Foster (Lb) Co 2026 Q2 Earnings Call

Good morning, everyone, and welcome to L.B. Foster's second quarter of 2026 earnings call. My name is Lisa Durante, the company's Director of Financial Reporting and Investor Relations. Our President and CEO, John Kasel, and our Chief Financial Officer, Sean Reilly, will be presenting our second quarter operating results, market outlook, and business developments this morning. We'll start the call with John providing his perspective on the company's second quarter performance. Sean will review the company's second quarter financial results. John will provide perspective on market developments and company outlook in his closing comments. We will open up the session for questions. Today's live presentation, along with our earnings release and financial disclosures, were posted on our website this morning and can be accessed on our investor relations page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation.

Some statements we are making are forward-looking and represent our current view of our markets and business today. These forward-looking statements reflect our opinions only as of the date of this presentation. We undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. We will also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and the reconciliation tables provided within today's earnings release and presentation as you consider these metrics. With that, let me turn the call over to John.

Thanks, Lisa, and hello, everybody. Thanks for joining us today for our second quarter earnings call. Before I commence my remarks, I want to welcome Sean Reilly, who was promoted to CFO effective June 1st. Also present with us on the call is Bill Thalman, who was appointed COO on that same date. Congratulations to both Sean and Bill on your promotions. I'll begin on slide five, covering the key drivers of our second quarter results. As you can see from the earnings release, we delivered another solid quarter with cash generation of $17.9 million, reaching the highest second quarter level since 2017. Net debt was reduced by $13.5 million or 24.2% during the quarter and by $35.2 million or 45.5% compared to last year.

As a result of lower debt levels and improving profitability, our growth leverage was cut by over 50%, from 2.2 times last year to 1.0 times at quarter end. As expected, revenue in the second quarter declined by 3.5% as sales were pulled forward to the first quarter, which resulted in top line growth in the quarter of 23.9%. All in, sales for the six months increased by 7.6% over last year, reflecting the strong start to the year. During the quarter, we continued a strategic shift in the U.K. with the announcement of exit of certain non-core product lines within our Tew Engineering business, incurring $2.6 million of exit-related costs. Adjusted EBITDA in the second quarter was down 4.7% from last year, driven by higher personnel costs, including incentive-based compensation expense.

This is due to the strong year-to-date performance, with adjusted EBITDA increasing by 19.6% compared to last year. In summary, we're pleased with the second quarter and first half of the year. Along with our current robust backlog, we remain confident about the second half of the year. I'll cover the market outlook and financial guidance for the year after Sean runs through the financial details for the quarter.

Over to you, Sean. Thanks, John.

Good morning, everyone. I'll begin my comments on slide seven, covering the consolidated results for the second quarter. Our business can experience variability from quarter to quarter, given the timing of customer orders and shipment. On a year-to-date basis, our results continue to outperform last year, reflecting strong underlying demand across our business. Net sales for the quarter were $138.6 million, a 3.5% decline from last year due to the timing of customer orders within our Rail Products business. Consolidated gross profit was flat in the quarter, with gross margins improving 80 basis points to 22.3%, driven by favorable business mix. Gross profit for the quarter included a $2.1 million charge related to the Tew product line exit. Last year, gross profit included a $1.1 million charge associated with the exit of our automation business in the U.K.

I'll provide more color on the segments later in the presentation. SG&A expense totaled $24.1 million, increased by $1.7 million or 7.7% compared to last year. As John indicated, the primary driver of the increase was attributable to higher employment costs, including $1.1 million in variable incentive-based compensation associated with our strong year-to-date performance. SG&A expense in the second quarter includes a $0.5 million charge related to the Tew product line exit and other non-recurring costs. Adjusted EBITDA was $11.7 million, down 4.7% versus last year, driven by SG&A expense. The higher effective tax rate for the quarter was due to U.K. pre-tax losses, where we do not recognize a tax benefit. As John highlighted, second quarter cash flow was $17.9 million, an improvement of $7.5 million over last year due to lower working capital.

