Foster (Lb) Co 17th Annual Midwest IDEAS Conference

All righty. We're going to get started with the next company. First off, thank you everyone. My name is Joe Noyons. I'm with Three Part Advisors. Up next, we have L.B. Foster Company, which is traded on the NASDAQ under the symbol FSTR. Critical infrastructure manufacturer and provider. Presenting on behalf of the company today we have John Kasel, the CEO, and the CFO, Sean Reilly. Thanks, guys. Good morning, everybody.

Thanks, Joe. Appreciate that. As you mentioned, with me is Sean Reilly. Sean's been with the company now four and a half years. He started as the controller of the company, and he was just recently promoted to CFO. Many of you that follow the company know Bill Thalman, who is the CFO now, was CFO. I promoted him to Chief Operating Officer. The reason we did that is because we got a lot of really exciting things going on now, and Bill has the opportunity, with his background and experience, to make our growth come to life. We're going to share with you that story today. All right, a little bit about me. I've been with the company now for, this is my 24th year. I've been the President/CEO for the last five years, so I'm in my sixth year now.

Company's been around for 124 years, so next year we'll celebrate our 125th year. We're headquartered out of Pittsburgh, Pennsylvania, 1,200 employees. Joe talked about we're critical infrastructure. We work with simple commodities of steel and concrete, but we bring them to life. We add innovation technology solutions to steel and concrete, and we bring those products into the infrastructure here in North America and abroad. I'm going to break these pieces down for you so you can see them. We report out in two different segments. One is the rail side, rail technologies and services. When I mean rail, I mean specifically freight rails as well as transit rails. Here in Chicago, you got Chicago Transit Authority, which is a major customer of ours. And then infrastructure. We play in a small niche in the infrastructure here only in the U.S., in the concrete side, and we'll talk about what that niche is, on the steel side.

We like what we do. It's not sophisticated, but in many ways it gives us a lot of complexity for nice organic growth and we'll be looking for some incremental type acquisitive growth, organic growth, outside of organic growth in the future. We'll kind of tease out some of that in a few minutes. Going back to the company itself, rail technologies on the rail side, it started as Rail Products 120 years ago. This was a large proliferation of products that we had, and the company really wanted to be this rail track infrastructure company. Over the last few years, we really simplified what it is that we do in the rail space.

This is where we have shut down locations and we simplified our SKUs and our product lines to really lean into what we want to do related to our Rail Products. The reason being is because the transit authorities, as well as the freight authorities, were starting to commoditize the components that we were selling. We needed to differentiate ourselves. In doing that, we said, "Let's move on. Let's move on to technology innovation," which was what you see here on this chart, which is Global Friction Management, as well as TS&S, which is our Technology Services & Solutions side. Global Friction Management was an acquisition that we did back in 2010 with Portec Rail Products, Inc., and TS&S was an acquisition we did in 2015 in the U.K. with a company called TEW Engineering.

I'll unpack these for you, but the exciting thing about the company is we're starting to move off track now, and we're providing engineering solutions to our customer for them to be more efficient in what they do. Meaning how do you get better fuel efficiency, how do you get safety performance, how do you get better usage or life out of the assets that you have, the wheels that you have on your rolling stock, the actual rail itself that you have you're running your trains on. And how do you get a better ride and comfort on the passenger, so less noise, less vibration. The third piece of it that we're really leaning into, we're seeing growth as well as sales and incremental margins, is our off-track solutions. Railroads struggle today, we really understand what's in front of them.

Many cases, they're going into dark areas and they don't really understand if a track is fouled. Is there something on the track? A simple thing as an animal or a boulder. And we've taken our technology from our U.K. businesses with simple LIDAR technology, with our own technology innovation of giving early warnings and detections for our rail customers to understand what's out there for them to either slow down the trains, stop the trains, or get a service crew out there without just today just go out and find that they have an issue and they manage it. This is an exciting part of our business that we're continuing to grow. When you look at our TAM, assessable market that we have today, it was just over $1 billion in the rail space.

Now granted, rail's a lot bigger, but we don't play in a market like that. We want our niche opportunities. On the rail side, Rail Product side, it's an area that we have about 42% of the growth today. I'm sorry, 42% of the market share today. And we're comfortable in that area. This is an area that we get a lot of cash, and we're able to take products. Most of this work that we're doing is on the repairs and maintenance side. On the technology side, some of the areas I just mentioned, $570 million. We have the largest share at 18% today. But it's an area that we're seeing growth. This is where our top line and incremental margin growth is coming from, not just here in North America, but also including Western Europe. The other segment that we have is the infrastructure side.

This is the concrete, the other commodity I was mentioning before, and this is why we like this, because it's also on the steel side, it has its attractions, but on the concrete side, it has other attractions. We're a concrete player up here in North America, specifically in the U.S. We like what we do because we have special niches in it. We like to build turnkey Precast Concrete products. We like to engineer and design it in a factory, and we like to put those on the job site or put them in locations up and running in a very short period of time. I'll talk more about that. On the steel side, we've been in the midstream energy space for many, many years. We have two coating facilities, one inline coater and one is an offline coater.

A third piece of our steel business is a threaded water pump column business that is just a steady little business and generates nice cash for us today. If you look at our TAM related to Precast Concrete, you got a $600 million market here as it relates to these buildings, these turnkey buildings I'm referring to today. At 14%, we are the largest market share in the business today, and this is an area that we're really seeing nice growth in. If you look at this chart, we're growing at significantly more than the market is today. The reason being is labor. It's difficult to get labor to build product on job sites today.

Many of our customers and many of our new customers are coming to us with the need to build something and have it delivered so they don't have to bring labor in to build it block by block. We're seeing a really nice uplift in our business today. Our operations all have these Precast Concrete type buildings, if you will. It's our core business. What we do then is we supplement what you see here below, which is Precast Concrete products. This is a huge marketplace today that a lot of people play in. We just do it to help the leverage of the facility.

We'll do some very niche type products, septic tanks, risers, manhole covers, stuff like that, support what we do, and that's on the first part of this chart, which is the buildings in the modular side and the erections of walls and barriers that we do, both residential and industrial markets. How we actually run the company, and we've done this for the last five years, we get good at this, is we look at it as a returns and growth platforms. On the right-hand side here is our real product side and what we have over in the U.K. in our steel products. These are very stable businesses growing at basically GNP and something we can count on type work.

The monies we get out of there, we plow on the left-hand side, which I mentioned earlier, which is our Global Friction Management business, our Total Track Monitoring business, and what I just mentioned on the concrete side. This is where organic growth is coming. We take 2.7% of our sales, and we plow that into our capital programs to keep these organic programs alive and moving at a nice pace. That is what you see on this chart. On the right-hand side, you can actually see where we contracted on the right-hand side. We simplified the business. We got out of making all these SKUs and components on the return size. So we have shut down our facilities in some cases, we reduced product lines, and we figured out where we can make money and where we can be extension of our customer.

On the left-hand side then, we take that and we plow it in with engineering, with SG&A, with our scientists we do, and continue to plow the resources, innovation, and technology. This is where we are seeing the growth, on the TTM side as well as on the Precast Concrete side. Nice double-digit growth, and then you see the margins that are flowing with it as well. This is where the profitability of the company has been coming over the last couple of years. This is why we feel very bullish about the future of the business as well. With that, I will turn it over to Sean, and I will come back with some closing remarks. Sean? Thank you, John, and good morning, everyone.