L.B. Foster Company Q3 2022 Earnings Presentation Nasdaq -FSTR November 8, 2022 Safe Harbor Disclaimer | --- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2022 Or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission File Number: 000-10436 L.B. Foster Company (Exact name of registrant as specified in its charter) Pennsylvania 25-1324733 (State of Incorporat ...

Financial Performance - Q2 2022 sales were $131.5 million, a decrease of $23 million or 14.9% year-over-year[19, 51] - Adjusted EBITDA for Q2 2022 was $6.1 million, down $2.2 million or 26.5% year-over-year[19, 51] - Gross profit margin improved by 80 bps to 17.7% in Q2 2022[19] - Net debt totaled $42.4 million as of June 30, 2022, up $9.3 million year-over-year[31] - The adjusted net leverage ratio was 2.8x as of June 30, 2022[31, 71] Orders and Backlog - New orders for Q2 2022 were $141.4 million, an increase of $2.9 million or 2.1% year-over-year[19, 56] - Excluding the Piling Products business, Q2 orders increased by $28 million or 24.7% year-over-year[19] - Backlog as of June 30, 2022, was $250.8 million, a decrease of $2.4 million or 0.9% year-over-year[19, 36] - Excluding the Piling Products business, backlog increased by $31.3 million or 14.3% year-over-year[19] Strategic Initiatives - Completed the acquisition of Skratch Enterprises Ltd and Intelligent Video Ltd, with combined annual revenue of approximately $8 million and EBITDA of approximately $1.8 million[15] - Completed the sale of the Canadian-based track components business, with annual revenue of approximately $14 million and EBITDA of approximately $1.5 million[16]

Financial Data and Key Metrics Changes - The company's second quarter sales were $131.5 million, down $23 million or 14.9% from Q2 last year, but adjusted for the Piling divestiture, sales declined only 0.7% year-over-year [21][22] - Gross profit margins improved by 80 basis points on a reported basis due to the favorable mix from the Piling divestiture, despite higher raw material and labor costs [22] - Adjusted EBITDA in Q2 declined $2.2 million to $6.1 million, with $1.1 million attributed to the Piling divestiture [25] Business Line Data and Key Metrics Changes - Rail segment revenue decreased $7 million year-over-year, primarily due to lower volumes and timing of orders, but gross margins increased 30 basis points due to higher volume in the Friction Management business unit [27] - Precast Concrete Products segment revenue increased $3.5 million or 17.6% year-over-year, but gross margins were down 530 basis points due to higher raw material and labor costs [28] - Steel Products and Measurement revenues increased $2.5 million or 10.7% year-over-year, with gross profit margins improving 140 basis points due to improved volumes and pricing [30] Market Data and Key Metrics Changes - The company's backlog stood at $251 million at quarter end, a five-year high, with order intake levels up 25% compared to last year [12][26] - Orders in the Precast Concrete products segment totaled $22.9 million, up over 39% versus last year [39] - The consolidated backlog reflects a 14% increase compared to the same time last year, excluding the Piling divestiture [40] Company Strategy and Development Direction - The company is focused on transforming its portfolio from slower growth, commodity-like offerings to higher-growth, technology-focused solutions, as evidenced by recent acquisitions [15][17] - The acquisition of Skratch and Intelligent Video is aimed at expanding into technology-based solutions and adjacent markets in the UK and Western Europe [16][17] - The divestiture of the Rail Products' track components business is part of a strategy to enhance shareholder value and focus on higher-margin businesses [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving demand over time, despite current operating conditions causing delays in project identification and commissioning [42][43] - The company does not expect significant revenue from the Infrastructure Investment and Jobs Act in 2022, with expectations for revenue to materialize in 2023 and beyond [44] - Management acknowledged challenges in improving operating margins but remains focused on executing the strategy and managing through headwinds [46][47] Other Important Information - The company generated approximately $11.9 million in cash after the end of the second quarter from the track components divestiture and a federal income tax refund, improving its leverage ratio [37] - The company is maintaining a conservative approach to debt levels and capital allocation as it transitions to funding growth initiatives [37] Q&A Session Summary Question: Long-term targets for gross margins by segment - Management acknowledged that margins are not where they want to be but emphasized efforts to improve pricing and manage costs, particularly in the Rail and Precast segments [52][54] Question: Project delivery timing and market conditions - Management noted that while project delivery has improved, delays are primarily due to site availability rather than production issues, with expectations for continued improvement [56][57] Question: Impact of acquisitions on gross margin - Management indicated that the acquisitions will allow for better control over the supply chain and pricing, potentially leading to margin expansion over time [66][69] Question: New orders and market activity in Q3 - Management reported a record backlog and high bidding activity, indicating a positive outlook for continued order intake despite recessionary concerns [70] Question: Use of coatings and measurement in other industries - Management highlighted ongoing efforts to explore adjacent markets for coatings and measurement applications, with some positive signs of activity in carbon sequestration and related fields [74]

