L.B. FOSTER COMPANY (Dollars in thousands, except share data)
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking" statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. Many of the
forward-looking statements are located in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A"). Forward-looking
statements provide management's current expectations of future events based on
certain assumptions and include any statement that does not directly relate to
any historical or current fact. Sentences containing words such as "believe,"
"intend," "plan," "may," "expect," "should," "could," "anticipate," "estimate,"
"predict," "project," or their negatives, or other similar expressions of a
future or forward-looking nature generally should be considered forward-looking
statements. Forward-looking statements in this Quarterly Report on Form 10-Q are
based on management's current expectations and assumptions about future events
that involve inherent risks and uncertainties and may concern, among other
things, the Company's expectations relating to our strategy, goals, projections,
and plans regarding our financial position, liquidity, capital resources, and
results of operations and decisions regarding our strategic growth initiatives,
market position, and product development. While the Company considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory, and other risks and
uncertainties, most of which are difficult to predict and many of which are
beyond the Company's control. The Company cautions readers that various factors
could cause the actual results of the Company to differ materially from those
indicated by forward-looking statements. Accordingly, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
Among the factors that could cause the actual results to differ materially from
those indicated in the forward-looking statements are risks and uncertainties
related to: the COVID-19 pandemic, and any future global health crises, and the
related social, regulatory, and economic impacts and the response thereto by the
Company, our employees, our customers, and national, state, or local
governments; volatility in the prices of oil and natural gas and the related
impact on the midstream energy markets, which could result in cost mitigation
actions, including shutdowns or furlough periods; a continuation or worsening of
the adverse economic conditions in the markets we serve, including recession,
whether as a result of the current COVID-19 pandemic or otherwise, including its
impact on labor markets, supply chains, and other inflationary costs, travel and
demand for oil and gas, the continued volatility in the prices for oil and gas,
governmental travel restrictions, project delays, and budget shortfalls, or
otherwise; volatility in the global capital markets, including interest rate
fluctuations, which could adversely affect our ability to access the capital
markets on terms that are favorable to us; restrictions on our ability to draw
on our credit agreement, including as a result of any future inability to comply
with restrictive covenants contained therein; a continuing decrease in freight
or transit rail traffic, including as a result of the ongoing COVID-19 pandemic,
strikes, or labor stoppages; environmental matters, including any costs
associated with any remediation and monitoring of such matters; the risk of
doing business in international markets, including compliance with
anti-corruption and bribery laws, foreign currency fluctuations and inflation,
and trade restrictions or embargoes; our ability to effectuate our strategy,
including cost reduction initiatives, and our ability to effectively integrate
acquired businesses or to divest businesses, such as the recent disposition of
the Piling business and Track Components business, and acquisitions of the
Skratch Enterprises Ltd. , Intelligent Video Ltd. , and VanHooseCo Precast LLC
businesses and to realize anticipated benefits; costs of and impacts associated
with shareholder activism; continued customer restrictions regarding the on-site
presence of third party providers due to the COVID-19 pandemic; the timeliness
and availability of materials from our major suppliers, including any
continuation or worsening of the disruptions in the supply chain experienced as
a result of the COVID-19 pandemic, as well as the impact on our access to
supplies of customer preferences as to the origin of such supplies, such as
customers' concerns about conflict minerals; labor disputes; cyber-security
risks such as data security breaches, malware, ransomware, "hacking," and
identity theft, which could disrupt our business and may result in misuse or
misappropriation of confidential or proprietary information, and could result in
the disruption or damage to our systems, increased costs and losses, or an
adverse effect to our reputation; the continuing effectiveness of our ongoing
implementation of an enterprise resource planning system; changes in current
accounting estimates and their ultimate outcomes; the adequacy of internal and
external sources of funds to meet financing needs, including our ability to
negotiate any additional necessary amendments to our credit agreement or the
terms of any new credit agreement, and reforms regarding the use of LIBOR as a
benchmark for establishing applicable interest rates; the Company's ability to
manage its working capital requirements and indebtedness; domestic and
international taxes, including estimates that may impact taxes; domestic and
foreign government regulations, including tariffs; economic conditions and
regulatory changes caused by the United Kingdom's exit from the European Union ;
geopolitical conditions, including the conflict in Ukraine ; a lack of state or
federal funding for new infrastructure projects; an increase in manufacturing or
material costs; the loss of future revenues from current customers; and risks
inherent in litigation and the outcome of litigation and product warranty
claims. Should one or more of these risks or uncertainties materialize, or
should the assumptions underlying the forward-looking statements prove
incorrect, actual outcomes could vary materially from those indicated.
Significant risks and uncertainties that may affect the operations, performance,
and results of the Company's business and forward-looking statements include,
but are not limited to, those set forth under Item 1A, "Risk Factors," and
elsewhere in our Annual Report on Form 10-K for the year ended December 31,
2021 , or as updated and/or amended by our other current or periodic filings with
the Securities and Exchange Commission .
