L.B. Foster Exceeds 2023 Guidance; Delivers Strong Cash Flow, Improves Leverage, and Returns Capital to Shareholders; Establishes 2024 Guidance and Reiterates 2025 Goals Aligned with Strategic Transformation

Full year 2023 net sales of $543.7 million up 9.3% over prior year (up 11.7% organically) and $3.7 million above the upper end of guidance range; gross margins expanded 270 basis points to 20.7%.
Fourth quarter net sales of $134.9 million down 1.7% from prior year quarter (up 7.7% organically1); gross margins expanded 200 basis points to 21.5%.
Full year 2023 net cash flow from operations of $37.4 million was favorable $48.0 million over 2022, with free cash flow1 totaling $33.0 million and $2.3 million in stock repurchases representing approximately 1.2% of its outstanding common stock.
Net debt1 declined $36.3 million in 2023, finishing at $52.7 million and gross leverage per the Company’s credit agreement1 declined from 2.8x to 1.7x during the year.
Fourth quarter net loss of $0.5 million, favorable $43.5 million over the prior year quarter; full year 2023 net income of $1.3 million, favorable $47.0 million over prior year. The year-over-year improvement for both periods included the impact of a $37.9 million deferred tax asset valuation allowance and asset impairment charges of $8.0 million in the fourth quarter of 2022.
Fourth quarter adjusted EBITDA1 of $6.1 million, unfavorable $1.4 million versus the prior year quarter; full year 2023 adjusted EBITDA of $31.8 million, favorable $7.6 million over prior year and $0.8 million above the upper end of its guidance.
Fourth quarter new orders1 of $105.5 million decreased 23.4% year over year (down 15.6% organically1); backlog1 of $213.8 million remains healthy, despite divestitures contributing a $23.2 million decline year over year. The 2023 book-to-bill ratio was 0.97:1:00.
The Company announced full year financial guidance for 2024 with net sales expected to range from $525.0 million to $560.0 million (representing organic growth of approximately 0.0% to 6.0%), adjusted EBITDA ranging from $34.0 million to $39.0 million (representing approximately 6.5% to 7.0% of sales), and free cash flow ranging from $12.0 million to $18.0 million, with capital expenditures expected to represent approximately 2.0% to 2.5% of sales.

PITTSBURGH, March 05, 2024 (GLOBE NEWSWIRE) — L.B. Foster Company (NASDAQ:FSTR), a global technology solutions provider of products and services for the rail and infrastructure markets (the “Company”), today reported its 2023 fourth quarter and full year operating results.

CEO Comments

John Kasel, President and Chief Executive Officer, commented, “We finished 2023 on a strong note, exceeding our revenue and profitability guidance and achieving robust organic sales growth and gross margin expansion. While fourth quarter gross profit grew $2.3 million year over year, representing a 200 bps improvement in gross margin to 21.5%, adjusted EBITDA was down $1.4 million year over year due primarily to higher variable incentive costs that will reset moving into 2024. The highlight for the quarter was our delivery of an exceptional $22.1 million in cash flow from operations. In fact, we generated $40.7 million in cash flow from operations in the second half of 2023, which allowed us to make progress reducing our debt, further improve leverage and continue our stock buyback program. We finished the year with $52.7 million in net debt, down $36.3 million during the year, and we reduced our gross leverage by more than one turn to 1.7x as of year end. These results, coupled with the upcoming completion of our final $8.0 million settlement funding obligation to Union Pacific in 2024, highlight the cash flow generating power of our business which is expected to improve further in the years to come.”

Mr. Kasel continued, “As an outcome of a strategic assessment of our operating and management structure, we’ve realigned our financial reporting structure through two reportable business segments: Rail, Technologies and Services (“Rail”) and Infrastructure Solutions (“Infrastructure”). The Rail segment is largely unchanged from our previous reporting segment. Infrastructure now includes our Precast Concrete and Steel Products business units. Organic sales growth from Infrastructure was strong at 23.1% with robust gross profit expansion of 910 bps year over year to 24.0%. Results in Rail were somewhat weaker primarily due to ongoing commercial weakness in our United Kingdom (“UK”) Technology Services business. Rail revenues were down 4.0% on an organic basis, with gross margins declining 390 bps to 19.2% due primarily to our UK results.”

