L B Foster Co (FSTR) 2024 Q2 法說會逐字稿

Hello, and thank you for standing by. Welcome to L.B. Foster second quarter 2024 earnings conference call. (Operator Instructions) I would now like to turn the call over to Stephanie Schmidt of Investor Relations. You may begin.

Thank you, operator, and good morning, everyone, and welcome to L.B. Foster's second quarter of 2024 earnings call. My name is Stephanie Schmidt, the company's Investor Relations Manager. Our President and CEO, John Kasel; and our Chief Financial Officer, Bill Thalman, will be presenting our second quarter operating results, market outlook and business developments this morning.

We'll start the call with John providing his perspective on the company's second quarter performance, Bill will then review the company's second quarter financial results. John will provide perspective on market developments and company outlook and his closing comments. We'll then open the session up for questions.

Today's slide presentation, along with our earnings release and financial disclosures, are posted on our website this morning and can be accessed at our Investor Relations page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation. Some statements we are making are forward-looking and represent our current view of our markets and business today.

These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information except as required by securities laws.

For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within today's earnings release and within our accompanying earnings presentation carefully as you consider these metrics.

So with that, let me turn the call over to John.

Thanks, Stephanie, and hello, everyone. Thank you for joining us today for our second quarter earnings call. July 21, 2024 marked three year anniversary of my appointment as President, CEO of L.B. Foster Company. I thought I'd begin today's call by providing a recap of what we accomplished over the last three years. I took over as President, CEO in 2021, which was a year of significant change for the company. Our current Chairman, Ray Betler, has joined the Board in 2020 and helps us through a strategic reassessment of the business in 2021.

With rate guidance, leadership and support, the Board and senior management team established a strategic vision and operating playbook to transform the company into a technology oriented global infrastructure solutions provider. The cornerstone of the strategy was portfolio assessment, established growth platforms, namely rail technologies and precast concrete.

These businesses would received investment funding needed to drive profitable growth in the business. The balance of the business became a returns platform. These businesses would be optimized for cash generation and where appropriate divestitures to generate additional proceeds to fund growth initiatives, both organic and inorganic.

Over the three year period, we completed nine strategic transactions. We sold our four non-core businesses and exited a commoditized bridge grid deck product line. These transactions generated cash, improve leverage and eliminate distractions to our core approvals. Proceeds from these divestitures were used to complete four acquisitions over the same time period, two in rail technologies in the United Kingdom and two in precast concrete in the United States.

In late 2023, we completed the restructuring of our UK business in response to a very challenging business conditions in the local market. While impactful, we just announced a new price wise restructuring that along with headcount attrition already achieved, should generate annual run rate savings of $4.5 million per year. I will come back with more on this topic in my closing comments.

In summary, the impact flow of our transformation journey has been truly remarkable as you can see in the results compared to 2021. Sales are up 6% due to the net impact of M&A, adjusted gross margins of 40 basis points to 60 basis points, and the trailing 12 months adjusted EBITDA is up 64%, translating to a [37.9] adjusted EBITDA leverage on the net sales growth achieved.

Now on to today. As mentioned, our earnings announcement, the second quarter was a bit weaker than we expected, and there's some near term uncertainty in our end markets given the broader recessionary concerns in the domestic and global economy.

While we believe we will turn to profitability expansion in the second half, we thought it would be prudent to be a bit more cautious with our financial guidance for 2024 in some of the larger macro drivers that could have a greater impact on demand rates through the end of the year.

Despite the tempered outlook, the midpoint of our 2024 adjusted EBITDA guidance has represented approximately 12% growth for 2023 on virtually flat organic sales growth. We're focused on what we control, getting back to profit expansion in the second half and finishing 2024 strong, so we can continue to build momentum towards achieving our aspirational goals.

Bill will now cover the detailed financials for Q2, and I'll come back at the end with some closing remarks on our markets and outlook. Over to you, Bill.

Thanks, John, and good morning, everyone. I'll begin my comments covering the consolidated highlights of the second quarter on slide 7. As always, the schedules in the appendix provide more detailed information on the financial results for the quarter, including certain non-GAAP measures discussed on today's call. As we've done in the past, we'll call out the impact of portfolio actions where applicable.

For the second quarter, these impacts included last year's Ties divestiture and the bridge grid deck product line exit with a combined impact of 1.5% lower net sales this year. Net sales for the quarter were down 4.9% in total, 3.4% on an organic basis, driven primarily by weakness in the rail segment.

