L.B. Foster Company
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the L.B. Foster Fourth Quarter 2020 Earnings Conference Call. . I would now like to hand the conference to your speaker today, Bob Bauer. Please go ahead, sir.

[Robert Bauer:]

Well, welcome, everyone. I wanted to start off today's call with an introduction before we get into some of the commentary that we're going to make for the day. I wanted to welcome Bill Thalman, who's with us today. Bill is our new Chief Financial Officer. You may have seen in the press release that we released in the last couple of weeks appointing Bill to that position. We're really glad he's here. He just started with us, and he's anxious to get up to speed and meet investors and others in the investment community. He brings a wealth of experience from a publicly traded industrial company that's specialized in materials and products for metal cutting applications, abrasives and a number of other industrial products. And he's had a number of assignments in finance and operations. And that background is really going to be helpful to us, and we're really excited about the fact that we finally have got him on board here. So he's joining us for the call for the first time.

[James Kempton:]

Thanks, Bob. Today's slide presentation, along with our earnings release and financial disclosures, were posted on our website earlier today and can be accessed on our Investor Relations page at lbfoster.com. Some statements we are making are forward-looking and represent our current view of our markets and business today, including comments related to COVID-19. 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 related 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. Before I start to review the results, I would like to briefly touch on a few items related to this evening's presentation. First, similar to the third quarter earnings call, we have presented the IOS Test and Inspection Services business, which we sold in early September, as a discontinued operation in the financial statements, including within the earnings release and presentation, and have recast prior periods to reflect this change. My comments today will be focused on our results from continuing operations. Also, as you may have seen in our press release and 8-K on February 16, in the fourth quarter of 2020, we realigned our operating segments to more effectively and efficiently provide solutions to the infrastructure markets that the company serves. The Rail Technologies and Services segment, consisting of businesses previously reported in the former Rail Products and Services segment, reflects our current focus on serving transit and freight railway operators and related infrastructure. The former Construction Products segment and former Tubular and Energy segment were realigned into the Infrastructure Solutions segment as these businesses collectively provide a variety of products and services for infrastructure markets to support the efficient transportation of people, goods and commodities for general civil works, primarily in the United States. Bob will be discussing this reorganization in more detail in his comments, and we'll be presenting the results based on this revised operating structure in this evening's presentation.

[Robert Bauer:]

Thanks, Jim. I wanted to start by pointing out that we've put a lot of information in the exhibits we furnished with the press release to help investors understand how our business has been uniquely affected by the environment over the last few quarters. Unlike most challenging environments, this year was incredibly unique in that certain areas of our businesses were impacted more significantly than others. There have been pockets of resiliency. We have a strong backlog, up significantly in some areas, although some of the increase is due to pandemic-related issues that have delayed converting the backlog into sales revenue. We have to take significant actions this year in businesses that serve energy customers, including exiting the upstream Test and Inspection Services business, which, in our view, had no path to acceptable returns. The severe decline in travel earlier this year and the subsequent impact it had on the energy sector was well documented. However, it's a bit more challenging to predict exactly how the various transportation modes will recover. During 2020, our primary concerns centered around the severe decline in transit rail ridership as well as declining freight rail traffic volume, which was more short-lived. As the year came to a close, it turns out both rail sectors have been among the more resilient areas as projects kept moving forward all the way through the fourth quarter, with the exception of certain on-site service work and weakness in solutions that are coupled to traffic volume.

[Operator:]

. Our first question will come from the line of Alex Rygiel from B. Riley.

[Alexander Rygiel:]

A couple of quick questions. Really liked your comment with regards to the business being resilient versus recovering. Your commentary about sort of the outlook over the next couple of quarters is interesting in that it's suggesting a recovery. But I'm kind of wondering, is the pickup in activity more sort of a function of success in building your backlog during sort of a challenging period? Or is it truly the anticipation of a stronger tailwind coming to drive that business in the second half of the year?

[Robert Bauer:]

Yes. Alex, this is Bob. I'm glad to have you with us today. I'd say it's more of the latter. The fact that certain parts of our business have been resilient. I mean part of the message with that is that they haven't really gotten that soft through this period of time. And when you look at the portions that actually improved over the course of the four quarters of 2020, we already saw an improving environment, at least from that low point around the first and second quarter. But they're not - they're still not as quite as strong as they could be because we still have service work, we didn't complete in the Rail segment. We still have sales of consumable products and other projects for friction management equipment that didn't go through. And even some of our new technology-based products, they were off to a bit of a slow start in 2020 because we just couldn't get access to customers through the year. So some of those things held back, I think, the opportunities that we had in 2020. And so from that standpoint, I look at 2021, and I think it's going to be better. I think that we'll also be able to execute on other programs we have underway like growth projects in our Precast Concrete business, which has been one of the more exciting areas where we've introduced new products and stepped into new markets. And again, it just feels like it comes at a time where it's just tougher to get some of these orders to ship. So this backlog is at a point where we're confident that we've got backlog that we're going to ship in 2021. I'm going to be anxious to see what it looks like in the second half of the year. But that will give us a tailwind, having that elevated backlog. And I think we're also going to get one from just an improving environment with which we can execute under.