Lastly, consolidated orders improved slightly compared to the prior year, while the backlog was lower by 8.8%, due in part to an order cancellation in the third quarter of last year. Sequentially, backlog improved 17.4% from the first quarter and illustrates the variability that can occur within the business on a quarterly basis. The financial profile of our results on slide eight highlight the seasonality in the business over the last three years, with sales and adjusted EBITDA concentrated in the second and third quarters in line with typical construction seasons. We anticipate 2026 having a similar pattern for sales. However, our free cash flow has deviated from historical trends, with the strong cash generated in the second quarter due to lower working capital. I'll cover the segment performance on the next couple of slides, starting with Rail on slide nine.

Second quarter sales were $72 million, down 5.2% compared to last year, driven by order timing in Rail Products. Partially offsetting Rail Products was Global Friction Management, where sales increased 18.1% as this growth platform continued to perform well. Technology Services and Solutions sales were also up 66.9% due to short-term project work in our U.K. business. Rail margins of 20.6% were up 70 basis points, driven primarily by favorable sales mix despite incurring an additional $1 billion of exit costs. Turning to Rail orders and backlog. Q2 orders were down 1.9% due to the timing of large orders in Rail Products. Global Friction Management and Technology Services and Solutions continued to perform well, with orders up 27.8% and 126.4% respectively. The growth in Technology Services and Solutions was due to U.K. short-term project work.

Rail backlog was up 8.2% due to a large order received in our U.K. business late last year. Turning to Infrastructure Solutions on slide 10. Net sales decreased $1 million, or 1.5% compared to last year. Steel Products sales declined $2 million, primarily due to lower volumes in our threaded water well product line. This was partially offset by a $0.9 million improvement in Precast Concrete, reflecting continued demand across this key growth platform. Infrastructure gross profit increased $0.3 million with margins up 80 basis points to 24.1%. This was due to variable sales mix and manufacturing efficiency. Infrastructure orders increased $2.5 million, or 4%, due to improved order intake in the Protective Coatings businesses. Partially offsetting was Precast Concrete orders that declined $7.4 million, or 15.4% versus last year. Infrastructure backlog totaled $104.7 million at quarter end, a decrease of $34.5 million from last year.

$19 million of this decline was associated with the Summit pipeline coating order that was canceled in Q3 last year. Precast Concrete backlog was also lower by $16 million due to lower order activity in quicker turn projects. As we have discussed, order activity can be lumpy. Our Infrastructure backlog in July increased by approximately 10% from June, with increases in both Steel Products and Precast Concrete. Next, I'll cover some of the key takeaways from our year-to-date results on slide 11. Sales in the first half increased 7.6% to $259.7 million, driven by growth in both segments. Rail increased 12.9%, driven by strong sales growth in our Global Friction Management and Technology Services and Solutions businesses, delivering 27.4% and 46.7% growth, respectively. Infrastructure sales increased 1.4%, led by Precast Concrete, which increased 7.8% over last year.

Year-to-date, gross profit increased $5.5 million, due to higher volumes and favorable business mix, with gross profit margins expanding 60 basis points to 21.8%. SG&A costs increased $3.8 million over last year, attributable to higher employment costs, including $2.3 million in variable incentive-based compensation expense associated with our strong year-to-date performance. Variable incentive expense includes $0.5 million for accelerated stock compensation associated with retirement-eligible employees. Adjusted EBITDA was $16.8 million, up 19.6% versus the prior year, driven by higher sales volumes and gross profit improvement. Operating cash flow was $7.4 million, favorable $23.2 million compared to last year due to higher profitability and lower working capital needs. Orders declined by 2%, reflecting modest decreases in both segments. I'll next cover liquidity and leverage metrics on slide 12. The chart highlights the significant progress we have made in strengthening our balance sheet through debt reduction and profitability expansion.