Mr. Kasel concluded, “I’m truly proud of the significant progress our team made in 2023 executing our strategic transformation. We’ve now completed eight portfolio actions in a little over two years, which have significantly improved the profitability and cash-generating profile of the business. End market conditions remain favorable for the most part, and we remain focused on executing our strategic playbook by pursuing organic growth opportunities in our key growth platforms of Rail Technologies and Precast Concrete. We continue to monitor the operating environment for our UK business which remains challenging, but is showing signs of bottoming. We completed a restructuring program in the UK in the fourth quarter and also reserved the remaining $1.0 million receivable balance owed from a UK customer that filed for administrative protection. Despite these isolated headwinds, we’re confident that our strategic transformation remains on track and is gaining momentum as reflected in our 2024 financial guidance and our 2025 goals of approximately $600 million in sales and $50 million in EBITDA. We look forward to reporting our continuing progress in the coming year.”

Guidance Update

The Company’s guidance is updated as follows (in thousands, except percentages and ratios):

2023 Full Year Financial Guidance and Results
 
Low
 
High
 
Results

 
 
 
 
 
 
(Unaudited)

Net sales
 
$
530,000
 
$
540,000
 
$
543,744

Adjusted EBITDA
 
$
29,000
 
$
31,000
 
$
31,775

2024 Full Year Financial Guidance
 
Low
 
High

Net sales
 
$
525,000
 
 
$
560,000
 

Adjusted EBITDA
 
$
34,000
 
 
$
39,000
 

Free cash flow
 
$
12,000
 
 
$
18,000
 

Capital spending as a percent of sales
 
 
2.0
%
 
 
2.5
%

Fourth Quarter Consolidated Highlights

The Company’s fourth quarter performance highlights are reflected below in thousands, except percentages and ratios. During the years ended December 31, 2023 and 2022, the Company completed four acquisition and three divestiture transactions in line with its strategic transformation plan. Where meaningful, this release adjusts for the impact of these strategic portfolio changes to highlight performance from ongoing operations. See “Non-GAAP Disclosures” below for a discussion of these non-GAAP adjustments.

 
 
Three Months Ended
December 31,
 
Change
 
Percent
Change

 
 
 
2023
 
 
 
2022
 
 
2023 vs. 2022
 
2023 vs. 2022

 
 
 
 
 
 
 
 
 

 
 
(Unaudited)
 
 
 
 

Net sales
 
$
134,877
 
 
$
137,173
 
 
$
(2,296
)
 
(1.7)      %

Gross profit
 
 
29,043
 
 
 
26,774
 
 
 
2,269
 
 
8.5
 

Gross profit margin
 
 
21.5
%
 
 
19.5
%
 
200 bps
 
10.2
 

Selling and administrative expenses
 
$
27,247
 
 
$
23,347
 
 
$
3,900
 
 
16.7
 

Operating profit (loss)
 
 
601
 
 
 
(6,279
)
 
 
6,880
 
 
109.6
 

Net loss attributable to L.B. Foster Company
 
 
(430
)
 
 
(43,931
)
 
 
43,501
 
 
99.0
 

Adjusted EBITDA
 
 
6,099
 
 
 
7,478
 
 
 
(1,379
)
 
(18.4
)

Adjusted EBITDA Margin1
 
 
4.5
%
 
 
5.5
%
 
(100) bps
 
(18.3
)

New orders
 
$
105,509
 
 
$
137,827
 
 
$
(32,318
)
 
(23.4
)

Backlog
 
$
213,780
 
 
$
272,251
 
 
$
(58,471
)
 
(21.5
)

Net sales for the 2023 fourth quarter were $134.9 million, a $2.3 million decrease, or 1.7%, from the prior year quarter. Net sales increased 7.7% organically and decreased 9.4% due to divestitures.

Gross profit for the 2023 fourth quarter was $29.0 million, an increase of $2.3 million, or 8.5%, over the prior year quarter. Gross profit margin for the 2023 fourth quarter was 21.5%, a 200-basis point increase over the prior year quarter. The improvement in gross profit was due to the business portfolio changes in line with the Company’s strategic transformation, along with an uplift in organic sales volumes, improved product mix, and pricing.

Selling and administrative expenses for the 2023 fourth quarter were $27.2 million, a $3.9 million increase, or 16.7%, over the prior year quarter. The increase was primarily attributable to personnel expenses, including higher variable incentive expenses that will reset in 2024, a $1.0 million increase in bad debt expense due to a UK customer that filed for administrative protection in the Rail, Technology, and Services segment, and $0.7 million in restructuring expenses associated with our UK business. Selling and administrative expenses as a percent of net sales increased to 20.2% compared to 17.0% in the prior year quarter. Excluding the $1.0 million in bad debt expense and $0.7 million in restructuring costs recorded during the quarter, selling and administrative expenses were 19.0% of sales.