PART I. Financial Information [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited Condensed Consolidated Financial Statements for the quarterly period ended June 30, 2022, encompassing balance sheets, income statements, cash flows, and equity, with detailed explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $202,878 | $179,479 | | **Total Assets** | **$365,422** | **$342,595** | | **Total Current Liabilities** | $96,604 | $86,194 | | **Long-term Debt** | $49,222 | $31,153 | | **Total Liabilities** | $184,383 | $158,985 | | **Total Stockholders' Equity** | $181,039 | $183,610 | | **Total Liabilities and Stockholders' Equity** | **$365,422** | **$342,595** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total net sales** | $131,515 | $154,522 | $230,309 | $270,602 | | **Gross profit** | $23,293 | $26,161 | $39,740 | $44,991 | | **Operating profit** | $2,480 | $4,924 | $193 | $4,263 | | **Net income attributable to L.B. Foster** | $2,010 | $2,876 | $444 | $1,618 | | **Diluted earnings per common share** | $0.18 | $0.27 | $0.04 | $0.15 | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) - For the three months ended June 30, 2022, the company reported a total comprehensive loss of **($1,515) thousand**, a significant shift from a comprehensive income of **$3,620 thousand** in the same period of 2021. This change was primarily driven by a negative foreign currency translation adjustment of **($3,688) thousand**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(13,382) | $6,842 | | Net cash used in investing activities | $(7,328) | $(2,248) | | Net cash provided by (used in) financing activities | $18,476 | $(7,918) | | **Net decrease in cash and cash equivalents** | **$(2,711)** | **$(3,424)** | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) - Total stockholders' equity decreased from **$183,610 thousand** at December 31, 2021, to **$181,039 thousand** at June 30, 2022. The decrease was primarily due to a comprehensive loss, which included a significant negative foreign currency translation adjustment, partially offset by net income[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - Effective **Q4 2021**, the company reclassified its reporting segments into three new categories: **Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement**. Prior period information has been revised to reflect this change[23](index=23&type=chunk) - On **June 21, 2022**, the Company acquired **Skratch Enterprises Ltd.** for **$7,402 thousand**, resulting in an increase of **$5,343 thousand** in goodwill. Skratch is included in the **Rail, Technologies, and Services** segment[38](index=38&type=chunk)[39](index=39&type=chunk) - As of **June 30, 2022**, the company had approximately **$250,845 thousand** in backlog (remaining performance obligations)[37](index=37&type=chunk) - On **August 1, 2022**, the Company divested its rail spikes and anchors track components business in Canada for expected cash proceeds of **$7,795 thousand**[94](index=94&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting a decrease in net sales and net income, improved gross profit margin, and strategic portfolio adjustments, alongside changes in liquidity and cash flow [General Overview and Business Update](index=28&type=section&id=General%20Overview%20and%20Business%20Update) - On **June 21, 2022**, the Company acquired **Skratch Enterprises Ltd.**, a digital system integration leader, for **$7,402 thousand**. Skratch is reported within the **Rail, Technologies, and Services** segment[99](index=99&type=chunk) - **Q2 2022** net sales decreased by **14.9%** to **$131.5 million** compared to the prior year, with the divested Piling Products division accounting for a **$22.1 million** decline[101](index=101&type=chunk) - Consolidated gross profit margin increased by **80 basis points** to **17.7%** in **Q2 2022**, reflecting progress on pricing initiatives and favorable product mix, despite inflationary pressures[102](index=102&type=chunk) - The company's consolidated backlog was **$250.8 million** as of **June 30, 2022**, a slight decrease of **0.9%** from the prior year, but this includes a **$33.7 million** decline from the divested Piling Products division[107](index=107&type=chunk) [Results of the Quarter](index=31&type=section&id=Results%20of%20the%20Quarter) Q2 2022 vs Q2 2021 Performance (in thousands) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | **Total net sales** | $131,515 | $154,522 | (14.9%) | | **Total gross profit** | $23,293 | $26,161 | (11.0%) | | **Operating profit** | $2,480 | $4,924 | (49.6%) | | **Net income attributable to L.B. Foster** | $2,010 | $2,876 | (30.1%) | Q2 2022 Segment Net Sales (in thousands) | Segment | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Rail, Technologies, and Services | $81,797 | $88,782 | (7.9%) | | Precast Concrete Products | $23,611 | $20,073 | 17.6% | | Steel Products and Measurement | $26,107 | $45,667 | (42.8%) | [Six Month Results](index=34&type=section&id=Six%20Month%20Results) H1 2022 vs H1 2021 Performance (in thousands) | Metric | H1 2022 | H1 2021 | % Change | | :--- | :--- | :--- | :--- | | **Total net sales** | $230,309 | $270,602 | (14.9%) | | **Total gross profit** | $39,740 | $44,991 | (11.7%) | | **Operating profit** | $193 | $4,263 | (95.5%) | | **Net income attributable to L.B. Foster** | $444 | $1,618 | (72.6%) | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) - The company's principal sources