I'll unpack the drivers on the segment slides in a moment. Gross profit was down $1.7 million with margins nearly flat with last year at 21.7%. Lower margins in rail were largely offset by improved margins and infrastructure. The improved margins within infrastructure were due primarily to the favorable impact of our portfolio actions, coupled with an $800,000 gain on the sale of an ancillary property in the quarter.

Selling, general and administrative costs increased $0.4 million over the prior year due primarily to corporate legal provisions as well as professional service costs incurred as associated with the announced restructuring.

Net income for the quarter totaled $2.8 million unfavorable, 19.4% versus the prior year quarter. The net gain realized on the property sale as well as certain corporate legal costs were excluded from adjusted EBITDA, each of them were approximately $800,000 in the quarter.

Adjusted EBITDA for the quarter was $8.1 million, down 23.8% versus last year due primarily to lower gross profit, coupled with higher professional service costs associated with the restructuring. In line with our seasonal working capital needs, cash used for operating activities in the quarter was $5 million. These needs were somewhat lower this year due to the commercial weakness in the quarter.

I'll provide some additional color on orders and backlog by segment later in the presentation. The bridges on slide 8 reflect the organic and portfolio driven impacts on sales and adjusted EBITDA for the quarter versus last year. The sales bridge on the left breaks out the impact of the business, divestitures and isolates the organic sales decline of $5 million, which was primarily road realized within the rail segment.

The EBITDA bridge highlights the profitability uplift year over year delivered from our portfolio work. This is despite the $2.2 million sales decline from these activities. The legacy business profitability is down due to primarily to the rail segment volumes and margins, coupled with corporate professional fees associated with the restructuring.

Turning to sales and margin trends on slide number 9. The sales trend on the left reflects the strong organic performance we've delivered in recent quarters. Despite the softer second quarter, the trailing 12 months organic growth rate was still 8.7%. Despite the lower second quarter sales margins have remained resilient at a level above 21% for five straight quarters.

This achievement highlights the transformation of our business portfolio as well as improved pricing and manufacturing execution across the majority of the business. We're confident in the long term demand prospects for our end markets and believe we will see improvements once the macro uncertainty drivers begin to clear. In the meantime, we're focused on delivering strong profitability growth and margin expansion despite the short term commercial headwinds.

Over the next couple of slides, I'll cover our segment performance in the quarter starting with the rail segment on slide 10. Second quarter rail revenues totaling $85.6 million were down 6.6% from last year, including a 1.5% decline from the Ties divestiture. The 5% organic decline was driven primarily by lower volumes and softer market prices and the rail products business unit.

Rail margins of 20.9% were down 80 basis points year over year, driven by lower overall sales and margins within rail products. And on a positive note, margins in global friction management and technology services and solutions improved versus last year, including some recovery in our UK business.

Second quarter rail orders increased $1 million year over year and up $4.4 million, excluding the impact of last year's Ties divestiture. Backlog of $114.8 million and decreased $17.7 million from the prior year quarter with the decline primarily within rail products and lower business activity in the UK. Second quarter, rail orders and backlog increased sequentially 39.7% and 33.4%, respectively.

Turning to infrastructure solutions on slide 11. Segment revenue decreased $1.2 million or 2.2%. However, 1.4% of the decline was due to divestiture and product line exit activity. Organic sales were relatively flat compared to the prior year. Gross profit margins were up 90 basis points to 22.9%. The improvement was realized within steel products driven by portfolio changes executed over the last year as well as the $800,000 gain on the sale of an ancillary property.

Infrastructure orders were $54 million, down $13.8 million from the prior year quarter due to softer demand across the steel products business unit, primarily in Protective Coatings. Precast orders were flat year over year. Backlog totaling $135 million was down $22.6 million, $6.9 million due to the bridge product line exit. The balance of the decline was realized across the steel products business unit.

Precast concrete backlog improved $2 million versus last year. I'll next cover our year to date results on slide number 12. Organic sales increased 5.5%, partially offset by a 4.9% decline from divestiture and exit activities. Organic sales growth was driven by the rail segment as a result of the strong segment performance in the first quarter.

Gross profit improved $1.2 million and including the $800,000 property sale gain in Q2, while gross profit margins of 21.4% improved 30 basis points. The improvement can be attributed to the business portfolio changes in line with the company's strategic transformation coupled with overall higher sales volumes and favorable business mix realized in the rail segment in the first quarter. Selling, general and administrative costs increased $1.7 million over the prior year due primarily to corporate legal provisions as well as professional service costs associated with the announced restructuring.