Operating profit for the 2023 fourth quarter was $0.6 million, favorable $6.9 million over the prior year quarter, primarily due to $8.0 million in asset impairment charges in 2022, as well as gains year over year in gross profit, offset by increased selling and administrative costs.

Net loss attributable to the Company for the 2023 fourth quarter was $0.4 million, or $0.04 per diluted share, favorable $4.05 per diluted share over the prior year quarter, driven primarily by the $37.9 million net deferred tax asset valuation allowance and $8.0 million in impairment charges in 2022.

Adjusted EBITDA for the 2023 fourth quarter, which adjusts for the impact of the exit of the bridge grid deck product line previously announced, bad debt expense due to the UK customer that filed for administrative protection, and UK restructuring costs, was $6.1 million, a $1.4 million decrease, or 18.4%, from the prior year quarter. The decline in adjusted EBITDA is due to higher selling and administrative expenses, offset in part by higher gross profit.

New orders totaling $105.5 million for the 2023 fourth quarter decreased 23.4% versus the prior year quarter (down 15.6% organically). Backlog totaling $213.8 million decreased by $58.5 million, or 21.5%, compared to the prior year, $31.3 million of which is due to divestitures and a discontinued product line.

Cash provided by operating activities totaled $22.1 million in the 2023 fourth quarter, a $13.8 million increase over the prior year quarter.

Net debt as of December 31, 2023 was $52.7 million, representing a $16.0 million decline during the quarter and a $36.3 million decrease from the prior year quarter. The Company’s gross leverage ratio per its credit agreement was 1.7x as of December 31, 2023, an improvement from 2.8x versus last year.

Fourth Quarter Business Results by Segment

The Company has historically reported under three reporting segments: (1) Rail, Technologies, and Services, (2) Precast Concrete Products and (3) Steel Products and Measurement. During 2023, the Company made certain organizational changes that resulted in the reorganization of the Company into two reporting segments: (1) Rail, Technologies, and Services and (2) Infrastructure Solutions. The Infrastructure Solutions segment is comprised of the previous Precast Concrete Products and Steel Products and Measurement (now Steel Products business unit) segments, and prior periods have been recast below to align to the new reporting structure.

Rail, Technologies, and Services Segment

The Rail segment’s fourth quarter performance highlights are reflected below in thousands, except percentages and ratios:

 
 
Three Months Ended
December 31,
 
Change
 
Percent
Change

 
 
 
2023
 
 
 
2022
 
 
2023 vs. 2022
 
2023 vs. 2022

 
 
(Unaudited)
 
 
 
 

Net sales
 
$
69,294
 
 
$
77,735
 
 
$
(8,441
)
 
(10.9)    %

Gross profit
 
$
13,329
 
 
$
17,935
 
 
$
(4,606
)
 
(25.7
)

Gross profit margin
 
 
19.2
%
 
 
23.1
%
 
(390) bps
 
(16.9
)

Segment operating (loss) profit
 
$
(940
)
 
$
5,877
 
 
$
(6,817
)
 
(116.0
)

Segment operating (loss) profit margin
 
(1.4)      %
 
 
7.6
%
 
(900) bps
 
(119.0
)

New orders
 
$
60,058
 
 
$
73,539
 
 
$
(13,481
)
 
(18.3
)

Backlog
 
$
84,418
 
 
$
105,241
 
 
$
(20,823
)
 
(19.8
)

Net sales for the 2023 fourth quarter were $69.3 million, an $8.4 million decrease, or 10.9%, from the prior year quarter, primarily driven by the divestiture of the prestressed concrete railroad tie business (“Ties”) which reduced sales by $5.3 million, or 6.9%. Organic sales were down 4.0% due to lower sales volumes in the Rail Products business, partially offset by sales increases in our Global Friction Management and domestic Technology Services and Solutions businesses.

Gross profit for the 2023 fourth quarter was $13.3 million, a $4.6 million decrease, and gross profit margins decreased by 390 basis points to 19.2%. Gross profit was impacted by weaker commercial conditions in the UK-based Technology Services and Solutions business and the divestiture of the Ties business which reduced gross profit by $0.7 million.

Segment operating loss for the 2023 fourth quarter was $0.9 million, unfavorable $6.8 million from the prior year quarter, due to the decline in gross profit as well as a $2.2 million increase in segment selling and administrative expenses. The increase in selling and administrative expenses was attributed to a $1.0 million increase in bad debt expense due to a customer that filed for administrative protection and $0.7 million in restructuring expenses associated with the UK business.