[Alexander Rygiel:]

Very helpful. And then clearly, the Congress is working on the American Rescue Plan right now, the $1.9 trillion sort of COVID relief plan. Can you discuss any opportunities that you might see in that, that could help your end markets? As well, maybe draw a little bit of comparison to the proposed $2 trillion to $3 trillion infrastructure bill that might get discussed in Washington and how that could impact your business relative to maybe past infrastructure bills of 5 to 10 years ago.

[Robert Bauer:]

Yes. Let me start with the latter part of that because one of the things that we typically comment on is that whenever there is an infrastructure bill passed, we get an uplift from that. And the time that it was passed back after the financial crisis in the kind of the 2010, 2011 time period, we saw an increase across a number of our different businesses as transportation projects got funding, but also funding also went to what they called shovel-ready projects at the time and even other longer-term projects. Our Precast Concrete business saw a benefit from it. We saw benefit in some other construction areas. So anytime something like that goes through, our exposure to transportation and to general infrastructure is usually going to get some benefit. Now when you scale that back to where you started with that question on what's going to come out of this $1.9 trillion spending package, I think we're a little bit less certain on that, but I can say that I know that there is transit rail funding in it. In fact, I saw highlights, for example, on how much is going to BART in San Francisco. That was, I think, one of the debates. So I think the transit rail agencies are going to get money. That's probably the most notable area that, that package will help us with. But as money flows to states, states are going to be in a better position to also work on other projects, whether those are highway and bridge projects or other kinds of just general infrastructure where we might even see some business, again, flow to our Precast Concrete business.

[Operator:]

Our next question will come from Chris Sakai from Singular Research.

[Joichi Sakai:]

Bob, just I got a question on the London Crossrail project in the fourth quarter. I wanted to see your thoughts there, how it's progressing. And was it seeing - is it seeing similar COVID disruption as it saw in Q3?

[Robert Bauer:]

I think that's probably a pretty fair statement to say similar disruption in the fourth quarter as the third quarter. We are operating well below the manpower that we had on that project prior to the pandemic emerging. So we have scaled back our headcount in our London-based services operation that is on that project. It does mean that some of this backlog we're carrying on cross - is partly attributable to Crossrail, and it's moving into 2021. So we're going to have more work on the Crossrail project in 2021 than we originally thought we would have. So on one hand, that's good. And we are currently projecting that based on the news coming out of the U.K. right now that somewhere in this, I'm going to call it, second quarter sort of mid- to late second quarter, they're really expected to allow for a lot more movement of people. But we still are operating. We're still an essential business in the U.K. We still have people on that site. We're just running at a level that I would call about half of the workforce that we would normally be operating at otherwise.

[Joichi Sakai:]

Okay. Great. And then as far as Precast Concrete goes, what - as we go into 2021, what are some of the drivers there that are going to increase orders and your backlog?

[Robert Bauer:]

Well, I'll start with the fact that we are launching some new products. We continue to step into new products in our Precast Concrete business every quarter. And most of those products are products outside of our Precast Concrete buildings. So these are products that are going into general infrastructure applications. We moved our Spokane facility to Boise, Idaho, as we talked about last year. But we also acquired a small precaster in that area that is bringing us new products into that market that we otherwise wouldn't have had for that particular marketplace. So we expect to see some market share gains and access to customers in that area that we wouldn't have had access to. Another example of this is we stepped into the market segment for septic tanks. Well, probably about two years ago now we probably got into that, mainly in the Texas region, where there was a lot of growth in that area. These are tanks that are going both into commercial and residential applications. And we're now opening another satellite operation down in the Houston area as we speak. We're putting an organization together in that area. There will be a satellite operation from our Hillsboro, Texas facility that will now access another new market. So you got a combination of new products, new regional markets that we're stepping into, and in some cases, a hybrid of the 2 that is allowing us to expand our served market and step into product lines we haven't been in before.

[James Kempton:]

I think the other thing to mention, too, Bob, is there's the potential for the Great American Outdoors Act to be a potential catalyst for that business as well. So that's another thing that we're looking to see how those funds get deployed and how that might assist the Precast Concrete business.

[Robert Bauer:]

Yes. Jim is speaking about it. If you haven't heard about that, he's speaking about a bill that was passed that allocated $5 billion to national parks in that Great American Outdoors Act. And a lot of that could go towards our Precast Concrete buildings that are in many of those parks. So yes, that's another good point. Thanks, Jim.

[Joichi Sakai:]

Okay. Great. And just, I mean, one thing you mentioned, your business in Texas, due to any of the recent weather-related issues, have you experienced any business delays there?

[Robert Bauer:]

We have experienced some delays there in - 2 weeks ago when weather was at its worst point. We're in the process of catching up, and we don't expect any material impact from it this quarter.

[Operator:]

Our next question will come from John Bair from Ascend Wealth Advisors.