Net income for the quarter totaled $7.3 million, favorable $5.9 million over the prior year, including $4.3 million in gains from ancillary property sales in 2024. The prior year included $3.1 million in losses on the divestiture of Chemtec and Ties. The net gain realized on asset sales and certain corporate legal costs were excluded from the 2024 year to date, adjusted EBITDA was $14 million, down $1.1 million due primarily to higher selling and administrative costs. Cash used by operating activities in the first half of 2024 was $26.8 million, driven by seasonal working capital needs and an annual incentive in business insurance funding.

I'll now cover our liquidity and leverage metrics, reflecting on slide 13. Second quarter, net debt declined $2.5 million versus the prior year, while the gross leverage ratio increased two tenths of a turn to 2.7 times. This level of net debt was largely in line with our expectations, and we expect net debt will decline through the balance of the year.

We also expect the gross leverage ratio to improve by year-end. Our normal working capital cycle typically results in strong cash generation and in the second half of the year. We expect free cash flow to range between $25 million to $30 million in the second half of 2024 with a gross leverage ratio closer to our longer-term target of 2 times by year end.

While our updated free cash flow guidance reflects a more cautious outlook for cash generation in 2024. We remain confident in our ability to manage our leverage metrics at around 2 times over the long term given our capital light business model.

We plan to continue to prudently deploy operating cash along our capital allocation priorities, including continuing the execution of our stock repurchase program. Since the program's inception in February of 2023, we've repurchased up about 204,000 shares of stock, representing approximately 1.9% of the common stock outstanding at an average price of approximately $19.50 per share.

On August 5, 2024, our Board of Directors approved a modification to the program, which shortens its tenure from three to two years and allows the remaining $11 million authorization to be used through February of 2025 without restrictions. As a reminder, we're now down to $4 million owed to Union Pacific with $2 million paid on August 1 and the remaining $4 million due in December. And the US federal NOLs should continue to minimize our cash tax burden for the foreseeable future.

In summary, despite the softer outlook for cash generation for the full year, we believe the key drivers of strong, sustainable free cash flow are in place and should continue to improve through the balance of 2024 and moving into 2025.

Our next revisit our capital allocation priorities outlined on slide 14. We continue to focus on managing leverage levels while opportunistically investing in organic growth opportunities we see in rail technologies and precast concrete. Our announced restructuring program should further enable investment in growth platforms given the expected cost savings over the coming quarters.

We're comfortable with gross leverage around 2 times and believe we will be back near that level by year-end. Capital spending is expected to run at approximately 2.5% of sales on average, which is slightly higher than our historical levels due to investments in our growth platforms. But as mentioned before, we continue to evaluate opportunities to return cash to shareholders through our stock repurchase program. And we plan to use this important capital allocation lever prudently given the approved changes to the program.

We continue to consider small tuck-in acquisitions that can extend our product portfolio within our growth platforms. And this is expected to become an increasingly important driver of our growth as we establish goals beyond 2025. And finally, we continue to consider a dividend as a capital allocation option as the prospects for stronger free cash flow improve, particularly in 2025 and beyond.

My closing comments will refer to slides 15 and 16 covering orders, revenues and backlog by business. Book-to-bill ratio over the trailing 12 months was 0.93 to 1 which reflects the lower order rates in both segments, coupled with strong order book execution and improved lead times.

Q2 order rates improved in rail year over year, while the weaker demand across the steel products business drove the infrastructure decline. Consolidated second quarter order rates did improve sequentially 29.2%. And lastly, the consolidated backlog on slide 16 was down $40 million from the record high levels last year with both segments experiencing declines.

The rail segment backlog is down $17.7 million or 13.3%. As mentioned in the past, order rates and backlog are susceptible to large swings, driven primarily by project order timing and the rail distribution business. In addition, backlog in our UK business is down $9.2 million as we purposely scaled back our investment in this market until a clear recovery path develops.

On a positive note, the rail backlog is up approximately 30% versus the previous three quarter average indicating some favorable development. Infrastructure backlog is down $22.6 million or 14.3%, with the entire decline due to steel products.

Precast concrete backlog improved $2 million or 2.2%. The $24.6 million decline in steel products backlog was due to lower demand levels across the business unit as well as a $6.9 million decline from product line exit activities.