The forward-looking statements in this report are made as of the date of this report and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by the federal securities laws.
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General Overview and Business Update
L.B. Foster Company is a global solutions provider of engineered, manufactured products and services that builds and supports infrastructure. The Company's innovative engineering and product development solutions address the safety, reliability, and performance needs of its customers' most challenging requirements. The Company maintains locations inNorth America ,South America ,Europe , andAsia . OnAugust 12, 2022 , the Company acquired the operating assets ofVanHooseCo Precast LLC ("VanHooseCo"), a privately-held business headquartered inLoudon, Tennessee specializing in precast concrete walls, water management products, and traditional precast products for the industrial, commercial and residential infrastructure markets for$52,203 net of cash acquired, at closing, subject to the finalization of net working capital adjustments. VanHooseCo has been included in the Company'sPrecast Concrete Products segment. OnJune 21, 2022 , the Company acquired the stock ofSkratch Enterprises Ltd. ("Skratch") for$7,402 , which is inclusive of deferred payments withheld by the Company of$1,228 , to be paid over the next five years or utilized to satisfy post-closing working capital adjustments or indemnity claims under the purchase agreement. Skratch is an industry leader in digital system integration with expertise in advanced digital display technologies and capabilities currently serving retail markets in theU.K. Skratch is reported within the TechnologyServices and Solutions business unit in the Rail, Technologies, and Services segment. OnAugust 1, 2022 , the Company divested the assets of its rail spikes and anchors track components business ("Track Components") located inSt-Jean-sur-Richelieu, Quebec, Canada . Cash proceeds from the transaction were$7,795 , subject to indemnification obligations and working capital adjustments and a loss on sale of$447 was recorded in "Other expense (income) - net." The Track Components business was reported in the Rail Products business unit within the Rail, Technologies, and Services segment. OnSeptember 24, 2021 , the Company executed the sale of its Piling Products ("Piling") division for$23,902 in total proceeds. The sale included substantially all inventory held by the Company associated with the division. The Piling Products division is included in the Fabricated Steel business unit within the legacy Infrastructure Solutions segment. Net sales for the third quarter of 2022 were$130,015 , essentially unchanged versus the prior year quarter. However, net sales increased 8.7% organically and 5.5% from acquisitions, which was offset by a 14.3% decrease from divestitures. Sales activity includes a 4.6% increase in the Rail, Technologies, and Services segment, a 60.6% increase in the Precast Concrete Product segment, and a 37.6% decrease in the Steel Products and Measurement segment. Gross profit for the three months endedSeptember 30, 2022 was$23,096 , an$821 increase, or 3.7%, from the prior year quarter. The increase in reported gross profit was driven primarily by the Precast Concrete Product segment, which increased by$2,929 , or 107.8%, due in part to the VanHooseCo acquisition as well as improved margins in the legacyPrecast Concrete Products business. Partially offsetting the increase was a decline in gross profit in the Steel Products and Measurement segment of$1,556 due to the Piling divestiture, as well as a more modest decline of$552 in Rail, Technologies, and Services. Gross profit in the quarter included a$3,956 million adverse impact associated with the settlement of certain long-term commercial contracts related to the multi-year Crossrail project in the Company's Technology Services and Solutions business in theUnited Kingdom . This settlement also reduced net sales for the Rail, Technologies, and Services segment by$3,956 . Consolidated gross profit margin increased by 70 basis points to 17.8% when compared to the prior year quarter, with the increase attributable to the Precast Concrete Product segment, which was up 450 bps compared to the prior year period due to the VanHooseCo acquisition as well as improved margins in the legacyPrecast Concrete Products business, and the Steel Products and Measurement segment which had a margin increase of 230 bps over the prior year quarter due to the sale of the lower margin Piling business. The Rail, Technologies, and Services segment margin decreased by 150 bps during the current quarter due to the impact of the Crossrail settlement as well as higher sales in the lower margin Rail Products line of business. Selling and administrative expenses for the three months endedSeptember 30, 2022 increased by$2,562 , or 12.8%, from the prior year, primarily driven by a$1,443 increase in expenses associated with the Company's ongoing strategic transformation activities, including costs associated with the Company's acquisition and divestiture activity, and an increase in salary and incentive costs. Selling and administrative expenses as a percent of net sales were 17.4% versus 15.4% in the prior year quarter, a 200 basis point increase. Other expense - net for the three months endedSeptember 30, 2022 was$168 while other income - net was$2,880 in the prior year quarter, the change was due almost entirely to the loss of$447 on the sale of Track Components in the current year quarter compared to the gain on the sale of