Greetings, and welcome to the L.B. Foster's Fourth Quarter 2018 Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions]. Please note this conference is being recorded. I would now like to turn the conference over to, Judy Balog, Investor Relations Manager. Thank you, you may begin.

Thank you. Good morning, ladies and gentlemen. Thank you for joining us for L.B. Foster Company's earnings conference call to review the company's fourth quarter and full year 2018 operating results. My name is Judy Balog, and I'm the Investor Relations Manager of L.B. Foster. Hosting the call today is Mr. Robert Bauer, L.B. Foster's President and CEO. Also on the call is, Mr. James Maloney, L.B. Foster's CFO and Treasurer. In addition to our press release, we have a fourth quarter presentation on our Website under the Investor Relation's tab for those who have online access. This morning, Bob will discuss UP settlement that was announced last week. Afterwards, Jim will review the company's fourth quarter financial results. Bob will then review the company’s fourth quarter performance and provide an update on significant business issues and market developments. We will then open the session for questions. During today's call, our commentary and responses to your questions may contain forward-looking statements, including items such as the company's outlook for our businesses and markets, cash flows, margins, operating costs, capital expenditures and other key business metrics, issues and projections. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from statements we make 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 through these statements in light of new information, except as required by securities laws. All participants are encouraged to refer to L.B. Foster's Annual Report on Form 10-K for the year ended December 31, 2017, as updated by subsequent items filed with the Securities and Exchange Commission for additional information regarding risk factors that may affect our results. In addition to…

Thank you, Judy. As Judy mentioned before we begin discussing the fourth quarter and full year results, I will address the recent announcement around the resolution of litigation with Union Pacific Railroad. Last Thursday, March 14th, the company announced that we have reached the settlement with Union Pacific on litigation they filed in 2015 for warranty claims related to concrete ties manufactured at our Grand Island, Nebraska facility. The brief history behind the lawsuit begins with L. B. Foster furnishing approximately 3.2 million ties from our Grand Island, Nebraska facility to Union Pacific between the years of 1998 and 2011. In 2011, Union Pacific claimed it was entitled to replacement of concrete ties get claimed or cracking and failing prematurely. L. B. Foster identified manufacturing conditions, largely related to the 2006 to 2007 period, which could shorten the life of ties produced in that timeframe. The parties entered into an agreement in 2012 to identify tiles eligible for warranty replacement and create a process for managing the replacement of defective ties. As claims were submitted following this agreement, L. B. Foster provided ties to the Union Pacific but also disputed several of the claims in the number of ties eligible for warranty replacement. This was followed by a complaint Union Pacific filed in 2015, alleging that ties were cracking due to manufacturing workmanship or defect and saw damages for the value of unfulfilled warranty ties and ties it had claimed would become warranty eligible, cost for replacement ties and other damages. L.B. Foster denied liability, asserted that Union Pacific's conduct was wrongful and asserted defenses and counterclaims for damages. And this has all been a matter of public record. Turning now to the settlement agreement. We announced last week, on March 14th, the material terms of the settlement agreement on…

Thank you, Bob. The company has filed a Form 8-K on March 14th, along with a press release highlighting the financial impact of the settlements with Union Pacific. As settlement negotiations progressed after year-end, we monitored the progress allowing for as much time as possible for reporting fourth quarter and full year 2018 results to comply with requirements of reporting subsequent events if an agreement were reached. Based on reaching a conclusion to the settlement last week, we determined that the company should report the impact in our fourth quarter and full year results for 2018. We are filing our 2018 Form 10-K today, among other exhibits that will furnish details, reflecting operating results with and without the settlement charge. The company has taken $43 million non-cash charge in the fourth quarter, taking into consideration the existing $7 million reserve to establish $50 million liability for future cash payments in 2019 through 2024. For the purpose of helping you understand the underlying business performance, many of our comments today will be based on results, excluding the charge where the non-cash charge has an impact, I will point those out. As a result, I will often refer to adjusted EBITDA or other adjusted results, which do not include the $43 million charge. On that basis, I will begin my remarks. Net sales for the 2018 fourth quarter were $165 million compared to $141 million in the prior year quarter, an increase of $23 million or 16.4%. The 16.4% fourth quarter sales increase was due to improvement across all three segments, led by an 18.7% increase in our Rail Products and Services segment, our Construction Products segment, increasing by 15.3% and Tubular and Energy Services segment increasing by 13.1%. The rail sales improvement of $13 million or 18.7% was led by our…

Thanks, Jim. I'm going to handle my fourth quarter and full year comments mix together as I go through both my business climate discussion, as well as the operating performance discussion. Our results from fourth quarter without the settlement were very encouraging as the strength in our orders and sales followed the growth trend reported in the prior three quarters. Our new order activity was strong all year, finishing the fourth quarter with 20% order growth over prior year was a signal to us that infrastructure investments continues to move forward. Fourth quarter sales exceeded orders as they typically do and our year-end backlog of $220 million, which ended up 32% over prior year is very strong. The increase was driven by our rail business segment, which is up 42% and the construction segment, up 34%. The rail segment finished the fourth quarter with both orders and backlog increasing 42%. Transit projects continue to remain strong and capitals spending across the freight rail market in the U.S. continued to grow. Price increases had a favorable impact on fourth quarter and full year sales growth, the majority of which came from our new rail division serving the transit and Class II freight operators. On a full-year basis, rail segment sales increased 25%. Included in this increase is approximately $15 million in-price solely from our new rail division. That's equivalent to 6% of the full year sales growth attributed to price. Keep in mind that 100% of price increases do not fall to the bottom line as our input costs are rising at the same time in our distribution businesses. We did however benefit from rising prices in new rail sales, which helped offset rising input costs in other areas. Sales growth in Europe was incredibly strong this year as volume for…

[Operator Instructions] Our first question is from Chris Van Horn with Riley FBR. Please proceed.