Despite a lower backlog level remain, we remain optimistic in the longer term prospects for growth and demand across our portfolio and expect this will translate into an improving backlog in the future whilst near term macro-economic conditions improved.

In summary, we continue to remain optimistic about our 2024 outlook. Despite some temporary headwinds experienced in the second quarter. Our revised financial guidance implies an expected adjusted EBITDA growth rate of approximately 12% for 2024 with strong profitability expansion and cash generation in the second half. We remain focused on finishing the year on a positive note and look forward to reporting on our progress next quarter.

Thanks for the time, and I'll now hand it back to John for his closing remarks. John?

Thanks Bill. Please refer to slide 18 for an overview of our key business and market drivers underpinning our outlook. We continue to be optimistic longer-term prospects for growth in our end markets, both for growth segments, particularly given the continued emphasis on the infrastructure investment. In 2023, we began to realize some project related business from US federal programs approved or less than previous years, and we expect that trend to continue moving through the balance of 2024 and beyond.

Transit ridership levels in US are back to pre-pandemic levels and repair work at transit lines is relatively strong at this time. On the other hand, freight Carlo within the domestic rail market are somewhat softer versus a year ago, which we believe is resulting in deferrals and project work for Class 1, short line, and regional railroads.

The developing macroeconomic uncertainty may also be impacting demand in our served market somewhat. The recent findings regarding the [East Palestine train] derailment highlight the opportunity for our total track monitoring solution and we're seeing a nice increase in demand for those solutions year over year.

As noted earlier, our UK business has shown some signs of recovery versus last year, and we believe market conditions have stabilized, and we're improving modestly, and are improving modestly in the in-country economic developments there.

Turning to our infrastructure markets, the CXT Buildings product line continues to benefit from record spending on recreational parks and campgrounds, this is funded by the Great American Outdoors Act. We expect this demand to remain robust through the balance of this year and into 2025.

Notwithstanding the short-term weather-related headwinds we saw in H1, the government's funding for road and bridge rehab projects, as well as robust regional, commercial, and residential real estate development, should bode well for our infrastructure segment over the longer term. In summary, overall prospects for long-term sustainability profitable growth should remain strong in light of the infrastructure investment super cycle we expect for years to come.

On slide 19, I'd like to emphasize the investment thesis for L.B. Foster, which is supported by four key pillars. First, we've taken the strategic steps necessary to transform our business portfolio, resulting in structural improvements and profitability that we delivered in 2023, and the execution of our restructuring program that we just talked about in 2024 is expected to also provide profitability improvement through the balance of the year.

Second, we believe we represent infrastructure pure play with multiple avenues for growth through multiple year investment programs that are clearly needed in our served markets. We're also investing in key organic growth initiatives designed to take advantage of the macro trends that are driving the need for infrastructure investment in our serve regions.

Third, our capital light business model coupled with steady profitability improvement and the completion of our Union Pacific settlement payments Bill just mentioned later this year should provide a more favorable free cash flow outlook for the second half of '24 and beyond.

And finally, we have disciplined capital allocation approach with multiple drivers that have been deployed and are creating value for our shareholders, as evidenced by improved equity returns. The recent amendment to our stock repurchase authorization provides us greater flexibility to deploy more capital to buyback stocks should valuations remain attractive.

Of course, Bill and I will remain prudent in our approach with leverage goals in mind. So in summary, we believe our strategy is sound and our execution along these four pillars should deliver results, improving results through 2024 and beyond. I'd like to close our updates with a reminder on our aspirational goals for 2025, you'll find this on slide number 20.

I began today's call with a recap of our progress since 2021. We clearly have made tremendous improvements in our business, and I'm very proud of what we accomplished as a team in a very short period of time, and more importantly, in a very challenging environment. We made some tough decisions along the way, including business divestitures and restructurings that resulted in some good people leaving our organization.

As I mentioned in my opening comments, we began restructuring in the UK in the fourth quarter of last year. and we're seeing the positive benefits from those actions in this year's results. With the new human capital program in line with our strategic roadmap, we're taking the necessary steps to enable investment in our growth platforms and drive resource deployment efficiency across the entire business.

Of course, we are far from finished in what we set off to do in 2021. There's significant work for us to do to fully take advantage of the opportunities in front of us. As you can see on this chart, we established our 2025 aspirational goals at the end of 2021, and we are focused on managing through the short-term uncertainty and getting back to growth in our profitability in the second half of the year.

