Greetings. Welcome to L.B. Foster Company Third Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Judith Balog, Investor Relations Manager. Ms. Balog you may begin.

Thank you. Good evening, ladies and gentlemen. Thank you for joining us for L.B. Foster Company's earnings conference call to review the company's third quarter 2019 operating results, and 2019 fourth quarter and full year outlook. My name is Judy Balog and I am 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 Chief Financial Officer. In addition to our press release, we have a third quarter presentation on our website under the Investor Relations tab for those who have online access. This evening, Jim will review the company's third quarter and year-to-date financial results and discuss fourth quarter and full year outlook. Afterward, Bob will review the company's third quarter and year-to-date 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 to 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, 2018 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 the results provided in accordance with the United States, generally accepted accounting principles, our commentary includes non-GAAP earnings before interest, tax, depreciation and amortization or EBITDA statements. Non-GAAP adjusted EBITDA and non-GAAP net debt. A reconciliation of net income to non-GAAP EBITDA and adjusted EBITDA and a reconciliation of total debt to net debt have been included within the company's 8-K filing. Statements referring to EBITDA, adjusted EBITDA and net debt are considered non-GAAP measures and while they are not intended to replace the presentation of our financial results in accordance with GAAP the company believes that the presentation of these measures provides additional meaningful information for investors to facilitate the comparison of past, present and forecasted operating results. Our accompanying earnings presentation reconciles these non-GAAP measures to the corresponding GAAP measure. With that, we will commence our financial review discussion. And I'll turn it over to Jim.

Thank you, Judy. Thank you all for joining us today. I'm going to cover the third quarter and year-to-date financials along with providing a fourth quarter and full year outlook. I'd like to begin my discussion with net sales. The third quarter 2019 net sales declined from the second quarter to $154 million compared to $167 million in the prior year. Year-to-date, net sales were $506 million compared to $462 million, an increase of $43 million or 9.4%. Starting with the Construction segment, sales increased from the prior year quarter by $6 million or 13.6%. The increase was supported by each division within the segment with Piling Products increasing 3.6%, Fabricated Bridge increasing 17.8% and Precast Concrete Products with an increase of 25.4%. Year-to-date sales increased $27 million or 24.2%, with Piling Products increasing 26.8%, Fabricated Bridge increasing 23.3% and Precast Concrete Products increasing 21.4%. The increase was driven by the strong backlog as we entered into 2019. In the Rail segment, sales decreased by $17 million or 19.8% from the prior year quarter. The decline in sales was driven by the timing of transit projects in the Crossrail volume. For the first nine months of 2019, the Rail segment sales increased $6 million or 2.6%. Our year-to-date Rail products business saw a sales increase of 9.9%, mainly due to demand for new rail and insulated joint products and also expanding transit projects. Our year-to-date Rail technology sales partially offset the segment increase with a 7.6% decline in sales. This decline was primarily due to European transit market as activity levels on the Crossrail began to decline as we approach the completion of that project. The Tubular and Energy Services sales decreased $2 million or 4.1% in the third quarter when compared to the prior year quarter, due to weakness…

Thank you Jim and hello everyone. This is a challenging quarter to explain all the moving parts which is why Jim covered both third quarter and year-to-date results in more detail this time. As we felt it was necessary to help you understand our current performance. This quarter is a good example of our business can fluctuate from one quarter to the next and why our focus is always more on how the year is progressing. We're continuing to have a good year and the nine-month year-to-date results are very favorable to prior year, despite the fact that we expected third quarter sales and profit to be above what we've reported. Last quarter, I discussed the second half outlook, which was expected to reflect typical seasonality trends including declining sales and backlog through the end of the year. As order patterns changed with timing of key projects and some pockets of weakness emerged, we're now expecting fourth quarter sales to exceed the third quarter. More importantly, we're now expecting fourth quarter operating profit to exceed third quarter operating profit. This is partly driven by the fact that our third quarter pretax profit included a number of expenses that are not expected to repeat in the fourth quarter. I'm going to cover more on the fourth quarter outlook later. Our year-to-date performance beginning with the sales increase of 9.4% has put us in a position to have a good year. This is in part due to the success we've been having for the past year that drove record-level backlog to begin the year. As the year progressed, we have experienced slowing demand in a few markets and the shift of projects outward in the later periods. This has led the third quarter sales to decline by 7.7%, while still achieving year-to-date…

At this time, we’ll be conducting a question-and-answer session [Operator Instructions] Our first question is from Chris Van Horn, FBR, FBR. Please proceed with your question.

Good afternoon. Thanks for taking my call.

Thank you, Chris.

I just wanted to start with a gross profit and make sure I heard you correctly. It sounds like there were some one-time items exceeding $1.2 million. So if you adjust for those one-time items, we have a gross profit that's more in the 18% level. And I just want to confirm that that's the right way to think about it?

That is the message we were trying to send. We didn't actually want to restate it ourselves since we don't want to restate numbers too much in this. But essentially, yes, there were $1.2 million of extraordinary items that we don't expect to recur.