of liquidity are cash on hand, cash from operations, and its **$130 million** revolving credit facility[147](index=147&type=chunk) Available Funding Capacity as of June 30, 2022 (in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $7,661 | | Net availability under revolving credit facility | $80,123 | | **Total available funding capacity** | **$87,784** | - For the six months ended **June 30, 2022**, cash used in operating activities was **$13,382 thousand**, a significant decrease from the **$6,842 thousand** provided by operating activities in the same period of **2021**, primarily due to changes in working capital[149](index=149&type=chunk)[150](index=150&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, L.B. Foster Company is not required to provide the information requested under this item - This item is not applicable to a smaller reporting company[159](index=159&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, conducted an evaluation of the company's disclosure controls and procedures as of June 30, 2022, and concluded that they were effective. There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation as of **June 30, 2022**, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[160](index=160&type=chunk) - No changes occurred in the company's internal control over financial reporting during the six months ended **June 30, 2022**, that have materially affected, or are reasonably likely to materially affect, these controls[161](index=161&type=chunk) PART II. Other Information [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company refers to Note 15 for details on legal proceedings, including the UPRR concrete tie settlement and environmental liabilities, with management expecting no material adverse financial impact - For information on legal proceedings, the report refers to **Note 15** of the Notes to Condensed Consolidated Financial Statements[164](index=164&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, L.B. Foster Company is not required to provide the information requested under this item - This item is not applicable to a smaller reporting company[165](index=165&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended June 30, 2022, the company withheld a total of 274 shares at an average price of $13.00 per share to satisfy tax obligations upon the vesting of employee restricted stock. These transactions were not part of a publicly announced repurchase plan Equity Security Purchases (Q2 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | — | $— | | May 2022 | 274 | $13.00 | | June 2022 | — | $— | | **Total** | **274** | **$13.00** | - The shares purchased reflect shares withheld by the Company to pay taxes upon the vesting of restricted stock[166](index=166&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section provides an index of the exhibits filed with the Form 10-Q. Key exhibits include the 2022 Equity and Incentive Compensation Plan, descriptions of other incentive plans, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - The Exhibit Index lists several documents filed with the report, including: - **2022 Equity and Incentive Compensation Plan (10.1)** - **Strategy Transformation Plan Description (10.2)** - **CEO and CFO Certifications under Sarbanes-Oxley Sections 302 and 906 (31.1, 31.2, 32.0)** - **XBRL Interactive Data Files (101 series)**[173](index=173&type=chunk)

Financial Performance - Q1 2022 sales were $98.8 million, a decrease of $17.3 million or 14.9% year-over-year[45] - Gross profit was $16.4 million with a gross profit margin of 16.6%, a 40 bps increase year-over-year[45] - Net loss was $1.6 million, compared to a net loss of $1.3 million in the prior year quarter[45] - EBITDA was $1.7 million, down $1.1 million or 39.7% from $2.7 million in Q1 2021[45] Segment Results - Rail, Technologies, and Services sales decreased by $2.5 million or 3.8% to $63.7 million[51] - Precast Concrete Products sales increased by $2.3 million or 18.4% to $15.0 million[51] - Steel Products and Measurement sales increased by $3.7 million or 22.7% to $20.1 million, excluding the impact of the Piling Products business[51] Orders and Backlog - New orders totaled $135.4 million, a decrease of $0.2 million or 0.2% year-over-year[48] - Excluding Piling Products, new orders increased by $20.4 million or 17.7%[48] - Consolidated backlog was $244.6 million, a decrease of $27.3 million or 10.0% year-over-year[49] - Excluding Piling Products, backlog increased by $4.7 million or 1.9%[49] Liquidity - Net debt totaled $29.4 million, down $2.4 million year-over-year[22] - Adjusted net leverage ratio was 1.7x[22] - Total available funding capacity was $100.1 million[22]

Financial Data and Key Metrics Changes - First-quarter sales were $98.8 million, down $17.3 million or 14.9% from Q1 last year, but adjusted for the Piling divestiture, sales were up 3.7% year-over-year [7][8] - Gross profit was down in Q1 due to the piling divestiture, raw material and labor inflation, and supply chain disruptions [7][8] - EBITDA in Q1 declined $1.1 million to $1.7 million, with $300,000 attributed to the Piling divestiture [8] - Total net debt was $29.4 million at quarter-end, down $2.4 million from last year [12] Business Line Data and Key Metrics Changes - Rail segment revenue decreased $2.5 million year-over-year, but gross margins increased 30 basis points due to higher volume in more profitable business units [9] - Precast Concrete Products segment revenues increased $2 million or 18.4% year-over-year, but gross margins were down 330 basis points due to higher input costs [10] - Steel Products and Measurement revenues