Delivering a strong H2 will help us build required momentum needed to deliver an exceptional 2025 and set the stage for continuing growth beyond. So with that, thank you for your time and continuing interest in L.B. Foster Company. I'll turn it back to the operator for the Q&A session.

(Operator Instructions)

Chris Sakai, Singular Research.

Hi, good morning, John and Bill. I guess just as a kind of a top level question, you've seen some softness in demand from in rail and coatings and steel. How we sort of think about this going into the third and fourth quarters? Do you see a rebound there?

Thanks Chris for joining us today. Absolutely. We do. We also get impacted by weather in the H1 too. So some of these delays and some of these things we're starting to get there the volumes through our factories. But as Bill and I talked about today and you look at the year over year as well as sequential growth, we're looking at 29% H2 delivery versus last year in our EBITDA. So we're expecting quite a bit of volume moving through our facilities second half of the year.

Okay. Thanks. And then I'm looking at the 2024 guidance for free cash flow on what were the main drivers now for breakeven guidance as previously $12 million to $18 million?

So now I'll turn it over to Bill, but we got some again, we got some movements going on a little bit as we expected a stronger Q2 and we were deferring some of that work into Q3. So we've got some working capital and some other things that are moving around. But in general, we still feel very, very good about our position and where we're going, it appears for us as far as leverage and it really our balance sheet general. Bill, a little more content?

Yeah, hi, Chris. The range of previously was $12 million to $18 million with a $15 million midpoint. We obviously announced our restructuring that will consume some cash. We'll get some savings from that as well as outlined in the release. The primary thing we're looking at is the timing of business in the rail business that is likely to push volume off to the latter part of the year.

And as a result of that, we'll end up having a higher working capital requirement in the second half of the year, that is likely to end up with a more tempered cash flow overall. Now that's a full year cash flow. So we had $31 million of negative and cash free cash flow consumption in the first half of the year, we expect the second half to be $25 million to $30 million positive free cash flow in the second half of the year. So it's right around breakeven for the full year, but really strong expectations for the second half of the year.

And of course, Chris, we would close out the year with our last installment of $4 million with Union Pacific payments. We feel very good how we're going to end the year more probably how we're going into 2025.

And Chris, I had just one last item. I just want to highlight that obviously, the leverage metric was a little elevated here at the end of the quarter, 2.7 times on the cash generation in the second half of the year, plus the expected improvement in profitability year over year. In the second half of the year, we'll see our leverage drop from 2.7 times back closer to that 2 times target that we talk about.

Okay. Sounds good. And then with this restructuring program, how much will it take from our reduced SG&A or what are the -- do you have any sort of quantifiable numbers there?

Well, let me kind of walk through the process first of all, how we got, here's, I wanted to walk through the three years for a reason because transformation takes time. We neither changed our portfolio, right, which we've done in the last three years. But in doing so those four divestitures that we spoke to today, we have stranded costs in the business that we continue just to absorb it in the business.

And so we knew over a period of time that we needed to make a change. More fully, not just to get cost out, which by the way, is [$4.5 million] on an annual run rate. It was about taking monies and bringing back to the company to make sure we're focusing our growth.

Sales were transforming this company into a technology innovation type company from a distribution type steel company. We were very strong at the front of the house. So much work we've been doing is taking the back office administration and putting up front of the customer, putting in front and technology innovation. And this is where we're really showing up what we're doing and where we get excited about where we how we're going to finish the second half of the year, more probably where we're going to do in '25 beyond.

So Bill and I were talking about today is really -- we had a little bit of headwinds here in the quarter that -- you know, that just makes you stronger and much more focused. So the last couple months we've been talking about this working on this and we did it last week, which was a very tough time in our company with a reduction in force. But this is something we did with a knee-jerk reaction related to what was going out of the quarter. This facility was planned. So it happened last year. So we see start seeing the benefits through the balance of this year. More importantly, it's a 2025 beyond.

Okay, great. Thanks for the answers.

Thanks, Chris.

Justin Bergner, Gabelli Funds.

Good morning, John. Good morning, Bill.

Good morning, Justin.

Few questions here. So to start just on the revised free cash flow guide, the timing of rail deliveries. So does that mean that you expect to end the year with the higher accounts receivable?

Yes.

I was going to expect, are there other parts within that rail timing?

Definitely not receivables. We're going to have strong Q4 switches going to pump up that AR

Strong revenue for Q4, which drive AR up.