the Piling business of$2,741 in the prior year quarter. The Company's effective income tax rate for the three months endedSeptember 30, 2022 was 7.7%, compared to 23.2% in the prior year quarter. The Company's provision for income taxes for the quarter endedSeptember 30, 2022 included a discrete income tax expense of$330 for a change in our permanent reinvestment assertion with respect to the undistributed earnings inCanada , as a result 27 -------------------------------------------------------------------------------- Table of Contents of the divestiture of our Track Components business located inSt-Jean-sur-Richelieu, Quebec, Canada . The Company's effective income tax rate for the quarter endedSeptember 30, 2022 differed from the federal statutory rate of 21% primarily due to state income taxes, nondeductible expenses, research tax credits and withholding taxes on excess cash available for repatriation from foreign affiliates. Net loss for the three months endedSeptember 30, 2022 attributable toL.B. Foster Company was$2,077 , or$0.20 per diluted share, a decrease of$4,419 , or$0.42 per diluted share, from the prior year quarter. The decrease was primarily driven a$3,956 expense associated with the settlement of certain long-term commercial contracts related to the Crossrail project and by non-routine costs of$1,443 associated with the Company's acquisition and divestiture activity, as part of its overall portfolio transformation strategy. The prior year net income also benefited from the gain on the sale of the Piling business, which was$2,741 . The Company's consolidated backlog(a) was$272,777 as ofSeptember 30, 2022 , an increase of$41,051 , or 17.7%, from the prior year. The Precast Concrete Product and Steel Products and Measurement segments reported a$17,048 and$24,954 backlog increase versus the prior year quarter, respectively, while the Rail, Technologies, and Services segment reported a decrease of$951 versus the prior year quarter. New order levels(a) for three months endedSeptember 30, 2022 decreased by$1,592 , or 1.1%, from the prior year quarter. New orders increased 5.0% organically and 5.6% from acquisitions, offset by a 11.7% decrease from divestitures. While the present inflationary environment in labor and raw materials continues to pressure margins across the business, the Company has realized some benefit from cost and pricing mitigation actions taken, as evidenced in the Company's third quarter results. These mitigation efforts, along with the Company's portfolio transformation activities, drove the 70 basis point increase in margins from the prior year period, despite the$3,956 million unfavorable impact on gross profit levels due to the Crossrail adjustment. The Company continues to prioritize growth and margin improvement as well as its strategic transformation into a technology-focused, high growth infrastructure solutions provider, as evidenced from the acquisition of VanHooseCo and the divestiture of the Company's Track Components business that were completed during the quarter. The additional flexibility and capacity resulting from the amendments to the Company's credit agreement completed in 2021 and 2022 also provides the resources needed to fund operations and execute on any additional organic or acquisitive growth opportunities through the balance of 2022 and beyond. As recessionary market conditions persist and are in some ways expanding, these conditions may impact demand for the Company's offerings. However, the Company expects that many of its businesses will continue to directly benefit from infrastructure investment activity, including funding benefits fromU.S. Infrastructure Investment and Jobs Act passed inNovember 2021 . The Company is maintaining its optimistic outlook regarding longer-term trends in the North American freight and transit markets given supply chain and transportation needs coupled with expected government-subsidized investment. (a) The Company defines new orders as a contractual agreement between the Company and a third-party in which the Company will, or has the ability to, satisfy the performance obligations of the promised products or services under the terms of the agreement. The Company defines backlog as contractual commitments to customers for which the Company's performance obligations have not been met, including with respect to new orders and contracts for which the Company has not begun any performance. Management utilizes new orders and backlog to evaluate the health of the industries in which the Company operates, the Company's current and future results of operations and financial prospects, and strategies for business development. The Company believes that new orders and backlog are useful to investors as supplemental metrics by which to measure the Company's current performance and prospective results of operations and financial performance. 28
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Results of the Quarter
Percent Percent of Total Net Sales
Three Months Ended Increase/ Three Months Ended
September 30, (Decrease) September 30,
2022 2021 2022 vs. 2021 2022 2021
Net Sales :
Rail, Technologies, and Services $ 77,350 $ 73,942 4.6 % 59.5 % 56.9 %
Precast Concrete Products 28,856 17,972 60.6 22.2 13.8
Steel Products and Measurement 23,809 38,139 (37.6) 18.3 29.3
Total net sales $ 130,015 $ 130,053 0.0 % 100.0 % 100.0 %
Percent Gross Profit Percentage
Three Months Ended Increase/ Three Months Ended
September 30, (Decrease) September 30,
2022 2021 2022 vs. 2021 2022 2021
Gross Profit:
Rail, Technologies, and Services $ 13,376 $ 13,928 (4.0 %) 17.3 % 18.8 %
