Q1 2022 L B Foster Co Earnings Call

Good day, and welcome to the first quarter and stuff in 'twenty two L. B Foster earnings conference call. After the speaker's presentation there'll be a question and answer session and instructions will be given at that time as a reminder, this call is being recorded.

I'd like to turn the call over to Stephanie, Let's whack the Companys Investor Relations manager you may begin.

Thank you operator, good morning, everyone and welcome to L. B Foster's first quarter of 2022 earnings call. My name is Stephanie was the company's <unk>.

Faster relations manager.

Our president and CEO , John Castle, and our Chief Financial Officer, Bill Thomas will be presenting our first quarter operating results market outlook and business developments. This morning, Sean Reilly the company's corporate controller is also joining us this morning.

We will start the call with John providing his perspective on the company's first quarter performance and updating you aren't significant business matters and market development.

Bill will then review the company's first quarter financial results.

John will then provide perspective on company outlook in his closing comments. We will then open the session up for questions.

Today's slide 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 L. B Foster dotcom.

Our comments this morning will follow the slides and the earnings presentation.

Some statements we are making are forward looking and represent our current view of our markets and business today, including comments related to COVID-19. These forward looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the result of.

Any revisions to these statements in light of new information, except as required by securities laws.

For more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and presentation.

We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within todays earnings release and within our accompanying earnings presentation carefully as you consider these metrics.

For the purpose of helping you understand the underlying performance of the company, we will be referring to adjusted EBITDA. Adjusted net income adjusted diluted EPS net debt and adjusted net leverage ratio during the presentation today as reflected in the reconciliation tables included in the appendix to the Earth.

<unk> presentation.

Additionally in September of 'twenty, 'twenty, one you announced the asset sale of our piling products division due to the nature of the sale. We have presented the piling products within continuing operations within our financial statements, but we have adjusted certain metrics as indicated in our presentation slides two reflects the sale for purpose.

I mean, even comparison, so with that let me turn the call over to John .

Thanks, Stephanie and Hello, everyone. Thanks for joining us today for our first quarter earnings call.

I'll start the call with some opening remarks on the developments within the business in Q1.

Despite headwinds we face in the quarter overall, we are encouraged by some of the positive trends realized by the business.

Specifically order intake levels, excluding the pilings business increased 17, 7% over the prior year quarter and increased 42, 2% sequentially.

This order intake level resulted in a backlog of $245 million at quarter end, an increase of three 7% compared to prior year quarter.

The strength in orders and our current backlog should position us well for improving revenues as 2022 progresses, including expected sequential increase of at least 25% in Q2.

Reflecting the improving commercial environment. We also delivered year over year revenue growth in Q1, which was up three 7% versus last year after adjusting for the piling sale.

While the commercial markets continuing to improve the operating environment remains challenging and.

And our margins were impacted by inflationary pressures and disruptive supply chains in the quarter.

However, our margins began to stabilize in the quarter and we expect to see improvements in the profitability in the coming quarters as volumes continue to improve and our mitigation actions take hold.

Working capital levels are elevated versus last year with the expected improvement in revenues at <unk>.

And efforts to ensure product availability for customers in the challenging supply market.

We remain focused on our strategy to leverage our key growth platforms.

Precast concrete and rail technologies services, we will be making a making our progress on our execution roadmap.

So while we are facing challenges in the quarter, we believe the potential upside in our markets and focused strategy will have us well positioned to drive improved shareholder returns in the coming years.

Bill will cover the detailed financials for Q1 and I'll come back at the end with some closing remarks on our I'll look over to you Bill.

Thanks, John and good morning, everyone.

I'll begin my comments by covering the consolidated highlights of our first quarter on slide seven.

Note that the schedules in the appendix provide more detailed information on our financial results, including the non-GAAP measures Stephanie referenced.

As a reminder, our piling business was divested in September last year and is not being treated as a discontinued operation.

Accordingly, the amounts presented today include the piling business within the steel products and measurement segment, unless otherwise noted as adjusted for comparability purposes.

First quarter sales were $98 8 million.

<unk> down $17 3 million or 14, 9%.

From Q1 last year How's.

However, adjusting for the piling divestiture sales were up three 7% year over year.

Gross profit was down in Q1 due to the piling divestiture, coupled with raw material and labor inflation as well as labor and supply chain disruptions impacting the balance of the business.