Exactly. Okay. Got it. So maybe a second question would relate to the mix of business in rail. I mean, could you comment on whether the rail technologies business continues to mix up margin because it wasn't as evident in the decrementals this quarter?

We said, we put together all this work and all this paperwork in all, we feel really good about is our strategy. This is how we're pivoting the company to TTM and condition monitoring. We had a fantastic H1 related to those businesses and then what we're doing in the UK as well. So the headwinds we're seeing right now are really specific to our former the returns business related to rail distribution and our ERP type work.

This is where the company continues to pivoting but we saw quite a few headwinds in that duration, low volume and low leverage. But we do have a very strong backlog. We have very strong activity and we feel very good the second half year that will continue to grow, really demonstrating our ability to drive profitability in rail and doing through technology innovation.

Okay. So just to maybe clarify that statement. So I guess the rail products business, even though may not carry a high average margin, they're still fairly meaningful incrementals and decrementals there?

That's correct.

This is a very large percentage of our overall rail business to the extent that it's having a short-term challenge here, given the commodity prices and some of the weakness in the freight volumes that John had mentioned, it has an impact on the year-over-year decrementals. But as we also mentioned in the call script the year over year profitability improvements in TTM, our technologies oriented monitoring business as well as a recovery in our UK business, both were favorable components to the year-over-year improvement in rail, that those pieces were favorable within rail. It's just the rail products portion overcame that from a consolidated point of view.

Got it. Okay. And then just the restructuring program, is this mainly to remove stranded costs or is it to get ready for potentially a lower level of demand? Is it something else? Just how should I think about what's really happening from a business point of view on the restructuring side?

Obviously, part of it is stranded costs, but it's about getting better. It's about taking all the work we've did, all the investment we've done in SAP, all the back office type of work we've done with our technology innovation, and really putting our best foot forward to streamline the organizations. As we move from three segments to two segments, we did at the beginning of this year, it's about simplifying the company, simplifying it to you, the investor, is really what this is all about.

But in doing so, we had to put in our money where our mouth is. And these aspirational goals is all about continuing to drive this innovation technology, specifically through our precast business and what we're doing in rail. So taking money out wasn't the end game, that was a result. It was also about taking those monies and redeploying them and redeploying them to the front of the house, out in front of the customer, and really, really redefining ourselves to the market, what we're doing and how we're changing our portfolio over time

Okay. That's very helpful. And then with the 2025 aspirational goals, I mean, is it safe to say that maybe there were some restructuring program envisioned as you approach those goals or would you say this is incremental now?

No. There was always the vision that you look at our SG&A as we kind of laid that out or at least implied, you could see we were running up. We were running high to that number to the percentages. So we've been talking about this working internally. We wanted to wait for the right time. Now when we had a little bit headwinds, we wanted to stabilize the company get through these portfolio moves which we did through 2023.

In 2024, we wanted to take this up these incremental changes, if you will. We weren't ready, honestly in the last couple of years, we didn't have the people in the position as well as the skills in the company and the technology in place to make some of these things happen. We're ready now. So we kind of ripped the Band-Aid off last week and said here we go and get after this.

Okay, got it. So it doesn't seem like there's any change that will affect your ability to serve higher demand or meet growth?

Let me tell you that -- let me put it this way. If we didn't do what we did, I would not be as bullish on the aspirational goals. We need to do this and invest in the future and continue to bring the profitability of the company.

Okay. Thanks for all the questions.

Thanks, Justin. Have a great day.

(Operator Instructions)

John Bair, Ascend Wealth Advisors.

Thank you. Good morning, John and Bill. First quick question. It looks like you had a legal expense in this quarter that didn't see anything in the first quarter, is that a one-time issue? Or what can you can you expand on what that relates to?

Yeah, sure. Bill, you want to maybe get a little with --

Yeah. We're not going to expand what it relates to. We've got an ongoing matter that we're working through. I think as we mentioned, it was about an $800,000 expense within the quarter. There could be some additional amount in the future. We can't predict or at what that will be. We don't think it will be to the same level that we've had in the past. But it's ongoing and it's something that we're just going to manage here to a conclusion as fast as we can.

Do you have any sense of when this issue will be resolved?

Unfortunately, not. It's an active matter and we hope to resolve it as soon as possible.

Okay. So, but not on the edge of being finalized, it could drag out six months or longer.

It's hard to say we'd love to settle it as soon as we possibly we can, but it takes a counterparty to achieve that, of course.

