L.B. Foster Company Continues to Deliver on its Strategy Reporting Strong Growth in Profitability and Cash Generation in Third Quarter Results

• Third quarter gross margin was 23.8%, the highest quarterly level achieved in over ten years, on lower net sales of $137.5 million, demonstrating improved portfolio profitability and strategic execution.
• Third quarter net income of $35.9 million was up $35.5 million over the prior year, due primarily to a favorable $30.0 million tax valuation allowance adjustment; third quarter adjusted EBITDA¹ of $12.3 million was up 16.4% over the prior year.
• Third quarter cash provided by operations was $24.7 million; net debt¹ of $65.4 million down $17.7 million during the quarter and down $3.3 million from the prior year quarter end; Gross Leverage Ratio¹ of 1.9x decreased 0.8x during the quarter and 0.1x from last year's quarter end.
• Third quarter common stock repurchases totaled 126,688 shares, representing approximately 1.2% of outstanding shares, with $8.4 million remaining under the Board-authorized repurchase program through February 2025.
• 2024 full year financial guidance updated to reflect improved free cash flow outlook, with the adjusted EBITDA mid-point unchanged on slightly lower sales highlighting continuing portfolio efficiency.

CEO Comments

John Kasel, President and Chief Executive Officer, commented "As expected, we started the second half of the year with a strong quarter of profitability expansion and cash generation. These results are a clear indication that our strategy to transform the profitability profile of our business portfolio remains on track. While sales were down 5.4% year over year, gross margins improved to 23.8%, the highest level we've seen in over 10 years. Net income in the quarter was $35.9 million and reflected a $30.0 million benefit as we released our tax valuation allowance in line with the improving profitability trends and outlook, and adjusted EBITDA grew 16.4% to $12.3 million. We also had an exceptional cash generation quarter, with cash provided by operations totaling $24.7 million, up from $18.6 million last year. The operating cash was deployed to fund $3.1 million in capital programs supporting our growth initiatives and $2.6 million to repurchase 126,688 common shares in the quarter. This level of repurchases represents a 262% increase versus the average of the two previous quarters in 2024. Remaining funds were used to reduce our net debt by $17.7 million to $65.4 million at quarter end and down $3.3 million from $68.7 million last year. The lower borrowings and improved profitability translated into gross leverage per our credit facility of 1.9x at quarter end, which was improved compared to both 2.7x at the start of the quarter and 2.0x last year."

Mr. Kasel continued, "Turning to our segment results, the sales decline in the quarter was realized primarily in the Rail segment, with continuing commercial softness in the domestic rail market adversely impacting both sales and margins in our Rail Products business. However, in line with our strategy, we delivered solid growth and margin expansion in our Rail Technologies growth platforms, including sales growth of 21.2% for Global Friction Management and 49.1% for Total Track Monitoring. Our UK services and solutions business also continued to recover from a challenging commercial environment in 2023, contributing to improved Rail segment sales and margin growth year over year. Infrastructure organic sales were also down slightly versus last year after considering the impact of the bridge grid deck product line exit announced in the 2023 third quarter. Despite the organic sales decline, Infrastructure margins improved versus last year's adjusted margins as strong growth and margin expansion in our Precast Concrete business offset the margin impact of lower sales in Steel Products, the latter being primarily driven by weaker demand for Protective Coatings. Overall, we're pleased with the improved results driven by our strategy to invest in our growth platforms of Rail Technologies and Precast Concrete which is delivering improved profitability and returns."

Mr. Kasel concluded, "While we saw a modest uptick in our trailing-twelve-month book-to-bill ratio in the quarter, market conditions remain choppy across the portfolio. Demand in our Precast Concrete and Rail Technologies growth platforms is robust, highlighted by a 41.3% increase in third quarter Global Friction Management orders versus last year. The recovery of market conditions for our UK business remains on track, and we're starting to see increased quoting and project activity in the domestic rail market which should translate to improved demand for Rail Products moving into 2025. However, demand within Steel Products remains constrained in the short term, specifically for bridge and pipeline coating work. Accordingly, we've reduced our sales guidance slightly for 2024 while maintaining the mid-point of our adjusted EBITDA outlook reflecting the improved portfolio efficiency. The mid-point of our guidance implies slightly lower sales in the fourth quarter versus last year, with adjusted EBITDA growth of approximately 50% year over year. We also increased our free cash flow outlook for the year, and now expect to generate approximately $30 million to $35 million in the second half of the year on an improved working capital outlook and slightly lower capital spending. The improved cash generation comes even as we fund restructuring, pension settlement and growth capital spending initiatives as well as the final $4.0 million of our annual $8.0 million Union Pacific settlement payment. We look forward to a strong finish to the year, as we continue to build momentum focusing on profitable growth and returns moving into 2025."