Okay. Got it. And then if I look at -- I look out heading through this quarter and into 2020 well majority of your margin opportunity come from your product mix. Do you see it coming from a higher volume? Combination of both?

You're asking with regard to 2020 volume?

Just in regard to margin expansion opportunities, do you see the opportunity for margins to move higher based on your product mix or an overall increase in volumes or a combination of both? Is there any other factors that we should think about?

Well, I don't think at this point in time, we'd probably forecast that there would be significant expansion due to product mix. That one you can probably I’d say rule out. When that does happen what is usually occurring is that our new rail and our piling shipments are changing, because those two businesses with their distribution models have the gross margins well below the company average, but I wouldn't forecast something for those two product lines that are significantly different from the rest of the business. So I don't think it's going to be a mix issue. It will -- so we're not forecasting at this point in time what the coming quarters are going to look like, but margin expansion opportunities, which is where I think you're coming from they're going to be more related to volume and cost reductions than they would be mix.

Perfect. Exactly what I was asking. Okay. And so could you give us a sense -- I think you mentioned you have $190 million in backlog, is there a difference in timing based on the projects that are in there? I mean, there probably is a difference in timing, but could you get into a little bit detail of is there a broad difference in timing of some of the awards in backlog and any sort of sense of how those might roll out?

Yeah. I wouldn't describe the timing to be substantially different from the timing profile that we had when our backlog was kind of at a peak level this time last year when it was at $250 million. We always have orders in Protective Coatings part of our business, they go to pipeline construction, and that backlog some orders can run for a year. That's probably the one that is the longest when you take a look at our backlog. Some of the measurement systems that we have, those could be backlog that could run out six to eight months. But most -- everything else we have particularly in the Rail segment and in the construction area, other than that Port Everglades project, which was a $28 million piling project and took us a year to complete most of the timing for the rest of the business in those two segments and the profile of that hasn't really changed compared to the way it normally looks.

Okay, got it. And if I look at your $155 million to $170 million guidance, thank you for offering that. If I look at that range, it sounds like the puts and takes between $155 million and $170 million, it could be due to a variety of reasons whether it's timing, whether it's -- it could be -- I think you mentioned a little bit of weather possibilities. Is there anything else to think about of the difference between the $155 million and $170 million?

That's largely on the low end and a bit of our conservative side would be the weakness in the energy market. That's probably the market that has us most concerned from a weakness standpoint. And that's not one of our most sizable businesses but it's the area that from a market standpoint would have the most risk with weather traditionally that will affect our Precast Concrete buildings. And that's usually significant shipments as we go into the end of the year. Sometimes there are some rail projects that get affected by it, but that is -- that's largely I think where the risk normally comes from, we can't really point to much else.

Okay. And then last for me from looking at your end markets and your product lines, competitive landscape seems pretty limited depending on what you're looking at. But have you seen a rise in a -- from a competitive standpoint when booking these orders? Or is it the way it's been over the past year?

Yeah. I don't think there's been a rise. We compete in very competitive markets. I can't point to any real new competitors. Part of what you may be probing at is that sometimes when markets get a little bit weak, people tend to fight a little bit harder for what business there is out there. I can't say that I can give you any examples along those lines either. When contracts come up for bid particularly in our Rail segment, which has a number of multiyear contracts that we have on our product lines, there's always a fair amount of competitive tension at that time. But again I don't think I could describe it as any more intense right now than I would have described it one or two years ago. So I think the environment pretty much is similar to what we've had in the past and we've got enough competitors in every segment we compete in. So think of it as very similar to what we've had in the past.

Okay, great. Thank you so much for the time.

Yeah. Thank you.

[Operator Instructions] Our next question is from Brett Kearney, Gabelli Funds. Please proceed with your question.

Hi, guys thanks for taking my questions.

Yeah. Thank you, Brett.

Just wanted to ask if you could provide, I guess anymore qualitative color, what you're hearing transit business -- I'm sorry the Rail business side. I guess both latest indications as some of your customers on the freight rail side are looking into 2020, I guess taking into consideration some of the volumes on carloads that you referenced. And then on the transit of rail side as well. It sounds like at this point you alluded to municipalities securing funding. I guess, just any color, you could provide on what you're hearing seeing there, activity levels and the funnel projects you're tracking on the transit side as well?

Yeah. I'll start with the freight piece. That's a difficult one to answer today. We all know a little bit more around the January time frame, which is a time when the U.S. freight rail carriers typically release projects that they wind up telling the market about at certain conferences that we participate in with them. They don't actually always project dollars of spend but they give us directionally where it looks like it's going to go and they talk about certain specific programs that are going to be funded. So it's difficult for me to project right now, how you'll see the volume for 2020 in comparison to 2019 for both the maintenance and the capital side of what we participate in. And as I said a little while back that's about 40% of our rail volume. So it's important to us, it's not the majority of what we do. But transit is an equal side or about an equal amount. It's a little bit more than 40% as well and then industrial and other applications is the balance. So transit has been a really strong area for us. In the last 12 to 18 months, we booked a number of projects, backlog increased substantially, as we exited 2018 and into 2019. So we had quite a few projects in the pipeline, and we found the period here more recently where some of the new ones haven't yet been started, so that's one of the significant impacts on our order bookings, but our outlook for transit has not really changed. We think the market for transit in North America and in Europe, where we participate are going to continue to be good long-term markets to compete in. There will be projects that move around over the course of 2020. And there again, I can't give you directionally where we think that's going to go exactly. One of the areas we're keeping our eye on that is somewhat unpredictable will be the spending in the U.K. and whether or not the issues that they're wrestling with in the U.K. and their economy, how that might affect network rail, investments next year. But we do know for sure that we will see some volume decline in the London Crossrail project and we're eagerly working on things in the across the whole U.K. to try to replace that volume. So that will be one of our headwinds, but I do think that we might see some more volume out of U.K.'s network rail. But I think we have to get past Brexit and a few other things going on to really know whether or not that's going to be a good year.

