease was primarily due to the decline in the Rail Products business unit which declined by $23,719, or 44.7%, due to the timing of large orders in the Rail Distribution product line and an exceptionally strong prior year. Technology Services and Solutions sales decreased by $6,430 due to the Company scaling back initiatives in the United Kingdom and softness in the domestic markets served. The Global Friction Management business unit sales improved $1,541, or 11.0%, due to improved demand in domestic markets served. The Rail segment's gross profit decreased by $6,542, or 35.2%, from the prior year quarter, and gross profit margins declined 20 basis points to 22.3%. The Rail Products and Technology Services and Solutions business units gross profit declined by $4,231 and $3,241, respectively, due to lower volumes and slightly unfavorable business mix. Partially offsetting these declines was an improvement in the Global Friction Management gross profit of $930, due to higher volumes. Segment operating income decreased by $6,634 from the prior year quarter. The decrease was driven by a decline in gross profit associated with lower sales volumes. New orders of $83,252 for the three months ended March 31, 2025 decreased 0.6% from the prior year quarter due to order level declines in the Rail Products and Technology Services and Solutions business units, declining by 5.2% and 30.6%, respectively. Partially offsetting these declines was a 28.3% increase in new orders in our Global Friction Management business unit. Segment backlog of $91,724 as of March 31, 2025 increased 6.6% over the prior year quarter. The increase is attributed to a 22.1% increase in the Rail Products business and a 71.4% increase in the Global Friction Management business, partially offset by a decline of 47.5% in our Technology Services and Solutions business as we scale back initiatives in the United Kingdom. Infrastructure Solutions Three Months Ended March 31, Change Percent Change 2025 2024 2025 vs. 2024 2025 vs. 2024 Net sales $ 43,777 $ 41,697 $ 2,080 5.0 % Gross profit $ 8,122 $ 7,605 $ 517 6.8 Gross profit margin 18.6 % 18.2 % 40 bps 1.7 Segment operating loss $ (444) $ (1,388) $ 944 (68.0) Segment operating loss margin (1.0) % (3.3) % 230 bps (69.1) The Infrastructure segment net sales for the three months ended March 31, 2025 increased by $2,080, or 5.0%, over the prior year quarter. The increase in net sales was attributable to the Precast Concrete Products business unit which increased $7,113, or 33.7%, 23 Table of Contents which was partially offset by a $5,033, or 24.4%, decline in the Steel Products business unit due to timing of orders in the Protective Coatings businesses. The Infrastructure segment's gross profit for the three months ended March 31, 2025 increased by $517, or 6.8%, due primarily to strength in the Precast Concrete Products business. Gross profit margins of 18.6% increased 40 basis points over the prior year quarter due to improved volumes in Precast Concrete and favorable business mix in the Steel Products business unit. Segment operating loss for the three months ended March 31, 2025 was favorable by $944 compared to the prior year quarter due to improvements in gross profit and a decrease in selling and administrative expenses. For the three months ended March 31, 2025, the Infrastructure segment had new orders of $65,812, an increase of 35.3%, over the prior year quarter. The increase is due to our Precast Concrete Products business unit which increased by 20.0% over the prior year quarter, and our Steel Products business unit which increased by 71.8% over the prior year quarter due to new order strength in our Protective Coatings business. Backlog as of March 31, 2025, was $145,491, a 6.8% increase over the prior year quarter, driven by both business units. Corporate Three Months Ended March 31, Change Percent Change 2025 2024 2025 vs. 2024 2025 vs. 2024 (Gain) on sale of former joint venture facility $ — $ (3,477) $ 3,477 (100.0) % Public company costs 1,154 1,219 (65) (5.3) Corporate executive management costs 220 1,407 (1,187) (84.4) Corporate management stock-based compensation 278 599 (321) (53.6) Other (29) 76 (105) (138.2) Unallocated corporate expense (income) - net $ 1,623 $ (176) $ 1,799 ** ** Results are not considered meaningful Unallocated corporate expense - net for the three months ended March 31, 2025 was $1,623 compared to unallocated corporate income - net for the three months ended March 31, 2024 which was $176. The unallocated corporate income - net for the three months ended March 31, 2024 included the $3,477 gain on the sale of the former joint venture facility in Magnolia, Texas. Corporate executive management costs decreased from the prior year quarter due to a decrease in professional service 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 $47,178 was available for borrowing as of March 31, 2025, subject to covenant restrictions. The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, tax obligations, outstanding purchase obligations, acquisitions, restructuring payments, and to support the share repurchase program. The Company’s total debt, including finance leases, was $82,498 and $46,940 as of March 31, 2025 and December 31, 2024, respectively, and was primarily comprised of borrowings under its revolving credit facility. The following table reflects available funding capacity as of March 31, 2025: March 31, 2025 Cash and cash equivalents $ 2,612 Credit agreement: Total availability under the credit agreement 130,000 Outstanding borrowings on revolving credit facility (82,067) Letters of credit outstanding (755) Net availability under the revolving credit facility 47,178 Total available funding capacity $ 49,790 As of March 31, 2025, we were in compliance with all covenants of the Credit Agreement and have $49,790 available funding capacity. 