¹ See "Non-GAAP Financial Measures" and "Non-GAAP Disclosures" at the end of this press release for a description of and information regarding adjusted sales, adjusted organic sales, adjusted gross profit, adjusted EBITDA, Gross Leverage Ratio per the Company's credit agreement, net debt, new orders, backlog, book-to-bill ratio, free cash flow, and related reconciliations to their most comparable GAAP financial measure.

² As reported in the Company's form 8-K filed on October 8, 2024, the Company corrected certain errors in previously reported 2024 quarterly financials, and certain immaterial errors in 2023 previously reported financials. All comparisons are based on the corrected historical results.

2024 Financial Guidance Update:

The Company's financial guidance follows:

Third Quarter Consolidated Highlights

The Company's third quarter performance highlights are reflected below:

• Net sales for the 2024 third quarter were $137.5 million, down $7.9 million, or 5.4%, from the third quarter of 2023. Net sales for the third quarter of 2023 included an adverse impact from the exit of the bridge grid deck product line related to long-term contract changes within the Steel Products business unit. This impact reduced sales by $2.0 million and gross profit by $3.1 million during the prior year quarter. Adjusting for the bridge grid deck exit impact last year, net sales were down 6.7%, with the primary driver related to organic sales declines in the Rail Segment.

• Gross profit for the 2024 third quarter was $32.8 million, up $5.3 million, or 19.5%, year over year. Gross profit margins increased 490 basis points year over year to 23.8% for the highest quarterly gross margin achieved in over ten years. Gross profit in the 2023 third quarter included the adverse impact from the exit of the bridge grid deck product line resulting in a reduction to gross profit of $3.9 million, which includes the reduction in sales and associated impact on gross profit, as well as related exit costs totaling $0.8 million. Gross profit margins were up 260 basis points over 2023 adjusted margins¹. Gross profit improvement was achieved in both segments.

• Selling and administrative expenses for the 2024 third quarter were $24.3 million, a $0.1 million decrease, or 0.5%, from the prior year quarter. Selling and administrative expenses in the 2024 third quarter included $0.4 million in corporate costs associated with a resolved legal matter and $0.8 million in employee-related restructuring costs, offset by $0.8 million in lower employment costs and $0.7 million in lower bad debt expense. Selling and administrative expenses as a percentage of net sales increased to 17.7% in the current quarter, up from 16.8% last year.

• Operating income for the 2024 third quarter was $7.3 million, up $5.7 million over the prior year quarter, due to the improvement in gross profit.

• Net income attributable to the Company for the 2024 third quarter was $35.9 million, or $3.27 per diluted share, up $35.4 million over the prior year quarter due primarily to a $30.0 million favorable tax valuation allowance adjustment in the third quarter of 2024, as well as improved gross profit as described above.

• The Company incurred $0.9 million in employee-related charges during the quarter associated with the previously-announced enterprise restructuring program. Expected savings from the program remain unchanged at approximately $2.0 million in 2024, with annual run rate savings of approximately $4.5 million exiting 2024.

• Adjusted EBITDA for the 2024 third quarter was $12.3 million, a $1.7 million increase, or 16.4%, over the prior year quarter. The increase in adjusted EBITDA is due to the improvement in gross profit and lower selling and administrative expenses.

• New orders totaling $96.0 million for the 2024 third quarter decreased $4.3 million, or 4.3%, from the prior year quarter. The decrease is within the Infrastructure Solutions segment primarily related to weaker demand in the Protective Coatings business. The trailing twelve month book-to-bill ratio¹ was 0.94 : 1.00, up from 0.93 : 1.00 at the end of the 2024 second quarter.

• Backlog totaling $209.0 million decreased by $34.2 million, or 14.1%, compared to the prior year quarter due primarily to softness primarily in the Protective Coatings business, as well as $4.5 million due to product line exit activity.

• Cash provided by operating activities totaled $24.7 million in the third quarter, an improvement of $6.1 million over the prior year quarter.

• Net debt of $65.4 million as of September 30, 2024 was down $3.3 million from the prior year quarter. The Gross Leverage Ratio of 1.9x as of September 30, 2024 represents a decrease of 0.8x during the quarter and 0.1x from last year's comparable quarter end.

Third Quarter Business Results by Segment

Rail, Technologies, and Services Segment