Precast Concrete Products 5,647 2,718 107.8 19.6 15.1
Steel Products and Measurement 4,074 5,630 (27.6) 17.1 14.8
Total gross profit $ 23,097 $ 22,276 3.7 % 17.8 % 17.1 %
Percent Percent of Total Net Sales
Three Months Ended Increase/ Three Months Ended
September 30, (Decrease) September 30,
2022 2021 2022 vs. 2021 2022 2021
Expenses:
Selling and administrative expenses
12.8 % 17.4 % 15.4 % Amortization expense 1,599 1,462 9.4 1.2 1.1 Operating (loss) profit (1,120) 758 (247.8) (0.9) 0.6 Interest expense - net 993 722 37.5 0.8 0.6 Other expense (income) - net 168 (2,880) 105.8 0.1 (2.2) (Loss) income before income taxes (2,281) 2,916 (178.2) (1.8) 2.2 Income tax (benefit) expense (176) 676 (126.0) (0.1) 0.5 Net (loss) income$ (2,105) $ 2,240 (194.0 %) (1.6 %) 1.7 % Net loss attributable to noncontrolling interest (28) (30) 6.7 (0.0) (0.0) Net (loss) income attributable to L.B. Foster Company$ (2,077) $ 2,270 (191.5 %) (1.6 %) 1.7 %
Results of Operations - Segment Analysis
Rail, Technologies, and Services
Three Months Ended Percent
September 30, Increase/(Decrease) Increase/(Decrease)
2022 2021 2022 vs. 2021 2022 vs. 2021
Net sales $ 77,350 $ 73,942 $ 3,408 4.6 %
Gross profit $ 13,376 $ 13,928 $ (552) (4.0 %)
Gross profit percentage 17.3 % 18.8 % (1.5 %) (8.2 %)
Segment operating profit $ 539 $ 3,091 $ (2,552) (82.6 %)
Segment operating profit percentage 0.7 % 4.2 % (3.5 %) (83.3 %)
Third Quarter 2022 Compared to Third Quarter 2021
On
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The Rail, Technologies, and Services segment sales for the three months ended
September 30, 2022 increased by $3,408 , or 4.6%, compared to the prior year
quarter. The Rail Products business unit increased by $7,140 , or 14.8%, and the
Global Friction Management business unit increased by $1,428 , or 11.7%,
offsetting a sales decrease in the Technology Services and Solutions business
unit of $5,160 , or 38.7%, compared to the prior year quarter. The increase in
the Rail Products business unit was driven by timing of customer order
fulfillment versus the prior year quarter, which was partially offset by the
impact of the Track Components divestiture. The sales decrease in the Technology
Services and Solutions business unit was driven by an unfavorable settlement
adjustment of $3,956 for certain long-term commercial contracts related to the
multi-year Crossrail project along with foreign currency-related headwinds.
The Rail, Technologies, and Services segment gross profit decreased by $552 , or
4.0%, from the prior year quarter. The decrease was driven by the $3,956
Crossrail settlement impact on Technology Services and Solutions gross profit,
which was offset by increases in Rail Products and Global Friction Management
commensurate with higher sales levels. Segment gross profit margins decreased by
150 basis points as a result of stronger sales in the lower margin Rail Products
business unit, as well as the Crossrail settlement impact. Operating profit was
$539 , a $2,552 decrease over the prior year quarter, due primarily to lower
overall gross profit levels and higher selling and administrative expenses
stemming from increased salary, incentive, travel, and advertising costs.
During the current quarter, the Rail, Technologies, and Services segment had a
decrease in new orders of $27,447 , or 32.7%, compared to the prior year period.
The decrease is due primarily to differences in customer order timing in the
Rail Distribution business, as well as an impact of $3,079 due to the Track
Components divestiture. Backlog as of September 30, 2022 was $108,864 , a
decrease of $951 , or 0.9%, versus the prior quarter, $1,792 of which is related
to the divested Track Components division.
Precast Concrete Products
Three Months Ended Percent
September 30, Increase Increase
2022 2021 2022 vs. 2021 2022 vs. 2021
Net sales $ 28,856 $ 17,972 $ 10,884 60.6 %
Gross profit $ 5,647 $ 2,718 $ 2,929 107.8 %
Gross profit percentage 19.6 % 15.1 % 4.5 % 29.4 %
Segment operating profit $ 1,245 $ 144 $ 1,101 **
Segment operating profit percentage 4.3 % 0.8 % 3.5 % **
** Results of the calculation are not considered meaningful for presentation purposes.
Third Quarter 2022 Compared to Third Quarter 2021 OnAugust 12, 2022 , the Company acquired the operating assets of VanHooseCo for$52,540 . VanHooseCo reported sales of$6,353 , gross profit of$1,309 and operating profit of$397 , which are included in thePrecast Concrete Products results for the three months endedSeptember 30, 2022 . ThePrecast Concrete Products segment sales for the three months endedSeptember 30, 2022 increased by$10,884 , or 60.6%, compared to the prior year quarter, which is the result of the VanHooseCo acquisition and a continued reflection of the strong demand environment in the southernUnited States markets served.Precast Concrete Products gross profit increased by$2,929 , or 107.8%, from the prior year quarter. The increase is partially attributable to the VanHooseCo acquisition as well as higher overall sales volumes and stronger margins from the legacy precast business. During the quarter, VanHooseCo gross profit was subject to an expense of$851 from a purchase accounting adjustment related to the acquired inventory, partially diluting the uplift on gross profit from the acquisition. Segment gross profit margin increased by 450 bps for the third quarter of 2022. Operating profit for the third quarter of 2022 increased by$1,101 when compared to the operating profit in the prior year quarter, due to higher gross profit levels, which were partially offset by selling and administrative costs associated with the VanHooseCo transaction.