Orders decreased by $13.5 million, driven primarily by Rail Products, which was partially offset by order growth in Technology Services and Solutions. Backlog of $84.4 million decreased $20.8 million from the prior year quarter driven by a decline in Rail Products and the divestiture of the prestressed concrete railroad tie business, partially offset by a 59.3% increase in Technology Services and Solutions.

Infrastructure Solutions Segment

The Infrastructure segment’s fourth quarter performance highlights are reflected below in thousands, except percentages and ratios:

 
 
Three Months Ended
December 31,
 
Change
 
Percent
Change

 
 
 
2023
 
 
 
2022
 
 
2023 vs. 2022
 
2023 vs. 2022

 
 
(Unaudited)
 
 
 
 

Net sales
 
$
65,583
 
 
$
59,438
 
 
$
6,145
 
 
10.3
%

Gross profit
 
$
15,714
 
 
$
8,838
 
 
$
6,876
 
 
77.8
 

Gross profit margin
 
 
24.0
%
 
 
14.9
%
 
910 bps
 
61.2
 

Segment operating profit (loss)
 
$
5,724
 
 
$
(8,377
)
 
$
14,101
 
 
168.3
 

Segment operating profit (loss) margin
 
 
8.7
%
 
(14.1)   %
 
2,280 bps
 
161.8
 

New orders
 
$
45,451
 
 
$
64,288
 
 
$
(18,837
)
 
(29.3
)

Backlog
 
$
129,362
 
 
$
167,010
 
 
$
(37,648
)
 
(22.5
)

Net sales for the 2023 fourth quarter were $65.6 million, a $6.1 million increase, or 10.3%, over the prior year quarter. The increase in sales is attributed to both Precast Concrete Products and Steel Products business units, despite the offsetting impact from the divestiture of the Precision Measurement Products and Systems business (“Chemtec”) in early 2023, which reduced sales by $7.6 million. Net sales increased 23.1% organically, and decreased 12.7% due to divestitures.

Gross profit for the 2023 fourth quarter was $15.7 million, a $6.9 million increase, or 77.8%, and gross profit margins increased by 910 basis points to 24.0%. The increase in gross profit was driven by higher volumes, margin gains in both Precast Concrete and Steel Products businesses driven by volume, pricing, and mix, along with an uplift in margins from the sale of Chemtec and discontinuation of the bridge grid deck product line, both of which were dilutive to gross margins.

Segment operating profit for the 2023 fourth quarter was $5.7 million, favorable $14.1 million over the prior year quarter, due to the increase in gross profit as well as the impact of $8.0 million in asset impairments recorded in 2022.

New orders decreased by $18.8 million, driven entirely by Steel Products which includes the $10.3 million impact from the divestiture of Chemtec and a $5.0 million decline in orders associated with the exit of the bridge grid deck product line. Backlog of $129.4 million decreased $37.6 million from the prior year quarter, $20.9 million of which is due to the divestiture of the Chemtec business and $8.1 million of which stems from the bridge grid deck product line exit. The remaining decline in the backlog is attributed to the retained bridge forms product line.

Full Year Business Results

The Company’s full year 2023 performance highlights are reflected below in thousands, except percentages and ratios. Where meaningful, this release adjusts for the impact of strategic portfolio changes to highlight performance from ongoing operations. See “Non-GAAP Disclosures” below for a discussion of these non-GAAP adjustments.

 
 
Year Ended
December 31,
 
Change
 
Percent
Change

 
 
 
2023
 
 
 
2022
 
 
2023 vs. 2022
 
2023 vs. 2022

 
 
 
 
 
 
 
 
 

 
 
(Unaudited)
 
 
 
 
 
 

Net sales
 
$
543,744
 
 
$
497,497
 
 
$
46,247
 
 
9.3
%

Gross profit
 
 
112,810
 
 
 
89,611
 
 
 
23,199
 
 
25.9
 

Gross profit margin
 
 
20.7
%
 
 
18.0
%
 
270 bps
 
15.0
 

Selling and administrative expenses
 
$
97,358
 
 
$
82,657
 
 
$
14,701
 
 
17.8
 

Operating profit (loss)
 
 
10,138
 
 
 
(7,206
)
 
 
17,344
 
 
240.7
 

Net income (loss) attributable to L.B. Foster Company
 
 
1,464