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, valuations and impairments, and plans regarding our financial position, liquidity, capital resources, 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: adverse economic conditions in the markets we serve, including recession, the volatility in the prices for oil and gas, tariffs, duties or trade wars, inflation, rising labor costs, project delays, and budget shortfalls, or otherwise; the disruption of government funding programs as a result of potential periodic government shutdowns; 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, or uncertainties relating to the imposition and enforcement of tariffs; our ability to timely effectuate our strategy, including cost reduction initiatives, and our ability to effectively integrate acquired businesses or to divest businesses, and to realize anticipated synergies and benefits; costs of and impacts associated with shareholder activism; the timeliness, cost, 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; emerging technologies, including those related to or arising from artificial intelligence, and resultant risks to our business and operations; cybersecurity risks such as data security breaches, malware, ransomware, “hacking,” and identity theft, either with respect to our systems or those of third parties on whom we rely, 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 and disclosure controls and procedures; any change in policy or other change due to the results of the UK’s parliamentary elections and the U.S. presidential and congressional elections that could affect UK or US 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, freezing of, or delay in state or federal funding for infrastructure projects; an increase in manufacturing or material costs, including volatility in steel prices, oil prices, and wage inflation; 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, 2025, 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. 18 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 which was reported in the Steel Products business unit within the Infrastructure segment. For the three months ended March 31, 2025, the product line had net sales of $501 and the Company completed all customer obligations as of December 31, 2025. During the second quarter of 2025, the Company announced the discontinuation of its Automation and Materials Handling (“AMH”) product line which was reported in the Technology Services and Solutions business unit within the Rail segment. AMH had net sales of $407 for the three months ended March 31, 2025. The Company completed the remaining customer obligations in 2025 all exit costs were incurred in the second quarter of 2025. Results of Operations First Quarter 2026 Compared to First Quarter 2025 Three Months Ended March 31, Change 2026 2025 2026 vs. 2025 Net sales $ 121,144 $ 97,792 $ 23,352 Gross profit 25,696 20,151 5,545 Gross profit margin 21.2 % 20.6 % 60 bps Expenses: Selling and administrative expenses $ 23,033 $ 20,952 $ 2,081 Selling and administrative expenses as a percent of sales 19.0 % 21.4 % (240) bps Amortization expense $ 618 $ 1,122 $ (504) Operating income (loss) $ 2,045 $ (1,923) $ 3,968 Operating income (loss) margin 1.7 % (2.0) % 370 bps Interest expense - net $ 851 $ 1,143 $ (292) Other income - net (217) (318) 101 Income (loss) before income taxes $ 1,411 $ (2,748) $ 4,159 Income tax benefit (81) (631) 550 Net income (loss) $ 1,492 $ (2,117) $ 3,609 Net loss attributable to noncontrolling interest (8) (7) (1) Net income (loss) attributable to L.B. Foster Company $ 1,500 $ (2,110) $ 3,610 Diluted earnings (loss) per common share $ 0.14 $ (0.20) $ 0.34 Results Summary Net sales for the three months ended March 31, 2026 increased $23,352, or 23.9%, over the prior year quarter. The increase was driven by Rail sales growth of $20,761, or 38.4%, with Infrastructure sales also improving $2,591, or 5.9%. Gross profit for the three months ended March 31, 2026 increased $5,545, or 27.5%, over the prior year quarter driven primarily by higher volumes in Rail which improved $4,113 and improved volumes, business mix, and manufacturing execution in Infrastructure which contributed $1,432. Gross profit margins improved 60 basis points to 21.2%. Selling and administrative expenses for the three months ended March 31, 2026 increased $2,081, or 9.9%, over the prior year quarter, primarily attributable to higher personnel costs driven by merit, incentive costs, and a $675 accelerated stock expense due to retirement-eligible participants. Selling and administrative expenses as a percentage of net sales decreased by 240 bps to 19.0%. 