Okay, all right. On the question with regards to indicated some encouragement with regards to the UK. Do you think from what you're seeing? Is that something that's perhaps sustainable or?

So I think they've had four prime ministers in five years. I mean they've had a quite a turmoil in that organization. The charges and the actions we did in the fourth quarter were very important to get aligned to get aligned to what we thought the activity would be.

And then we did take some additional actions of some fine tuning if you will for the enterprise, a reduction in force that we did last week, the new team over there under a new leadership with Neil Sheffield. He's doing just a tremendous job of really, really reinventing themselves and really focus on what we can do and more importantly, how we do it to make sure we're driving shareholder value.

So we're very pleased with what's going on there. They've had a very tough stretch into COVID through COVID, and we're looking for them. It may not be the area of huge growth for us in the future. But that's okay. We'd like with the what they're doing. It's a large technology innovation center for us. We're taking much what they do across to the globe as it relates to rail. So we're very happy with where they're at today.

And then with regards to domestic rail, you touched on this a little bit in previous questions, but it sounds as if you highlighted that there was some softness in the prepared remarks and so forth. So is this more of a timing issue from your from your customers? Because you do referenced the expected timing of larger orders that lumpiness in there it commitments, is that the fair way to look at it?

It's a fair way. So first of all, the good news, when you look at rail, you have to look at both aspects of rail, right? Transit, first of all, ridership is back to pre-pandemic levels. We felt very good about that. We have a nice play. Half of what we do in rail is in transit space, so this is very good news for us. So we'll see more and more of that activity in the second half. Again, why we feel very good about the second half.

On the freight side, you've got to look at Canada, first of all. They're doing okay. The Canadian Pacific and Canadian National was going on with respect to intermodal and moving commodities. Here in the US, though, it's a little softer. And so they have delayed and deferred some of their spending. And this is back to the real products conversation that we've had.

So the work is coming. We're going to be very busy in the second half of the year. So they just deferred some of the work that we typically saw in H2, or excuse me, in the second quarter. We're now seeing it in H2. So just look for a stronger year and probably a stronger fourth quarter than we've seen in the past. We had a great first quarter, as you know, John. We fell off a little bit related to demand. We're going to see that pick up again.

Railroads need to continue to invest in the type of stuff that we provide they need. So we feel very good about they'll keep shoring up their railroads, doing the maintenance work. And more excitingly, they're really bullish on our condition monitoring, our TTM, our devices that help them run a safe and secure network. That's where we're seeing a lot of activity and a lot of excitement that gives us really, really excitement going into the second half of the year and more poorly in 2025 and beyond.

Okay. Last question. You indicated weather impacted your domestic sales on infrastructure. So basically you just pushing this stuff out from the second quarter into the third quarter. Is that kind of way to look at it? Aside from your comments about protective coatings were down. Is there any indication that that's going to turnaround or what would it take for that to pickup and becoming our most meaningful?

Let's talk about infrastructure related to what's going on in precast specifically and those product lines. We got hit hard with weather or locations that are located in Tennessee. There was wettest record first half. You had the wettest year on record year to date as well as what's happening to Texas and the other regions very, very well, not only just affecting our employees to get to work or some other facilities were shut down for days or one case over a week now related to weather and power outages.

In the third case, it's more importantly what's going on in the construction areas. If it's wet, they can't use their products, they can't put the product underground, and they can't build the infrastructure that's needed. That's pent-up demand. That does not go away, and we are obviously short of the hurricane this week. We're seeing things that are drying out and the need is there.

So like, it's is just going to be open much wider in the second half of the year. They need to get these products in ground. They need to get these products in these areas built. So we feel very good. We're ready. We have products sitting in our yards, products sitting in our plants. We're ready to deliver. So, again, we feel very good about what we're looking at for H2.

Coming back to, we have two types of coating business. We've got an inline coater. and then we have a specialized coder. Specialized coder business that we have is doing very well, and they're going to have a strong second half of the year. The inline quarter working directly with the [Cisco], those projects are as expected. We're not doing too many pipelines moving between states right now, and we don't see much of that activity going on the second half of the year. That may change with a different election or a different cycle, but right now we're not counting on that business providing much, and it's not part of our guidance at all. So if that comes back in a big way, that'll be on top of what we're looking at today.

What about steel products, what will it take to turn that around?