increased by $4 million or 22.7% year-over-year, but gross profit margins declined 690 basis points due to higher costs [11] Market Data and Key Metrics Changes - Order intake levels, excluding the Piling business, increased 17.7% over the prior-year quarter and 42.2% sequentially, resulting in a backlog of $245 million, an increase of 3.7% compared to the prior-year quarter [5][6] - The precast segment's backlog ended at $72 million, an uptick from the previous year [22] Company Strategy and Development Direction - The company remains focused on leveraging key growth platforms, particularly in Precast Concrete and Rail Technology services [6] - The company anticipates a sequential revenue increase of at least 25% in Q2, driven by improving order intake and backlog [5][15] - Addressing margin erosion is a top priority, with aggressive pricing actions and inventory management to mitigate supply chain disruptions [16] Management's Comments on Operating Environment and Future Outlook - The operating environment remains challenging due to inflationary pressures and supply chain disruptions, but margins are stabilizing [6] - The company is optimistic about improving demand due to significant government funding for infrastructure projects, although meaningful revenue from the Infrastructure Investment and Jobs Act is not expected until 2023 [15][16] Other Important Information - The company has a comfortable leverage ratio around two times, with expectations of $8.5 million in federal income tax refunds and $90 million in federal net operating loss carryforwards [12] Q&A Session Summary Question: Comments on new orders in the precast segment - The company noted a slight decline in new orders compared to a large order in Q1 2021, but remains optimistic about the precast business with a backlog of $72 million [22] Question: Backlog for coatings and measurement - The backlog for coatings and measurement stands at $49 million, flat year-over-year, with increased bidding activity noted [23]

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) This section presents the company's condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive notes [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The financial statements for Q1 2022 show decreased net sales to **$98.8 million**, a **net loss of $1.6 million**, and negative operating cash flow of **$7.6 million** [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and equity, as of March 31, 2022, and December 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Current Assets** | | | | Cash and cash equivalents | $6,239 | $10,372 | | Inventories - net | $67,799 | $62,871 | | Total current assets | $187,064 | $179,479 | | **Total Assets** | **$347,412** | **$342,595** | | **Current Liabilities** | | | | Accounts payable | $45,483 | $41,411 | | Deferred revenue | $19,310 | $13,411 | | Total current liabilities | $89,796 | $86,194 | | **Long-term debt** | $35,531 | $31,153 | | **Total Stockholders' Equity** | **$181,697** | **$183,610** | | **Total Liabilities and Stockholders' Equity** | **$347,412** | **$342,595** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, costs, and net loss for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total net sales | $98,794 | $116,080 | | Gross profit | $16,447 | $18,830 | | Operating loss | $(2,287) | $(661) | | Net loss attributable to L.B. Foster Company | $(1,566) | $(1,258) | | Basic loss per common share | $(0.15) | $(0.12) | | Diluted loss per common share | $(0.15) | $(0.12) | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Outlines the total comprehensive loss, including net loss and other comprehensive income/loss items, for the reporting periods - Total comprehensive loss attributable to L.B. Foster Company was **$1.8 million** for the three months ended March 31, 2022, compared to a loss of **$0.5 million** in the prior-year period. The increase in loss was primarily driven by a net loss and a negative foreign currency translation adjustment[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by continuing operating activities | $(7,636) | $7,614 | | Net cash used in continuing investing activities | $(539) | $(1,327) | | Net cash provided by (used in) continuing financing activities | $4,012 | $(8,446) | | **Net decrease in cash and cash equivalents** | **$(4,133)** | **$(2,549)** | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Tracks changes in the company's equity, including net loss and other comprehensive loss, from December 31, 2021, to March 31, 2022 - Total stockholders' equity decreased from **$183.6 million** at December 31, 2021, to **$181.7 million** at March 31, 2022. The decrease was primarily due to a net loss of **$1.6 million** and other comprehensive loss items, including a foreign currency translation adjustment[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment changes, backlog, debt, and significant commitments including a **$24 million** UPRR settlement and the Portland Harbor Superfund Site - Effective Q4 2021, the company reorganized into three new reporting segments: **Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement**[22](index=22&type=chunk) - As of March 31, 2022, the company had approximately **$244.6 million** in backlog (remaining performance obligations), with about **10.8%** expected to extend beyond one year[34](index=34&type=chunk) - The company's revolving credit facility provides for aggregate borrowings up to **$130 million** and matures on August 13, 2026. As of March 31, 2022, net available borrowing capacity was **$93.9 million**[50](index=50&type=chunk)[56](index=56&type=chunk) - The