So on the litigation, it sounds like obviously UP is coming back as a customer approximately about $8 million a year. I was wondering I think prior to the litigation the customers UP was obviously it was a little bit bigger than $8 million a year. And I’m just curious if you see growth opportunities for them as you look out.

First keep in mind, Chris, that in the time period you’re talking about, we were selling a substantial amount of concrete ties. So one of the things that wasn't specifically mentioned in our press release is that we are not an approved supplier for concrete ties as part of the restoration of our commercial relationship. So the products and services that do apply our other products and services that we sell. So it's difficult to make a comparison, and I wouldn't suggest anyone make a comparison at this point to what we were doing previously, which is now more than three years ago. But there may be opportunities for us to expand that business. I wouldn't think about that in the near term but it may be possible for us if you're looking out the past two years, particularly since I would expect us to be launching new products in those time frames as well.

And if I heard you correctly, it sounds like the liability, your cash from operations can more than fund that, so you don’t need to access additional lines of credit, or anything like that in terms of funding that liability going forward?

As we were talking about, Chris, this is Jim. We’re currently negotiating to extend our credit facility past 2020, and we currently have no plans on that increasing that availability due to the settlements.

Could you give us any -- I know you don’t issue formal guidance, but any directional projections on how to think about the segments or margins for 2018?

You are going to stay clear of specific guidance. But I would tell you there is a couple of things that you could think, I guess right off of that. For starters, margin improvement is among our top priorities. But I would expect that there would be more SG&A reduction due to the lower legal expense. So if you think about SG&A as a percent of sales, I would anticipate that that would continue to improve over 2018. Gross profit margin improvement in our construction business is what really suffered in 2018. We are already seeing the piling business improve if we see some better customer mix, particularly from industrial pipeline customers. We had a fair amount of that in 2017 I think that business can improving gross margins. But one of the areas we're really need to get improvement from is bridge decking, that’s the area that has really weighed on our construction segment. But we hit the bottom on grid decking backlog in the third quarter. So we're already seeing that tick up. And there are projects in the pipeline, if we can secure those projects that should get that margin up. And we did suffer a little bit precast concrete. We already have those issues resolved. Those were some manufacturing complications there. So I think as long as our energy business stays strong and we're always working on some continuous improvement actions, I would expect coupled with these other things that we can get improvements in both gross margins and EBITDA margins.

Can you comment on the friction control business? I know there has been some rails who have been outsourcing back to you all and you've seen some solid demand for friction control. I’m just curious an update on the market opportunity there?

In terms of outsourcing to us what you should really think of that the fact that they are turning some on track services over to us. So our business model in the past was almost entirely selling product in consumables that go along with that, the actual friction modifiers or lubricants themselves. And we did not do much on track services. We are now doing more on track services that include everything from furnishing some of the actual equipment to managing the consumables that are in Wayside tanks. So we're out there with trucks that are checking them, refilling them. We have software systems that are connected to those tanks that will tell us if we're running out of some of the consumable. And some of the business models even include uptime contracts for certain customers who want to make sure that there is the right amount of friction modifier of lubricants on their track at all times. And we're managing to those types of contracts. So it is one of the faster growing areas for us right now, and we believe that through that we're providing a greater amount of value to customers by managing some of those on track services where they are unable to do that work.

And then on the order growth, obviously, continues to be very strong, especially in rail. Could you highlight what part the overall market improving versus your ability to take share and any dynamics within is each of those?

Well, first and foremost, transit rail projects were really strong this year. I think we were winning at least our fair share of projects in the transit space, I'll say globally. Certainly, in North America, it was really strong. All the agencies -- just about all of the agencies had expansion projects out there. But we're really growing in Europe in that area. And so one of the areas where we're picking up share services related to the integration of transit systems, both the systems we work with as well as signaling systems. We're doing some of that immigration for London underground. And that is big and one of the most significant growth areas in 2018. We now have hundreds of service peoples that are involved in those projects in that part of the world. And I believe we are doing pretty good in the freight rail business. I don't know that I would point to anything extraordinary from the standpoint of share gain as much as the fact that the freight rail market in North America has been pretty healthy and continues to look like it will be pretty healthy.

And then the leverage ratio, you've proven you can pay down debt. And it seems like you have that in your capital deployment priorities. I’m just curious do you have like a target leverage ratio that you're aiming for? Or is it can as we move throughout the year or the next two years you'll utilize cash flow as you see fit?

I would say that we called being below 2 is where we want to be. We do plan on continuing to pay down debt. But when we see opportunities to invest in we have the ability now to do that and we will take full advantage of that.

I think the only thing I would add to that Chris is that I believe the only thing that could take us up above that assuming business conditions of course remain solid. We have a positive outlook on that right now is that if we were to come across an acquisition, because if you look at our operating cash flow and what we can do in terms of deploying capital. While we believe we will take up the forecast for CapEx in 2018 I mean that -- since we don't see that as that significant, we still wouldn't be able to pay down debt unless we have an acquisition.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to management for closing remarks.

Okay, well thank you very much. We appreciate everyone's attending and I would just add close by saying that next quarter we will probably have our call at the more normal time following the close of the quarter as opposed to as late as we were this quarter. So look forward to that announcement. Thank you and good bye.

Thank you. This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.