24 Table of Contents 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 business mix, commercial terms, and market conditions as well as seasonality may impact its working capital. The Company regularly assesses its receivables and contract assets for collectability and realization, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as of March 31, 2025, 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 compensate 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, 2025 and 2024 were as follows: Three Months Ended March 31, 2025 2024 Net cash used in operating activities $ (26,136) $ (21,444) Net cash (used in) provided by investing activities (2,575) 789 Net cash provided by financing activities 28,820 21,298 Effect of exchange rate changes on cash and cash equivalents 49 (55) Net increase in cash and cash equivalents $ 158 $ 588 Cash Flow from Operating Activities During the three months ended March 31, 2025, net cash used in operating activities was $26,136, compared to cash used in operating activities of $21,444 during the prior year quarter. For the three months ended March 31, 2025, net income and adjustments to reconcile net income from operating activities provided $1,324, compared to $5,414 in the prior year quarter. Working capital and other assets and liabilities were a use of $27,460 in the current period, compared to a use of $26,858 in the prior year quarter. The change in operating cash flow for the three months ended March 31, 2025 versus the three months ended March 31, 2024 was largely driven by accounts payable, which used $12,649 during the current quarter compared to the $3,200 provided in the prior year quarter. Changes in payment timing can impact accounts payable in any given quarter; however, overall working capital needs are typically higher in the first quarter of the year due to seasonality. Cash Flow from Investing Activities Capital expenditures for the three months ended March 31, 2025 and 2024 were $2,575 and $2,712, respectively. Capital expenditures in both periods primarily relate to general plant and operational improvements throughout the Company, as well as organic growth initiatives including investments that are being made in our new facility in Lake County, Florida. During the three months ended March 31, 2024, the Company's divestiture of the facility and land of its former joint venture in Magnolia, Texas (the “Magnolia Sale”) generated a cash inflow of $3,501. Cash Flow from Financing Activities During the three months ended March 31, 2025 the Company had an increase in outstanding debt of $34,891 compared to $22,911 increase during the three months ended March 31, 2024. The higher increase in debt for the three months ended March 31, 2025 versus three months ended March 31, 2024 was driven by an increase in cash used in operating activities, primarily due to higher seasonal working capital needs as well as organic growth initiatives and the absence of the cash inflow from the Magnolia Sale. The Board of Directors previously authorized the repurchase of up to $15,000 of the Company’s common shares until February 2025, pursuant to the terms of the previously disclosed stock repurchase program adopted March 3, 2023, as amended August 5, 2024. During the three months ended March 31, 2025, the Company repurchased 113,169 shares for $3,123 under this program through February 2025. The Company repurchased a total of 547,679 shares of its stock for $12,241 since the program's inception through February 2025. On March 3, 2025, the Company's Board of Directors approved a new authorization to repurchase up to $40,000 of the Company's common stock in open market transactions and/or 10b5-1 trading plans through February 29, 2028. As of March 31, 2025, the Company repurchased 55,742 shares for $1,154 under this program. Under both programs, the Company repurchased a total of 168,911 shares for $4,277 during the three months ended March 31, 2025. From February 2023 through March 31, 2025, the Company repurchased a total of 603,421 shares of its stock for $13,395 under both programs. 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 25 Table of Contents 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 March 31, 2025, the Company had $2,612 in cash and cash equivalents and $47,178 of availability under its revolving credit facility, subject to covenant restrictions. As of March 31, 2025, approximately $1,361 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 now complete 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. The August 12, 2022 interest rate swap expired on March 1, 2025. The August 31, 2022 interest rate swap expires on August 13, 2026. Backlog Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by segment: Backlog March 31, 2025 December 31, 2024 March 31, 2024 Rail, Technologies, and Services $ 91,724 $ 62,449 $ 86,038 Infrastructure Solutions 145,491 123,460 136,223 Total backlog $ 237,215 $ 185,909 $ 222,261 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 increased by $14,954 over the prior year quarter due to increases throughout our portfolio. Critical Accounting Estimates 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. 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, 2024. 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 26 Table of Contents 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. The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement. The Company defines backlog as contractual commitments to customers for which the Company’s performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance. Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company’s current and future results of operations and financial prospects, and strategies for business development. The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company’s current performance and prospective results of operations and financial performance. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to a smaller reporting company.