company has a settlement agreement with Union Pacific Railroad (UPRR) with remaining payments totaling **$24 million**, to be paid in installments of **$8 million** per year through 2024[79](index=79&type=chunk)[80](index=80&type=chunk) - The company is identified as a potentially responsible party (PRP) for the Portland Harbor Superfund Site cleanup, with estimated total remedy costs of **$1.1 billion** (net present value). The ultimate financial impact on the company cannot be predicted at this time[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=22&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a **14.9%** Q1 net sales decline to **$98.8 million** due to divestiture, improved gross margin, and increased backlog to **$244.6 million**, while maintaining strong liquidity [General Overview and Business Update](index=23&type=section&id=General%20Overview%20and%20Business%20Update) Provides an overview of Q1 performance, highlighting sales decline due to divestiture, gross margin improvement, and increased backlog - Q1 net sales were **$98.8 million**, a **14.9%** decrease from the prior year, but this decline was attributed to the divestiture of the Piling Products division, which accounted for a **$20.8 million** reduction in sales year-over-year[89](index=89&type=chunk) - Gross profit margin increased by **40 basis points** to **16.6%** despite inflationary pressures, which most significantly impacted the Precast Concrete Products and Steel Products and Measurement segments[90](index=90&type=chunk) - Net loss attributable to the company was **$1.6 million**, or **$0.15** per diluted share, an increased loss of **$0.3 million** compared to the prior year, driven by lower volume and inflation, partially offset by reduced expenses and insurance proceeds[93](index=93&type=chunk) - Consolidated backlog was **$244.6 million**, a **10.0%** decrease from the prior year due to the Piling Products divestiture, but showed a sequential increase of **16.4%** from December 31, 2021, indicating a seasonal ramp-up[94](index=94&type=chunk) [Results of the Quarter](index=25&type=section&id=Results%20of%20the%20Quarter) Summarizes the company's consolidated financial performance for Q1 2022 compared to Q1 2021, including sales, gross profit, and net loss Q1 2022 vs Q1 2021 Performance Summary (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | **Total net sales** | **$98,794** | **$116,080** | **(14.9%)** | | Rail, Technologies, and Services | $63,710 | $66,232 | (3.8%) | | Precast Concrete Products | $15,010 | $12,678 | 18.4% | | Steel Products and Measurement | $20,074 | $37,170 | (46.0%) | | **Total gross profit** | **$16,447** | **$18,830** | **(12.7%)** | | Gross Profit % | 16.6% | 16.2% | +40 bps | | **Operating loss** | **$(2,287)** | **$(661)** | **246.0%** | | **Net loss attributable to L.B. Foster** | **$(1,566)** | **$(1,258)** | **24.5%** | [Segment Performance](index=26&type=section&id=Segment%20Performance) Details the individual financial performance of the Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement segments Rail, Technologies, and Services Segment Performance (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $63,710 | $66,232 | (3.8%) | | Gross profit | $12,528 | $12,805 | (2.2%) | | Gross profit percentage | 19.7% | 19.3% | +0.4% | Precast Concrete Products Segment Performance (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $15,010 | $12,678 | 18.4% | | Gross profit | $2,445 | $2,489 | (1.8%) | | Gross profit percentage | 16.3% | 19.6% | (3.3%) | Steel Products and Measurement Segment Performance (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $20,074 | $37,170 | (46.0%) | | Gross profit | $1,474 | $3,536 | (58.3%) | | Gross profit percentage | 7.3% | 9.5% | (2.2%) | [Segment Backlog](index=27&type=section&id=Segment%20Backlog) Presents the backlog for each operating segment as of March 31, 2022, and prior periods, indicating future revenue Segment Backlog (in thousands) | Segment | March 31, 2022 | December 31, 2021 | March 31, 2021 | | :--- | :--- | :--- | :--- | | Rail, Technologies, and Services | $122,918 | $96,573 | $122,461 | | Precast Concrete Products | $72,369 | $68,636 | $65,774 | | Steel Products and Measurement | $49,331 | $44,980 | $83,709 | | **Total backlog** | **$244,618** | **$210,189** | **$271,944** | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash position, credit facility, and cash flow from operations, outlining its financial flexibility - The company's principal sources of liquidity are cash, cash from operations, and its **$130 million** revolving credit facility[113](index=113&type=chunk) Available Funding Capacity as of March 31, 2022 (in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $6,239 | | Net availability under the revolving credit facility | $93,868 | | **Total available funding capacity** | **$100,107** | - Cash used in operating activities was **$7.6 million** in Q1 2022, a significant reversal from **$7.6 million** in cash provided by operations in Q1 2021, primarily due to changes in working capital[115](index=115&type=chunk)[116](index=116&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item is not applicable as the company is a smaller reporting company - This item is not applicable to a smaller reporting company[125](index=125&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2022, and concluded they were effective - Based on an evaluation as of March 31, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[126](index=126&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[127](index=127&type=chunk) [PART II. Other Information](index=32&type=section&id=PART%20II.