During the quarter, the
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Steel Products and Measurement
Three Months Ended Percent
September 30, (Decrease)/Increase (Decrease)/Increase
2022 2021 2022 vs. 2021 2022 vs. 2021
Net sales $ 23,809 $ 38,139 $ (14,330) (37.6) %
Gross profit $ 4,074 $ 5,630 $ (1,556) (27.6) %
Gross profit percentage 17.1 % 14.8 % 2.3 % 15.9 %
Segment operating profit (loss) $ 303 $ (27) $ 330 **
Segment operating profit (loss)
percentage 1.3 % (0.1) % 1.4 % **
** Results of the calculation are not considered meaningful for presentation purposes.
Third Quarter 2022 Compared to Third Quarter 2021 The Steel Products and Measurement segment sales for the three months endedSeptember 30, 2022 decreased by$14,330 , or 37.6%, compared to the prior year quarter. The decrease in sales for the third quarter of 2022 was attributable to the$16,313 decline in year over year sales from the Piling Products division, which was divested in September of 2021. The decline was partially offset by an increase in Fabricated Steel Products, excluding the divested Piling Products division, of$1,102 and an increase of$881 in the Coatings and Measurement business unit. Steel Products and Measurement gross profit decreased by$1,556 , or 27.6%, from the prior year quarter, due to lower sales volume associated with the sale of the Piling Products business. The gross profit margin increased 230 basis points to 17.1%, as a result of a more favorable mix in 2022 due to the sale of the lower margin Piling Products business. The segment operating profit was$303 , a$330 increase from the prior year quarter. Selling and administrative expenses incurred by the segment decreased by$1,936 compared to the prior year quarter, primarily attributable to expenses associated with the Piling Products divestiture in 2021. During the quarter, the Steel Products and Measurement segment new orders increased by$18,542 , or 58.8% compared to the prior year quarter, due to a$32,763 increase in Coatings and Measurement, driven primarily by a large order in the Company's line pipe coating facility inBirmingham, AL , to support a carbon capture and sequestration pipeline project. This increase was offset by a$13,237 decrease in orders due to the sale of the Piling division in the prior year period. Backlog as ofSeptember 30, 2022 was$77,301 , an increase of$24,954 , or 47.7%, fromSeptember 30, 2021 , driven by the order increase in Coatings and Measurement business unit, which was partially offset by a decrease in Fabricated Steel Products business unit, including reductions due to the Piling divestiture. 31 --------------------------------------------------------------------------------
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Nine Month Results
Percent Percent of Total Net Sales
Nine Months Ended Increase/ Nine Months Ended
September 30, (Decrease) September 30,
2022 2021 2022 vs. 2021 2022 2021
Net Sales :
Rail, Technologies, and Services $ 222,857 $ 228,956 (2.7) % 61.9 % 57.1 %
Precast Concrete Products 67,477 50,723 33.0 18.7 12.7
Steel Products and Measurement 69,990 120,976 (42.1) 19.4 30.2
Total net sales $ 360,324 $ 400,655 (10.1) % 100.0 % 100.0 %
Percent Gross Profit Percentage
Nine Months Ended Increase/ Nine Months Ended
September 30, (Decrease) September 30,
2022 2021 2022 vs. 2021 2022 2021
Gross Profit:
Rail, Technologies, and Services $ 41,564 $ 43,393 (4.2) % 18.7 % 19.0 %
Precast Concrete Products 11,439 9,127 25.3 17.0 18.0
Steel Products and Measurement 9,834 14,747 (33.3) 14.1 12.2
Total gross profit $ 62,837 $ 67,267 (6.6) % 17.4 % 16.8 %
Percent Percent of Total Net Sales
Nine Months Ended Increase/ Nine Months Ended
September 30, (Decrease) September 30,
2022 2021 2022 vs. 2021 2022 2021
Expenses:
Selling and administrative expenses
2.5 % 16.5 % 14.4 % Amortization expense 4,454 4,397 1.3 1.2 1.1 Operating profit (loss) (927) 5,021 (118.5) (0.3) 1.3 Interest expense - net 1,747 2,454 (28.8) 0.5 0.6 Other (income) expense - net (1,096) (2,751) 60.2 (0.3) (0.7) Income tax expense 137 1,494 (90.8) 0.0 0.4 Net (loss) income$ (1,715) $ 3,824 (144.8) % (0.5) % 1.0 % Net loss attributable to noncontrolling interest (82) (64) 28.1 (0.0) (0.0) Net (loss) income attributable to L.B. Foster Company$ (1,633) $ 3,888 (142.0) % (0.5) % 1.0 %
Results of Operations - Segment Analysis
Rail, Technologies, and Services
Nine Months Ended Percent
September 30, (Decrease)/Increase (Decrease)/Increase
2022 2021 2022 vs. 2021 2022 vs. 2021
Net sales $ 222,857 $ 228,956 $ (6,099) (2.7 %)
Gross profit $ 41,564 $ 43,393 $ (1,829) (4.2 %)
Gross profit percentage 18.7 % 19.0 % (0.3 %) (1.6 %)
Segment operating profit $ 5,576 $ 10,970 $ (5,394) (49.2 %)
Segment operating profit percentage 2.5 % 4.8 % (2.3 %) (47.8 %)
First Nine Months 2022 Compared to First Nine Months 2021
