L.B. Foster Company (FSTR) Earnings Call Transcript & Summary

Good day, and thank you for standing bye. Welcome to the L.B. Foster Investor Update. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Stephanie Listwak, Investor Relations Manager. The floor is yours.

Thank you, Armee. Good morning, everyone, and welcome to L.B. Foster's 2021 Investor Update Call on the recent sale of the Piling business. My name is Stephanie Listwak, the company's Investor Relations Manager. Our President and CEO, John Kasel; and our Chief Financial Officer, Bill Thalman, will be walking you through our investor update slides posted on our website earlier today. Jim Kempton, the company's Corporate Controller, is also joining us this morning. Today's slide presentation could 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 relating to our forward-looking statements, please see the disclosures in our presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within today's presentation carefully as you consider these metrics. So with that, let me turn the call over to John.

Thank you, Stephanie, and thank you to all for joining us today to discuss the sale of the L.B. Foster's Steel Piling business, which closed on September 24. I'm starting with -- on Slide 3 of the presentation material. As mentioned in our announcement, we are pleased with the results of this transaction, which is undertaken as part of a ongoing effort to improve shareholder value by allocating capital to businesses with better growth and profitable outlook. Our Piling Products business was a working capital-intensive business and represents its constraints on our ability to increase profit margins. We are confident that we can redeploy this capital in a way that will achieve better results and returns for the company, further strengthening our businesses in our portfolio that have more robust growth opportunities. Initially, the proceeds of this transaction were used to pay down the balance of our revolving credit facility. As you can see on Slide 4 of the presentation materials, the company has begun narrowing its investment focus in more profitable growth businesses. We are primarily targeting growth in the Rail Technologies and Precast Concrete Products areas. There are substantial opportunities in these markets to build on existing capabilities and drive greater scale. As transportation systems evolve and infrastructure is somewhat subject to increasing demands, for a environmentally sustainable solution, these businesses areas are expected to benefit the most, and therefore, will receive incremental capital to fuel enterprise growth. We will be covering our strategic focus in more depth in future calls, but this step towards calibrating our portfolio certainly aligns very well with that strategy. On Slide 5, you will note over the last several years, the adjusted EBITDA attributed to the Piling business has deteriorated despite a relatively consistent level of revenue. This is correlated to Nucor's aggressive participation in the market through its vertically integrated subsidiary, known as Skyline. This has led our Piling business operating at a competitive disadvantage as our Steel Piling Products has become more commoditized over that time frame. As reflected on Slide 6, deteriorating levels of profitability, coupled with the significant levels of working capital required by the Piling business model drove our returns on invested capital well below our targets for our businesses. The current level of steel prices, however, provides us with the opportunity to exit this business at an attractive valuation and extract capital that could be redeployed to our strategic growth priorities. I will now turn this over to Bill to give a summary of the financials of the sale. Bill?

Thanks, John, and good morning, everyone. The Piling division's recent financial performance is reflected on Slide #7. You'll note that while we began to experience improving sales volumes in recent quarters, gross and EBITDA margins remained at relatively weak levels, particularly in comparison to the working capital investment required to support the business. An overview of this transaction is also reflected on Slide #8. The total proceeds from the sale are expected to be approximately $24 million. The sales price premium above the book value of the assets sold is expected to result in a pretax gain of approximately $3 million. Available tax credit carry forwards should result in very little, if any, cash taxes associated with the divestiture. We sold substantially all of the steel piling inventory as well as the operating facilities associated with the business, including our Petersburg, Virginia yard. However, we retained all pre-closing accounts receivable and payables, which should further enhance the value of the divestiture transaction. In connection with the sale, we also entered into a 5-year non-compete agreement with the buyer, which prohibits us from engaging in piling related business activities in certain defined regions, including North America. The Piling division EBITDA, adjusted for corporate allocations, was approximately $3.1 million for the trailing 12 months through June 30. Accordingly, the $24 million in expected proceeds implies a valuation multiple of approximately 8x, which is attractive for a business that had been commoditized over the years. Thank you for your attention, and I'll turn it back over to John for his closing remarks.

Thanks, Bill. I will close with Slide 9. The sale of our Steel Piling division resulted from our strategic portfolio review, which include identification of both growth and returns businesses. We believe that exiting the piling business at this point will provide additional capital that we can deploy over time in our core growth platforms to maximize shareholder return via the realization of higher overall returns on invested capital. As I mentioned earlier, we are pleased with the results of this transaction and we'll be discussing our strategic plan in more detail in our up and coming Q3 earnings call. Before we take questions, I'd like to thank the team that made this happen with a special shout out to Bill Treacy, James Kempton, Patrick Guinee and Alex DelVecchio. Thank you again for your time, and I'll turn it back to Armee, our operator.

[Operator Instructions] Our first question comes from the line of Brett Kearney of Gabelli.

It sounds like -- well, you provided some good detail in the presentation deck and this morning on the call, and it sounds like it's more details to come, but wondering if you could just talk about the evolution internally of this strategic review and kind of framework you all are operating in going forward? And some I guess, considerations as you all evaluate the rest of the portfolio going forward in future periods?

Sure. Thanks, Brett. John Kasel here again. And thanks for the question, and thanks for your participation today. We are going to cover that in much more detail after the Q3 results. But as we show in the presentation material, we do have a strategic portfolio review, which is ongoing activity that we do in the company. We have been really focused on what is the growth businesses and the returns businesses. And obviously, when you look at the Piling business today and our discussion, that falls in the latter of the two. But as far as today, that's really all I want to share with you, except for -- we will be coming out with much more details later into Q3. But more, probably, is going to be really what we want to do and where we want to continue to grow in the rail technology space as well as the precast concrete space. So look -- you can look forward to that.

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the conference back to John Kasel.

Thank you, Armee, and thanks again for everybody's time and attention today on this important matter, and we look forward to connecting with you on November 2 with the Q3 earnings release. So have a great day and a great week. Thank you very much. RECONNECT RECONNECT RECONNECT