L.B. Foster pany(US:FSTR)2022-11-13 16:46Financial Data and Key Metrics Changes - Adjusted EBITDA increased 111% from $4.4 million to $9.3 million on a 3% adjusted sales growth year-over-year [15][25] - Third quarter sales were $130 million, essentially flat compared to last year, with a $4 million adverse impact from the Crossrail settlement [23][24] - Gross profit increased by $800,000 or 70 basis points from the prior year quarter, with adjusted gross margin at 20.8%, up 370 basis points year-over-year excluding certain items [24][25] Business Line Data and Key Metrics Changes - Rail segment revenue increased by $3.4 million year-over-year, driven by 11.8% organic growth, but impacted by the Crossrail settlement [33][34] - Precast Concrete Products segment revenue increased by $10.9 million or 60.6% year-over-year, with organic sales up 25.2% and a contribution of 35.4% from the VanHooseCo acquisition [35] - Steel products and measurement segment revenues decreased by $14.3 million or 37.6% year-over-year, with a 5.2% organic sales increase offset by a 42.8% decline from the sale of the Piling business [37] Market Data and Key Metrics Changes - Backlog stood at approximately $273 million, a five-year high, up 17.7% year-over-year [15][49] - Order intake for the quarter was slightly down from the prior year due to timing of project orders in the rail segment [15] - Orders in the precast segment totaled $31 million, up approximately 31% versus last year, driven by the VanHooseCo acquisition [48] 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 [32][54] - Recent acquisitions, including VanHooseCo and Intelligent Video, align with the strategic roadmap to enhance growth platforms [12][19] - The company aims to achieve approximately $600 million in revenue and $50 million in EBITDA by 2025 [54] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding recessionary headwinds being tempered by government infrastructure spending programs [53] - The backlog is at a five-year high, not including significant business related to the Infrastructure Investment and Jobs Act [51] - The company expects strong operating cash flow in Q4 as working capital requirements ease [26][44] Other Important Information - The company recorded a $4 million adjustment to sales for the settlement of long-term contracts related to the Crossrail project, impacting both sales and gross margin [14] - The net debt increased to $94 million due to the VanHooseCo acquisition, with a target to return to a 2x net leverage ratio over time [43][46] Q&A Session Summary Question: Can you talk about the implied profit margin in backlog? - Management highlighted that the precast backlog had depressed margins earlier in the year but saw improvement in Q3, with expectations for continued margin enhancement [58][60] Question: How to quantify revenue from the carbon pipeline project? - The company plans to start production in Q2 2023, with an estimated contribution of about $20 million in sales from the project [65][66] Question: Have delivery bottlenecks for precast products eased? - Management noted improvements in delivery disruptions due to better permit acquisition and weather conditions [71] Question: What is the timeline for American Cast Iron to manufacture pipe for the carbon pipeline? - Management indicated that the project is likely all or none due to its scope, but they are optimistic about progress [73][74] Question: How quickly can the company pay down its debt? - Management plans to be judicious about debt repayment while supporting growth programs, with a long-term target of around 2x leverage ratio [75][78] Question: Are there any divestiture possibilities to generate cash? - The company is continuously evaluating its portfolio for potential divestitures to generate cash [79] Question: What trends are seen in precast building sales in the South? - Management reported strong market conditions in Tennessee and North Carolina, with plans to penetrate the Florida market [83] Question: What drove the gross margin expansion in the precast business? - Management explained that backlog constraints were resolved, allowing for price increases and improved margins [85] Question: What is the outlook for new orders in the steel products and measurement business? - Management anticipates increased bidding activity related to infrastructure projects, with expectations for growth in 2023 and beyond [87]