19 Table of Contents Amortization expense for the three months ended March 31, 2026 decreased $504, or 44.9%, from the prior year quarter due to acquired intangible assets becoming fully amortized. Net interest expense for the three months ended March 31, 2026 decreased $292 from the prior year quarter. The Company's outstanding debt balance was $59,684 as of March 31, 2026, compared to $82,498 as of March 31, 2025. The Company’s effective income tax rate for the three months ended March 31, 2026 was (5.7)%, compared to 23.0% in the prior year quarter. The Company's effective income tax rate for the three months ended March 31, 2026 differed from the statutory rate of 21% primarily due to the impact of excess tax benefits related to share-based compensation, offset by the impact of pre-tax losses in the United Kingdom for which no income tax benefit was recognized due to a valuation allowance. Net income attributable to the Company for the three months ended March 31, 2026 was $1,500, or $0.14 per diluted share, compared to net loss in the prior year quarter of $2,110, or $0.20 per diluted share. The increase is due to improved gross profit partially offset by higher selling and administrative expenses. Results of Operations - Segment Analysis Rail, Technologies, and Services Three Months Ended March 31, Change Percent Change 2026 2025 2026 vs. 2025 2026 vs. 2025 Net sales $ 74,776 $ 54,015 $ 20,761 38.4 % Gross profit $ 16,142 $ 12,029 $ 4,113 34.2 Gross profit margin 21.6 % 22.3 % (70) bps (3.1) Segment operating income $ 4,820 $ 144 $ 4,676 ** Segment operating income margin 6.4 % 0.3 % 610 bps ** **Results of this calculation are not meaningful for presentation purposes. Rail net sales for the three months ended March 31, 2026 increased $20,761, or 38.4 %, over the prior year quarter. Rail Products net sales increased $11,960, or 40.8%, reflecting the recovery in the Rail Distribution business following softer demand in early 2025. Global Friction Management sales increased $6,144, or 39.5%, driven by strong demand in domestic markets. Technology Services and Solutions (“TS&S”) sales increased $2,657, or 29.1%, driven by short term project work in the UK. Rail gross profit for the three months ended March 31, 2026 increased $4,113, or 34.2 %, over the prior year quarter due to improved sales volumes, while gross profit margins declined 70 basis points to 21.6 % due to unfavorable business mix. Rail operating income for the three months ended March 31, 2026 increased $4,676 over the prior year quarter due primarily to improved gross profit and lower amortization expense. For the three months ended March 31, 2026, Rail had new orders, net of $80,629, a decrease of $2,623 from the prior year quarter primarily attributable to a 18.6% decline in Global Friction Management associated with order timing. Rail Products and TS&S modestly improved 0.9% and 2.3% over the prior year quarter, respectively. Backlog as of March 31, 2026, was $102,126, a $10,402, or 11.3%, increase over the prior year quarter as a result of a large, multi-year order received in our UK business. Infrastructure Solutions Three Months Ended March 31, Change Percent Change 2026 2025 2026 vs. 2025 2026 vs. 2025 Net sales $ 46,368 $ 43,777 $ 2,591 5.9 % Gross profit $ 9,554 $ 8,122 $ 1,432 17.6 Gross profit margin 20.6 % 18.6 % 200 bps 10.8 Segment operating income (loss) $ 529 $ (444) $ 973 (219.1) Segment operating income (loss) margin 1.1 % (1.0) % 210 bps 210.0 Infrastructure net sales for the three months ended March 31, 2026, increased $2,591 or 5.9%, over the prior year quarter driven primarily by growth of $4,841, or 17.2%, in Precast Concrete Products (“Precast”). The increase was partially offset by a decline in Steel Products sales of $2,250, or 14.4%. 20 Table of Contents Infrastructure gross profit for the three months ended March 31, 2026 increased $1,432, or 17.6 %, over the prior year quarter. Precast gross profit increased $1,991 due to the higher sales volume, coupled with improved business mix and manufacturing execution which was partially offset by lower volumes in Steel Products resulting in a $559 decrease in gross profit. Gross profit margins improved 200 basis points to 20.6% driven by improved mix and manufacturing execution in Precast. Infrastructure operating income for the three months ended March 31, 2026 increased $973, or 219.1%, over the prior year quarter due to improved gross profit offset in part by an increase in selling, general and administrative expenses. For the three months ended March 31, 2026, Infrastructure had new orders, net of $61,457, a decrease of $4,355, from the prior year quarter. Steel Products new orders, net decreased by 26.7% due to strong prior year order activity in the Protective Coatings businesses. This decrease was partially offset by Precast which improved 5.5%. Backlog as of March 31, 2026, was $107,447, a decrease of $38,044, or 26.1%, from the prior year quarter attributable to a 2025 order cancellation in Steel Products which resulted in a 57.5% decline, coupled with a decline of 8.5% in Precast. Corporate Three Months Ended March 31, Change Percent Change 2026 2025 2026 vs. 2025 2026 vs. 2025 Public company costs $ 1,105 $ 1,125 $ (20) (1.8) % Corporate executive management costs 790 220 570 ** Corporate management stock-based compensation 1,409 278 1,131 ** Unallocated corporate expense - net $ 3,304 $ 1,623 $ 1,681 103.6 % **Results of this calculation are not meaningful for presentation purposes. Unallocated corporate expense - net for the three months ended March 31, 2026 was $3,304 compared to $1,623 for the three months ended March 31, 2025. Corporate management stock-based compensation expense increased $1,131 due primarily to accelerated stock expense due to retirement-eligible participants. Corporate executive management costs increased $570 due to higher professional fees. 