OnJune 21, 2022 , the Company entered into an agreement to purchase the stock ofSkratch Enterprises Ltd. ("Skratch") for$7,402 . Skratch reported$856 in sales and$430 in gross profit within the Rail, Technologies, and Services nine months endedSeptember 30, 2022 results. OnAugust 1, 2022 , the Company divested the assets of its Track Components business. Cash proceeds from the transaction were$7,795 , subject to indemnification obligations and working capital adjustments. 32 -------------------------------------------------------------------------------- Table of Contents The Rail, Technologies, and Services segment sales for the nine months endedSeptember 30, 2022 decreased by$6,099 , or 2.7%, compared to the prior year period. The decrease in sales was driven by the Rail Products business unit, which declined by$5,225 , or 3.3%, and the Technology Services and Solutions business unit, which declined by$4,666 or 12.9%, offsetting sales increases in the Global Friction Management business unit of$3,792 . The decrease in the Rail Products business unit was driven by the Track Components divestiture, accounting for$2,439 of the decline, as well as differences in customer order fulfillment timing between the periods. The decrease in the Technology Services and Solutions business unit is primarily attributable to the$3,956 adjustment from the customer settlement related to the Crossrail project, along with foreign currently-related headwinds. The sales increase in the Global Friction Management business unit is due to strength primarily in North American markets served. The Rail, Technologies, and Services segment gross profit decreased by$1,829 , or 4.2%, from the prior year quarter. Rail Products gross profit decreased by$750 , commensurate with the sales volume decline, while Global Friction Management gross profit increased by$1,224 , commensurate with the sales volume increase. TechnologyServices and Solutions gross profit decreased by$2,784 , with the adverse impact of the Crossrail adjustment accounting for$3,956 of the decline, offsetting modest increases across the balance of the business unit. Segment gross profit margins decreased by 30 basis points, driven by the Crossrail adjustment impact on segment margins. Operating profit was$5,576 , a$5,394 decrease over the prior year period, due in part to the decrease in gross profit and a$1,386 increase in selling and administrative expense. During the current quarter, the Rail, Technologies, and Services segment had an increase in new orders of 7.8% compared to the prior year period, driven by improvements in all business units, despite the$4,434 decline in new orders due to the Track Components divestiture.Precast Concrete Products Nine Months Ended Percent September 30, Increase/(Decrease) Increase/(Decrease) 2022 2021 2022 vs. 2021 2022 vs. 2021 Net sales$ 67,477 $ 50,723 $ 16,754 33.0 % Gross profit$ 11,439 $ 9,127 $ 2,312 25.3 % Gross profit percentage 17.0 % 18.0 % (1.0) % (5.8) % Segment operating profit$ 329 $ 1,175 $ (846) (72.0) % Segment operating profit percentage 0.5 % 2.3 % (1.8) % (79.0) %
First Nine Months 2022 Compared to First Nine Months 2021
The
Precast Concrete Products gross profit increased by$2,312 , or 25.3%, from the prior year quarter, which is attributable to overall higher sales volumes, due in part to the VanHooseCo acquisition. However, VanHooseCo gross profit was subject to an expense of$851 from a temporary purchase accounting adjustment related to the acquired inventory, partially diluting the uplift on gross profit from the acquisition. Segment gross profit margin declined by 100 bps for the nine months endedSeptember 30, 2022 versus the prior year period due to continued inflationary pressures and unfavorable building sales mix and, to a lesser extent, manufacturing inefficiencies due to supply chain disruption. Operating profit for the nine months endedSeptember 30, 2022 of$329 reflects a$846 decline from the prior year period, due to increased salary, incentive, and travel costs. During the quarter, thePrecast Concrete Products segment had an increase in new orders of 3.1% compared to the prior year period, and an increase in backlog of 24.5% as ofSeptember 30, 2022 versus the prior year. New orders and backlog continue to remain strong given the robust demand environment in markets served. 33 -------------------------------------------------------------------------------- Table of Contents Steel Products and Measurement Nine Months Ended Percent September 30, (Decrease)/Increase (Decrease)/Increase 2022 2021 2022 vs. 2021 2022 vs. 2021 Net Sales$ 69,990 $ 120,976 $ (50,986) (42.1) % Gross profit$ 9,834 $ 14,747 $ (4,913) (33.3) % Gross profit percentage 14.1 % 12.2 % 1.9 % 15.3 % Segment operating loss$ (1,083) $ (140) $ (943) ** Segment operating loss percentage (1.5) % (0.1) % (1.4) % **