Okay. Terrific. Thank you. That's very helpful. Just one other follow-up. Appreciate the outlook the guidance you provided on the quarter remainder of the year. Is that just a function of, I guess some of the orders that I guess kind of got pushed out and you've gotten thus far in October? Or do you kind of intent to provide either quarterly or annual kind of outlook on a continuing basis going forward?

Yeah. Right now, we're not planning to provide it on a regular basis. One of the things that motivated us to do that this time is that last quarter on the call, we suggested that the – what the second half outlook might be like, and I indicated that we would probably see sales in the fourth quarter would be below the third quarter. And that was, because we thought we'd see typical seasonality and then things changed through the quarter. Given that, plus the profit that we had as well in Q3, we thought that that might be an indication to the investment community of what the fourth quarter might look like. We thought that – those comments along with third quarter performance might cause people to be way off if you will in the fourth quarter. And given the fact that, we're approaching the end of the year, we made the decision to provide that guidance to try to help people understand what's going on, on our business. And I guess, I'll go back to what I said at the outset of my comments that really were quite a few moving parts this quarter and even on a year-to-date basis where the year-over-year comps depending on whether you're looking at orders and sales and by what segment that were pretty significant. So, we try to do our best to be transparent, and give you as much information as we can. But I would tell you that, we're not changing the company philosophy, just now to provide guidance for the year and every quarter when we go into next year. We'll make that call every quarter, but I would tell you right now don't anticipate a change yet.

Okay. Terrific. And if I could just sneak one last one in. You all have done a good job continuing to strengthen the balance sheet, with net leverage now around 1.2 times. You noted that, your intention to continue to improve that in the fourth quarter as well, I know it's early, but any thoughts on I guess potential use of capital deployment as we look into 2020 from some of the cash flow you might be able to generate next year?

Yeah. This is Jim. As you can imagine, we want to strengthen our balance sheet and continue to do that to be able to look at other opportunities, such as internal investments, like we talked about with capital spend and looking at those types of initiatives. We're also always looking for good opportunities in the – in our adjacent markets to do an acquisition. Nothing really on the table at this point, but we always want to have that in hand the funds to be able to do something like that. Does that clarify your question?

Sure. Yes. Yeah. That's very helpful. Thank you guys very much.

Yeah. Thank you, Brett.

Our next question is from David Wright, Henry Investment Trust. Please proceed with your question.

Hi, good afternoon. I wanted to ask a question about Precast. In the last couple of quarters, you've highlighted concrete building sales as being up and I wondered why do you think that is? Why are you selling more of those?

Well if you -- are you specifically asking about Precast buildings or the entire Precast division?

No, no. Just about the buildings. It's just such kind of a plan broader or trying to -- could we infer anything about the general economy, municipal spending etcetera because you're selling more of these things?

Okay. All right. Yes because I know in prior comments, we're usually talking more about the division than actual buildings because from time to time, the number of buildings that we ship can certainly change. Well let me start with the fact that, we have been doing I think a good job of penetrating the Northeast part of the country. We acquired a business down in Waverly, West Virginia back in the 2014 timeframe. And so, it's been with us for a while, but we have been integrating new and different buildings into that business since that period of time and that -- we were really -- we had no location in the Northeast prior to that. So that location and the fact that we have brought the CXT building designs into that location has continued to allow us to grow substantially in that location and that's going very well for us. I cannot point to specifically certain municipality spending or budgets that are related to parks and recreation and those sorts of things that are really driving buildings. We continue to expand the product line, we continue to look for applications and lots of different utility applications, but some sort of market force that's driving that, I wouldn't tell you is a substantial of change. But I would also add that we're picking up business on other Precast products too. Our Texas facility is doing a terrific job. And from time to time, we might comment on -- it might sound like buildings, but we're commenting on the whole business but the growth in that division has been terrific and fairly steady for us. But part of that is because we're adding other non-building product lines as well.

Okay. That was my question. I appreciate the answer. Thank you.

Yes. Thank you.

We have reached the end of the question-and-answer session and I will now turn the call back over to Bob Bauer for closing remarks.

All right. Well, thank you everyone. I appreciate the interest and the question and we'll look forward to catching up with you as we wrap up the year next time we talk. So thank you very much. Good night.

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