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. The revolving credit facility provides for a total commitment of up to $150,000, of which $90,019 was available for borrowing as of March 31, 2026, 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 $59,684 and $42,756 as of March 31, 2026 and December 31, 2025, respectively, and was primarily comprised of borrowings under its revolving credit facility. The following table reflects available funding capacity as of March 31, 2026: March 31, 2026 Cash and cash equivalents $ 3,991 Credit agreement: Total availability under the credit agreement 150,000 Outstanding borrowings on revolving credit facility and letters of credit (59,981) Net availability under the revolving credit facility 90,019 Total available funding capacity $ 94,010 As of March 31, 2026, we were in compliance with all covenants of the Credit Agreement and have $94,010 available funding capacity, subject to covenant restrictions. 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, 2026, 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. 21 Table of Contents The changes in cash and cash equivalents for the three months ended March 31, 2026 and 2025 were as follows: Three Months Ended March 31, 2026 2025 Net cash used in operating activities $ (10,438) $ (26,136) Net cash used in investing activities (2,960) (2,575) Net cash provided by financing activities 13,099 28,820 Effect of exchange rate changes on cash and cash equivalents (58) 49 Net (decrease) increase in cash and cash equivalents $ (357) $ 158 Cash Flow from Operating Activities During the three months ended March 31, 2026, net cash used in operating activities was $10,438, compared to net cash used in operating activities of $26,136 during the prior year period. For the three months ended March 31, 2026, net income and adjustments to reconcile net income from operating activities provided $6,095, compared to $1,324 in the prior year period. Working capital and other assets and liabilities were a use of $16,533 in the current period, compared to a use of $27,460 in the prior year period. The increase in operating cash flow for the three months ended March 31, 2026 compared to the prior year period was largely driven by lower working capital needs and improved profitability. Changes in payment timing can impact accounts receivable in any given quarter due to the seasonality of our businesses. Cash Flow from Investing Activities Capital expenditures for the three months ended March 31, 2026 and 2025 were $2,960 and $2,575, respectively. Capital expenditures in both periods primarily relate to general plant and operational improvements throughout the Company, as well as organic growth initiatives. Cash Flow from Financing Activities During the three months ended March 31, 2026 the Company had an increase in outstanding debt of $16,945 compared to a $34,891 increase during the three months ended March 31, 2025. The decrease in borrowings from the prior year quarter was by driven lower working capital needs and a reduction in treasury stock repurchases. During the three months ended March 31, 2026, the Company repurchased $3,846 of its stock to satisfy employee tax withholding obligations related to the issuance of equity-based compensation awards. 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. 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. The Company did not repurchase any shares during the three months ended March 31, 2026 under this program. From February 2023 through March 31, 2026, the Company repurchased a total of 1,016,899 shares of its stock for $23,554 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 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, 2026, the Company had $3,991 in cash and cash equivalents and $90,019 of availability under its revolving credit facility, subject to covenant restrictions. As of March 31, 2026, approximately $3,621 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, 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 June 27, 2025, the Company, its domestic subsidiaries, and certain of its Canadian and United Kingdom subsidiaries (collectively, the “Borrowers”), entered into the Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) with PNC Bank, N.A., Bank of America, N.A., Citizens Bank, N.A., and Wells Fargo Bank N.A. as Co-Syndication Agents, and Dollar Bank, Federal Savings Bank as a participant. The Credit Agreement, which expires on June 27, 2030, provides for a five-year, revolving credit 22 Table of Contents facility that permits aggregate borrowings of the Borrowers up to $150,000 with sublimits for (a) the issuance of letters of credit in dollars and in alternative currencies in an amount not to exceed the dollar equivalent of $30,000, and (b) borrowings of swing loans in dollars in an amount not to exceed $20,000; and with an incremental loan feature not to exceed $60,000. 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. 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, 2025. 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. The Company defines new orders, net 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 net of order cancellations incurred during the period. 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. Backlog may not be indicative of future operating results as orders may be cancelled or modified by the customer. Management utilizes new orders, net 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, net 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. 23 Table of Contents