Gross profit margins were up 40 basis points on a reported basis due to the piling divestiture.

However, gross profit margins adjusted for piling were down 190 basis points year over year.

I would highlight that the 16, 6% reported Q1 gross profit margin compares to 16, 9% in Q4 of 2021.

So the rate of margin decline sequentially has eased some in the current quarter.

We are implementing price increases to mitigate the impact of inflation on the business, where possible and some parts of the business have been more successful than others, given contractual and competitive considerations.

However.

Over we expect to see further progress from our pricing and margin improvement actions and believe believe we will see margins increase as we continue through 2022.

EBITDA in Q1 declined $1 1 million to $1 $7 million.

With 300000 due to the piling divestiture and the balance due to lower gross profit and slightly higher SG&A costs and the remaining business.

The first quarter is a seasonally low period for sales on top of a slower period in Q4 as a result operating cash flow was a usage of $7 $6 million in Q1, we.

We expect operating cash flow to improve as the year progresses.

First quarter orders totaled $135 million and were up $20 million or 17, 7% excluding pilings.

And as John discussed we ended the quarter with a robust backlog of $245 million.

Over the next three slides I'll cover the performance of each of our segments, starting with our rail segment on slide eight.

First quarter rail segment revenue decreased $2 $5 million year over year, largely driven by lower volumes and timing of orders in the rail products business unit.

The decline in rail products was offset in part by higher sales in our friction management and technology services and solutions business units.

Despite the lower sales gross margins increased 30 basis points year over year due to higher volume in more profitable friction management and technology services and solutions businesses as well as improved margins in rail products.

Rail segment margins in Q1 were also up slightly versus Q4 of 2021.

As reflected on slide nine precast concrete products segment revenues increased $2 million or 18, 4% year over year.

However, gross margins were down 330 basis points year over year, due primarily to higher input costs as well as labor and engineering disruptions impacting production and fixed manufacturing cost absorption.

Sequentially Q1 margins in the precast business were down 30 basis points.

Yeah.

Orders and backlog remain robust in our precast segment and we expect this favorable trend to continue with the announced government funding programs.

The strong demand coupled with our margin improvement actions should result in improved profitability in precast as the year progresses.

The steel products and measurement information on slide 10 has been adjusted to remove the impact of the piling divestiture for comparability purposes.

Overall revenues increased by $4 million or 22, 7% year over year with the increase primarily attributable to threaded and measurement product lines.

While volumes were improved in parts of this segment year over year gross profit margins declined 690 basis points due to higher steel labor and project cost for the bridge products business and unfavorable manufacturing absorption in the protective coatings business.

Sequentially Q1 margins were down 210 basis points, reflecting the ongoing costs and volume challenges in this segment.

The longer term improvements we've made in our liquidity and credit metrics are reflected on slide 11.

Over the past four years and despite the adverse effects of the pandemic on overall demand and cash flow, we've systematically reduced our debt and improved our credit metrics.

Total net debt was $29 4 million at quarter end down $2 4 million from last year.

The increase in the adjusted net leverage ratio to one seven times at the end of Q1 was the result of lower trailing 12 month, EBITDA realized primarily in our coatings and measurement business.

Our leverage ratio remains below two times and we've stated that we are comfortable with a leverage ratio of around two times, given our financing needs and longer term cash generation performance.

We're still anticipating $8 $5 million in federal income tax refunds, and we have $90 million in federal net operating loss carryforwards carryforwards that will help to reduce our federal tax burden for the foreseeable future.

Capital spending remains around 1% of sales in line with our overall capital light business model.

My closing comments will be on slides 12, and 13 covering orders revenues and backlog by business.

The book to Bill ratios on Slide 12 reflects the continuing strength, we've seen in all of our businesses in Q1.

This is the third consecutive quarter, where precast concrete product orders have outpaced sales with a trailing 12 month order run rate of approximately $80 million.

After a softer Q4 last year.

Rail technologies and services orders increased by over 50% sequentially.

And we're up about 32% on a year over year basis.

Additionally, steel products and measurement realized a 67% sequential increase in orders from Q4 of last year.

And lastly, our consolidated backlog on slide 13 reflects the robustness of the precast concrete and rail technologies and services businesses.