%20Other%20Information) Covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is detailed in Note 15 of the financial statements, including the UPRR settlement and the Portland Harbor Superfund Site matter - Details on legal proceedings are incorporated by reference from Note 15 of the Notes to Condensed Consolidated Financial Statements[130](index=130&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This item is not applicable as the company is a smaller reporting company - This item is not applicable to a smaller reporting company[131](index=131&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter, the company withheld a total of 26,346 shares at an average price of **$15.08** per share to pay taxes upon the vesting of restricted stock for employees Company Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2022 | — | $— | | February 2022 | 21,589 | $15.16 | | March 2022 | 4,757 | $14.72 | | **Total** | **26,346** | **$15.08** | - The shares purchased reflect shares withheld by the Company to pay taxes upon the vesting of restricted stock[132](index=132&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) The report lists several exhibits filed with the Form 10-Q, including the 2022 Executive Annual Incentive Plan, forms of stock award agreements, and certifications by the CEO and CFO - Filed exhibits include executive compensation plans, award agreements, and required CEO/CFO certifications[139](index=139&type=chunk)

Part I [Business Overview](index=5&type=section&id=Item%201.%20Business) L.B. Foster Company provides engineered products and services for infrastructure, operating across three realigned segments - The company realigned its operating segments in Q4 2021 into three new reporting structures: Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement[15](index=15&type=chunk) - As of December 31, 2021, the company had **991 employees**, with 721 in the U.S., 72 in Canada, and 192 in Europe[51](index=51&type=chunk) - In 2022, the company created a new full-time role to focus on and enhance its sustainability and environmental, social, and governance (ESG) initiatives[44](index=44&type=chunk) Net Sales by Business Segment (as a percentage of total) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Rail, Technologies, and Services | 58% | 56% | | Precast Concrete Products | 14% | 13% | | Steel Products and Measurement | 28% | 31% | | **Total** | **100%** | **100%** | [Rail, Technologies, and Services](index=5&type=section&id=Rail%2C%20Technologies%2C%20and%20Services) - This segment provides products, solutions, and services for freight and passenger railroads globally through three business units[17](index=17&type=chunk) - The Global Friction Management unit manufactures products to reduce fuel consumption and extend asset life for rail customers[22](index=22&type=chunk) - The Technology Services and Solutions unit provides railroad condition monitoring systems to enable the 'digital railway'[23](index=23&type=chunk) [Precast Concrete Products](index=7&type=section&id=Precast%20Concrete%20Products) - This segment manufactures precast concrete products for the North American civil infrastructure market under its CXT® brand[24](index=24&type=chunk) [Steel Products and Measurement](index=7&type=section&id=Steel%20Products%20and%20Measurement) - This segment provides custom engineered solutions for civil and energy infrastructure, including bridge products and pipeline measurement systems[25](index=25&type=chunk) - On September 24, 2021, the Company completed the sale of its Piling Products division, which was part of this segment[30](index=30&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from the COVID-19 pandemic, operations, competition, finance, regulations, and international trade - **COVID-19 Risks:** The pandemic continues to adversely affect operations, supply chains, and demand, particularly in the midstream energy markets[69](index=69&type=chunk)[70](index=70&type=chunk) - **Business and Operational Risks:** Key risks include managing acquisitions and divestitures, negative economic conditions, rising inflation and labor costs, and cybersecurity threats[71](index=71&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) - **Financial Risks:** The company's indebtedness could affect its business, and a decline in stock price could lead to write-downs of long-lived and intangible assets[90](index=90&type=chunk)[92](index=92&type=chunk) - **Legal, Tax, and Regulatory Risks:** The company is dependent on governmental funding for infrastructure projects and is subject to various environmental and anti-corruption regulations[99](index=99&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) - **International Risks:** A portion of sales comes from international operations, exposing the company to currency fluctuations, political conditions, and trade restrictions[106](index=106&type=chunk)[108](index=108&type=chunk) [Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[110](index=110&type=chunk) [Properties](index=24&type=section&id=Item%202.%20Properties) The company owns or leases 39 facilities globally for sales, manufacturing, and warehousing operations Principal Owned and Leased Properties | Location | Function | Business Segment | Ownership | | :--- | :--- | :--- | :--- | | Bedford, PA | Bridge component fabricating plant | Steel Products and Measurement | Owned | | Birmingham, AL | Protective coatings facility | Steel Products and Measurement | Leased (exp. 2022) | | Columbia City, IN | Rail processing facility | Rail, Technologies, and Services | Owned | | Hillsboro, TX | Precast concrete facility | Precast Concrete Products | Owned | | Nampa, ID | Precast concrete facility | Precast Concrete Products | Leased (exp. 2029) | | Sheffield, United Kingdom | Track component facility | Rail, Technologies, and Services | Leased (exp. 2030) | | Spokane, WA | Concrete tie plant | Rail, Technologies, and Services | Leased (exp. 2025) | | Willis, TX | Protective coatings & measurement facilities | Steel Products and Measurement | Owned | [Legal Proceedings](index=24&type=section&id=Item%203.