[John Bair:]

Given the headwinds you have in the midstream business, Coatings and Measurement, wondering whether you're giving any consideration to selling that entity off, and particularly given the - I'll use a strong term here, the hatred this administration has towards the hydrocarbon business delays and obviously the first executive order being to cancel the Keystone pipeline. I'm just wondering if you're thinking about difficulty in general about additional pipelines being built or whether or not you have the opportunity for retrofits as that particular infrastructure is pretty extensive and old. And I'm sure there's plenty of sections and so forth that need to be revamped. So could you kind of share your thoughts on that general concept?

[Robert Bauer:]

Yes, sure, John. Well, I'll start by saying that I'm not going to make any announcement here on today's phone call about some different direction that we're going to go in with those businesses. I will say before I comment on the future of it, along the lines of where some of your color was going, that we do have two businesses where we have some great core competencies in coatings that provide corrosion protection and in measurement systems that we're also currently looking into in terms of ways that we can diversify in those businesses into other markets. Other markets would be gas applications in addition to liquids, and there could be applications in water. We've actually already seen our first order in a water market application. So there's some core competencies there that we think we can build off of to access some additional markets we're not serving today. Other than that - yes.

[John Bair:]

I was going to say, the water order, is that a fresh water or saltwater? Because that kind of triggered a thought here with this big push towards offshore wind turbine, wind farms and so forth. It's a corrosive environment, obviously, being in the saltwater. And just wondering if that could be a diversification area for you and if you've kind of been looking at that as well.

[Robert Bauer:]

Yes, yes. It's not saltwater as an offshore applications or desalination-type applications. Our - the first place that we're looking is just in fresh and wastewater. It's in the domestic area. But we get most of our business from capital projects. We don't get a lot from retrofits, at least in our Protective Coatings business. There will be some more opportunities for retrofits and replacing old equipment when it comes to measurement systems because those are systems that, from time to time, we'll see more replacement than replacement of a pipeline. But I guess maybe just to summarize for your thoughts on that question, I mean we think about these things as we look at the company strategy on a continual basis. We understand the fact that there is, on a long-term basis, and I mean long, that hydrocarbon-based fuels and energy may find its way into a less favorable environment. And there'll be more renewables and other sources of energy that are used. This is a small part of the company at this point. So I think we're going to look for the opportunities where we can diversify. We're going to make the best out of businesses that have nice cash flow when they're operating at a good point in the market. And I'll refrain from speculating where we'll be with it 3, 5 or 10 years from now.

[John Bair:]

Okay. Okay. Very good. I don't think hydrocarbons are going away anytime soon despite what a lot of people think or would like to think.

[Robert Bauer:]

Yes, we agree with you. It's going to be - that's a long journey.

[Operator:]

. Our next question comes from the line of Brett Kearney from Gabelli Funds.

[Brett Kearney:]

I wanted to ask about the Bridge business. It sounds like that's one that continues to stand out as continuing to perform well. Is that one you would put into the category of a lot of funding was secured pre-pandemic and projects continue to move forward? Or how are you thinking about the outlook for that business, I guess, given your existing backlog and what you're seeing from kind of customers, municipalities in that market?

[Robert Bauer:]

Yes. Well, yes, you're right about the fact that, that backlog was climbing going into the year. We had already had a plan for 2021 that was based off of a pretty strong order activity before the year started. And the pandemic really hasn't caused any disruption in that business other than early on in the year when we were running a little bit slower and had some problems with deliveries to sites. But we caught up mostly with that during 2020. And the outlook for this year is good. It's got one of the strongest backlogs that we've had, and we're just seeing what we've described over the years with this business. There are times when the big projects come, and it's just based on funding that emerges based on the condition of these bridges, well suited for the kinds of approach that we used to put new decking in place. So it's going to be a good year for that business, and it's carrying a fair amount of the backlog that we have for that fabricated steel part of our Infrastructure segment.

[Brett Kearney:]

And I guess we're ways away from this, but if we were to get a federal infrastructure bill, and bridges was - that's been called out by the American Society of Civil Engineers as needing significant investments, I guess, given your backlog and kind of the duration that the work entails, do you anticipate you have a good amount of capacity as we think about the sequencing if a federal infrastructure bill that were to come to pass include meaningful bridge funding?

[Robert Bauer:]

Yes. I think we'd be fine with that. I think if it wanted bridge decking, we're operating in our current bridge decking plant, which actually has 2 facilities, one of which is only partially utilized where we make forms for a variety of different bridge construction. But the bridge decking is in one primary facility where we have shift capacity that we could add. So as long as we can find labor, and we typically are successful at that, we would be able to expand capacity. And we also provide sometimes concrete bridge beams for some of this work as well. So our concrete business will occasionally benefit from some of this in terms of making concrete bridge beams. So yes, I would not be too concerned. I haven't seen this market provide an uplift where we have run out of capacity in the past. I'd be delighted if we have that problem.

[Operator:]

. And currently, I'm not showing any questions at this time. I'd like to turn the call back over to Bob for any final closing remarks.

[Robert Bauer:]

All right. Well, thank you, everyone, for joining us today. We appreciate you spending time with us, and we look forward to talking with you around the end of April when we wrap up the first quarter. So thanks again for joining us.

[Operator:]

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