** Results of the calculation are not considered meaningful for presentation purposes.
First Nine Months 2022 Compared to First Nine Months 2021 The Steel Products and Measurement segment sales for the nine months endedSeptember 30, 2022 decreased by$50,986 , or 42.1%, compared to the prior year period, due entirely to the impact of the divested Piling Products business, which drove a sales decline of$59,208 versus the prior year period. The decline in sales was partially offset by sales increases in the balance of the business, in both Fabricated Steel Products, excluding Piling, and Coatings and Measurement. Steel Products and Measurement gross profit decreased by$4,913 , or 33.3%, from the prior year period, due to lower sales volumes associated with the Piling Products business and inflationary pressures. However, the gross profit margin for the segment increased 190 basis points to 14.1%, a result of a more favorable mix in 2022 given the divestiture of the lower margin Piling Products business. The segment loss was$1,083 , an increased loss of$943 from the prior year period. The increase in segment loss was due to lower gross profit levels, partially offset by a$4,128 decline in selling and administrative expenses. The decline in selling and administrative expenses in 2022 is due to a reduction of expenses associated with the sale of the Piling business. During the first nine months of 2022, the Steel Products and Measurement segment new orders decreased by$18,407 , or 15.5% compared to the prior year period, driven by a$58,898 decline from the divested Piling Products division. This decrease was partially offset by an increase in both Fabricated Steel Products, excluding the divested Piling Products division, of$7,367 , and an increase of$33,124 in Coatings and Measurement. Coatings and Measurement orders were favorably impacted by a large order in the Company's line pipe coating facility inBirmingham, AL , to support a carbon capture and sequestration pipeline project. Other Segment BacklogTotal Company backlog is summarized by business segment in the following table for the periods indicated: September 30, December 31, September 30, 2022 2021 2021
Rail, Technologies, and Services
$ 109,815 Precast Concrete Products 86,612 68,636
69,564
Steel Products and Measurement 77,301 44,980 52,347 Total backlog$ 272,777 $ 210,189 $ 231,726 Backlog levels as ofSeptember 30, 2021 in the above table includes$1,792 in the Rail, Technologies, and Services segment related to the divested Track Components division, and$1,961 in the Steel Products and Measurement segment related to the divested Piling Products division. Backlog levels as ofDecember 31, 2021 in the above table includes$1,531 in the Rail, Technologies, and Services segment related to the divested Track Components division. The Company's backlog represents the sales price of received customer purchase orders and any contracts for which the performance obligations have not been met, and therefore are precluded from revenue recognition. Although the Company believes that the orders included in backlog are firm, customers may cancel or change their orders with limited advance notice; however, these instances have been rare. Backlog should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance. While a considerable portion of the Company's business is backlog-driven, certain product lines within the Company are not driven by backlog as the orders are fulfilled shortly after they are received.
Liquidity and Capital Resources
The Company's principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under the revolving credit facility, which provides for a total commitment of up to$130,000 . The Company's primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, and periodic acquisitions. The Company's total debt was$98,919 and 34 -------------------------------------------------------------------------------- Table of Contents$31,251 as ofSeptember 30, 2022 andDecember 31, 2021 , respectively, and was primarily comprised of borrowings under its revolving credit facility.
The following table reflects available funding capacity, subject to covenant
restrictions, as of
September 30, 2022 Cash and cash equivalents$ 4,943 Credit agreement: Total availability under the credit agreement 130,000
Outstanding borrowings on revolving credit facility (98,763) Letters of credit outstanding
(564)
Net availability under the revolving credit facility 30,673
Total available funding capacity $
35,616
The Company's cash flows are impacted from period to period by fluctuations in working capital. While the Company places an emphasis on working capital management in its operations, factors such as its contract mix, commercial terms, customer payment patterns, and market conditions as well as seasonality may impact its working capital. The Company regularly assesses its receivables and contract assets for collectability, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as ofSeptember 30, 2022 , but adverse changes in the economic environment and adverse financial conditions of its customers resulting from, among other things, the COVID-19 pandemic, may impact certain of its customers' ability to access capital and pay the Company for its products and services, as well as impact demand for its products and services.
The changes in cash and cash equivalents for the nine months ended
Nine Months Ended
2022 2021
Net cash used in continuing operating activities $ (18,836) $ (6,810)
Net cash (used in) provided by continuing investing activities (54,061) 18,910
Net cash provided by (used in) continuing financing activities 68,568 (13,030)
Effect of exchange rate changes on cash and cash equivalents (1,100) 24
Net cash used in discontinued operations - (253)
Net decrease in cash and cash equivalents $
(5,429)
Cash Flow from Operating Activities
During the nine months endedSeptember 30, 2022 , cash flows used in operating activities were$18,836 , compared to cash flows used in continuing operating activities of$6,810 during the prior year to date period. For the nine months endedSeptember 30, 2022 , the net income and adjustments to net income from continuing operating activities provided$9,134 , compared to$13,880 in the 2021 period. Working capital and other assets and liabilities used$27,970 in the current period, compared to using$20,690 in the prior year period. The Company received$5,638 during the nine months endedSeptember 30, 2022 associated with its federal income tax refund. The Company's calculation for days sales outstanding atSeptember 30, 2022 andDecember 31, 2021 was 47 and 46 days, respectively, and the Company believes it has a high quality receivables portfolio.