%20Legal%20Proceedings) Legal proceeding details are incorporated by reference from the Consolidated Financial Statements - Details on legal proceedings are incorporated by reference from Note 18 of the financial statements[114](index=114&type=chunk) [Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable to the Company[115](index=115&type=chunk) Part II [Market for Common Equity and Related Matters](index=25&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock (FSTR) trades on NASDAQ, with no dividends paid in 2021 and share repurchases in Q4 - The company's common stock is traded on the NASDAQ Global Select Market under the symbol FSTR with **287 common shareholders** of record as of February 23, 2022[117](index=117&type=chunk) - No quarterly dividends were declared during 2021 and 2020[118](index=118&type=chunk) - In 2021, the company withheld **45,288 shares**, valued at **$732 thousand**, to satisfy employee tax withholding obligations upon the vesting of restricted stock[121](index=121&type=chunk) Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2021 | 356 | $15.50 | | November 2021 | — | — | | December 2021 | 13,027 | $13.75 | | **Total** | **13,383** | **$13.80** | [Management's Discussion and Analysis (MD&A)](index=26&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, sales grew 3.3% but gross profit and net income declined due to margin pressure and a prior-year tax benefit [Executive Level Overview](index=26&type=section&id=Executive%20Level%20Overview) - Divested the Piling Products division, resulting in cash proceeds of **$22.7 million** and a pretax gain of **$2.7 million**[124](index=124&type=chunk) - Consolidated backlog as of December 31, 2021, was **$210.2 million**, a decrease of **15.3%** from the prior year, primarily due to the Piling Products divestiture[130](index=130&type=chunk) 2021 Financial Highlights vs. 2020 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $513.6M | $497.4M | +3.3% | | Net Income (cont. ops) | $3.5M | $25.8M | -86.6% | | Diluted EPS (cont. ops) | $0.33 | $2.42 | -86.4% | | Adjusted EBITDA | $18.7M | $32.0M | -41.6% | | Total Debt | $31.3M | $45.0M | -30.5% | | Net Debt | $20.9M | $37.5M | -44.3% | [Results of Operations](index=29&type=section&id=Results%20of%20Operations) - The effective income tax rate was **24.4%** in 2021, compared to **(84.7)%** in 2020, with the prior year impacted by a **$15.8 million** tax benefit[138](index=138&type=chunk) Net Sales by Segment (in thousands) | Segment | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Rail, Technologies, and Services | $299,749 | $276,447 | 8.4% | | Precast Concrete Products | $70,990 | $63,314 | 12.1% | | Steel Products and Measurement | $142,881 | $157,650 | (9.4)% | | **Total net sales** | **$513,620** | **$497,411** | **3.3%** | Gross Profit by Segment (in thousands) | Segment | 2021 | 2020 | % Change | 2021 Margin | 2020 Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Rail, Technologies, and Services | $57,249 | $55,263 | 3.6% | 19.1% | 20.0% | | Precast Concrete Products | $12,491 | $11,395 | 9.6% | 17.6% | 18.0% | | Steel Products and Measurement | $16,562 | $28,348 | (41.6)% | 11.6% | 18.0% | | **Total gross profit** | **$86,302** | **$95,006** | **(9.2)%** | **16.8%** | **19.1%** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) - In August 2021, the company entered into a new five-year, **$130 million** revolving credit facility, extending the maturity to August 2026[163](index=163&type=chunk) Available Funding Capacity as of Dec 31, 2021 (in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $10,372 | | Net availability under revolving credit facility | $98,356 | | **Total available funding capacity** | **$108,728** | Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by continuing operating activities | $(810) | $20,549 | | Net cash provided by (used in) continuing investing activities | $17,822 | $(10,319) | | Net cash used in continuing financing activities | $(13,904) | $(15,277) | [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - **Income Taxes:** Management judgment is required to assess the future realization of deferred tax assets and determine if a valuation allowance is needed[171](index=171&type=chunk) - **Revenue Recognition:** For long-term contracts, revenue is recognized over time using input or output measures, which involves significant estimates[177](index=177&type=chunk)[179](index=179&type=chunk) - **Goodwill:** Goodwill is tested for impairment annually by comparing the fair value of a reporting unit to its carrying value[181](index=181&type=chunk)[182](index=182&type=chunk) [Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and the independent auditor's report for 2021 and 2020 - The independent auditor's report from Ernst & Young LLP expressed an unqualified opinion on the financial statements and internal controls[190](index=190&type=chunk)[191](index=191&type=chunk)[194](index=194&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $179,479 | $195,319 | | Total Assets | $342,595 | $370,395 | | Total Current Liabilities | $86,194 | $95,302 | | Long-Term Debt | $31,153 | $44,905 | | Total Stockholders' Equity | $183,610 | $176,830 | | **Total Liabilities & Equity** | **$342,595** | **$370,395** | Consolidated Statement of Operations Highlights (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total Net Sales | $513,620 | $497,411 | | Gross Profit | $86,302 | $95,006 | | Operating Profit | $4,471 | $15,633 | | Income from Continuing Operations | $3,471 | $25,823 | | Net Income Attributable to L.B. Foster | $3,626 | $7,582 | [Controls and Procedures](index=89&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls, procedures, and internal controls were effective as of year-end 2021 - Based on an evaluation as of December 31, 2021, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[385](index=385&type=chunk) - Management assessed the effectiveness of internal control over financial reporting using the COSO framework and concluded that it was effective as of December 31, 2021[387](index=387&type=chunk) Part III [Directors, Executive Officers, Compensation, and Corporate Governance](index=91&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information on directors, compensation, and governance is incorporated by reference from the 2022 Proxy Statement - Information required by Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's 2022 Proxy Statement[7](index=7&type=chunk)[400](index=400&type=chunk)[402](index=402&type=chunk)[404](index=404&type=chunk)[405](index=405&type=chunk) - Information regarding the executive officers of the Company is set forth in Part I of this Annual Report on Form 10-K[400](index=400&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=92&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report - This section lists all financial statements, schedules (including Schedule II – Valuation and Qualifying Accounts), and exhibits filed with the report[407](index=407&type=chunk)[408](index=408&type=chunk) [Form 10-K Summary](index=92&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has elected not to include a voluntary summary of the Form 10-K report - The Company has elected not to include a summary under this item[412](index=412&type=chunk)

Financial Data and Key Metrics Changes - Fourth quarter sales were $113 million, down $2.6 million or 2.3% from Q4 of last year, but adjusted for the piling divestiture, sales were up 8.8% year-over-year [24] - Fourth quarter adjusted EBITDA declined $3.7 million to $3.2 million, with $1.3 million of the decline due to the piling divestiture [25] - The company finished 2021 with $6 million of operating cash flow, translating into a $5.2 million reduction in net debt, which stood at $21 million as of year-end [26] Business Line Data and Key Metrics Changes - Rail Technologies and Services segment revenue increased $3.5 million year-over-year, driven by increased volumes within global friction management and technology services [28] - Precast Concrete Products segment revenue was essentially unchanged year-over-year at $20 million, but gross margins were down 390 basis points due to higher input costs [30] - Steel Products and Measurement segment revenues and gross margins were up in Q4, primarily due to improved volumes in bridge products and fluid measurement systems [31] Market Data and Key Metrics Changes - Fourth quarter orders totaled approximately $95 million, softer than recent quarterly run rates, but the company finished the year with a healthy backlog of approximately $210 million [27] - The order book for Precast Concrete Products increased over 50% during 2021, driven by new operations and government funding programs [65] Company Strategy and Development Direction - The company is focusing on transforming into a technology-focused infrastructure solutions provider, with a refreshed corporate strategy emphasizing growth platforms in core markets [17][18] - The passage of the $1.2 trillion Infrastructure Jobs Act is expected to provide resources for U.S. transportation infrastructure projects, which should lead to improving shareholder value [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the company faced significant operational and inflationary challenges in 2021, particularly in labor and raw material costs [48] - Despite challenges, management is optimistic about improving demand due to significant government funding for infrastructure projects [46] Other Important Information - The company has reduced its net debt by $17 million during 2021 and has nearly $109 million in available funding to execute its strategic plan [40] - The company is leveraging a capital-light business model, with capital spending and working capital needs around 1% and 20% of sales respectively [41] Q&A Session Summary Question: Why were new orders in rail weak? - Management indicated that significant projects are coming through the pipeline, leading to some timing issues, but there is nothing to be alarmed about [57] Question: Is the large project bid opportunity growing in 2022? - Management confirmed that quoting activity has been robust, indicating a fair assumption that opportunities are growing [58] Question: Any guidance for first quarter or full year 2022? - Management does not provide guidance but noted strong order book momentum heading into 2022 [60] Question: What are the main growth drivers for the Precast Concrete business? - Growth is driven by new operations and government funding programs, particularly the Great American Outdoors Act [65] Question: Will rising oil prices lead to more orders in coatings and measurement? - Management has not seen a correlation between rising oil prices and increased orders in coatings and measurement [67]