So when you say turn around, the threading business is actually doing very well. They got hit the weather like everybody else, we do our threading in Houston. And of course, one is what this is for irrigation pipe. So the demand for irrigation pipe business is not as needed, but we're starting to see that change around as it dries out in the West. And we have a nice new market entry and taking our pipe, our threaded pipe in the West Coast right now. So we feel good about what we're doing there.

On the steel side, we made a nice pivot from our grid decking business, right? And we close the book on that last month and move that business to another party, which left us a bridge of forms business. In fact, we just had the Board out there and we've tutored the facility, a world-class facility. They're operating at very high level.

We're finishing up the large deal we ever did was just down in Tampa, Florida and the I-4 bridge. We feel very good about that. And we got quite a few bidding activities and opportunities in front of us to continue that. We've talked about investments supercycle. So we're looking for a quite a bit of work come through that plant and that business second half of the year.

Great. Thank you very much for taking the questions.

Thanks, John. Take care.

Justin Bergner, Gabelli.

Thanks for the follow up here. I am just looking at the sales guide, I mean, you didn't really take the high end down much, but you're talking to some headwinds in real and maybe there all gets caught up in the fourth quarter. I'm not sure I'm talking about no protective coatings been weak. So is there some positive offset that's only allowing the sales guide to be taken down by $10 million at the high end. I'm just trying to put together the pieces.

We don't get into the color all this, but our precast business, especially on the legacy side, is having a tremendous year, best Europe. We this Great American Outdoors Act that we referenced in our comments today, and we're basically sold out for the balance of the year. So that's where upside is going to come. And then the of the new acquisition of and whose scope, which is bringing these products. Of course, we are hit with the weather and other things going on in Tennessee and other markets we serve there. So that that's an area for upside in the second half of the year as well.

Okay.

And then just I might just add to that as well that something that helps the overall business mix in the second half of the year. So we're really have a overall top line and somewhat flat to down slightly overall in the second half of the year for the guidance, the profitability is up nicely on a year over year basis. So we'll see an improved business mix in the second half that will drive profit expansion despite the top line softness overall.

Great. That was it.

Thanks, Justin.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to John for closing remarks.

Thank you, and thanks, everybody, for joining us today, and thanks for the questions. We really appreciate it. I want to close with a couple of remarks related to first core value, our company's safety. Back in the last quarter, I mentioned that we're real focused on safety as it each and every year, when you look at our company, you look at their safety results really speaks to how you treat your employees and really the culture of the company and really how profitable you could be because it is a result of a lot of good things coming together.

In the last three years, we have struggled in rail specifically, we've gone the wrong way, still way better than industry. But of course, our goals here and foster a much we want to be much better industry standards, but year over year in the last three years from '21, '22 and '23. Our safety performance in the rail business just continues to get worse year over year.

And so last year, we said down, we said we need to change this. So accomplishments of the rail group, leadership, rail focus making safety a part of our fabric each and every day and getting better. We made a number changes staff, including adding operations, guy named Dennis Scully.

He's done a fantastic job. And congratulations to Greg Lippard and his team, making safety a core value of our company. They have completed, in fact, the first half of the year with zero recordable injuries that's just tremendous results. In fact, perfect results if you want to look at it from that point. When you look back, what that means, that's 715,699 hours, work hours, man hours, that we did with no recordable injury across the entire rail business, which represents over 51% of the hours we have worked as a company.

So tremendous, very focused on that. So, yes, we've had some headwinds, but from operational, from efficiency point of view, the business is coming back. Coatings look good. A backlog at over $248 million is something that we feel good about. So we're ready to deliver in the second half of the year, and we will deliver.

So as a reminder, my second point is, -- we had a very strong first quarter. And the second quarter, of course, is not exactly where we expected it to be or wanted it to be. We're continuing to manage through those macro situations. But we were off 7% when you look H1 over H1 year over year. When you look at H2, what we're putting in, you look at a midpoint of our guidance, we're showing a 29% improvement year-over-year on EBITDA.

So that's what we have in front of us. And this group, my team, and everybody across the company, we're up to the challenge of making and bringing this product to the market and driving the shareholder return, which will give us a 12% year-over-year improvement in our EBITDA when you look at midpoint to midpoint, how we finished it, what we're forecasting to do.

We will make it happen. We're all in to do this, and we have the opportunities in front of us, and we will make it happen for the balance of the year. So thanks for your ongoing support. Thanks for your interest in L.B. Foster Company. And I know speaking on behalf of Bill and myself, we're very much looking forward to talk to you in early November. Take care for now. Bye, bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.