L.B. Foster pany(FSTR) - 2021 Q2 - Quarterly Report

PART I. Financial Information This section provides the unaudited condensed consolidated financial statements of L.B. Foster Company for the period ending June 30, 2021, along with management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for L.B. Foster Company as of June 30, 2021, and for the three and six-month periods then ended, including balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation and significant accounting policies Condensed Consolidated Balance Sheets As of June 30, 2021, total assets increased to $379.9 million from $370.4 million at year-end 2020, driven by higher accounts receivable and deferred revenue, while total liabilities also increased, primarily due to a rise in accounts payable and deferred revenue, and stockholders' equity saw a slight increase to $180.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $210,469 | $195,319 | | Total assets | $379,941 | $370,395 | | Total current liabilities | $111,962 | $95,302 | | Long-term debt | $37,121 | $44,905 | | Total liabilities | $199,049 | $193,565 | | Total stockholders' equity | $180,892 | $176,830 | Condensed Consolidated Statements of Operations For the second quarter of 2021, total net sales increased to $154.5 million from $141.6 million year-over-year, but gross profit declined to $26.2 million from $28.1 million, with net income attributable to the company at $2.9 million, or $0.27 per diluted share, compared to $0.5 million, or $0.05 per diluted share, in Q2 2020, where the prior year's net income was significantly impacted by a large loss from discontinued operations Q2 and H1 2021 vs 2020 Performance (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $154,522 | $141,563 | $270,602 | $263,470 | | Gross profit | $26,161 | $28,138 | $44,991 | $51,260 | | Income from continuing operations | $2,854 | $6,970 | $1,584 | $6,965 | | Net income (loss) attributable to L.B. Foster | $2,876 | $523 | $1,618 | $(1,343) | | Diluted EPS from continuing operations | $0.27 | $0.66 | $0.15 | $0.66 | | Diluted EPS (total) | $0.27 | $0.05 | $0.15 | $(0.13) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash provided by continuing operating activities was $6.8 million, a decrease from $8.1 million in the prior-year period, while net cash used in investing activities decreased significantly to $2.2 million from $5.7 million, mainly due to lower capital expenditures, and net cash used in financing activities increased to $7.9 million, driven by debt repayments Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by continuing operating activities | $6,842 | $8,122 | | Net cash used in continuing investing activities | $(2,248) | $(5,700) | | Net cash used in continuing financing activities | $(7,918) | $(4,675) | | Net decrease in cash and cash equivalents | $(3,424) | $(6,791) | | Cash and cash equivalents at end of period | $4,140 | $7,387 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial results, covering topics such as the reclassification of business segments, the sale of the Test and Inspection Services business, revenue recognition, goodwill and intangible assets, debt structure, and contingent liabilities related to a UPRR settlement and environmental matters - The company now operates under two segments: Rail Technologies and Services, and Infrastructure Solutions, following operational changes implemented in Q4 2020[25] - On September 4, 2020, the company completed the sale of its upstream oil and gas test and inspection business, which is now reported as a discontinued operation[32] - As of June 30, 2021, the company had approximately $253.2 million in backlog (remaining performance obligations)[40] - The company is making installment payments totaling $50 million through December 2024 to resolve litigation with Union Pacific Railroad (UPRR) regarding concrete ties[88][89] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results for the second quarter and first half of 2021, highlighting a 9.2% Q2 2021 revenue increase driven by the Rail segment, but a 7.0% decline in gross profit due to weakness in the Infrastructure Solutions segment, particularly the midstream energy-focused Coatings and Measurement business, while expressing optimism for second-half revenue growth despite commodity price inflation and a weak midstream market, with sufficient liquidity from $77.5 million available under the revolving credit facility Results of the Quarter (Q2 2021 vs. Q2 2020) In Q2 2021, net sales rose 9.2% to $154.5 million, driven by an 18.5% increase in the Rail Technologies and Services segment, but consolidated gross profit fell 7.0% to $26.2 million, with the gross margin contracting by 300 basis points to 16.9%, primarily due to a 27.6% drop in gross profit from the Infrastructure Solutions segment, impacted by weakness in the midstream energy market, leading to a decrease in net income from continuing operations to $2.9 million from $7.0 million in the prior-year quarter Q2 2021 vs Q2 2020 Performance Summary (in thousands) | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $154,522 | $141,563 | 9.2% | | Rail Technologies and Services Sales | $88,782 | $74,939 | 18.5% | | Infrastructure Solutions Sales | $65,740 | $66,624 | (1.3)% | | Total Gross Profit | $26,161 | $28,138 | (7.0)% | | Gross Profit Margin | 16.9% | 19.9% | -300 bps | | Income from Continuing Operations | $2,854 | $6,970 | (59.1)% | - The increase in Rail segment sales was driven by a significant rise in new rail sales and increased service revenue in European operations as pandemic restrictions eased[116] - The decline in Infrastructure Solutions was wholly attributable to the Coatings and Measurement business unit due to unfavorable conditions in the midstream energy market[120] Six Month Results (H1 2021 vs. H1 2020) For the first six months of 2021, net sales increased 2.7% to $270.6 million, led by a 6.8% rise in the Rail segment, but gross profit declined 12.2% to $45.0 million, with the gross margin falling 290 basis points to 16.6%, again due to weakness in the Infrastructure Solutions segment, while selling and administrative expenses decreased by 3.6%, and net income from continuing operations was $1.6 million, a significant drop from $7.0 million in the first half of 2020 H1 2021 vs H1 2020 Performance Summary (in thousands) | Metric | H1 2021 | H1 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $270,602 | $263,470 | 2.7% | | Rail Technologies and Services Sales | $155,014 | $145,143 | 6.8% | | Infrastructure Solutions Sales | $115,588 | $118,327 | (2.3)% | | Total Gross Profit | $44,991 | $51,260 | (12.2)% | | Gross Profit Margin | 16.6% | 19.5% | -290 bps | | Income from Continuing Operations | $1,584 | $6,965 | (77.3)% | Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and its revolving credit facility, with total debt at $37.2 million and $77.5 million of net available borrowing capacity as of June 30, 2021, and cash provided by continuing operations for the first six months at $6.8 million, indicating sufficient liquidity to operate the business and service its debt Available Funding Capacity as of June 30, 2021 (in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $4,140 | | Net availability under the revolving credit facility | $77,478 | | Total available funding capacity | $81,618 | - Total debt decreased from $45.0 million at year-end 2020 to $37.2 million as of June 30, 2021[141] - Capital expenditures for the first six months of 2021 were $2.2 million, significantly lower than the $5.7 million spent in the same period of 2020[146] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable as L.B. Foster Company is classified as a smaller reporting company - The company states that this item is not applicable to a smaller reporting company[153] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2021, and concluded they were effective, with no material changes to the company's internal control over financial reporting during the period - Based on an evaluation as of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[154] - No changes occurred during the six months ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[155] PART II. Other Information This section provides additional information, including details on legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings This section refers to Note 16 of the financial statements for information on legal proceedings, which details the UPRR settlement, product liability claims, and an environmental matter concerning the Portland Harbor Superfund Site - For details on legal proceedings, the report refers to Note 16 of the Notes to Condensed Consolidated Financial Statements[158] Item 1A. Risk Factors This item is not applicable as L.B. Foster Company is classified as a smaller reporting company - The company states that this item is not applicable to a smaller reporting company[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no purchases of its equity securities during the three months ended June 30, 2021 - The company made no purchases of its equity securities for the three months ended June 30, 2021[160] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including a retirement agreement, certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed include a retirement agreement for Robert P. Bauer, CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL interactive data files[164]