L.B. Foster pany(FSTR) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2024 Key Highlights L.B. Foster reported tempered Q2 2024 results, with declining sales and EBITDA, prompting revised full-year guidance and ongoing restructuring Q2 2024 Financial Performance Summary | Metric | Q2 2024 | Change (YoY) | | :--- | :--- | :--- | | Net Sales | $140.8 million | -4.9% | | Gross Profit | $30.5 million | -5.4% | | Net Income | $2.8 million | -19.4% | | Adjusted EBITDA | $8.1 million | -23.8% | | New Orders | $171.0 million | -6.9% | | Backlog | $249.8 million | -13.9% | - The company is continuing an enterprise restructuring program expected to be completed in the second half of 2024, impacting approximately 7% of the salaried workforce and targeting $4.5 million in annual run-rate savings[1] - Full-year 2024 financial guidance was adjusted, with net sales now expected to be $525.0-$550.0 million and adjusted EBITDA to be $34.0-$37.0 million[1] - The Board of Directors approved a modification to the stock repurchase program, shortening its tenure to February 2025 and removing spending restrictions to increase flexibility, with $11.0 million remaining[1] CEO Commentary The CEO noted softer Q2 results from domestic Rail weakness, emphasizing ongoing restructuring for $4.5 million annual savings and improved profitability - The organic sales decline was primarily in the Rail segment due to softness in the domestic rail market, which adversely impacted both volumes and pricing[2] - Net debt rose by $8.2 million during the quarter to fund working capital, capital spending, and the stock buyback program, with the Gross Leverage Ratio at 2.7x at quarter end[2] - The new restructuring program is expected to generate approximately $2.0 million in savings in 2024, with annual run-rate savings of $4.5 million entering 2025[2] Financial Performance Second Quarter 2024 Consolidated Results Q2 2024 consolidated results saw net sales decline 4.9% to $140.8 million and adjusted EBITDA drop 23.8% to $8.1 million, mainly from Rail segment weakness Q2 2024 Consolidated Financial Highlights (vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $140.8 million | $148.0 million | -4.9% | | Gross Profit | $30.5 million | $32.3 million | -5.4% | | Operating Income | $4.5 million | $6.3 million | -29.1% | | Net Income | $2.8 million | $3.5 million | -19.4% | | Adjusted EBITDA | $8.1 million | $10.6 million | -23.8% | - The decline in gross profit was primarily driven by lower volumes and softer market prices in the domestic rail business[5] - Selling and administrative expenses increased by $0.4 million, partly due to $0.5 million in professional services costs for the announced enterprise restructuring[6] - Net debt decreased by $2.5 million year-over-year to $83.2 million, while the Gross Leverage Ratio increased by 0.2x to 2.7x[9] First Six Months 2024 Consolidated Results H1 2024 net sales increased 0.6% to $265.1 million, while adjusted EBITDA decreased 7.1% to $14.0 million, with net income boosted by an asset sale First Six Months 2024 Consolidated Financial Highlights (vs. H1 2023) | Metric | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $265.1 million | $263.5 million | +0.6% | | Gross Profit | $56.8 million | $55.5 million | +2.2% | | Operating Income | $6.8 million | $6.9 million | -0.9% | | Net Income | $7.3 million | $1.4 million | +428.2% | | Adjusted EBITDA | $14.0 million | $15.1 million | -7.1% | - Net sales increased 5.5% organically, offset by a 4.9% decrease from divestiture and product line exit activity[16] - The significant increase in net income was largely due to a net gain of $3.5 million on the sale of the Company's former joint venture facility in the first quarter[18] - Cash used by operating activities totaled $26.8 million, an increased use of $23.5 million compared to the prior year period[19] Business Segment Performance Q2 segment performance diverged, with Rail sales declining and Infrastructure Solutions improving profitability despite a sales dip Rail, Technologies, and Services Segment The Rail segment's Q2 2024 net sales decreased 6.6% to $85.6 million, with operating income dropping 18.0% due to lower volumes and prices Q2 2024 Rail Segment Performance (vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $85.6 million | $91.6 million | -6.6% | | Gross Profit | $17.9 million | $19.8 million | -9.9% | | Segment Operating Income | $5.4 million | $6.6 million | -18.0% | | New Orders | $117.0 million | $116.0 million | +0.9% | | Backlog | $114.8 million | $132.5 million | -13.3% | - The organic sales decline was driven by lower volumes and softer market prices in the Rail Products business unit[10] - Sequentially, second-quarter orders and backlog increased by 39.7% and 33.4%, respectively, over the first