Our year end backlog is at a four quarter high and demonstrates the underlying strength in the business and commercial markets that we serve.

As a result, we remain optimistic that revenues and margins will improve in the coming quarters as we continue to execute our strategic playbook.

Thank you for your time this morning, and I'll now turn it back over to John for his closing remarks John .

Thanks, Bill Please turn to slide 15, where we started closing remarks with a brief overview of how we see our key end markets developing in the coming quarters.

As previously mentioned during update calls our businesses have benefited from significant government funding of infrastructure projects in the past.

And the funding levels approved over the last two years are greater than we ever seen before.

While it's difficult to predict the magnitude the impact on our markets and demand for our products. We are optimistic we will be seeing improving demand.

As previously mentioned, our order intake levels and backlog have positioned us to expect sequential revenue growth at least 25% moving into Q2.

It's important dimension that we do not expect to see any meaningful revenue from the infrastructure investment and jobs Act in 2022.

We would expect revenues from this funding program to come in 2023 and beyond.

However, we do have line of sight is significant infrastructure projects across our portfolio that are well aligned with our growth strategy.

Our energy related businesses appear to have bottomed out at historical low levels of demand. While there is some increased discussion around energy security in the market today as well as some increased order activity in our measurement businesses, we do not expect to see a meaningful improvement in the demand of our energy related products lines for the <unk>.

Future.

Yeah.

Addressing the erosion in our margins remains a top priority for us, we're being aggressive where possible with pricing actions and creative in solving labor and supply.

Supply chain constraints and disruptions, we are adding inventory where appropriate to reduce the impact of supply chain disruptions and edifying alternative sourcing arrangements.

Ladies and gentlemen, if you'd like to ask a question. Please press Star then one.

If your question has been answered and you'd like to remove yourself from the queue press the pound key.

Our first question comes from Christopher <unk> with singular research your line is open.

Yeah.

Hi, Good morning, Hi, Chris morning, Chris how are you.

Good good good.

Just a question on I guess.

New orders in.

In the precast segment.

The decline there.

Can you comment on that and where you see the new orders.

Next quarter Yeah.

Thanks, Chris.

When you look at comparison over the quarters Q1 to Q1, there was a little bit of a downtick, but that's because we received a very very large order in Q1 of 2021.

So in fact that was $11 million order that won't over multiple years.

So we actually feel very good about where we stand on the on the precast side of the business and backlog as we stated.

Ended at $72 million, which is an uptick from where it was at the same.

Point in time with that very large order back in Q1 of 2021 so.

Orders are coming in from all over both industrial commercial accounts to National State Federal parks.

The infrastructure Bill, we arent seeing any work there, but the great American outdoors Act has been a fantastic stimulus for us.

Where we're seeing just a great amount of extra.

I don't know if extra is the right word but.

Quite a bit of funding and focus into our state national parks, So the business looks strong.

Yes.

Okay great.

And I didn't get the.

The PDF along with the slides.

Oh <unk>.

Backlog.

For coatings and measurement how is that going.

So well we.

We mentioned <unk> mentioned you in the script and Bill add some commentary to we definitely have hit the bottom as it relates to that particular business.

And we are seeing is significantly more compare to where we were.

In the second half of last year as far as bidding activities.

The when you look at we really break it out into the entire group they'll steel products and measurement. So that backlog stands at $49 million, which is just $3 million off of where it was at the same period last year.

So.

We are pretty flat year over year basis with more bidding activity in the coding side than we've seen in the past.

Okay, great. Thanks, Thanks for the answers.

You're welcome thanks for joining us today.

Again, if you'd like to ask a question. Please press Star then one.

Yes.

I'm not showing any additional questions I'd like to turn the call back over to John <unk> for any closing remarks, thanks, Michelle and thanks for everybody joining us today.

Really appreciate everybody's focus on where we're as a company we are.

We feel very good about where we're at related to our ending backlog of $245 million in.

And the emphasis of growing revenue by greater than 25% heading into Q2, we stand behind that and we were.

Just to get into the quarter and have a strong second half three quarters of the year. So thanks, everybody for joining us today, and we look forward to hook up with you. After the end of the next quarter take care and be safe.

This concludes today's conference call you may now disconnect everyone have a great day.

Hi.

Good morning.

[music].