Cash Flow from Investing Activities
Capital expenditures for the nine months endedSeptember 30, 2022 and 2021 were$4,559 and$3,568 , respectively. The current period expenditures primarily relate to the implementation of the enterprise resource planning system at additional Company divisions and general plant and operational improvements throughout the Company. Expenditures for the nine months endedSeptember 30, 2021 primarily relate to the expansion of thePrecast Concrete Products business line inTexas . OnJune 21, 2022 , the Company entered into an agreement to purchase the stock of Skratch for$7,402 , and onAugust 12, 2022 , the Company entered into an agreement to purchase the operating assets of VanHooseCo for$52,203 , which drove a cash outflow of$58,561 during the nine months endedSeptember 30, 2022 . During the nine months endedSeptember 30, 2022 , the Company received cash proceeds from the 2022 Track Components divestiture and final proceeds from the 2021 Piling Products divestiture totaling$8,800 . During the nine months endedSeptember 30, 2021 , the Company received cash proceeds from the Piling divestiture of$22,707 . 35 -------------------------------------------------------------------------------- Table of Contents Cash Flow from Financing Activities During the nine months endedSeptember 30, 2022 and 2021, the Company had an increase in outstanding debt of$69,155 and a decrease of$12,519 , respectively. The increase in debt for the nine months endedSeptember 30, 2022 was due largely to the acquisition of VanHooseCo onAugust 12, 2022 , as well as the acquisition of Skratch onJune 21, 2022 , and the funding working of capital and other assets and liabilities. The decrease in net debt for the 2021 period was primarily attributable to the utilization of excess cash generated through operating activities.Treasury stock acquisitions of$405 and$549 for the nine months endedSeptember 30, 2022 and 2021, respectively, represent stock repurchases from employees to satisfy their income tax withholdings in connection with the vesting of stock awards.
Financial Condition
As ofSeptember 30, 2022 , the Company had$4,943 in cash and cash equivalents. The Company's cash management priority continues to be short-term maturities and the preservation of its principal balances. As ofSeptember 30, 2022 , approximately$3,976 of the Company's cash and cash equivalents were held in non-domestic bank accounts. The Company principally maintains its cash and cash equivalents in accounts held by major banks and financial institutions. The Company's principal uses of cash have been to fund its operations, including capital expenditures, acquisitions, and to service its indebtedness. The Company views its liquidity as being dependent on its results of operations, changes in working capital needs, and its borrowing capacity. As ofSeptember 30, 2022 , its revolving credit facility had$30,673 of net availability, while the Company had$98,919 in total debt. OnAugust 13, 2021 , the Company entered into the Credit Agreement, which increased the total commitments under the revolving credit facility to$130,000 from$115,000 , extends the maturity fromApril 30, 2024 toAugust 13, 2026 , and provides more favorable covenant terms. Borrowings under the Credit Agreement bear interest rates based upon either the base rate or LIBOR rate plus applicable margins. The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility should provide the Company with sufficient liquidity to provide the flexibility to operate the business in a prudent manner and enable the Company to continue to service its outstanding debt. OnAugust 12, 2022 , the Company amended its Credit Agreement to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction. The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the maximum gross leverage ratio covenant throughJune 30, 2023 to accommodate the transaction. The Second Amendment also added an additional tier to the pricing grid and provided for the conversion from LIBOR-based to SOFR-based borrowings. For a discussion of the terms and availability of the credit facilities, please refer to Note 10 of the Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into forward starting SOFR-based interest rate swaps with notional values totaling$20,000 and$20,000 , effectiveAugust 12, 2022 andAugust 31, 2022 , respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. During 2020, the Company designated its cash flow hedges and accounted for the$50,000 tranche of interest rate swaps on a mark-to-market basis with changes in fair value recorded in current period earnings. DuringFebruary 2022 , the$50,000 tranche of interest rate swaps expired. As ofSeptember 30, 2022 the swap asset was$1,960 and as ofDecember 31, 2021 the swap asset and liability were$175 and$159 , respectively.
Critical Accounting Policies
The Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted inthe United States . When more than one accounting principle, or method of its application, is generally accepted, management selects the principle or method that, in its opinion, is appropriate in the Company's specific circumstances. Application of these accounting principles requires management to reach opinions regarding estimates about the future resolution of existing uncertainties. As a result, actual results could differ from these estimates. In preparing these financial statements, management has reached its opinions regarding the best estimates and judgments of the amounts and disclosures included in the financial statements giving due regard to materiality. A summary of the Company's critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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