quarter[12] Infrastructure Solutions Segment Infrastructure Solutions saw Q2 net sales dip 2.2% to $55.2 million, but operating income surged 31.5% to $3.6 million, driven by portfolio actions and an asset sale Q2 2024 Infrastructure Segment Performance (vs. Q2 2023) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $55.2 million | $56.4 million | -2.2% | | Gross Profit | $12.6 million | $12.4 million | +2.0% | | Segment Operating Income | $3.6 million | $2.8 million | +31.5% | | New Orders | $54.0 million | $67.8 million | -20.3% | | Backlog | $135.0 million | $157.6 million | -14.3% | - Gross profit margins increased by 90 basis points to 22.9%, driven by the Steel Products business, which included a $0.8 million gain from the sale of fixed assets[14] - The decline in new orders was attributed to softer business activity in the Steel Products business unit, particularly within Protective Coatings[15] Outlook & Corporate Actions Updated 2024 Financial Guidance The company revised its full-year 2024 guidance downwards, lowering net sales and adjusted EBITDA expectations, with free cash flow now projected as breakeven Comparison of 2024 Financial Guidance | Metric | Updated Guidance (In millions) | Previous Guidance (In millions) | | :--- | :--- | :--- | | Net Sales | $525.0 - $550.0 | $525.0 - $560.0 | | Adjusted EBITDA | $34.0 - $37.0 | $34.0 - $39.0 | | Capital Spending (% of sales) | 2.5% | 2.0% - 2.5% | | Free Cash Flow | Breakeven | $12.0 - $18.0 | - The revised adjusted EBITDA guidance at the mid-point represents approximately 12% year-over-year growth, down from the previously guided 15%[1] Enterprise Restructuring Program The company is implementing an enterprise-wide restructuring program, impacting 7% of salaried staff, targeting $4.5 million in annual run-rate savings - The restructuring is expected to impact approximately 40 salaried employees[1] - Annual run-rate savings are projected to be $4.5 million, with $2.0 million expected to be realized in 2024[1][2] - Associated restructuring charges are expected to be approximately $1.5 million in the second half of 2024[1] Stock Repurchase Program The Board modified the stock repurchase program, shortening its tenure to February 2025 and removing spending restrictions to enhance flexibility - The program's tenure has been shortened to two years, now expiring in February 2025[1] - A trailing-twelve-month spending restriction has been removed, increasing repurchase flexibility[1] - As of the end of Q2 2024, $11.0 million remains available under the $15 million authorization[1][2] Financial Statements & Reconciliations Consolidated Financial Statements The consolidated financial statements present Q2 2024 performance, showing decreased net income but increased assets and long-term debt Condensed Income Statement (Three Months Ended June 30) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total net sales | $140,796 | $148,034 | | Gross profit | $30,523 | $32,252 | | Operating income | $4,504 | $6,349 | | Net income attributable to L.B. Foster | $2,847 | $3,531 | | Diluted EPS | $0.26 | $0.32 | Condensed Balance Sheet (As of June 30, 2024) | (In thousands) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $191,469 | $167,990 | | Total assets | $333,261 | $313,206 | | Total current liabilities | $80,429 | $95,306 | | Long-term debt | $87,006 | $55,171 | | Total stockholders' equity | $147,652 | $142,835 | Non-GAAP Financial Measures & Reconciliations Non-GAAP measures, including adjusted EBITDA and net debt, are reconciled to provide supplemental insight into the company's Q2 2024 performance Adjusted EBITDA Reconciliation (Three Months Ended June 30, 2024) | (In thousands) | Amount | | :--- | :--- | | Net income, as reported | $2,817 | | Interest expense - net | $1,493 | | Income tax expense | $346 | | Depreciation expense | $2,362 | | Amortization expense | $1,123 | | Total EBITDA | $8,141 | | Gain on asset sale | ($815) | | Legal expense | $751 | | Adjusted EBITDA | $8,077 | Net Debt Reconciliation (As of June 30) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total debt | $87,173 | $89,505 | | Less: cash and cash equivalents | ($4,021) | ($3,880) | | Net debt | $83,152 | $85,625 | Q2 2024 Consolidated Sales Change Analysis | Component | Change Amount (In thousands) | % Change | | :--- | :--- | :--- | | 2023 Net Sales | $148,034 | - | | Decrease due to divestitures | ($2,231) | -1.5% | | Change due to organic sales | ($5,007) | -3.4% | | 2024 Net Sales | $140,796 | -4.9% | Corporate Information Conference Call Information L.B. Foster will host a conference call and webcast on August 6, 2024, at 11:00 AM ET to discuss its Q2 2024 operating results - A conference call and webcast to discuss Q2 2024 results is scheduled for August 6, 2024, at 11:00 AM ET[20]